EXHIBIT  10.21


SECURITIES PURCHASE AGREEMENT


SECURITIES PURCHASE AGREEMENT
(the “Agreement”), dated as of December 28,
2006, by and among PRB Oil & Gas, Inc., a Colorado corporation, with
headquarters located at 1875 Lawrence Street, Suite 450, Denver, Colorado 80202
(the “Company”), PRB Energy Inc., a Nevada
corporation, with headquarters located at 1875 Lawrence Street, Suite 450,
Denver, Colorado 80202 (“Parent”) and
the investors listed on the Schedule of Buyers attached hereto
(individually, a “Buyer” and
collectively, the “Buyers”).


WHEREAS:


A.            The
Company is a wholly-owned subsidiary of Parent.


B.            Each
of the Company, Parent and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Regulation D (“Regulation D”)
promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.


C.            The
Company has authorized a new series of senior secured debentures of the Company
(the “Debentures”). In connection with the
sale of the Debentures and as an inducement to the Buyers to purchase the
Securities (as defined below), the Company wishes to instruct Parent to issue
to the Buyers, upon the terms and conditions stated in this Agreement, the
amount of shares of Parent’s common stock, $0.001 par value per share (the “Common Stock”) set forth opposite such Buyer’s name in
column (4) on the Schedule of Buyers (which aggregate amount for all Buyers
shall be 1,250,000 shares) (the “Closing Shares”).


D.            Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, that aggregate principal amount of
Debentures, in substantially the form attached hereto as Exhibit A, set
forth opposite such Buyer’s name in column (3) on the Schedule of Buyers
(which aggregate amount for all Buyers shall be $15,000,000).


E.             Contemporaneously
with the execution and delivery of this Agreement, Parent and the Buyers are
executing and delivering a Registration Rights Agreement, substantially in the
form attached hereto as Exhibit B (the “Registration
Rights Agreement”), pursuant to which Parent has agreed to provide
certain registration rights with respect to the Closing Shares under the 1933
Act and the rules and regulations promulgated thereunder, and applicable state
securities laws.


F.             The
Debentures and the Closing Shares are collectively referred to herein as the “Securities.”


G.            Contemporaneously
with the execution and delivery of this Agreement, Parent, and PRB Gathering
Inc. are executing and delivering a Guaranty, substantially in the form
attached hereto as Exhibit G (the “Guaranty”),
pursuant to which Parent and PRB Gathering have agreed to guaranty the obligations
of the Company under the Debentures.










 



NOW, THEREFORE, the Company,
Parent and each Buyer hereby agree as follows:


1.             PURCHASE AND SALE OF DEBENTURES AND CLOSING SHARES.


(a)           Amount.  Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 6 and 7 below, in
consideration for the payment of the Purchase Price (i) the Company
shall issue and sell to each Buyer, and each Buyer severally, but not jointly,
agrees to purchase from the Company on the Closing Date (as defined below), a
principal amount of Debentures as is set forth opposite such Buyer’s name in
column (3) on the Schedule of Buyers and (ii) the Company shall deliver
or cause to be delivered to each Buyer on the Closing Date (as defined below)
the number of Closing Shares as is set forth opposite such Buyer’s name in
column (4) on the Schedule of Buyers.


(b)           Closing.  The closing (the “Closing”)
of the purchase of the Debentures and the Closing Shares by the Buyers shall
occur at the offices of McDermott Will & Emery LLP, 340 Madison Avenue, New
York, New York 10173.  The date and time
of the Closing (the “Closing Date”)
shall be 10:00 a.m., New York City Time, on the date hereof, subject to
notification of satisfaction (or waiver) of the conditions to the Closing set
forth in Sections 6 and 7 below (or such later date as is mutually agreed to by
the Company, Parent and each Buyer).


(c)           Purchase Price.  The aggregate purchase price (the “Purchase Price”) of the Debentures and Closing Shares to be
purchased by the Buyers at the Closing shall be equal to $15,000,000.


(d)           Form of Payment.  On the Closing Date, (i) each Buyer shall pay
its aggregate Purchase Price to the Company for the Debentures and Closing
Shares to be issued and sold to such Buyer at the Closing, by wire transfer of
immediately available funds in accordance with Company’s written wire
instructions, (ii) the Company shall deliver to each Buyer (A) the Debentures
(in the denominations as such Buyer shall have requested prior to the Closing)
which such Buyer is then purchasing, duly executed on behalf of the Company and
registered in the name of such Buyer or its designee and (B) the Closing Shares
(in the denominations as such Buyer shall have requested prior to the Closing)
which such Buyer is then purchasing, duly executed on behalf of the Parent and
registered in the name of such Buyer or its designee.


2.             BUYER’S REPRESENTATIONS AND WARRANTIES.


Each Buyer represents and
warrants with respect to only itself that:


(a)           No Public Sale or Distribution.  Such Buyer is acquiring the Debentures and
the Closing Shares for its own account and not with a view towards, or for
resale in connection with, the public sale or distribution thereof in a manner
that would violate the 1933 Act, except pursuant to sales registered or
exempted under the 1933 Act; provided, however,
that by making the representations herein, such Buyer does not agree to hold
any of the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or pursuant
to a registration statement or an exemption under the 1933 Act.  Such Buyer is acquiring the Securities
hereunder in the ordinary course of its business.  Such



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Buyer does not presently
have any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.


(b)           Investor Status.  Such Buyer is an “accredited investor” as
that term is defined in Rule 501(a) of Regulation D.


(c)           Reliance on Exemptions.  Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Company and Parent are relying in part upon the truth and accuracy
of, and such Buyer’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein
in order to determine the availability of such exemptions and the eligibility
of such Buyer to acquire the Securities.


(d)           Information.  Such Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and Parent and materials relating to the offer and
sale of the Securities which have been requested by such Buyer.  Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company and Parent.  Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors, if any, or
its representatives shall modify, amend or affect such Buyer’s right to rely on
the Company’s and Parent’s representations and warranties contained
herein.  Such Buyer understands that its
investment in the Securities involves a high degree of risk.  Such Buyer has sought such accounting, legal
and tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.


(e)           No Governmental Review.  Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.


(f)            Transfer or Resale.  Such Buyer understands that except as
provided in the Registration Rights Agreement: the Securities have not been and
are not being registered under the 1933 Act or any state securities laws, and
may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company and Parent an opinion of counsel, in a generally acceptable form, to
the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company and Parent with reasonable assurance
that such Securities can be sold, assigned or transferred pursuant to Rule 144
or Rule 144A promulgated under the 1933 Act (or, in each case, a successor rule
thereto); provided, however,
that the Securities may be pledged in connection with a bona fide margin
account or other loan or financing arrangement secured by the Securities and
such pledge of Securities shall not be deemed to be a transfer, sale or
assignment of the Securities hereunder, and no Buyer effecting a pledge of
Securities shall be required to provide the Company or Parent with any notice thereof
or otherwise make any delivery to the Company or Parent pursuant to



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this Agreement or any
other Transaction Document (as defined in Section 3(b)), including, without
limitation, this Section 2(f).


(g)           Legends.  Such Buyer understands that the certificates
or other instruments representing the Debentures and, until removed in
accordance with Section 3(l) of the Registration Rights Agreement, the stock
certificates representing the Closing Shares, except as set forth below, shall
bear any legend as required by the “blue sky” laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):


THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL, IN
A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144
OR RULE 144A UNDER SAID ACT. 
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.


The legend set forth above shall be removed and the
Company or Parent, as applicable, shall issue a certificate without such legend
to the holder of the Securities upon which it is stamped, if (i) such
Securities are registered for resale under the 1933 Act, and the Buyer has
complied with Section 3(l) of the Registration Rights Agreement, (ii) in
connection with a sale, assignment or other transfer, such holder provides the
Company or Parent, as applicable, with an opinion of counsel, in a generally
acceptable form, to the effect that such sale, assignment or transfer of the
Securities may be made without registration under the applicable requirements
of the 1933 Act, or (iii) such Securities are sold, assigned or transferred
pursuant to Rule 144, or such holder provides the Company or Parent, as applicable,
with reasonable assurance that the Securities can be sold, assigned or
transferred pursuant to Rule 144(k).


(h)           Residency.  Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.


3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
PARENT.


As an inducement to the
Buyers to enter into this Agreement and to consummate the transactions
contemplated hereby, the Company and Parent jointly and severally represent and
warrant to each of the Buyers that each and all of the following
representations and warranties (as modified by the disclosure schedules
delivered to the Buyers contemporaneously



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with the execution and delivery of this Agreement (the “Schedules”)) are true and correct as of the date of this
Agreement.  The Schedules shall be
arranged by the Company and Parent in paragraphs corresponding to the sections
and subsections contained in this Section 3.


 


(a)           Organization and Qualification.  Parent and its “Subsidiaries”
(which for purposes of this Agreement means any entity in which Parent,
directly or indirectly, owns capital stock or holds an equity or similar
interest, including the Company) are entities duly organized and validly
existing in good standing under the laws of the jurisdiction in which they are
formed, and have the requisite power and authorization to own their properties
and to carry on their business as now being conducted.  Each of Parent and its Subsidiaries is duly
qualified as a foreign entity to do business and is in good standing in every
jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect.  As used in this
Agreement, “Material Adverse Effect” means any
material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of
Parent and its Subsidiaries, taken as whole, or on the transactions
contemplated hereby and by the other Transaction Documents, or on the authority
or ability of Parent and/or the Company to perform its obligations under the
Transaction Documents.  Parent has no
Subsidiaries, except as set forth on Schedule 3(a).


(b)           Authorization; Enforcement;
Validity.  Each of Parent and the
Company has the requisite power and authority to enter into and perform its
obligations under this Agreement, the Debentures, the Registration Rights
Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section
5(b)), the Pledge and Security Agreement among the Company, Parent and the
Buyers dated the date hereof (the “Security Agreement”),
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the “Transaction Documents”) and to issue
the Securities in accordance with the terms hereof and thereof.  The execution and delivery of the Transaction
Documents by the Company and Parent have been duly authorized by each of the
Company’s and Parent’s Board of Directors and the consummation by the Company
and Parent of the transactions contemplated hereby and thereby, including,
without limitation, the issuance of the Debentures by the Company and the
issuance of the Closing Shares by Parent, have been duly authorized by the
Company’s Board of Directors and Parent’s Board of Directors and (other than
the filing with the SEC of a Form D and one or more Registration Statements in accordance
with the requirements of the Registration Rights Agreement and other than
filings with  “Blue Sky” authorities as
required therein) no further filing, consent, or authorization is required by
the Company, its Board of Directors or its stockholders or Parent, its Board of
Directors or its stockholders.  This
Agreement and the other Transaction Documents of even date herewith have been
duly executed and delivered by each of the Company and Parent, and constitute
the legal, valid and binding obligations of each of the Company and Parent,
enforceable against the Company and Parent in accordance with their respective
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.


(c)           Issuance of Securities.  The issuance of the Debentures and the
Closing Shares are duly authorized and are free from all taxes, liens and
charges with respect to the issue



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thereof.  Upon issuance at
Closing, the Closing Shares will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock.  Assuming the accuracy of the representations
made by each Buyer in Section 2, the offer and issuance by the Company and
Parent of the Securities is exempt from registration under the 1933 Act.


 


(d)           No Conflicts.  The execution, delivery and performance of
the Transaction Documents by the Company and Parent and the consummation by the
Company and Parent of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the Debentures and the Closing
Shares) will not (i) result in a violation of Parent’s Articles of
Incorporation, Parent’s Bylaws, the Company’s Articles of Incorporation or the
Company’s Bylaws (each as defined in Section 3(r)) or the governing documents
of any of Parent’s Subsidiaries or the terms of any capital stock of Parent or
any of its Subsidiaries; (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both, would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which Parent or any
of its Subsidiaries is a party; or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and the rules and regulations of the American Stock Exchange (the “Principal Market”)) applicable to Parent or any of its
Subsidiaries or by which any property or asset of Parent or any of its
Subsidiaries is bound or affected.


(e)           Consents.  Neither the Company nor Parent is required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof (other
than (v) the filing with the American Stock Exchange, (w) filing with the SEC
of a Form 8-K, Form D and one or more Registration Statements in accordance
with the requirements of the Registration Rights Agreement, (x) filings with “Blue
Sky” authorities, and (y) filings required by the Security Agreement).  All consents, authorizations, orders, filings
and registrations which the Company and Parent are required to obtain pursuant
to the preceding sentence have been obtained or effected on or prior to the
Closing Date, and Parent and its Subsidiaries are unaware of any facts or
circumstances which might prevent the Company or Parent from obtaining or
effecting any of the registration, application or filings pursuant to the
preceding sentence.  Parent is not in
violation of the listing requirements of the Principal Market and has no
knowledge of any facts which would reasonably lead to delisting or suspension
of the Common Stock in the foreseeable future.


(f)            Acknowledgment Regarding Buyer’s
Purchase of Securities.  Each of the
Company and Parent acknowledges and agrees that each Buyer is acting solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby and that no
Buyer is (i) an officer or director of the Company or Parent, (ii) to the
knowledge of the Company or Parent, an “affiliate” of the Company or Parent (as
defined in Rule 144) or (iii) to the knowledge of the Company or Parent, a “beneficial
owner” of more than 10% of the shares of Common Stock (as defined for purposes
of Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “1934 Act”)). 
Each of the Company



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and Parent further
acknowledges that no Buyer is acting as a financial advisor or fiduciary of the
Company or Parent (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer’s purchase of the Securities.  Each of the Company and Parent further
represents to each Buyer that the Company’s and Parent’s decisions to enter
into the Transaction Documents have been based solely on the independent
evaluation by the Company and Parent and their respective representatives.


(g)           No General Solicitation; Placement
Agent’s Fees.  None of the Company,
Parent, nor any of their affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of
the Securities.  Parent shall be
responsible for the payment of any placement agent’s fees, financial advisory
fees, or brokers’ commissions (other than for Persons engaged by the Buyers or
their investment advisors) relating to or arising out of the  transactions contemplated hereby.  Parent shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without
limitation, attorney’s fees and out-of-pocket expenses) arising in connection
with any such claim.  The Company and
Parent acknowledge that they have engaged C. K. Cooper & Company as
placement agent (the “Agent”) in
connection with the sale of the Securities. 
Other than the Agent, neither the Company nor Parent has engaged any
placement agent or other agent in connection with the sale of the Securities.


(h)           No Integrated Offering.  None of Parent, its Subsidiaries, any of
their 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 1933 Act or cause this offering of the Securities to
be integrated with prior offerings by Parent or the Company for purposes of the
1933 Act or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of Parent or its Subsidiaries
are listed or designated.  None of
Parent, its Subsidiaries, their affiliates or any Person acting on their behalf
will take any action or steps referred to in the preceding sentence that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.


(i)            U.S. Real Property Holding
Corporation.  Neither the Company nor
Parent is, nor has it ever been, a U.S. real property holding corporation
within the meaning of Section 897 of the Internal Revenue Code of 1986, as
amended, and the Company and Parent will so certify upon the request of any
Buyer.


(j)            Application of Takeover
Protections; Rights Agreement.  Each
of the Company and Parent and its respective board of directors has taken all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Company’s Articles of Incorporation or Parent’s Articles of Incorporation or
the laws of the jurisdiction of its formation which is or could become applicable
to any Buyer as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company’s issuance of the Debentures, Parent’s
issuance of the Closing Shares and any Buyer’s



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ownership of the
Securities.  Parent has not adopted a
stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of Parent.


(k)           SEC Documents; Financial
Statements.  Parent has filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the 1934 Act (all
of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements, notes and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the “SEC Documents”).  As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.  As of their respective dates, the financial
statements of Parent included in the SEC Documents, as amended, complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared
in accordance with generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may exclude footnotes or may
be condensed or summary statements) and fairly present in all material respects
the financial position of Parent as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).


(l)            Absence of Certain Changes.  Except as disclosed in Parent’s Quarterly
Report on Form 10-Q for the period ended September 30, 2006, since September
30, 2006, there has been no material adverse change and no material adverse
development in the business, assets, properties, operations, condition
(financial or otherwise), results of operations or prospects of Parent or its
Subsidiaries.  Except as disclosed in
writing to Buyers, since September 30, 2006, Parent has not (i) declared or
paid any dividends, (ii) sold any assets or (iii) had capital expenditures,
individually or in the aggregate, in excess of $100,000, other than in
connection with its ongoing oil and gas projects in the ordinary course of
business.  None of Parent nor any of its
Subsidiaries has taken any steps to seek protection pursuant to any bankruptcy
law nor does Parent nor any of its Subsidiaries 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.  Neither the Company nor Parent is
as of the date hereof, and after giving effect to the transactions contemplated
hereby to occur at the Closing, will be Insolvent (as defined below).  For purposes of this Section 3(l), “Insolvent” means, with respect to the Company or Parent (i)
the present fair saleable value of the Company’s or Parent’s assets, as
applicable, is less than the amount required to pay the Company’s or Parent’s
total Indebtedness (as defined in Section 3(s)), as applicable, (ii) the
Company or Parent, as applicable, is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured, (iii) the Company or Parent, as applicable, intends to
incur or believes that it will incur debts that would be beyond its ability to
pay as such debts mature or (iv) the Company or Parent, as applicable,



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has unreasonably small
capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted.


(m)          No Undisclosed Events, Liabilities,
Developments or Circumstances. 
Except for the transaction contemplated by the Transaction Documents, no
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to Parent, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by Parent under applicable securities
laws on a registration statement on Form S-1 filed with the SEC relating to an
issuance and sale by Parent of its Common Stock and which has not been publicly
announced.


(n)           Conduct of Business; Regulatory
Permits.  Neither Parent nor any of
its Subsidiaries is in violation of any term of or in default under its
Articles of Incorporation or Bylaws or other governing documents.  Neither Parent nor any of its Subsidiaries is
in violation of any judgment, decree or order or any statute, ordinance, rule
or regulation applicable to Parent or its Subsidiaries.  Without limiting the generality of the
foregoing, Parent is not in violation of any of the rules, regulations or
requirements of the Principal Market and has no knowledge of any facts or
circumstances that would reasonably lead to delisting or suspension of the
Common Stock by the Principal Market in the foreseeable future.  During the one (1) year period prior to the
date hereof, (i) the Common Stock has been listed on the Principal Market, (ii)
trading in the Common Stock has not been suspended by the SEC or the Principal
Market and (iii) Parent has received no communication, written or oral, from
the SEC or the Principal Market regarding the suspension or delisting of the
Common Stock from the Principal Market. 
Parent and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate regulatory authorities necessary to conduct
their respective businesses, and neither Parent nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification
of any such certificate, authorization or permit.


(o)           Foreign Corrupt Practices.  Neither Parent nor any of its Subsidiaries
nor any director, officer, agent, employee or other Person acting on behalf of
Parent or any of its Subsidiaries has, in the course of its actions for, or on
behalf of, Parent or any of its Subsidiaries (i) used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.


(p)           Sarbanes-Oxley Act.  Parent is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations
promulgated by the SEC thereunder that are effective as of the date hereof,
except where the failure to be in compliance would not have a Material Adverse
Effect.


(q)           Transactions With Affiliates.  Except as set forth in the SEC Documents
filed at least ten days prior to the date hereof, none of the officers,
directors or employees of Parent or any of its Subsidiaries is presently a
party to any transaction with Parent or any of its 



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Subsidiaries (other than
for ordinary course services as employees, officers or directors), including
any contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any such officer, director or
employee or, to the knowledge of Parent or any of its Subsidiaries, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.


(r)            Equity Capitalization.  As of the date hereof, the authorized capital
stock of Parent consists of (i) 5,639,000 shares of undesignated capital stock,
$0.001 par value per share, none of which is issued and outstanding; (ii)
4,361,000 shares of Series C Convertible Preferred Stock, $0.001 par value per
share, none of which is issued and outstanding; and (iii) 40,000,000 shares of
Common Stock, of which, as of the date hereof, 7,351,994 shares are issued and
outstanding, (other than the Closing Shares), 919,900 shares are treasury
stock, 617,250 shares are reserved for issuance pursuant to Parent’s stock
option and purchase plans listed in Schedule 3(r), 300,000 shares are
reserved for issuance upon the exercise of warrants subject to the warrant
agreements listed in Schedule 3(r) and 3,137,857 shares are reserved for
issuance pursuant to senior subordinated convertible notes of Parent
convertible into shares of Common Stock of Parent (subject to increase to cover
the anti-dilution provisions associated therewith) described in Schedule
3(r). As of the date hereof, the authorized capital stock of the Company
consists of 1,000 shares of common stock, no par value per share, of which, as
of the date hereof, 100 shares are issued and outstanding.  All of such outstanding shares of Parent and
the Company have been validly issued and are fully paid and nonassessable.  Except as disclosed in the SEC Documents or Schedule
3(r): (i) none of Parent’s or the Company’s share capital is subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by Parent or the Company; (ii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any share capital of Parent or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by
which Parent or any of its Subsidiaries is or may become bound to issue
additional share capital of Parent or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any share capital of Parent or any of its
Subsidiaries; (iii) there are no outstanding debt securities, notes, credit
agreements, credit facilities or other agreements, documents or instruments
evidencing Indebtedness of Parent or any of its Subsidiaries or by which Parent
or any of its Subsidiaries is or may become bound; (iv) there are no financing
statements securing obligations in any material amounts, either singly or in
the aggregate, filed in connection with Parent or any of its Subsidiaries; (v)
there are no agreements or arrangements under which Parent or any of its
Subsidiaries is obligated to register the sale of any of its securities under
the 1933 Act (except the Registration Rights Agreement); (vi) there are no
outstanding securities or instruments of Parent or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which Parent or any of its
Subsidiaries is or may become bound to redeem a security of Parent or any of
its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) neither Parent nor any of its Subsidiaries has any stock
appreciation rights or “phantom stock” plans or agreements or any similar plan
or agreement; and (ix) Parent and its Subsidiaries have no liabilities or
obligations required to be disclosed in the SEC Documents but not so disclosed



 10
 






 



in the SEC Documents,
other than those incurred in the ordinary course of Parent’s or its
Subsidiaries’ respective businesses.  Schedule
3(r) contains true, correct and complete copies of (i) the Company’s
Articles of Incorporation, as amended and as in effect on the date hereof (“the  Company’s Articles of
Incorporation”), (ii) the Company’s Bylaws, as amended and as in
effect on the date hereof (“the  Company’s  Bylaws”), (iii)
Parent’s Articles of Incorporation, as amended and as in effect on the date
hereof (“Parent’s Articles of Incorporation”),
and (iv) Parent’s Bylaws, as amended and as in effect on the date hereof (“Parent’s  Bylaws”).


(s)           Indebtedness and Other Contracts.  Except as disclosed in the SEC Documents or Schedule
3(s), neither Parent nor any of its Subsidiaries (i) has any outstanding
Indebtedness, (ii) is a party to any contract, agreement or instrument, the
violation of which, or default under which, by the other party(ies) to such
contract, agreement or instrument would result in a Material Adverse Effect,
(iii) is in violation of any term of or in default under any contract,
agreement or instrument relating to any Indebtedness, or (iv) is a party to any
contract, agreement or instrument relating to any Indebtedness, the performance
of which, in the judgment of Parent’s officers, has or is expected to have a
Material Adverse Effect, except as otherwise disclosed in Schedule 3(s).  For purposes of this Agreement:  (x) “Indebtedness”
of any Person means, without duplication (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services (including, without limitation, “capital
leases” in accordance with generally accepted accounting principles) (other
than trade payables entered into in the ordinary course of business), (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with
respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a
capital lease, (G) all indebtedness referred to in clauses (A) through (F)
above secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in any property or
assets (including accounts and contract rights) owned by any Person, even
though the Person which owns such assets or property has not assumed or become
liable for the payment of such indebtedness, and (H) all Contingent Obligations
in respect of indebtedness or obligations of others of the kinds referred to in
clauses (A) through (G) above; (y) “Contingent Obligation”
means, as to any Person, any direct or indirect liability, contingent or
otherwise, of that Person with respect to any indebtedness, lease, dividend or
other obligation of another Person if the primary purpose or intent of the
Person incurring such liability, or the primary effect thereof, is to provide
assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such liability will be protected (in whole or in part)
against loss with respect thereto; and (z) “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.



 11
 






 



(t)            Absence of Litigation.  Except as disclosed in the SEC Documents or
in writing to the Buyers, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency
(including the SEC), self-regulatory organization or body pending or, to the
knowledge of Parent or the Company, threatened against or affecting Parent, the
Company, the Common Stock or any of Parent’s Subsidiaries or any of Parent’s or
its Subsidiaries’ officers or directors.


(u)           Insurance.  Parent and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of Parent believes to be prudent
and customary in the businesses in which the Parent and its Subsidiaries are
engaged.  Neither Parent nor any such
Subsidiary has been refused any insurance coverage sought or applied for and
neither Parent nor any such Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a Material Adverse
Effect.


(v)           Employee Relations.  Neither Parent nor any of its Subsidiaries is
a party to any collective bargaining agreement or employs any member of a
union.  Parent and its Subsidiaries
believe that their relations with their employees are good.  No executive officer of Parent or any of its
Subsidiaries has notified Parent or any such Subsidiary that such officer
intends to leave Parent or any such Subsidiary or otherwise terminate such
officer’s employment with Parent or any such Subsidiary.  No executive officer of Parent or any of its
Subsidiaries, to the knowledge of Parent or any such Subsidiary, is in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant.  Parent and its Subsidiaries are in compliance
with all federal, state, local and foreign laws and regulations respecting
labor, employment and employment practices and benefits, terms and conditions
of employment and wages and hours, except where failure to be in compliance
would not, either individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect.


(w)          Title.  Parent and its Subsidiaries have good and
marketable title to all real property and good and marketable title to all
personal property owned by them which is material to the business of Parent and
its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except Permitted Liens (as defined in the Debentures) and such as do
not materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by Parent and any of its
Subsidiaries.  Any real property and
facilities held under lease by Parent and any of its Subsidiaries are held by
them under valid, subsisting and enforceable leases with such exceptions as are
not material and do not interfere with the use made and proposed to be made of
such property and facilities by Parent and its Subsidiaries.


(x)            Intellectual Property Rights.  Parent and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
other intellectual property rights (“Intellectual Property
Rights”) necessary to conduct their respective businesses as now
conducted.  None of



 12
 






 



Parent’s or any of its
Subsidiaries’ Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate, within three years from the date of this
Agreement.  Neither Parent nor the
Company has any knowledge of any infringement by Parent or its Subsidiaries of
Intellectual Property Rights of others. 
There is no claim, action or proceeding being made or brought, or to the
knowledge of Parent or the Company, being threatened, against Parent or its
Subsidiaries regarding its Intellectual Property Rights.  Each of Parent and the Company is unaware of
any facts or circumstances which might give rise to any of the foregoing
infringements or claims, actions or proceedings.  Parent and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.


(y)           Environmental Laws.  Parent and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. 
The term “Environmental Laws” means all
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous
Materials”) into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.


(z)            Subsidiary Rights.  Parent or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by Parent or such Subsidiary.


(aa)         Investment Company.  Neither the Company nor Parent is, or is an
affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.


(bb)         Tax Status.  Parent and each of its Subsidiaries (i) has
made or filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set
aside on its books provision reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply.  There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of Parent and the Company know of no basis for
any such claim.



 13
 






 



(cc)         Internal Accounting and Disclosure
Controls.  Parent maintains a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference.  Parent
maintains disclosure controls and procedures (as such term is defined in Rule
13a-15 under the 1934 Act) that are effective in ensuring that information
required to be disclosed by Parent in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information
required to be disclosed by Parent in the reports that it files or submits
under the 1934 Act is accumulated and communicated to Parent’s management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure.  Except as
otherwise disclosed in the SEC Documents, during the twelve months prior to the
date hereof, neither Parent nor any of its Subsidiaries have received any
notice or correspondence from any accountant relating to any potential material
weakness in any part of the system of internal accounting controls of Parent or
any of its Subsidiaries.


(dd)         Off Balance Sheet Arrangements.  There is no transaction, arrangement, or
other relationship between Parent and an unconsolidated or other off balance
sheet entity that is required to be disclosed by Parent in its 1934 Act filings
and is not so disclosed or that otherwise would be reasonably likely to have a
Material Adverse Effect.


(ee)         Ranking of Debentures.  Except as permitted by the Debenture and
except with respect to the Parent’s existing convertible debt instruments, no
Indebtedness of the Company will rank senior to or pari passu
with the Debentures in right of payment, whether with respect to payment of
redemptions, interest, damages or upon liquidation or dissolution or otherwise.


(ff)           Form S-3 Eligibility.  Parent is eligible to register the Closing
Shares for resale by the Buyers using Form S-3 promulgated under the 1933 Act,
as such form is in effect on the date hereof.


(gg)         Transfer Taxes.  On the Closing Date, all stock transfer or
other taxes (other than income or similar taxes) which are required to be paid
in connection with the sale and transfer of the Securities to be sold to each
Buyer hereunder will be, or will have been, fully paid or provided for by the
Company or Parent, as applicable, and all laws imposing such taxes will be or
will have been complied with.


(hh)         Manipulation of Price.  Neither Parent nor the Company has, and to
its knowledge no one acting on its behalf has, (i) taken, directly or
indirectly, any action designed to cause or to result in the stabilization or
manipulation of the price of any security of Parent or the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or



 14
 






 



paid any compensation for
soliciting purchases of, any of the Securities (except for customary placement
fees payable in connection with this transaction), or (iii) paid or agreed to
pay to any Person any compensation for soliciting another to purchase any other
securities of Parent or the Company (except for customary placement fees
payable in connection with this transaction).


(ii)           Disclosure.  Each of Parent and the Company understands
and confirms that each of the Buyers will rely on the foregoing representations
in effecting transactions in securities of Parent and the Company.  All disclosure provided to the Buyers
regarding Parent, the Company, their respective businesses and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of Parent and the Company is true and correct and does not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.


4.             COVENANTS.


(a)           Commercially Reasonable Efforts.  Each party shall use commercially reasonable
efforts timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.


(b)           Form D and Blue Sky.  Each of the Company and Parent agrees to file
a Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing.  Each of the Company and Parent shall, on or
before the Closing Date, take such action as the Company and Parent shall
reasonably determine is necessary in order to obtain an exemption for or to
qualify the Securities for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or “Blue Sky” laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to the Buyers on or prior to the
Closing Date.  Each of the Company and Parent
shall make all filings and reports relating to the offer and sale of the
Securities required under applicable securities or “Blue Sky” laws of the
states of the United States following the Closing Date.


(c)           Reporting Status.  Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the Closing
Shares and none of the Debentures is outstanding (the “Reporting
Period”), Parent shall file all reports required to be filed with
the SEC pursuant to the 1934 Act, and Parent shall not terminate its status as
an issuer required to file reports under the 1934 Act even if the 1934 Act or
the rules and regulations thereunder would otherwise permit such termination.


(d)           Use of Proceeds.  The Company and Parent will use the proceeds
from the sale of the Securities (i) for the fees and expenses associated with
the sale of the Debentures and the Closing Shares; (ii) for the Amherst
Acquisition (as defined in the Debentures); and (iii) for general corporate
purposes.


(e)           Financial Information.  Parent agrees to send the following to each
Investor (as defined in the Registration Rights Agreement) during the Reporting
Period:  (i) unless filed with the SEC
through EDGAR and available to the public through the EDGAR



 15
 






 



system, within one
business day after the filing thereof with the SEC, a copy of all Annual
Reports on Form 10-K or 10-KSB, any interim reports or any consolidated balance
sheets, income statements, stockholders’ equity statements and/or cash flow
statements for any period other than annual, any Current Reports on Form 8-K
and any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act of Parent, (ii) on the same day as the release
thereof, copies of all press releases issued by Parent or any of its
Subsidiaries, and (iii) copies of any notices and other information made
available or given to the stockholders of Parent generally, contemporaneously
with the making available or giving thereof to the stockholders.


(f)            Listing.  To the extent the Company’s Registrable Securities
(as defined in the Registration Rights Agreement) are listed upon a national
securities exchange or automated quotation system that provides for the listing
of securities, Parent shall promptly secure the listing of all of the
Registrable Securities upon each national securities exchange and automated
quotation system, if any, upon which the Common Stock is then listed (subject
to official notice of issuance) and shall maintain such listing of all
Registrable Securities from time to time issuable under the terms of the
Transaction Documents.  Parent shall
maintain the Common Stock’s authorization for quotation on the Principal
Market.  Neither Parent nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal
Market.  Parent shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(f).


(g)           Fees.  Parent shall reimburse the Buyers or their
designee(s) for reasonable and documented costs and expenses incurred in
connection with the transactions contemplated by the Transaction Documents
(including reasonable legal fees and disbursements in connection therewith,
documentation and implementation of the transactions contemplated by the
Transaction Documents and due diligence in connection therewith) up to an
amount not to exceed $85,000, which amount, less $20,000 (which previously has
been paid by the Company to McDermott Will & Emery LLP), shall be withheld
by Buyers from the Purchase Price at the Closing and additional fees incurred
post-closing in connection with perfecting Buyers’ security interests up to an
amount not to exceed $15,000.  Parent
shall be responsible for the payment of, and shall pay, any placement agent’s
fees, financial advisory fees, or broker’s commissions (other than for Persons
engaged by any Buyers or their investment advisors) relating to or arising out
of the transactions contemplated hereby, and shall hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorney’s fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment.


(h)           Pledge of Securities.  Each of Parent and the Company acknowledges
and agrees that the Securities may be pledged by an Investor (as defined in the
Registration Rights Agreement) in connection with a bona fide margin agreement
or other loan or financing arrangement that is secured by the Securities.  The pledge of Securities shall not be deemed
to be a transfer, sale or assignment of the Securities hereunder, and no
Investor effecting a pledge of Securities shall be required to provide Parent
or the Company with any notice thereof or otherwise make any delivery to Parent
or the Company pursuant to this Agreement or any other Transaction Document,
including, without limitation, Section 2(f) hereof unless required in
connection with the registration of the Securities or by applicable law.  Each of Parent and the Company hereby agrees
to execute and deliver such documentation as a pledgee of the Securities



 16
 






 



may reasonably request in
connection with a pledge of the Securities to such pledgee by an Investor.


(i)            Disclosure of Transactions and
Other Material Information.  On or
before 8:30 a.m., New York City time, on the fourth business day following
the date of this Agreement, Parent shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act and attaching the material
Transaction Documents (including, without limitation, this Agreement (and all
schedules to this Agreement), the form of Debentures and the Registration
Rights Agreement) (including all attachments, the “8-K Filing”).  Any material non-public information provided
by Parent and/or the Company to any Buyer in connection with this transaction
shall be included by Parent within the aforementioned 8-K Filing.  From and after the filing of the 8-K
Filing with the SEC, Parent represents and acknowledges that no Buyer shall be
in possession of any material, nonpublic information received from Parent or
any of its Subsidiaries, or any of their respective officers, directors,
employees or agents, that is not disclosed in the 8-K Filing.  Parent shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors,
employees and agents not to, provide any Buyer with any material, nonpublic
information regarding Parent or any of its Subsidiaries from and after the
filing of the 8-K Filing with the SEC without the express written consent of
such Buyer.  In the event of a breach of
the foregoing covenant by Parent, any of its Subsidiaries, or any of its or
their respective officers, directors, employees and agents, in addition to any
other remedy provided herein or in the Transaction Documents, a Buyer may, but
shall not be obligated to, notify Parent of such breach and the material,
nonpublic information the receipt of which resulted in such breach.  Within two business days of receipt of such
notice, Parent shall either (a) deliver a notice to such Buyer certifying such
material, non-public information has already been publicly disclosed by Parent
or (b) make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information.  Subject to the foregoing, neither Parent, its
Subsidiaries nor any Buyer shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby; provided, however, that Parent shall be entitled, without
the prior approval of any Buyer, to make any press release or other public
disclosure with respect to such transactions (i) in substantial conformity with
the 8-K Filing and contemporaneously therewith and (ii) as is required by
applicable law and regulations (provided that in the case of clause (i) each
Buyer shall be consulted by Parent in connection with any such press release or
other public disclosure prior to its release). 
Without the prior written consent of any applicable Buyer, neither
Parent nor the Company shall disclose the name of any Buyer or its affiliates
in any filing, announcement, release or otherwise except in the 8-K Filing.


(j)            Additional Debentures.  So long as any Buyer beneficially owns any
Debentures, the Company will not issue any Debentures (other than to the Buyers
as contemplated hereby) and the Company shall not issue any other securities
that would cause a breach or default under the Debentures.


(k)           Corporate Existence.  So long as any Buyer beneficially owns any
Securities, Parent and the Company shall not be party to any Fundamental
Transaction (as defined in the Debentures) unless each of Parent and the
Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Debentures.



 17
 






 



(l)            Incurrence of Liens.  So long as any Debentures are outstanding,
Parent and the Company shall not, directly or indirectly, allow or suffer to
exist any Lien, other than Permitted Liens (as defined in the Debentures), upon
any property or assets (including accounts and contract rights) owned by Parent
and the Company.


(m)          Conduct of Business.  The business of Parent and its Subsidiaries
shall not be conducted in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect.


(n)           Additional Issuances of Securities.


(i)            For purposes of this Section 4(n),
the following definitions shall apply.


(1)           “Convertible Securities”
means any stock or securities (other than Options) convertible into or
exercisable or exchangeable for shares of Common Stock.


(2)           “Options” means
any rights, warrants or options to subscribe for or purchase shares of Common
Stock or Convertible Securities.


(3)           “Common Stock Equivalents”
means, collectively, Options and Convertible Securities.


(ii)           From the date hereof, Parent and its
Subsidiaries shall not issue any Common Stock or Common Stock Equivalents at a
purchase price or conversion or exercise price which is less than $3.85 per
share (adjusted for any stock splits, dividends or similar corporate action),
unless issued pursuant to a employee benefit plan which has been approved by
the Board of Directors of Parent.


(iii)          From the date hereof until 60 days
following the Effective Date (as defined in the Registration Rights Agreement),
Parent and its Subsidiaries shall not directly or indirectly file any
registration statement with the SEC other than the Registration Statement (as
defined in the Registration Rights Agreement) other than on Form S-8 or Form
S-4.


(iv)          From the date hereof until 90 days
following the Effective Date (as defined in the Registration Rights Agreement),
Parent shall not, directly or indirectly, offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition of) any of its or its Subsidiaries’
equity or equity equivalent securities, including without limitation any debt,
preferred stock or other instrument or security that is, at any time during its
life, and under any circumstance, convertible into or exchangeable or
exercisable for shares of Common Stock or Common Stock Equivalents or debt
securities (any such offer, sale, grant, disposition or announcement being
referred to as a “Subsequent Placement”)
unless Parent shall have first complied with this Section 4(n)(iv).


(1)           Parent shall deliver to each Buyer a
written notice (the “Offer Notice”)
of any proposed or intended issuance or sale or exchange (the “Offer”)



 18
 






 



of the securities being offered (the “Offered
Securities”) in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price and other
terms upon which they are to be issued, sold or exchanged, and the number or
amount of the Offered Securities to be issued, sold or exchanged, (y) identify
the Persons (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with such Buyers the Offered Securities, allocated among such Buyers
(a) based on such Buyer’s allocable pro rata 
portion of the aggregate principal amount of Debentures purchased
hereunder, and (b) with respect to each Buyer that elects to purchase its pro
rata portion of such Offered Securities, any additional portion of the Offered
Securities attributable to the pro rata portion of other Buyers as such Buyer
shall indicate it will purchase or acquire should the other Buyers subscribe
for less than their pro rata portions (the “Undersubscription
Amount”).  For purposes of
this Agreement, a Buyer’s allocable pro rata portion of any Offered Securities
shall be defined as the “Allocable Portion”.


(2)           To accept an Offer, in whole or in
part, such Buyer must deliver a written notice to Parent prior to the end of
the fifth business day after such Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion of such Buyer’s
Allocable Portion that such Buyer elects to purchase and, if such Buyer shall
elect to purchase all of its Allocable Portion, the Undersubscription Amount,
if any, that such Buyer elects to purchase (in either case, the “Notice of Acceptance”). 
If the Allocable Portions subscribed for by all Buyers are less than the
total of all of the Allocable Portions, then each Buyer who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be entitled to
purchase, in addition to the Allocable Portions subscribed for, the
Undersubscription Amount it has subscribed for; provided,
however, that if the Undersubscription Amounts subscribed for exceed
the difference between the total of all the Allocable Portions and the
Allocable Portions subscribed for (the “Available
Undersubscription Amount”), each Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Allocable Portion of such Buyer bears
to the total Allocable Portions of all Buyers that have subscribed for
Undersubscription Amounts, subject to rounding by Parent to the extent its
deems reasonably necessary.


(3)           Parent shall have fifteen business
days from the expiration of the Offer Period above to offer, issue, sell or
exchange all or any part of such Offered Securities as to which a Notice of
Acceptance has not been given by the Buyers (the “Refused
Securities”), but only to the offerees described in the Offer Notice
(if so described therein) and only upon terms and conditions (including,
without limitation, unit prices and interest rates) that are not more favorable
to the acquiring Person or Persons or less favorable to Parent than those set
forth in the Offer Notice.


(4)           In the event Parent shall propose to
sell less than all the Refused Securities (any such sale to be in the manner
and on the terms specified in Section 4(n)(iv)(3) above), then each Buyer may,
at its sole option and in its sole discretion, reduce the number or amount of
the Offered Securities specified in its Notice of Acceptance to an amount that
shall be not less than the number or amount of the Offered Securities that such
Buyer elected to purchase pursuant to Section 4(n)(iv)(2)



 19
 






 



above multiplied by a fraction, (i) the numerator of which shall be the
number or amount of Offered Securities Parent actually proposes to issue, sell
or exchange (including Offered Securities to be issued or sold to Buyers
pursuant to Section 4(n)(iv)(3) above prior to such reduction) and (ii) the
denominator of which shall be the original number or amount of the Offered
Securities.  In the event that any Buyer
so elects to reduce the number or amount of Offered Securities specified in its
Notice of Acceptance, Parent may not issue, sell or exchange more than the
reduced number or amount of the Offered Securities unless and until such
securities have again been offered to the Buyers in accordance with Section
4(n)(iv)(1) above.


(5)           Upon the closing of the issuance,
sale or exchange of all or less than all of the Refused Securities, the Buyers
shall acquire from Parent, and Parent shall issue to the Buyers, the number or
amount of Offered Securities specified in the Notices of Acceptance, as reduced
pursuant to Section 4(n)(iv)(4) above if the Buyers have so elected, upon the
terms and conditions specified in the Offer Notice.  The purchase by the Buyers of any Offered
Securities is subject in all cases to the preparation, execution and delivery
by Parent and the Buyers of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Buyers and
their respective counsel.


(6)           Any Offered Securities not acquired
by the Buyers or other Persons in accordance with Section 4(n)(iv)(3) above may
not be issued, sold or exchanged until they are again offered to the Buyers
under the procedures specified in this Agreement.


(v)           The restrictions contained in
subsections (iii) and (iv) of this Section 4(n) shall not apply in connection
with the issuance of:  (i) any Common
Stock Equivalents issued pursuant to a employee benefit plan which has been
approved by the Board of Directors of Parent or (ii) any security issued in a
bona fide underwritten public offering by Parent or any of its Subsidiaries.


(o)           Allocation of Purchase Price for Federal Income Tax
Purposes. 
In accordance with Treasury regulations section 1.1273-2(h), the Company
and Parent shall allocate the Purchase Price between the Debentures and the
Closing Shares based upon their relative fair market values.  In making such allocation, the parties hereto
shall agree, based upon the advice of their financial advisors, upon the
appropriate methodology to be used for determining the relative fair market
values of the Debentures and the Closing Shares.


5.             REGISTERS; TRANSFER AGENT INSTRUCTIONS.


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



 20
 






 



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


(b)           Transfer Agent Instructions.  Parent shall issue irrevocable instructions
to its transfer agent, and any subsequent transfer agent, to issue certificates
or credit shares to the applicable balance accounts at The Depository Trust
Company (“DTC”), registered in the name of each
Buyer or its respective nominee(s), for the Closing Shares in such amounts as
specified from time to time by each Buyer to Parent in the form of Exhibit C
attached hereto (the “Irrevocable Transfer Agent
Instructions”).  Parent
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions
to give effect to Sections 2(f) and 2(g) hereof, will be given by Parent to its
transfer agent with respect to the Closing Shares, and that the Closing Shares
shall otherwise be freely transferable on the books and records of Parent, as
applicable, and to the extent provided in this Agreement and the other
Transaction Documents.  If a Buyer
effects a sale, assignment or transfer of Closing Shares in accordance with
Sections 2(f) and 2(g), Parent shall permit the transfer and shall promptly
instruct its transfer agent to issue one or more certificates or credit shares
to the applicable balance accounts at DTC in such name and in such
denominations as specified by such Buyer to effect such sale, transfer or
assignment.  In the event that such sale,
assignment or transfer involves Closing Shares sold, assigned or transferred
pursuant to an effective registration statement or pursuant to Rule 144, the
transfer agent shall issue such Securities to the Buyer, assignee or
transferee, as the case may be, without any restrictive legend.  The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to a Buyer.  Accordingly, Parent acknowledges that the
remedy at law for a breach of its obligations under this Section 5(b) will be
inadequate and agrees, in the event of a breach or threatened breach by Parent
of the provisions of this Section 5(b), that a Buyer shall be entitled, in
addition to all other available remedies, to seek an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.


6.             CONDITIONS TO THE COMPANY’S AND PARENT’S OBLIGATIONS
TO SELL.


(a)           The obligations of the Company and
Parent hereunder to issue and sell the Debentures and Closing Shares to each
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Company’s and Parent’s sole benefit and may be waived by the Company
and Parent at any time in their sole discretion by providing each Buyer with
prior written notice thereof:


(i)            Such Buyer shall have executed each
of the Transaction Documents to which it is a party and delivered the same to
the Company and Parent.


(ii)           Such Buyer and each other Buyer shall
have delivered to the Company the Purchase Price (less the amounts withheld by
it pursuant to Section 4(g)) for the



 21
 






 



Debentures and Closing
Shares being purchased by such Buyer at the Closing by wire transfer of
immediately available funds pursuant to the wire instructions provided by the
Company.


(iii)          The representations and warranties of
such Buyer shall be true and correct in all material respects as of the date
when made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and such
Buyer shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Buyer at or prior to the Closing
Date.


7.             CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.


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


(i)            The Company and Parent shall have
executed and delivered to such Buyer (A) each of the Transaction Documents, (B)
the Debentures (in such denominations as such Buyer shall have requested prior
to the Closing) being purchased by such Buyer at the Closing pursuant to this
Agreement and (C) the Closing Shares (in such denominations as such Buyer shall
have requested prior to the Closing) being purchased by such Buyer at the
Closing pursuant to this Agreement.


(ii)           Such Buyer shall have received the
opinions of Faegre & Benson LLP, the Company’s and Parent’s outside
counsel, dated as of the Closing Date, in substantially the form of Exhibit
D attached hereto.


(iii)          Parent shall have delivered to such
Buyer a copy of the Irrevocable Transfer Agent Instructions, in the form of Exhibit
C attached hereto, which instructions shall have been delivered to and
acknowledged in writing by Parent’s transfer agent.


(iv)          Parent shall have delivered to such
Buyer a certificate evidencing the formation and good standing of Parent and
each of its Subsidiaries in such entity’s jurisdiction of formation issued by
the Secretary of State (or comparable office) of such jurisdiction, as of a
date reasonably proximate to the Closing Date.


(v)           The Company shall have delivered to
such Buyer a certificate evidencing the Company’s qualification as a foreign
corporation and good standing issued by the Secretary of State (or comparable
office) of each jurisdiction in which the Company conducts business, as of a
date reasonably proximate to Closing Date.


(vi)          Parent shall have delivered to such
Buyer a certificate evidencing Parent’s qualification as a foreign corporation
and good standing issued by the Secretary of State (or comparable office) of
each jurisdiction in which the Parent conducts business, as of a date
reasonably proximate to Closing Date.



 22














 


(vii)         The Company shall have delivered to
such Buyer a certified copy of the Company’s Articles of Incorporation as
certified by the Secretary of State of the State of Colorado reasonably
proximate to the Closing Date.


(viii)        Parent shall have delivered to such
Buyer a certified copy of Parent’s Articles of Incorporation as certified by
the Secretary of State of the State of Nevada reasonably proximate to the
Closing Date.


(ix)           The Company shall have delivered to
such Buyer a certificate, executed by the Secretary of the Company and dated as
of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as
adopted by the Company’s Board of Directors in a form reasonably acceptable to
such Buyer, (ii) the Company’s Articles of Incorporation and (iii) the Company’s
Bylaws, each as in effect at the Closing, in the form attached hereto as Exhibit
E.


(x)            Parent shall have delivered to such
Buyer a certificate, executed by the Secretary of Parent and dated as of the
Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted
by Parent’s Board of Directors in a form reasonably acceptable to such Buyer,
(ii) Parent’s Articles of Incorporation and (iii) Parent’s Bylaws, each as in
effect at the Closing, in the form attached hereto as Exhibit E.


(xi)           The representations and warranties of
the Company and Parent shall be true and correct as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and
correct as of such specific date), and the Company and Parent shall have
performed, satisfied and complied in all respects with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company and Parent at or prior to
the Closing Date.  Such Buyer shall have
received certificates, executed by the Chief Executive Officers of the Company
and Parent, dated as of the Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer in the form
attached hereto as Exhibit F.


(xii)          Parent shall have delivered to such
Buyer a letter from Parent’s transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five days of the Closing Date.


(xiii)         The Common Stock (I) shall be
designated for quotation or listed on the Principal Market and (II) shall not
have been suspended, as of the Closing Date, by the SEC or the Principal Market
from trading on the Principal Market nor shall suspension by the SEC or the
Principal Market have been threatened, as of the Closing Date, either (A) in
writing by the SEC or the Principal Market or (B) by falling below the minimum
listing maintenance requirements of the Principal Market.


(xiv)        The Company and Parent shall have
obtained all governmental, regulatory or third party consents and approvals, if
any, necessary for the sale of the Securities.


(xv)         Parent and its Subsidiaries shall have
executed and delivered to such Buyer the Security Agreement.



 23
 






 



(xvi)        Parent shall have obtained and delivered
to such Buyer searches of Uniform Commercial Code filings in the jurisdictions
of formation of Parent and its Subsidiaries, the jurisdiction of the chief
executive offices of Parent and its Subsidiaries and each jurisdiction where
any Collateral (as defined in the Security Agreement) is located or where a
filing would need to be made in order to perfect the Buyers’ security interest
in the Collateral, copies of the financing statements on file in such
jurisdictions and evidence that no Liens exist other than Permitted Liens.


(xvii)       Parent and its Subsidiaries shall have
executed and delivered to such Buyer UCC financing statements for each
appropriate jurisdiction as is necessary, in the Buyers’ sole discretion, to
perfect the Buyers’ security interest in the Collateral.


(xviii)      The Company and Parent shall have
delivered to such Buyer such other documents relating to the transactions
contemplated by this Agreement as such Buyer or its counsel may reasonably
request.


(xix)         Parent and PRB Gathering Inc. shall
have executed and delivered to such Buyer the Guaranty, substantially in the
form of Exhibit G attached hereto.


8.             TERMINATION.  In the event that the Closing shall not have
occurred with respect to a Buyer on or before five business days from the date
hereof due to the Company’s or Parent’s or such Buyer’s failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party’s
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any party to
any other party; provided, however,
if this Agreement is terminated pursuant to this Section 8, the Company and
Parent shall remain obligated to reimburse the non-breaching Buyers for the
expenses described in Section 4(g) above.


9.             MISCELLANEOUS.


(a)           Governing Law; Jurisdiction; Jury
Trial.  All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York.  Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof.  Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner



 24
 






 



permitted by law. 
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT
MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.


(b)           Counterparts.  This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to each other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original,
not a facsimile signature.


(c)           Headings.  The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.


(d)           Severability.  If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.


(e)           Entire Agreement; Amendments.  This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, Parent, their affiliates and Persons acting on their
behalf with respect to the matters discussed herein, and this Agreement, the
other Transaction Documents and the instruments referenced herein and therein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, none of the Company, Parent or any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be amended
other than by an instrument in writing signed by the Company, Parent and the
holders of at least a majority of the aggregate number of Registrable
Securities issued hereunder (the “Majority Holders”),
and any amendment to this Agreement made in conformity with the provisions of
this Section 9(e) shall be binding on all Buyers and holders of Securities, as
applicable.  No provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought.  No such amendment
shall be effective to the extent that it applies to less than all of the
holders of the applicable Securities then outstanding.  No consideration shall be offered or paid to
any Person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents unless the same consideration also is offered
to all of the parties to the Transaction Documents or holders of Debentures, as
the case may be.  Neither the Company nor
Parent has, directly or indirectly, made any agreements with any Buyers
relating to the terms or conditions of the transactions contemplated by the
Transaction Documents except as set forth in the Transaction Documents.  Without limiting the foregoing, each of the
Company and Parent confirms that, except as set forth in this Agreement, no
Buyer has made any commitment or promise or has any other obligation to provide
any financing to the Company or Parent or otherwise.



 25
 






 



(f)            Notices.  Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit
with an overnight courier service, in each case properly addressed to the party
to receive the same.  The addresses and
facsimile numbers for such communications shall be:


	
  

  	
  If to the Company,

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PRB Oil &
  Gas, Inc.

  	
   

  	
   

  
	
   

  	
  1875 Lawrence
  Street, Suite 450

  	
   

  	
   

  
	
   

  	
  Denver, Colorado
  80202

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
  303 308-1330 ext. 101

  	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  303 308-1590

  	
   

  	
   

  
	
   

  	
  Attention:

  	
  Mr. Robert W. Wright, CEO

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  With a copy (for
  informational purposes only) to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Douglas R.
  Wright, Esq.

  	
   

  	
   

  
	
   

  	
  Faegre &
  Benson LLP

  	
   

  	
   

  
	
   

  	
  3200 Wells Fargo
  Center

  	
   

  	
   

  
	
   

  	
  1700 Lincoln
  Street

  	
   

  	
   

  
	
   

  	
  Denver, CO 80203

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
  303 607-3500

  	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  303 607-3600

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to Parent,

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PRB Energy, Inc.

  	
   

  	
   

  
	
   

  	
  1875 Lawrence
  Street, Suite 450

  	
   

  	
   

  
	
   

  	
  Denver, Colorado
  80202

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
  303 308-1330 ext. 101

  	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  303 308-1590

  	
   

  	
   

  
	
   

  	
  Attention:

  	
  Mr. Robert W. Wright, CEO

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  With a copy (for
  informational purposes only) to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Douglas R.
  Wright, Esq.

  	
   

  	
   

  
	
   

  	
  Faegre &
  Benson LLP

  	
   

  	
   

  
	
   

  	
  3200 Wells Fargo
  Center

  	
   

  	
   

  
	
   

  	
  1700 Lincoln
  Street

  	
   

  	
   

  
	
   

  	
  Denver, CO 80203

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
  303 607-3500

  	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  303 607-3600

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to the
  Transfer Agent:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  




 26
 






 



 


	
  

  	
  Corporate Stock
  Transfer, Inc.

  	
   

  	
   

  
	
   

  	
  3200 Cherry
  Creek South Drive

  	
   

  	
   

  
	
   

  	
  Denver, CO 80209

  	
   

  	
   

  
	
   

  	
  Attention:  Karen Naughton, Client Services

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
  303-282-4800

  	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  303-777-2825

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to a Buyer, to its address and facsimile number
  set forth on the Schedule of Buyers, with copies to such Buyer’s
  representatives as set forth on the Schedule of Buyers,

  
	
   

  	
   

  
	
   

  	
  with a copy (for
  informational purposes only) to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  McDermott Will & Emery LLP

  	
   

  	
   

  
	
   

  	
  340 Madison Avenue

  	
   

  	
   

  
	
   

  	
  New York, New York  10173

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
  212 547-5400

  	
   

  	
   

  
	
   

  	
  Facsimile:

  	
  212 547-5444

  	
   

  	
   

  
	
   

  	
  Attention:

  	
  Stephen E. Older, Esq.

  	
   

  	
   

  
	
   

  	
   

  	
  Meir A. Lewittes, Esq.

  	
   

  	
   

  



 


or to such other address and/or facsimile number
and/or to the attention of such other Person as the recipient party has
specified by written notice given to each other party five days prior to the
effectiveness of such change.  Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender’s facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by
an overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from an overnight courier service in accordance
with clause (i), (ii) or (iii) above, respectively.


 


(g)           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Debentures.  Neither the Company nor Parent shall assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Majority Holders, including by way of a Fundamental Transaction
(unless the Company and Parent are in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Debentures).  A Buyer may assign some or all of its rights
hereunder in connection with transfer of any of its Securities without the
consent of the Company, in which event such assignee shall be deemed to be a
Buyer hereunder with respect to such assigned rights.


(h)           No Third Party Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other Person.


(i)            Survival.  Unless this Agreement is terminated under
Section 8, the representations and warranties of the Company, Parent and the
Buyers contained in Sections 2 and 3 and the agreements and covenants set forth
in Sections 4, 5 and 9 shall survive the Closing.



 27
 






 



Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.


(j)            Further Assurances.  Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.


(k)           Indemnification.  In consideration of each Buyer’s execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company’s and Parent’s other obligations
under the Transaction Documents, the Company and Parent shall jointly and
severally defend, protect, indemnify and hold harmless each Buyer and each
other holder of the Securities and all of their stockholders, partners,
members, officers, directors, employees and direct or indirect investors and
any of the foregoing Persons’ agents or other representatives (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Indemnitees”)
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys’ fees and disbursements (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to
(a) any misrepresentation or breach of any representation or warranty made by
the Company or Parent in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, (b) any breach of any
covenant, agreement or obligation of the Company or Parent contained in the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or claim
brought or made against such Indemnitee by a third party (including for these
purposes a derivative action brought on behalf of the Company or Parent) and
arising out of or resulting from (i) the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument
or document contemplated hereby or thereby, (ii) any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Securities, (iii) any disclosure made by such Buyer
pursuant to Section 4(i), or (iv) the status of such Buyer or holder of the
Securities as an investor in the Company or Parent pursuant to the transactions
contemplated by the Transaction Documents. 
To the extent that the foregoing undertakings by the Company and Parent
may be unenforceable for any reason, the Company and Parent shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.  The indemnification provided in this Section
9(k) shall not apply to any Indemnified Liabilities which are the subject of
the indemnification provided for in Section 6 of the Registration Rights
Agreement, as well as shall not apply to those matters covered by the express
exceptions to indemnification provided by Section 6 of the Registration Rights
Agreement.  Except as otherwise set forth
herein, the mechanics and procedures with respect to the rights and obligations
under this Section 9(k) shall be the same as those set forth in Section 6 of
the Registration Rights Agreement.



 28
 






 



(l)            No Strict Construction.  The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.


(m)          Remedies.  Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law.  Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. 
Furthermore, each of the Company and Parent recognizes that in the event
that it fails to perform, observe, or discharge any or all of its obligations
under the Transaction Documents, any remedy at law may prove to be inadequate
relief to the Buyers.  Each of the
Company and Parent therefore agrees that the Buyers shall be entitled to seek
temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages and without posting a bond or other
security.


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


(o)           Independent Nature of Buyers’
Obligations and Rights.  The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any other
Buyer under any Transaction Document. 
Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents and each of the Company
and Parent acknowledges that the Buyers are not acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents.  Each Buyer
confirms that it has independently participated in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and
advisors.  Each Buyer shall be entitled
to independently protect and enforce its rights, including, without limitation,
the rights arising out of this Agreement or out of any other Transaction
Documents, and it shall not be necessary for any other Buyer to be joined as an
additional party in any proceeding for such purpose.


[Signature Pages Follow]



 29














 


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


	
  

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PRB OIL & GAS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/

  	
  William F. Hayworth

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name: William F. Hayworth

  
	
   

  	
   

  	
   

  	
   

  	
  Title: President

  



 


	
  

  	
   

  	
  PARENT:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PRB ENERGY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  /s/

  	
  William F. Hayworth

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name: William F. Hayworth

  
	
   

  	
   

  	
   

  	
   

  	
  Title: President

  



 









 



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


	
  

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DKR SOUNDSHORE OASIS HOLDING FUND

  LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  



 









 



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


	
  

  	
   

  	
  WEST COAST OPPORTUNITY FUND, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  



 









 



SCHEDULE OF BUYERS


	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (6)

  
	
  Buyer

  	
   

  	
  Address and Facsimile Number

  	
   

  	
  Aggregate Principal

  Amount of Debentures

  	
   

  	
  Aggregate Number of

  Closing Shares

  	
   

  	
  Legal Representative’s

  Address and Facsimile Number

  
	
  DKR Soundshore Oasis

  Holding Fund Ltd.

  	
   

  	
  1281 East Main Street

  Stamford, CT 06902

  Telephone: (203) 324-8378

  Facsimile: (203) 324-8488

  Attention: Rajni A. Narasi, Assoc.

  	
   

  	
  $7,500,000

  	
   

  	
  625,000

  	
   

  	
  McDermott Will & Emery LLP

  340 Madison Avenue

  New York, New York 10173

  Telephone: (212) 547-5400

  Facsimile: (212) 547-5444

  
	
  

  	
   

  	
  General Counsel

  Residence: Bermuda

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Attention:

  	
  Stephen E. Older, Esq.

  Meir A. Lewittes, Esq.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  West Coast Opportunity

  Fund, LLC

  	
   

  	
  2151 Alessandro Drive, Suite 1

  Ventura, CA 93001

  Telephone: (805) 653-5333

  Facsimile: (805) 648-6488

  Attention: Atticus Lowe

  Residence: Delaware

  	
   

  	
  $7,500,000

  	
   

  	
  625,000

  	
   

  	
  Catherine DeBono Holmes

  Jeffer, Mangels, Butler & Marmaro

  LLP

  1900 Avenue of the Stars, 7th Floor

  Los Angeles, California 90067

  Telephone: (310) 201-3553

  Facsimile: (310) 712-8553

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  

  	
   

  	
   

  	
   

  	
  Total principal

  amount of

  Debentures:

  $15,000,000

  	
   

  	
  Total Closing Shares to be issued: 1,250,000

  	
   

  	
   

  



 









 



EXHIBITS


	
  Exhibit A

  	
   

  	
  Form of Debentures

  
	
  Exhibit B

  	
   

  	
  Registration Rights Agreement

  
	
  Exhibit C

  	
   

  	
  Irrevocable Transfer Agent Instructions

  
	
  Exhibit D

  	
   

  	
  Form of Outside Company Counsel Opinion

  
	
  Exhibit E

  	
   

  	
  Form of Secretary’s Certificate

  
	
  Exhibit F

  	
   

  	
  Form of Officer’s Certificate

  
	
  Exhibit G

  	
   

  	
  Form of Guaranty

  



 


SCHEDULES


	
  Schedule 3(a)

  	
   

  	
  Subsidiaries

  
	
  Schedule 3(r)

  	
   

  	
  Equity Capitalization

  
	
  Schedule 3(s)

  	
   

  	
  Indebtedness and Other Contracts