EX-10.1






Exhibit 10.1




Execution Copy




SECURITIES PURCHASE AGREEMENT




THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of November 2, 2006,
by and among VIASPACE INC., a Nevada corporation (the “Company”), and the Buyers listed on
Schedule I attached hereto (individually, a “Buyer” or collectively “Buyers”).



WITNESSETH




WHEREAS, the Company and the Buyer(s) are executing and delivering this Agreement in reliance
upon an exemption from securities registration pursuant to Section 4(2) and/or Rule 506 of
Regulation D (“Regulation D”) as promulgated by the U.S. Securities and Exchange Commission
(the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”);



WHEREAS, the parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Buyer(s), as provided herein, and the Buyer(s)
shall purchase up to Three Million Eight Hundred Thousand Dollars ($3,800,000) of secured
convertible debentures (the “Convertible Debentures”), which shall be convertible into
shares of the Company’s common stock, par value $0.001 (the “Common Stock”) (as converted,
the “Conversion Shares”) of which One Million Five Hundred Thousand Dollars ($1,500,000)
shall be funded on the business day following the date hereof (the “First Closing”), One
Million Two Hundred Thousand Dollars ($1,200,000) shall be funded on the date the registration
statement (the “Registration Statement”) is filed, pursuant to the Investor Registration
Rights Agreement dated the date hereof, with the United States Securities and Exchange Commission
(the “SEC”) (the “Second Closing”) and One Million One Hundred Thousand Dollars
($1,100,000) shall be funded on the date the Registration Statement is declared effective by the
SEC (the “Third Closing”) (individually referred to as a “Closing”, and
collectively referred to as the “Closings”), for a total purchase price of up to Three
Million Eight Hundred Thousand Dollars ($3,800,000), (the “Purchase Price”) in the
respective amounts set forth opposite each Buyer(s) name on Schedule I (the “Subscription
Amount”); and



WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties
hereto are executing and delivering a Registration Rights Agreement (the “Investor Registration
Rights Agreement”) pursuant to which the Company has agreed to provide certain registration
rights under the Securities Act and the rules and regulations promulgated there under, and
applicable state securities laws; and



WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Company and
the Buyers are executing and delivering a Security Agreement; Arroyo Sciences, Inc. and Concentric
Water Technologies, Inc., each wholly owned subsidiaries of the Company, and the Buyers are
executing and delivering a Security Agreement (each such security agreement shall be referred to as
the “Security Agreement”) pursuant to which the Company and its wholly owned subsidiaries
agreed to provide the Buyers a security interest in Pledged Collateral (as this term is defined in
each Security Agreement) to secure the Company’s obligations under this Agreement, the Transaction
Documents, or any other obligations of the Company to the Buyer;



WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Company and
Buyer are entering into Pledge and Escrow Agreements with Carl Kukkonen and Amjad Abdallat (all
such pledge and escrow agreements shall be referred to as the “Pledge and Escrow
Agreement”) pursuant to which Carl Kukkonen and Amjad Abdallat have agreed to provide the
Buyer a security interest in the Pledged Shares (as this term is defined in the Pledge and Escrow
Agreement) to secure the Company’s obligations under this Agreement, the Transaction Documents, or
any other obligations of the Company to the Buyer; and



WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties
hereto are executing and delivering Irrevocable Transfer Agent Instructions (the “Irrevocable
Transfer Agent Instructions”).



NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in
this Agreement the Company and the Buyer(s) hereby agree as follows:



1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.



(a) Purchase of Convertible Debentures. Subject to the satisfaction (or waiver) of
the terms and conditions of this Agreement, each Buyer agrees, severally and not jointly, to
purchase at each Closing and the Company agrees to sell and issue to each Buyer, severally and not
jointly, at each Closing, Convertible Debentures in amounts corresponding with the Subscription
Amount set forth opposite each Buyer’s name on Schedule I hereto.



(b) Closing Date. The First Closing of the purchase and sale of the Convertible
Debentures shall take place at 10:00 a.m. Eastern Standard Time on the next business day following
the date hereof, subject to notification of satisfaction of the conditions to the First Closing set
forth herein and in Sections 6 and 7 below (or such later date as is mutually agreed to by the
Company and the Buyer(s)) (the “First Closing Date”), the Second Closing of the purchase
and sale of the Convertible Debentures shall take place at 4:00 p.m. Eastern Standard Time on the
date the Registration Statement is filed with the SEC, subject to notification of satisfaction of
the conditions to the Second Closing set forth herein and in Sections 6 and 7 below (or such later
date as is mutually agreed to by the Company and the Buyer(s)) (the “Second Closing Date”)
and the Third Closing of the purchase and sale of the Convertible Debentures shall take place at
4:00 p.m. Eastern Standard Time on the date the Registration Statement is declared effective by the
SEC, subject to notification of satisfaction of the conditions to the Third Closing set forth
herein and in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company
and the Buyer(s)) (the “Third Closing Date”) (collectively referred to a the “Closing
Dates”). The Closing shall occur on the respective Closing Dates at the offices of Yorkville
Advisors, LLC, 3700 Hudson Street, Suite 3700, Jersey City, New Jersey 07302 (or such other place
as is mutually agreed to by the Company and the Buyer(s)).



(c) Form of Payment. Subject to the satisfaction of the terms and conditions of this
Agreement, on the Closing Dates, (i) the Buyers shall deliver to the Company such aggregate
proceeds for the Convertible Debentures to be issued and sold to such Buyer(s), minus the fees to
be paid directly from the proceeds of the Closings as set forth herein, and (ii) the Company shall
deliver to each Buyer, Convertible Debentures which such Buyer(s) is purchasing in amounts
indicated opposite such Buyer’s name on Schedule I, duly executed on behalf of the Company.



2. BUYER’S REPRESENTATIONS AND WARRANTIES.



Each Buyer represents and warrants, severally and not jointly, that:



(a) Investment Purpose. Each Buyer is acquiring the Convertible Debentures and, upon
conversion of Convertible Debentures, the Buyer will acquire the Conversion Shares then issuable,
for its own account for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales registered or exempted
under the Securities Act; provided, however, that by making the representations herein, such Buyer
reserves the right to dispose of the Conversion Shares at any time in accordance with or pursuant
to an effective registration statement covering such Conversion Shares or an available exemption
under the Securities Act.



(b) Accredited Investor Status. Each Buyer is an “Accredited Investor” as
that term is defined in Rule 501(a)(3) of Regulation D.



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



(d) Information. Each Buyer and its advisors (and his or its counsel), if any, have
been furnished with all materials relating to the business, finances and operations of the Company
and information he deemed material to making an informed investment decision regarding his purchase
of the Convertible Debentures and the Conversion Shares, which have been requested by such Buyer.
Each Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the
Company and its management. Neither such inquiries nor any other due diligence investigations
conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or
affect such Buyer’s right to rely on the Company’s representations and warranties contained in
Section 3 below. Each Buyer understands that its investment in the Convertible Debentures and the
Conversion Shares involves a high degree of risk. Each Buyer is in a position regarding the
Company, which enabled and enables such Buyer to obtain information from the Company in order to
evaluate the merits and risks of this investment. Each Buyer has sought such accounting, legal and
tax advice, as it has considered necessary to make an informed investment decision with respect to
its acquisition of the Convertible Debentures and the Conversion Shares.



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



(f) Transfer or Resale. Each Buyer understands that except as provided in the
Investor Registration Rights Agreement: (i) the Convertible Debentures have not been and are not
being registered under the Securities Act or any state securities laws, and may not be offered for
sale, sold, assigned or transferred unless (A) subsequently registered thereunder, or (B) such
Buyer shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to
the effect that such securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration requirements; (ii) any sale of such
securities made in reliance on Rule 144 under the Securities Act (or a successor rule
thereto) (“Rule 144”) may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of such securities under circumstances in which
the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as
that term is defined in the Securities Act) may require compliance with some other exemption under
the Securities Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such securities under the
Securities Act or any state securities laws or to comply with the terms and conditions of any
exemption thereunder.



(g) Legends. Each Buyer understands that the certificates or other instruments
representing the Convertible Debentures and or the Conversion Shares shall bear a restrictive
legend in substantially the following form (and a stop transfer order may be placed against
transfer of such stock certificates):



THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS.



The legend set forth above shall be removed and the Company within four (4) business days shall
issue a certificate without such legend to the holder of the Conversion Shares upon which it is
stamped, if, unless otherwise required by state securities laws, (i) in connection with a sale
transaction, provided the Conversion Shares are registered under the Securities Act or (ii) in
connection with a sale transaction, after such holder provides the Company with an opinion of
counsel, which opinion shall be in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale, assignment or transfer of the Conversion
Shares may be made without registration under the Securities Act.



(h) Authorization, Enforcement. This Agreement has been duly and validly authorized,
executed and delivered on behalf of such Buyer and is a valid and binding agreement of such Buyer
enforceable in accordance with its terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.



(i) Receipt of Documents. Each Buyer and his or its counsel has received and read in
their entirety: (i) this Agreement and each representation, warranty and covenant set forth herein
and the Transaction Documents (as defined herein); (ii) all due diligence and other information
necessary to verify the accuracy and completeness of such representations, warranties and
covenants; (iii) the Company’s Form 10-KSB for the fiscal year ended December 31, 2005; (iv) the
Company’s Form 10-QSB for the fiscal quarters ended March 31, 2006 and June 30, 2006 and (v)
answers to all questions each Buyer submitted to the Company regarding an investment in the
Company; and each Buyer has relied on the information contained therein and has not been furnished
any other documents, literature, memorandum or prospectus.



(j) Due Formation of Corporate and Other Buyers. If the Buyer(s) is a corporation,
trust, partnership or other entity that is not an individual person, it has been formed and validly
exists and has not been organized for the specific purpose of purchasing the Convertible Debentures
and is not prohibited from doing so.



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



3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.



The Company represents and warrants as of the date hereof to each of the Buyers that, except
as set forth in the SEC Documents (as defined herein) or in the Disclosure Schedule attached hereto
(the “Disclosure Schedule”):



(a) Organization and Qualification. The Company and its subsidiaries are corporations
duly organized and validly existing in good standing under the laws of the jurisdiction in which
they are incorporated, and have the requisite corporate power to own their properties and to carry
on their business as now being conducted. Each of the Company and its subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries taken as a whole.



(b) Authorization, Enforcement, Compliance with Other Instruments. (i) The Company
has the requisite corporate power and authority to enter into and perform this Agreement, the
Security Agreement, the Investor Registration Rights Agreement, the Irrevocable Transfer Agent
Agreement, the Pledge and Escrow Agreement, and any related agreements (collectively the
“Transaction Documents”) and to issue the Convertible Debentures and the Conversion Shares
in accordance with the terms hereof and thereof, (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions contemplated hereby and
thereby, including, without limitation, the issuance of the Convertible Debentures the Conversion
Shares and the reservation for issuance and the issuance of the Conversion Shares issuable upon
conversion or exercise thereof, have been duly authorized by the Company’s Board of Directors and
no further consent or authorization is required by the Company, its Board of Directors or its
stockholders, (iii) the Transaction Documents have been duly executed and delivered by the Company,
(iv) the Transaction Documents, assuming the due execution and delivery thereof and acceptance by
the Buyer, constitute the valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and
remedies. The authorized officer of the Company executing the Transaction Documents knows of no
reason why the Company cannot file the registration statement as required under the Investor
Registration Rights Agreement or perform any of the Company’s other obligations under such
documents.



(c) Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of 800,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock,
par value $0.001 (“Preferred Stock”) of which 291,649,286 shares of Common Stock and zero
shares of Preferred Stock are issued and outstanding. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. No shares of Common Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by
the Company. As of the date of this Agreement, (i) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any
of its subsidiaries is or may become bound to issue additional shares of capital stock of the
Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding
debt securities and (iii) there are no agreements or arrangements under which the Company or any of
its subsidiaries is obligated to register the sale of any of their securities under the Securities
Act (except pursuant to the Registration Rights Agreement) and (iv) there are no outstanding
registration statements and there are no outstanding comment letters from the SEC or any other
regulatory agency. There are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Convertible Debentures as described in
this Agreement. The Company has furnished to the Buyer true and correct copies of the Company’s
Articles of Incorporation, as amended and as in effect on the date hereof (the “Articles of
Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the
“By-laws”), and the terms of all securities convertible into or exercisable for Common
Stock and the material rights of the holders thereof in respect thereto other than stock options
issued to employees and consultants.



(d) Issuance of Securities. The Convertible Debentures are duly authorized and, upon
issuance in accordance with the terms hereof and thereof, shall be duly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The
Conversion Shares issuable upon conversion of the Convertible Debentures have been duly authorized
and reserved for issuance. Upon conversion or exercise in accordance with the terms of the
Convertible Debentures, the Conversion Shares will be duly issued, fully paid and nonassessable.



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



(f) SEC Documents: Financial Statements. Since January 1, 2005, the Company has filed
all reports, schedules, forms, statements and other documents required to be filed by it with the
SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (all of the
foregoing filed prior to the date hereof and all exhibits included therein and financial statements
and schedules thereto and documents incorporated by reference therein, being hereinafter referred
to as the “SEC Documents”). The Company has delivered to the Buyers or their
representatives, or made available through the SEC’s website at http://www.sec.gov., true and
complete copies of the SEC Documents. As of their respective dates, the financial statements of
the Company included in the SEC Documents (the “Financial Statements”) complied as to form
in all material respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such Financial Statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and, fairly present in all material respects
the financial position of the Company as of the dates thereof and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). No other information provided by or on behalf of the Company to the
Buyer which is not included in the SEC Documents, including, without limitation, information
referred to in this Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.



(g) 10b-5. Neither the Transaction Documents nor the SEC Documents include any untrue
statements of material fact, nor do they omit to state any material fact required to be stated
therein necessary to make the statements made, in light of the circumstances under which they were
made, not misleading.



(h) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency, self-regulatory organization
or body pending against the Company, the Common Stock or any of the Company’s subsidiaries, wherein
an unfavorable decision, ruling or finding would (i) have a material adverse effect on the
transactions contemplated hereby, (ii) adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) have a material adverse effect on the business, operations,
properties, financial condition or results of operations of the Company and its subsidiaries taken
as a whole.



(i) Acknowledgment Regarding Buyer’s Purchase of the Convertible Debentures. The
Company acknowledges and agrees that the Buyer(s) is acting solely in the capacity of an arm’s
length purchaser with respect to this Agreement and the transactions contemplated hereby. The
Company further acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by the Buyer(s) or any of their respective representatives
or agents in connection with this Agreement and the transactions contemplated hereby is merely
incidental to such Buyer’s purchase of the Convertible Debentures or the Conversion Shares. The
Company further represents to the Buyer that the Company’s decision to enter into this Agreement
has been based solely on the independent evaluation by the Company and its representatives.



(j) No General Solicitation. Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in connection with the
offer or sale of the Convertible Debentures or the Conversion Shares.



(k) 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 require
registration of the Convertible Debentures or the Conversion Shares under the Securities Act or
cause this offering of the Convertible Debentures or the Conversion Shares to be integrated with
prior offerings by the Company for purposes of the Securities Act.



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



(m) Intellectual Property Rights. To the best of the Company’s knowledge, the Company and its
subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and rights reasonably necessary to
conduct their respective businesses as now conducted. The Company and its subsidiaries do not have
any knowledge of any infringement by the Company or its subsidiaries of trademark, trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks,
service mark registrations, trade secret or other similar rights of others, and, to the knowledge
of the Company there is no claim, action or proceeding being made or brought against, or to the
Company’s knowledge, being threatened against, the Company or its subsidiaries regarding trademark,
trade name, patents, patent rights, invention, copyright, license, service names, service marks,
service mark registrations, trade secret or other infringement; and the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to any of the
foregoing.Environmental Laws. The Company and its subsidiaries are (i) in compliance with
any and all applicable foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of any such permit, license or
approval, except in the case of (ii) or (iii) where the failure to have such permits or to so be in
compliance would not have a material adverse effect on the Company or its subsidiaries, taken as a
whole.



(n) Title. Any real property and facilities held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries.



(o) Insurance. The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such subsidiary has any
reason to believe that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company and its
subsidiaries, taken as a whole.



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



(q) Internal Accounting Controls. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset accountability, and (iii) the
recorded amounts for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.



(r) No Material Adverse Breaches, etc. Neither the Company nor any of its
subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation which in the judgment of the Company’s officers has or is
expected in the future to have a material adverse effect on the business, properties, operations,
financial condition, results of operations or prospects of the Company or its subsidiaries.
Neither the Company nor any of its subsidiaries is in breach of any contract or agreement which
breach, in the judgment of the Company’s officers, has or is expected to have a material adverse
effect on the business, properties, operations, financial condition, results of operations or
prospects of the Company or its subsidiaries.



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



(t) Certain Transactions. Except for arm’s length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less favorable than the
Company could obtain from third parties and other than the grant of stock options disclosed in the
SEC Documents, none of the officers, directors, or employees of the Company is presently a party to
any transaction with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the furnishing of services to
or by, providing for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or partner.



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



4. COVENANTS.



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



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



(c) Reporting Status. Until the earlier of (i) the date as of which the Buyer(s) may
sell all of the Conversion Shares without restriction pursuant to Rule 144(k) promulgated under the
Securities Act (or successor thereto), or (ii) the date on which (A) the Buyer(s) shall have sold
all the Conversion Shares and (B) none of the Convertible Debentures are outstanding (the
“Registration Period”), the Company shall file in a timely manner all reports required to
be filed with the SEC pursuant to the Exchange Act and the regulations of the SEC thereunder, 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 otherwise permit such
termination.



(d) Use of Proceeds. The Company will use the proceeds from the sale of the
Convertible Debentures for general corporate and working capital purposes.



(e) Reservation of Shares. The Company shall take all action reasonably necessary to
at all times have authorized, and reserved for the purpose of issuance, such number of shares of
Common Stock as shall be necessary to effect the issuance of the Conversion Shares. If at any time
the Company does not have available such shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all of the Conversion Shares, the Company shall call and
hold a special meeting of its shareholders within thirty (30) days of such occurrence, for the
purpose of increasing the number of shares authorized. The Company’s management shall recommend to
the shareholders to vote in favor of increasing the number of shares of Common Stock authorized.
Management shall also vote all of its shares in favor of increasing the number of authorized shares
of Common Stock.



(f) Listings or Quotation. The Company shall promptly secure the listing or quotation
of the Conversion Shares upon each national securities exchange, automated quotation system or The
National Association of Securities Dealers Inc.’s Over-The-Counter Bulletin Board (“OTCBB”)
or other market, if any, upon which shares of Common Stock are then listed or quoted (subject to
official notice of issuance) and shall use its best efforts to maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time
issuable under the terms of this Agreement. The Company shall maintain the Common Stock’s
authorization for quotation on the OTCBB or on a national securities exchange.



(g) Fees and Expenses.



(i) Each of the Company and the Buyer(s) shall pay all costs and expenses incurred by such
party in connection with the negotiation, investigation, preparation, execution and delivery of the
Transaction Documents. The Company shall pay Yorkville Advisors LLC a fee equal to ten percent
(10%) of the Purchase Price.



(ii) The Company shall pay a structuring fee to Yorkville Advisors LLC of Fifteen Thousand
Dollars ($15,000) directly from the proceeds of the First Closing.



(iii) The Company has paid Yorkville Advisors, LLC a non-refundable due diligence fee of Ten
Thousand Dollars ($10,000).



(iv) On the date hereof the Company shall issue to the Buyer a warrant to purchase one million
five hundred thousand (1,500,000) shares of the Company’s Common Stock for a period of five (5)
years at an exercise price of $0.50 per share a warrant to purchase two million (2,000,000) shares
of the Company’s Common Stock for a period of five (5) years at an exercise price of $0.60 per
share, a warrant to purchase eight hundred eighty five thousand (885,000) shares of the Company’s
Common Stock for a period of five (5) years at an exercise price of $0.75 per share, a warrant to
purchase seven hundred ninety thousand (790,000) shares of the Company’s Common Stock for a period
of five (5) years at an exercise price of $0.95 per share and a warrant to purchase six hundred
thousand (600,000) shares of the Company’s Common Stock for a period of five (5) years at an
exercise price of $1.15 per share (collectively referred to as the “Warrants”). The shares
of Common Stock issuable under the Warrants shall collectively be referred to as the “Warrant
Shares”.



(v) The Warrant Shares shall have “piggy-back” and demand registration rights.



(h) Corporate Existence. So long as any of the Convertible Debentures remain
outstanding, the Company shall not directly or indirectly consummate any merger, reorganization,
restructuring, consolidation, sale of all or substantially all of the Company’s assets or any
similar transaction or related transactions (each such transaction, an “Organizational
Change”) unless, prior to the consummation of an Organizational Change, the Company obtains the
written consent of each Buyer, which consent shall not be unreasonably withheld. In any such case,
the Company will make appropriate provision with respect to such holders’ rights and interests to
insure that the provisions of this Section 4(h) will thereafter be applicable to the Convertible
Debentures.



(i) Transactions With Affiliates. So long as any Convertible Debentures are
outstanding, without the written consent of the Buyer, which consent shall not be unreasonably
withheld, the Company shall not, and shall cause each of its wholly-owned subsidiaries not to,
enter into, amend, modify or supplement, or permit any subsidiary to enter into, amend, modify or
supplement any agreement, transaction, commitment, or arrangement with any of its or any
subsidiary’s officers, directors, person who were officers or directors at any time during the
previous two (2) years, stockholders who beneficially own five percent (5%) or more of the Common
Stock, or Affiliates (as defined below) or with any individual related by blood, marriage, or
adoption to any such individual or with any entity in which any such entity or individual owns a
five percent (5%) or more beneficial interest (each a “Related Party”), except for (a)
customary employment arrangements and benefit programs on reasonable terms, (b) any investment in
an Affiliate of the Company, (c) any agreement, transaction, commitment, or arrangement on an
arms-length basis on terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, (d) any agreement, transaction, commitment, or arrangement
which is approved by a majority of the disinterested directors of the Company; for purposes hereof,
any director who is also an officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction, commitment, or arrangement.
“Affiliate” for purposes hereof means, with respect to any person or entity, another
person or entity that, directly or indirectly, (i) has a ten percent (10%) or more equity interest
in that person or entity, (ii) has ten percent (10%) or more common ownership with that person or
entity, (iii) controls that person or entity, or (iv) shares common control with that person or
entity. “Control” or “controls” for purposes hereof means that a person or entity
has the power, direct or indirect, to conduct or govern the policies of another person or entity.



(j) Transfer Agent. The Company covenants and agrees that, in the event that the
Company’s agency relationship with the transfer agent should be terminated for any reason prior to
a date which is two (2) years after the Closing Date, the Company shall immediately appoint a new
transfer agent and shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).



(k) Restriction on Issuance of the Capital Stock. So long as any Convertible
Debentures are outstanding, the Company shall not, without the prior written consent of the
Buyer(s), which consent shall not be unreasonably withheld, (i) issue or sell shares of Common
Stock, Preferred Stock, or any warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire Common Stock for a consideration per
share less than Seventy Cents ($0.70), unless all amounts of principal and interest outstanding
under the Convertible Debentures are repaid simultaneously with the closing of such issuance or
sale directly from the gross proceeds of such sale or issuance, ; (iii) enter into any security
instrument granting the holder a security interest in any and all assets of the Company, or (iv)
file any registration statement on Form S-8. The Company shall provide the Buyer ten (10) days
prior written notice of an issuance or sale of shares of Common Stock, Preferred Stock warrant,
option, right, contract, call, or other security or instrument granting the holder thereof the
right to acquire Common Stock for a consideration per share of Seventy Cents ($0.70) or greater.



(l) Neither the Buyer(s) nor any of its affiliates have an open short position in the Common
Stock of the Company, and the Buyer(s) agrees that it shall not, and that it will cause its
affiliates not to, engage in any short sales of or hedging transactions with respect to the Common
Stock as long as any Convertible Debentures shall remain outstanding.



(m) Rights of First Refusal. For a period of fifteen (15) months from each Closing
Date, provided that at such time any portion of the Convertible Debentures are outstanding, if the
Company intends to raise additional capital by the issuance or sale of capital stock of the
Company, including without limitation shares of any class of common stock, any class of preferred
stock, options, warrants or any other securities convertible or exercisable into shares of common
stock (whether the offering is conducted by the Company, underwriter, placement agent or any third
party) the Company shall be obligated to offer to the Buyers three quarters (3/4) of such issuance
or sale of capital stock, by providing in writing the principal amount of capital it intends to
raise and outline of the material terms of such capital raise, prior to offering such issuance or
sale of capital stock  to any third parties including, but not limited to, current or former
officers or directors, current or former shareholders and/or investors of the obligor,
underwriters, brokers, agents or other third parties.  The Buyers shall have ten (10) business days
from receipt of such notice of the sale or issuance of capital stock to accept or reject all or a
portion of such capital raising offer.



(n) Lock Up Agreements. On the date hereof, the Company shall obtain from each
officer and director a lock up agreement in the form attached hereto as Exhibit A.



5. TRANSFER AGENT INSTRUCTIONS.



(a) The Company shall issue the Irrevocable Transfer Agent Instructions to its transfer agent
irrevocably appointing David Gonzalez, Esq. as the Company’s agent, subject to the terms and
conditions set forth in such instructions, for the purpose of having certificates issued,
registered in the name of the Buyer(s) or its respective nominee(s), for the Conversion Shares
representing such amounts of Convertible Debentures as specified from time to time by the Buyer(s)
to the Company upon conversion of the Convertible Debentures, for interest owed pursuant to the
Convertible Debenture, and for any and all Liquidated Damages (as this term is defined in the
Investor Registration Rights Agreement). The Company shall not change its transfer agent without
the express written consent of the Buyer(s), which may be withheld by the Buyer(s) in its sole
discretion. Prior to registration of the Conversion Shares under the Securities Act, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5, and stop transfer instructions to give effect to Section 2(g) hereof
(in the case of the Conversion Shares prior to registration of such shares under the Securities
Act) will be given by the Company to its transfer agent and that the Conversion Shares shall
otherwise be freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Investor Registration Rights Agreement. Nothing in this Section
5 shall affect in any way the Buyer’s obligations and agreement to comply with all applicable
securities laws upon resale of Conversion Shares. If the Buyer(s) provides the Company with an
opinion of counsel, in form, scope and substance customary for opinions of counsel in comparable
transactions to the effect that registration of a resale by the Buyer(s) of any of the Conversion
Shares is not required under the Securities Act, the Company shall within two (2) business days
instruct its transfer agent to issue one or more certificates in such name and in such
denominations as specified by the Buyer. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyer 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 5 will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of this Section 5, that the
Buyer(s) shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.



6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.



The obligation of the Company hereunder to issue and sell the Convertible Debentures to the
Buyer(s) at the Closings is subject to the satisfaction, at or before the Closing Dates, of each of
the following conditions, provided that these conditions are for the Company’s sole benefit and may
be waived by the Company at any time in its sole discretion:



(a) Each Buyer shall have executed the Transaction Documents and delivered them to the
Company.



(b) The Buyer(s) shall have delivered to the Company the Purchase Price for Convertible
Debentures in respective amounts as set forth next to each Buyer as outlined on Schedule I attached
hereto, minus any fees to be paid directly from the proceeds the Closings as set forth herein, by
wire transfer of immediately available U.S. funds pursuant to the wire instructions provided by the
Company.



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



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



(a) The obligation of the Buyer(s) hereunder to purchase the Convertible Debentures at the
First Closing is subject to the satisfaction, at or before the First Closing Date, of each of the
following conditions:



(i) The Company shall have executed the Transaction Documents and delivered the same to the
Buyer(s).



(ii) The Common Stock shall be authorized for quotation on the OTCBB, and trading in the
Common Stock shall not have been suspended for any reason.



(iii) The representations and warranties of the Company shall be true and correct in all
material respects (except to the extent that any of such representations and warranties is already
qualified as to materiality in Section 3 above, in which case, such representations and warranties
shall be true and correct without further qualification) as of the date when made and as of the
First Closing Date as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the First Closing Date



(iv) The Company shall have executed and delivered to the Buyer(s) the Convertible Debentures
in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached hereto.



(v) The Buyer(s) shall have received an opinion of counsel from Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C. in a form satisfactory to the Buyer(s).



(vi) The Company shall have provided to the Buyer(s) a certificate of good standing from the
secretary of state from the state in which the company is incorporated.



(vii) The Company shall have filed a form UCC-1 or such other forms as may be required to
perfect the Buyer’s interest in the Pledged Property as detailed in the Security Agreement dated
the date hereof and provided proof of such filing to the Buyer(s).



(viii) The Company shall have delivered the Pledged Shares as well as executed and medallion
guaranteed stock powers as required pursuant to the Pledge and Escrow Agreement.



(ix) The Company shall have provided to the Buyer an acknowledgement, to the satisfaction of
the Buyer, from the Company’s independent certified public accountants as to its ability to provide
all consents required in order to file a registration statement in connection with this
transaction.



(x) The Company shall have reserved out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Convertible Debentures, shares of Common Stock
to effect the conversion of all of the Conversion Shares then outstanding.



(xi) The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the
Buyer, shall have been delivered to and acknowledged in writing by the Company’s transfer agent.



(b) The obligation of the Buyer(s) hereunder to accept the Convertible Debentures at the
Second Closing is subject to the satisfaction, at or before the Second Closing Date, of each of the
following conditions:



(i) The Common Stock shall be authorized for quotation on the OTCBB, and trading in the Common
Stock shall not have been suspended for any reason.



(ii) The representations and warranties of the Company shall be true and correct in all
material respects (except to the extent that any of such representations and warranties is already
qualified as to materiality in Section 3 above, in which case, such representations and warranties
shall be true and correct without further qualification) as of the date when made and as of the
Second Closing Date as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Second Closing Date.



(iii) The Company shall have executed and delivered to the Buyer(s) the Convertible Debentures
in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached hereto.



(iv) The Company shall have filed the registration statement with the SEC in compliance with
the rules and regulations promulgated by the SEC for filing thereof on the date of the Second
Closing.



(v) The Company shall have certified, in a certificate executed by two officers of the Company
and dated as of the Second Closing Date, that all conditions to the Second Closing have been
satisfied.



(c) The obligation of the Buyer(s) hereunder to accept the Convertible Debentures at the Third
Closing is subject to the satisfaction, at or before the Third Closing Date, of each of the
following conditions:



(i) The Common Stock shall be authorized for quotation on the OTCBB, and trading in the Common
Stock shall not have been suspended for any reason.



(ii) The representations and warranties of the Company shall be true and correct in all
material respects (except to the extent that any of such representations and warranties is already
qualified as to materiality in Section 3 above, in which case, such representations and warranties
shall be true and correct without further qualification) as of the date when made and as of the
Second Closing Date as though made at that time (except for representations and warranties that
speak as of a specific date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Third Closing Date.



(iii) The Company shall have executed and delivered to the Buyer(s) the Convertible Debentures
in the respective amounts set forth opposite each Buyer(s) name on Schedule I attached hereto.



(iv) The Registration Statement shall have been declared effective by the SEC.



(v) The Company shall have certified, in a certificate executed by two officers of the Company
and dated as of the Third Closing Date, that all conditions to the Third Closing have been
satisfied.



8. INDEMNIFICATION.



(a) In consideration of the Buyer’s execution and delivery of this Agreement and acquiring the
Convertible Debentures and the Conversion Shares hereunder, and in addition to all of the Company’s
other obligations under this Agreement, the Company shall defend, protect, indemnify and hold
harmless the Buyer(s) and each other holder of the Convertible Debentures and the Conversion
Shares, and all of their officers, directors, employees and agents (including, without limitation,
those retained in connection with the transactions contemplated by this Agreement) (collectively,
the “Buyer Indemnitees”) from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Buyer Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by the Buyer Indemnitees or any of them as a
result of, or arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement, the Convertible Debentures or the
Investor Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the
Company contained in this Agreement, or the Investor Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any cause of action,
suit or claim brought or made against such Indemnitee and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make
the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities,
which is permissible under applicable law.



(b) In consideration of the Company’s execution and delivery of this Agreement, and in
addition to all of the Buyer’s other obligations under this Agreement, the Buyer shall defend,
protect, indemnify and hold harmless the Company and all of its officers, directors, employees and
agents (including, without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the “Company Indemnitees”) from and against
any and all Indemnified Liabilities incurred by the Indemnitees or any of them as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any representation or
warranty made by the Buyer(s) in this Agreement, instrument or document contemplated hereby or
thereby executed by the Buyer, (b) any breach of any covenant, agreement or obligation of the
Buyer(s) contained in this Agreement, the Investor Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or thereby executed by the Buyer, or (c)
any cause of action, suit or claim brought or made against such Company Indemnitee based on
material misrepresentations or due to a material breach and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement, the Investor Registration Rights
Agreement or any other instrument, document or agreement executed pursuant hereto by any of the
parties hereto. To the extent that the foregoing undertaking by each Buyer may be unenforceable
for any reason, each Buyer shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities, which is permissible under applicable law.



9. GOVERNING LAW: MISCELLANEOUS.



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



(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other party. In
the event any signature page is delivered by facsimile transmission, the party using such means of
delivery shall cause four (4) additional original executed signature pages to be physically
delivered to the other party within five (5) days of the execution and delivery hereof.



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



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



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



(f) Notices. Any notices, consents, waivers, or other communications required or
permitted to be given under the terms of this Agreement must be in writing and will be deemed to
have been delivered (i) upon receipt, when delivered personally; (ii) upon confirmation of receipt,
when sent by facsimile; (iii) three (3) days after being sent by U.S. certified mail, return
receipt requested, or (iv) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:



	 	 	 
	If to the Company, to:

	 	VIASPACE Inc.
	 
	 	 
	
 
	 	171 N. Altadena Drive – Suite 101
	 
	 	 
	
 
	 	Pasadena, CA 91107
	 
	 	 
	
 
	 	Attention: Carl Kukkonen, President and Chief

Executive Officer
	 
	 	 
	
 
	 	Telephone: (626) 768-3360
	 
	 	 
	
 
	 	Facsimile: (626) 578-9063
	 
	 	 
	With a copy to:

	 	Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
	 
	 	 
	
 
	 	One Financial Center
	 
	 	 
	
 
	 	Boston, MA 02111
	 
	 	 
	
 
	 	Attention: Megan N. Gates, Esq.
	 
	 	 
	
 
	 	Telephone: (617) 348-4443
	 
	 	 
	
 
	 	Facsimile: (617) 542-2241






If to the Buyer(s), to its address and facsimile number on Schedule I, with copies to the
Buyer’s counsel as set forth on Schedule I. Each party shall provide five (5) days’ prior written
notice to the other party of any change in address or facsimile number.



(g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns. Neither the Company nor any
Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written
consent of the other party hereto.



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



(i) Survival. Unless this Agreement is terminated under Section 9(l), the
representations and warranties of the Company and the Buyer(s) contained in Sections 2 and 3, the
agreements and covenants set forth in Sections 4, 5 and 9, and the indemnification provisions set
forth in Section 8, shall survive the Closing for a period of two (2) years following the date on
which the Convertible Debentures are converted in full. The Buyer(s) shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.



(j) Publicity. The Company and the Buyer(s) shall have the right to approve, before
issuance any press release or any other public statement with respect to the transactions
contemplated hereby made by any party; provided, however, that the Company shall be entitled,
without the prior approval of the Buyer(s), to issue any press release or other public disclosure
with respect to such transactions required under applicable securities or other laws or regulations
(the Company shall use its best efforts to consult the Buyer(s) in connection with any such press
release or other public disclosure prior to its release and Buyer(s) shall be provided with a copy
thereof upon release thereof).



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



(l) Termination. In the event that the First Closing shall not have occurred with
respect to the Buyers on or before five (5) business days from the date hereof due to the Company’s
or the Buyer’s failure to satisfy the conditions set forth in Sections 6 and 7 above (and the
non-breaching party’s failure to waive such unsatisfied condition(s)), the non-breaching party
shall have the option to terminate this Agreement with respect to such breaching party at the close
of business on such date without liability of any party to any other party; provided, however, that
if this Agreement is terminated by the Company pursuant to this Section 9(l), the Company shall
remain obligated to reimburse the Buyer(s) for the fees and expenses of Yorkville Advisors LLC
described in Section 4(g) above.



(m) Brokerage. The Company represents that, other than Gilford Securities, Inc., no
broker, agent, finder or other party has been retained by it in connection with the transactions
contemplated hereby and that no other fee or commission has been agreed by the Company to be paid
for or on account of the transactions contemplated hereby, except that the Company shall issue to
Gilford Securities, Inc., a warrant to purchase five hundred six thousand six hundred sixty-six
(506,666) shares of the Company’s common stock for a period of five (5) years at an exercise price
of $0.60 per share, of which a warrant for 200,000 shares shall be issued at the First Closing, a
warrant for 160,000 shares shall be issued at the Second Closing, and a warrant for 146,666 shares
shall be issued at the Third Closing.



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



[REMAINDER PAGE INTENTIONALLY LEFT BLANK]





1






IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities Purchase Agreement
to be duly executed as of the date first written above.



	 
	 

	COMPANY:

	 

	VIASPACE INC.

	 

	By: /S/ CARL KUKKONEN

	 

	Name: Carl Kukkonen

	Title: President and Chief Executive Officer







2



SCHEDULE I




SCHEDULE OF BUYERS 




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Address/Facsimile	 	Amount of
	Name	 	Signature	 	Number of Buyer	 	Subscription
	 
	 	By: Yorkville Advisors,
	 	 	 	 	 	 	 	 
	Cornell Capital Partners, LP
	 	LLC
	 	101 Hudson Street – Suite 3700	 	$	3,800,000	 
	 
	 	Its: General Partner
	 	Jersey City, NJ  07303
	 	 	 	 
	 
	 	 	 	 	 	Facsimile: (201) 985-8266
	 	 	 	 
	 
	 	By:
	 	 	 	 	 	 	 	 
	 
	 	Name: Mark Angelo
	 	 	 	 	 	 	 	 
	 
	 	Its: Portfolio Manager
	 	 	 	 	 	 	 	 
	With a copy to:
	 	David Gonzalez, Esq.
	 	101 Hudson Street – Suite 3700	 	 	 	 
	 
	 	 	 	 	 	Jersey City, NJ 07302
	 	 	 	 
	 
	 	 	 	 	 	Facsimile:           (201) 985-8266
	 	 	 	 






3




EXHIBIT A




LOCK UP AGREEMENT




The undersigned hereby agrees that for a period commencing on November      , 2006 and expiring
on the date that all amounts owed to Cornell Capital Partners, LP (the “Investor”), under
the Secured Convertible Debentures issued to the Investor pursuant to the Securities Purchase
Agreement between VIASPACE Inc. (the “Company”) and the Investor dated November      , 2006
have been paid (the “Lock-up Period”), he, she or it will not, directly or indirectly,
without the prior written consent of the Investor, issue, offer, agree or offer to sell, sell,
grant an option for the purchase or sale of, transfer, pledge, assign, hypothecate, distribute or
otherwise encumber or dispose of any securities of the Company, including common stock or options,
rights, warrants or other securities underlying, convertible into, exchangeable or exercisable for
or evidencing any right to purchase or subscribe for any common stock (whether or not beneficially
owned by the undersigned), or any beneficial interest therein (collectively, the
“Securities”); provided, however, that nothing set forth herein shall prohibit the
undersigned from (i) receiving or exercising Securities granted under the Company’s equity
compensation plans as in effect from time to time, or (ii) selling Securities in accordance with
the volume limitations set forth in Rule 144(e) of the General Rules and Regulations under the
Securities Act of 1933, as amended.



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



Dated:      , 2006




Signature




Name:      


Address:


City, State, Zip Code:




Print Social Security Number


or Taxpayer I.D. Number




4