Unassociated Document


    
       

    

    SECURITIES
PURCHASE AGREEMENT

     

    This
SECURITIES PURCHASE AGREEMENT (this “Agreement”) is
entered into as of the 1st day of
March, 2010, by and between PETROALGAE INC., a Delaware corporation (“Seller,” or the
“Company”), and
VALENS OFFSHORE SPV I, LTD., a Cayman Islands corporation (“Purchaser”).

     

    WITNESSETH:

     

    WHEREAS,
Seller desires to sell to Purchaser, and Purchaser desires to purchase from
Seller, 140,938 shares (the “Shares”) of common
stock, par value $0.001 per share, of the Company (the “Common Stock”) and a
warrant to purchase 140,938 shares of Common Stock, in the form attached hereto
as Exhibit A (the “Warrant”, and
together with the Shares, the “Securities”) upon the
terms and subject to the conditions set forth herein.

     

    NOW,
THEREFORE, in consideration of the foregoing and the respective representations,
warranties, covenants, agreements, undertakings and obligations set forth
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:

     

    ARTICLE 1

     

    SALE
AND PURCHASE OF THE SECURITIES

     

    Section
1.1           Sale and Purchase of the
Securities.  Upon the terms and subject to the conditions set
forth in this Agreement and on the basis of the representations, warranties,
covenants, agreements, undertakings and obligations contained herein, at the
Closing (as defined in Section 2.1 hereof),
Seller hereby agrees to sell to Purchaser, and Purchaser hereby agrees to
purchase from Seller, the Securities, free and clear of any and all Liens (as
defined in Section
8.11 hereof), for the consideration specified in this Article 1.

     

    Section
1.2           Purchase
Price.  The purchase price for the Securities (the “Purchase Price”)
shall be $1,127,500.

     

    Section
1.3           Payment of Purchase
Price.  Purchaser agrees to pay to Seller the Purchase Price at
the Closing by wire transfer or delivery of other immediately available funds to
an account of Seller designated to Purchaser prior to the Closing. For purposes
of this Agreement, the term “Business Day” shall
mean any day, other than a Saturday or a Sunday, that is neither a legal holiday
nor a day on which banking institutions are generally authorized or required by
law or regulation to close in the City of New York.

     

    ARTICLE 2

     

    CLOSING
AND DELIVERY

     

    Section
2.1           Closing
Date.  The closing (the “Closing”) of the sale
and purchase of the Securities (the “Securities Purchase”)
shall take place at the offices of Torys LLP, 237 Park Avenue, New York, New
York 10017 at 10:00 A.M. (New York City time) on the third (3rd) Business Day
following satisfaction or, if permissible, waiver of the conditions set forth in
Article 6
of this Agreement (excluding those conditions which by their nature are to be
satisfied as a part of the Closing) or at such other place, time or date as the
parties hereto may agree (the time and date of the Closing being herein referred
to as the “Closing
Date”).


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    Section
2.2           Deliveries by Seller to
Purchaser.  On the Closing Date, Seller shall deliver, or cause
to be delivered, to Purchaser the following:

     

    (a)          a
certificate or certificates evidencing all of the Shares and the duly executed
Warrant;

     

    (b)         the
certificates and other documents and instruments to be delivered pursuant to
Section 6.2
hereof; and

     

    (c)        
 such other closing documents as Seller and Purchaser shall reasonably
agree.

     

    Section
2.3           Deliveries by Purchaser to
Seller.  On the Closing Date, Purchaser shall deliver, or cause
to be delivered, to Seller the following:

     

    (a)          the
Purchase Price, in accordance with Section 1.3
hereof;

     

    (b)         the
certificates and other documents and instruments to be delivered pursuant to
Section 6.3
hereof; and

     

    (c)          such
other closing documents as Seller and Purchaser shall reasonably
agree.

     

    ARTICLE 3

     

    REPRESENTATIONS
AND WARRANTIES OF THE COMPANY

     

    As used
herein (i) any reference to any event, change or effect being “material” with
respect to the Company means an event, change or effect which is material in
relation to the condition (financial or otherwise), properties, business,
operations, prospects, assets or results of operations of the Company, and (ii)
the term “Material
Adverse Effect” on the Company means a material adverse effect on (x) the
condition (financial or otherwise), properties, business, operations, prospects,
assets, nature of assets, liabilities, or results of operations of the Company
and its subsidiaries taken individually and/or as whole, or (y) the ability of
the Company to perform its obligations under this Agreement.

     

    The
Company hereby represents and warrants to Purchaser as follows:

     

    
      
         


      

      
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    Section
3.1           Organization and Good
Standing.  The Company is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation with full corporate power and authority to conduct its business as
it is now being conducted.  The Company is duly qualified or licensed
to do business as a foreign corporation and is in good standing as a foreign
corporation in each jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such licensing, qualification or good standing, except for any failure
to so license, qualify or be in such good standing, which, when taken together
with all other such failures, has not had, does not have and could not
reasonably be expected to have a Material Adverse Effect on the
Company.

     

    Section
3.2           Capitalization.

     

    (a)          The
authorized capital stock of the Company consists solely of 300,000,000 shares of
Common Stock, and 25,000,000 shares of Preferred Stock, of which
106,235,606  shares of Common Stock are issued and outstanding and of
which no shares of Preferred Stock are issued and outstanding.  Except
as set forth on Schedule 3.2(a) hereto, there are no options to purchase or
rights to subscribe for shares of Common Stock, securities by their terms
convertible into, exercisable or exchangeable for shares of Common Stock, or
options to purchase or rights to subscribe for such convertible, exercisable or
exchangeable securities issued or outstanding. All of the issued and outstanding
shares of capital stock of the Company have been duly authorized and are validly
issued, fully paid and nonassessable and have been issued in compliance with all
foreign, federal and state securities laws.

     

    (b)         The
Securities and the shares issuable upon exercise of the Warrant to be issued and
sold by the Company to the Purchaser hereunder and thereunder have been duly and
validly authorized and, when issued and delivered against payment therefore as
provided herein and therein, will be duly and validly issued and fully paid and
non-assessable.

     

    Section
3.3           Corporate
Authority.  The Company has taken all corporate action
necessary in order to execute, deliver and perform fully, its obligations under
this Agreement and to consummate the Securities Purchase contemplated
hereby.  The execution and delivery by the Company of this Agreement
and the consummation by the Company of the Securities Purchase contemplated
hereby have been duly authorized and approved by the Board of Directors of the
Company and no other corporate proceeding with respect to the Company is
necessary to authorize this Agreement or the Securities Purchase contemplated
hereby.  This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.

     

    Section
3.4           No Violations; No
Consents.  The execution and delivery by the Company of this
Agreement does not, and the performance and consummation by the Company of the
Securities Purchase contemplated hereby will not, directly or indirectly (with
or without the giving of notice or the lapse of time or both):

     

    (a)          contravene,
conflict with, or constitute or result in a breach or violation of, or a default
under (i) any provision of the Company’s Certificate of Incorporation or By-laws
or (ii) any resolution adopted by the Board of Directors (or similar governing
body) of the Company;


    
      
         


      

      
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    (b)         contravene,
conflict with, or constitute or result in a breach or violation of any Law (as
defined below), award, decision, injunction, judgment, decree, settlement,
order, process, ruling, subpoena or verdict (whether temporary, preliminary or
permanent) entered, issued, made or rendered by any court, administrative
agency, arbitrator, Governmental Entity or other tribunal of competent
jurisdiction (“Order”) or give any
Governmental Entity or any other Person the right to challenge the Securities
Purchase contemplated hereby; or

     

    (c)          require
the consent or approval of any Governmental Entity or any third party which has
not already been obtained.

     

    For
purposes of this Agreement, the term “Law” shall mean any
federal, state, local, municipal, foreign, international, multinational, or
other constitution, law, rule, standard, requirement, administrative ruling,
order, ordinance, principle of common law, legal doctrine, code, regulation,
statute, treaty or process.

     

    Section
3.5           Actions.  There
are no civil, criminal, administrative, investigative or informal actions,
audits, demands, suits, claims, arbitrations, hearings, litigations, disputes,
investigations or other proceedings of any kind or nature (“Actions”) or Orders
issued, pending or, to the knowledge of the Company, threatened, against the
Company or any of its assets, at law, in equity or otherwise, in, before, by, or
otherwise involving, any Governmental Entity, arbitrator or other Person that
individually or in the aggregate, (i) have had, do have or could reasonably be
expected to have a Material Adverse Effect on the Company or (ii) question or
challenge the validity or legality of, or have the effect of prohibiting,
preventing, restraining, restricting, delaying, making illegal or otherwise
interfering with, this Agreement, the consummation of the Securities Purchase
contemplated hereby or any action taken or proposed to be taken by the Company
pursuant hereto or in connection with the Securities Purchase contemplated
hereby.  To the knowledge of the Company, no event has occurred or
circumstance exists that could reasonably be expected to give rise to or serve
as a basis for the commencement of any such Action or the issuance of any such
Order.

     

    Section
3.6           SEC
Reports.  The Company has filed all reports required to be
filed by it under the Securities Act and the Securities Exchange Act of 1934, as
amended (the “Exchange
Act”), including pursuant to Section 13(a) or 15(d) thereof (the
foregoing materials being collectively referred to herein as the “SEC Reports”), on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such
extension.  As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Securities and Exchange
Commission (the “Commission”)
promulgated thereunder, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. There has
been no material change in the financial condition or results of operations of
the Company and its subsidiaries taken individually and/or as whole since the
last audited financial statements of the Company included in the SEC
Reports.

     

    
      
         


      

      
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    Section
3.7           No Material Adverse
Effect. There has been no Material Adverse Effect on the Company since
September 30, 2009.

     

    Section
3.8           Internal Accounting
Controls; Sarbanes-Oxley Act of 2002.  The Company maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with 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)) and
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Company and designed such disclosures controls
and procedures and internal control over financial reporting to ensure that
material information relating to the Company, is made known to the certifying
officers by others within those entities, particularly during the period in
which the Company’s Form 10-K or 10-Q, as the case may be, is being prepared,
and to provide reasonable assurance regarding the financial reporting and
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.  The Company’s certifying
officers have evaluated the effectiveness of the Company’s controls and
procedures and internal control over financial reporting as of the date of its
most recently filed periodic report (such date, the “Evaluation
Date”).  The Company presented in its most recently filed
periodic report the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures and internal control
over financial reporting based on their evaluations as of the Evaluation
Date.

     

    Section
3.9           Trading With the Enemy Act;
Patriot Act.  To the knowledge of the Company, no sale of the
Company’s securities by the Company nor the Company’s use of the proceeds from
such sale has violated the Trading with the Enemy Act, as amended, or any of the
foreign assets control regulations of the United States Treasury Department (31
CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive
order relating thereto.  Without limiting the foregoing, the Company
(a) is not a person whose property or interests in property are blocked
pursuant to Section 1 of Executive Order 13224 of September 23, 2001
Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten
to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) and (b) to the
knowledge of the Company, does not engage in any dealings or transactions, or be
otherwise associated, with any such person.  The Company is in
compliance with the USA Patriot Act of 2001 (signed into law October 26,
2001).

     

    Section
3.10         Listing of Common
Stock.  The Common Stock is eligible to trade and be quoted on,
and is quoted on, the over-the-counter Bulletin Board market maintained by The
Nasdaq Stock Market (the “OTCBB”) and the
Company has received no notice or other communication indicating that such
eligibility is subject to challenge or review by any applicable regulatory
agency, electronic market administrator, or exchange. The Company has not, and
shall not take any action that would preclude, or otherwise jeopardize, the
inclusion of the Common Stock for quotation on the OTCBB.  The Company
is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all listing requirements of the
OTCBB.

     

    
      
         


      

      
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    ARTICLE 4

     

    REPRESENTATIONS
AND WARRANTIES OF PURCHASER

     

    Purchaser
hereby represents and warrants to Seller as follows:

     

    Section
4.1           Organization and Good
Standing.  Purchaser is a Caymans Island corporation duly
organized and validly existing and in good standing under the laws of the Cayman
Islands.

     

    Section
4.2           Corporate
Authority.  Purchaser has the full legal right, requisite
corporate power and authority and has taken all corporate action necessary in
order to execute, deliver and perform fully, its obligations under this
Agreement and to consummate the Securities Purchase.  The execution
and delivery by Purchaser of this Agreement and the consummation by Purchaser of
the Securities Purchase have been duly authorized and approved by the governing
body of Purchaser and no other corporate proceeding with respect to Purchaser is
necessary to authorize this Agreement or the Securities Purchase contemplated
hereby.  This Agreement has been duly executed and delivered by
Purchaser and constitutes a valid and binding agreement of Purchaser,
enforceable against Purchaser in accordance with its terms.

     

    Section
4.3           No
Violations.  (a)  The execution and delivery by
Purchaser of this Agreement does not, and the performance and consummation by
Purchaser of the Securities Purchase will not, with respect to Purchaser,
directly or indirectly (with or without the giving of notice or the lapse of
time or both):

     

    (i)           contravene,
conflict with, or constitute or result in a breach or violation of, or a default
under (A) any provision of the Certificate of Incorporation or By-laws (or
equivalent documents) of Purchaser or (B) any resolution adopted by the Board of
Directors (or similar governing body) of Purchaser; or

     

    (ii)          contravene,
conflict with, or constitute or result in a breach or violation of, any material
Law or Order to which Purchaser, or any of the assets owned or used by
Purchaser, are subject.

     

    Section
4.4           Securities
Act.  Purchaser is acquiring the Securities, and will acquire
the shares of Common Stock issuable upon exercise of the Warrant (“Warrant Shares”), for
its own account and not with a view to their distribution within the meaning of
Section 2(a)(11) of the Securities Act of 1933, as amended (the “Securities Act”) in
any manner that would be in violation of the Securities Act.


    
      
         


      

      
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    Section
4.5           Purchaser
Status.  At the time Purchaser was offered the Securities, it
was, and at the date hereof it is, an “accredited investor” as defined in Rule
501(a) under the Securities Act.

     

    Section
4.6           Experience of
Purchaser.  Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. Purchaser understands that it must be able to bear
the economic risk of this investment in the Securities indefinitely, and is able
to bear such risk and is able to afford a complete loss of such
investment.

     

    Section
4.7           Access to
Information.  Purchaser acknowledges that it has been afforded:
(i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Securities and the merits and risks of
investing in the Securities; (ii) access to information (other than material
non-public information) about the Company and its financial condition, results
of operations, business, properties, management and prospects sufficient to
enable it to evaluate its investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment.

     

    Section
4.8           Restricted
Securities.  Purchaser understands that the Securities are, and
the Warrant Shares will be, characterized as “restricted securities” under the
U.S. federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited
circumstances.

     

    ARTICLE 5

     

    COVENANTS

     

    Section
5.1           Public
Announcements.  Each of the parties hereto shall consult with
each other before issuing any press release or making any public statement with
respect to this Agreement or the Securities Purchase contemplated hereby and,
except as may be required by applicable law, will not issue any such press
release or make any such public statement prior to such consultation and without
the consent of the other parties.

     

    Section
5.2           Notices of Certain
Events.  In addition to any other notice required to be given
by the terms of this Agreement, each of the parties shall promptly notify the
other parties hereto of:

     

    (a)          any
notice or other communication from any Person alleging that the consent of such
Person is or may be required in connection with the Securities Purchase
contemplated by this Agreement;

     

    
      
         


      

      
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    (b)       
 any notice or other communication from any governmental or regulatory
agency or authority in connection with the Securities Purchase contemplated by
this Agreement; and

     

    (c)          any
actions, suits, claims, investigations or proceedings commenced or, to its
knowledge threatened against, relating to or involving or otherwise affecting
such party or that relate to the consummation of the Securities Purchase
contemplated by this Agreement.

     

    Section
5.3           Issuance of Additional
Shares.

     

    (a)    
     If the Company shall, at any time or from time to
time after the issuance of the Shares and until such time as the Purchaser no
longer owns any shares of Common Stock issued pursuant to this Agreement
(including shares issued pursuant to this Section 5.3) or six (6) months after
the date of this Agreement, whichever occurs first, issue shares of Common
Stock, options to purchase or rights to subscribe for shares of Common Stock,
securities by their terms convertible into, exercisable or exchangeable for
shares of Common Stock, or options to purchase or rights to subscribe for such
convertible, exercisable or exchangeable securities without consideration or for
consideration per share (including, in the case of such options, rights, or
securities, the additional consideration required to be paid to the Company upon
exercise, conversion or exchange) less than the Effective Price Per Share (as
hereinafter defined) (each such issuance, a “Triggering
Issuance”), then (i) the Company shall issue to the Purchaser, for no
additional consideration, such number of shares of Common Stock which when
aggregated with the Shares issued hereunder to Purchaser prior to the applicable
Triggering Issuance would result in an effective purchase price per share of
Common Stock to the Purchaser (calculated by dividing the Purchase Price by such
aggregate number of shares) equal to the effective price per share of Common
Stock of the Triggering Issuance (calculated by dividing the total consideration
received by the Company for such issuance (as determined below) divided by the
number of shares issued (as determined below)), and (ii) the Effective Price Per
Share shall be adjusted to equal the effective price per share of Common Stock
of the Triggering Issuance. “Effective Price Per
Share” shall mean $8.00, as subsequently adjusted pursuant to this
Section 5.3.  Notwithstanding the foregoing, a Triggering Issuance
shall not include any options to purchase shares of Common Stock (or any shares
issued in connection therewith) or other form of incentive equity granted or
issued under the Company’s 2009 Equity Compensation Plan, or any shares of
Common Stock issued to a strategic partner or licensee in connection with a
joint venture, strategic alliance, licensing agreement, or other similar form of
agreement.

     

    (b)    
     For the purposes of calculating the number of shares of
Common Stock issuable and the adjustment in the Effective Price Per Share
pursuant to paragraph (a) of this Section 5.3, the following provisions shall be
applicable:

     

    (i)           In
the case of the issuance of shares of Common Stock for cash in a public offering
or private placement, the consideration shall be deemed to be the amount of cash
paid therefor before deducting therefrom any discounts, commissions or placement
fees payable by the Company to any underwriter or placement agent in connection
with the issuance and sale thereof.

     


    
      
         


      

      
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    (ii)      
   In the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the Fair Market Value (as defined in the Warrant)
thereof.

     

    (iii)         In
the case of the issuance of options to purchase or rights to subscribe for
shares of Common Stock, securities by their terms convertible into, exercisable
or exchangeable for shares of Common Stock, or options to purchase or rights to
subscribe for such convertible, exercisable or exchangeable
securities:

     

    (1)           the
aggregate maximum number of shares of Common Stock deliverable upon exercise of
such options to purchase or rights to subscribe for shares of Common Stock shall
be deemed to have been issued at the time such options or rights were issued and
for a consideration equal to the consideration, if any, received by the Company
upon the issuance of such options or rights plus the minimum purchase price
provided in such options or rights for the shares of Common Stock covered
thereby;

     

    (2)           the
aggregate maximum number of shares of Common Stock deliverable upon conversion
of, exercise, or in exchange for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible, exercisable or exchangeable securities and subsequent conversion,
exercise or exchange thereof shall be deemed to have been issued at the time
such securities, options, or rights were issued and for a consideration equal to
the consideration received by the Company for any such securities and related
options or rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the additional consideration, if any, to be received by
the Company upon the conversion or exchange of such securities or the exercise
of any related options or rights;

     

    (3)           no
further adjustment of the Effective Price Per Share adjusted upon the issuance
of any such options, rights, convertible securities or exchangeable securities
shall be made as a result of the actual issuance of shares of Common Stock or
the exercise of any such rights or options or any conversion or exchange of any
such securities.

     

    Section
5.4           Extraordinary Events
Regarding Common Stock.  In the event that the Company shall
(a) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock or any preferred stock issued by the
Company, (b) subdivide its outstanding shares of Common Stock, (c) combine its
outstanding shares of the Common Stock into a smaller number of shares of the
Common Stock, then, in each such event, the Effective Price Per Share shall be
adjusted to a number determined by multiplying the Effective Price Per Share
immediately prior to any such event by a fraction of which (a) the numerator is
the number of issued and outstanding shares of Common Stock immediately prior to
any such event, and (b) the denominator is the number of issued and outstanding
shares of Common Stock immediately after to any such event.

     

    
      
         


      

      
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    Section
5.5            Lock Up
Agreement.  The parties acknowledge and agree that the Shares,
the Warrant Shares, and any additional shares issuable in connection with this
Agreement or the Warrant, shall be “Common Stock” under, and subject to, that
certain Lock-Up Letter Agreement executed on or about February 17, 2010 by the
Purchaser in favor of the Company for effectiveness as of December 30,
2009.

     

    ARTICLE 6

     

    CONDITIONS
PRECEDENT

     

    Section
6.1            Conditions to Each Party’s
Obligations to Consummate.  The respective obligations of each
party to consummate the Securities Purchase contemplated by this Agreement shall
be subject to the fulfillment or waiver at or prior to the Closing of the
following conditions:

     

    (a)           No
Termination.  This Agreement shall not have been terminated
pursuant to Section
7.1.

     

    (b)           Absence of Litigation; No
Orders.  No formal or informal action or proceeding shall have
been instituted on or before the Closing Date before any court or governmental
body or authority pertaining to the Securities Purchase, the result of which
would prevent or make illegal the consummation of such Securities Purchase or
which could have a Material Adverse Effect on the Company.  Neither
the Company nor Purchaser shall be subject to any order, decree or injunction of
a court or agency of competent jurisdiction which either enjoins or prohibits
the consummation of the Securities Purchase.

     

    Section
6.2            Conditions Precedent to
Purchaser’s Obligations.  The obligations of Purchaser to
consummate the Securities Purchase contemplated hereby shall be subject to the
fulfillment or waiver (in whole or in part by Purchaser) at or prior to the
Closing of the following conditions:

     

    (a)          Representations and
Warranties.  Each of the representations and warranties of the
Company set forth in this Agreement shall in each case be true and correct in
all material respects (if not qualified by “materiality” or “Material Adverse
Effect”) and in all respects (if qualified by “materiality” or “Material Adverse
Effect”) as of the date of this Agreement and as of the Closing Date, with the
same effect as though such representations and warranties had been made on and
as of the Closing Date;

     

    (b)          Covenants.  All of
the covenants, agreements, undertakings and obligations that the Company is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing, shall have been duly performed and complied with; the Company must
have delivered to Purchaser each of the documents required to be delivered by
Seller pursuant to Section 2.2
hereof;

     

    (c)          Officer’s
Certificate.  The Company shall have delivered to Purchaser a
certificate, dated as of the Closing Date and signed by the Chief Executive
Officer of the Company, representing that the conditions referred to in Section 6.2(a) and
Section 6.2(b)
hereof have been satisfied;

     

    
      
         


      

      
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    (d)          Good Standing
Certificate.  The Company shall have furnished Purchaser with a
recently dated good standing and existence certificate for the Company in its
jurisdiction of incorporation and any jurisdictions in which it is qualified to
do business as Purchaser reasonably requests; and

     

    (e)          Other
Documentation.  Purchaser shall have received such other
documents, certificates, opinions or statements as Purchaser may reasonably
request, including legal opinions from the Company’s counsel covering such
matters requested by the Purchaser.

     

    Section
6.3            Conditions Precedent to the
Company’s Obligations.  The obligations of the Company to
consummate the transactions contemplated hereby shall be subject to the
fulfillment or waiver (in whole or in part by the Company) at or prior to the
Closing of the following conditions:

     

    (a)          Representations and
Warranties.  Each of the representations and warranties of
Purchaser set forth in this Agreement shall in each case be true and correct in
all material respects (if qualified by “Materiality” or “Material Adverse
Effect”) as of the date of this Agreement and as of the Closing Date, with the
same effect as though such representations and warranties had been made on and
as of the Closing Date;

     

    (b)          Covenants.  All of
the covenants, agreements, undertakings and obligations that Purchaser is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing, shall have been duly performed and substantially complied with.
Purchaser must have delivered to the Company each of the documents required to
be delivered by Purchaser pursuant to Section 2.3
hereof;

     

    (c)          Officer’s
Certificate.  Purchaser shall have delivered to the Company a
certificate, dated as of the Closing Date and signed by a senior executive
officer or officers of Purchaser, representing that the conditions referred to
in  Section
6.3(a) and Section 6.3(b) hereof
have been satisfied; and

     

    (d)          Payment of Purchase
Price.  The Company shall have received the Purchase Price in
accordance with Section
1.3.

     

    ARTICLE 7

     

    TERMINATION

     

    Section
7.1            Termination.  This
Agreement may be terminated and the sale of Securities may be abandoned at any
time prior to the Closing:

     

    (a)           by
mutual written consent of the parties hereto;

     

    (b)           by
either the Company or Purchaser if the Closing shall not have occurred on or
before March 15, 2010 (unless the failure to consummate the transactions by such
date shall be due to the action or failure to act of the party seeking to
terminate this Agreement);


    
      
         


      

      
        11

        
          

        

      

      
         


      

    

     

    (c)         by
Purchaser if:  (i) the Company shall have failed to comply in any
material respect with any of the covenants or agreements contained in this
Agreement to be complied with or performed by the Company; or (ii) any
representations and warranties of Seller contained in this Agreement shall not
have been true when made, or on and as of the Closing Date as if made on and as
of the Closing Date (except to the extent it relates to a particular date);
or

     

    (d)         by
the Company if:  (i) Purchaser shall have failed to comply in any
material respect with any of the covenants or agreements contained in this
Agreement to be complied with or performed by Purchaser; or (ii) any
representations and warranties of Purchaser contained in this Agreement shall
not have been true when made, or on and as of the Closing Date as if made on and
as of the Closing Date (except to the extent it relates to a particular
date).

     

    Section
7.2           Effect of
Termination.  In the event of the termination and abandonment
of this Agreement pursuant to Section 7.1 of this
Agreement, this Agreement (other than Section 8.3 (Fees and
Expenses), Section
8.5 (Governing Law) and Section 8.6 (Consent
to Jurisdiction; Waiver of Jury Trial), which shall remain in full force and
effect) shall forthwith become null and void and no party hereto shall have any
Liability or further obligation to any other party hereto, except as provided in
this Section
7.2; provided, however, that if this
Agreement is terminated by a party because of the breach of this Agreement by
the other party or because one or more of the conditions of the terminating
party’s obligations under this Agreement is not satisfied as a result of the
other party’s failure to fully comply with its obligations under this Agreement,
the terminating party’s rights to pursue all legal remedies will survive such
termination unimpaired.

     

    ARTICLE 8

     

    MISCELLANEOUS

     

    Section
8.1           Notices.  All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given (a) on the date received if delivered personally
or by facsimile or (b) on the date received if mailed by registered or certified
mail (return receipt requested), to the parties at the following addresses (or
at such other address for a party as shall be specified by like
notice):

     

    If to
Seller:

     

    PetroAlgae
Inc.

    1901 S.
Harbor City Boulevard

    Suite
300

    Melbourne,
Florida   32901

    Attn:     David
Szostak

    Facsimile:  (321)
723-7047


    
      
         


      

      
        12

        
          

        

      

      
         


      

    


    With a
copy (which shall not constitute notice) to:

     

    Torys
LLP

    237 Park
Avenue

    20th
Floor

    New York,
New York   10017

    Attn:      Andrew
J. Beck

    Daniel P. Raglan

    Facsimile:  (212)  682-0200

     

    If to
Purchaser:

     

    Valens
Offshore SPV I, Ltd.

    c/o
Valens Capital Management LLC

    335
Madison Avenue

    10th
Floor

    New York,
New York   10017

    Attn:     Pat
Regan

    Facsimile:  (212)
541-4410

     

    Section
8.2           Amendments; No
Waivers.

     

    (a)          Any
provision of this Agreement may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment, by
the Company and Purchaser; or in the case of a waiver, by the party against whom
the waiver is to be effective.

     

    (b)          No
failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.  The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.

     

    Section
8.3           Fees and
Expenses.  Except as otherwise expressly provided herein, all
costs and expenses incurred in connection with this Agreement and the
obligations contemplated hereby shall be paid by the party incurring such cost
or expense.  In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another
party.

     

    Section
8.4           Successors and Assigns; No
Third-Party Beneficiaries.  The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no
party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of each other party hereto,
but any such transfer or assignment will not relieve the appropriate party of
its obligations hereunder.  Nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement or any provision of
this Agreement.

     

    
      
         


      

      
        13

        
          

        

      

      
         


      

    

     

    Section
8.5            Governing
Law.  This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.

     

    Section
8.6            Consent to Jurisdiction;
Waiver of Jury Trial.

     

    (a)           Any
suit, action or proceeding seeking to enforce any provision of, or based on any
matter arising out of or in connection with, this Agreement or the Securities
Purchase contemplated hereby may be brought in any federal or state court
located in the City of New York, Borough of Manhattan, and each of the parties
hereby consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding in any such court or that any such suit, action or proceeding
which is brought in any such court has been brought in an inconvenient
forum.  Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court.  Without limiting the foregoing, each party agrees
that service of process on such party as provided in Section 8.1 shall be
deemed effective service of process on such party.

     

    (b)           Each
party hereto hereby acknowledges and agrees that any controversy which may arise
under this Agreement is likely to involve complicated and difficult issues, and
therefore each such party hereby irrevocably and unconditionally waives any
right such party may have to a trial by jury in respect of any litigation
directly or indirectly arising out of or relating to this Agreement, any
document referred to in this Agreement or the Securities Purchase contemplated
hereby.

     

    Section
8.7            Counterparts;
Effectiveness.  This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.  This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.  No
provision of this Agreement is intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.

     

    Section
8.8            Entire
Agreement.  This Agreement constitutes the entire agreement
between the parties with respect to the subject matter of this Agreement and
supersedes all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof.

     

    Section
8.9            Captions.  The
captions herein are included for convenience of reference only and shall be
ignored in the construction or interpretation hereof.

     

    
      
         


      

      
        14

        
          

        

      

      
         


      

    


    Section
8.10          Severability.  If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated so long as the economic or legal
substance of the Securities Purchase contemplated hereby is not affected in any
manner materially adverse to any parties.  Upon such a determination,
the parties shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner in order that the transactions contemplated hereby be
consummated as originally contemplated to the fullest extent
possible.

     

    Section
8.11          Definition and
Usage.

     

    For
purposes of this Agreement:

     

    “Governmental Entity”
means any foreign, federal, state, local, municipal, county or other
governmental, quasi-governmental, administrative or regulatory authority, body,
agency, court, tribunal, commission or other similar entity (including any
branch, department or official thereof).

     

    “Liability” means any
debt, liability, commitment or obligation of any kind, character or nature
whatsoever, whether known or unknown, choate or inchoate, secured or unsecured,
accrued, fixed, absolute, contingent or otherwise, and whether due or to become
due.

     

    “Lien” means any
charges, claims, community property interests, conditions, conditional sale or
other title retention agreements, covenants, easements, encumbrances, equitable
interests, exceptions, liens, mortgages, options, pledges, reservations, rights
of first refusal, security interests, or restrictions of any kind, including any
restrictions on use, voting, transfer, alienation, receipt of income, or
exercise of any other attribute of ownership.

     

    Section
8.12          Survival.  All
covenants contained herein shall survive the Closing.  The
representations and warranties contained herein shall not survive the Closing;
provided that the
representations and warranties of the Company set forth in Section 3.1, Section 3.2 and Section 3.3, and the
representations and warranties of the Purchaser set forth in Section 4.4, Section 4.5, Section 4.6, Section 4.7 and Section 4.8, shall
each survive the Closing.

     

    Section
8.13          Further
Assurances.   From time to time, each party hereto will
execute such additional instruments and take such actions as may be reasonably
required to carry out the intent and purposes of this Agreement.

     

    Section
8.14          Review of
Agreement.  Each party hereto acknowledges that it has had time
to review this Agreement and, as desired, consult with counsel.  In
the interpretation of this Agreement, no adverse presumption shall be made
against any party on the basis that it has prepared, or participated in the
preparation of, this Agreement.

     

    Section
8.15          Brokerage.  Each
party hereto represents and warrants to the other that there are no claims for
brokerage commissions or finder’s fees or agent’s commissions or other like
payment in connection with this Agreement or the transactions contemplated
hereby, except for such commissions and fees incurred by reason of any action
taken by a party hereto that will be paid by and be the responsibility of such
party.

     

    
      
         


      

      
        15

        
          

        

      

      
         


      

    

     

    [SIGNATURE
PAGE FOLLOWS]


    
      
         


      

      
        16

        
          

        

      

      
         


      

    


    IN
WITNESS WHEREOF, this Agreement has been duly executed and delivered as of the
day and year first above written by the duly authorized officers of Seller and
Purchaser.

     

    
      
        
          
            	 
      	
                    SELLER:

                  
	 
      	 
      
	 
      	
                    PETROALGAE
      INC.

                  
	 
      	 
      	 
      
	 
      	
                    By:

                  	
                    /s/ David Szostak

                  
	 
      	 
      	
                    Name:
      David Szostak

                  
	 
      	 
      	
                    Title:  President

                  
	 
      	 
      	 
      
	 
      	
                    PURCHASER:

                  
	 
      	 
      
	 
      	
                    VALENS
      OFFSHORE SPV I, LTD.

                  
	 
      	 
      	 
      
	 
      	
                    By:

                  	
                    Valens
      Capital Management, LLC

                  
	 
      	 
      	
                    its
      investment manager

                  
	 
      	 
      	 
      
	 
      	
                    By:

                  	
                    /s/
      Patrick Regan

                  
	 
      	 
      	
                    Name:
      Patrick Regan

                  
	 
      	 
      	
                    Title:
      Authorized
Signatory

                  


          

        

      

    

     

    [SIGNATURE
PAGE TO SECURITES PURCHASE AGREEMENT]


    
      
         


      

      
        17

        
          

        

      

      
         


      

    


    Schedule
3.2(a)

     

    
      	
               
      

            	
              1.

            	
              Outstanding
      employee stock options to purchase 1,369,000 shares of Common
      Stock.

            


    

     

    
      	
               
      

            	
              2.

            	
              That
      certain Warrant exercisable for 68,625 shares of Common Stock issued by
      the Company to Valens U.S. SPV I, LLC on August 28,
  2009.

            


    

     

    
      	
               
      

            	
              3.

            	
              That
      certain Warrant exercisable for 56,375 shares of Common Stock issued by
      the Company to Valens Offshore SPV I, Ltd. on August 28,
    2009.

            


    

     

    
      	
               
      

            	
              4.

            	
              That
      certain Warrant exercisable for 34,313 shares of Common Stock issued by
      the Company to Valens U.S. SPV I, LLC on September 4,
  2009.

            


    

     

    
      	
               
      

            	
              5.

            	
              That
      certain Warrant exercisable for 28,187 shares of Common Stock issued by
      the Company to Valens Offshore SPV I, Ltd. on September 4,
      2009.

            


    

     

    
      	
               
      

            	
              6.

            	
              That
      certain Warrant exercisable for 68,625 shares of Common Stock issued by
      the Company to Valens U.S. SPV I, LLC on September 14,
    2009.

            


    

     

    
      	
               
      

            	
              7.

            	
              That
      certain Warrant exercisable for 56,375shares of Common Stock issued by the
      Company to Valens Offshore SPV I, Ltd. on September 14,
    2009.

            


    

     

    
      	
               
      

            	
              8.

            	
              That
      certain Warrant exercisable for 68,625 shares of Common Stock issued by
      the Company to Valens U.S. SPV I, LLC on September 29,
    2009.

            


    

     

    
      	
               
      

            	
              9.

            	
              That
      certain Warrant exercisable for 56,375 shares of Common Stock issued by
      the Company to Valens Offshore SPV I, Ltd. on September 29,
      2009.

            


    

     

    
      	
            	
              10.

            	
              That
      certain Warrant exercisable for 68,625 shares of Common Stock issued by
      the Company to Valens U.S. SPV I, LLC on October 13,
  2009.

            


    

     

    
      	
            	
              11.

            	
              That
      certain Warrant exercisable for 56,375 shares of Common Stock issued by
      the Company to Valens Offshore SPV I, Ltd. on October 13,
      2009.

            


    

     

    
      	
            	
              12.

            	
              That
      certain Warrant exercisable for 375,000 shares of Common Stock issued by
      the Company to Green Alternative Energy USA, LLC on October 9,
      2009.

            


    

     

    
      	
            	
              13.

            	
              That
      certain Warrant exercisable for 500,000 shares of Common Stock issued by
      the Company to UBS AG on October 16,
2009.

            


    

     

    
      	
            	
              14.

            	
              That
      certain Warrant exercisable for 375,000 shares of Common Stock issued by
      the Company to Green Science Energy LLC on December 24,
    2009.

            


    

     

    
      	
            	
              15.

            	
              That
      certain Warrant exercisable for 6,250 shares of Common Stock issued by the
      Company to Lynn C. November on February 12,
  2010.

            


    

     

    
      	
            	
              16.

            	
              Amended
      and Restated Convertible Note outstanding in favor of PetroTech Holdings,
      Corp., a Delaware corporation, with a principal balance of ten million
      dollars ($10,000,000), an interest rate of 12%, and a maturity date of
      June 30, 2012.

            


    

     

    
      
         


      

      
        18