Document:

Unassociated Document

    
      SECURITY
        AGREEMENT

       

      SECURITY
        AGREEMENT
        (this
“Agreement”),
        dated
        as of August 24, 2007, between Consolidated Oil and Gas, Inc., a Nevada
        corporation (the “Company”),
        and
        CTI Petroleum, Inc., a Texas corporation (the “Secured
        Party”).

       

      WHEREAS,
        The
        Company is indebted to the Secured Party pursuant to a Promissory Note, dated
        August 24, 2007, in the original principal amount of $ $150,000.00 (the
“Note”);
        

       

      WHEREAS,
        the
        Secured Party has required the Company to grant to the Company a security
        interest in all the Company’s assets to secure the full and timely repayment of
        the Note and any other indebtedness of the Company to the Secured Party (the
        “Secured
        Obligations”);

       

      NOW,
        THEREFORE,
        in
        consideration of the premises, the mutual agreements set forth herein and
        other
        good and valuable consideration, the receipt and adequacy of which are hereby
        acknowledged, the parties agree as follows:

       

      NOW,
        THEREFORE,
        for
        good and valuable consideration, the receipt and adequacy of which are hereby
        acknowledged, the Company agrees for the benefit of the Secured Party as
        follows:

       

      1.Grant
        of Security Interest.
        The
        Company hereby grants to the Secured Party a security interest in the property
        described in Section 2 of this Agreement (the “Collateral”)
        to
        secure payment to the Secured Party of all liabilities and indebtedness of
        the
        Company to the Secured Party under the Secured Obligations, whether such
        liabilities or indebtedness is due or to become due, absolute or contingent,
        joint or several, now existing or hereafter arising.

       

      2.Description
        of Collateral. The
        collateral shall consist of all assets and properties now owned or hereafter
        acquired by the Company, including, without limitation, the
        following:

       

      (a)All
        equipment (consisting of machinery, furniture, fixtures and vehicles) now
        owned
        or hereafter at any time acquired by the Company or in which the Company
        has or
        obtains rights together with all repairs, improvements, attachments, renewals,
        additions and accessions thereto, substitutions and replacements therefor
        at any
        time hereafter made or acquired and all guaranties, claims, rights, remedies
        and
        privileges relating to any of the foregoing;

       

      (b)All
        inventory and other personal property owned or hereafter at any time acquired
        by
        the Company, which is held for sale in the ordinary course of business, or
        is
        furnished or to be furnished under contracts for service, or is held as raw
        materials, work in process or materials used or consumed or to be used or
        consumed in the Company’s business.

       

      (c)All
        accounts receivable of the Company;

       

      (d)All
        customer contracts and other contract rights;

       

      (e)All
        patents, trademarks, service marks, tradenames, trade dress, copyrights,
        computer programs, data bases, know-how and all other intellectual, industrial
        and intangible property rights; 

       

      (f)All
        proceeds of all of the Collateral.

      
         

        
          
            
              Exhibit
                10.3

            

          

          
            Page
              1 of
              6

            
              

            

          

          
            
            

          

           

        

      

      3.Warranties
        of the Company.
        The
        Company hereby represents and warrants to the Secured Party as
        follows:

       

      (a)Ownership.
        The
        Company is the owner of the Collateral, free of all encumbrances and security
        interests other than securing an existing loan in the approximate amount
        of
        $500,000.00 to ___________________________;

       

      (b)Authority.
        The
        Company has full power and authority to execute this Agreement, to perform
        the
        Company’s obligations hereunder and to subject the Collateral to the security
        interest created hereby; and

       

      (c)Location
        of Collateral.
        The
        equipment and inventory will be maintained at the Company’s principal offices
        and production facilities, and the books and records concerning the Company’s
        accounts receivable will be kept at the same address. The equipment, inventory
        and books and records concerning the Company’s accounts receivable will not be
        removed from such location without prior notice to the Secured
        Party.

       

      4.Obligations
        of the Company.
        During
        the term of this Agreement, the Company will comply with each of the following
        covenants and commitments:

       

      (a)Maintenance
        of Collateral.
        The
        Company will keep the Collateral and all lands, plants, buildings, machinery,
        equipment and other property now or hereafter at any time owned or used by
        the
        Company in connection with the storage, sale or lease of the Collateral in
        good
        condition and insured against such risks and in such amounts as the Secured
        Party may request, with an insurance company or companies satisfactory to
        Secured Party, the policies to protect the Secured Party as Secured Party’s
        interests may appear and to be delivered to the Secured Party at Secured
        Party’s
        request;

       

      (b)Disposition
        of Collateral.
        The
        Company will not sell, lease or otherwise dispose of the Collateral consisting
        of equipment, accounts receivable and inventory other than in the ordinary
        course of its business at prices constituting the then fair market value
        thereof. The Company will not grant to any account debtor any rebate, refund,
        allowance or credit on any account without the prior written consent of the
        Secured Parties other than in the ordinary course of business;

       

      (c)Collection
        of Accounts.
        The
        Company will collect all accounts receivable until receipt of notice from
        Secured Party to notify any or all account debtors (as that term is defined
        in
        the Uniform Commercial Code) of the existence of the Secured Party’s security
        interest and upon receipt of such notice the Company shall so notify such
        account debtors. The Company will hold all of the proceeds of such collections
        and all return and repossessed goods in trust for the Secured Party, and
        will
        not commingle the same with any other funds or property of the Company, and
        will
        deliver the same forthwith to the Secured Party at Secured Party’s request;
        provided, however, that with respect to returned and repossessed goods, the
        Company will on demand pay to the Secured Party the full invoice price thereof.
        All proceeds of Collateral received by the Secured Party shall be applied
        against the Secured Obligations in such order and at such times as the Secured
        Party shall determine whether or not due;

       

      (d)Records
        and Inspections.
        The
        Company will keep accurate books, records and accounts with respect to the
        Collateral and will make the same available to Secured Party at Secured Party’s
        request for examination. The Company will permit any authorized representative
        of the Secured Party from time to time to examine and inspect, during normal
        business hours, any and all premises where the Collateral is or may be kept
        or
        located and the Company shall assist the Secured Party in making such
        inspections; and

       

      
        
          
            
              
                Exhibit
                  10.3

              

            

            
              Page
                2 of
                6

              
                

              

            

            
              
              

            

             

          

        

      

      (e)Maintenance
        of Security Interest.
        The
        Company will at any time or times hereafter execute such financing statements
        and other instruments and perform such acts as the Secured Party may request
        to
        establish and maintain a valid security interest in the Collateral, and will
        pay
        all costs of filing and recording.

       

      5.Rights
        of Secured Party.

       

      (a)Authority
        to Perform for the Company.
        Upon
        default by the Company in the performance of the Company’s obligations
        hereunder, the Secured Party at Secured Party’s option may (i) effect such
        insurance and repairs and pay the premiums therefor and the costs thereof
        and
        (ii) pay and discharge any taxes, liens and encumbrances on the Collateral.
        All
        sums so advanced or paid by the Secured Party shall be payable by the Company
        on
        demand with interest at the highest rate allowed by law and shall be a part
        of
        the Secured Obligations.

       

      (b)Rights
        with Respect to Collateral.
        The
        Secured Party shall have the authority, but shall not be obligated: (i) to
        notify any or all account debtors of the existence of the Secured Party’s
        security interest and to pay or remit all sums due or to become due directly
        to
        the Secured Party or Secured Party’s respective nominees; (ii) to place on any
        chattel paper (as that term is defined in the Uniform Commercial Code) received
        as proceeds a notation or legend showing the Secured Party’s security interest;
        (iii) to place upon the Company’s books and records relating to accounts
        receivable covered by the security interest granted hereby a notation or
        legend
        stating that such account is subject to a security interest held by the Secured
        Party; (iv) in the name of the Company, or otherwise, to demand, collect,
        receive and receipt for, compound, compromise, settle and give acquittance
        for,
        and prosecute and discontinue any suits or proceedings in respect of any
        or all
        of the accounts in which the Secured Party have a security interest; (v)
        to take
        any action which Secured Party may deem necessary or desirable in order to
        realize on the Collateral, including, the power to perform any contract,
        to
        endorse in the name of the Company any checks, drafts, notes or other
        instruments or documents received in payment of or on account of the Collateral;
        and (vi) after any Event of Default, to enter upon and into and take possession
        of all or such part or parts of the properties of the Company, as may be
        necessary or appropriate in the judgment of the Secured Party to permit or
        enable the Secured Party to process, store, and sell all or any part of the
        inventory, as the Secured Party may elect, and to use and operate said
        properties for such purposes and for such length of time as the Secured Party
        may deem necessary or appropriate for such purposes without the payment of
        any
        compensation to the Company therefor.

       

      6.Default.

       

      (a)Events
        of Default.
        The
        occurrence of any of the following events shall constitute a default
        (“Event
        of Default”)
        under
        this Agreement:

       

      (1)The
        Company shall fail to observe or perform any of the other covenants or
        agreements binding on the Company under this Agreement and such default shall
        have continued uncured for a period of 20 days after written notice thereof
        is
        delivered to the Company; or

       

      (2)The
        Company shall be in default in the payment to the Secured Party of any
        indebtedness evidenced by the Secured Obligations.

       

      
        
          
            
              
                Exhibit
                  10.3

              

            

            
              Page
                3 of
                6

              
                

              

            

            
              
              

            

             

          

        

      

      (b)Remedies.
        Upon
        the occurrence of an Event of Default, the Secured Party shall have all of
        the
        rights and remedies of a secured party under the provisions of the Uniform
        Commercial Code.

       

      7.Miscellaneous.

       

      (a)Entire
        Agreement.
        This
        Agreement and the Guarantee contain the entire understanding between the
        parties
        hereto with respect to the subject matter hereof and thereof and supersedes
        any
        prior understandings, agreements or representations, written or oral, relating
        to the subject matter hereof and thereof.

       

      (b)Counterparts.
        This
        Agreement may be executed in separate counterparts, each of which will be
        an
        original and all of which taken together shall constitute one and the same
        agreement, and any party hereto may execute this Agreement by signing any
        such
        counterpart.

       

      (c)Severability.
        Whenever possible, each provision of this Agreement shall be interpreted
        in such
        a manner as to be effective and valid under applicable law but if any provision
        of this Agreement is held to be invalid, illegal or unenforceable under any
        applicable law or rule, the validity, legality and enforceability of the
        other
        provision of this Agreement will not be affected or impaired
        thereby.

       

      (d)Successors
        and Assigns.
        This
        Agreement shall be binding upon and inure to the benefit of the parties hereto
        and their respective heirs, personal representatives, successors and
        assigns.

       

      (e)Modification,
        Amendment, Waiver or Termination.
        No
        provision of this Agreement may be modified, amended, waived or terminated
        except by an instrument in writing signed by the parties to this Agreement.
        No
        course of dealing between the parties will modify, amend, waive or terminate
        any
        provision of this Agreement or any rights or obligations of any party under
        or
        by reason of this Agreement. No delay on the part of the Secured Party in
        the
        exercise of any right or remedy under this Agreement shall operate as a waiver
        thereof, and no single or partial exercise by the Secured Party of any right
        or
        remedy under this Agreement shall preclude other or further exercise thereof
        or
        the exercise of any other right or remedy. No waiver by the Secured Party
        of any
        right or remedy under this Agreement shall be deemed to be or construed as
        a
        further or continuing waiver of such right or remedy or as a waiver of any
        other
        right or remedy.

       

      (f)Notices.
        All
        notices, consents, requests, instructions, approvals or other communications
        provided for herein shall be in writing and delivered by personal delivery,
        overnight courier, mail, electronic facsimile or e-mail addressed to the
        receiving party at the address set forth herein. All such communications
        shall
        be effective when received.

       

      
        	
                CTI
                  Petroleum, Inc.

                700
                  Technology Drive,

                Pittsburgh,
                  Pennsylvania 15219

                Attention:
                  Richard C. Jackson

              
	 
	
                Consolidated
                  Oil and Gas, Inc.

                316
                  Main Street, Suite L

                Humble
                  TX 77338

              

      

      
         

        
          
            
              Exhibit
                10.3

            

          

          
            Page
              4 of
              6

            
              

            

          

          
            
            

          

        

      

       

      Any
        party
        may change the address set forth above by notice to each other party given
        as
        provided herein.

       

      (g)Headings.
        The
        headings and any table of contents contained in this Agreement are for reference
        purposes only and shall not in any way affect the meaning or interpretation
        of
        this Agreement.

       

      (h)Governing
        Law.
        ALL
        MATTERS RELATING TO THE INTERPRETATION, CONSTRUCTION, VALIDITY AND ENFORCEMENT
        OF THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
        TEXAS,
        WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW PROVISIONS
        THEREOF.

       

      (i)Third-Party
        Benefit.
        Nothing
        in this Agreement, express or implied, is intended to confer upon any other
        person any rights, remedies, obligations or liabilities of any nature
        whatsoever.

       

      
        
          
            Exhibit
              10.3

          

        

        
          Page
            5 of
            6

          
            

          

        

        
          
          

        

      

      IN
        WITNESS WHEREOF,
        the
        parties have executed this Agreement as of the date set forth in the first
        paragraph.

    

    
       

      
        
          
            	 	 	 
	 	CTI
                    PETROLEUM, INC.
	 	 
	 	By:  	 
	 	Name: 	
                    
 
	 	Title:	
                    
 
	 	
                    

                  
	 	 

          

        

        
          	 	 	 
	 	CONSOLIDATED OIL AND GAS,
                  INC.
	 
 	 
 	 
 
	 	By:  	 
	 	Name: 	
                  
 
	 	Title:	
                  
 
	 	
                  

                
	 	 

        

      

    

     

     

    
      
        
          Exhibit
            10.3

        

      

      
        Page
          6 of
          6NOTE
      AND WARRANT PURCHASE AGREEMENT

     

    THIS
      NOTE
      AND WARRANT PURCHASE AGREEMENT (this "Agreement"),
      is
      executed as of August 24, 2007, by and among Eugene Science, Inc, a Delaware
      corporation (the "Company"),
      and
      the purchasers set forth on the signature page attached hereto (each, a
“Purchaser”
and
      collectively, the "Purchasers").

     

    WHEREAS,
      the Company wishes to sell and issue, and the Purchasers wish to purchase,
      the
      Company’s 10% senior secured notes with an aggregate principal amount of
      $1,250,000, and in the respective principal amounts set forth on the signature
      page hereto, and warrants to purchase the respective number of shares of Common
      Stock (as defined below) set forth on the signature page hereto, which warrants
      shall be exercisable for three years at a purchase price of $0.25 per share;
      and

     

    WHEREAS,
      the Purchasers are willing to provide such financing on the terms and subject
      to
      the conditions set forth herein.

     

    NOW,
      THEREFORE, in consideration of the mutual covenants and agreements set forth
      herein, and for other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, the Company and the Purchasers,
      intending to be legally bound, agree as follows:

     

    ARTICLE
      1

    DEFINITIONS

     

    1.1  Defined
      terms.
      Certain
      capitalized terms used in this Agreement shall have the specific meanings
      defined below:

     

    “Business
      Day”
shall
      mean a day other than a Saturday, Sunday, or other day on which commercial
      banks
      are authorized or required by law to close.

     

    “Closing
      Date”
shall
      mean August 24, 2007 or any other date mutually agreed to by the Company and
      the
      Purchasers.

     

    “Indebtedness”
shall
      mean (a) all indebtedness for borrowed money or other obligations, extensions
      of
      credit, commitments or liabilities, whether current or long term, contingent
      or
      matured, secured or unsecured, (b) all indebtedness of the deferred purchase
      price of property or services whether represented by a note, promise to pay
      or
      security agreement, (c) all indebtedness created or arising under any
      conditional sale or other title retention agreement (even though the rights
      and
      remedies of the seller or lender under such agreement in the event of default
      may be limited to repossession or sale of such property), (d) all indebtedness
      secured by a purchase money mortgage or other lien to secure all or part to
      the
      purchase price of property subject to such mortgage or lien regardless of
      whether the indebtedness secured thereby shall have been assumed by the Company
      or is non recourse to the credit of the Company, (e) all obligations under
      leases that have been or must be, in accordance with United States Generally
      Accepted Accounting Principles (“GAAP”),
      recorded as capital leases in respect of which the Company is liable as lessee,
      (f) any liability in respect of banker’s acceptances or letters of credit, and
      (g) without duplication all indebtedness that is guaranteed by the Company
      or
      that the Company has agreed (contingently or otherwise) to purchase or otherwise
      acquire or in respect of which the Company has otherwise assured a creditor
      against loss.

     

    “SEC
      Documents”
shall
      mean complete and accurate copies of the Company’s (i) Annual Report on Form
      10-KSB for the fiscal year ended December 31, 2006, together with all
      amendments, supplements and exhibits thereto (the “Form
      10-KSB”),
      as
      filed with the Securities and Exchange Commission (the “Commission”),
      (ii)
      Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2007,
      together with all amendments, supplements and exhibits thereto, as filed with
      the Commission, and (iii) other reports filed by the Company with the Commission
      since December 31, 2006, together with all amendments, supplements and exhibits
      thereto, each as made available through the Commission’s website,
      www.sec.gov.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    ARTICLE
      2

    THE
      CLOSING

     

    2.1  Closing.
      According to the terms and subject to the conditions of this Agreement, the
      Company shall deliver to the Purchasers on the Closing Date: (a) 10% senior
      secured notes in the form attached hereto as Exhibit
      A
      with an
      aggregate principal amount of $1,250,000, and in the respective principal
      amounts set forth on the signature page hereto (each, a “Note”
and
      collectively, the “Notes”),
      and
      (b) warrants to purchase a number of shares of the Company’s common
      stock, $0.001 par value per share (“Common
      Stock”), equal
      to
      the quotient obtained by dividing (i) an amount equal to 40% of the principal
      amount of each Note by (ii) an exercise price of $0.25, in the form set forth
      in
Exhibit
      B
      (each, a
“Warrant”
and
      collectively, the “Warrants”).
      For
      example, if the principal amount of a Note is $500,000, then the Company shall
      issue to the Purchaser holding such Note a Warrant to purchase 800,000 shares
      of
      Common
      Stock (($500,000*0.40)/$0.25). The Purchasers shall deliver to the Company
      on
      the Closing Date, via wire transfer to the account set forth in Exhibit
      C,
      the
      respective principal amounts set forth on the signature page
      hereto.

     

    2.2  Interest.
      The
      Notes shall bear interest ("Interest")
      from
      the Closing Date until the Maturity Date at the rate of 10% per annum
      (calculated on the basis of the actual number of days elapsed over a year of
      360
      days). 

     

    2.3  Prepayment
      of the Note.
      The
      Company may from time to time prepay all or any portion of the Notes and all
      accrued but unpaid interest thereon without premium or penalty of any type.
      The
      Company shall give the Purchasers at least three Business Days prior written
      notice of its intention to prepay the Notes, specifying the date of payment
      and
      the total amount of the Notes and the accrued but unpaid interest to be paid
      on
      such date. In the event that the Company elects to partially prepay the Notes,
      such prepayment will be made pro rata based on the principal balance of the
      Notes held by the Purchasers. 

     

    2.4  Maturity
      Date.
      Unless
      the Notes are earlier accelerated or prepaid pursuant to the terms hereof,
      the
      Notes and all accrued interest thereon shall be due and payable in full on
      February 24, 2008, the six month anniversary of the Closing Date (the
“Maturity
      Date”);
      provided,
      however,
      that
      the Maturity Date of the Notes may be extended as set forth in Section 2.5
      below. 

     

    2.5  Payment
      Extension Options.
      

     

    (a)  First
      Extension.
      In the
      event that the Company does not pay the Notes in full by February 24, 2008,
      the
      Maturity Date shall be extended to March 24, 2008, so long as the interest
      due
      as of February 24, 2008 is paid in full by the Company and the Company issues
      to
      each Purchaser a Warrant to purchase a number of shares of
      Common
      Stock equal to the quotient obtained by dividing (i) an amount equal to 6.25%
      of
      the outstanding principal amount of such Purchaser’s Note, less any amount of
      such Note prepaid by the Company prior to February 24, 2008, by (ii) an exercise
      price of $0.25. For example, if the principal amount of a Note is $500,000,
      then
      the Company shall issue to the Purchaser holding such Note an additional Warrant
      to purchase 250,000 shares of
      Common
      Stock (($500,000*0.0625)/$0.25).

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (b)  Second
      Extension.
      In the
      event that the Company does not pay the Notes in full by March 24, 2008, the
      Maturity Date shall be extended to April 24, 2008, so long as the interest
      due
      as of March 24, 2008 is paid in full by the Company and the Company issues
      to
      each Purchaser a Warrant to purchase a number of shares of Common
      Stock equal to the quotient obtained by dividing (i) an amount equal to 6.25%
      of
      the outstanding principal amount of such Purchaser’s Note, less any amount of
      such Note prepaid by the Company prior to March 24, 2008, by (ii) an exercise
      price of $0.25. For example, if the principal amount of a Note is $500,000,
      then
      the Company shall issue to the Purchaser holding such Note an additional Warrant
      to purchase 250,000 shares of Common Stock
      (($500,000*0.0625)/$0.25).

     

    (c)  Third
      Extension.
      In the
      event that the Company does not pay the Notes in full by April 24, 2008, the
      Maturity Date shall be extended to May 24, 2008, so long as the interest due
      as
      of April 24, 2008 is paid in full by the Company and the Company issues to
      each
      Purchaser a Warrant to purchase a number of shares of Common
      Stock equal to the quotient obtained by dividing (i) an amount equal to 6.25%
      of
      the outstanding principal amount of such Purchaser’s Note, less any amount of
      such Note prepaid by the Company prior to April 24, 2008, by (ii) an exercise
      price of $0.25. For example, if the principal amount of a Note is $500,000,
      then
      the Company shall issue to the Purchaser holding such Note an additional Warrant
      to purchase 250,000 shares of Common Stock
      (($500,000*0.0625)/$0.25).

     

    2.6  Additional
      Warrants upon Default.
      For
      each month beyond the three extensions of the Maturity Date set forth in Section
      2.5 that the Company defaults on payment of the Notes, on the first day of
      the
      month of such default, the Company shall issue to each Purchaser an additional
      Warrant to purchase a number of shares of Common
      Stock equal to the quotient obtained by dividing (a) an amount equal to 50%
      of
      the outstanding principal amount of such Purchaser’s Note, less any amount of
      such Note prepaid by the Company, by (b) an exercise price of $0.25. For
      example, if the principal amount of a Note is $500,000, then the Company shall
      issue to the Purchaser holding such Note an additional Warrant to purchase
      1,000,000 shares of
      Common
      Stock (($500,000*0.50)/$0.25). The Purchasers’ acceptance of such Warrants shall
      not preclude their exercise of any rights whether at law or equity under the
      Notes. The right to receive additional Warrants pursuant to this Section 2.6
      shall not in any way limit the rights and remedies available to a Purchaser
      in
      the event all amounts due and payable under such Purchaser’s Note are not paid
      in full by the Maturity Date, or any extension thereof.

     

    ARTICLE
      3

    CONDITIONS
      PRECEDENT TO THE LOAN

     

    (a)  Conditions
      on the Closing Date.
      The
      obligation of the Purchasers to purchase the Notes pursuant to Section 2.1
      shall
      be subject to the condition that: (i) the Company shall have duly executed
      and
      delivered to the Purchasers the Notes and Warrants; (ii) the representations
      and
      warranties made by the Company in Article 5 hereof shall be true and correct
      at
      the Closing Date, with the same force and effect as if they had been made on
      and
      as of such date, the business and assets of the Company shall not have been
      adversely affected in any material way prior to the Closing Date, and the
      Company shall have performed and complied with all obligations and conditions
      herein required to be performed or complied with by it on or prior to the
      Closing Date; (iii)
      all
      corporate and other proceedings in connection with the transactions contemplated
      at the Closing Date, and all documents and instruments incident to such
      transactions, shall be reasonably satisfactory in substance and form to the
      Purchasers, which shall have received all such counterpart originals or
      certified or other copies of such documents as they may reasonably request;
      (iv)
      the Company shall have reserved for issuance shares of Common Stock issuable
      upon exercise of the Warrants; (v) all authorizations, approvals, or permits,
      if
      any, of any governmental authority or regulatory body of the United States
      or of
      any state or foreign government that are required in connection with and prior
      to the lawful sale and issuance of the Notes and Warrants pursuant to this
      Agreement shall have been duly obtained and shall be effective on and as of
      the
      Closing Date; (vi) no order enjoining the sale of the Notes and Warrants shall
      have been issued and no proceedings for such purpose shall be pending or, to
      the
      Company’s knowledge, threatened by any governmental authority having
      jurisdiction over this transaction and at the Closing Date the sale and issuance
      of the Notes and Warrants shall be legally permitted by all laws and regulations
      to which the Purchaser and the Company are subject;
      and
      (vii) immediately following the execution of the Notes, the Company would
      not be in default thereunder and no event of condition shall then exist which
      shall but for the passage of time result in an event of default.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    ARTICLE
      4

    CREATION
      OF SECURITY INTEREST

     

    4.1  Grant
      of Security Interest.
      The
      Company’s obligations under the Notes shall be secured by (i) a security
      interest of first priority in all right, title and interest of the Company
      in
      and to the property described in Attachment
      1
      to, and
      granted in accordance with the terms and form of, the Security Agreement
      attached hereto as Exhibit
      D
      (the
“Security
      Agreement”);
      and
      (ii) a pledge of 1,250,000 shares of capital stock in Composite
      Technology Corp.
      made by
      Benton H. Wilcox, for which the Company represents and warrants that he received
      fair and valid consideration, pursuant to the terms of that certain Pledge
      Agreement attached hereto as Exhibit
      E
      (the
“Pledge
      Agreement”).
      The
      Company shall not grant a security interest in, or otherwise pledge, any of
      its
      assets to any third party, other than the Purchasers, without the prior written
      consent of the Purchasers.
      If this
      Agreement is terminated, the Purchasers’ interests in the Collateral (as defined
      in the Security Agreement) shall continue until the Company’s obligations under
      the Notes and hereunder are paid in full. Upon payment in full of the Company’s
      obligations hereunder, the Purchasers shall release their interests in the
      Collateral and all rights therein shall revert to the Company.

     

    4.2  Authorization
      to File Financing Statements.
      The
      Company hereby authorizes the Purchasers, and grants the Purchasers a power
      of
      attorney, to file financing statements and such other documents, upon prior
      notice to the Company, with all appropriate jurisdictions to perfect or protect
      the Purchasers’ interests or rights under the Security Agreement and
      hereunder.
      Upon
      termination of the Purchasers’ interests in the Collateral in accordance with
      Section 4.1, the Purchasers will promptly file a termination statement
      terminating any financing statement filed hereunder, and if the Purchasers
      do
      not file such termination statement as and when required, the Purchasers hereby
      authorize the Company to file such termination statement.

     

    ARTICLE
      5

    COMPANY’S
      REPRESENTATIONS AND WARRANTIES

     

    5.1  Incorporation;
      Due Authorization.
      The
      Company has full right, power and authority to enter into this Agreement, the
      Notes, the Warrants, the Security Agreement and all other documents related
      to
      the purchase of the Notes (collectively, the “Transaction
      Documents”),
      to
      make the borrowings hereunder and execute and deliver the Transaction Documents
      as provided herein and to perform all of its duties and obligations under all
      of
      the Transaction Documents. The execution and delivery of the Transaction
      Documents will not, nor will the observance or performance of any of the matters
      and things herein or therein set forth, violate or contravene any provision
      of
      law or the Company's bylaws or certificate of incorporation. All necessary
      and
      appropriate corporate action on the part of the Company has been taken to
      authorize the execution and delivery of the Transaction Documents. 

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    5.2  Enforceability.
      The
      Transaction Documents have each been validly executed and delivered by the
      Company and constitute legal, valid and binding obligations of the Company
      enforceable against the Company in accordance with their respective terms,
      subject to applicable bankruptcy, insolvency, reorganization or similar laws
      relating to or affecting the enforcement of creditors’ right and to the
      availability of the remedy of specific performance.

     

    5.3  Compliance
      with Laws.
      The
      nature and transaction of the Company's business and operations and the use
      of
      its properties and assets do not, and during the term of the Transaction
      Documents shall not, violate or conflict with in any material respect any
      applicable law, statute, ordinance, rule, regulation or order of any kind or
      nature.

     

    5.4  Absence
      of Conflicts.
      The
      execution, delivery and performance by the Company of the Transaction Documents,
      and the transactions contemplated hereby, do not constitute a breach or default,
      or require consents under, any agreement, permit, contract or other instrument
      to which the Company is a party, or by which the Company is bound or to which
      any of the assets of the Company is subject, or any judgment, order, writ,
      decree, authorization, license, rule, regulation, or statute to which the
      Company is subject, and except as set forth herein, will not result in the
      creation of any lien upon any of the assets of the Company. 

     

    5.5  Indebtedness.
      Except
      for Indebtedness reflected in the SEC Documents or Indebtedness incurred by
      the
      Company in the ordinary course of its business since the filing of the SEC
      Documents in an amount not to exceed $75,000.00, the Company has no material
      Indebtedness outstanding at the date hereof and will incur no material
      Indebtedness prior to the Closing Date.

     

    5.6  Litigation.
      Except
      as
      set forth in the SEC Documents, there is no action, suit, proceeding or
      investigation pending or, to the Company’s knowledge, currently threatened
      against the Company or any of its subsidiaries that question the validity of
      any
      of the Transaction Documents or the right of the company to enter into any
      of
      the Transaction Documents, or to consummate the transactions contemplated
      hereby, or that could reasonably be expected to result, either individually
      or
      in the aggregate, in a material adverse effect on the company.

     

    5.7  Authorized
      Capital Stock.
      The
      authorized capital stock of the Company consists of 480,000,000 shares of Common
      Stock and 20,000,000 shares of preferred stock, $0.001 par value per share
      (“Preferred
      Stock”).
      As of
      May 18, 2007, 40,315,705 shares of Common Stock and no shares of Preferred
      Stock
      were validly issued and outstanding, fully paid and nonassessable and no shares
      of Common Stock or Preferred Stock have been issued since May 18, 2007. Except
      as disclosed in the SEC Documents, there are no outstanding options, warrants
      and convertible securities of the Company, or any other rights to acquire
      securities of the Company. The principal stockholders of the Company are as
      set
      forth in the Form 10-KSB.

     

    5.8  Material
      Contracts.
      Except
      as set forth in the SEC Documents, the Company is not a party to or otherwise
      bound by any contract that is material to its financial condition, operations,
      business or assets, and the Company is not a party to or otherwise bound by
      any
      contract that may materially and adversely affect its ability to consummate
      the
      transactions contemplated hereby.

     

    5.9  Validity
      of Securities.
      The
      sale of the Notes and Warrants, and the issuance of shares of Common Stock
      upon
      exercise of the Warrants and/or conversion of the Notes (“Warrant
      Shares”)
      (the
      Notes, Warrants and Warrant Shares shall be referred to herein as the
“Securities”),
      are
      not subject to any preemptive rights or rights of first refusal and, when
      issued, sold and delivered in compliance with the provisions of this Agreement,
      will be duly and validly issued, fully paid and nonassessable, and will be
      free
      of any liens, encumbrances or restrictions on transfer; provided,
      however,
      that
      the Securities may be subject to restrictions on transfer under state
      and/or federal securities laws as set forth herein or as otherwise required
      by
      such laws at the time a transfer is proposed.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    5.10   
       Compliance
      with Other Instruments.
      The
      Company is not in violation of any term of (i) its Certificate of
      Incorporation, Bylaws or any stockholder agreement, (ii) any mortgage,
      indenture, contract, agreement or instrument, or (iii) any judgment, decree
      or order, or any statute, rule or regulation applicable to it or its properties,
      the violation of which, in the case of clause (ii), could have a material
      adverse effect on the business, operations, affairs, financial condition or
      prospects of the Company, or any of its properties or assets, or in any material
      impairment of the right or ability of the Company to carry on its business
      as
      now conducted or as proposed to be conducted, or in any material liability
      on
      the part of the Company or impact the validity or enforceability of any of
      the
      Transaction Documents (a “Material
      Adverse Effect”).
      The
      execution, delivery, and performance of and compliance with this Agreement
      and
      the issuance and sale of the Securities pursuant hereto will not result in
      any
      violation of any term of (i) the Certificate of Incorporation, Bylaws or
      any stockholder agreement of the Company, as each is then in effect,
      (ii) any mortgage, indenture, contract, agreement, instrument, or
      (iii) any judgment, decree, order, statute, rule or regulation, or be in
      conflict with or constitute a default under any such term, or result in the
      creation of any mortgage, pledge, lien, encumbrance, or charge upon any of
      the
      properties or assets of the Company; and there is no term of the Certificate
      of
      Incorporation or Bylaws, or any mortgage, indenture, contract, agreement,
      instrument, or any judgment, decree, order, statute, rule or regulation, which
      could reasonably be expected to have a Material Adverse Effect.

     

    5.11   
       Title
      to Properties and Assets; Liens, etc.
      The
      Company has good and marketable title to its properties and assets, in each
      case
      subject to no mortgage, pledge, lien, encumbrance, or charge, other than
      (a) liens resulting from taxes which have not yet become delinquent, or
      (b) minor liens, encumbrances, or defects of title which do not,
      individually or in the aggregate, materially detract from the value of the
      property subject thereto or could reasonably be expected to have a Material
      Adverse Effect. With respect to the properties and assets it leases, the Company
      is in compliance with such leases and it holds a valid leasehold free of any
      liens, claims or encumbrances that impair its present use of such leased
      properties and assets.

     

    5.12   
       Affiliates.
      Except
      as set forth in the SEC Documents, the Company (i) has no subsidiaries,
      (ii) does not presently own or control, directly or indirectly, any equity
      interest in any corporation, association, partnership, limited liability company
      or other business entity and (iii) is not, directly or indirectly, a
      participant in any joint venture, partnership or similar
      arrangement.

     

    5.13   
       Registration
      Rights.
      Except
      as set forth in the SEC Documents, the Company is not under any obligation
      to
      register any of its presently outstanding securities or any of its securities
      which may hereafter be issued.

     

    5.14   
       Full
      Disclosure.
      The
      Company has provided the Purchasers with all the information that the Purchasers
      have reasonably requested for deciding whether to purchase the Securities.
      Neither this Agreement, the Transaction Documents, the representations and
      warranties by the Company contained in the Transaction Documents, the Exhibits
      hereto, nor any other written statement or certificate delivered or to be
      furnished to the Purchasers in connection herewith, when read together, contain
      any untrue statement of a material fact or knowingly omits to state a material
      fact necessary in order to make the statements contained herein or therein
      not
      misleading.

     

    
      5.15   
         Changes.
        Since
        the date of the last SEC Document, there has not been: 

    

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    (a)  any
      change in the assets, liabilities, financial condition, or operating results
      of
      the Company from that reflected in the Company’s balance sheets and statements
      of income and retained earnings as at December 31, 2006 and March 31, 2007,
      each
      as set forth in the SEC Documents, except changes in the ordinary course of
      business that have not been, in the aggregate, materially adverse;
      or

     

    (b)  any
      other
      event or condition of any character that might materially and adversely affect
      the business, properties, prospects, or financial condition of the Company
      (as
      such business is presently conducted and as it is proposed to be
      conducted).

     

    5.16   
       Proprietary
      Information.
      The
      Company has taken all reasonable security measures to protect the secrecy,
      confidentiality, and value of all trade secrets, know-how, inventions, designs,
      processes, and technical data required to conduct its business.

     

    5.17   
       Patents,
      Trademarks, etc.
      Except
      as set forth in the SEC Documents, the Company has sufficient title and
      ownership of all material patents, patent applications, licenses, trademarks,
      service marks, trade names, inventions, processes, formulae, trade secrets,
      franchises, copyrights and other proprietary rights necessary for the operation
      of its business as now conducted and as proposed to be conducted (“Intellectual
      Property”)
      with
      no known infringement of or conflict with the rights of others. Such ownership
      and title are exclusive and not subject to termination without the Company’s
      consent. Except for commercial software and applications generally available
      to
      the public, there are no outstanding options, licenses, or agreements of any
      kind relating to the foregoing proprietary rights, nor is the Company bound
      by
      or a party to any options, licenses or agreements of any kind with respect
      to
      the material patents, trademarks, service marks, trade names, copyrights, trade
      secrets, licenses, information, proprietary rights or processes of any other
      person or entity. The Company is not aware of any third party that is infringing
      or violating any of its patents, licenses, trademarks, service marks, trade
      names, inventions, processes, formulae, trade secrets, franchises, copyrights
      or
      other proprietary rights. The Company has not received any communications
      alleging that the Company has violated or, by conducting its business as
      proposed, would violate any of the patents, trademarks, service marks, trade
      names, copyrights or trade secrets or other proprietary rights of any other
      person or entity. If any Intellectual Property not owned by the Company has
      not
      been fully assigned to the Company, including, but not limited to, U.S. Patent
      Application No. 200401522153 and U.S. Patent Application No. 20040137555, prior
      to the Closing Date, the Company hereby agrees to obtain any and all necessary
      assignments of such Intellectual Property within five Business Days following
      the Closing Date. 

     

    5.18   
       Offering.
      Assuming the accuracy of the representations and warranties of the Purchasers
      contained in Article 6 hereof, the offer, issue, and sale of the Securities:
      (a) are and will be exempt from the registration and prospectus delivery
      requirements of the Securities Act of 1933, as amended (the “1933
      Act”),
      and
      neither the Company nor any authorized agent acting on its behalf will take
      any
      action hereafter that would cause the loss of such exemption; and (b) have
      been registered or qualified (or are exempt from registration and qualification)
      under the registration, permit, or qualification requirements of all applicable
      state securities laws.

     

    ARTICLE
      6

    PURCHASERS’
      REPRESENTATIONS AND WARRANTIES

     

    Each
      Purchaser, severally and not jointly, as to itself only and not as to any other
      Purchaser makes the following representations and warranties to the
      Company:

     

    6.1  Due
      Authorization.
      Each
      Purchaser has full power and authority and has taken all action necessary to
      authorize the Purchaser to execute, deliver and perform the Purchaser’s
      obligations under this Agreement. This Agreement is the legal, valid and binding
      obligation of the Purchaser in accordance with its terms.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    6.2  Accredited
      Investor.
      Each
      Purchaser is an “accredited investor” as that term is defined in Regulation D
      promulgated under the 1933 Act.

     

    6.3  Investment
      Experience.
      Each
      Purchaser has not authorized any person to act as such Purchaser’s Purchaser
      Representative (as that term is defined in Regulation D of the General Rules
      and
      Regulations under the 1933 Act) in connection with this transaction. Each
      Purchaser has such knowledge and experience in financial, investment and
      business matters that such Purchaser is capable of evaluating the merits and
      risks of the prospective investment in the securities of the Company. Each
      Purchaser has consulted with such independent legal counsel or other advisers
      as
      the Purchaser has deemed appropriate to assist such Purchaser in evaluating
      the
      proposed investment in the Company. If other than an individual, such Purchaser
      also represents that it has not been organized for the purpose of acquiring
      the
      Securities.

     

    6.4  Adequate
      Means.
      Each
      Purchaser (i) has adequate means of providing for such Purchaser’s current
      financial needs and possible contingencies; and (ii) can afford (a) to hold
      unregistered securities for an indefinite period of time as required; and (b)
      sustain a complete loss of the entire amount of the subscription.

     

    6.5  Access
      to Information.
      Each
      Purchaser has been afforded the opportunity to ask questions of, and receive
      answers from the officers and/or directors of the Company acting on its behalf
      concerning the terms and conditions of this transaction and to obtain any
      additional information, to the extent that the Company possesses such
      information or can acquire it without unreasonable effort or expense, necessary
      to verify the accuracy of the information furnished; and has had such
      opportunity to the extent such Purchaser considers it appropriate in order
      to
      permit such Purchaser to evaluate the merits and risks of an investment in
      the
      Company. It is understood that all documents, records and books pertaining
      to
      this investment have been made available for inspection, and that the books
      and
      records of the Company will be available upon reasonable notice for inspection
      by investors during reasonable business hours at its principal place of
      business. The foregoing shall in no way be deemed to limit the ability of the
      Purchasers to rely on the representations and warranties set forth herein or
      incorporated herein by reference.

     

    6.6  No
      Resale.
      The
      Securities being purchased hereunder are being acquired solely for the account
      of a Purchaser, for such Purchaser’s investment and not with a view to, or for
      resale in connection with, any distribution in any jurisdiction where such
      sale
      or distribution would be precluded. 

     

    6.7  Restricted
      Securities.
      Each
      Purchaser understands that the Securities are characterized as “restricted
      securities” under the 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 1933 Act only in certain limited circumstances.
      In this connection, each Purchaser represents that it is familiar with Rule
      144
      under the 1933 Act, and understands the resale limitations imposed thereby
      and
      by the 1933 Act.

     

    6.8  Further
      Limitations on Disposition.
      Without
      in any way limiting the representations set forth above, the Purchaser further
      agrees not to make any disposition of all or any portion of the Securities
      other
      than the Notes unless and until the transferee has agreed in writing for the
      benefit of the Company to the representations contained in this Section 6.8;
      provided,
      that
      this Section 6.8 shall not apply to the disposition of all or any portion of
      the
      Securities if:

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    (a)  there
      is
      then in effect a registration statement under the 1933 Act covering such
      proposed disposition and such disposition is made in accordance with such
      registration statement; and

     

    (b)  (i)
      Purchaser shall have notified the Company of the proposed disposition and shall
      have furnished the Company with a reasonably detailed statement of the
      circumstances surrounding the proposed disposition and shall furnish transferor
      representations as may reasonably be requested by the Company, and (ii) if
      reasonably requested by the Company, the Purchaser shall have furnished the
      Company with an opinion of counsel, reasonably satisfactory to the Company,
      that
      such disposition will not require registration of such shares under the 1933
      Act. 

     

    Notwithstanding
      the provisions of paragraphs (a) and (b) above, no such registration statement
      or opinion of counsel shall be necessary for a transfer if a Purchaser is a
      partnership, limited liability company or corporation to a partner, member
      or
      shareholder of such partnership, limited liability company or corporation as
      the
      case may be or a retired partner or member of such partnership or limited
      liability company who retires after the date hereof, or to the estate of any
      such partner or member or retired partner or member or the transfer by gift,
      will or intestate succession of any partner to his spouse or to the siblings,
      lineal descendants or ancestors of such partner or his spouse, if the transferee
      agrees in writing to be subject to the terms hereof to the same extent as if
      he,
      she or it were an original Purchaser hereunder.

     

    6.9  Legend.
      Each
      Purchaser hereby acknowledges and agrees that the Company may insert the
      following or similar legend on the face of the certificates evidencing the
      Warrants or Warrant Shares purchased by the Purchasers if required in compliance
      with the 1933 Act or state securities laws:

     

    “These
      securities have not been registered under the Securities Act of 1933, as amended
      (the “Securities Act”), or any state securities laws and may not be sold or
      otherwise transferred or disposed of except pursuant to an effective
      registration statement under the Securities Act and any applicable state
      securities laws, or an opinion of counsel satisfactory to counsel to the issuer
      that an exemption from registration under the Securities Act and any applicable
      state securities laws is available.”

    

    6.10   
       General
      Solicitation.
      No
      Purchaser is purchasing the Securities as a result of any advertisement,
      article, notice or other communication regarding the Securities published in
      any
      newspaper, magazine or similar media or broadcast over television or radio
      or
      presented at any seminar or any other general solicitation or general
      advertisement.

     

    ARTICLE
      7

    COVENANTS

     

    7.1  Registration
      Rights.

     

    (a)  If
      the
      Company prepares and files a Registration Statement under the 1933 Act or
      otherwise registers securities under the 1933 Act as to any of its securities
      (other than under a Registration Statement pursuant to Form S-8 or Form S-4)
      (each such filing, a "Registration
      Statement"),
      it
      will give written notice by registered mail, at least 20 days prior to the
      filing of such Registration Statement to the Purchasers of its intention to
      do
      so. The Company shall include all Warrant Shares as well as any shares in which
      the Notes may be converted (the “Registrable
      Securities”)
      in
      such Registration Statement with respect to which the Company has received
      written requests for inclusion therein within 15 days of actual receipt of
      the
      Company's notice.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    (b)  In
      the
      event of an underwritten registered offering, if the managing underwriter(s)
      advise the Company in writing that in their opinion the number of Registrable
      Securities exceeds the number of Registrable Securities which can be sold
      therein without adversely affecting the marketability of the offering, the
      Company will include in such registration the number of Registrable Securities
      requested to be included which in the opinion of such underwriter(s) can be
      sold
      without adversely affecting the marketability of the offering, pro rata among
      the respective holders thereof on the basis of the amount of Registrable
      Securities owned by each such holder. 

     

    7.2  Additional
      Affirmative Covenants of the Company.
      On and
      after the date hereof and until the payment in full of the Purchasers’ Notes and
      the performance of all other obligations of the Company hereunder, the Company
      agrees that, unless the Purchasers shall otherwise consent in writing:

     

    (a)  Financial
      Reporting.
      The
      Company shall deliver to the Purchasers as soon as available but in any event
      no
      earlier than the date upon which it makes such disclosures to the SEC (if such
      disclosures are in fact filed): (i) after the end of each fiscal quarter of
      the
      Company, an unaudited/internal balance sheet and statements of income and
      retained earnings of the Company as at the end of and for such quarter and
      for
      the year to date period then ended, prepared in reasonable detail and stating
      in
      comparative form the figures for the corresponding date and periods in the
      previous year, all prepared in accordance with GAAP, subject to year-end audit
      adjustments, along with certificates and other reports as the Purchasers may
      from time to time reasonably request; (ii) promptly upon knowledge thereof,
      notice of any loss of or material damage to any Collateral or other collateral
      covered by the Transaction Documents or of any substantial adverse change in
      any
      Collateral or such other collateral or the prospect of payment thereof; (iii)
      promptly upon their distribution, copies of all financial statements, reports
      and proxy statements which the Company shall have sent to its stockholders;
      (iv)
      promptly after the sending or filing thereof, copies of all regular and periodic
      reports which the Company shall file with the Securities and Exchange Commission
      or any national securities exchange; and (v) within fifteen (15) days of the
      filing thereof, copies of the state and federal tax returns and all schedules
      thereto of the Company.

     

    (b)  Compliance
      with Laws.
      The
      Company will (i) comply with the requirements of applicable laws and
      regulations, the non-compliance with which would have a Material Adverse Effect
      and (ii) use and keep the Collateral, and require that others use and keep
      the Collateral, only for lawful purposes, without violation of any federal,
      state or local law, statute or ordinance.

     

    (c)  Taxes
      and Claims.
      The
      Company shall pay and discharge all taxes, assessments and governmental charges
      or levies imposed upon it or upon any of its assets or properties, prior to
      the
      date on which penalties attach thereto, and all lawful claims which, if unpaid,
      might become a lien or charge upon any assets of the Company.

     

    (d)  Maintenance
      of Properties.
      The
      Company will defend the Collateral, the other collateral covered by the
      Transaction Documents and all of its other properties necessary or useful in
      its
      business including, without limitation, the Intellectual Property, against
      all
      claims or demands of all persons (other than the Purchasers) claiming the
      Collateral or any interest therein.

     

    (e)  Insurance.
      The
      Company will obtain and at all times maintain insurance with insurers reasonably
      believed by the Company to be responsible and reputable, in such amounts and
      against such risks as may from time to time be required by the Purchasers,
      but
      in all events in such amounts and against such risks as is usually carried
      by
      companies engaged in similar business and owning similar properties in the
      same
      general areas in which the Company operates. 

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    (f)  Preservation
      of Existence.
      The
      Company will preserve and maintain its existence and all of its rights,
      privileges and franchises necessary or desirable in the normal conduct of its
      business and shall conduct its business in an orderly,
      efficient and regular manner.

     

    (g)  Litigation.
      The
      Company shall promptly give to the Purchasers notice in writing of all
      litigation and of all proceedings by or before any court or governmental or
      regulatory agency affecting the Company.

     

    7.3  Negative
      Covenants of the Company.
      On and
      after the date hereof and until the payment in full of the Purchasers’ Notes and
      the performance of all other obligations of the Company hereunder, the Company
      agrees that, without the Purchasers’ prior written consent:

     

    (a)  Liens.
      The
      Company will not create, incur or suffer to exist any deed of trust, pledge,
      lien, security interest, assignment or transfer upon or of any Collateral,
      the
      other collateral covered by the Transaction Documents and all of its other
      properties necessary or useful in its business, including, without limitation,
      the Intellectual Property, now owned or hereafter acquired, to secure any
      indebtedness; excluding, however, from the operation of the foregoing, purchase
      money security interests relating to the acquisition of machinery and equipment
      of the Company not exceeding the lesser of cost or fair market value
      thereof.

     

    (b)  Guaranties.
      The
      Company will not assume, guarantee, endorse or otherwise become directly or
      contingently liable in connection with any obligations of any other
      Person.

     

    (c)  Restriction
      on Debt Issuances.
      The
      Company will not incur, issue or sell more than $3,000,000 of debt in the
      aggregate (including the Notes and the senior secured promissory note issued
      by
      the Company under that certain Note and Warrant Agreement dated as of July
      2,
      2007), except for Permitted Indebtedness, as such term is hereafter defined,
      so
      long as any of the principal amount or interest on the Notes remains unpaid
      unless the proceeds of the issuance or sale of the Company’s debt, directly from
      the gross proceeds of the issuance or sale, will be used to repay all
      outstanding principal and accrued interest owed under the Notes. “Permitted
      Indebtedness”
means
      indebtedness to trade creditors incurred in the ordinary course of business,
      and
      extensions, refinancings and renewals (but only if the amount of such existing
      indebtedness is not increased thereby) of any items of any existing
      indebtedness.

     

    (d)  Restriction
      on Payments.
      The
      Company will not make any payments to its officers, directors, stockholders
      or
      related parties, whether for accrued and unpaid salaries or otherwise, in excess
      of $200,000 in the aggregate.

     

    (e)  Sale
      or Transfer of Assets; Suspension of Business Operations.
      The
      Company will not sell, lease, assign, transfer or otherwise dispose of
      (i) the stock of any subsidiary, (ii) all or a substantial part of its
      assets, or (iii) any Collateral or any interest therein (whether in one
      transaction or in a series of transactions) including, without limitation,
      the
      Intellectual Property, to any other person other than the sale of inventory
      in
      the ordinary course of business and will not liquidate, dissolve or suspend
      business operations. The Company will not in any manner transfer any property
      without prior or present receipt of full and adequate consideration. The Company
      will not enter into any arrangement, directly or indirectly, with any other
      person whereby the Company shall sell or transfer any real or personal property,
      whether now owned or hereafter acquired, and then or thereafter rent or lease
      as
      lessee such property or any part thereof or any other property which the Company
      intends to use for substantially the same purpose or purposes as the property
      being sold or transferred.

     

    (f)  Dividends.
      The
      Company will not
      declare
      or pay any dividends (other than dividends payable solely in stock of the
      Company) on any class of its stock or make any payment on account of the
      purchase, redemption or other retirement of any shares of such stock or make
      any
      distribution in respect thereof, either
      directly or indirectly. 

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    (g)  Restrictions
      on Nature of Business.
      The
      Company will not engage in any line of business materially different from that
      presently engaged in by the Company and will not purchase, lease or otherwise
      acquire assets not related to its business.

     

    7.4  Observation
      Rights.
      So long
      as any amounts remain outstanding under the Notes, and subject to the
      limitations set forth in this Section 7.4, the Company shall permit a
      representative of each Purchaser to be present in a nonvoting observer capacity
      at all meetings of the Company’s board of directors (the “Board”)
      or any
      committee thereof, including any telephonic meetings, and the Company will
      give
      each Purchaser’s designated representative notice of such meetings, by telecopy
      or by such other means as such notices are delivered to the members of the
      Board
      at the same time notice is provided or delivered to the Board; provided,
      however,
      that
      (a) such representative shall agree to hold in confidence and trust and to
      act
      in a fiduciary manner with respect to all information so provided, and (b)
      the
      Company reserves the right to withhold any information and to exclude such
      representative from any meeting or portion thereof if, in the reasonable good
      faith judgment of the Board, access to such information or attendance at such
      meeting is reasonably likely to (i) adversely affect the attorney-client
      privilege between the Company and its counsel with respect to any matter, (ii)
      result in a material and present conflict of interest between the Company and
      a
      Purchaser, or (iii) result in a violation of a confidentiality agreement between
      the Company and a third party, a copy of which has been provided in advance
      to
      each Purchaser. Each Purchaser, on behalf of itself and its representative,
      agrees that it shall not use any information obtained by it pursuant to its
      rights under this Section 7.4 except relative to its interests in the Company
      hereunder and otherwise only as expressly authorized in writing by the Company.
      Each Purchaser, and its representative, shall use the same degree of care to
      protect the Company’s confidential information as such Purchaser uses to protect
      its own confidential information of like nature, but in no circumstances with
      less than reasonable care.

     

    7.5  Delaware
      Good Standing.
      The
      Company hereby agrees to take any and all actions necessary to restore its
      good
      standing with the State of Delaware, including, but not limited to, the payment
      of any outstanding taxes owed to the State of Delaware, within 5 Business Days
      following the Closing Date. 

     

    ARTICLE
      8

    MISCELLANEOUS

     

    8.1  Successors
      and Assigns.
      Subject
      to the exceptions specifically set forth in this Agreement, the terms and
      conditions of this Agreement shall inure to the benefit of and be binding upon
      the respective executors, administrators, heirs, successors and assigns of
      the
      parties. The Transaction Documents may be assigned by the Purchasers, and none
      of the Transaction Documents may be assigned by the Company.

     

    8.2  Titles
      and Subtitles.
      The
      titles and subtitles of the Articles and Sections of this Agreement are used
      for
      convenience only and shall not be considered in construing or interpreting
      this
      agreement.

     

    8.3  Notices.
      Any
      notice, request or other communication required or permitted hereunder shall
      be
      in writing and shall be delivered personally or by facsimile (receipt confirmed
      electronically) or shall be sent by a reputable express delivery service or
      by
      certified mail, postage prepaid with return receipt requested, addressed as
      follows:

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    if
      to the
      Company, to:

     

    Eugene
      Science, Inc

    8th
      Floor, LG Palace Building

    165-8
      Donggyo-Dong, Mapo-Gu

    Seoul,
      Korea

    Attn:  
      Chief
      Executive Officer

    Fax:    
      82-2-338-6096

     

    if
      to the
      Purchasers, to
      the
      addresses set forth in the signature page.

     

    Any
      party
      hereto may change the above specified recipient or mailing address by notice
      to
      the other parties given in the manner herein prescribed. All notices shall
      be
      deemed given on the day when actually delivered as provided above (if delivered
      personally or by facsimile, provided that any such facsimile is received during
      regular business hours at the recipient's location) or on the day shown on
      the
      return receipt (if delivered by mail or delivery service).

     

    8.4  Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the domestic
      laws of the State of Delaware without giving effect to any choice of law or
      conflict of law provision or rule (whether of the State of Delaware or any
      other
      jurisdiction) that would cause the application of the laws of any jurisdiction
      other than the State of Delaware. The parties hereto hereby agree that any
      suit
      or proceeding arising under this Agreement, or in connection with the
      consummation of the transactions contemplated hereby, shall be brought solely
      in
      a federal or state court located in the United States. The prevailing party
      in
      any suit or proceeding shall be entitled to its reasonable attorneys’ fees and
      costs. 

     

    8.5  Waiver
      and Amendment.
      Any
      term of this Agreement may be amended, waived or modified with the written
      consent of the Company and the Purchasers.

     

    8.6  Remedies.
      The
      rights and remedies of the Purchasers described herein shall be cumulative
      and
      not restrictive of any other rights or remedies available under any other
      instrument, at law or in equity. 

     

    8.7     
       Counterparts.
       This
      Agreement may be executed in one or more identical counterparts each of which
      when taken together shall constitute one and the same Agreement. 

     

    [Remainder
      of Page Intentionally Left Blank; Signature Page Follows]

    

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the undersigned have caused this Note and Warrant Purchase
      Agreement to be signed in their names on the date first set forth
      above.

     

      
        	
                The
                  Warrants are to be issued in:

              	
                Print
                  Name of Investor

              
	 	 
	
                o individual
                  name

              	
                Principal
                  Amount of Note: $
                      .00

              
	 	 
	
                o tenants
                  in the entirety

              	 
	 	 
	 	
                

              	
              
	
                o corporation
                  (an officer must
                  sign)

              	
                Signature
                  of Authorized Person

              
	 	 
	 	
                

              	
              
	
                x partnership
                  (all general partners must sign)

              	
                Name
                  of Authorized Signatory

              
	 	 
	
                o trust

              	
              
	 	 
	
                o limited
                  liability company

              	
                Address
                  of Investor:

              

      

    

    

    
      
        	
                EUGENE
                  SCIENCE, INC.

              
	 
	
                

              	 
	
                Name:

              	
                Seung
                  Kwon Noh

              
	
                Title:

              	
                President
                  and Chief Executive Officer

              

      

    

     

    

      Signature
        Page to Note and Warrant Purchase Agreement

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

    EXHIBIT
      A

    10%
      SENIOR NOTE

    See
      attached.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
      B

    COMMON
      STOCK PURCHASE WARRANT

     

    See
      attached.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
      C

    WIRE
      TRANSFER INSTRUCTIONS

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
      D

    SECURITY
      AGREEMENT

     

    See
      attached.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
      E

    PLEDGE
      AGREEMENT

     

    See
      attached.

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