exhibit_10-1.htm


    
      

    

    Exhibit
10.1


    


    NOTE
AND WARRANT PURCHASE

    


    AGREEMENT

    


    


    


    


    Dated
as of July 16, 2008

    


    


    


    


    by
and among

    


    


    


    


    VALCENT
PRODUCTS INC.

    


    


    


    and

    


    


    


    THE
PURCHASERS LISTED ON EXHIBIT A

     

     

     

    



    
      
         


      

      
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              TABLE OF
      CONTENTS

            
	 	 	
              Page

            
	 	 	 
	NOTE AND WARRANT
      PURCHASE AGREEMENT	
              1

            
	 	 	 
	
              ARTICLE
      I PURCHASE AND SALE OF NOTES AND WARRANTS

            	
              1

            
	Section
1.1	Purchase and Sale of Notes
      and Warrants	
              1

            
	Section
1.2	Purchase Price and
      Closing. 	
              2

            
	Section
1.3	Conversion Shares /
      Warrant Shares.	
              2

            
	 	 	 
	ARTICLE II REPRESENTATIONS AND
      WARRANTIES	
              3

            
	Section
2.1	Representations and
      Warranties of the Company.	
              3

            
	Section
2.2	Representations and
      Warranties of the Purchasers.	
              14

            
	 	 	 
	ARTICLE III COVENANTS	
              16

            
	Section
3.1	Securities
      Compliance. 	
              16

            
	Section
3.2	Registration and
      Listing.	
              16

            
	Section
3.3	Inspection
      Rights.	
              17

            
	Section
3.4	Compliance with
      Laws.	
              17

            
	Section
3.5	Keeping of Records
      and Books of Account. 	
              17

            
	Section
3.6	Reporting
      Requirements. 	
              17

            
	Section
3.7	Other
      Agreements.	
              18

            
	Section
3.8	Use of
      Proceeds.	
              18

            
	Section
3.9	Reporting
      Status.	
              18

            
	Section
    3.10	Disclosure of
      Transaction.	
              18

            
	Section
    3.11	Disclosure of
      Material Information. 	
              19

            
	Section
    3.12	Pledge of
      Securities. 	
              19

            
	Section
    3.13	Amendments. 	
              19

            
	Section
    3.14	Distributions.	
              19

            
	Section
    3.15	Reservation of
      Shares.	
              20

            
	Section
    3.16	Transfer Agent
      Instructions.	
              20

            
	Section
    3.17	Opinions.	
              20

            
	Section
    3.18	Acquisition of
      Assets.	
              21

            
	Section
    3.19	Subsequent
      Financings.	
              21

            
	Section
    3.20	Variable Rate
      Securities.	
              22

            
	Section
    3.21	Registration
      Rights.	
              23

            
	 	 	 
	ARTICLE IV CONDITIONS	
              24

            
	Section
4.1	Conditions Precedent
      to the Obligation of the Company to Close and to Sell the
      Securities.	
              24

            
	Section
4.2	Conditions Precedent
      to the Obligation of the Purchasers to Close and to Purchase the
      Securities.	
              25

            
	 	 	 
	ARTICLE V CERTIFICATE LEGEND	
              27

            
	Section
5.1	Legend.	
              27

            
	 	 	 
	ARTICLE VI INDEMNIFICATION	
              28

            
	Section
      6.1	General
      Indemnity. 	
              28

            
	Section
6.2	Indemnification
      Procedure.	
              28

            


    

     

    
            

    

    
         

    

     

    
         

    

    
        

    


    
      
         


      

      
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              TABLE OF
      CONTENTS

            
	
               (continued)

            
	 	 	
               Page

            
	 	 	 
	ARTICLE VII MISCELLANEOUS	
              29

            
	Section
7.1	Fees and
      Expenses.	
              29

            
	Section
7.2	Specific
      Performance; Consent to Jurisdiction; Venue.	
              29

            
	Section
7.3	Entire Agreement;
      Amendment.	
              30

            
	Section
7.4	Notices.	
              30

            
	Section
7.5	Waivers.	
              31

            
	Section
7.6	Headings.	
              32

            
	Section
7.7	Successors and
      Assigns.	
              32

            
	Section
7.8	No Third Party
      Beneficiaries. 	
              32

            
	Section
      7.9	Governing
    Law.	
              32

            
	Section
    7.10	Survival.	
              32

            
	Section
    7.11	Counterparts.	
              32

            
	Section
    7.12	Publicity.	
              32

            
	Section
    7.13	Severability.	
              33

            
	Section
    7.14	Further
      Assurances.	
              33

            
	Section
    7.15	Collateral
      Agent.	
              33

            
	Section 7.16
    	Representation of
      Lead Purchaser.	
              35

            


    

    
       


    

    
            


    

    
         


    

    
         


    

    
         


    

    
        


    

    
        


    

    
        


    

    
       


    

    



    
      
         


      

      
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    NOTE
AND WARRANT PURCHASE AGREEMENT

    


    This NOTE
AND WARRANT PURCHASE AGREEMENT dated as of July 16, 2008 (this “Agreement”) by and
among Valcent Products Inc., a corporation organized under the laws of Alberta,
Canada (the “Company”), and each
of the purchasers of the senior secured convertible promissory notes of the
Company whose names are set forth on Exhibit A attached
hereto (each a “Purchaser” and
collectively, the “Purchasers”) and, for
purposes of Section 1.2 hereof, Viscount Investment, Ltd. and Bodie Investment
Group Inc..

    


    The
parties hereto agree as follows:

     

     

    ARTICLE
I

     

    PURCHASE
AND SALE OF NOTES AND WARRANTS

     

    Section
1.1           Purchase and Sale of Notes
and Warrants

     

    (a)    
       Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers, and the
Purchasers shall purchase from the Company, (i) zero coupon senior secured
convertible promissory notes in the aggregate principal amount of $2,428,160,
convertible into shares of the Company’s common stock, no par value per share
(the “Common
Stock”), in substantially the form attached hereto as Exhibit B (the “Notes”).  The
Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Section 4(2) of the U.S. Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the “Securities Act”),
including Regulation D (“Regulation D”),
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the investments
to be made hereunder.

    


    (b)    
       Upon the following terms and
conditions, the Purchasers shall be issued (i) Warrants, in substantially the
form attached hereto as Exhibit C-1 (the
“Series A
Warrants”), to purchase a number of shares of Common Stock equal to one
hundred percent (100%) of the number of Conversion Shares issuable upon
conversion of such Purchaser’s Note calculated on the closing date at an
exercise price per share equal to $.55 for a term of five (5) years following
the Closing Date and (ii) Warrants, in substantially the form attached hereto as
Exhibit C-2
(the “Series B
Warrants” and together with the Series A Warrants, the “Warrants”), to
purchase a number of shares of Common Stock equal to fifty percent (50%) of the
number of Conversion Shares issuable upon conversion of such Purchaser’s Note
calculated on the closing date at an initial exercise price per share equal to
$.75 for a term of five (5) years following the Closing Date.  The
number of shares of Common Stock issuable upon exercise of the Warrants issuable
to each Purchaser is set forth opposite such Purchaser’s name on Exhibit A attached
hereto.

     

     

    
 

    
      
        
        

      

      
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    Section
1.2           Purchase Price and
Closing.

     

    Subject to the terms and conditions
hereof, the Company agrees to issue and sell to the Purchasers and, in
consideration of and in express reliance upon the representations, warranties,
covenants,
terms and conditions of this Agreement, the Purchasers, severally but not
jointly, agree to purchase the Notes and Warrants for an aggregate purchase
price of up to $2,168,000 (the “Purchase
Price”).  The closing under this Agreement (the “Closing”) shall take
place on or before July 16, 2008 (the “Closing
Date”).  The closing of the purchase and sale of the Notes and
Warrants to be acquired by the Purchasers from the Company under this Agreement
shall take place at the offices of Platinum Long Term Growth VI, LLC (the “Lead Purchaser”), 152
West 57th Street,
54th
Floor, New York, 10:00 a.m. New York time; provided, that all of
the conditions set forth in Article IV hereof and applicable to the Closing
shall have been fulfilled or waived in accordance herewith.  Subject
to the terms and conditions of this Agreement, at the Closing the Company shall
deliver or cause to be delivered to each Purchaser (x) Notes for the principal
amount set forth opposite the name of such Purchaser on Exhibit A hereto and
(y) the Warrants to purchase such number of shares of Common Stock as is set
forth opposite the name of such Purchaser on Exhibit A attached
hereto.  At the Closing, each Purchaser shall deliver its Purchase
Price by wire transfer of immediately available funds to an account designated
by the Company.  All references to Dollars in this Agreement and all
other Transaction Documents shall mean and refer to United States
Dollars.  Notwithstanding anything to the contrary contained herein,
the Purchasers shall be permitted to wire their aggregate Purchase Price to the
Lead Purchaser’s counsel, to be held in escrow by the Lead Purchaser’s counsel
and to be released upon instruction of the Lead Purchaser and the Company after
receipt of the aggregate Purchase Price (it being understood that George Orr’s
Purchase Price has already been delivered to the Company).  It is
understood and agreed that a portion of the Purchase Price shall be paid
directly to repay amounts outstanding pursuant to the Bridge Note (as defined
below), amounts owed to Compass Bank by the Company, title insurance and
recording charges, the cash payment owed to the Finder (as defined below) upon
Closing and the Lead Purchaser’s legal fees (as contemplated by Section
7.1).   Funds owed pursuant to the Bridge Note and the Finder
shall be repaid on Closing; provided that the Finder and Viscount Investment,
Ltd. shall immediately reinvest such funds in the form of a bridge note, to be
repaid within 14 days of the Closing (the “Closing Note”), which
funds shall be wired to the Company on Closing.   Viscount
Investment Group, Ltd. and Bodie Investment Group Inc. have executed this
Agreement to evidence their agreement to loan to the Company the proceeds of the
Closing Note.

    


    Section
1.3           Conversion Shares / Warrant
Shares.  

     

    The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a number of its authorized but
unissued shares of Common Stock equal to one hundred fifty percent (150%) of the
aggregate number of shares of Common Stock to effect the conversion of the Notes
and exercise of the Warrants.  Any shares of Common Stock issuable
upon conversion of the Notes (and such shares when issued) are herein referred
to as the “Conversion
Shares”.  Any shares of Common Stock issuable upon exercise of
the Warrants (and such shares when issued) are herein referred to as the “Warrant
Shares”.  The Notes, the Warrants, the Conversion Shares and
the Warrant Shares are sometimes collectively referred to herein as the “Securities”.


    
      
         


      

      
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    ARTICLE
II

    


    REPRESENTATIONS
AND WARRANTIES

     

    Section
2.1           Representations and
Warranties of the Company.

     

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

    


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

    


    (b)   
        Authorization;
Enforcement.  The Company and the Subsidiaries (as applicable)
have the requisite corporate power and authority to enter into and perform this
Agreement, the Notes, the Warrants, the Security Agreement by and among the
Company and the Subsidiaries, on the one hand, and the Purchasers, on the other
hand, dated as of the date hereof, substantially in the form of Exhibit D attached
hereto (the “Security
Agreement”), the Guarantee to be delivered by each of the Subsidiaries,
dated as of the date hereof, substantially in the form of Exhibit E attached
hereto (the “Guarantee”), the
Officer’s Certificate to be delivered by the Company, dated as of the Closing
Date, substantially in the form of Exhibit F attached
hereto (the “Officer’s
Certificate”), the Deed of Trust, Assignment of Rents and Leases,
Security Agreement and Fixture Filing, dated as of the Closing Date, from
Valcent Manufacturing Ltd., as Grantor, substantially in the form of Exhibit G attached
hereto (the “Mortgage”), the
Environmental Indemnity Agreement, dated as of the Closing Date, between the
Company, the Subsidiaries and the Purchasers, substantially in the form of Exhibit H (the
“Environmental Indemnity Agreement”), the Patent, Trademark and Copyright
Security Agreement by and among the Company, the Subsidiaries and the Agent (as
defined in the IP Security Agreement), substantially in the form of Exhibit I attached
hereto (the “IP
Security Agreement”), and the Irrevocable Transfer Agent Instructions (as
defined in Section 3.16 hereof) (collectively, the “Transaction
Documents”) and to issue and sell the Securities in accordance with the
terms hereof.  The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action, and, except as set forth on Schedule 2.1(b), no
further consent or authorization of the Company, its Board of Directors or
stockholders is required.  When executed and delivered by the Company
and the Subsidiaries, each of the Transaction Documents shall constitute a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor’s rights and remedies or by other equitable principles of general
application.


    
      
         


      

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

    


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

     

     

     

     

     

    
 

    
      
        
        

      

      
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    (e)   
        No
Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company and the Subsidiaries, the performance by
the Company of its obligations under the Notes and the consummation by the
Company and the Subsidiaries of the transactions contemplated hereby and
thereby, and the issuance of the Securities as contemplated hereby, do not and
will not (i) violate or conflict with any provision of the Company’s Articles of
Incorporation (the “Articles”) or Bylaws
(the “Bylaws”),
each as amended to date, or any Subsidiary’s comparable charter documents, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries’ respective properties or assets are bound, (iii)
result in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries are bound
or affected, or (iv) create or impose a lien, mortgage, security interest,
charge or encumbrance of any nature on any property or asset of the Company or
its Subsidiaries under any agreement or any commitment to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound or by which any of their respective properties or assets
are bound, except, in all cases, for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect (other than
violations pursuant to clauses (i) or (iii) (with respect to federal and state
securities laws)).  Neither the Company nor any of its Subsidiaries is
required under federal, state, foreign or local law, rule or regulation to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under the Transaction Documents or
issue and sell the Securities in accordance with the terms hereof (other than
any filings, consents and approvals which may be required to be made by the
Company under applicable state and federal securities laws, rules or
regulations.  The business of the Company and its Subsidiaries is not
being conducted in violation of any laws, ordinances or regulations of any
governmental entity.

    


    (f)       
    Commission Documents,
Financial Statements.  The Common Stock of the Company is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it on SEDAR and with the Commission pursuant
to the reporting requirements of the Exchange Act (all of the foregoing
including filings on SEDAR or EDGAR incorporated by reference therein being
referred to herein as the “Commission
Documents”).  Except for the issues raised by the Securities
and Exchange Commission to the Company’s annual report on Form 20-F for the year
ended March 31, 2007 in a letter dated May 22, 2008, attached hereto as Exhibit
J at the times of their respective filings, the Form 6-K for the fiscal quarters
ended June 30, 2007, September 30, 2007 and December 31, 2007 (collectively, the
“Quarterly
Filings”) and the Form 20-F for the fiscal year ended March 31, 2007 (the
“Form 20-F”)
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, relevant
Canadian securities laws and other federal, state and local laws, rules and
regulations applicable to such documents, and the Quarterly Filings and the Form
20-F did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  As of their respective dates, the financial
statements of the Company included in the Commission Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules and
regulations with respect thereto.  Such financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
(“GAAP”)
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in all
material respects the financial position of the Company and its Subsidiaries as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).

     


    
      
         


      

      
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    (g)   
        Subsidiaries. Schedule 2.1(g)
hereto sets forth each Subsidiary of the Company, showing the jurisdiction of
its incorporation or organization and showing the percentage of each person’s
ownership of the outstanding stock or other interests of such
Subsidiary.  For the purposes of this Agreement, “Subsidiary” shall
mean any corporation or other entity of which at least 50% of the securities or
other ownership interest having ordinary voting power (absolutely or
contingently) for the election of directors or other persons performing similar
functions are at the time owned directly or indirectly by the Company and/or any
of its other Subsidiaries and expressly includes Vertigro Algae Technologies,
LLC (“Vertigro”).  All
of the outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued, and are fully paid and
nonassessable.  Except as set forth on Schedule 2.1(g)
hereto, there are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or acquisition of any shares of capital stock of any
Subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital
stock.  Neither the Company nor any Subsidiary is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of the capital stock of any Subsidiary or any convertible
securities, rights, warrants or options of the type described in the preceding
sentence except as set forth on Schedule 2.1(g)
hereto.  Neither the Company nor any Subsidiary is party to, nor has
any knowledge of, any agreement restricting the voting or transfer of any shares
of the capital stock of any Subsidiary.  Each subsidiary is duly
organized, validly existing and in good standing under the laws of the
jurisdictions set forth on Schedule 2.1(g) and
has the requisite corporate or other power to own, lease and operate its
properties and assets and to conduct its business as it is now being
conducted.

    


    (h)        
   No
Material Adverse Change.  Since March 31, 2007, the Company has
not experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h)
hereto.

    


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

    


    (j)       
    No Undisclosed Events or
Circumstances.  Since March 31, 2007, except as disclosed on
Schedule 2.1(j)
hereto, no event or circumstance has occurred or exists with respect to the
Company or its Subsidiaries or their respective businesses, properties,
prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.

     


    
      
         


      

      
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    (k)       
    Indebtedness.  Schedule 2.1(k)
hereto sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments.  For the purposes of this Agreement,
“Indebtedness” shall mean (a) any liabilities for borrowed money or amounts owed
in excess of $10,000 (other than trade accounts payable incurred in the ordinary
course of business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same are or
should be reflected in the Company’s balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and (c)
the present value of any lease payments in excess of $10,000 due under leases
required to be capitalized in accordance with GAAP.  Neither the
Company nor any Subsidiary is in default with respect to any
Indebtedness.

    


    (l)        
   Title to
Assets.  Each of the Company and the Subsidiaries has good and
valid title to all of its real and personal property reflected in the Commission
Documents, free and clear of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated on Schedule 2.1(l)
hereto or such that, individually or in the aggregate, do not cause a Material
Adverse Effect.  Any leases of the Company and each of its
Subsidiaries are valid and subsisting and in full force and
effect.  Pursuant to, and upon execution and delivery of, the Security
Agreement, the IP Security and the Mortgage, the Company and the Subsidiaries
shall have granted to the Purchasers and the Agent a perfected, first priority
security interest in substantially all of the assets of the Company and the
Subsidiaries.


    


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

    


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

     


    
      
         


      

      
        7

        
          

        

      

      
         


      

    

    
 

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

    


    (p)         
  Certain
Fees.  Except for the finders’ fee equal to 8% of the aggregate
Purchase Price (excluding any Purchase Price payable by George Orr), which is
payable to Bodie Investment Group Inc. (the “Finder”), warrants in substantially
the form of the Warrants to purchase an aggregate of 658,824 shares of Common
Stock (consisting of 439,216 Series A Warrants and 219,608 Series B Warrants)
issued to the Finder, and the fees payable to the Finder upon the cash exercise
of the Warrants (equal to 8% of the cash exercise price), other than the
Warrants issued to George Orr, the Company has not employed any broker or finder
or incurred any liability for any brokerage or investment banking fees,
commissions, finders’ structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.  Further, no
finder’s fee is payable on the Closing Note.

    


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

    


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

     


    
      
         


      

      
        8

        
          

        

      

      
         


      

    


    


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

    


    (t)         
  Books and
Records; Internal Accounting Controls.  The records and
documents of the Company and its Subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and its
Subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary.  The Company is in material compliance with
all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as
of the Closing Date.  The Company and 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 GAAP 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. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms.  The
Company’s certifying officers have evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by the
Company’s most recently filed periodic report under the Exchange Act (such date,
the “Evaluation
Date”).  The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date.  Since the Evaluation
Date, there have been no changes in the Company’s internal control over
financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.

     


    
      
         


      

      
        9

        
          

        

      

      
         


      

    

     

    


    (u)           Material
Agreements.  Except as disclosed in the Commission Documents or
as set forth on Schedule 2.1(u)
hereto, or as would not be reasonably likely to have a Material Adverse Effect,
(i) the Company and each of its Subsidiaries have performed all obligations
required to be performed by them to date under any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, filed or
required to be filed with the Commission (the “Material
Agreements”), (ii) neither the Company nor any of its Subsidiaries has
received any notice of default under any Material Agreement and, (iii) to the
best of the Company’s knowledge, neither the Company nor any of its Subsidiaries
is in default under any Material Agreement now in effect.  Without
limiting the generality of the foregoing, the License Agreements (as defined in
the Notes) are in full force and effect, and none of the Company or any
Subsidiary has received any notice of default thereunder, or event that, with
the passage of time or giving of notice or both would constitute a default
thereunder, nor has any of the Company or any Subsidiary received any notice of
a claim by any person that the Company or any Subsidiary party thereto is not
entitled to use the intellectual property licensed thereunder or that Pagic LP
(or any other licensor named therein) does not possess the necessary right and
authority to license such intellectual property in accordance with the terms of
the License Agreements.

    


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

    


    (w)           Securities Act of
1933.  The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Securities hereunder.  Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or will sell, offer
to sell or solicit offers to buy any of the Securities or similar securities to,
or solicit offers with respect thereto from, or enter into any negotiations
relating thereto with, any person, or has taken or will take any action so as to
bring the issuance and sale of any of the Securities under the registration
provisions of the Securities Act and applicable state securities laws, and
neither the Company nor any of its affiliates, nor any person acting on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of any of the Securities.  The
Company is not, and has never been, a company described in Rule 144(i)(1) under
the Securities Act, and is a “reporting issuer” as described in Rule 144(c)(1)
under the Securities Act.  Neither the Company, nor any of its
directors, officers or controlling persons, has taken or will, in violation of
applicable law, take, any action designed to or that might reasonably be
expected to cause or result in, or which has constituted, stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the securities issued or issuable in connection with the transactions
contemplated hereunder.

     


    
      
         


      

      
        10

        
          

        

      

      
         


      

    

     

    


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

    


    (y)       
    Absence of Certain
Developments.  Except as set forth in the Commission Documents
or provided on Schedule 2.1(y)
hereto, since March 31, 2007, neither the Company nor any Subsidiary
has:

    


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

     

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

     

    (iii)         discharged
or satisfied any lien or encumbrance in excess of $100,000 or paid any
obligation or liability (absolute or contingent) in excess of $100,000, other
than current liabilities paid in the ordinary course of business;

     

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

     

     


    
      
         


      

      
        11

        
          

        

      

      
         


      

    

     

     

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

     

    (vi)        sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights in
excess of $100,000, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business or to the
Purchasers or their representatives;

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

    


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

     

    
 

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

     

    (aa)          ERISA.  No
liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Plan by the Company or any of its Subsidiaries which is or would
be materially adverse to the Company and its Subsidiaries.  The
execution and delivery of this
Agreement and the issuance and sale of the Securities will not involve any
transaction which is subject to the prohibitions of Section 406 of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”) or in connection
with which a tax could be imposed pursuant to Section 4975 of the Internal
Revenue Code of 1986, as amended, provided that, if any of the Purchasers, or
any person or entity that owns a beneficial interest in any of the Purchasers,
is an “employee pension benefit plan” (within the meaning of Section 3(2) of
ERISA) with respect to which the Company is a “party in interest” (within the
meaning of Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and
408(e) of ERISA, if applicable, are met.  As used in this Section
2.1(aa), the term “Plan” shall mean an “employee pension benefit plan” (as
defined in Section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any
Subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any Subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.

    


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


    
      
         


      

      
        13

        
          

        

      

      
         


      

    


    (cc)          No Integrated
Offering.  Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the offering of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of the Securities Act which would prevent the Company from selling the
Securities pursuant to Regulation D and Rule 506 thereof under the Securities
Act, or any applicable exchange-related stockholder approval provisions, nor
will the Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.  The Company does not have any registration statement
pending before the Commission or currently under the Commission’s review and
except as set forth on Schedule 2.1(cc)
hereto, since January 1, 2008, the Company has not offered or sold any of its
equity securities or debt securities convertible into shares of Common
Stock.

    


    (dd)         Dilutive
Effect.  The Company understands and acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes in accordance
with this Agreement and the Notes and its obligations to issue the Warrant
Shares upon the exercise of the Warrants in accordance with this Agreement and
the Warrants, is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interest of other
stockholders of the Company.

    


    (ee)           DTC
Status.  Except as set forth on Schedule 2.1(ee)
hereto, the Company’s transfer agent is a participant in and the Common Stock is
eligible for transfer pursuant to the Depository Trust Company Automated
Securities Transfer Program.  The name, address, telephone number, fax
number, contact person and email of the Company transfer agent is set forth on
Schedule
2.1(ee) hereto.

    


    (ff)           Governmental
Approvals.  Except for the filing of any notice prior or
subsequent to the Closing that may be required under applicable state and/or
federal securities laws (which if required, shall be filed on a timely basis),
no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Notes and the
Warrants, or for the performance by the Company of its obligations under the
Transaction Documents.

    


    Section
2.2           Representations and
Warranties of the Purchasers.

     

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

    


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

    
 

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

     

    (b)       
    Authorization and
Power.  Each Purchaser has the requisite power and authority to
enter into and perform the Transaction Documents and to purchase the Securities
being
sold to it hereunder.  The execution, delivery and performance of the
Transaction Documents by each Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate or partnership action, and no further consent or authorization of such
Purchaser or its Board of Directors, stockholders, or partners, as the case may
be, is required.  When executed and delivered by the Purchasers, the
other Transaction Documents shall constitute valid and binding obligations of
each Purchaser enforceable against such Purchaser in accordance with their
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor’s rights and remedies or by other equitable principles of general
application.

    


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

    


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

    


    (e)        
   General.  Each
Purchaser understands that the Securities are being offered and sold in reliance
on a transactional exemption from the registration requirements of federal and
state securities laws and the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments and understandings
of such Purchaser set forth herein in order to determine the applicability of
such exemptions and the suitability of such Purchaser to acquire the
Securities.  Each Purchaser understands that no United States federal
or state agency or any government or governmental agency has passed upon or made
any recommendation or endorsement of the Securities.

     


    
      
         


      

      
        15

        
          

        

      

      
         


      

    


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

    


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

    


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

    


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

     

     

    ARTICLE
III

     

    COVENANTS

     

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

     

    Section
3.1           Securities
Compliance.

     

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

    


    Section
3.2           Registration and
Listing.

     

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


    
      
         


      

      
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    Section
3.3           Inspection
Rights.

     

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

    


    Section
3.4           Compliance with
Laws.

     

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

    


    Section
3.5           Keeping of Records and Books
of Account.

     

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

    


    Section
3.6           Reporting
Requirements.

     

    If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports available via the Internet without charge, then the Company
shall furnish the following to each Purchaser so long as such Purchaser shall be
obligated hereunder to purchase the Securities or shall beneficially own
Securities:


    
      
         


      

      
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    (a)           Quarterly
Reports on Form 6-K as soon as practical after the document is or would have
been required to be filed with the Commission;

    


    (b)           Annual
Reports filed with the Commission on Form 20-F as soon as practical after the
document is or would have been required to be filed with the Commission;
and

    


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

     

    Section
3.7           Other
Agreements.

     

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

    


    Section
3.8           Use of
Proceeds.

    


    The
proceeds from the sale of the Securities hereunder shall be used by the Company
for general working capital and the repayment of indebtedness owed pursuant to
the Promissory Note, dated on or about July 2, 2008, in the original principal
amount of $200,000 (the “Bridge Note”), and to
Compass Bank in the amount set forth in Schedule 3.8.  In no event
shall the proceeds be used to redeem any Common Stock or securities convertible,
exercisable or exchangeable into Common Stock or to settle any outstanding
litigation.

    


    Section
3.9           Reporting
Status.

    


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

    


    Section
3.10         Disclosure of
Transaction.

     

    The Company shall issue a press release
describing the material terms of the transactions contemplated hereby (the
“Press
Release”) within three Trading Days of the Closing Date.  The
Company shall also file with the Commission a Current Report on Form 6-K (the
“Form 6-K”)
describing the material terms of the transactions contemplated hereby as soon as
practicable following the Closing Date but in no event more than three (3)
Trading Days following the Closing Date, which Press Release and Form 6-K shall
be subject to prior review and comment by the Purchasers.  “Trading Day” means
any day during which the principal exchange on which the Common Stock is traded
shall be open for trading.

     

    
 

    
      
        
        

      

      
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    Section
3.11         Disclosure of Material
Information.


    The Company covenants and agrees that
neither it nor any other person acting on its behalf has provided or will
provide any Purchaser or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information.  The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.  In the event
of a breach of the foregoing covenant by the Company, or 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, the Company shall publicly disclose any material,
non-public information in a Form 6-K within five (5) Business Days of the date
that it discloses such information to any Purchaser.  In the event
that the Company discloses any material, non-public information to a Purchaser
and fails to publicly file a Form 6-K in accordance with the above, a Purchaser
shall have the right to make a public disclosure, in the form of a press
release, public advertisement or otherwise, of such material, nonpublic
information without the prior approval by the Company, its Subsidiaries, or any
of its or their respective officers, directors, employees or
agents.  No Purchaser shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees,
stockholders or agents, for any such disclosure.

    


    Section
3.12         Pledge of
Securities.

     

    The Company acknowledges that the
Securities may be pledged by a Purchaser in connection with a bona fide margin agreement
or other loan or financing arrangement that is secured by the
Securities.  The pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Purchaser
effecting a pledge of the Securities shall be required to provide the Company
with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document; provided that a Purchaser
and its pledge shall be required to comply with the provisions of Article V
hereof in order to effect a sale, transfer or assignment of Securities to such
pledgee. At the Purchasers’ expense, the Company hereby agrees to execute and
deliver such documentation as a pledge of the Securities may reasonably request
in connection with a pledge of the Securities to such pledgee by a
Purchaser.

    


    Section
3.13         Amendments.  

     

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

    


    Section
3.14         Distributions.

     

    Except as provided in Schedule 3.14, so
long as any Notes or Warrants remain outstanding, the Company agrees that it
shall not, and shall not permit any Subsidiary to, (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock (or
security convertible into or exercisable for Common Stock) or (ii) purchase or
otherwise acquire for value, directly or indirectly, any Common Stock or other
equity security of the Company.

     


    
      
         


      

      
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    Section
3.15         Reservation of
Shares.

     

    So long
as any of the Notes or Warrants remain outstanding, the Company shall take all
action necessary to at all times have authorized and reserved for the purpose of
issuance, one hundred fifty percent (150%) of the aggregate number of shares of
Common Stock needed to provide for the issuance of the Conversion Shares and the
Warrant Shares.

    


    Section
3.16         Transfer Agent
Instructions

     

    The Company shall issue instructions to
its transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Purchaser or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Purchaser to the Company upon conversion of the Notes or
exercise of the Warrants in the form of Exhibit K attached
hereto (the “Irrevocable Transfer Agent
Instructions”).  The Company warrants that the Conversion
Shares and Warrant Shares shall otherwise be freely transferable on the books
and records of the Company, subject to the requirements of applicable
law.  Nothing in this Section 3.16 shall affect in any way each
Purchaser’s obligations and agreements set forth in Section 5.1 to comply with
all applicable prospectus delivery requirements, if any, or other exemption from
registration upon resale of the Conversion Shares and the Warrant
Shares.  If a Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Conversion Shares or Warrant Shares may be made
without registration under the Securities Act or the Purchaser provides the
Company with reasonable assurances that the Conversion Shares or Warrant Shares
can be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold,
the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend.  The Company
acknowledges that a breach by it of its obligations under this Section 3.16 will
cause irreparable harm to the Purchasers by vitiating the intent and purpose of
the transaction contemplated hereby.  Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 3.16 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 3.16, that
the Purchasers shall be entitled, in addition to all other available remedies,
to an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.

    


    Section
3.17         Opinions. 

    


    The
Company will provide, at the Company’s expense, such legal opinions in the
future as are reasonably necessary for the issuance and resale of the Common
Stock issuable upon conversion of the Notes and exercise of the Warrants
pursuant to an effective registration statement, Rule 144 or an exemption from
registration.  In the event that Common Stock is sold in a manner that
complies with an exemption from registration, the Company will promptly instruct
its counsel (at its expense) to issue to the transfer agent an opinion
permitting removal of the legend (indefinitely, if more than one year has
elapsed from the Closing Date, or to permit sale of the shares if pursuant to
the other provisions of Rule 144).


    
      
         


      

      
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    Section
3.18         Acquisition of
Assets.

     

    In the event the Company or any
Subsidiary acquires any assets or other properties, such assets or properties
shall constitute a part of the Collateral (as defined in the Security Agreement)
and the Company shall take all action necessary to perfect the Purchasers’
security interest in such assets or properties pursuant to the Security
Agreement.

    


    Section
3.19         Subsequent
Financings.

     

    (a)           For
so long as the Notes remain outstanding, the Company covenants and agrees to
promptly notify (in no event later than five (5) days after making or receiving
an applicable offer) in writing (a “Rights Notice”) the
Purchasers of the terms and conditions of any proposed offer or sale to, or
exchange with (or other type of distribution to) any third party  (a
“Subsequent
Financing”), of Common Stock or any securities convertible, exercisable
or exchangeable into Common Stock, including convertible debt securities
(collectively, the “Financing
Securities”).  The Rights Notice shall describe, in reasonable
detail, the proposed Subsequent Financing, the names and investment amounts of
all investors participating in the Subsequent Financing, the proposed closing
date of the Subsequent Financing, which shall be within twenty (20) calendar
days from the date of the Rights Notice, and all of the terms and conditions
thereof and proposed definitive documentation to be entered into in connection
therewith.  The Rights Notice shall provide each Purchaser an option
(the “Rights
Option”) during the ten (10) days following delivery of the Rights Notice
(the “Option
Period”) to inform the Company whether such Purchaser will purchase
securities in such Subsequent Financing, up to its pro rata portion (as
described below) of the securities being offered in such Subsequent Financing on
the same, absolute terms and conditions as contemplated by such Subsequent
Financing.  If any Purchaser elects not to participate in such
Subsequent Financing, the other Purchasers may participate on a pro-rata
basis.  For purposes of this Section, all references to “pro rata”
means, for any Purchaser electing to participate in such Subsequent Financing,
the percentage obtained by dividing (x) the principal amount of the Notes
purchased by such Purchaser at each Closing by (y) the total principal amount of
all of the Notes purchased by all of the participating Purchasers at each
Closing.  Delivery of any Rights Notice constitutes a representation
and warranty by the Company that there are no other material terms and
conditions, arrangements, agreements or otherwise except for those disclosed in
the Rights Notice, to provide additional compensation to any party participating
in any proposed Subsequent Financing, including, but not limited to, additional
compensation based on changes in the Purchase Price or any type of reset or
adjustment of a purchase or conversion price or to issue additional securities
at any time after the closing date of a Subsequent Financing.  If the
Company does not receive notice of exercise of the Rights Option from the
Purchasers within the Option Period, the Company shall have the right to close
the Subsequent Financing on the scheduled closing date with a third party; provided that all of
the material terms and conditions of the closing are substantially the same as
those provided to the Purchasers in the Rights Notice.  If the closing
of the proposed Subsequent Financing does not occur on that date, any closing of
the contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of  Sections 3.19(a) and (c),
including, without limitation, the delivery of a new Rights
Notice.  The provisions of this Section 3.19(a) shall not apply to:
(i) issuances of securities in a Permitted Financing; or (ii) with respect to
any Purchaser that holds less than 10% of the Notes issued to it upon the
Closing.


    
      
         


      

      
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    (b)           For
purposes of this Agreement, a Permitted Financing shall not be considered a
Subsequent Financing.  A “Permitted Financing”
shall mean (i) any financing described in and meeting the requirements of
Section 3.5(c) of the Notes, (ii) any Subsequent Financing whereby the Company
issues equity securities or securities exercisable or convertible to common
stock as part of a capital raising transaction or series of transactions to
raise up to $10 million so long as such equity securities are issued by the
Company, or convertible or exercisable, at a price equal to at least $0.55 per
share (as adjusted for splits, combinations and the like occurring after the
date hereof); and (iii) any Subsequent Financing for which the proceeds will be
used to fully satisfy the Company’s obligations under the Note.


    


    (c)    
       So long as the Notes are outstanding,
if the Company enters into any Subsequent Financing on terms more favorable than
the terms governing the Notes, then each Purchaser in its sole discretion may
exchange its Note, valued at their stated value (stated principal amount),
together with accrued but unpaid interest (which interest payments shall be
payable, at the sole option of such Purchaser, in cash or in the form of the new
securities to be issued in the Subsequent Financing), for the securities issued
or to be issued in the Subsequent Financing.  The Company covenants
and agrees to promptly notify in writing the Purchasers of the terms and
conditions of any such proposed Subsequent Financing.  Neither an
exchange pursuant to this provision nor any repayment or conversion of the Note
shall have any effect on a Purchaser’s Warrants.  The Warrants
constitute a separate, detachable security from the
Notes.  Notwithstanding any such exchange, repayment or conversion,
the Purchasers shall retain all of the outstanding Warrants which they received
upon Closing, or otherwise, that have not been exercised by the
Purchasers.


    


    Section
3.20         Variable Rate
Securities.

     

    For so long as any Notes have not been
paid in full or converted in full, except for a Permitted Financing described in
clauses (ii) and (iii) of the definition of Permitted Financing in Section
3.19(b) above, the Company shall not issue or sell, or agree to issue or sell
Variable Equity Securities (as defined below), without obtaining the prior
written approval of each of the Purchasers.  For purposes hereof, the
following shall be collectively referred to herein as, the “Variable Equity
Securities”: (A) any debt or equity securities which are convertible
into, exercisable or exchangeable for, or carry the right to receive additional
shares of Common Stock either (1) at any conversion, exercise or exchange rate
or other price that is based upon and/or varies with the trading prices of or
quotations for Common Stock at any time after the initial issuance of such debt
or equity security, or (2) with a fixed conversion, exercise or exchange price
that is subject to being reset at some future date at any time after the initial
issuance of such debt or equity security due to a change in the market price of
the Company’s Common Stock since date of initial issuance, or (B) any amortizing
convertible security which amortizes prior to its maturity date, where the
Company is required to or has the option to (or the investor in such transaction
has the option to require the Company to) make such amortization payments in
shares of Common Stock (whether or not such payments in stock are subject to
certain equity conditions), or (C) any transaction involving a written agreement
between the Company and an investor or underwriter whereby the Company has the
right to “put” its securities to the investor or underwriter over an agreed
period of time and at an agreed price or price formula.

     

    
 

    
      
         


      

      
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    Section
3.21         Registration
Rights.

     

    If, within one year of the Closing
Date,  the Company shall determine to prepare and file with the
Commission a registration statement (a “Registration
Statement”) relating to an offering for its own account or the account of
others under the Securities Act of any of its equity securities, other than on
Form F-4 or Form S-8 (each as promulgated under the Securities Act), or their
then equivalents, relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or equity securities
issuable in connection with stock option or other employee benefit plans, then
the Company shall send to the Purchasers a written notice of such determination
and, if within ten days after the date of such notice, a Purchaser shall so
request in writing, the Company shall include in such Registration Statement all
or any part of the Conversion Shares or Warrant Shares as such Purchaser
requests to be registered so long as such Conversion Shares or Warrant Shares
are proposed to be disposed in the same manner as those set forth in the
Registration Statement; provided, however, that if the number of Conversion
Shares or Warrant Shares offered for participation in the proposed offering is
greater than, in the reasonable opinion of the managing underwriter (if any) of
the proposed offering, can be accommodated without adversely affecting the
proposed offering, then the number of shares of Common Stock included in such
registration shall be subject to reduction to a number deemed satisfactory by
the managing underwriter, which reduction shall be allocated pro rata among all
parties offering securities pursuant to such Registration
Statement.  The Company shall use its best efforts to cause any
Registration Statement to be declared effective by the Commission as promptly as
is possible following it being filed with the Commission and to remain effective
until all Conversion Shares subject thereto have been sold or may be sold
without limitations as to volume or the availability of current public
information under Rule 144.  All fees and expenses incident to the
performance of or compliance with this Section 3.21 by the Company shall be
borne by the Company whether or not any Conversion Shares or Warrant Shares are
sold pursuant to the Registration Statement.  The Company shall
indemnify and hold harmless each Purchaser, the officers, directors, members,
partners, agents, brokers, investment advisors and employees of each of them,
each person who controls each Purchaser (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), and the officers, directors,
members, shareholders, partners, agents and employees of each such controlling
person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as
incurred, arising out of or relating to (1) any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
prospectus included therein or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading or (2) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act or any
state securities law, or any rule or regulation thereunder, in connection with
the performance of its obligations under this Section 3.21, except, with respect
to a Purchaser, to the extent, but only to the extent, that such untrue
statements or omissions referred to in (1) above are based solely upon
information regarding such Purchaser furnished in writing to the Company by such
Purchaser expressly for use therein.


    
      
         


      

      
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    ARTICLE
IV

     

    CONDITIONS

     

    Section
4.1           Conditions Precedent to the
Obligation of the Company to Close and to Sell the
Securities.

     

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

    


    (a)           Accuracy of the Purchasers’
Representations and Warranties.  The representations and
warranties of each Purchaser shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though made at that time,
except for representations and warranties that are expressly made as of a
particular date, which shall be true and correct in all material respects as of
such date.

    


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

    


    


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


    


    (d)           Delivery of Purchase
Price.  The Purchase Price for the Securities shall have been
delivered to or on behalf of the Company on the Closing Date; provided, that, (i) any fees
owed to the Finder shall be delivered directly to the Finder by the Purchasers
on Closing, (ii) any portion of the Purchase Price required to repay all
outstanding indebtedness owed pursuant to the Bridge Note and owed Compass Bank
shall be delivered directly by the Purchasers to such parties, (iii) legal fees
of the Lead Purchaser may be withheld by the Lead Purchaser from funds to be
delivered to the Company on Closing and (iv) any recording fees and premium
relating to title insurance may be withheld by the Lead Purchaser from funds to
be delivered to the Company on Closing.


    


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

     

    
 

    
      
        
        

      

      
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    Section
4.2           Conditions Precedent to the
Obligation of the Purchasers to Close and to Purchase the
Securities.


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

    


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

    


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

    


    


    (c)           No Suspension,
Etc.  Trading in the Common Stock shall not have been suspended
by the Commission or the OTC Bulletin Board, and, at any time prior to the
Closing Date, trading in securities generally as reported by Bloomberg Financial
Markets (“Bloomberg”) shall not
have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the New
York Stock Exchange, nor shall a banking moratorium have been declared either by
the United States or New York State authorities, nor shall there have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of such Purchaser, makes it impracticable or inadvisable to purchase
the Securities.


    


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

    


    


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


    


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


    
      
         


      

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


    


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


    


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


    


    (j)           Mortgaged Land and
Premises.  As of the Closing Date, the Mortgage shall have been
recorded in the land records of El Paso, Texas and shall be a first priority
lien on the land and premises described therein.  The Company and the
Subsidiaries shall deliver a title insurance policy, in form and substance
satisfactory to the Purchasers, with respect to the land and premises described
in the mortgage, the premium of which shall be paid by the Company at Closing
(or withheld by the Lead Purchaser).  The Environmental Indemnity
Agreement shall have been delivered to each Purchaser.


    


    (k)           Material Adverse
Effect.  No Material Adverse Effect shall have
occurred.


    


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

    


    (m)           Security
Agreements.  At the Closing, the Company shall have executed
and delivered the Security Agreement and IP Security Agreement to each
Purchaser.

     

    
 

    
      
         


      

      
        26

        
          

        

      

      
         


      

    


    


    (n)           UCC Financing
Statements.  The Company and the Subsidiaries shall have filed
(or authorized the filing of) all UCC and similar financing statements in form
and substance satisfactory to the Purchasers at the appropriate offices to
create a valid and perfected security interest in the Collateral (as defined in
the Security Agreement).


    


    (o)           Global Green
Agreement.   Global Green Solutions Inc. shall have
consented to the Guaranty of Vertigro and the pledge of the Company’s or
Subsidiaries’ interests in Vertigro to the Agent for the benefit of the
Purchasers.


    


    (p)           Pagic LP
Agreement.  Pagic LP and the other licensors named therein
shall have agreed with the Purchasers not to terminate, amend or modify the
License Agreements without the express written consent of the Purchasers, which
agreement shall be in form and substance satisfactory to the
Purchasers.


     

     

    ARTICLE
V

     

    CERTIFICATE
LEGEND

     

    Section
5.1           Legend.

     

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

    


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

     

    UNLESS
PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT
TRADE THE SECURITY BEFORE NOVEMBER 17, 2008.

    


    The
Company agrees to issue or reissue certificates representing any of the
Conversion Shares and the Warrant Shares, without the legend set forth above if
at such time, prior to making any transfer of any such Conversion Shares or
Warrant Shares, such holder thereof shall give written notice to the Company
describing the manner and terms of such transfer and removal as the Company may
reasonably request, and (x) such Conversion Shares and/or Warrant Shares have
been registered for sale under the Securities Act and the holder is selling such
shares and is complying with its prospectus delivery requirement under the
Securities Act, (y) the holder is selling such Conversion Shares and/or Warrant
Shares in compliance with the provisions of Rule 144 or (z) the provisions of
paragraph (b)(1)(i) of Rule 144 apply to such Shares.

     

     


    
      
         


      

      
        27

        
          

        

      

      
         


      

    

     

     

    ARTICLE
VI

     

    INDEMNIFICATION

     

    Section
6.1           General
Indemnity.

     

    The Company agrees to indemnify and
hold harmless the Purchasers (and their respective directors, officers,
affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys’ fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company
herein.

     

    Section
6.2           Indemnification
Procedure.

     

    Any party entitled to indemnification
under this Article VI (an “indemnified party”) will give written notice to the
indemnifying party of any matter giving rise to a claim for indemnification;
provided, that the failure of any party entitled to indemnification hereunder to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under this Article VI except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice.  In case
any such action, proceeding or claim is brought against an indemnified party in
respect of which indemnification is sought hereunder, the indemnifying party
shall be entitled to participate in and, unless in the reasonable judgment of
the indemnifying party a conflict of interest between it and the indemnified
party exists with respect to such action, proceeding or claim (in which case the
indemnifying party shall be responsible for the reasonable fees and expenses of
one separate counsel for the indemnified parties), to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party.  In the
event that the indemnifying party advises an indemnified party that it will
contest such a claim for indemnification hereunder, or fails, within thirty (30)
days of receipt of any indemnification notice to notify, in writing, such person
of its election to defend, settle or compromise, at its sole cost and expense,
any action, proceeding or claim (or discontinues its defense at any time after
it commences such defense), then the indemnified party may, at its option,
defend, settle or otherwise compromise or pay such action or
claim.  In any event, unless and until the indemnifying party elects
in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party’s costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder.  The indemnified
party shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim.  The
indemnifying party shall keep the indemnified party fully apprised at all times
as to the status of the defense or any settlement negotiations with respect
thereto.  If the indemnifying party elects to defend any such action
or claim, then the indemnified party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense.  The
indemnifying party shall not be liable for any settlement of any action, claim
or proceeding effected without its prior written
consent.  Notwithstanding anything in this Article VI to the contrary,
the indemnifying party shall not, without the indemnified party’s prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof which imposes any future obligation on the indemnified party or
which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the indemnified party of a release from all
liability in respect of such claim.  The indemnification obligations
to defend the indemnified party required by this Article VI shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the indemnified party shall refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party was
not entitled to indemnification.  The indemnity agreements contained
herein shall be in addition to (a) any cause of action or similar rights of the
indemnified party against the indemnifying party or others, and (b) any
liabilities the indemnifying party may be subject to pursuant to the
law.

     


    
      
         


      

      
        28

        
          

        

      

      
         


      

    


     

    ARTICLE
VII

     

    MISCELLANEOUS

     

    Section
7.1           Fees and
Expenses.

     

    Each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement; provided, however, that the
Company shall pay all actual attorneys’ fees and expenses (including
disbursements and out-of-pocket expenses) incurred by the Lead Purchasers in
connection with (i) the preparation, negotiation, execution and delivery of the
Transaction Documents and the transactions contemplated thereunder, which
payment shall be made at Closing and shall not exceed $19,500 (plus
disbursements and out-of-pocket expenses), and (ii) any amendments,
modifications or waivers of this Agreement or any of the other Transaction
Documents.  In addition, the Company shall pay (i) any fees and
expenses relating to the title insurance with respect to the property described
in the Mortgage, and (ii) all reasonable fees and expenses incurred by the
Purchasers in connection with the enforcement of this Agreement or any of the
other Transaction Documents, including, without limitation, all reasonable
attorneys’ fees and expenses.

    


    Section
7.2           Specific Performance;
Consent to Jurisdiction; Venue.

     

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

     


    
      
         


      

      
        29

        
          

        

      

      
         


      

    

     

    


    (b)           The
parties agree that venue for any dispute arising under this Agreement will lie
exclusively in the state or federal courts located in New York County, New York,
and the parties irrevocably waive any right to raise forum non conveniens or any
other argument that New York is not the proper venue.  The parties
irrevocably consent to personal jurisdiction in the state and federal courts of
the state of New York.  The Company and each Purchaser consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof.  Nothing in this Section 7.2
shall affect or limit any right to serve process in any other manner permitted
by law.  The Company and the Purchasers hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
the Securities, this Agreement or the other Transaction Documents, shall be
entitled to reimbursement for reasonable legal fees from the non-prevailing
party.  The parties hereby waive all rights to a trial by
jury.

    


    Section
7.3           Entire Agreement;
Amendment.

     

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

    


    Section
7.4           Notices.

     

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

     

    
 

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

     

    If to the
Company:                              
Valcent Products Inc.

    Suite
1010 – 789 West Pender Street

    Vancouver,
British Columbia, Canada

    V6C
1H2

    Attn:
Grant Atkins

    Tel:
(604) 637-3106

    Fax:
(604) 606-7980

    


    


    with
copies (which copies

    shall not
constitute notice

    to the
Company)
to:                             Burns
Figa & Will P.C.

    6400 S. Fiddlers Green
Circle

    Suite
1000

    Greenwood
Village, CO 80111

    Attn: Theresa M.
Mehringer

    Tel:
(303) 796-2626

    Fax:
(303) 796-2777

    


    
      	
              If
      to any Purchaser:

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

            


    

    


    Shane W.
McCormack, Esq.

    Burak
Anderson & Melloni, PLC

    30 Main
Street, PO Box 787

    Burlington,
VT 05402-0787

    Tel:
(802) 862-0500

    Fax:
(802) 862-8176

    


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

     

    Section
7.5           Waivers.

     

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


    
      
         


      

      
        31

        
          

        

      

      
         


      

    


     

    
      Section
7.6           Headings.

    

     

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

    


    Section
7.7           Successors and
Assigns.

     

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

    


    Section
7.8           No Third Party
Beneficiaries.

     

    This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

    


    Section
7.9           Governing
Law.

     

    This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction.  This
Agreement shall not be interpreted or construed with any presumption against the
party causing this Agreement to be drafted.  In no event shall the
rate of interest payable hereunder or under any of the other Transaction
Documents exceed the maximum rate (if any) permitted by applicable
law.

    


    Section
7.10         Survival.

     

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

    


    Section
7.11         Counterparts.

     

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

    


    Section
7.12         Publicity.

     

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

     


    
      
         


      

      
        32

        
          

        

      

      
         


      

    

     

     

    Section
7.13         Severability.

     

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

    


    Section
7.14         Further
Assurances.

     

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

     

    Section
7.15         Collateral
Agent.

     

    (a)           Appointment.  Each
Purchaser hereby appoints the Lead Purchaser as the Collateral Agent under the
Security Agreement, the Mortgage and the IP Security Agreement (collectively,
the “Security
Documents”) and each Purchaser authorizes the Collateral Agent to take
such action as agent on its behalf and to exercise such powers under the
Security Documents as are delegated to the Collateral Agent under such
agreements and to exercise such powers as are reasonably incidental
thereto.  Without limiting the foregoing, each Secured Party hereby
authorizes the Collateral Agent to execute and deliver, and to perform its
obligations under, each of the documents to which the Collateral Agent is a
party relating to security for the obligations under the Notes, to exercise all
rights, powers and remedies that the Collateral Agent may have under such
Security Documents and, in the case of the Security Documents, to act as agent
for the Purchasers under such Transaction Documents.

    


    (b)           Instructions of
Purchasers.  The Collateral Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Purchasers holding at least 51% of the
aggregate amount of the Notes then outstanding, and such instructions shall be
binding upon all Purchasers; provided, however, that the
Collateral Agent shall not be required to take any action that (i) the
Collateral Agent in good faith believes exposes it to personal liability unless
the Collateral Agent receives an indemnification satisfactory to it from the
Purchasers with respect to such action or (ii) is contrary to this Agreement or
applicable law.

    



    
      
         


      

      
        33

        
          

        

      

      
         


      

    


    (c)           Duties are Administrative in
Nature.  In performing its functions and duties under the
Security Documents and the other documents required to be executed or delivered
in connection therewith, the Collateral Agent is acting solely on behalf of the
Purchasers and its duties are entirely administrative in nature.  The
Collateral Agent does not assume and shall not be deemed to have assumed any
obligation other than as expressly set forth herein.  The Collateral
Agent may perform any of its duties under any Security Document by or through
its agents or employees.


    


    (d)           No
Liability.  None of the Collateral Agent, any of its affiliates
or any of their respective directors, officers, agents or employees shall be
liable for any action taken or omitted to be taken by it, him, her or them under
or in connection with the Security Documents, except for its, his, her or their
own gross negligence or willful misconduct.


    


    (e)           Investigation.  Each
Secured Party acknowledges that it shall, independently and without reliance
upon the Collateral Agent or any other Secured Party conduct its own independent
investigation of the financial condition and affairs of the Company and its
Subsidiaries in connection with the issuance of the Securities.  Each
Secured Party also acknowledges that it shall, independently and without
reliance upon the Collateral Agent or any other Secured Party and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and other Transaction Documents.


    


    (f)           Indemnification.  Each
Purchaser agrees to indemnify the Collateral Agent and each of its affiliates,
and each of their respective directors, officers, employees, agents and advisors
(to the extent not reimbursed by the Company), from any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements (including fees, expenses and disbursements of
financial and legal advisors) of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against, the Collateral Agent or any of its
affiliates, directors, officers, employees, agents and advisors in any way
relating to or arising out of the Security Documents or any action taken or
omitted by the Collateral Agent under the Security Documents or the document
related thereto; provided, however, that no
Purchaser shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Collateral Agent’s or such Affiliate’s gross
negligence or willful misconduct.


    


    (g)           Resignation. The
Collateral Agent may resign at any time by giving written notice thereof to the
Purchasers and the Company.  Upon any such resignation, the Purchasers
shall have the right to appoint a successor Collateral Agent.  If no
successor Collateral Agent shall have been so appointed by the Purchasers, and
shall have accepted such appointment, within 30 days after the retiring
Collateral Agent’s giving of notice of resignation, then the retiring Collateral
Agent may, on behalf of the Purchasers, appoint a successor Collateral Agent,
selected from among the Purchasers.  Upon the acceptance of any
appointment as Collateral Agent by a successor Collateral Agent, such successor
Collateral Agent shall succeed to, and become vested with, all the rights,
powers, privileges and duties of the retiring Collateral Agent, and the retiring
Collateral Agent shall be discharged from its duties and obligations under this
Agreement, the Transaction Documents and any other documents required to be
executed or delivered in connection therewith.  Prior to any retiring
Collateral Agent’s resignation hereunder as Collateral Agent, the retiring
Collateral Agent shall take such action as may be reasonably necessary to assign
to the successor Collateral Agent its rights as Collateral Agent under the
Transaction Documents.  After such resignation, the retiring
Collateral Agent shall continue to have the benefit of this Agreement as to any
actions taken or omitted to be taken by it while it was Collateral Agent under
this Agreement, the Security Documents and any other documents required to be
executed or delivered in connection therewith.


    
      
         


      

      
        34

        
          

        

      

      
         


      

    

     

    


    (h)           Binding.  Each
Purchaser agrees that any action taken by the Collateral Agent in accordance
with the provisions of this Agreement or of the other document relating thereto,
and the exercise by the Collateral Agent or the Purchasers of the powers set
forth herein or therein, together with such other powers as are reasonably
incidental thereto, shall be authorized and binding upon all of the
Purchasers.

    


    


    (i)           
Releases.  Each
of the Purchasers hereby directs, in accordance with the terms hereof, the
Collateral Agent to release (or in the case of clause (ii) below, release or
subordinate) any Lien held by the Collateral Agent for the benefit of the
Purchasers against any of the following: (i) all of the Collateral upon payment
and satisfaction in full of all obligations under the Notes and all other
obligations under the Transaction Documents that the Collateral Agent has been
notified in writing are then due and payable; (ii) any assets that are subject
to a Lien; and (iii) any part of the Collateral sold or disposed of by the
Company or any Subsidiary if such sale or disposition is permitted by this
Agreement and the other Transaction Documents (or permitted pursuant to a waiver
or consent of a transaction otherwise prohibited by this Agreement and the other
Transaction Documents).  Each of the Purchasers hereby directs the
Collateral Agent to execute and deliver or file such termination and partial
release statements and do such other things as are necessary to release Liens to
be released pursuant to this Section 7.15 promptly upon the effectiveness of any
such release.


    


    Section
7.16         Representation of Lead
Purchaser.

     

    It is acknowledged by each Purchaser
that the Lead Purchaser has retained Burak Anderson & Melloni, PLC to act as
its counsel in connection with the transactions contemplated by the Transaction
Documents and that Burak Anderson & Melloni, PLC has not acted as counsel
for any Purchaser, other than the Lead Purchaser, in connection with the
transactions contemplated by the Transaction Documents and that none of such
Purchasers has the status of a client for conflict of interest or any other
purposes as a result thereof.

    


    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

     

     

     

     

     


    
      
         


      

      
        35

        
          

        

      

      
         


      

    


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

     

     

    
      
        	 	VALCENT PRODUCTS
      INC.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name: 	 
	 	 	Title: 	 
	 	 	 	 


      

    

     

     

    
      
        	 	PURCHASERS:	 
	 	 	 
	 	PLATINUM LONG TERM GROWTH VI,
      LLC	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name:	 
	 	 	Title: 	 
	 	 	 	 


      

    

     

    
      
        	 	ALPHA CAPITAL
    AG	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name: 	 
	 	 	Title: 	 
	 	 	 	 


      

    

     

    
      
        	 	OSHER CAPITAL PARTNERS
      LLC	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name: 	 
	 	 	Title: 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	George
      Orr 	 


      

    

    
 


    
      
         


      

      
        36

        
          

        

      

      
         


      

    


    For
purposes of Section 1.2 hereof only:

     

    
      
        	 	VISCOUNT INVESTMENT
      LTD.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name: 	 
	 	 	Title: 	 
	 	 	 	 


      

    

     

    
      
        	 	BODIE INVESTMENT GROUP
      INC.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name: 	 
	 	 	Title: 	 
	 	 	 	 


      

    

    


    


     

     

     

     

     

     

    


    
      
        
           


        

        
          37

          
            

          

        

        
           


        

      

    

    


    
      Schedule
3.8

    

     

    


     

    
      	
              Loan
      Payoff to Compass Bank:

            	
              $167,677.61

            


    

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    
 

    
      
         


      

      
        38

        
          

        

      

      
         


      

    


    Exhibit
A

    Names
of Purchasers

    


    


    
      	
              Purchaser

            	
              Address

            	
              Principal
      Amount of Notes

            
	
              Platinum
      Long Term Growth VI, LLC

            	
              152
      West 57th
      Street, 54th
      Floor, New York, NY 10019

            	
              $1,848,000

            
	
              Alpha
      Capital AG

            	
              150
      Central Park South

              Second
      Floor

              New
      York N.Y. 10019

            	
              $280,000

            
	
              Osher
      Capital Partners LLC

            	
              5
      Sansberry Lane

               Spring
      Valley NY 10977

            	
              $112,000

            
	
              George
      Orr

               

            	
              15276
      83rd
      Avenue

              Surrey,
      B.C. VS3 8M7

            	
              $188,160

            


    

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    
      A-1