exv10w12






 Exhibit 10.12


STANDBY EQUITY DISTRIBUTION AGREEMENT




     THIS AGREEMENT dated as of the 29th day of August 2008 (the “Agreement”)
between YA GLOBAL INVESTMENTS, L.P., a Cayman Islands exempt limited partnership (the
“Investor”), and COLORADO GOLDFIELDS INC., a corporation organized and existing under the
laws of the State of Nevada (the “Company”).



     WHEREAS, the parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Investor, from time to time as provided herein, and
the Investor shall purchase from the Company up to Five Million Dollars
($5,000,000) of the Company’s common stock, par value $0.001 per share (the “Common
Stock”); and



     WHEREAS, such investments will be made in reliance upon the provisions of Regulation D
(“Regulation D”) of the Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the “Securities Act”), and or upon such other exemption from the registration
requirements of the Securities Act as may be available with respect to any or all of the
investments to be made hereunder.



     NOW, THEREFORE, the parties hereto agree as follows:



ARTICLE I.

Certain Definitions




     Section 1.1. “Advance” shall mean the portion of the Commitment Amount requested by
the Company in the Advance Notice.



     Section 1.2. “Advance Date” shall mean the first (1st) Trading Day after
expiration of the applicable Pricing Period for each Advance.



     Section 1.3. “Advance Notice” shall mean a written notice in the form of Exhibit
A attached hereto to the Investor executed by an officer of the Company and setting forth the
Advance amount that the Company requests from the Investor.



     Section 1.4. “Advance Notice Date” shall mean each date the Company delivers (in
accordance with Section 2.2(b) of this Agreement) to the Investor an Advance Notice requiring the
Investor to advance funds to the Company, subject to the terms of this Agreement. No Advance
Notice Date shall be less than five (5) Trading Days after the prior Advance Notice Date.



     Section 1.5. “Bid Price” shall mean, on any date, the closing bid price (as reported
by Bloomberg L.P.) of the Common Stock on the Principal Market or if the Common Stock is not traded
on a Principal Market, the highest reported bid price for the Common Stock, as furnished by the
National Association of Securities Dealers, Inc.



 









 





     Section 1.6. “Closing” shall mean one of the closings of a purchase and sale of Common
Stock pursuant to Section 2.3.



     Section 1.7. “Commitment Amount” shall mean the aggregate amount of up to Five Million
Dollars ($5,000,000) which the Investor has agreed to provide to the Company in order to purchase
the Company’s Common Stock pursuant to the terms and conditions of this Agreement.



     Section 1.8. “Commitment Period” shall mean the period commencing on the Effective
Date, and expiring upon the termination of this Agreement in accordance with Section 10.2.



     Section 1.9. “Common Stock” shall mean the Company’s common stock, par value $0.001
per share.



     Section 1.10. “Condition Satisfaction Date” shall have the meaning set forth in
Section 7.2.



     Section 1.11. “Damages” shall mean any loss, claim, damage, liability, costs and
expenses (including, without limitation, reasonable attorney’s fees and disbursements and costs and
expenses of expert witnesses and investigation).



     Section 1.12. “Effective Date” shall mean the date on which the SEC first declares
effective a Registration Statement registering the resale of the Registrable Securities as set
forth in Section 7.2(a).



     Section 1.13. Intentionally Omitted.



     Section 1.14. “Exchange Act” shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.



     Section 1.15. “Material Adverse Effect” shall mean any condition, circumstance, or
situation that may result in, or reasonably be expected to result in (i) a material adverse effect
on the legality, validity or enforceability of the Agreement, (ii) a material adverse effect on the
results of operations, assets, business or condition (financial or otherwise) of the Company, taken
as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material
respect on a timely basis its obligations under the Agreement.



     Section 1.16. “Market Price” shall mean the lowest daily VWAP of the Common Stock
during the Pricing Period.



     Section 1.17.
“Maximum Advance Amount” shall be $250,000 per Advance Notice.



     Section 1.18. “NASD” shall mean the National Association of Securities Dealers, Inc.



     Section 1.19. “Person” shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.



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     Section 1.20. “Pricing Period” shall mean the five (5) consecutive Trading Days after
the Advance Notice Date.



     Section 1.21. “Principal Market” shall mean the Nasdaq Global Select Market, the
Nasdaq Global Market, the Nasdaq Capital Market, the American Stock Exchange, the OTC Bulletin
Board, or the New York Stock Exchange, whichever is at the time the principal trading exchange or
market for the Common Stock.



     Section 1.22. “Purchase Price” shall be set at ninety five percent (95%) of the Market
Price during the Pricing Period.



     Section 1.23. “Registrable Securities” shall mean the shares of Common Stock to be
issued hereunder (i) in respect of which the Registration Statement has not been declared effective
by the SEC, (ii) which have not been sold under circumstances meeting all of the
applicable conditions of Rule 144 (or any similar provision then in force) under the
Securities Act (“Rule 144”) or (iii) which have not been otherwise transferred to a holder
who may trade such shares without restriction under the Securities Act, and the Company has
delivered a new certificate or other evidence of ownership for such securities not bearing a
restrictive legend.



     Section 1.24. “Registration Rights Agreement” shall mean the Registration Rights
Agreement dated the date hereof, regarding the filing of the Registration Statement for the resale
of the Registrable Securities, entered into between the Company and the Investor.



     Section 1.25. “Registration Statement” shall mean a registration statement on Form S-1
or Form S-3 (if use of such form is then available to the Company pursuant to the rules of the SEC
and, if not, on such other form promulgated by the SEC for which the Company then qualifies and
which counsel for the Company shall deem appropriate, and which form shall be available for the
resale of the Registrable Securities to be registered thereunder in accordance with the provisions
of this Agreement and the Registration Rights Agreement, and in accordance with the intended method
of distribution of such securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.



     Section 1.26. “Regulation D” shall have the meaning set forth in the recitals of this
Agreement.



     Section 1.27. “SEC” shall mean the United States Securities and Exchange Commission.



     Section 1.28. “Securities Act” shall have the meaning set forth in the recitals of
this Agreement.



     Section 1.29. “Trading Day” shall mean any day during which the New York Stock
Exchange shall be open for business.



     Section 1.30. “VWAP” means, as of any date, the daily dollar volume-weighted average
price for such security as reported by Bloomberg, LP through its “Historical Price Table Screen
(HP)” with Market: Weighted Ave function selected, or, if no dollar volume-weighted average price
is reported for such security by Bloomberg, LP, the average of the highest closing bid price and
the lowest closing ask price of any of the market makers for such security as reported in the “pink
sheets” by Pink Sheets LLC.



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ARTICLE II.

Advances




     Section 2.1. Advances.



          Subject to the terms and conditions of this Agreement (including, without limitation, the
provisions of Article VII hereof), the Company, at its sole and exclusive option, may issue and
sell to the Investor, and the Investor shall purchase from the Company, shares of the Company’s
Common Stock by the delivery, in the Company’s sole discretion, of Advance Notices. The number of
shares of Common Stock that the Investor shall purchase pursuant to each Advance shall be
determined by dividing the amount of the Advance by the Purchase Price. No fractional shares shall
be issued. Fractional shares shall be rounded to the next higher whole
number of shares. The aggregate maximum amount of all Advances that the Investor shall be
obligated to make under this Agreement shall not exceed the Commitment Amount.



     Section 2.2. Mechanics.



          (a) Advance Notice. At any time during the Commitment Period, the Company may require
the Investor to purchase shares of Common Stock by delivering an Advance Notice to the Investor,
subject to the conditions set forth in Section 7.2; provided, however, the amount for each Advance
as designated by the Company in the applicable Advance Notice shall not be more than the Maximum
Advance Amount and the aggregate amount of the Advances pursuant to this Agreement shall not exceed
the Commitment Amount. The Company acknowledges that the Investor may sell shares of the Company’s
Common Stock corresponding with a particular Advance Notice after the Advance Notice is received by
the Investor. There shall be a minimum of five (5) Trading Days between each Advance Notice Date.




          (b) Date of Delivery of Advance Notice. An Advance Notice shall be deemed delivered
on (i) the Trading Day it is received by facsimile or otherwise by the Investor if such notice is
received prior to 5:00 pm Eastern Time, or (ii) the immediately succeeding Trading Day if it is
received by facsimile or otherwise after 5:00 pm Eastern Time on a Trading Day or at any time on a
day which is not a Trading Day. No Advance Notice may be deemed delivered on a day that is not a
Trading Day.




     Section 2.3. Closings. On each Advance Date (i) the Company shall deliver to the
Investor such number of shares of the Common Stock registered in the name of the Investor as shall
equal (x) the amount of the Advance specified in such Advance Notice pursuant to Section 2.1
herein, divided by (y) the Purchase Price and (ii) upon receipt of such shares, the Investor shall
deliver to the Company the amount of the Advance specified in the Advance Notice by wire transfer
of immediately available funds. In addition, on or prior to the Advance Date, each of the Company
and the Investor shall deliver to the other all documents, instruments and writings required to be
delivered by either of them pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. To the extent the Company has not paid the fees, expenses, and
disbursements of the Investor in accordance with Section 12.4, the amount of such



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fees, expenses,
and disbursements may be deducted by the Investor (and shall be paid to the relevant party)
directly out of the proceeds of the Advance with no reduction in the amount of shares of the
Company’s Common Stock to be delivered on such Advance Date.



     (a) Company’s Obligations Upon Closing.



          (i) The Company shall deliver to the Investor the shares of Common Stock applicable to the
Advance in accordance with Section 2.3. The certificates evidencing such shares shall be free of
restrictive legends.




          (ii) The Registration Statement filed pursuant to the Registration Rights Agreement shall be
effective and available for the resale of all applicable shares of Common Stock to be issued in
connection with the Advance and certificates evidencing such shares shall be free of restrictive
legends;




          (iii) the Company shall have obtained all material permits and qualifications required by any
applicable state for the offer and sale of the Registrable Securities, or shall have the
availability of exemptions therefrom. The sale and issuance of the Registrable Securities shall be
legally permitted by all laws and regulations to which the Company is subject;




          (iv) the Company shall have filed with the SEC in a timely manner all reports, notices and
other documents required of a “reporting company” under the Exchange Act and applicable Commission
regulations;




          (v) the Company shall pay any unpaid fees as set forth in Section 12.4 below or withhold such
amounts as provided in Section 2.3; and




          (vi) the Company’s transfer agent shall be DWAC eligible.




     (b) Investor’s Obligations Upon Closing. Upon receipt of the shares referenced in
Section 2.3(a)(i) above and provided the Company is in compliance with its obligations in Section
2.3, the Investor shall deliver to the Company the amount of the Advance specified in the Advance
Notice by wire transfer of immediately available funds.



     Section 2.4. Lock Up Period. On the date hereof, the Company shall obtain from each
officer and director a lock-up agreement, as defined below, in the form annexed hereto as Schedule
2.4.



     Section 2.5. Hardship. In the event the Investor sells shares of the Company’s Common
Stock after receipt of an Advance Notice and the Company fails to perform its obligations as
mandated in Section 2.3, and specifically the Company fails to deliver to the Investor on the
Advance Date the shares of Common Stock corresponding to the applicable Advance pursuant to Section
2.3(a)(i), the Company acknowledges that the Investor shall suffer financial hardship and therefore
shall be liable for any and all losses, commissions, fees, or financial hardship caused to the
Investor.



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ARTICLE III.

Representations and Warranties of Investor




     Investor hereby represents and warrants to, and agrees with, the Company that the following
are true and correct as of the date hereof and as of each Advance Date:



     Section 3.1. Organization and Authorization. The Investor is duly incorporated or
organized and validly existing in the jurisdiction of its incorporation or organization and has all
requisite power and authority to purchase and hold the securities issuable hereunder. The decision
to invest and the execution and delivery of this Agreement by such Investor, the performance by
such Investor of its obligations hereunder and the consummation by such Investor of the
transactions contemplated hereby have been duly authorized and requires no other proceedings on the
part of the Investor. The undersigned has the right, power and authority to execute and deliver
this Agreement and all other instruments (including, without limitations, the Registration Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed and delivered by the
Investor and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding obligations of
the Investor, enforceable against the Investor in accordance with its terms.



     Section 3.2. Evaluation of Risks. The Investor has such knowledge and experience in
financial, tax and business matters as to be capable of evaluating the merits and risks of, and
bearing the economic risks entailed by, an investment in the Company and of protecting its
interests in connection with this transaction. It recognizes that its investment in the Company
involves a high degree of risk.



     Section 3.3. No Legal Advice From the Company. The Investor acknowledges that it had
the opportunity to review this Agreement and the transactions contemplated by this Agreement with
his or its own legal counsel and investment and tax advisors. The Investor is relying solely on
such counsel and advisors and not on any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any jurisdiction.



     Section 3.4. Investment Purpose. The securities are being purchased by the Investor
for its own account, and for investment purposes. The Investor agrees not to assign or in any way
transfer the Investor’s rights to the securities or any interest therein and acknowledges that the
Company will not recognize any purported assignment or transfer except in accordance with
applicable Federal and state securities laws. No other person has or will have a direct or
indirect beneficial interest in the securities. The Investor agrees not to sell, hypothecate or
otherwise transfer the Investor’s securities unless the securities are registered under Federal and
applicable state securities laws or unless, in the opinion of counsel satisfactory to the Company,
an exemption from such laws is available.



     Section 3.5. Accredited Investor. The Investor is an “Accredited Investor” as
that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.



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     Section 3.6. Information. The Investor and its advisors (and its counsel), if any,
have been furnished with all materials relating to the business, finances and operations of the
Company and information it deemed material to making an informed investment decision. The Investor
and its advisors, if any, have been afforded the opportunity to ask questions of the Company and
its management. Neither such inquiries nor any other due diligence investigations conducted by
such Investor or its advisors, if any, or its representatives shall modify, amend or affect the
Investor’s right to rely on the Company’s representations and warranties contained in this
Agreement. The Investor understands that its investment involves a high degree of risk. The
Investor is in a position regarding the Company, which, based upon employment, family relationship
or economic bargaining power, enabled and enables such Investor to obtain information from the
Company in order to evaluate the merits and risks of this investment. The Investor has sought such
accounting, legal and tax advice, as it has considered necessary to make an informed investment
decision with respect to this transaction.



     Section 3.7. Receipt of Documents. The Investor and its counsel have received and read
in their entirety: (i) this Agreement and the Exhibits annexed hereto; (ii) all due diligence and
other information necessary to verify the accuracy and completeness of such representations,
warranties and covenants; (iii) the Company’s Form 10-KSB for the year ended August 31, 2007
and Form 10-QSB for the period ended May 31, 2008; and (iv) answers to all questions the Investor
submitted to the Company regarding an investment in the Company; and the Investor has relied on the
information contained therein and has not been furnished any other documents, literature,
memorandum or prospectus.



     Section 3.8. No General Solicitation. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the Securities Act) in connection
with the offer or sale of the shares of Common Stock offered hereby.



     Section 3.9. Not an Affiliate. The Investor is not an officer, director or a person
that directly, or indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with the Company or any “Affiliate” of the Company (as that term is
defined in Rule 405 of the Securities Act).



     Section 3.10. Trading Activities. The Investor’s trading activities with respect to
the Company’s Common Stock shall be in compliance with all applicable federal and state securities
laws, rules and regulations and the rules and regulations of the Principal Market on which the
Company’s Common Stock is listed or traded. Neither the Investor nor its affiliates has an open
short position in the Common Stock of the Company, the Investor agrees that it shall not, and that
it will cause its affiliates not to, engage in any short sales of or hedging transactions with
respect to the Common Stock, provided that the Company acknowledges and agrees that upon receipt of
an Advance Notice the Investor has the right to sell the shares to be issued to the Investor
pursuant to the Advance Notice during the applicable Pricing Period.



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ARTICLE IV.

Representations and Warranties of the Company




     Except as stated below, on the disclosure schedules attached hereto or in the SEC Documents
(as defined herein), the Company hereby represents and warrants to, and covenants with, the
Investor that the following are true and correct as of the date hereof:



     Section 4.1. Organization and Qualification. The Company is duly incorporated or
organized and validly existing in the jurisdiction of its incorporation or organization and has all
requisite corporate power to own its properties and to carry on its business as now being
conducted. Each of the Company and its subsidiaries is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in which the nature of the business
conducted 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 on the Company and its
subsidiaries taken as a whole.



     Section 4.2. Authorization, Enforcement, Compliance with Other Instruments. (i) The
Company has the requisite corporate power and authority to enter into and perform this Agreement,
the Registration Rights Agreement and any related agreements, in accordance with the terms hereof
and thereof, (ii) the execution and delivery of this Agreement, the Registration Rights Agreement
and any related agreements by the Company and the consummation by it of
the transactions contemplated hereby and thereby, have been duly authorized by the Company’s
Board of Directors and no further consent or authorization is required by the Company, its Board of
Directors or its stockholders, (iii) this Agreement, the Registration Rights Agreement and any
related agreements have been duly executed and delivered by the Company, (iv) this Agreement, the
Registration Rights Agreement and assuming the execution and delivery thereof and acceptance by the
Investor and any related agreements constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their 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
creditors’ rights and remedies.



     Section 4.3. Capitalization. The authorized capital stock of the Company consists of
1,185,000,000 shares of Common Stock, of which 102,968,600 shares of Common Stock are issued and
outstanding. All of such outstanding shares have been validly issued and are fully paid and
nonassessable. Except as disclosed in the SEC Documents, no shares of Common Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by
the Company. Except as disclosed in the SEC Documents and on Exhibit 4.3, as of the date hereof,
(i) 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, any shares of
capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings
or arrangements by which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the Company or any of its
subsidiaries, (ii) there are no outstanding debt securities (iii) there are no outstanding
registration statements other than on Form S-8 and on



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Form S-1 (file number 333-148622) and (iv)
there are no agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of their securities under the Securities Act (except pursuant
to the Registration Rights Agreement), except pursuant to the terms of an agreement between the
Company and 1st SB Partners Ltd.(1st SB) restricted common stock shares of the Company are due 1st
SB in an amount equal to 8% of the shares issued pursuant to the SEDA transaction as between the
Company and the Investor. There are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by this Agreement or any related agreement or the
consummation of the transactions described herein or therein. The Company has furnished to the
Investor true and correct copies of the Company’s Certificate of Incorporation, as amended and as
in effect on the date hereof (the “Certificate of Incorporation”), and the Company’s
By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the holders thereof in
respect thereto.




     Section 4.4. No Conflict. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions contemplated hereby will not
(i) result in a violation of the Certificate of Incorporation, any certificate of designations of
any outstanding series of preferred stock of the Company or By-laws or (ii) conflict with or
constitute a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations and the rules and
regulations of the Principal Market on which the Common Stock is quoted) applicable to the Company
or any of its subsidiaries or by which any material property or asset of the Company or any of its
subsidiaries is bound or affected and which would cause a Material Adverse Effect. Except as
disclosed in the SEC Documents, neither the Company nor its subsidiaries is in violation of any
term of or in default under its Articles of Incorporation or By-laws or their organizational
charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to
the Company or its subsidiaries. The business of the Company and its subsidiaries is not being
conducted in violation of any material law, ordinance, regulation of any governmental entity.
Except as specifically contemplated by this Agreement and as required under the Securities Act and
any applicable state securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations under or contemplated
by this Agreement or the Registration Rights Agreement in accordance with the terms hereof or
thereof. All consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof. The Company and its subsidiaries are unaware of any fact or circumstance which
might give rise to any of the foregoing.



     Section 4.5. SEC Documents; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with the SEC under the
Securities Exchange Act for the two years preceding the date hereof (or such shorter period as the
Company was required by law or regulation to file such material) (all of the foregoing filed prior
to the date hereof or amended after the date hereof and all exhibits included



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therein and financial
statements and schedules thereto and documents incorporated by reference therein, being hereinafter
referred to as the “SEC Documents”) on timely basis or has received a valid extension
(except that the Company filed late its quarterly report on Form 10-QSB for the Quarter ended May
31, 2007, and its annual report on Form 10-KSB for the year ended August 31, 2007) of such time of
filing and has filed any such SEC Document prior to the expiration of any such extension. The
Company has delivered to the Buyers or their representatives, or made available through the SEC’s
website at http://www.sec.gov., true and complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. As of their respective dates, the financial statements
of the Company included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results
of its operations and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). No other information provided by or on behalf
of the Company to the Buyers which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which they are or were made and not
misleading.




     Section 4.6. 10b-5. The SEC Documents do not include any untrue statements of
material fact, nor do they omit to state any material fact required to be stated therein necessary
to make the statements made, in light of the circumstances under which they were made, not
misleading.



     Section 4.7. No Default. Except as disclosed in the SEC Documents, the Company is not
in default in the performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material instrument or
agreement to which it is a party or by which it is or its property is bound and neither the
execution, nor the delivery by the Company, nor the performance by the Company of its obligations
under this Agreement or any of the exhibits or attachments hereto will conflict with or result in
the breach or violation of any of the terms or provisions of, or constitute a default or result in
the creation or imposition of any lien or charge on any assets or properties of the Company under
its Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of trust or other
material agreement applicable to the Company or instrument to which the Company is a party or by
which it is bound, or any statute, or any decree, judgment, order, rules or regulation of any court
or governmental agency or body having jurisdiction over the Company or its properties, in each case
which default, lien or charge is likely to cause a Material Adverse Effect on the Company’s
business or financial condition.



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     Section 4.8. Absence of Events of Default. Except for matters described in the SEC
Documents and/or this Agreement, no Event of Default, as defined in the respective agreement to
which the Company is a party, and no event which, with the giving of notice or the passage of time
or both, would become an Event of Default (as so defined), has occurred and is continuing, which
would have a Material Adverse Effect on the Company’s business, properties, prospects, financial
condition or results of operations.



     Section 4.9. Intellectual Property Rights. The Company and its subsidiaries own or
possess adequate rights or licenses to use all material trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct
their respective businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service names, service marks, service
mark registrations, trade secret or other similar rights of others, and, to the knowledge of the
Company, there is no claim, action or proceeding being made or brought against, or to the Company’s
knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names, service marks, service
mark registrations, trade secret or other infringement; and the Company
and its subsidiaries are unaware of any facts or circumstances which might give rise to any of
the foregoing.



     Section 4.10. Employee Relations. Neither the Company nor any of its subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is
any such dispute threatened. None of the Company’s or its subsidiaries’ employees is a member of a
union and the Company and its subsidiaries believe that their relations with their employees are
good.



     Section 4.11. Environmental Laws. Except as set forth in the SEC Documents, the
Company and its subsidiaries are (i) in compliance with any and all applicable material foreign,
federal, state and local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants
(“Environmental Laws”), (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.



     Section 4.12. Title. Except as set forth in the SEC Documents, the Company has good
and marketable title to its properties and material assets owned by it, free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest other than such as are
not material to the business of the Company. Any real property and facilities held under lease by
the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries.



     Section 4.13. Insurance. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks and in such amounts
as management of the Company believes to be prudent and customary in the businesses in which



 - 11 - 









 




the
Company and its subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business at a cost that would not materially and adversely affect
the condition, financial or otherwise, or the earnings, business or operations of the Company and
its subsidiaries, taken as a whole.




     Section 4.14. Regulatory Permits. The Company and its subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective businesses, and neither the
Company nor any such subsidiary has received any notice of proceedings relating to the revocation
or modification of any such certificate, authorization or permit.



     Section 4.15. Internal Accounting Controls. The Company and each of its subsidiaries
maintain 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 accountability,
(iii) access to assets is permitted only in accordance with management’s general or specific
authorization and (iv) the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any differences.



     Section 4.16. No Material Adverse Breaches, etc. Except as set forth in the SEC
Documents, neither the Company nor any of its subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment
of the Company’s officers has or is expected in the future to have a Material Adverse Effect on the
business, properties, operations, financial condition, results of operations or prospects of the
Company or its subsidiaries. Except as set forth in the SEC Documents, neither the Company nor any
of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the
Company’s officers, has or is expected to have a Material Adverse Effect on the business,
properties, operations, financial condition, results of operations or prospects of the Company or
its subsidiaries.



     Section 4.17. Absence of Litigation. Except as set forth in the SEC Documents, there
is no action, suit, proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending against or affecting the Company,
the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable decision, ruling or
finding would (i) have a Material Adverse Effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of the documents contemplated herein, or (iii)
except as expressly disclosed in the SEC Documents, have a Material Adverse Effect on the business,
operations, properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.



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     Section 4.18. Subsidiaries. Except as disclosed in the SEC Documents, the Company
does not presently own or control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity.



     Section 4.19. Tax Status. Except as disclosed in the SEC Documents, the Company and
each of its subsidiaries has made or filed all federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject and (unless and only
to the extent that the Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) 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 has
set aside on its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim.



     Section 4.20. Certain Transactions. Except as set forth in the SEC Documents none of
the officers, directors, or employees of the Company is presently a party to any transaction with
the Company (other than for services as employees, officers and 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 officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or partner.



     Section 4.21. Fees and Rights of First Refusal. The Company is not obligated to offer
the securities offered hereunder on a right of first refusal basis or otherwise to any third
parties including, but not limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties.



     Section 4.22. Use of Proceeds. The Company shall use the net proceeds from this
offering for working capital and other general corporate purposes.



     Section 4.23. Further Representation and Warranties of the Company. For so long as
any securities issuable hereunder held by the Investor remain outstanding, the Company
acknowledges, represents, warrants and agrees that it will maintain the listing of its Common Stock
on the Principal Market.



     Section 4.24. Opinion of Counsel. Investor shall receive an opinion letter from
counsel to the Company on the date hereof.



     Section 4.25. Opinion of Counsel. The Company will obtain for the Investor, at the
Company’s expense, any and all opinions of counsel which may be reasonably required in order to
sell the securities issuable hereunder without restriction.



     Section 4.26. Dilution. The Company is aware and acknowledges that issuance of shares
of the Company’s Common Stock could cause dilution to existing shareholders and could significantly
increase the outstanding number of shares of Common Stock.



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     Section 4.27. Acknowledgment Regarding Investor’s Purchase of Shares. The Company
acknowledges and agrees that the Investor is acting solely in the capacity of an arm’s length
investor with respect to this Agreement and the transactions contemplated hereunder. The Company
further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereunder and any advice given by the Investor or any of its representatives or agents
in connection with this Agreement and the transactions contemplated hereunder is merely incidental
to the Investor’s purchase of the Common Stock hereunder. The Company is aware and acknowledges
that it may not be able to request Advances under this Agreement if it cannot obtain an effective
Registration Statement or if any issuances of Common Stock pursuant to any Advances would violate
any rules of the Principal Market. The Company further is aware and acknowledges that any fees
paid pursuant to Section 12.4 hereunder or shares issued pursuant to Section 12.4(b) hereunder
shall be earned on the date hereof and not refundable or returnable under any circumstances.



ARTICLE V.

Indemnification




     The Investor and the Company represent to the other the following with respect to itself:



     Section 5.1. Indemnification.



               In consideration of the Investor’s execution and delivery of this Agreement, and in addition
to all of the Company’s other obligations under this Agreement, the Company shall defend, protect,
indemnify and hold harmless the Investor, and all of its officers, directors, partners, employees
and agents (including, without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Investor 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 Investor
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
the Investor Indemnitees or any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the Company in this Agreement
or the Registration Rights Agreement or any other certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained
in this Agreement or the Registration Rights Agreement 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 Investor Indemnitee not arising out of any action or inaction of an Investor
Indemnitee, and arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Investor Indemnitees. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities, which is permissible under
applicable law.



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               In consideration of the Company’s execution and delivery of this Agreement, and in addition to
all of the Investor’s other obligations under this Agreement, the Investor shall defend, protect,
indemnify and hold harmless the Company and all of its officers, directors, shareholders, employees
and agents (including, without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Company Indemnitees”) from and against
any and all Indemnified Liabilities incurred by the Company Indemnitees or any of them as a result
of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or
warranty made by the Investor in this Agreement, the Registration Rights Agreement, or any
instrument or document contemplated hereby or thereby executed by the Investor, (b) any breach of
any covenant, agreement or obligation of the Investor(s) contained in this Agreement, the
Registration Rights Agreement or any other certificate, instrument or document contemplated hereby
or thereby executed by the Investor, or (c) any cause of action, suit or claim brought or made
against such Company Indemnitee not arising out of any action or inaction of a Company Indemnitee,
and arising out of or resulting from the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant hereto by any of the
Company Indemnitees. To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason, the Investor shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.



          (c) The obligations of the parties to indemnify or make contribution under this Section 5.1
shall survive termination.




ARTICLE VI.

Covenants of the Company




     Section 6.1. Registration Rights. The Company shall cause the Registration Rights
Agreement to remain in full force and effect and the Company shall comply in all material respects
with the terms thereof.



     Section 6.2. Listing of Common Stock. The Company shall maintain the Common Stock’s
authorization for quotation on the Principal Market.



     Section 6.3. Exchange Act Registration. The Company will cause its Common Stock to
continue to be registered under Section 12(g) of the Exchange Act, will file in a timely manner all
reports and other documents required of it as a reporting company under the Exchange Act and will
not take any action or file any document (whether or not permitted by Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and
filing obligations under said Exchange Act.



     Section 6.4. Transfer Agent Instructions. Upon effectiveness of the Registration
Statement the Company shall deliver instructions to its transfer agent to issue shares of Common
Stock to the Investor free of restrictive legends on each Advance Date.



     Section 6.5. Corporate Existence. The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.




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     Section 6.6. Notice of Certain Events Affecting Registration; Suspension of Right to Make
an Advance. The Company will immediately notify the Investor upon its becoming aware of the
occurrence of any of the following events in respect of a registration statement or related
prospectus relating to an offering of Registrable Securities: (i) receipt of any request for
additional information by the SEC or any other Federal or state governmental authority during the
period of effectiveness of the Registration Statement for amendments or supplements to the
registration statement or related prospectus; (ii) the issuance by the SEC or any other Federal or
state governmental authority of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification
with respect to the suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus of any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances under which they were
made, not misleading; and (v) the Company’s reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate; and the Company will promptly make
available to the Investor any such supplement or amendment to the related prospectus. The Company
shall not deliver to the Investor any Advance Notice during the continuation of any of the
foregoing events.



     Section 6.7. RESERVED.



     Section 6.8. Consolidation; Merger. The Company shall not, at any time after the date
hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or
substantially all the assets of the Company to another entity (a “Consolidation Event”)
unless the resulting successor or acquiring entity (if not the Company) assumes by written
instrument the obligation to deliver to the Investor such shares of stock and/or securities as the
Investor is entitled to receive pursuant to this Agreement.



     Section 6.9. Issuance of the Company’s Common Stock. The sale of the shares of Common
Stock shall be made in accordance with the provisions and requirements of Regulation D and any
applicable state securities law.



     Section 6.10. Review of Public Disclosures. All SEC filings (including, without
limitation, all filings required under the Exchange Act, which include Forms 10-Q and 10-QSB, 10-K
and 10K-SB, 8-K, etc) and other public disclosures made by the Company, including, without
limitation, all press releases, investor relations materials, and scripts of analysts meetings and
calls, shall be reviewed and approved for release by the Company’s attorneys and, if containing
financial information, the Company’s independent certified public accountants.



 - 16 - 









 





     Section 6.11. Market Activities. The Company will not, directly or indirectly, (i)
take any action designed to cause or result in, or that constitutes or might reasonably be expected
to constitute, the stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Common Stock or (ii) sell, bid for or purchase the Common
Stock, or pay anyone any compensation for soliciting purchases of the Common Stock.



ARTICLE VII.

Conditions for Advance and Conditions to Closing




     Section 7.1. Conditions Precedent to the Obligations of the Company. The obligation
hereunder of the Company to issue and sell the shares of Common Stock to the Investor incident to
each Closing is subject to the satisfaction, or waiver by the Company, at or before each such
Closing, of each of the conditions set forth below.



               (a) Accuracy of the Investor’s Representations and Warranties. The representations
and warranties of the Investor shall be true and correct in all material respects.



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



     Section 7.2. Conditions Precedent to the Right of the Company to Deliver an Advance
Notice. The right of the Company to deliver an Advance Notice is subject to the fulfillment by
the Company, on such Advance Notice (a “Condition Satisfaction Date”), of each of the
following conditions:



               (a) Registration of the Common Stock with the SEC. The Company shall have filed with
the SEC a Registration Statement with respect to the resale of the Registrable Securities in
accordance with the terms of the Registration Rights Agreement. As set forth in the Registration
Rights Agreement, the Registration Statement shall have previously become effective and shall
remain effective on each Condition Satisfaction Date and (i) neither the Company nor the Investor
shall have received notice that the SEC has issued or intends to issue a stop order with respect to
the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness
of the Registration Statement, either temporarily or permanently, or intends or has threatened to
do so (unless the SEC’s concerns have been addressed and the Investor is reasonably satisfied that
the SEC no longer is considering or intends to take such action), and (ii) no other suspension of
the use or withdrawal of the effectiveness of the Registration Statement or related prospectus
shall exist. The Registration Statement must have been declared effective by the SEC prior to the
first Advance Notice Date.



               (b) Authority. The Company shall have obtained all permits and qualifications
required by any applicable state in accordance with the Registration Rights Agreement for the offer
and sale of the shares of Common Stock, or shall have the availability of exemptions therefrom.
The sale and issuance of the shares of Common Stock shall be legally permitted by all laws and
regulations to which the Company is subject.



 - 17 - 









 





               (c) Fundamental Changes. There shall not exist any fundamental changes to the
information set forth in the Registration Statement which would require the Company to file a
post-effective amendment to the Registration Statement.



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



               (e) No Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall have been commenced that may
have the effect of prohibiting or adversely affecting any of the transactions contemplated by this
Agreement.



               (f) No Suspension of Trading in or Delisting of Common Stock. The Common stock is
listed or trading on a Principal Market. The trading of the Common Stock is not suspended by the
SEC or the Principal Market. The issuance of shares of Common Stock with respect to the applicable
Closing will not violate the shareholder approval requirements of the Principal Market. The
Company shall not have received any notice threatening the continued listing of the Common Stock on
the Principal Market and the Company shall have no knowledge of any event which would be more
likely than not to have the effect of causing the Common Stock to not be trading or listed on a
Principal Market.



               (g) Maximum Advance Amount. The amount of an Advance requested by the Company shall
not exceed the Maximum Advance Amount. In addition, in no event shall the number of shares
issuable to the Investor pursuant to an Advance cause the aggregate number of shares of Common
Stock beneficially owned by the Investor and its affiliates to exceed 9.99% of the then outstanding
Common Stock of the Company (“Ownership Limitation”). Any portion of an Advance that would
cause the Investor to exceed the Ownership Limitation shall automatically be withdrawn. For the
purposes of this section beneficial ownership shall be calculated in accordance with Section 13(d)
of the Exchange Act.



               (h) No Knowledge. The Company has no knowledge of any event which would be more
likely than not to have the effect of causing such Registration Statement to be suspended or
otherwise ineffective.



               (i) Executed Advance Notice. The Investor shall have received the Advance Notice
executed by an officer of the Company and the representations contained in such Advance Notice
shall be true and correct as of each Condition Satisfaction Date.



ARTICLE VIII.

Due Diligence Review; Non-Disclosure of Non-Public Information




     Section 8.1. Non-Disclosure of Non-Public Information.



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               (a) The Company covenants and agrees that it shall refrain from disclosing, and shall cause
its officers, directors, employees and agents to refrain from disclosing, any material non-public
information to the Investor without also disseminating such information to the public, unless prior
to disclosure of such information the Company identifies such information as being material
non-public information and provides the Investor with the opportunity to accept or refuse to accept
such material non-public information for review.



               (b) Nothing herein shall require the Company to disclose non-public information to the
Investor or its advisors or representatives, and the Company represents that it does not
disseminate non-public information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Investor and, if any, underwriters, of any event or the
existence of any circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information (whether or not
requested of the Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the Registration
Statement would cause such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in light of the
circumstances in which they were made, not misleading. Nothing contained in this Section 8.2 shall
be construed to mean that such persons or entities other than the Investor (without the written
consent of the Investor prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from notifying the Company
of their opinion that based on such due diligence by such persons or entities, that the
Registration Statement contains an untrue statement of material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.



ARTICLE IX.

Choice of Law/Jurisdiction




     Section 9.1. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New Jersey without regard to the principles of conflict of
laws. The parties further agree that any action between them shall be heard in Hudson County, New
Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey,
sitting in Hudson County, New Jersey and the United States District Court of New Jersey, sitting in
Newark, New Jersey, for the adjudication of any civil action asserted pursuant to this paragraph.



ARTICLE X.

Assignment; Termination




     Section 10.1. Assignment. Neither this Agreement nor any rights of the Company
hereunder may be assigned to any other Person.



     Section 10.2. Termination.



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          (a) Unless earlier terminated as provided hereunder, this Agreement shall terminate
automatically on the earliest of (i) the first day of the month next following the 24-month
anniversary of the Effective Date, or (ii) the date on which the Investor shall have made payment
of Advances pursuant to this Agreement in the aggregate amount of the Commitment Amount.



          (b) The Company may terminate this Agreement effective upon fifteen Trading Days’ prior
written notice to the Investor; provided that (i) there are no Advances outstanding, and (ii) The
Company has paid all amounts owed to the Investor pursuant to this Agreement. This Agreement may
be terminated at any time by the mutual written consent of the parties, effective as of the date of
such mutual written consent unless otherwise provided in such written consent. In the event of any
termination of this Agreement by the Company hereunder, so long as the Investor owns any shares of
Common Stock issued hereunder, unless all of such shares of Common Stock may be resold by the
Investor without registration and without any time, volume or manner limitations pursuant to Rule
144, the Company shall not suspend (except as provided for in the Registration Rights Agreement) or
withdraw the Registration Statement or otherwise cause the Registration Statement to become
ineffective, or voluntarily delist the Common Stock from, the Principal Market without listing the
Common Stock on another Principal Market.



          (c) The obligation of the Investor to make an Advance to the Company pursuant to this
Agreement shall terminate permanently (including with respect to an Advance Date that has not yet
occurred) in the event that (i) there shall occur any stop order or suspension of the effectiveness
of the Registration Statement for an aggregate of fifty (50) Trading Days, other than due to the
acts of the Investor, during the Commitment Period, or (ii) the Company shall at any time fail
materially to comply with the requirements of Article VI and such failure is not cured within
thirty (30) days after receipt of written notice from the Investor, provided,
however, that this termination provision shall not apply to any period commencing upon the
filing of a post-effective amendment to such Registration Statement and ending upon the date on
which such post effective amendment is declared effective by the SEC



          (d) Nothing in this Section 10.2 shall be deemed to release the Company or the Investor from
any liability for any breach under this Agreement, or to impair the rights of the Company and the
Investor to compel specific performance by the other party of its obligations under this Agreement.
The indemnification provisions contained in Sections 5.1 and 5.2 shall survive termination
hereunder.



ARTICLE XI.

Notices




     Section 11.1. 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 a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) days after being sent by U.S. certified mail, return receipt requested, or (iv) one
(1) day after deposit with a nationally recognized overnight delivery service, in each



 - 20 - 









 







case properly addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:



	 	 	 
	If to the Company, to:

	 	Colorado Goldfields Inc.
	 

	 	10920 W. Alameda Avenue, Suite 207
	 

	 	Lakewood, Colorado 80226
	 

	 	Attention: Chief Executive Officer
	 

	 	Telephone: (303) 984-5324
	 

	 	Facsimile: (303 484-2935
	 
	 	 
	With a copy to:

	 	David A. Thayer, Esq.
	 

	 	Jackson Kelly PLLC
	 

	 	1099 18th Street, Suite 2150
	 

	 	Denver, Colorado 80202
	 

	 	Telephone (303) 390-0179
	 

	 	Facsimile (303) 390-0177
	 
	 	 
	If to the Investor(s):

	 	YA Global Investments, LP
	 

	 	101 Hudson Street —Suite 3700
	 

	 	Jersey City, NJ 07302
	 

	 	Attention: Mark Angelo
	 

	 	                  Portfolio Manager
	 

	 	Telephone: (201) 985-8300
	 

	 	Facsimile: (201) 985-8266
	 
	 	 
	With a Copy to:

	 	David Gonzalez, Esq.
	 

	 	101 Hudson Street — Suite 3700
	 

	 	Jersey City, NJ 07302
	 

	 	Telephone: (201) 985-8300
	 

	 	Facsimile: (201) 985-8266





Each party shall provide five (5) days’ prior written notice to the other party of any change in
address or facsimile number.




ARTICLE XII.

Miscellaneous




     Section 12.1. Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other party. In
the event any signature page is delivered by facsimile transmission, the party using such means of
delivery shall cause four (4) additional original executed signature pages to be physically
delivered to the other party within five (5) days of the execution and delivery hereof, though
failure to deliver such copies shall not affect the validity of this Agreement.



 - 21 - 









 





     Section 12.2 Entire Agreement; Amendments. This Agreement supersedes all other prior
oral or written agreements between the Investor, the Company, their affiliates and persons acting
on their behalf with respect to the matters discussed herein, and this Agreement and the
instruments referenced herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein or therein, neither
the Company nor the Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the party to be charged with enforcement.



     Section 12.3. Reporting Entity for the Common Stock. The reporting entity relied upon
for the determination of the trading price or trading volume of the Common Stock on any given
Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto.
The written mutual consent of the Investor and the Company shall be required to employ any other
reporting entity.



     Section 12.4. Fees and Expenses. The Company hereby agrees to pay the following fees:



          (a) Structuring Fees. Each of the parties shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others engaged by such party) in
connection with this Agreement and the transactions contemplated hereby, except that (i) the
Company shall pay a structuring fee of Fifteen Thousand Dollars ($15,000) to Yorkville Advisors,
LLC, of which $5,000 has been paid prior to the date hereof, and the remaining $10,000 shall be
paid on the date hereof, and (ii) On each Advance Date, the Company shall pay Yorkville Advisors,
LLC a structuring fee of Five Hundred Dollars ($500) directly out the gross proceeds of each
Advance.



          (b) Due Diligence Fee. Company shall pay the Investor a non-refundable due diligence
fee of Two Thousand Five Hundred Dollars ($2,500), which has been paid as of the date hereof.



          (c) Commitment Fees. Upon the execution of this Agreement the Company shall issue to
the Investor 1,436,108 shares of Common Stock (as determined by dividing $115,000 by the VWAP of
the Common Stock on the last full Trading Day prior to the date hereof) (the “Investor’s
Shares”). The Investor’s Shares shall be deemed fully earned as of the date hereof regardless
of the amount of Advances, if any, that the Company is able to, or choices to, request hereunder.
The Investor’s Shares shall be included on any registration statement filed by the Company after
the date hereof, unless such shares may be resold without any limitation pursuant to Rule 144.



          (d) Monitoring Fee. The Company shall pay Yorkville, upon the receipt of an invoice
therefore, a monthly monitoring fee (“Monitoring Fee”) for its continuing due diligence,
structuring, monitoring and managing of the SEDA commitment for the Investor pursuant to
Yorkville’s existing advisory obligations to the Investor. The Monitoring Fee shall be charged as
follows: (a) $10,000 shall be due on the first business day of the first month following the
effective date of the Registration Statement, and (b) $2,000 each month during the Commitment



 - 22 - 









 







Period beginning on the month following the month of the payment in clause (a) is due until
either termination in accordance with Section 10.2.



     Section 12.5. Brokerage. Each of the parties hereto represents that it has had no
dealings in connection with this transaction with any finder or broker who will demand payment of
any fee or commission from the other party. The Company on the one hand, and the Investor, on the
other hand, agree to indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder’s fees on account of services
purported to have been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby.



     Section 12.6. Confidentiality. If for any reason the transactions contemplated by
this Agreement are not consummated, each of the parties hereto shall keep confidential any
information obtained from any other party (except information publicly available or in such party’s
domain prior to the date hereof, and except as required by court order) and shall promptly return
to the other parties all schedules, documents, instruments, work papers or other written
information without retaining copies thereof, previously furnished by it as a result of this
Agreement or in connection herein.



[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]




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     IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity Distribution Agreement
to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above.



	 	 	 	 	 
	 	COMPANY:

Colorado Goldfields Inc.

 	 
	 	By:  	/s/ C. Stephen Guyer
 	 
	 	Name:  	C. Stephen Guyer 	 
	 	Title:  	Chief Financial Officer 	 
	 
	 	INVESTOR:

YA Global Investments, L.P.



By: Yorkville Advisors, LLC

Its: Investment Manager

 	 
	 	By:  	/s/ Mark Angelo
 	 
	 	Name:  	Mark Angelo 	 
	 	Title:  	Portfolio Manager 	 
	 




 - 24 - 









 





EXHIBIT A




ADVANCE NOTICE




COLORADO GOLDFIELDS INC.




     The undersigned, C. Stephen Guyer hereby certifies, with respect to the sale of shares of
Common Stock of COLORADO GOLDFIELDS INC. (the “Company”) issuable in connection with this
Advance Notice, delivered pursuant to the Standby Equity Distribution Agreement (the
“Agreement”), as follows:



     1. The undersigned is the duly elected Chief Financial Officer of the Company.



     2. There are no fundamental changes to the information set forth in the Registration Statement
which would require the Company to file a post effective amendment to the Registration Statement.



     3. The Company has performed in all material respects all covenants and agreements to be
performed by the Company and has complied in all material respects with all obligations and
conditions contained in the Agreement on or prior to the Advance Notice Date, and shall continue to
perform in all material respects all covenants and agreements to be performed by the Company
through the applicable Advance Date. All conditions to the delivery of this Advance Notice are
satisfied as of the date hereof.



     4. The undersigned hereby represents, warrants and covenants that it has made all filings
(“SEC Filings”) required to be made by it pursuant to applicable securities laws
(including, without limitation, all filings required under the Securities Exchange Act of 1934,
which include Forms 10-Q or 10-QSB, 10-K or 10-KSB, 8-K, etc.). All SEC Filings and other public
disclosures made by the Company, including, without limitation, all press releases, analysts
meetings and calls, etc. (collectively, the “Public Disclosures”), have been reviewed and
approved for release by the Company’s attorneys and, if containing financial information, the
Company’s independent certified public accountants. None of the Company’s Public Disclosures
contain any untrue statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the circumstances under
which they were made, not misleading.



     5. The Advance requested is                                         .



     The
undersigned has executed this Certificate this ___ day of                     .



	 	 	 	 	 
	 	COLORADO GOLDFIELDS INC.

 	 
	 	By:  	 	 
	 	Name:  	C. Stephen Guyer 	 
	 	Title:  	Chief Financial Officer 	 
	 


If Returning This Advance Notice via Facsimile Please Send To: (201) 946-0851




	 	 	 
	If by Mail, via Federal Express To:

	 	YA Global Investments, LP
	 

	 	101 Hudson Street, Suite 3700, Jersey City, NJ 07302






 









 






SCHEDULE 2.4




COLORADO GOLDFIELDS INC.




     The undersigned hereby agrees that for a period commencing on August 29, 2008 and expiring
upon the termination of the Standby Equity Distribution Agreement dated August 29, 2008 between the
Company and the Investor (the “Lock-up Period”), he, she or it will not, directly or
indirectly, without the prior written consent of the Investor, issue, offer, agree or offer to
sell, sell, grant an option for the purchase or sale of, transfer, pledge, assign, hypothecate,
distribute or otherwise encumber or dispose of any securities of the Company, including common
stock or options, rights, warrants or other securities underlying, convertible into, exchangeable
or exercisable for or evidencing any right to purchase or subscribe for any common stock (whether
or not beneficially owned by the undersigned), or any beneficial interest therein (collectively,
the “Securities”) except in accordance with the volume limitations set forth in Rule 144(e)
of the General Rules and Regulations under the Securities Act of 1933, as amended. Notwithstanding
the forgoing, nothing herein shall prevent the undersigned from disposing of Securities (i) if the
recipient of the Securities agrees to be bound by the terms of this Lock-up, or (ii) in connection
with a merger where the Company is not the surviving entity.



     In order to enable the aforesaid covenants to be enforced, the undersigned hereby consents to
the placing of legends and/or stop-transfer orders with the transfer agent of the Company’s
securities with respect to any of the Securities registered in the name of the undersigned or
beneficially owned by the undersigned, and the undersigned hereby confirms the undersigned’s
investment in the Company.



Dated:                                         , 2008




	 	 	 	 	 	 	 
	 	 	Signature	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Name:
	 	 
 

	 	 






	 	 	 	 	 	 	 
	 

	 	 Address: 
	 	 
 

	 	 






	 	 	 	 	 	 	 
	 

	 	   City, State, Zip Code:  
	 	 	 	 
	 

	 	 	 	 

	 	 






	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	Print Social Security Number	 	 
	 	 	or Taxpayer I.D. Number