Document:

EXECUTION

 

FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

 

THIS FOURTH AMENDMENT TO AMENDED AND RESTATED AGREEMENT (this “Fourth Amendment”) is entered into as of May 29, 2009, among QUEST RESOURCE CORPORATION, a Nevada corporation (the “Borrower”), the Guarantors listed on the signature pages hereto, ROYAL BANK OF CANADA, as Administrative Agent and Collateral Agent for the Lenders parties to the hereinafter defined Credit Agreement (in such capacities, the “Administrative Agent” and “Collateral Agent,” respectively), and as the Lender.

Reference is made to the Amended and Restated Credit Agreement dated as of July 11, 2008 among Borrower, the Administrative Agent, the Collateral Agent and the Lender, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated as of October 24, 2008,  Second Amendment to Amended and Restated Credit Agreement dated as of November 4, 2008 and Third Amendment to Amended and Restated Credit Agreement dated as of January 30, 2009 (as amended, the “Credit Agreement”).  Unless otherwise defined in this Fourth Amendment, capitalized terms used herein shall have the meaning set forth in the Credit Agreement; all section, exhibit and schedule references herein are to sections, exhibits and schedules in the Credit Agreement; and all paragraph references herein are to paragraphs in this Fourth Amendment.

RECITALS

A.  Pursuant to that certain Settlement Agreement dated effective as of March 1, 2009 among Jerry D. Cash ("Cash"), the Borrower, Quest Energy Partners, L.P. and Quest Midstream Partners, L.P. (collectively, the "Quest Entities"), in connection with Cause No. 2008-52399 in the District Court of Harris County, Texas (the "Cash Settlement Agreement"), Cash agreed to transfer or cause to be transferred to Borrower, or its designee, among other assets, (a) Cash's 100% equity interest in STP Newco, Inc., an Oklahoma corporation ("STP"), which owns interests in the North
Holtuke Unit located in Seminole and Pottawattamie Counties, Oklahoma and in the South Pond Creek Unit located in Grant County, Oklahoma, (b) Cash's 60% interest, held through Rockport Energy, LLC, a Texas limited liability company ("Rockport Energy"), in the Bird Island Well located in Cameron Parish, Louisiana and in LGS (hereinafter defined) and (c) the net proceeds on the sale of Cash's residence.

B.        Pursuant to that certain Full and Final Settlement Agreement and Mutual Release dated effective as of May 19, 2009 among the Quest Entities, Rockport Energy, Rockport Georgetown Partners, LLC, Rockport Georgetown, LLC, Rockport Georgetown Holdings, LP, Cash, Bryan T. Simmons ("Simmons") and Steven Hochstein ("Hochstein"), in connection with Cause No. 2008-52399 in the District Court of Harris County, Texas (the "Rockport Settlement Agreement" and together with the Cash Settlement Agreement, the "Settlement Agreements"), Cash, Simmons and Hochstein have agreed to transfer or
cause to be transferred to Borrower, or its designee, among other assets, (a) 60% of Rockport Energy's limited partnership interest in LGS Development, L.P.,  a Texas limited partnership ("LGS"), which owns a 50% membership interests in LGS Renewables I, LLC, a Texas limited liability company, (b) 60% of Rockport Energy's interest in the Bird Island Well located in Cameron Parish, Louisiana, and (c) $188,650 in cash to be paid by Rockport Energy, LLC. As part of the Rockport Energy Settlement Agreement the Quest Entities would relinquish the interest in Rockport Energy received from Cash pursuant to the Cash Settlement Agreement. 

 

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B.        The Borrower has designated Quest Cherokee, LLC ("Cherokee") as its designee to receive from Cash 100% of the equity interest in STP in satisfaction of certain reimbursement obligations owed by Borrower to Cherokee's parent, Quest Energy Partners, L.P. ("QELP").

C.        Upon the transfer of 60% of Rockport Energy's interest in LGS to Quest Oil & Gas, LLC, a Kansas limited liability company ("Quest O&G"), Borrower's designee, pursuant to the Rockport Settlement Agreement, the Borrower will have made an Investment in LGS.

D.        The Borrower, Administrative Agent and Lender desire to, among other things, enter into this Fourth Amendment to amend the Credit Agreement to permit the Borrower's Investment in LGS, to permit the transfer of STP to Cherokee and to waive certain existing defaults under the Credit Agreement. 

Accordingly, for adequate and sufficient consideration, the parties hereto agree, as follows:

Paragraph 1.    Amendments. Effective as of the Fourth Amendment Effective Date (hereinafter defined), the Credit Agreement is amended as follows:

	
             
 	
            1.1
 	
            Definitions. Section 1.01 of the Credit Agreement is amended as follows:
 

	
             
 	
            (a)
 	
            The following definition is amended in its entirety to read as follows:
 

“Agreement means this Amended and Restated Credit Agreement as amended by the First Amendment to Credit Agreement, the Second Amendment to Credit Agreement, the Third Amendment to Credit Agreement and the Fourth Amendment to Credit Agreement.”

“Loan Documents means this Agreement, each Term Note, the PIK Note, each of the Collateral Documents, the Agent/Arranger Fee Letter, each Borrowing Notice, each Letter of Credit Application, the L/C Terms and Conditions, each Compliance Certificate, the Guaranties, and each other agreement, document or instrument delivered by any Loan Party from time to time in connection with this Agreement and the Term Notes.”

“Maturity Date means (a) with respect to the Original Term Loan and the PIK Note, the Original Term Loan Maturity Date and (b) with respect to the Additional Term Loan, the Additional Term Loan Maturity Date.”

 (b)      The following definitions are inserted alphabetically into Section 1.01 of the Credit Agreement:

“Fourth Amendment Effective Date means May 29, 2009.”

“Fourth Amendment to Credit  Agreement means that certain Fourth Amendment to Amended and Restated Credit Agreement dated as of May 29, 2009, among the Borrower, Royal Bank of Canada, as Administrative Agent, Collateral Agent and as the Lender.”

“PIK Note means a promissory note of the Borrower dated the Fourth Amendment Effective Date, in the original principal amount of $282,500.00 and substantially in the form of Exhibit B-3, attached to the Fourth Amendment evidencing 

 

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the obligation of Borrower to repay the one percent (1%) amendment fee earned in full as of the Fourth Amendment Effective Date and all renewals and extensions of all or any part thereof.”

	
             
 	
            “Quest O&G means Quest Oil & Gas, LLC, a Kansas limited liability company.”
 

 “Settlement Agreements collectively, means (i) that certain Settlement Agreement dated effective as of March 1, 2009 among Borrower, QELP, QMLP and Jerry D. Cash and (ii) Full and Final Settlement Agreement and Mutual Release dated effective as of May 19, 2009 among Borrower, QELP, QMLP, Rockport Energy, LLC, Rockport Georgetown Partners, LLC, Rockport Georgetown, LLC, Rockport Georgetown Holdings, LP, Jerry D. Cash, Bryan T. Simmons and Steven L. Hochstein.”

“STP” means STP Newco, Inc., an Oklahoma corporation.

1.2       Section 2.04(b).  Section 2.04(b) of the Credit Agreement is amended in its entirety to read as follows:

"(b)      Mandatory Prepayments-Collateral Deficiency.   Except for any Collateral Deficiency occurring during the fiscal quarters ended December 31, 2008, March 31, 2009 and June 30, 2009, if for any reason a Collateral Deficiency exists, Borrower shall notify Administrative Agent in writing of such Collateral Deficiency within five (5) Business Days after becoming aware of such Collateral Deficiency and indicate in such written notice Borrower’s plan to cure such Collateral Deficiency.  The Collateral Deficiency must be cured on or before the thirtieth (30) day after Borrower becomes aware of such Collateral Deficiency.  To cure such Collateral Deficiency, Borrower may elect to do one or more of the following: 

 (i)         repay Original Term Loan Principal Debt in an aggregate amount sufficient to eliminate such Collateral Deficiency within such thirty (30) day cure period, and

 (ii)        pledge additional MLP Units or Oil & Gas Properties owned by the Borrower or another Loan Party having sufficient Pledged Collateral Market Value, as of the date of such pledge, to eliminate such Collateral Deficiency."

1.3       Section 2.08(a). Section2.08(a) of the Credit Agreement is amended to read in its entirety as follows:

“(a)      Fourth Amendment Amendment Fee.  On the Fourth Amendment Effective Date, the Lenders shall have earned in full a one percent (1%) amendment fee, which is non-refundable.  Instead of paying such fee on such date, the Lenders will allow the fee to be evidenced by the PIK Note. Interest shall accrue on the PIK Note at the Adjusted Base Rate and will be payable at the Maturity Date.  The PIK Note may be prepaid at any time without premium or penalty and the Indebtedness evidenced thereby shall be deemed a Base Rate Loan for purposes of this Agreement and constitute an Obligation and be entitled to the benefits of the Collateral Documents.”

 

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1.4       Section 5.13. Section 5.13 of the Credit Agreement is amended to read in its entirety as follows:

“5.13   Subsidiaries and other Investments.  Set forth on Schedule 5.13, are the Subsidiaries of the Borrower and each equity Investment in any other Person as of the Fourth Amendment Effective Date.”  

1.5       Section 6.01(a). Section 6.01(a) of the Credit Agreement is amended by adding the following at the end thereof:

“provided further that the Borrower shall deliver or cause to be delivered to the Administrative Agent and Lenders the foregoing audited stand alone balance sheets of the Borrower and the related statements of income and cash flows for its fiscal year ending December 31, 2008 and shall file or cause to be filed with the Securities Exchange Commission its annual report on Form 10-K or Form 10-KSB for its fiscal year ending December 31, 2008 by no later than June 30, 2009; provided further, that as soon as available, but in any event by March 31, 2009, the Borrower shall deliver to the Administrative Agent, in form and detail reasonably satisfactory to the Administrative Agent and all the Lenders, unaudited preliminary internally generated stand
alone balance sheets of the Borrower for the fiscal year ending December 31, 2008, and the related statements of income and cash flows for such fiscal year, which preliminary internally generated financial statements will be subject to revisions arising out of the audit process as provided above in this Section 6.01(a);” 

1.6       Section 6.01(b). Section 6.01(b) of the Credit Agreement is amended by replacing "ten (10) days" in the last proviso with "thirty (30) days" and adding the following at the end thereof:

"; provided further that with respect to the fiscal quarter ending March 31, 2009, Borrower shall not be required to deliver an unaudited stand alone balance sheet of the end of such fiscal quarter, and the related statements of income and cash flows for such fiscal quarter until June 30, 2009".

1.7       Section 6.01(e).  The word “and” at the end of Section 6.01(c) is deleted, the period at the end of Section 6.01(d) is replaced by “; and” and a new Section 6.01(e) of the Credit Agreement shall be added as follows:

“(e) on a weekly basis after the Fourth Amendment Effective Date, cash flow forecasts for the following 13 week period.”

1.8       Section 6.02(a). Section 6.02(a) of the Credit Agreement is amended by replacing "ten (10) days" in the last proviso with "thirty (30) days".

1.9       Section 7.01.  The word “and” at the end of Section 7.01(x) is deleted, the period at the end of Section 7.01(y) is replaced by “; and” and new Section 7.01(z) of the Credit Agreement shall be added as follows:

“(z)      the Lien on the limited partnership interest in LGS Development, L.P. owned by Quest O&G arising as a result of the right of first refusal on such limited partnership interest contained in Article X of the Agreement of Limited Partnership for LGS Development, L.P.”  

 

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1.10     Section 7.02.  The period at the end of Section 7.02(j) is replaced by “; and” and new Section 7.02(k) of the Credit Agreement shall be added as follows:

“(k)      Investments consisting of the acquisition by Quest O&G of a 26.799006% limited partnership interest (before payout) and a 15.0% limited partnership interest (after payout) in LGS Development, L.P.; provided no additional Investment in LGS Development, L.P. shall be made after the Fourth Amendment Effective Date.”

1.11     Section 7.07. The period at the end of Section 7.07(e) is replaced by “; or” and new Section 7.07(f) of the Credit Agreement shall be added as follows:

 

	
             
 	
            “(f)
 	
            Disposition of the stock of STP as permitted under Section 7.11.”
 

1.12     Section 7.11. Section 7.11 of the Credit Agreement are amended in its entirety to read as follows:

“7.11   Transactions with Affiliates.  Sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (i) transactions between or among the Borrower and any other Loan Party not involving any other Affiliate, (ii) the transactions under the agreements listed on Schedule 7.11, (iii) any Restricted Payment permitted by Section 7.08, (iv) the PetroEdge Disposition and transactions in connection with the PetroEdge Disposition so long as such transactions are on terms and conditions not less favorable to the Borrower or such
other Loan Party, as applicable, than could be obtained on an arm's length basis from unrelated third parties, (v) transactions involving the assignment from the Borrower to Quest O&G of rights to acquire the Bird Island Well and a limited partnership interest in LGS Development, L.P. pursuant to the Settlement Agreements, (vi) the transfer of cash or property (including the assignment from Borrower to QELP or its subsidiaries of the right to acquire the capital stock of STP pursuant to the Settlement Agreements) to QELP in reimbursement for legal and investigation costs incurred by QELP and arising out of the Misappropriation Transaction, and (vii) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such other Loan Party, as applicable, than could be obtained on an arm's length basis from unrelated third parties.”

1.13     Sections 7.17(a) and (b). Sections 7.17(a) and (b) of the Credit Agreement are amended in their entirety to read as follows:

“(a)      Interest Coverage Ratio.  Permit the Interest Coverage Ratio at any fiscal quarter-end, commencing with the quarter-ended September 30, 2008, to be less than 2.5 to 1.0; provided the foregoing covenant shall be waived for the quarters-ended December 31, 2008 and March 31, 2009.

(b)       Leverage Ratio.  Permit the Leverage Ratio at any fiscal quarter-end, commencing with the quarter-ended September 30, 2008, to be greater than 2.0 to 1.0; provided the foregoing covenant shall be waived for the quarters-ended December 31, 2008 and March 31, 2009.”

 

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Fourth Amendment to Quest 

Resource Corporation 

Amended and Restated Credit Agreement  

 

 

1.14      Schedule 5.13-Subsidiaries and Equity Investments.  Schedule 5.13 (Subsidiaries and Equity Investments) to the Credit Agreement is hereby amended in its entirety by Supplemental Schedule 5.13 attached as Supplemental Schedule 5.13 to this Amendment.  Any references in the Credit Agreement to Schedule 5.13 shall be deemed to refer to Supplemental Schedule 5.13 from and after the Fourth Amendment Effective Date.

Paragraph 2.    Effective Date. This Fourth Amendment shall not become effective until the date (such date, the “Fourth Amendment Effective Date”) the Administrative Agent receives all of the agreements, documents, certificates, instruments, and other items described below:

(a)        a fully executed counterpart copy of each of the Cash Settlement Agreement and Rockport Settlement Agreement;

(b)       a fully executed counterpart copy of a Unanimous Written Consent of the Members of Rockport Energy dated May 19, 2009 authorizing the Rockport Settlement Agreement and the transactions contemplated thereby;

(c)        a fully executed counterpart copy of Consent and Amendment No. 4 to the Agreement of Limited Partnership of LGS Development, L.P. dated May 19, 2009 waiving the right of first refusal relating to the interest in LGS conveyed to Quest O&G and admitting Quest O&G as a limited partner;

(d)       a fully executed counterpart copy of Bill of Sale and Assignment of Limited Partnership Interest from Rockport Energy to Quest O&G conveying 60% of Rockport Energy's interest in LGS;

(e)        a recorded copy of Assignment and Bill of Sale from Rockport Energy in favor of Quest O&G conveying 60% of Rockport Energy's interest in the Bird Island Well in Cameron Parish, Louisiana;

(f)        this Fourth Amendment, executed by the Borrower, the Guarantors, the Administrative and the Lender;

(g)       payment on the Fourth Amendment Effective Date to the Administrative Agent of a one (1) percent amendment fee calculated on the Original Term Loan Principal Debt outstanding on the Fourth Amendment Effective Date which fee shall be fully earned and nonrefundable on the Fourth Amendment Effective Date in the form of a payment-in-kind note (“PIK Note”) that shall be paid on the first to occur of the Maturity Date or the repayment of the Obligations;

	
             
 	
            (h)
 	
            the PIK Note executed by the Borrower;
 

 (i)        executed counterparts dated as of the Fourth Amendment Effective date of (i) a First Amendment to the Pledge and Security Agreement from Quest O&G, and (ii) an Act of Mortgage, Collateral Assignment, Security Agreement, Fixture Filing and Financing Statement from Quest O&G covering its interest in the Bird Island Well in Cameron Parish, Louisiana;

(j)        such certificates of resolutions or other action, incumbency certificates and/or other certificates of officers of Borrower and Quest O&G as the Administrative Agent may require to establish the identities of and verify the authority and capacity of each officer thereof authorized to act in connection with this Agreement and the other Loan Documents to which such Loan Party is a party;

 

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(k)       fees and expenses required to be paid pursuant to Paragraph 5 of this Fourth Amendment, to the extent invoiced prior to the Fourth Amendment Effective Date; and

(l)        such other assurances, certificates, documents and consents as the Administrative Agent may require.

Paragraph 3.    Acknowledgment and Ratification. The Borrower and the Guarantors each (i) consent to the agreements in this Fourth Amendment and (ii) agree and acknowledge that the execution, delivery, and performance of this Fourth Amendment shall in no way release, diminish, impair, reduce, or otherwise affect the respective obligations of the Borrower or any Guarantor under the Loan Documents to which it is a party, which Loan Documents shall remain in full force and effect, as amended and waived hereby, and all rights thereunder are hereby ratified and confirmed.

Paragraph 4.    Representations.  The Borrower and the Guarantors each represent and warrant to the Administrative Agent and the Lender that as of the Fourth Amendment Effective Date and after giving effect to the waivers and amendments set forth in this Fourth Amendment (a) all representations and warranties in the Loan Documents are true and correct in all material respects as though made on the date hereof, except to the extent that any of them speak to a different specific date, and (b) no Default or Event of Default exists.

Paragraph 5.    Expenses.  The Borrower shall pay on demand all reasonable costs, fees, and expenses paid or incurred by the Administrative Agent incident to this Fourth Amendment, including, without limitation, Attorney Costs in connection with the negotiation, preparation, delivery, and execution of this Fourth Amendment and any related documents, filing and recording costs, and the costs of title insurance endorsements, if any.

	
             
 	
            Paragraph 6.
 	
            Miscellaneous.
 

This Fourth Amendment is a “Loan Document” referred to in the Credit Agreement.  The provisions relating to Loan Documents in Article X of the Credit Agreement are incorporated in this Fourth Amendment by reference.  Unless stated otherwise (i) the singular number includes the plural and vice versa and words of any gender include each other gender, in each case, as appropriate, (ii) headings and captions may not be construed in interpreting provisions, (iii) this Fourth Amendment must be construed, and its performance enforced, under New York law and applicable federal law,  and (iv) if any part of this Fourth Amendment is for any reason found to be unenforceable, all other portions of it nevertheless remain enforceable.

Paragraph 7.    Entire Agreement. This Fourth Amendment represents the final agreement between the parties about the subject matter of this amendment and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties.

Paragraph 8.    Parties. This Fourth Amendment binds and inures to the benefit of the Borrower, the Guarantors, the Administrative Agent, the Collateral Agent and the Lender, and their respective successors and assigns.

Paragraph 9.    Further Assurances. The parties hereto each agree to execute from time to time such further documents as may be necessary to implement the terms of this Fourth Amendment.

 

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Paragraph 10.Release.  As additional consideration for the execution, delivery and performance of this Fourth Amendment by the parties hereto and to induce the Administrative Agent, the Collateral Agent and the Lender to enter into this Fourth Amendment, the Borrower warrants and represents to the Administrative Agent, the Collateral Agent and the Lender that no facts, events, statuses or conditions exist or have existed which, either now or with the passage of time or giving of notice, or both, constitute or will constitute a basis for any claim or cause of action against the Administrative Agent, the Collateral Agent and the Lender or any defense to (i) the payment of Obligations under the Term Notes and/or the Loan Documents, or (ii) the performance of any of its obligations with respect to the Term Notes and/or
the Loan Documents.  In the event any such facts, events, statuses or conditions exist or have existed, Borrower unconditionally and irrevocably hereby RELEASES, RELINQUISHES and forever DISCHARGES Administrative Agent, the Collateral Agent and the Lender, as well as their predecessors, successors, assigns, agents, officers, directors, shareholders, employees and representatives, of and from any and all claims, demands, actions and causes of action of any and every kind or character, past or present, which Borrower may have against any of them or their predecessors, successors, assigns, agents, officers, directors, shareholders, employees and representatives arising out of or with respect to (a) any right or power to bring any claim for usury or to pursue any cause of action based on any claim of usury, and (b) any and all transactions relating to the Loan Documents occurring prior to the date hereof, including any loss, cost or damage, of any kind or character, arising out of or in
any way connected with or in any way resulting from the acts, actions or omissions of any of them, and their predecessors, successors, assigns, agents, officers, directors, shareholders, employees and representatives, including any breach of fiduciary duty, breach of any duty of fair dealing, breach of confidence, breach of funding commitment, undue influence, duress, economic coercion, conflict of interest, negligence, bad faith, malpractice, intentional or negligent infliction of mental distress, tortious interference with contractual relations, tortious interference with corporate governance or prospective business advantage, breach of contract, deceptive trade practices, libel, slander or conspiracy, but in each case only to the extent permitted by applicable Law.

 

Paragraph 11.  Execution in Counterparts. This Fourth Amendment may be executed in any number of counterparts (and by different parties hereto in different counterparts), each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page of this Fourth Amendment by telecopier or other electronic means shall be effective as delivery of a manually executed counterpart of this Fourth Amendment.

The parties hereto have executed this Fourth Amendment in multiple counterparts to be effective as of the Fourth Amendment Effective Date.

Remainder of Page Intentionally Blank

Signature Pages to Follow.

 

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Amended and Restated Credit Agreement  

 

 

            IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be duly executed as of the Fourth Amendment Effective Date.

 

	
             
 	
            BORROWER:
 
	
             
 	
             
 
	
             
 	
            QUEST RESOURCE CORPORATION,
 
	
             
 	
            as Borrower
 
	
             
 	
             
 	
             
 
	
             
 	
            By:
 	
            /s/ David Lawler
 
	
             
 	
             
 	
            David Lawler
 
	
             
 	
             
 	
            President
 

 

The undersigned, as the Guarantors referred to in the Credit Agreement, as amended by this Fourth Amendment, hereby consent to this Fourth Amendment and hereby confirm and agree that (i) the Loan Documents (which specifically includes the Guaranty executed by each Guarantor and each Security Agreement and Mortgage executed by each Guarantor) in effect on the date hereof to which each are a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects except that, upon the effectiveness of, and on and after the Fourth Amendment Effective Date, all references in such Loan Documents to the Credit Agreement shall mean the Credit Agreement as amended by this Fourth Amendment, and (ii) such Loan Documents consisting of Guaranties, Security Agreements, Mortgages, and assignments and all of the collateral described therein do, and shall
continue to, secure the payment by the Borrower of the Obligations under the Credit Agreement.

 

	
             
 	
            GUARANTORS:
 
	
             
 	
             
 
	
             
 	
            QUEST OIL & GAS, LLC,
 
	
             
 	
            as a Guarantor
 
	
             
 	
             
 	
             
 
	
             
 	
            By:
 	
            /s/ David Lawler
 
	
             
 	
             
 	
            David Lawler
 
	
             
 	
             
 	
            President
 
	
             
 	
             
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
            QUEST ENERGY SERVICE, LLC,
 
	
             
 	
            as a Guarantor
 
	
             
 	
             
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
            By:
 	
            /s/ David Lawler
 
	
             
 	
             
 	
            David Lawler
 
	
             
 	
             
 	
            President
 

 

 

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Amended and Restated Credit Agreement  

 

 

	
             
 	
            QUEST EASTERN RESOURCE, LLC,
 
	
             
 	
            as a Guarantor
 
	
             
 	
             
 	
             
 
	
             
 	
            By:
 	
            /s/ David Lawler
 
	
             
 	
             
 	
            David Lawler
 
	
             
 	
             
 	
            President
 
	
             
 	
             
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
            QUEST MERGERSUB, INC.
 
	
             
 	
            as a Guarantor
 
	
             
 	
             
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
            By:
 	
            /s/ David Lawler
 
	
             
 	
             
 	
            David Lawler
 
	
             
 	
             
 	
            President
 

 

 

Signature Page 1

Fourth Amendment to Quest 

Resource Corporation 

Amended and Restated Credit Agreement  

 

 

	
             
 	
            ADMINISTRATIVE AGENT:
 
	
             
 	
             
 
	
             
 	
            ROYAL BANK OF CANADA,
 
	
             
 	
            as Administrative Agent and Collateral Agent
 
	
             
 	
             
 	
             
 
	
             
 	
            By:
 	
            /s/ Susan Khokher
 
	
             
 	
            Name:
 	
            Susan Khokher
 
	
             
 	
            Title:
 	
            Manager, Agency
 

 

 

Signature Page 2

Fourth Amendment to Quest 

Resource Corporation 

Amended and Restated Credit Agreement  

 

 

	
             
 	
            L/C ISSUER AND LENDER:
 
	
             
 	
             
 
	
             
 	
            ROYAL BANK OF CANADA, as a Lender
 
	
             
 	
            and L/C Issuer
 
	
             
 	
             
 	
             
 
	
             
 	
            By:
 	
            /s/ Leslie P. Vowell
 
	
             
 	
             
 	
            Leslie P. Vowell
 
	
             
 	
             
 	
            Attorney-in-Fact
 

 

 

 

Signature Page 3

Fourth Amendment to Quest 

Resource Corporation 

Amended and Restated Credit Agreement  

 

 

Supplemental Schedule 5.13

 

SUBSIDIARIES AND EQUITY INVESTMENTS

 

The Borrower owns 100% of the issued and outstanding membership interests in the following Subsidiaries: (1) Quest Oil & Gas, LLC, a Kansas limited liability company, (2) Quest Energy Service, LLC, a Kansas limited liability company, (3) Quest Eastern Resource LLC a Delaware limited liability company (formerly PetroEdge Resources (WV) LLC) and (4) Quest Mergersub, Inc., a Delaware corporation.  The Borrower has no other Subsidiaries or equity Investments in any other Person (other than the Excluded MLP Entities).

Quest Oil & Gas, LLC owns a 26.7990076% limited partnership interest (before payout) and will own a 15.0% limited partnership interest (after payout) in LGS Development, L.P., a Texas limited partnership.

 

Signature Page 4

Fourth Amendment to Quest 

Resource Corporation 

Amended and Restated Credit Agreement  

 

 

Exhibit B-3

 

FORM OF PIK NOTE

 

	
            $282,500.00
 	
            May __, 2009
 

FOR VALUE RECEIVED, the undersigned (the “Borrower”), hereby promises to pay to the order of ROYAL BANK OF CANADA (the “Lender”), on the Maturity Date (as defined in the Credit Agreement referred to below) the principal amount of TWO HUNDRED EIGHTY TWO THOUSAND FIVE HUNDRED AND NO Dollars ($282,500) due and payable by the Borrower to the Lender on the Maturity Date under that certain Amended and Restated Credit Agreement, dated as of July 11, 2008 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Credit Agreement”; the terms defined therein being used herein as therein defined), among the Borrower, the Lenders from time to time party thereto, and
Royal Bank of Canada, as Administrative Agent and Collateral Agent.

The Borrower promises to pay interest on the unpaid principal amount of this PIK Note from the date hereof until such principal amount is paid in full, at the Adjusted Base Rate, payable at maturity.  All payments of principal and interest shall be made to the Administrative Agent for the account of the Lender in Dollars in immediately available funds to the account designated by the Administrative Agent in the Credit Agreement.  If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Credit Agreement.

This PIK Note is the PIK Note referred to in the Credit Agreement, is entitled to the benefits thereof and is subject to optional prepayment in whole or in part as provided therein.  This PIK Note is also entitled to the benefits of each Subsidiary Guaranty.  Upon the occurrence of one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this PIK Note shall become, or may be declared to be, immediately due and payable all as provided in the Credit Agreement.  The Loan evidenced by this PIK Note shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of business.  The Lender may also attach schedules to this PIK Note and endorse thereon the date, amount and maturity of its Loans hereunder and payments with respect thereto.

This PIK Note is a Loan Document and is subject to Section 10.10 of the Credit Agreement, which is incorporated herein by reference the same as if set forth herein verbatim.

The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, notice of intent to accelerate, notice of acceleration, demand, dishonor and non-payment of this PIK Note.

 

Signature Page 5

Fourth Amendment to Quest 

Resource Corporation 

Amended and Restated Credit Agreement  

 

 

THIS PIK NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

	
             
 	
            QUEST RESOURCE CORPORATION,
 
	
             
 	
            a Nevada corporation, as Borrower
 
	
             
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
            By:
 	
             
 
	
             
 	
            Name:
 	
             
 
	
             
 	
            Title:
 	
             
 

 

 

 

Supplemental Schedule 5.13

Fourth Amendment to Quest 

Resource Corporation 

Amended and Restated Credit Agreementviaspace_s1-ex1001.htm

    EXHIBIT
10.1

     

    SECURITIES
PURCHASE AGREEMENT

     

    THIS
SECURITIES PURCHASE AGREEMENT (this “Agreement”) is
entered into as of October 21, 2008, by and among, VIASPACE Inc., a Nevada
corporation (“Parent”), VIASPACE
Green Energy Inc., a British Virgin Islands international business company and a
wholly-owned subsidiary of Parent (“Acquirer”), Sung
Hsien Chang, an individual (“Shareholder”), and
China Gate Technology Co., Ltd., a Brunei Darussalam company  (“Licensor”), with
respect to the following facts:

     

    WHEREAS,
Shareholder is the holder of all issued and outstanding capital stock of
Inter-Pacific Arts Corp., a British Virgin Islands international business
company (“IPA
BVI”), and the entire equity interest of Guangzhou Inter-Pacific Arts
Corp., a Chinese wholly owned foreign enterprise registered in Guangdong
province (“IPA
China” and together with IPA BVI, “Target”).

     

    WHEREAS,
Target is a developer, manufacturer, exporter and distributor of copyrighted
framed artworks for sale in retail stores located throughout the United
States;

     

    WHEREAS,
Parent is a publicly traded company in energy and security business on the OTC
Bulletin Board with the ticker symbol “VSPC”;

     

    WHEREAS,
for an aggregate purchase price of $16 million, payable in cash and Parent and
Acquirer stock, Shareholder wishes to sell, and Acquirer wishes to purchase, 70%
of IPA BVI’s capital stock and 70% of IPA China’s equity interest (together, the
“70% Interest”)
at an initial closing (“First Closing”), and
the remaining 30% of IPA BVI’s capital stock and 30% of IPA China’s equity
interest (the “30%
Interest”) at a second closing (“Second
Closing”);

     

    WHEREAS,
Ko-Hung “Maclean” Wang (“Wang”) is the
principal of Licensor, Licensor has obtained exclusive rights for seedlings of
fast-growing proprietary grasses from Quanzhou Keyi Husbandry Breeding and
Planting Co., (“Inventor”), and, in
anticipation of and for the consideration set forth in this Agreement, Licensor
has entered into an agreement with IPA China granting IPA China all of such
exclusive rights (“Grass License”);
and

     

    WHEREAS,
Acquirer intends to register its equity securities with the Securities and
Exchange Commission in connection with having its stock becoming publicly traded
in the United States;

     

    NOW,
THEREFORE, in consideration of the foregoing and the following covenants, the
parties hereto agree as follows:

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

     

    SECTION
1

    ACQUISITION OF SECURITIES;
CONSIDERATION

     

    1.1           Purchase
and Sale.

     

    (a)           First Closing Purchase and
Sale.  Subject to the terms and conditions hereof, at the First
Closing, Shareholder shall sell to Acquirer, and Acquirer shall purchase from
Shareholder, the 70% Interest, in consideration for 3,500,000 shares of
Acquirer’s common stock (the “Acquirer Shares”) and
the number of shares of Parent’s common stock equivalent to US$5,600,000 (the
“Parent
Shares”), the share price of which to be calculated as the average
closing price of Parent’s common stock during the 60 day period prior to and
including the First Closing.

     

    (b)           Second Closing Purchase and
Sale.  Subject to the terms and conditions hereof, at the
Second Closing, Shareholder shall sell to Acquirer, and Acquirer shall purchase
from Shareholder, the 30% Interest, in consideration for $4.8 million (the
“Cash Payment”)
plus interest (“Interest”) calculated
in accordance with Section 2.6.

     

    1.2           Grass
License Consideration.   Subject to the terms and
conditions hereof, in consideration for the Grass License, at the First Closing
Licensor shall receive the number of shares of Parent’s common stock equivalent
to 4.2% of the total number of shares of Parent’s common stock issued and
outstanding (including the Parent Shares) as of the First Closing (“First Closing Licensor
Shares”), and at the Second Closing Licensor shall receive the number of
shares of Parent’s common stock equivalent to 1.8% of the total number of shares
of Parent’s common stock issued and outstanding as of the Second Closing (“Second Closing Licensor
Shares”).

     

    SECTION
2

    CLOSINGS AND
DELIVERIES

     

    2.1           First
Closing.  The First Closing shall held remotely by facsimile or
electronic mail exchange of signed documents at 5:00 P.M. Pacific Standard Time
on October 21, 2008 (the “First Closing Date”),
or at such other time as Parent, Acquirer, Shareholder and Licensor may agree
either in writing or orally.

     

    2.2           First
Closing Deliveries.  At the First Closing, subject to
satisfaction or waiver of each of the First Closing conditions set forth in
Sections 6 and 8, the parties shall make the following deliveries:

     

    (a)           By
Parent.  Parent shall deliver:

     

    
      	
               
      

            	
              (i)

            	
              to
      Shareholder (A) a share certificate or certificates in the name of
      Shareholder or his designee representing the Parent Shares, and (B) a
      shareholders agreement substantially in the form of the attached Exhibit A (the
      “Shareholder
      Agreement”), duly executed by Parent;
and

            

    

     

    
      	
               
      

            	
              (ii)

            	
              to
      Licensor a share certificate or certificates in the name of Licensor or
      its designees representing the First Closing Licensor
    Shares.

            

    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (b)           By
Acquirer.  Acquirer shall deliver:

     

    
      	
               
      

            	
              (i)

            	
              to
      Shareholder (A) a share certificate or certificates in the name of
      Shareholder or his designees representing the Acquirer Shares, (B) an
      employment agreement with Shareholder substantially in the form of the
      attached Exhibit
      B (the “Employment
      Agreement”), duly executed by Acquirer, and (C) an Employment
      Agreement with each of Carl Kukkonen and Stephen Muzi, duly executed by
      Acquirer and the respective
employees;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              to
      Licensor an Employment Agreement with Wang, duly executed by
      Acquirer.

            

    

     

    (c)           By
Shareholder.  Shareholder shall deliver:

     

    
      	
               
      

            	
              (i)

            	
              to
      Parent the Shareholder Agreement, duly executed by
      Shareholder;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              to
      Acquirer the Employment Agreement with Shareholder, duly executed by
      Shareholder.

            

    

     

    (d)           By
Licensor.  Licensor shall deliver to Acquirer the Employment
Agreement with Wang, duly executed by Wang.

     

    2.3           Second
Closing.  The Second Closing shall be held at the RP Office on
the date at or before 240 days after the First Closing Date or at such date that
Parent, Acquirer, Shareholder and Licensor may agree in writing (the “Second Closing
Date”).

     

    2.4           Second
Closing Deliveries.  At the Second Closing, subject to
satisfaction or waiver of each of the Second Closing conditions set forth in
Sections 7 and 9, the parties shall make the following deliveries:

     

    (a)           By
Parent.  Parent shall deliver:

     

    
      	
               
      

            	
              (i)

            	
              to
      Shareholder the Cash Payment plus Interest by wire transfer to an account
      designated by Shareholder;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              to
      Licensor a share certificate or certificates in the name of Licensor or
      its designees representing the Second Closing Licensor
    Shares.

            

    

     

    (b)           By
Shareholder.  Shareholder shall deliver:

     

    
      	
               
      

            	
              (i)

            	
              to
      Acquirer a share certificate in the name of Acquirer representing 30% of
      the capital stock of IPA BVI;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              to
      IPA BVI the Cash Shortfall (defined in Section 2.5), if any, by wire
      transfer to IPA BVI’s general funds
account.

            

    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    (c)           By
Licensor.  Licensor shall deliver to IPA China an assignment to
IPA China of the Grass License, duly executed by Licensor (the “Grass
Assignment”).

     

    2.5           Cash
Shortfall.  “Cash Shortfall” means
US$3,000,000 minus the amount of all Cash Equivalents (as defined below),
calculated as of the First Closing Date.  During the 75 day period
after the First Closing, Acquirer shall engage an independent auditor acceptable
to Shareholder to perform an audit of the financial records of IPA BVI and IPA
China in accordance with SEC rules.  During the course of the audit,
the independent auditor will determine if a Cash Shortfall existed as of the
date of the First Closing.  Shareholder shall fully cooperate with
such audit.  The auditor’s determination shall be binding on
Shareholder and Parent.

     

    (a)           “Cash Equivalents”
means all cash in IPA BVI’s and IPA China’s bank accounts plus all Accounts
Receivable minus all Accounts Payable minus all other indebtedness for money,
including without limitation, any debt owed to Shareholder or JJ International
(a company owned by Shareholder).

     

    (b)           “Accounts Receivable”
means any and all rights of IPA BVI and IPA China to payment for goods sold,
leased, licensed, assigned or otherwise disposed of and/or services rendered
including accounts (as defined in the Uniform Commercial Code of the State of
California), general intangibles and any and all such rights evidenced by
chattel paper, instruments or documents.

     

    (c)           “Accounts Payable”
means, all obligations of IPA BVI and IPA China for payment of property or
services (including trade payables incurred in the ordinary course of their
business).

     

    2.6           Interest.  Interest
shall accrue on the Cash Payment from the date of this Agreement through the
date six (6) months after the First Closing Date at an annual rate of six
percent (6%) per annum, and thereafter shall accrue at an annual rate of
eighteen percent (18%) per annum.

     

    2.7           Failure
to Close Second Closing.  Subject to the provisions of Section
10.2, if the parties fail to close the Second Closing within 240 days after the
First Closing Date:

     

    (a)           
the receiving parties shall return to the delivering parties all documents,
agreements and certificates received in accordance with Section
2.2;

     

    (b)           any
and all documents, agreements and certificates delivered in accordance with
Section 2.2 shall be deemed void and of no effect; and

     

    (c)           this
Agreement shall automatically terminate and the parties shall have no
obligations to one another under this Agreement except for those obligations, if
any, listed in Section 10.2 or that otherwise explicitly survive the termination
of this Agreement.

     

    SECTION
3

    REPRESENTATIONS AND
WARRANTIES OF SHAREHOLDER AND LICENSOR

     

    The
representations and warranties of Shareholder and Licensor in this Agreement
shall be true and correct in all material respects (if qualified by materiality)
and in all respects (if not qualified by materiality) on and as of each Closing
as though such representations and warranties were made on and as of such date
except for changes contemplated by this Agreement and except for representations
and warranties which address matters as of a particular date which shall remain
true and correct as of such particular date.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    Except as
set forth in the Disclosure Schedule attached hereto as Exhibit C (the “Shareholder Disclosure
Schedule”), Shareholder (and in respect of Section 3.17(e) only,
Licensor) represents and warrants to Parent and Acquirer as
follows:

     

    3.1           Organization
and Standing.  IPA BVI is an international business company
duly organized and existing under the laws of the British Virgin Islands and is
in good standing under such laws. IPA China is a wholly owned foreign entity
duly organized and existing under the laws of the PRC and is in good standing
under such laws.  Each Target has the requisite corporate power to own
and operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted.  A true, correct and
complete copy of IPA BVI’s and IPA China’s charter documents, each as amended to
date, has been delivered to Parent.  Such documents comply with the
requirements of applicable law and are in full force and effect.  Each
Target is duly qualified to do business and is in good standing in every
jurisdiction in which it operates its business and in which the failure to so
qualify would have a material adverse effect on the operations or financial
condition of such Target.

     

    3.2           Subsidiaries.

     

    (a)  
Neither Target owns or controls, directly or indirectly, any equity interest in
any other corporation, partnership, trust, joint venture, association or
entity.

     

    (b)  Except
as otherwise disclosed in the Shareholder Disclosure Schedule, there are no
agreements, written or otherwise, that would act to restrict Shareholder’s
ability to control all corporate actions that require the approval of either
Target’s shareholders and there are no provisions in IPA BVI’s and IPA China’s
charter documents that would act to restrict Shareholder’s ability to control
all corporate actions that require the approval of IPA BVI or IPA China’s
shareholders.

     

    3.3           Corporate
Power. Shareholder has all requisite authority to enter into this
Agreement, the Shareholder Agreement and the Employment Agreement (collectively,
the “Transaction
Documents”) and to carry out and perform its other obligations under the
terms of this Agreement.  Pertinent registration and shareholder
information regarding IPA China is as follows:

     

    

    
      
        
          
            
              	
                      Establishment
      date (date of business license)

                    	
                      :

                    	
                      September
      12, 2003

                    
	
                      Registered
      address

                    	
                      :

                    	
                      Dali Village,
      Taihe Township, Baiyun District, Guangzhou City,
    PRC

                    
	
                      Nature
      of enterprise

                    	
                      :

                    	
                      Framed
      artwork manufacturing

                    
	
                      Registered
      capital

                    	
                      :

                    	
                      RMB450,000

                    
	
                      Shareholder

                    	
                      :

                    	
                      Sung
      Hsien Chang

                    
	
                      Financial
      Registration No.

                    	
                      :

                    	
                      4401110067

                    
	
                      Tax
      Registration No.

                    	
                      :

                    	
                      440111753463587

                    
	
                      Business
      License No.

                    	
                      :

                    	
                      007374

                    

            

          

        

      

    

    

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    Pertinent
registration and shareholder information regarding IPA BVI is as
follows:

     

    
      
        
          
            
              
                
                  
                    	
                            Establishment
      date

                          	
                            :

                          	
                            February
      24, 2003

                          
	
                            Registered
      address

                          	
                            :

                          	
                            No.
      70, Lane 317, Sec. 1, Yanping Road, Hsinchu, Taiwan

                          
	
                            Nature
      of enterprise

                          	
                            :

                          	
                            International
      trading

                          
	
                            Registered
      capital

                          	
                            :

                          	
                            US$50,000

                          
	
                            Shareholder

                          	
                            :

                          	
                            Sung
      Hsien
Chang

                          

                  

                

              

            

          

        

      

    

    

     

    3.4           Capitalization.  Immediately
prior to the Closing, the capitalization of each Target will consist entirely of
the following:

     

    (a)           IPA BVI.  A
total of 50,000 authorized shares of common stock, of which 50,000 shares will
be issued and outstanding.  All of the outstanding shares of common
stock have been duly authorized, fully paid and are nonassessable and issued in
compliance with all applicable corporate and securities laws.

     

    (b)           IPA
China.  The entire equity interest of IPA China is owned by
Shareholder.  Such equity interest was issued in compliance with all
applicable laws.

     

    (c)           Other
Securities.  Neither Target has issued any stock options or
other rights for employees, directors, or officers of, or consultants to, such
Target to acquire equity securities of such Target and has not adopted any plan
providing for the potential issuance of any such options or rights or agreed to
issue any such options or rights.  Neither Target has any obligation
(contingent or otherwise and with or without notice or lapse of time) to (i)
issue any equity securities, or securities exercisable for or convertible into
any equity securities, any subscription, warrant, option, convertible security
or other such right or to issue or distribute to holders of any shares of its
capital stock any evidences of indebtedness of such Target or (ii) purchase,
redeem or otherwise acquire any shares of its capital stock or any interest
therein or to pay any dividend or make any other distribution in respect
thereof.  No stock plan, stock purchase, stock option or other
agreement or understanding between Target and any holder of any equity
securities or rights to purchase equity securities provides for acceleration or
other changes in the vesting provisions or other terms of such agreement or
understanding as the result of (i) termination of employment or consulting
services (whether actual or constructive); (ii) any merger, consolidated sale of
stock or assets, change in control or any other transaction(s) by Target; or
(iii) the occurrence of any other event or combination of events.

     

    3.5           Ownership;
Liens.  Shareholder owns, beneficially and of record, good and
marketable title to all the issued and outstanding equity interests of each of
IPA BVI and IPA China, free and clear of all security interests, liens, adverse
claims, encumbrances, equities, proxies, options or shareholders’ agreements.
Shareholder does not have any options, warrants or any other instruments
entitling Shareholder to exercise, purchase or convert into equity interests of
Target.  Subject to PRC law, Shareholder has full right, power and
authority to sell, transfer and deliver the equity interests of IPA
China.  Shareholder has full right, power and authority to sell,
transfer and deliver the equity interests of IPA
BVI.   Shareholder will convey to Acquirer good and marketable
title to the equity interests of IPA BVI and IPA China, free and clear of any
security interests, liens, adverse claims, encumbrances, equities, proxies,
options, shareholders agreements or other contractual restrictions.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    3.6           Authorization.  All
corporate action on the part of each Target and Shareholder and, with respect to
each Target, their respective directors and stockholders necessary for the
authorization, execution, delivery and performance of the Transaction Documents
has been taken or will be taken prior to the Closing.

     

    (a)           The
Transaction Documents, when executed and delivered by Shareholder, will
constitute a valid and binding obligation of Shareholder enforceable in
accordance with their terms, subject to laws of general application relating to
specific performance, injunctive relief or other equitable
remedies.

     

    3.7           Governmental
Consents.  Other than for the transfer of the equity interests
of IPA China, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any governmental
authority in the PRC, the United States or the BVI is required by either Target
or Shareholder in connection with the consummation of the transactions
contemplated by this Agreement, except as would not otherwise have a Material
Adverse Effect on: (i) the business, condition (financial or otherwise), results
of operations, shareholders’ equity, properties or prospects of either Target,
(ii) the long-term debt or capital stock of either Target or (iii) the
consummation of any of the other agreements, covenants or commitments of either
Target contemplated by this Agreement (any such effect and any material adverse
effect on the business, property, condition (financial or otherwise), results of
operations or prospects is defined as “Material Adverse
Effect”). Any such filings will be made within the time prescribed by
law.  As of the Second Closing, Shareholder has obtained all
government approvals  necessary to transfer Shareholder’s equity
interest in IPA China to IPA BVI.

     

    3.8           Foreign
Exchange Matters.  As of the Second
Closing  IPA China has completed all administrative formalities
necessary in order to remit, in Untied States dollars, any dividends declared
and payable upon the equity interest of IPA China without the necessity of
obtaining any discretionary government authorization in the PRC.

     

    3.9           Compliance
with Laws and Other Instruments; No Conflicts.  Neither
Shareholder nor either Target is in violation or default of any provisions of
its charter documents, as amended to date or, to Shareholder’s knowledge, any
applicable laws, regulations, judgments, decrees or orders of any governmental
bodies and agencies having jurisdiction over their respective businesses or
properties, other than violations of laws, regulations, judgments, decrees or
orders that could not reasonably be expected to have a Material Adverse
Effect.  Neither Shareholder nor any Target is in breach of or default
under or, to Shareholder’s knowledge, alleged to be in breach of or default
under, any material lease, license, contract, agreement, instrument or
obligation to which it is a party or its properties are subject, and neither
Shareholder nor any Target knows of any condition or circumstances that,
currently or after notice or the lapse of time, is likely to result in a breach
of, default under or loss of material benefits under any such lease, license,
contract, agreement, instrument or obligation, other than breaches or defaults
that could not reasonably be expected to have a Material Adverse
Effect.  The execution, delivery and performance of the Transaction
Documents on the part of Target, will not result in any such violation or
default and will not accelerate performance, that would have a Material Adverse
Effect, in any adverse respect under the terms of any agreement or
instrument.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    3.10           Litigation.  There
is no litigation, action, suit or proceeding, or governmental inquiry or
investigation, pending, or, to Shareholder’s knowledge, threatened in writing,
against either Target, or their properties, nor is either Target aware of any
basis for any of the foregoing.  No Target is a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality.  There is no action, suit,
proceeding or investigation by any Target currently pending or which either
Target intends to initiate.

     

    3.11           Financial
Statements.  The unaudited consolidated balance sheet and
statements of operations and cash flows as of and for the fiscal years ended
December 31, 2007, and the unaudited balance sheet and statements of operations
and cash flows as of the and for the three-month, six-month and nine-month
periods ended March 31, 2008, June 30, 2008 and September 30, 2008,
respectively, for each Target (collectively, the “Financial
Statements”) fairly present the financial condition and operating results
of Target as of the dates, and for the periods, indicated therein, subject to
normal year-end audit adjustments.  Except as set forth in the
Financial Statements, neither Target has any liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the Financial Statements and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under US generally accepted accounting principles applied on a
consistent basis throughout the relevant period (“GAAP”) to be
reflected in the Financial Statements.

     

    3.12           Financial
Recordkeeping.  The operations of each Target have been
conducted at all times in compliance with applicable financial record keeping
and reporting requirements and money laundering statutes of the BVI and the PRC,
as applicable and, to Shareholder’s knowledge, all other jurisdictions to which
each Target is subject, the rules and regulations thereunder and any related or
similar rules, regulations or guidelines, issued, administered or enforced by
any applicable governmental agency (collectively, the “Money Laundering
Laws”) and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving either Target
with respect to the Money Laundering Laws is pending or, to the knowledge of
Shareholder, threatened.

     

    3.13           Absence
of Certain Changes.  Since June 30, 2008, and at all times up
to the Second Closing, there has not been except as would not have a Material
Adverse Effect:

     

    (a)           Any
change in the assets, liabilities, financial condition or operating results of
either Target from the Financial Statements, except changes in the ordinary
course of business;

     

    (b)           any
damage, destruction, or loss, whether or not covered by insurance, materially
and adversely affecting the assets, financial condition, properties, operating
results or business of either Target;

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    (c)           any
material change or amendment to a material contract or arrangement by which
either Target, or any of their respective assets or properties are bound or
subject;

     

    (d)           any
resignation or termination of any officer, key employee or group of employees of
either Target;

     

    (e)           any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder of either Target;

     

    (f)           any
material disagreement with its outside accountants;

     

    (g)           any
other event or condition of any character that, either individually or
cumulatively, has had a Material Adverse Effect on either Target;
or

     

    (h)           any
arrangement or commitment by either Target to do any of the acts described in
subsections (a) through (g) above.

     

    3.14           Taxes.  Each
Target has timely filed all tax returns which are required to be filed by
it.  All filed returns are true and correct in all material respects
and all taxes shown thereon to be due have been timely paid.  As of
each Closing, all taxes owed by Targets have been paid.

     

    3.15           Property
and Assets.  Each Target has good and marketable title to all
of its respective material properties and assets, including without limitation,
the assets set forth in Section 3.14 of the Shareholder Disclosure Schedule, and
good title to its respective leasehold estates, in each case subject to no
mortgage, pledge, lien, security interest, lease, charge or encumbrance, other
than liens resulting from taxes which have not yet become delinquent and liens
and encumbrances which do not in any case materially detract from the value of
the property subject thereto or materially impair the operations of either
Target (as the case may be), and which have not arisen otherwise than in the
ordinary course of business.  Each Target leases or holds land use
rights with respect to all such properties as are necessary to the conduct of
its business as presently operated by the respective party and as proposed to be
operated as described to Parent and Acquirer, except as would not have a
Material Adverse Effect.

     

    3.16           Intellectual
Property.  Each Target owns or possesses sufficient legal
rights to all patents, trademarks, service marks, trade names, copyrights, trade
secrets, information, licenses, and other proprietary rights (collectively
“Intellectual Property
Rights”) necessary for its business as now conducted and as presently
proposed to be conducted, without any known infringement of the rights of
others, including without limitation, all copyright and trademark rights
necessary conduct its artwork business.  Neither Target is bound by or
a party to any options, licenses or agreements of any kind with respect to its
respective Intellectual Property Rights or any other person or entity, and there
are no options, licenses, or agreements of any kind relating to such
Intellectual Property Rights, other than licenses or agreements relating to use
rights regarding “off the shelf” or standard products, non-exclusive licenses
issued to customers in the ordinary course of business, copyright licenses in
respect of artworks, the Grass License and the Grass
Assignment.  Neither Target has received any
communications alleging that it is infringing upon, violating or otherwise
acting adversely to, or that by conducting its business as proposed it would
infringe upon, violate or otherwise act adversely to, the right or claimed right
of any person or entity under or with respect to any Intellectual Property
Rights or licenses of third parties, nor is Target aware of any basis
therefore.  Neither Target is aware of any violation by a third party
of any of the Intellectual Property Rights of Target.  Neither Target
is obligated or under any liability to make payments by way of royalties, fees
or otherwise to any owner, licensor of, other claimant to, or party to any
option, license or agreement of any kind with respect to, any Intellectual
Property Rights except for commercially available software which Target licenses
on standard terms, the Grass License and the Grass
Assignment.  Neither Target is aware that any of its respective
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
their duties to such Target or that would conflict with the business of such
Target as proposed to be conducted.  Each Target is the sole owner
of all intellectual property developed by such party.

     

    
      
         

      

      
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    3.17           Material
Contracts and Obligations.  Shareholder has provided to Parent
and Acquirer or their counsel, and has listed on the Shareholder Disclosure
Schedule, all contracts and agreements pertaining to such Target (a) with
expected receipts or expenditures in excess of $100,000, (b) involving a license
or grant of rights to or from any Target involving patents, trademarks,
copyrights or other proprietary information applicable to the business of such
Target, (c) providing for indemnification by any Target or with respect to
infringements of proprietary rights, (d) between any Target or and any officer,
director or stockholder other than agreements entered into in the ordinary
course of business, or (e) involving any loans or advances by any Target to any
officer, director or employee which are outstanding as of the date of the
Closing.  All such contracts and agreements are legally binding,
valid, and in full force and effect in all material
respects.  For purposes of this Section 3.16, the term “Company” shall
mean the Target.  Notwithstanding the foregoing, except as set forth
in the Shareholder Disclosure Schedule:

     

    (a)           There
are no agreements, understandings or proposed transactions between Company and
any of its officers, directors, employees, affiliates or any affiliate
thereof.

     

    (b)           There
are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which Company is a party or
to Shareholder’s knowledge by which it is bound which may involve (i) future
obligations (contingent or otherwise) of, or payments to, Company in excess of
$25,000 (other than obligations of, or payments to, Company arising from
agreements with customers and vendors entered into in the ordinary course of
business), (ii) the transfer or license of any patent, copyright, trade secret
or other proprietary right to or from Company (other than licenses by Company of
“off the shelf” or other standard products, and non-exclusive licenses to
customers in the ordinary course of business), or (iii) indemnification by
Company with respect to infringements of proprietary rights (other than
indemnification obligations arising from purchase, sale or license agreements
entered into in the ordinary course of business).

     

    (c)           Except
as otherwise disclosed in the Shareholder Disclosure Schedule, Company has not
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock, (ii) incurred or
guaranteed any indebtedness for money borrowed or any other liabilities (other
than with respect to indebtedness and other obligations incurred in the ordinary
course of business or as disclosed in the Financial Statements) individually in
excess of $25,000 or, in the case of indebtedness and/or liabilities
individually less than $25,000, in excess of $50,000 in the aggregate, (iii)
made any loans or advances to any person, other than ordinary advances for
travel expenses or in connection with employment relocation, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.

     

    
      
         

      

      
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    (d)           For
the purposes of subsections (b) and (c) above, all indebtedness, liabilities,
agreements, understandings, instruments, contracts and proposed transactions
involving the same person or entity (including persons or entities Company has
reason to believe are affiliated therewith) shall be aggregated for the purpose
of meeting the individual minimum dollar amounts of such
subsections.

     

    (e)           Licensor
Agreement.  Licensor has entered into an agreement (“Licensor Agreement”)
with Inventor to purchase seedlings of three types of fast-growing, proprietary
grasses developed Inventor and identified as “Giant King Grass”, “Purple King
Grass” and “Elephant Grass”, for use as livestock feed and cellulose-based
fuels.  The Licensor Agreement grants Licensor the exclusively right
to purchase such seedlings in the United States and Canada and the exclusive
right to purchase batches of over 20,000 of such seedlings in Guangdong
province, PRC, provided that Licensor purchase a minimum of 1,000,000 of such
seedlings each year.  Licensor also has non-exclusive rights to
purchase such seedlings for use on a worldwide basis.  The term of the
Licensor Agreement is at least three years.  Licensor has paid all
required licensing or other fees or payments under the Licensor Agreement as of
the First Closing, is not otherwise in default of the Licensor Agreement, and
the Licensor Agreement is valid and enforceable in accordance with its
terms.

     

    (f)           Grass
License.  Licensor has entered into the Grass License with IPA
China pursuant to which Licensor has granted all its rights under the Licensor
Agreement to IPA China.  IPA China has paid all required licensing or
other fees or payments under the Grass License as of the First Closing, is not
otherwise in default of the Grass License, and the Grass License is valid and
enforceable in accordance with its terms.

     

    (g)         
Grass
Assignment.  As of the Second Closing, the Grass Assignment is
valid and enforceable in accordance with its terms.

     

    3.18           Employees.  To
the knowledge of Shareholder, no former or current employee, officer or
consultant of a Target is in violation of any obligation to protect the
Intellectual Property Rights of either Target.  Neither Target
believes it is or will be necessary to utilize any inventions, trade secrets or
proprietary information of any of its employees made prior to their employment
by Target, except for inventions, trade secrets or proprietary information that
have been assigned to Target.  Neither Target is a party to or bound
by any currently effective written employment contract with any of its
employees, other than those that are terminable at will, and, to the knowledge
of Shareholder:  (i) no employee or consultant of Target is in
violation of any term of any employment contract; (ii) the continued employment
by Target and of its present employees, and the performance of their
respective contracts with independent contractors, will not result in any such
violation; and (iii) neither Target has received any notice alleging that any
such violation has occurred, except as would not have a Material Adverse
Effect.  Neither Shareholder nor any Target is aware that any
officer, key employee or group of employees who intends to terminate his, her or
their employment with such Target, nor does Shareholder nor any Target have a
present intention to terminate the employment of any officer, key employee or
group of employees.  Except as otherwise disclosed in the Shareholder
Disclosure Schedule, no Target is a party to or bound by any currently effective
employment contract, bonus plan, incentive plan, profit sharing plan,
deferred compensation arrangement, retirement agreement or other employee
compensation plan or agreement.  Except as required under PRC law in
respect of IPA China employees, no employee of Target has been granted the right
to continued employment by such Target to any material compensation following
termination of employment with such Target.

     

    
      
         

      

      
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    3.19           Books and
Records.  The minute books of each Target contain complete and
accurate records of all meetings and other corporate actions of its shareholders
and its Board of Directors and committees thereof.  The stock ledger
of each Target is complete and reflects all issuances, transfers, repurchases
and cancellations of shares of capital stock of such Target.

     

    3.20           Environmental
and Safety Laws.  No Target is in violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety, except as would not have a Material Adverse Effect, and to
Shareholder’s knowledge, no material expenditures are or will be required in
order to comply with any such existing statute, law or regulation.

     

    3.21           Employment
Laws.  Each Target is in compliance with all applicable labor
and employment laws, rules and regulations applicable to their employees
(including, without limitation, the laws of the BVI and the PRC and other laws,
rules and regulations relating to discrimination in the hiring, promotion or pay
of employees and any wage or hour laws), except for matters that would not,
individually or in the aggregate, have a Material Adverse
Effect.  Neither any Target and their respective operations are
subject to any collective bargaining agreements in the United States, BVI or
PRC, except as required under PRC law.  There is not presently, nor
has there been, any strike, labor dispute, slowdown or stoppage pending or, to
Shareholder’s knowledge, threatened against either Target.  To
Shareholder’s knowledge, no union organizing activities are currently taking
place concerning the employees of IPA BVI.

     

    3.22           Permits.  Each
Target has all franchises, permits, licenses, and any similar authority
necessary for the conduct of its respective business as now being conducted by
it, the lack of which would have a Material Adverse Effect, and will obtain,
without undue burden or expense, any similar authority for the conduct of its
businesses in framed art and grass as presently or planned to be
conducted.  Neither Target is in default or violation in any material
respect under any of such franchises, permits, licenses or other similar
authority.

     

    3.23           Obligations
to Related Parties.  There are no obligations of any Target to
its respective officers, directors, stockholders, or employees (or members of
their immediate family) other than (a) for payment of salary for services
rendered, (b) reimbursement for reasonable expenses incurred on behalf of such
Target, or (c) for other standard employee benefits made generally available to
all employees.  Except as disclosed in Section 3.23 of the Shareholder
Disclosure Schedule, none of the officers, directors or key employees of any
Target is indebted to such Target has any direct or indirect ownership interest
in any firm or corporation with which such Target is affiliated or with which
such Target has a business relationship, or any firm or corporation which
competes directly with such Target, other than passive investments of less than
1% in publicly traded companies.  No officer, director or stockholder,
or any member of their immediate families, is, directly or indirectly,
interested in any material contract with such Target (other than such contracts
as relate to any such person’s ownership of capital stock or other securities of
such Target or as disclosed pursuant to other sections hereto).

     

    
      
         

      

      
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    3.24           Passive
Foreign Investment Company.  As of the First Closing, neither
Target is  a Passive Foreign Investment Company (“PFIC”) within the
meaning of Section 1297 of the United States Internal Revenue Code of 1986, as
amended, and IPA China does not reasonably expect to become a PFIC in the
future.

     

    3.25           Investment
Company Act.  Neither Target is and, at all times up to and
including consummation of the transactions contemplated by this Agreement, and
after giving effect to application of the net proceeds hereof, will be, subject
to registration as an “investment company” under the Investment Company Act of
1940, as amended, and is and will be an entity “controlled” by an “investment
company” within the meaning of such act.

     

    3.26           Customers.

     

    (a)           Section
3.26 of the Shareholder Disclosure Schedule lists and attaches each and every
written customer contract of the Target in effect on the Closing
Date.  In addition to the written contracts attached thereto, Section
3.26 of the Shareholder Disclosure Schedule sets forth accurate summaries of
each oral customer contract to which the Target is a party.  None of
such customers has communicated to the Target or Shareholder, verbally or in
writing, its intention to terminate or modify in a manner adverse to the Target
its relationship with the Target as a result of the transactions contemplated by
this Agreement or otherwise; and no such customer has communicated its
intention, verbally or in writing, to the Target or the Stockholder to decrease
its volume of business with the Target from the amounts projected for 2008 and
2009.  Shareholder has provided Parent with a complete and accurate
customer list of the Target.

     

    (b)           Except
as disclosed in Section 3.26 of the Shareholder Disclosure Schedule, no present
customer of the Target (i) has, to Shareholder’s knowledge, filed a petition in
bankruptcy or had a bankruptcy proceeding commenced against him, her or it, or
(ii) has entered into an oral or written agreement with the Target to delay or
modify the amount or timing of the collection of any amounts due from such
customer, or made any request with the Target to do so.

     

    3.27           Customer
Obligations

     

    (a)           Neither
Target nor Shareholder is in violation of any non-competition or exclusivity
obligation to any customer.

     

    3.28           Disclosures.  Neither
this Agreement nor any Exhibit hereto, when read together, contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.

     

    
      
         

      

      
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    SECTION
4

    REPRESENTATIONS AND
WARRANTIES OF SHAREHOLDER AND LICENSOR IN RESPECT OF
SECURITIES

     

    Each of
Shareholder and Licensor represents and warrants to Parent and Acquirer as
follows:

     

    4.1           Restricted
Securities. Shareholder and Licensor are acquiring the shares of Acquirer
and/or Parent (collectively, the “VIASPACE Related
Securities”) for his/her own account (and not for the account of others)
for investment and not with a view to the distribution
therefor.  Shareholder and Licensor each acknowledges that the
VIASPACE Related Securities will not be registered pursuant to the Securities
Act of 1933, as amended (the “Securities Act”) or any applicable state
securities laws, that the VIASPACE Related Securities will be characterized as
“restricted securities” under federal securities laws, and that under such laws
and applicable regulations the VIASPACE Related Securities cannot be sold or
otherwise disposed of without registration under the Securities Act or an
exemption therefrom.  In this regard, Shareholder and Licensor are
familiar with Rule 144 promulgated under the Securities Act (which can be found
at http://www.sec.gov/investor/pubs/rule144.htm),
as currently in effect, and understands the resale limitations imposed thereby
and by the Securities Act; and, Shareholder and Licensor agree not to sell or
otherwise dispose of his/her VIASPACE Related Securities without such
registration or an exemption therefrom.

     

    4.2           Accredited
Investor; Non-U.S. Person.  Each of Shareholder and Licensor is
an “Accredited Investor” as that term is defined in Rule 501 of Regulation D of
the Securities Act or not a “U.S. Person” as such term is defined by Rule 902 of
Regulation S of the Securities Act.  Each of Shareholder and Licensor
is able to bear the economic risk of acquiring the VIASPACE Related Securities
pursuant to the terms of this Agreement, including a complete loss of investment
in the VIASPACE Related Securities.

     

    4.3           Legend.
Each of Shareholder and Licensor acknowledges that the certificate(s)
representing the VIASPACE Related Securities shall each conspicuously set forth
on the face or back thereof a legend in substantially the following
form:

     

    THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

     

    If the
holder is not a U.S. person, such certificate shall bear the following
legend:

    

     

    “THE
SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED IN AN OFFSHORE TRANSACTION TO A
PERSON WHO IS NOT A U.S. PERSON (AS DEFINED HEREIN) PURSUANT TO REGULATION
S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933
ACT”).

    
      
         

      

      
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    NONE OF
THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR
ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED OR
SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES (AS DEFINED HEREIN) OR TO
U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE
1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS.  IN ADDITION, HEDGING
TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE
WITH THE 1933 ACT.  “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED
BY REGULATION S UNDER THE 1933 ACT.”

    

    SECTION
5

    REPRESENTATIONS AND
WARRANTIES OF PARENT AND ACQUIRER

     

               Except
as set forth in the Disclosure Schedule attached hereto as Exhibit D (the “VIASPACE Disclosure Schedule”)
or the SEC Reports (as defined below), the representations and warranties of
each VIASPACE Entity in this Agreement shall be true and correct in all material
respects (if not qualified by materiality) and in all respects (if qualified by
materiality) on and as of the Closing as though such representations and
warranties were made on and as of such time except for changes contemplated by
this Agreement and except for representations and warranties which address
matters as of a particular date which shall remain true and correct as of such
particular date.

     

    Each of
Parent and Acquirer (“VIASPACE Entity”)
hereby represents and warrants, severally but not jointly, to each Shareholder
as follows:

     

    5.1           Authorization.  This
Agreement constitutes each VIASPACE Entity’s valid and legally binding
obligation, enforceable in accordance with its terms except as may be limited by
the effect of rules of law governing the availability of equitable
remedies.  Each VIASPACE Entity has full power and authority to enter
into this Agreement.

     

    5.2           Corporate
Power. Each VIASPACE Entity have all requisite corporate power to enter
into the Transaction Documents to which it is a party, to sell and issue the
Securities hereunder and to carry out and perform its other obligations under
the terms of this Agreement.

     

    5.3           Authorization.  All
corporate action on the part of each VIASPACE Entity and, with respect to each
VIASPACE Entity, their respective directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement and the
Transaction Documents to which it is a Party has been taken or will be taken
prior to the Closing.

     

    
      
         

      

      
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    (a)           The
Transaction Documents, when executed and delivered by each VIASPACE Entity, will
constitute a valid and binding obligation of such VIASPACE Entity enforceable in
accordance with its terms, subject to laws of general application relating to
specific performance, injunctive relief or other equitable
remedies.

     

    (b)           When
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration provided for herein, the shares of VIASPACE Entity capital
stock shall be duly authorized, validly issued, fully paid and non-assessable
and shall be free of any liens or encumbrances, other than restrictions on
transfer under Section 11 of this Agreement and applicable securities
laws.

     

    Upon
consummation of the First Closing, there will be 8,600,000 shares of Acquirer
issued and outstanding, of which 5,100,000 will be issued to Parent and
3,500,000 issued to Shareholder. 1,400,000 shares shall be reserved for issuance
under Acquirer’s stock option plan.

     

    5.4           Governmental
Consents.  No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
governmental authority in the United States is required by either VIASPACE
Entity in connection with the consummation of the transactions contemplated by
this Agreement, except as would not otherwise have a Material Adverse Effect on:
(i) the business, condition (financial or otherwise), results of operations,
shareholders’ equity, properties or prospects of either VIASPACE Entity, (ii)
the long-term debt or capital stock of either VIASPACE Entity or (iii) the
consummation of any of the other agreements, covenants or commitments of
either Target contemplated by this Agreement. Any such qualifications and
filings will, in the case of qualifications, be effective on each Closing and
will, in the case of filings, be made within the time prescribed by
law.   

     

    5.5           Compliance
with Laws and Other Instruments; No Conflicts.  Neither
VIASPACE Entity is in violation or default of any provisions of its charter
documents, as amended to date or, to its knowledge, any applicable laws,
regulations, judgments, decrees or orders of any governmental bodies and
agencies having jurisdiction over their respective businesses or properties,
other than violations of laws, regulations, judgments, decrees or orders that
could not reasonably be expected to have a Material Adverse
Effect.  Neither VIASPACE Entity is in breach of or default under or,
to its knowledge, alleged to be in breach of or default under, any material
lease, license, contract, agreement, instrument or obligation to which it is a
party or its properties are subject, and neither VIASPACE Entity knows of any
condition or circumstances that, currently or after notice or the lapse of time,
is likely to result in a breach of, default under or loss of material benefits
under any such lease, license, contract, agreement, instrument or obligation,
other than breaches or defaults that could not reasonably be expected to have a
Material Adverse Effect.  The execution, delivery and performance of
the Transaction Documents on the part of VIASPACE Entity, will not result in any
such violation or default and will not accelerate performance, that would have a
Material Adverse Effect, in any adverse respect under the terms of any agreement
or
instrument.         

     

    5.6           Litigation.  There
is no litigation, action, suit or proceeding, or governmental inquiry or
investigation, pending, or, to the best of any VIASPACE Entity’s knowledge,
threatened in writing, against any VIASPACE Entity, or their properties, nor is
any VIASPACE Entity aware of any basis for any of the foregoing.  No
VIASPACE Entity is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.  There is no action, suit, proceeding or
investigation by any VIASPACE Entity currently pending or which any VIASPACE
Entity intends to initiate.

     

    
      
         

      

      
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    5.7           Financial
Statements.  The audited consolidated balance sheet and
statements of operations and cash flows as of and for the fiscal years ended
December 31, 2006 and 2007, and the unaudited balance sheet and statements of
operations and cash flows as of the and for the three-month and six-month
periods ended March 31, 2008 and June 30, 2008, respectively, for Parent as
reported in the SEC Reports (collectively, the “VIASPACE Financial Statements”)
have been prepared in accordance with US generally accepted accounting
principles (“GAAP”) applied on a consistent basis throughout the relevant
period, except that the unaudited VIASPACE Financial Statements do not contain
the footnotes required by GAAP.  The VIASPACE Financial Statements
fairly present the financial condition and operating results of Parent on a
consolidated basis as of the dates, and for the periods, indicated therein,
subject to normal year-end audit adjustments.  Except as set forth in
the VIASPACE Financial Statements, Parent has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the VIASPACE Financial Statements and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under GAAP to be reflected in the VIASPACE Financial
Statements.   Neither of the VIASPACE Entities has filed a
petition in bankruptcy, had a bankruptcy proceeding commenced against it, has
made a sale of assets for the benefit of creditors or has failed to pay its
obligations when due.

     

    5.8           Absence
of Certain Changes.  Since June 30, 2008, and at all times up
to the Closing, there has not been except as would not have a Material Adverse
Effect:

     

    (a)           Any
change in the assets, liabilities, financial condition or operating results of
Parent from the VIASPACE Financial Statements, except changes in the ordinary
course of business;

    

    (b)           any
damage, destruction, or loss, whether or not covered by insurance, materially
and adversely affecting the assets, financial condition, properties, operating
results or business of Parent;

    

    (c)           any
material change or amendment to a material contract or arrangement by which
Parent, or any of its respective assets or properties are bound or
subject;

    

    (d)           any
resignation or termination of any officer, key employee or group of employees of
Parent;

    

    (e)           any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder of Parent;

    

    (f)           any
material disagreement with its outside accountants;

    

    (g)           any
other event or condition of any character that, either individually or
cumulatively, has had a Material Adverse Effect on Parent; or

    
      
         

      

      
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    (h)           any
arrangement or commitment by Parent to do any of the acts described in
subsections (a) through (i) above.

    

    5.9           Property
and Assets.   Parent has good and marketable title to all
of its respective material properties and assets, and good title to its
respective leasehold estates, in each case subject to no mortgage, pledge, lien,
security interest, lease, charge or encumbrance, other than liens resulting from
taxes which have not yet become delinquent and liens and encumbrances which do
not in any case materially detract from the value of the property subject
thereto or materially impair the operations of Parent, and which have not arisen
otherwise than in the ordinary course of business.  Parent leases or
holds land use rights with respect to all such properties as are necessary to
the conduct of its business as presently operated by the respective party and as
proposed to be operated as described to Target, except as would not have a
Material Adverse Effect.

     

    5.10           Intellectual
Property.   Parent owns or possesses sufficient legal
rights to all patents, trademarks, service marks, trade names, copyrights, trade
secrets, information, licenses, and other proprietary rights (collectively
“Parent Intellectual Property Rights”) necessary for its business as now
conducted and as presently proposed to be conducted, without any known
infringement of the rights of others.  Parent is not bound by or a
party to any options, licenses or agreements of any kind with respect to its
respective Parent Intellectual Property Rights or any other person or entity,
and there are no options, licenses, or agreements of any kind relating to such
Parent Intellectual Property Rights, other than licenses or agreements relating
to use rights regarding “off the shelf” or standard products and non-exclusive
licenses issued to customers in the ordinary course of
business.  Parent has not received any communications alleging that it
is infringing upon, violating or otherwise acting adversely to, or that by
conducting its business as proposed it would infringe upon, violate or otherwise
act adversely to, the right or claimed right of any person or entity under or
with respect to any Parent Intellectual Property Rights or licenses of third
parties, nor is Parent aware of any basis therefore.  Parent is not
aware of any violation by a third party of any of Parent Intellectual Property
Rights.  Parent is not obligated or under any liability to make
payments by way of royalties, fees or otherwise to any owner, licensor of, other
claimant to, or party to any option, license or agreement of any kind with
respect to, any Parent Intellectual Property Rights except for commercially
available software which Parent licenses on standard terms.  Parent is
not aware that any of its respective employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to Parent or that would conflict
with the business of Parent as proposed to be conducted.  Parent is
the sole owner of all intellectual property developed by such
party.

     

    5.11           SEC
Reports.  Parent is a publicly-held company subject to
reporting obligations pursuant to Section 13 of the Securities Exchange Act of
1934, as amended (the "1934 Act") and has a class of Common Stock registered
pursuant to Section 12(g) of the 1934 Act.  Pursuant to the provisions
of the 1934 Act, Parent has timely filed all reports and other materials
required to be filed thereunder with the Commission during the preceding twelve
months (“SEC Reports”).

     

    5.12           Listing.  Parent
Common Stock is quoted on the Over-the-Counter Bulletin Board under the symbol
“VSPC.OB.”  Parent has not received any oral or written notice that
its Common Stock is not eligible nor will become ineligible for quotation on the
Bulletin Board nor that its Common Stock does not meet all requirements for the
continuation of such quotation.  Parent satisfies all the requirements
for the continued quotation of its Common Stock on the Bulletin
Board.

     

    
      
         

      

      
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    5.13           Resale of
the Parent Shares.  Parent will take all action under its
control that is necessary to permit Shareholder to resell the Parent Shares
beginning on the Second Closing Date or 6 months after the date of issuance of
the Parent Shares, whichever is later, in accordance with Rule 144 promulgated
by the Securities and Exchange Commission.

     

    

    SECTION
6

    CONDITIONS TO
PARENT’S AND ACQUIRER’S OBLIGATIONS AT FIRST
CLOSING

     

    The
obligations of each VIASPACE Entity at the First Closing are subject to the
fulfillment or waiver, on or before the First Closing, of each of the following
conditions:

     

    6.1           Representations
and
Warranties True.  Each of the representations and warranties of
contained in Sections 3 and 4 shall be true and correct on and as
of the First Closing Date.

     

    6.2           Performance
of Obligations;
Consents.  Shareholder and Licensor shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by Shareholder and
Licensor on or before the First Closing Date.

     

    6.3           Securities
Exemptions.  The issuance of
the VIASPACE Related Securities to Shareholder and Licensor pursuant to this
Agreement shall be exempt from the registration requirements of the Securities
Act, and the registration and/or qualification requirements of all other
applicable securities laws.

     

    6.4           Compliance
Certificate.  Shareholder shall have delivered to Parent a
certificate dated as of the First Closing Date, signed by Shareholder,
certifying that the conditions set forth in Sections 6.1 and 6.2 have been
satisfied, and stating that there shall have been no material adverse change in
the business, affairs, operations, properties, assets or conditions of Target
since the date of the Financial Statements.

     

    6.4           Consents,
Permits and Waivers.  Any and all consents, permits,
authorizations, approvals and waivers, from and of applicable governmental or
regulatory bodies and other third persons, that are necessary or appropriate for
consummation of the transactions contemplated by the First Closing shall have
been obtained (except for such as may be properly obtained subsequent to the
First Closing).

     

    6.5           Corporate
Documents.  Shareholder shall have delivered to Parent or its
counsel, copies of all corporate documents of Target as Parent shall reasonably
request.

     

    6.6           Officer’s
Certificate.  Parent shall have received from Shareholder a
certificate having attached thereto each Target’s charter documents as in effect
at the time of the First Closing.

     

    
      
         

      

      
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    6.7           Due
Diligence Investigation.  Parent shall have completed to
its reasonable satisfaction a due diligence review of the business and
operations of each Target.

     

    6.8           Financial
Statements .  Shareholder shall have delivered to Parent a copy
of unaudited financial statements for the fiscal year ended December 31, 2007,
and the quarterly periods ending March 31, 2008, June 30, 2008 and September 30,
2008 that are generally consistent with the financial information previously
provided regarding the financial condition and performance of each
Target.

     

    6.9           Shareholder
Agreement. Shareholder shall have
executed the Shareholder Agreement.

     

    6.10           Employment
Agreement.  Shareholder
and Wang shall each have executed the Employment Agreement.

     

    SECTION
7

    CONDITIONS TO
PARENT’S AND ACQUIRER’S OBLIGATIONS AT SECOND
CLOSING

     

    The
obligations of each VIASPACE Entity at the Second Closing are subject to the
fulfillment or waiver, on or before the Second Closing, of each of the following
conditions:

     

    7.1           Representations
and Warranties True.  Each of the representations and
warranties contained in Sections 3 and 4 shall be true and correct on and as of
the Second Closing Date and, to the extent not true or correct, represent a
reduction in the value of IPA China, IPA BVI or the Grass Assignment for which
Shareholder has declined to promptly reimburse Acquirer.

     

    7.2           Performance
of
Obligations; Consents.  Shareholder shall have performed and
complied with all material agreements and obligations contained in this
Agreement that are required to be performed or complied with by Shareholder on
or before the Second Closing Date.

     

    7.3           Securities
Exemptions.  The issuance of
the VIASPACE Related Securities to Shareholder and Licensor pursuant to this
Agreement shall be exempt from the registration requirements of the Securities
Act, and the registration and/or qualification requirements of all other
applicable securities laws.

     

    7.4           Compliance
Certificate.  Shareholder shall have delivered to Parent a
certificate dated as of the Second Closing Date, signed by Shareholder,
certifying that the conditions set forth in Sections 7.1 and 7.2 have been
satisfied, and stating that there shall have been no material adverse change in
the business, affairs, operations, properties, assets or conditions of Target
since the date of the Financial Statements.

     

    7.5           Consents,
Permits and Waivers.  Any and all consents, permits,
authorizations, approvals and waivers, from and of applicable governmental or
regulatory bodies and other third persons, that are necessary for consummation
of the transactions contemplated by the Second Closing shall have been obtained
(except for such as may be properly obtained subsequent to the Second
Closing).

     

    
      
         

      

      
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    7.6           Corporate
Documents.  Shareholder shall have delivered to Parent or its
counsel, copies of all corporate documents of Target as Parent shall reasonably
request.

     

    7.7           Officer’s
Certificate.  Parent shall have received from Shareholder a
certificate having attached thereto each Target’s charter documents as in effect
at the time of the Second Closing.

     

    7.8           Due
Diligence Investigation.  Parent shall have completed to its
reasonable satisfaction a due diligence review of the business and operations
of each Target.

     

    7.9           IPA China
Equity Transfer.  Shareholder shall have transferred his entire
equity interest in IPA China to IPA BVI.

     

    7.10           Grass
Assignment.  Licensor shall have executed the Grass
Assignment.

     

    SECTION
8

    CONDITIONS TO SHAREHOLDER’S OBLIGATIONS AT FIRST
CLOSING

     

    The
obligations of Shareholder at the First Closing are subject to the fulfillment
or waiver, on or before the First Closing, of each of the following
conditions:

     

    8.1           Representations
and Warranties.  The representations and warranties made by
Parent and Acquirer in Section 5 hereof shall have been true and correct when
made and shall be true and correct as of the First Closing Date. 

     

    8.2           Performance
of Obligations; Consents and Waivers.  Each VIASPACE Entity
shall have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the First Closing Date.

     

    8.3           Corporate
Documents.  Parent shall have delivered to Shareholder or its
counsel, copies of all corporate documents of each VIASPACE Entity as
Shareholder shall reasonably request.

     

    8.4           Consents,
Permits and Waivers.  Any and all consents, permits,
authorizations, approvals and waivers, from and of applicable governmental or
regulatory bodies and other third persons, that are necessary or appropriate for
consummation of the transactions contemplated by the First Closing shall have
been obtained (except for such as may be properly obtained subsequent to the
First Closing).

     

    8.5           Shareholder
Agreement.  Parent shall have
executed the Shareholder Agreement.

     

    8.6           Employment
Agreements.  Acquirer shall have executed the Employment
Agreement with Shareholder and Acquirer and each of Carl Kukkonen and Stephen
Muzi, respectively, shall have executed an Employment Agreement.

     

    
      
         

      

      
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    SECTION
9

    CONDITIONS TO
SHAREHOLDER’S OBLIGATIONS AT SECOND
CLOSING

     

    The
obligations of Shareholder at the Second Closing are subject to the fulfillment
or waiver, on or before the Second Closing, of each of the following
conditions:

     

    9.1           Representations
and Warranties.  The representations and warranties made by
Parent and Acquirer in Section 5 hereof shall have been true and correct as of
the Second Closing Date.

     

    9.2           Performance
of Obligations; Consents and Waivers.  Each VIASPACE Entity
shall have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Second Closing Date.

     

    9.3           Corporate
Documents.  Parent shall have delivered to Shareholder or its
counsel, copies of all corporate documents of each VIASPACE Entity as
Shareholder shall reasonably request.

     

    9.4           Consents,
Permits and Waivers.  Any and all consents, permits,
authorizations, approvals and waivers, from and of applicable governmental or
regulatory bodies and other third persons, that are necessary or appropriate for
consummation of the transactions contemplated by the Second Closing shall have
been obtained (except for such as may be properly obtained subsequent to the
Second Closing).

     

    9.5           Cash
Payment.  Parent shall have obtained funds for the Cash
Payment, and shall have notified Shareholder in writing at least 7 days prior to
the Second Closing Date that such funds have been obtained and are ready for
transfer to Shareholder.

     

    SECTION
10

    COVENANTS

     

    10.1           Registration.

     

    (a)           Within
150 days of the Closing, Acquirer shall prepare and file with the U.S.
Securities and Exchange Commission (“SEC”) a registration statement covering the
resale of all or such maximum portion of Acquirer common stock issued pursuant
to Sections 1 and 2 of this Agreement as permitted by SEC regulations
(“Registration Statement”) that are not then registered on an effective
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415.  Alternatively, Acquirer shall register its common stock
on a registration statement on Form 10.

     

    (b)           Subject
to the terms of this Agreement, Acquirer shall use its best efforts to cause a
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof.

     

    
      
         

      

      
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    (c)           Acquirer
shall use its best efforts to qualify its Common Stock for quotation on a
Trading Market (as defined below) as soon as practicable, but in no event later
than the 240th day after the closing of this Agreement or the 90th   day
after the effectiveness of the Registration Statement on Form S-1 registering
some or all of Acquirer Common Stock or on Form 10 (such date, the “Reporting
Date” and such event, the “Liquidity Event”); provided, that if (i) there is
material non-public information regarding Acquirer which the Board of Directors
reasonably determines not to be in Acquirer's best interest to disclose and
which Acquirer is not otherwise required to disclose, or (ii) there is a
significant business opportunity (including, but not limited to, the acquisition
or disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
Acquirer which the Board of Directors reasonably determines not to be in
Acquirer's best interest to disclose, then Acquirer may postpone the Reporting
Date for a period not to exceed thirty (30) consecutive
days.   “Trading Market”  means the following markets
or exchanges on which Acquirer Common Stock is listed or quoted for trading on
the date in question: the American Stock Exchange, the Nasdaq Capital Market,
the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock
Exchange, the OTC Bulletin Board or Pink Sheets.  The Reporting Date
shall be extended that number of days for (i) any banking or trading market
moratorium, declared either by the United States or California State
authorities, any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market; or (ii) any period of time
during which FINRA reviews a Form 211 application, including any amended
applications, with respect to Acquirer submitted by a market maker.

     

    10.2           Shareholder
Rights
Upon Failure to Close.  In the event that
the Second Closing fails to occur and Parent’s closing conditions to the Second
Closing as set forth in Sections
7.1 through 7.7, 7.9 and 7.10 have been satisfied, and

     

    (a)           Acquirer’s
common stock is listed on a Trading Market within 240 days after the First
Closing Date, then Shareholder and/or his designees shall retain the Acquirer
Shares and Parent shall transfer all shares of Acquirer common stock it holds to
Shareholder.

     

    (b)           Acquirer’s
common stock is not listed on a
Trading Market within 240 days after the First Closing Date, then Shareholder
shall retain the Parent Shares.

     

    10.3           Non-Competition.  In
the event that the Second Closing fails to occur, none of the VIASPACE Entities
or their affiliates, or any of their directors or officers, shall engage in the
Grass Business for a period of three years after the First Closing
Date.

     

    10.4           Shareholder
Rights After
Second Closing.  Provided that the Second Closing has occurred,
if Acquirer common stock is not listed on a
Trading Market within 240 days after the First Closing Date, then Parent will
issue to Shareholder the number of shares of its common stock equivalent to
US$5,600,000. The stock price will be calculated as the average closing price of
Parent’s common stock during the 60 day period prior to and including the Second
Closing Date.  In exchange, Shareholder shall return all shares of
Acquirer common stock it received pursuant to this Agreement to
Parent

     

    10.5           Land
Availability.   Licensor
and Shareholder each represents and covenants that at least 100 hectares of
arable land in Guangdong province in the PRC will be available for grass farming
by Target within 12 months after the First Closing Date.  Any
agreement regarding such land use rights shall grant the land use rights to
Target, but shall be assignable to Acquirer at Acquirer’s option.  The
term of such agreement, including possible renewals, shall be at least 10
years.

     

    
      
         

      

      
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    10.6           Licensor
Agreement.  Licensor covenants that Licensor shall use best
commercial efforts, and shall pay all required fees, to insure that the Licensor
Agreement remains in full force and effect through the Second
Closing.

     

    10.7           Grass
License.  Licensor and Shareholder each covenants to use best
commercial efforts, and each shall pay all required fees, to insure that the
Licensor Agreement and the Grass License each remains in full force and effect
through the Second Closing.

     

    10.8           Approval
of IPA China Equity Assignment.  As promptly as possible,
Shareholder shall obtain approval by the relevant government authorities for the
transfer of 100% of the equity interests of IPA China to IPA
BVI.  Prior to obtaining such approval, Shareholder shall hold such
equity interests in trust for the benefit of IPA BVI.

     

    10.9           Acquirer
Organization

     

    (a)           Designation of Share
Certificate Holders.  Shareholder and Licensor may request that
any share certificates issued under this Agreement be issued in the name of
persons as Shareholder or Licensor may designate, provided that such persons
shall provide such representations and warranties regarding such shares as may
be required by Parent or Acquirer.

     

    (b)           Stock
Options.  Acquirer shall establish a stock option plan (the
“Option Plan”)
and shall reserve 1,400,000 shares of common stock for issuance of options to
Acquirer management and employees under the Option Plan.

     

    (c)           Management.  Carl
Kukkonen will be the Chief Executive Officer of Acquirer upon the First Closing,
and of IPA BVI and IPA China upon the Second Closing; Stephen Muzi will be the
Chief Financial Officer, Treasurer and Secretary of Acquirer upon the First
Closing, and of IPA BVI and IPA China upon the Second
Closing.   Shareholder will be President of IPA BVI and IPA China
upon the First Closing, and of Acquirer upon the Second Closing.  Wang
will be Managing Director of Grass Development of IPA China upon the First
Closing.  Shareholder shall manage and control the operations of IPA
China and IPA BVI through the Second Closing.

     

    (d)           2007 and 2006
Audit.  Shareholder will fully cooperate with and use best
efforts to cause IPA China and IPA BVI to undertake an audit of their financial
condition based on GAAP for the years ended December 31, 2007 and 2006, , and to
complete such audits - as soon as practicable after the First Closing and
promptly deliver copies of the audited financial statements to
Parent.  Target will, in addition, provide to Parent quarterly
financial statements within thirty (30) days following the completion of each of
its first three fiscal quarters for both the current fiscal year and the fiscal
year immediately preceding.

     

    (e)           Internal
Controls.  Each Target  shall establish and maintain
a system of internal accounting and other controls sufficient to provide
reasonable assurances that: (i) access to assets is permitted only in accordance
with management’s general or specific authorization, and (ii) the recorded
accounting for assets is compared with existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.

     

    
      
         

      

      
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    10.10                 Indemnification.

     

    (a)           Each
of Shareholder and Licensor, severally but not jointly, agrees to indemnify and
hold harmless each VIASPACE Entity (and its respective directors, officers,
affiliates, agents, employees, consultants, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys’ fees, charges and
disbursements) incurred by such VIASPACE Entity as a result of any inaccuracy of
the representations or warranties or breach of covenants by Shareholder or
Licensor, respectively, herein.   

     

    (b)           Each
VIASPACE Entity agrees, severally but not jointly, to indemnify and hold
harmless Shareholder and Licensor and its directors, officers, affiliates,
agents, employees, consultants, successors and assigns from and against any and
all losses, liabilities, deficiencies, costs, damages and expenses (including,
without limitation, reasonable attorneys’ fees, charges and disbursements)
incurred by Shareholder and Licensor as a result of any inaccuracy of the
representations or warranties or breach of covenants by such VIASPACE Entity
herein.

     

    (c)           Any
party claiming to be entitled to indemnification under this section (an
“indemnified party”) will give written notice to the indemnifying party of any
matter giving rise to a claim for indemnification; provided, that the failure of
any party entitled to indemnification hereunder to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
section, except to the extent that the indemnifying party is actually prejudiced
by such failure to give notice.  In case any such action, proceeding
or claim is brought against an indemnified party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled to
participate in and, unless in the reasonable judgment of the indemnifying party
a conflict of interest between it and the indemnified party exists with respect
to such action, proceeding or claim (in which case the indemnifying party shall
be responsible for the reasonable fees and expenses of one separate counsel for
the indemnified parties), to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party.  In the event that the
indemnifying party advises an indemnified party that it will not contest such a
claim for indemnification hereunder, or fails, within thirty (30) days of
receipt of any indemnification notice to notify, in writing, such person of its
election to defend, settle or compromise, at its sole cost and expense, any
action, proceeding or claim (or discontinues its defense at any time after it
commences such defense), then the indemnified party may, at its option, defend,
settle or otherwise compromise or pay such action or claim.  In any
event, unless and until the indemnifying party elects in writing to assume and
does so assume the defense of any such claim, proceeding or action, the
indemnified party’s costs and expenses arising out of the defense, settlement or
compromise of any such action, claim or proceeding shall be losses subject to
indemnification hereunder.  The indemnified party shall cooperate
fully with the indemnifying party in connection with any negotiation or defense
of any such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the indemnified party
which relates to such action or claim.  The indemnifying party shall
keep the indemnified party fully apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto.  If the
indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense.  The indemnifying party
shall not be liable for any settlement of any action, claim or proceeding
effected without its prior written consent.  Notwithstanding anything
in this Section 8.5 to the contrary, the indemnifying party shall not, without
the indemnified party’s prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the indemnified party or which does not include, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
indemnified party of a release from all liability in respect of such
claim.    The indemnity agreements contained herein shall be
in addition to (a) any cause of action or similar rights of the indemnified
party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.  No
indemnifying party will be liable to the indemnified party under this Agreement
to the extent, but only to the extent, that a loss, claim, damage or liability
is attributable to the indemnified party’s breach of any of the representations,
warranties or covenants made by such party in this Agreement or in the other
Transaction Documents.

     

    
      
         

      

      
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    10.11                 Gross
Profit-Based Calculation and Payment. 

     

    (a)           As
promptly as possible following the Second Closing, IPA BVI and IPA China shall
prepare, and its independent outside auditors (“Auditors”) acceptable
to Acquirer and Shareholder shall review, the IPA BVI and IPA China financial
statements for the 2008 fiscal year, copies of which shall be delivered to
Shareholder and Acquirer (“2008 Financial
Statements”).

     

    (b)           Shareholder
and his auditors shall have the right to examine the work papers of the Auditors
utilized in preparing the 2008 Financial Statements, and shall have full access
to the books, records, properties and personnel of IPA BVI and IPA China for
purposes of verifying the accuracy and fairness of the presentation of the 2008
Financial Statements.

     

    (c)           The
values or amounts for each item reflected on the 2008 Financial Statements shall
be binding upon Shareholder, unless Shareholder timely delivers a written notice
of disagreement within 15 days of his receipt of the 2008 Financial Statements
reasonably describing the extent and nature of such disagreement (“Dispute
Notice”).  If Acquirer and Shareholder are unable to resolve
any such disagreement within 15 days after the date of the Dispute Notice, the
disagreement shall be submitted to another independent auditor acceptable to
Shareholder and Acquirer.  If Shareholder and Acquirer are unable to
select such auditor, then Shareholder and Acquirer shall each select an
independent auditor who shall select such  auditor.  If such
auditor determines that any amount shown in the 2008 Financial Statements is
erroneous, such erroneous amount shall be deleted from the 2008 Financial
Statements and the correct amount as determined by such auditor shall be
inserted in lieu thereof.  The 2008 Financial Statements, as so
corrected, shall constitute the 2008 Financial Statements for purposes of this
Agreement.

     

    (d)           immediately
upon the expiration of the 15-day period for giving the Dispute Notice, if no
Dispute Notice is given, or immediately upon the resolution of disputes, if the
Gross Profit (as defined below) ) as indicated in the 2008 Financials Statements
is less than $1,500,000, then Shareholder will compensate the difference to
Acquirer in cash promptly by depositing such cash into Acquirer’s bank
accounts.  “Gross Profit” is defined as gross sales revenue of IPA BVI
and IPA China less all costs directly related to sales determined in accordance
with GAAP.

     

    
      
         

      

      
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    10.12                 Books
and
Records.  From the date of this Agreement and until the Second
Closing, Shareholder will cause each Target will keep true records and books of
account in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent
basis.

     

    10.13                 Governmental
Authorities.   From the date of this Agreement and until
the Second Closing, Shareholder will cause each Target shall duly observe and
conform in all material respects to all valid requirements of governmental
authorities relating to the conduct of its business or to its properties or
assets.

     

    10.14                 Intellectual
Property.  From the date of this Agreement and until the Second
Closing, Shareholder will cause each Target shall maintain in full force and
effect its corporate existence, rights and franchises and all licenses and other
rights to use intellectual property owned or possessed by it and reasonably
deemed to be necessary to the conduct of its business.

     

    10.15                 Properties.  From
the date of this Agreement and until the Second Closing, Shareholder will cause
each Target will keep its properties in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
necessary and proper repairs, renewals, replacements, additions and improvements
thereto; and each Target will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could reasonably be expected to have a Material Adverse
Effect.

     

    10.16                 Bank
Signatories.  After the Second Closing, each Target shall cause
Carl Kukkonen to be added as a signatory authority to all bank accounts,
including without limitation, those located in the PRC and Taiwan.

     

    10.17                 Permit
Transfer. Any transferable
licenses held by Shareholder related to either Target or the business in
connection with the Grass License or Grass Assignment shall be transferred to
Acquirer after the Second Closing.

     

    10.18                 Asset
Disposition.  Prior
to the Second Closing, it is required that Parent obtain Shareholder’s prior
written approval in order to cause Acquirer to issue any shares of Acquirer
common stock.  Prior to the Second Closing, Target may not sell,
transfer, pledge, mortgage any of its assets and properties, except in the
ordinary course of business, without the unanimous written consent of the Board
of Directors of Acquirer.

     

    10.19                 Customers.  Each
Target shall cause each current customer of the Grass Business and the artworks
business to maintain its business relations with the Target such that it shall
continue to purchase products and services from the Targets.

     

    10.20                 Acquirer
Loan.  At any time after the First Closing and prior to the
Second Closing, Shareholder may request Acquirer to grant a non-recourse loan to
Shareholder of up to One Million Five Hundred Thousand U.S. dollars
($1,500,000).  After obtaining such funds from IPA BVI or IPA China,
Acquirer shall deliver the loan proceeds within ten (10) days after receipt of
any such written request.  Interest on the loan shall accrue at six
percent (6%) per annum and all principal and interest shall be due and payable
when and if Acquirer files the registration statement described in Section
10.1(a) or the Second Closing occurs, whichever is first.  The loan
shall be evidenced by a promissory note to be made by Shareholder in favor of
Acquirer, with such additional terms and conditions as may be reasonably
requested by Acquirer.

     

    
      
         

      

      
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    10.21                 Further
Assurances.  At any time and from time to time after either
Closing, at Parent’s or Acquirer’s request and without further consideration,
Shareholder shall promptly execute and deliver such instruments of sale,
transfer, conveyance, assignment and confirmation, and take all such other
action as Parent or Acquirer may reasonably request to carry out the purpose and
intent of this Agreement and the Transaction Documents.

     

    10.22                 IPA BVI
Stock Certificate.  Shareholder shall cause a share certificate
in Acquirer’s name representing 70% of the capital stock of IPA BVI to be
delivered to Acquirer on or within ten days after the First
Closing.

     

    SECTION
11

    RESTRICTIONS ON
TRANSFERABILITY OF SECURITIES

     

    11.1           Restrictions
on
Transferability.  The
Securities shall not be transferable except upon the conditions specified in
this Section 9.  Each VIASPACE Entity will cause any proposed
transferee of the Securities held by such party to agree to take and hold such
Securities subject to the provisions and upon the conditions specified in this
Section 9 and in accordance with applicable U.S. federal securities
laws.

     

    11.2           Restrictive
Legends.  Each certificate representing the Securities, and any
other securities issued in respect of the Securities upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event (except as
otherwise permitted by the provisions of this Section 9), shall be stamped or
otherwise imprinted with legends specified in Section 4.4 together with any
other legends required by applicable securities laws.

     

    11.3           Removal
of Legend and Transfer Restrictions.  Any legend endorsed on a
certificate pursuant to subsection 9.2 and the stop transfer instructions with
respect to such legended Securities shall be removed, and VIASPACE Entity shall
issue a certificate without such legend to the holder of such Securities (i)
pursuant to a registration statement under the Securities Act, or (ii) six (6)
months after issuance pursuant to Rule 144.

     

    11.4           Sale of
Parent and Acquirer
Shares.  Prior to the Second Closing, Shareholder shall not
sell, pledge, hypothecate or other transfer any of the Acquirer Shares or the
Parent Shares and Licensor shall not sell, pledge, hypothecate or other transfer
any of the First Closing Licensor Shares.

     

    SECTION
12

    MISCELLANEOUS

     

    12.1           Entire
Agreement; Amendment.  This Agreement and the exhibits to this
Agreement constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof, and any and all other
written or oral agreements relating to the subject matter hereof existing
between the parties hereto are expressly superseded hereby.  Any term
of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of
Shareholder and Licensor on the one hand, and Parent on the other
hand.  Any amendment or waiver effected in accordance with this
Section 9.1 shall be binding upon each party and each future holder of the
securities purchased hereunder.

     

    
      
         

      

      
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    12.2           Governing
Law.  This Agreement shall be deemed to have been executed and
delivered in California and both this Agreement and the transactions
contemplated hereby shall be governed as to validity, interpretation,
construction, effect, and in all other respects by the laws of California,
without regard to the conflicts of laws principals thereof.  Each of
Shareholder, Licensor, Parent and Acquirer irrevocably submits to the exclusive
jurisdiction of the courts of the State of California located in Los Angeles
County and the United States District Court for the Central District of
California for the purpose of any suit, action, proceeding or judgment relating
to or arising out of this Agreement and the transactions contemplated
hereby.  Service of process in connection with any such suit, action
or proceeding may be served on each party hereto anywhere in the world by the
same methods as are specified for the giving of notices under this
Agreement.  Each of the parties hereto irrevocably consents to the
jurisdiction of any such court in any such suit, action or proceeding and to the
laying of venue in such court.  Each party hereto irrevocably waives
any objection to the laying of venue of any such suit, action or proceeding
brought in such courts and irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.  EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO
REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND
REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS
WAIVER.

     

    12.3           Survival.  Unless
otherwise set forth in this Agreement, the representations, warranties,
covenants and agreements made herein shall survive the execution and delivery of
this Agreement and the Closing for a period of eighteen (18) months as from the
Closing; provided however, that representations in Sections 3.1 through 3.6,
Section 4, and Section 5.1 through 5.4 shall survive
indefinitely.  The provisions of Sections 10.2, 10.3 and 10.10 shall
survive termination of this Agreement.

     

    12.4           Successors and
Assigns.  Except as otherwise provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties
hereto.  Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations or liabilities under or
by reason of this Agreement, except as expressly provided in this
Agreement.

     

    12.5           Notices,
Etc.  All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
(i) upon actual delivery to the party to be notified, (ii) 24 hours after
confirmed facsimile or e-mail transmission, or (iii) two business days after
deposit with a recognized overnight courier, addressed at such party’s address
set forth on the signature page, or at such other address as such party shall
have furnished to Shareholder and Parent in writing upon 10 days’
notice.

     

    12.6           Counterparts.  This
Agreement may be executed in any number of counterparts, each of which shall be
enforceable against the parties actually executing such counterparts, and all of
which together shall constitute one instrument.

     

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

    12.7           Titles
and Subtitles; References.  The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.  All references in this
Agreement to sections, paragraphs, exhibits and schedules shall, unless
otherwise provided, refer to sections and paragraphs hereof and exhibits and
schedules attached hereto, all of which exhibits and schedules are
incorporated herein by this reference.

     

    12.8           Severability.  If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, the parties agree to renegotiate such provision in good
faith.  In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then such provision(s)
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be
enforceable in accordance with its terms.

     

    12.9           Expenses.  Each
party shall initially bear their respective expenses and legal fees incurred in
connection with the negotiation and consummation of this Agreement.

     

    12.10                 Attorney
Fees.  Notwithstanding any other provision herein, if any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement or the exhibits hereto, the prevailing party shall be entitled to
reasonable attorneys’ fees, costs and disbursements in addition to any other
relief to which such party may be entitled.

     

    12.11                 Remedies.  In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each party will be entitled to specific
performance of each other’s obligations under the Transaction
Documents.  The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agree to waive in any
action for specific performance of any such obligation the defense that a remedy
at law would be adequate.

     

    12.12                 Independent
Nature of
Parties’ Obligations and Rights.  The obligations of each party
under any Transaction Document is several and not joint with the obligations of
any other party and no party shall be responsible in any way for the performance
of the obligations of any other party under any Transaction
Document.  Nothing contained herein or in any Transaction Document,
and no action taken by any party pursuant thereto, shall be deemed to constitute
any of the parties as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the parties are in any way
acting in concert with respect to such obligations or the transactions
contemplated by the Transaction Document.  Each party shall be
entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other party to be
joined as an additional party in any proceeding for such
purpose.  Each party has been represented by its own separate legal
counsel in their review and negotiation of the Transaction
Documents.

     

    

     

    

     

    [signature
page follows]

     

    

    
      
         

      

      
        30

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, the parties hereto have executed this Securities Purchase
Agreement as of the date first set forth above.

     

    VIASPACE
INC.

    

    

    By:  /s/ Carl
Kukkonen                                           

    
      Carl
Kukkonen, Chief Executive Officer

    

    

    

    VIASPACE
Green Energy Inc.

    

    

    By:  /s/ Carl
Kukkonen                                                             

    Carl
Kukkonen, Chief Executive Officer

    

    

    /s/ Sung Hsien
Chang                                           

    
      SUNG
HSIEN CHANG

    

    

    

    China
Gate Technology Co., Ltd.

    

    By:  /s/ Ko-Hung
Wang                                               

    
      Ko-Hung
Wang (Maclean Wang), 

      Chief
Executive Officer

    

    

    

    

    

    31

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