Document:

EXHIBIT 10.78

 

 

SUBLICENSE AGREEMENT

 

 

 

BIODIESEL VENTURE, L.P.

AND

EARTH BIOFUELS, INC.

 

APRIL 1, 2006

 

 

SUBLICENSE
AGREEMENT

TABLE OF CONTENTS

	
  1.

  	
   

  	
  Sublicense Grant

  	
   

  	
  1

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Representations
  and Warranties

  	
   

  	
  2

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  No Assignment or
  Sublicensing

  	
   

  	
  3

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Term and
  Termination

  	
   

  	
  3

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Payments

  	
   

  	
  5

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Statements and
  Payments

  	
   

  	
  8

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  Audit;
  Inspections

  	
   

  	
  9

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  Quality,
  Approvals; Samples; Right to Use; Sublicensee Restrictions

  	
   

  	
  9

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  Required
  Markings

  	
   

  	
  12

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  Ownership of
  Mark

  	
   

  	
  13

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
   

  	
  Trademark and
  Copyright Protection and Infringements

  	
   

  	
  13

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
   

  	
  Indemnification

  	
   

  	
  14

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
   

  	
  Insurance

  	
   

  	
  15

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
   

  	
  Notices

  	
   

  	
  16

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
   

  	
  Relationship of
  the Parties

  	
   

  	
  17

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
   

  	
  Choice of Laws

  	
   

  	
  17

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
   

  	
  Waiver

  	
   

  	
  17

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
   

  	
  Severability

  	
   

  	
  17

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.

  	
   

  	
  Headings

  	
   

  	
  18

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  20.

  	
   

  	
  Revocation of
  Prior Agreements

  	
   

  	
  18

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  21.

  	
   

  	
  Third-Party
  Beneficiaries

  	
   

  	
  18

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  22.

  	
   

  	
  Counsel

  	
   

  	
  18

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  23.

  	
   

  	
  Incorporation

  	
   

  	
  18

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  24.

  	
   

  	
  Counterparts

  	
   

  	
  18

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  25.

  	
   

  	
  Binding Effect;
  Successors and Assigns

  	
   

  	
  18

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  26.

  	
   

  	
  Injunctive
  Relief

  	
   

  	
  19

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  27.

  	
   

  	
  Defined Terms

  	
   

  	
  19

  	
   

  

 

 i

SUBLICENSE AGREEMENT

This SUBLICENSE AGREEMENT
(this “Agreement”), dated this 1st day of April, 2006 (the “Effective Date”), is entered into by and between BIODIESEL VENTURE, L.P.,
a Texas limited partnership (“Venture”),
and EARTH BIOFUELS,
INC., a Delaware corporation (“Sublicensee”).

R E C I T A L S:

WHEREAS, Venture is a
licensee of certain rights in the Mark (as defined below) pursuant to the
Master License (as defined below);

WHEREAS, Sublicensee has
experience in distributing for resale (i) agricultural based so-called “biodiesel”
fuel, and (ii) blends of petrochemical petroleum fuel (“Petroleum
Fuel”) with such agricultural based so-called “biodiesel fuel”; and

WHEREAS, Sublicensee desires
to obtain, and Venture is willing to grant to Sublicensee, the right to use the
Mark during the Term (as defined below) and within the Territory (as defined
below), pursuant to the terms and conditions of this Agreement, solely in order
to Distribute (as defined below) Biodiesel Fuel (as defined below).

NOW, THEREFORE, in
consideration of the mutual promises, covenants and conditions contained
herein, it is hereby agreed as follows:

1.             Sublicense Grant.

(a)           Grant.
Subject to the terms and conditions hereof, Venture hereby grants to
Sublicensee, and Sublicensee hereby accepts, for the Term and within the
Territory, the right and license to use the Mark for the sole, distinct and
limited purposes of Distributing Biodiesel Fuel (the “Sublicense”).

(b)           Promotional
Use of Mark. Subject to such restrictions (i) as may be set forth in
the Master License, or (ii) as may be provided to Sublicensee by Venture from
time to time during the Term, Sublicensee may use the Mark to advertise and
promote Biodiesel Fuel during the Term in electronic, print, broadcast or other
media throughout the Territory; provided,
however, Sublicensee shall have first obtained the prior written approval of
Venture, which shall be subject in all respects to the approval of Owner (as
defined below) under the Master License, with respect to each such use (the “Promotional Uses”).

(c)           Owner
Identification. Unless otherwise specifically approved in writing by
Venture (which approval may be given or withheld in its Sole Discretion and
which shall be subject in all respects to the approval of Owner under the Master
License) in advance and with respect to each particular use (and terms and
conditions thereof) on a case by case basis, Sublicensee shall have no right to
use, display, perform, sublicense, reproduce or otherwise exploit, in any
manner or in any media, the Owner Identification (as defined below).

(d)           No
Denigration. Sublicensee shall not denigrate, permit, allow or cause
the denigration of, the Mark or the Owner Identification, and shall not take
any other action not 

 

approved by Venture as provided herein (which
shall be subject in all respects to the approval of Owner under the Master
License) that is harmful or potentially harmful to or which disparages,
ridicules or demeans the goodwill, honor and reputation of Venture, Venture’s
Affiliates, Owner, Owner’s Affiliates, the Mark or the Owner Identification.

(e)           Exclusivity.
Notwithstanding anything contained herein to the contrary but subject
notwithstanding to Section 8(j) hereof, during the Term and within the
Territory, Venture covenants and agrees that it shall not grant to any other
Person, other than Sublicensee, the right to use the Mark in order to
Distribute biodiesel fuel (in pure form or blended in any concentration with
Petroleum Fuel).

2.             Representations
and Warranties.

(a)           Venture.
Venture represents, warrants and covenants to Sublicensee, as of the Effective
Date, that:

(i)            Venture is a licensee of the Mark
pursuant to the Master License;

(ii)           Subject to the provisions of this
Agreement, Venture has the right to grant the Sublicense when approved as
provided herein;

(iii)          to the best of Venture’s knowledge, no
registered United States intellectual property right of any third parties will
be infringed or otherwise violated by Sublicensee’s use of the Mark in strict
accordance with the terms of this Agreement;

(iv)          Venture has not granted to any third
parties any rights that would preclude Venture from granting the right to use
the Mark within the Territory as provided herein; and

(v)           this Agreement has been duly executed
and delivered by Venture.

(b)           Sublicensee.
Sublicensee represents, warrants and covenants to Venture and Owner that:

(i)            Sublicensee is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and is, and shall remain, duly qualified and in good standing in
each jurisdiction in which the nature of its business requires, or in the
future shall require it to be so qualified;

(ii)           Sublicensee has the power and
authority to own its property and assets, to conduct its business as it is now
being conducted and to execute and deliver this Agreement and to perform the
transactions contemplated hereby;

(iii)          no consent of or other action by, and
no notice to or filing with, any governmental agency is required for the
execution, delivery and performance by Sublicensee of this Agreement;

(iv)          this Agreement has been duly executed
and delivered on behalf of Sublicensee;

 2
 

 

 

(v)           this Agreement, and each provision
hereof, is the legal, valid and binding obligation of Sublicensee enforceable
against Sublicensee in accordance with its terms;

(vi)          Sublicensee shall comply with all
Applicable Laws (as defined below) governing the distribution, sale, promotion,
marketing and advertisement of Biodiesel Fuel;

(vii)         Sublicensee has obtained and shall
maintain at all times during the Term all licenses, permits, orders,
authorizations and approvals that are required under any governmental law or
regulation in connection with Sublicensee’s business activities and properties;
and

(viii)        the execution, delivery and performance
of this Agreement (A) have been duly authorized by all necessary action on the
part of Sublicensee; (B) do not contravene or cause Sublicensee to be in
default of any contractual or other restriction contained in any agreement or instrument
binding on, applicable to or affecting Sublicensee or its property or assets or
any law, rule, regulation, order, writ, judgment, award, injunction or decree
binding on, applicable to or affecting Sublicensee or its property or assets;
and (C) do not result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the properties or assets of
Sublicensee.

3.             No Assignment or
Sublicensing. Sublicensee shall not have the right to assign this
Agreement (by operation of law, change of control, merger or otherwise) or to
assign, dispose, mortgage transfer, pledge, encumber or sublicense (or permit
any of the foregoing, whether voluntarily or involuntarily) any of its rights
hereunder without the prior written approval of Venture (which approval shall
be subject in all respects to the approval of Owner under the Master License),
which Venture may withhold at its Sole Discretion.

4.             Term and
Termination.

(a)           Term.
Unless terminated pursuant to Sections 4(b) or 4(c) hereof, the initial term of
this Agreement shall commence as of the Effective Date and shall continue for a
period of two (2) years therefrom (the “Initial Term”).
Thereafter, Sublicensee shall have the right to renew this Agreement upon
written notice given to Venture no later than ninety (90) days prior to the
expiration of the Initial Term (or any, if any, Renewal Terms, as applicable)
for a total of four (4) additional periods of two (2) years each (each, a “Renewal Term,” and together with the Initial
Term, collectively, the “Term”); provided, however,
any and all such renewals shall be subject to, as of the commencement of each
Renewal Term, (i) Sublicensee not then being in breach of this Agreement, and
(ii) all accrued but unpaid Agreement Payments (as defined in Section 7(a)
below) due or outstanding as of such renewal having been paid in full.

(b)           Termination.

(i)            Breach — No
Cure. Without limitation of any other rights or remedies available
at law or in equity, Venture shall have the right (but not the obligation) to
terminate this Agreement by written notice effective immediately upon the
giving of such notice, without the opportunity to cure provided in Section
4(b)(ii) below, in the event that:

(1)           Sublicensee is dissolved;

 3
 

 

 

(2)           Sublicensee files a petition in
bankruptcy, is adjudicated as bankrupt or insolvent, makes a general assignment
for the benefit of creditors, discontinues its business or if a receiver,
trustee or custodian is appointed for Sublicensee (or Sublicensee’s business)
which receiver, trustee or custodian is not discharged within thirty (30) days
of appointment;

(3)           Sublicensee sells, transfers, leases
or otherwise disposes of all or substantially all of its assets;

(4)           Sublicensee fails to pay its debts as
they become due;

(5)           A Change of Control of Sublicensee
occurs (for purposes hereof, the term “Change of
Control” shall mean that Apollo Resource Intl., Blue Wireless &
Data Inc. and Dennis McLaughlin shall fail at any time to collectively own,
directly or indirectly, less than 51% of each class of outstanding voting stock
of Sublicensee);

(6)           Sublicensee materially breaches any
of the terms or conditions of this Agreement (a “Material
Breach”). For avoidance of doubt, and without limitation of any
other potential breaches that may be deemed a Material Breach of this
Agreement, any breach by Sublicensee of any provision found in Sections 1, 3,
5, 6, 7, 8 and 13 hereof shall constitute a Material Breach of this Agreement;

(7)           the Biodiesel Fuel sold by
Sublicensee fails to meet the requirements of Section 8(h) hereof;

(8)           Sublicensee pledges or grants a
security interest in all or any part of this Agreement as collateral or
security for any liability or indebtedness of Sublicense or any other Person;
or

(9)           Sublicensee, either directly or
indirectly (including, without limitation, through its agents) engages, or
attempts to engage, in the sale or distribution of biodiesel fuel other than
the Biodiesel Fuel in contravention of Section 8(k) hereof.

(ii)           Breach — Seven
Day Cure. Without limitation of any other rights or remedies
available at law or in equity, in the circumstances set forth in this Section
4(b)(ii), Sublicensee must commence and complete the cure of the applicable
breach as soon as possible, but in no event later than seven (7) days after
Venture’s notice of breach, or Venture shall have the right (but not the
obligation) to terminate this Agreement, in the event that:

(1)           Sublicensee is subject to any
voluntary order of any government agency involving the safety, health or other
hazards or risks to the public;

(2)           Sublicensee breaches any provision of
this Agreement not constituting a Material Breach; or

(3)           Sublicensee distributes or sells
defective Biodiesel Fuel without taking steps reasonably to correct or repair
the defect immediately upon the earlier to occur of (a) 

 4
 

 

receipt of notice of the defect by Venture,
or (b) Sublicensee’s otherwise becoming aware of such defect.

(c)           Additional
Rights to Terminate.

(i)            Required to
Terminate. Sublicensee acknowledges and agrees that Venture may at
anytime during the Term terminate this Agreement in the event (A) Venture is
required to do so by law, or (B) the Master License terminates (for any
reason), and in either case, Sublicensee acknowledges that such termination
shall not constitute a breach of this Agreement.

(ii)           Owner Rights.
Without limitation of any other rights or remedies at law or in equity,
Sublicensee acknowledges and agrees that Owner shall have the right (but not
the obligation), acting on behalf of Venture, to directly terminate this
Agreement by written notice to Sublicensee effective immediately upon the
giving of such notice, in the event that Sublicensee breaches the terms of this
Agreement and Venture fails to exercise its rights to terminate this Agreement
in accordance with its terms.

(d)           Effect of
Termination. Upon termination or expiration of this Agreement, all
rights herein granted shall immediately and without further notice terminate
and revert to Venture. Not in limitation of the foregoing, Sublicensee shall
immediately discontinue all use of the Mark and any items confusingly similar
thereto, and destroy all printed materials bearing the Mark. Sublicensee
acknowledges all rights, title and interests in and to the Mark and the
goodwill associated therewith shall remain the sole and exclusive property of
Owner (subject to Venture’s express rights pursuant to the Master License) and
that Sublicensee shall have no right to use the Mark or any derivations
thereof, subsequent to the expiration or termination of this Agreement

5.             Payments.

(a)           Advance
Payments.

(i)            Advance
Payments Directly to Venture. For each Contract Year of the Term
hereof, Sublicensee agrees that it will pay directly to Venture, an amount
equal to One Hundred Fifty Thousand Dollars ($150,000), which amount shall be
payable in equal monthly payments of Twelve Thousand Five Hundred Dollars
($12,500.00) each (the “Venture Advance Payments”).
Venture Advance Payments shall be due and payable in full and in readily
available funds on the first day of each calendar month during the Term hereof.

(ii)           Advance
Payments Directly to Owner. For each Contract Year of the Term
hereof and in addition to the payments of the Venture Advance Payments,
Sublicensee agrees that it will pay directly to Owner, an amount equal to One
Hundred Fifty Thousand Dollars ($150,000), which amount shall be payable in
equal monthly installments of Twelve Thousand Five Hundred Dollars ($12,500.00)
each (the “Owner Advance Payments”). Owner
Advance Payments shall be due and payable in full and in readily available
funds on the first day of each calendar month during the Term hereof.

 5
 

 

 

(b)           Royalty
Payments.

(i)            Royalty
Payments to Venture. Throughout the Term hereof, Sublicensee agrees
that it will pay to Venture, without offset or deduction of any kind or nature
whatsoever, as royalty payments (collectively, the “Venture
Royalty Payments”), one cent ($.01) per gallon of Biodiesel Fuel
Distributed by Sublicensee or any of its Affiliates; provided,
however, that for each calendar month
during the Term hereof, the first Twelve Thousand Five Hundred Dollars
($12,500.00) of such Venture Royalty Payments for such month shall be offset
and reduced by that month’s Venture Advance Payment actually paid to Venture
for such month. Venture Royalty Payments shall be paid monthly as provided for
in Section 6(b) below.

(ii)           Royalty
Payments to Owner. Throughout the Term hereof, in addition to the
Venture Royalty Payments, Sublicensee agrees that it will pay directly to
Owner, without offset or deduction of any kind or nature whatsoever, as royalty
payments (collectively, the “Owner Royalty Payments”),
one cent ($.01) per gallon of Biodiesel Fuel Distributed by Sublicensee or any
of its Affiliates; provided, however, that for each calendar month during the
Term hereof, the first Twelve Thousand Five Hundred Dollars ($12,500.00) of
such Owner Royalty Payments for such month shall be offset and reduced by that
month’s Owner Advance Payment actually paid to Owner for such month. Owner
Royalty Payments shall be paid monthly as provided for in Section 6(b) below.

(c)           Increase in
Payments. Simultaneously with the commencement of each and every
Renewal Term, if any, hereunder, each Agreement Payment set forth in this
Agreement shall be automatically adjusted (without any action or notice by
Venture) by an amount equal to the percentage increase in the CPI (as defined
below) during the preceding twenty-four (24) months. The “CPI” is defined as
the Consumer Price Index for all Urban Consumers, U.S. City Average, All Items
(1982-1984 = 100) for the United States published by the Bureau of Labor
Statistics of the U.S. Department of Labor, and if the CPI is discontinued, the
successor index most nearly comparable thereto.

(d)           Yearly True
Up.

(i)            True-Up Procedure/Venture.
If Sublicensee determines that for any given Contract Year during the Term, it
has actually paid, in the aggregate during such Contract Year, to Venture as
Venture Minimum Payments an amount in excess of the aggregate Venture Royalty
Payments that were due and payable and actually paid by Sublicensee to Venture
for the twelve calendar months during such Contract Year (any, if any purported
excess, the “Venture Excess Advance Amount”),
Sublicensee shall prepare and deliver to Venture a statement (each, a “Venture Statement”) setting forth the amount and
calculation of such Venture Excess Advance Amount and a description of the
basis for such Venture Excess Advance Amount. 
Venture shall have thirty (30) calendar days from its receipt of such Venture
Statement (the “Venture Objection Period”)
to review such Venture Statement.  Upon
the expiration of such Venture Objection Period, Venture shall be deemed to
have accepted, and shall be bound by, such Venture Statement and the amount of
such Venture Excess Advance Amount, unless Venture shall have informed
Sublicensee in writing of its disagreement with such Venture Excess Advance
Amount prior to the expiration of the applicable Venture Objection Period (the “Venture Objection”), setting forth in reasonable
detail the basis for each such dispute (each, a “Venture
Disputed Item”). 

 6
 

 

Sublicensee shall have ten (10) calendar days
from the date on which it receives the Venture Objection (the date on which
such ten (10) calendar day period ends, the “Venture
Response Date”) to review and respond to such Venture Objection. If
Venture and Sublicensee are able to negotiate a mutually agreeable resolution
of each Venture Disputed Item, and each signs a certificate to that effect, the
Venture Statement and the calculation therein of the Venture Excess Advance
Amount, as adjusted to reflect such resolution, shall be deemed final,
non-appealable and binding for purposes of this Agreement. Venture shall remit
to Sublicensee (a) the Venture Excess Advance Amount if no Venture Objection is
made by Venture during the Venture Objection Period, (b) the amount of the
mutually agreeable resolved Venture Excess Advance Amount if Venture submits a
Venture Objection within the Venture Objection Period, upon the mutually agreeable
resolution as described above. If, however,
within thirty (30) calendar days of the Venture Response Date any Venture
Disputed Items have not been resolved upon mutual agreement as provided herein,
such Venture Disputed Items shall be settled by final and binding arbitration
administered by the American Arbitration Association under its then in
existence Commercial Arbitration Rules. The arbitration shall take place in or
about Dallas, Texas. Judgment on the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. The arbitrator(s) shall apply
Texas law, without regard to its rules of conflict of law. Each party shall
initially bear its own attorney’s fees, costs, and disbursements arising out of
the arbitration and shall pay an equal share of the up-front fees and costs of
the arbitration and the arbitrator(s); provided, however, the prevailing party shall be awarded, as part of
the arbitration, full reimbursement for its reasonable attorneys’ fees, costs
and disbursements (including, for example, expert witness fees and expenses,
photocopy charges, travel expenses, etc.), and the fees and costs of the
arbitration and the arbitrator(s).

(ii)           True-Up
Procedure/Owner. If Sublicensee determines that for any given
Contract Year during the Term, it has actually paid, in the aggregate during
such Contract Year, to Owner as Owner Minimum Payments an amount in excess of
the aggregate Owner Royalty Payments that were due and payable and actually
paid by Sublicensee to Owner for the twelve calendar months during such
Contract Year (any, if any purported excess, the “Owner
Excess Advance Amount”), Sublicensee shall prepare and deliver to
Owner a statement (each, an “Owner Statement”)
setting forth the amount and calculation of such Owner Excess Advance Amount
and a description of the basis for such Owner Excess Advance Amount. Owner
shall have thirty (30) calendar days from its receipt of such Owner Statement
(the “Owner Objection Period”) to review
such Owner Statement. Upon the expiration of such Owner Objection Period, Owner
shall be deemed to have accepted, and shall be bound by, such Owner Statement
and the amount of such Owner Excess Advance Amount, unless Owner shall have
informed Sublicensee in writing of its disagreement with such Owner Excess
Advance Amount prior to the expiration of the applicable Owner Objection Period
(the “Owner Objection”), setting forth in
reasonable detail the basis for each such dispute (each, an “Owner Disputed Item”). Sublicensee shall have ten
(10) calendar days from the date on which it receives the Owner Objection (the
date on which such ten (10) calendar day period ends, the “Owner Response Date”) to review and respond to
such Owner Objection. If Owner and Sublicensee are able to negotiate a mutually
agreeable resolution of each Owner Disputed Item, and each signs a certificate
to that effect, the Owner Statement and the calculation therein of the Owner
Excess Advance Amount, as adjusted to reflect such resolution, shall be deemed
final, non-appealable and binding for purposes of this Agreement.  Owner shall remit to Sublicensee (a) the
Owner Excess Advance Amount if no Owner Objection is made by Owner during the
Owner Objection Period, (b) the amount of the 

 7
 

 

mutually agreeable resolved Owner Excess
Advance Amount if Owner submits an Owner Objection within the Owner Objection
Period, upon the mutually agreeable resolution as described above. If, however, within thirty (30) calendar days of the
Owner Response Date any Owner Disputed Items have not been resolved upon mutual
agreement as provided herein, such Owner Disputed Items shall be settled by
final and binding arbitration administered by the American Arbitration
Association under its then in existence Commercial Arbitration Rules. The
arbitration shall take place in or about Dallas, Texas. Judgment on the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof. The arbitrator(s) shall apply Texas law, without regard to its rules
of conflict of law. Each party shall initially bear its own attorney’s fees,
costs, and disbursements arising out of the arbitration and shall pay an equal
share of the up-front fees and costs of the arbitration and the arbitrator(s); provided, however, the
prevailing party shall be awarded, as part of the arbitration, full
reimbursement for its reasonable attorneys’ fees, costs and disbursements
(including, for example, expert witness fees and expenses, photocopy charges,
travel expenses, etc.), and the fees and costs of the arbitration and the
arbitrator(s).

6.             Statements and
Payments.

(a)           Statements;
Payments. Within ten (10) days after the end of each calendar month
during the Term of this Agreement (each such month, an “Accounting
Period”), Sublicensee shall provide to each of Venture and Owner a
complete and accurate statement (individually, an “Accounting
Statement” and, collectively, the “Accounting
Statements”) for that month of all of Sublicensee’s sales of
Biodiesel Fuel during such Accounting Period, certified as accurate by Sublicensee
and accompanied by the payment of all Venture Royalty Payments and Owner
Royalty Payments (collectively, the “Royalty Payments”)
due with respect to such Accounting Period.

(b)           Accounting
Statements. Each Accounting Statement, which shall be in conformance
with the requirements of Venture and Owner, must be submitted whether or not
any Royalty Payments are due during the Accounting Period. Accounting
Statements and accompanying Royalty Payments; if any, Venture Minimum Payments
and Owner Minimum Payments shall be delivered to Venture and Owner c/o Mark
Rothbaum & Associates, 36 Mill Plain Road, Suite 406, Danbury, CT 06811,
Attn: Mark Rothbaum, via hand delivery or nationally recognized overnight
courier service that obtains acknowledgment of receipt by the addressee.

(c)           Acceptance.
Acceptance by Venture or Owner of any Accounting Statement furnished or Royalty
Payment made shall not preclude Venture or Owner from later questioning its
correctness and, in the event that any inconsistencies or mistakes are
discovered, they shall be rectified, or caused to be rectified, by Sublicensee
within seven (7) calendar days of receipt by Sublicensee of Venture’s or Owner’s
written notice of the inconsistency or mistake.

(d)           Time is of
the Essence. Time is of the essence with respect to all payments to
be made hereunder, and interest at a rate of one and one-half percent (1.5%)
per month, compounded monthly on the unpaid balance, or the maximum legal rate
of interest, whichever is lower, shall accrue on any amount due Venture or
Owner, as applicable, calculated from the date on which payment was initially
due. For avoidance of doubt, the parties agree that Sublicensee’s 

 8
 

 

only remedy in the event that the interest
rate specified in this Section 6(d) or Section 7(c) hereof is higher than the
maximum legal rate of interest is to have the interest rate specified in this
Section 6(d) or Section 7(c) hereof reduced to the maximum legal rate of
interest

(e)           Tax Returns.
Each year, a copy of all annual finalized federal tax returns as filed for
Sublicensee shall be forwarded to Venture and Owner at the address specified
herein no later than thirty (30) days following the filing of such returns with
the Internal Revenue Service.

7.             Audit;
Inspections.

(a)           Books and
Records. Sublicensee shall keep complete and accurate books of
account (in such reasonable detail as to allow Venture and Owner to determine
the correctness of any and all Royalty Payments, Venture Minimum Payments and
Owner Minimum Payments (collectively, the “Agreement
Payments” made hereunder) at its principal place of business
covering all transactions relating to this Agreement.

(b)           Maintenance.
All such books of account and records of Sublicensee relating to this Agreement
shall be retained for at least five (5) years after the end of each fiscal year
to which they pertain.

(c)           Audit Rights.
Venture, Owner and/or their respective duly authorized representative(s) shall
have the right, at reasonable hours of the day and upon reasonable, advance
notice, and, at Venture’s or Owner’s respective cost, to examine, audit and
copy such books of account, records and all other documents and material in
Sublicensee’s possession or control with respect to this Agreement and to make
summaries thereof. In the event that such an audit reveals an underpayment by
Sublicensee, Sublicensee shall, within seven (7) calendar days after Venture’s
or Owner’s notice of such underpayment, remit payment to Venture and/or Owner
in the amount of the underpayment plus interest calculated at the rate of one
and one-half percent (1.5%) per month, compounded monthly on the unpaid
balance, or the maximum legal rate of interest, whichever is lower, calculated
from the date such payment(s) were initially due. With respect to any
particular Accounting Statement, Venture or Owner must give written notice of
its intent to exercise the rights granted in this Section 7(c) no later than
the third anniversary of Venture’s or Owner’s actual receipt of such Accounting
Statement that is the subject of the examination. If Sublicensee’s payments in
the aggregate for any given period are incorrect by more than five percent
(5%), Sublicensee shall pay the costs and expenses of the audit.

8.             Quality,
Approvals; Samples; Right to Use; Sublicensee Restrictions.

(a)           Venture’s
Right of Approval. Sublicensee acknowledges that the loyalty of
Owner’s fans and customers is an asset of tremendous value to Owner, and that
meeting fans’ and customers’ expectations for high quality products is of
paramount importance to Owner. Subject to Section 8(i) below, Venture shall
have the right and opportunity to approve or disapprove in writing each and
every aspect of Sublicensee’s distribution and sale of Biodiesel Fuel,
including, without limitation, (1) the quality, constitution and blend
percentages of Biodiesel Fuel (the “BD Components”),
and (2) each particular use of the Mark, including (without limitation):

 9
 

 

(i)            each use of the Mark in connection
with all aspects of the Distribution and of the Biodiesel Fuel (the “Distribution Uses”);

(ii)           any other materials or articles of
any kind or nature whatsoever that are used in connection with the Mark or the
Biodiesel Fuel (“Other Materials”; such
Other Materials and together with the Promotional Uses, BD Components and the
Distribution Uses, referred to herein individually as a “Licensed
Item” and, collectively, as the “Licensed
Items”).

(b)           Submission
for Approval. Sublicensee shall, without failure and in strict
accordance with the terms hereof, submit to Venture for written approval, for
each and every Licensed Item (i) at least one (1) prototype (each, a “Prototype”) of each such Licensed Item prior to
its manufacture or production, and (2) at least one (I) post-manufacture,
pre-distribution sample (each, a “Sample”)
of such Licensed Item prior to sale or public distribution of such Licensed
Item. The Licensed Item shall be submitted with all of its proposed labeling,
if possible, but no Licensed Item shall be deemed approved unless and until its
corresponding labeling is also approved, in the event they are submitted
separately. If Sublicensee elects to first submit a design, which Venture
approves, Sublicensee must still thereafter submit both the Prototype and
Sample for Venture’s approval hereunder. With respect to matched print advertising,
Sublicensee must provide Venture with a copy of the advertisement as it
appeared in any and all media promptly upon the first appearance of the
advertisement in any medium. As an example, if the identical advertisement is
run for three (3) succeeding days in the same newspaper, Sublicensee need
provide only the first (1st) day’s advertisement, but Sublicensee shall
indicate the additional days on which the advertisement will appear in that
newspaper for Venture’s approval hereunder. Prototypes and Samples submitted by
Sublicensee shall not be required to be returned by Venture.

(c)           Venture’s
Approval of Licensed Items. Venture shall use its good-faith
commercially reasonable efforts to send a written notice of approval or
disapproval of each submission as outlined in Section 8(b) within fifteen (15)
calendar days following Venture’s receipt of the submitted Prototype or Sample.
Written approval or disapproval shall be sent via facsimile or nationally
recognized overnight courier service that obtains acknowledgment of receipt by
the addressee. Notwithstanding anything contained herein to the contrary,
failure of Sublicensee to receive written approval of any such submitted item
within fifteen (15) calendar days following Venture’s receipt of Sublicensee’s
submission (which receipt can be verified by independent documentation produced
by Sublicensee) shall constitute disapproval of the proposed Licensed Item.
However, if Venture provides Sublicensee with written confirmation that
Sublicensee may use such submitted item, even after the expiration of the
fifteen (15) calendar day period, Sublicensee is authorized, subject to the
terms and conditions of this Agreement to use the submitted item. Sublicensee
shall not have the right to use the Licensed Item or any element thereof unless
and until the particular use by Sublicensee has been approved by Venture (which
approval shall be subject in all respects to the approval of Owner under the
Master License) as provided in this Section 8(c).

(d)           Conformity
of Licensed Item to Approved Samples. Once approved hereunder, all
Licensed Items shall conform in all respects, including blend, composition,
elements, materials, contents, workmanship and overall quality, to the Sample
that Venture has approved in writing.

 

 10

 

(i)            Approval Withdrawal for Failure to Conform. If
any Licensed Item later fails to conform to the approved Sample, then, within
seven (7) calendar days after Sublicensee’s receipt of written notice from
Venture, Venture shall have the right to withdraw its approval of such Licensed
Item by delivery of a further written notice if the failure identified in the
initial notice has not been cured. Sublicensee shall then, upon receipt of such
further notice, immediately cease use of the particular Licensed Item identified
in the notice.

(ii)           Continuing Samples. Upon Venture’s request from
time to time and at any time during the Term, Sublicensee will furnish to
Venture, without charge, a reasonable number of Samples of each Licensed Item
with its usual packaging and labeling, to permit Venture to confirm that
Venture’s standards are being observed. Additionally, Venture or its
representatives shall also have the right to inspect the Licensed Items and
take a reasonable number of Samples for purposes of quality inspection.

(e)           Withdrawal of Approval. Approval by Venture of a
Licensed Item can be withdrawn (which withdrawal shall be subject in all
respects to the agreement of Owner under the Master License) at any time at
Venture’s Sole Discretion upon seven (7) days’ advance, written notice to
Sublicensee at which time all withdrawn Licensed Items shall be destroyed,
unless Venture approves in writing to another manner of disposition.

(f)            Ownership of Artwork.

(i)            New Developments. All designs, logos and other
creative renderings incorporating any one or more elements of the Mark in any
and all media now known or hereafter invented (collectively, “Artwork”), and all rights, including all
copyrights and trademark rights in and to the Artwork, shall be solely and
exclusively owned by Owner. Without limiting the foregoing, Sublicensee
acknowledges and confirms that all of Sublicensee’s services in connection with
the creation of the Artwork are and shall be rendered for, at the instigation
and under the overall direction and supervision of Owner, and the Artwork is
and at all times shall be regarded as a “work made for hire” (as that term is
used in the U.S. Copyright Act, 17 U.S.C. § 101, et seq. (the “Act”)) by Sublicensee for Owner. Without limiting
the acknowledgment contained in the previous sentence, Sublicensee hereby
assigns, grants and delivers (and hereby further agrees to assign, grant and
deliver) exclusively unto Owner all rights, title and interests of every kind
and nature whatsoever in and to the Artwork and all copies and versions
thereof, including all copyrights therein and thereto and all renewals thereof.
Sublicensee further agrees to execute and deliver to Owner, its successors and
assigns, such other and further instruments and documents as Owner reasonably
may request for the purpose of establishing, evidencing and enforcing or
defending its complete, exclusive, perpetual and worldwide ownership of all
rights, title and interests of every kind and nature whatsoever, including all
copyrights, in and to the Artwork, and Sublicensee hereby constitutes and
appoints Owner as Sublicensee’s agent and attorney-in-fact, with full power of
substitution, to execute and deliver such documents or instruments as
Sublicensee may fail or refuse to execute and deliver within ten (10) days (or
such shorter period as designated by Owner if reasonably necessary), this power
and agency being coupled with an interest and being irrevocable. Sublicensee
covenants, warrants and represents that the Artwork will not violate or infringe
any copyright of any person, firm or corporation, and Sublicensee has not and
will not order, commission or otherwise obtain or receive from any other person
(other than an “employee” of 

 11
 

 

Sublicensee working “within the scope of employment” (as those terms
are understood under the Act)) any work on or contribution to the Artwork
without obtaining a valid and binding work-for-hire and/or assignment agreement
in a form approved in advance by Venture (which approval shall be subject in
all respects to the approval of Owner under the Master License).

(ii)           Delivery Upon Termination. Any and all Artwork
shall be sent to Owner at no cost and prepaid at Owner’s request not later than
thirty (30) days following the expiration or earlier termination of this Agreement.

(g)           Approval Not a Warranty. Venture’s approval of a
Licensed Item or item of Artwork does not mean that Venture has determined that
such Licensed Item conforms to Applicable Laws, that the Licensed Item is safe
or fit for its intended purpose or that the Licensed Item does not infringe the
intellectual property or contractual rights of others. Venture may also revoke
an approval if a Licensed Item subsequently proves to be deficient in quality,
to violate any law or to violate the rights of others that are subsequently
learned to have existed at the time approval was granted.

(h)           Biodiesel Minimum Standards. At all times during
the Term hereof and not in limitation of any of Venture’s approval rights
hereunder, Sublicensee shall only purchase for Distribution hereunder biodiesel
fuel that meets the then current highest industry standards for biodiesel fuel.

(i)            Owner Quality Control Rights. Notwithstanding
anything contained herein to the contrary, Owner shall have the right and the
authority (A) at any time to exercise, on behalf of and in the place of
Venture, any and all of Venture’s approval, consent and/or quality control
rights hereunder; and (B) to approve and ratify or disapprove (in his Sole
Discretion) any and all actions of Venture hereunder (including, without
limitation, the approval, consent and quality control rights of Venture
pursuant to this Section 8 and Section 9 hereof and Venture’s ability to
withdraw an approved Licensed Item pursuant to Section 8(e) above).

(j)            Right to Use. For avoidance of doubt, Venture
shall retain for itself the right to engage in the Distribution of Biodiesel
Fuel during the Term within the Territory.

(k)           No Other Biodiesel Fuel. As a material condition
of Venture in entering into this Agreement, Sublicensee expressly acknowledges
and agrees that it will not for itself or for any other Person sell, dispose
of, or in any manner distribute, any form, or blend, of agricultural based
so-called “biodiesel fuel” other than the Biodiesel Fuel at any time during the
Term.

9.             Required Markings. Sublicensee will
display on all applicable Licensed Items any legends, markings or notices that
are required by law or that Venture may reasonably request from time to time.
Notwithstanding the foregoing, Sublicensee shall not make any reference to a
Licensed Item without including the ® or TM symbol, as appropriate, and
including the notation “[mark] is used under license.” Sublicensee may only
eliminate any or all legends, markings, notices or references with the express
prior approval of Venture, in each case. Upon receipt of written notice from
Venture, Sublicensee shall have seven (7) days to cure or cause the cure of,
any omissions of such legends, markings or notices. Sublicensee shall not
display its own respective copyright or trademark notice(s) on any Licensed
Items.

 12
 

 

10.           Ownership of Mark.

(a)           Owner.
Sublicensee acknowledges that Owner is the sole and exclusive owner of all
rights in and to the Mark and the goodwill associated therewith throughout the
world.

(b)           No Challenge.
Sublicensee agrees, during the Term of this Agreement and thereafter, never to
challenge or attack the rights of Owner in and to the Mark or the validity of
the Sublicense being granted herein by Venture.

(c)           Benefit.
Sublicensee agrees, during the Term of this Agreement and thereafter, that its
use of the Mark inures to the sole benefit of Owner and that Sublicensee shall
not acquire any rights whatsoever in or to the Mark, other than the rights
expressly provided in this Agreement.

(d)           Reservation.
All rights of Owner and Venture not expressly granted to Sublicensee herein are
expressly reserved to Owner and Venture, respectively.

(e)           No Use.
Sublicensee agrees and acknowledges that following the expiration or earlier
termination of this Agreement for any reason, Sublicensee shall have no right
to use for itself in any manner, or sublicense, the Mark to any third party for
any purpose.

11.           Trademark and
Copyright Protection and Infringements.

(a)           No
Registration. Sublicensee agrees that it shall not at any time,
anywhere in the world, apply for any registration of the Mark or any copyright,
trademark or other designation which would affect the ownership of the Mark by
Owner or file any document with any governmental authority to take any action
which would affect the sole and absolute ownership of the Mark by Owner.

(b)           No Confusion.
Sublicensee agrees that it shall, at no time during the Term or thereafter, use
or authorize the use of any trademark, trade name or other designation
identical with or confusingly or substantially similar to the Mark or any mark
uniquely associated with Venture or Owner.

(c)           Cooperation.
Sublicensee agrees to cooperate with Venture (and his Affiliates) in protecting
the Mark and, for that purpose, Sublicensee will supply to Venture or its
representatives from time to time and at no charge such Samples and information
regarding sales of the Biodiesel Fuel sold or distributed by Sublicensee as
reasonably may be requested.

(d)           Sublicensee
Assistance/Claims. When requested by Venture, Sublicensee agrees to
assist Venture in connection with any intellectual property claims dealing with
the enforcement of Owner’s rights in the Mark. Venture agrees to reimburse
Sublicensee’s reasonable out-of-pocket expenses incurred in providing such
assistance. With respect to any intellectual property actions not caused by any
breach of this Agreement by Sublicensee that Venture may choose to bring
(subject to the terms of the Master License), Venture shall, at Venture’s cost
and expense, employ counsel of its own choice to direct the handling of such
claims and any settlement thereof. Subject to the terms of the Master License
and the approval of 

 13
 

 

Owner, Venture shall be entitled to receive
and retain all amounts awarded as damages, profits or otherwise awarded to
Venture in connection with such suits.

(e)           Territory
Expansion. Sublicensee acknowledges and agrees that the Mark is
currently only registered with the United States Patent and Trademark Office.
At any time during the Term hereof when Sublicensee has the authority to
Distribute Biodiesel Fuel outside of the United States and Sublicensee desires
to Distribute Biodiesel Fuel outside of the United States (a “Non-US Jurisdiction”), then Sublicensee must,
prior to undertaking any activity with respect to such Non-US Jurisdiction,
provide Venture with advance prior written notice of such proposed activity
(the “Expansion Notice”). Upon Venture’s
receipt of the Expansion Notice, Venture shall notify Owner of Sublicensee’s
intent and Venture will cause Owner to use commercially reasonable efforts to
apply to register the Mark in such Non-US Jurisdiction. In the event that
Venture is unable to cause Owner to obtain a registration in such Non-US
Jurisdiction, Sublicensee shall not have, notwithstanding anything contained
herein to the contrary, the right or authority to Distribute Biodiesel Fuel in
such Non-US Jurisdiction.

12.           Indemnification.

(a)           Indemnification
by Sublicensee. Sublicensee will defend, indemnify, and hold
Venture, Owner and Venture’s and Owner’s respective Affiliates, employees,
agents, attorneys, heirs, successors, and assigns, harmless against and in
respect of: (i) any and all loss, damage, or liability resulting from any
breach or claim of breach of any representation or warranty or the
non-fulfillment of any covenant, agreement or obligation on the part of
Sublicensee hereunder; and (ii) any and all claims, actions, suits,
proceedings, demands, assessments, judgments, costs and expenses (including
reasonable attorneys’ fees and expenses) (collectively, “Claims”)
arising out of or relating to the foregoing, or resulting from tort claims or
other claims arising out of Sublicensee’s use of the Mark, including (A)
product liability claims arising out of or related to the sale, promotion
and/or distribution of the Licensed Items produced by, or at the order of,
Sublicensee, and (B) injury, wrongful death or negligence arising out of or
related to the sale, promotion, advertisement, marketing and distribution of
the Licensed Items.

(b)           Indemnification
by Venture. Venture will defend, indemnify and hold Sublicensee and
Sublicensee’s officers, directors, employees, agents, managers, attorneys,
members, successors and assigns harmless against and in respect of: (i) any and
all loss, damage, or liability resulting from any breach of any representation
or warranty or the non-fulfillment of any covenant, agreement or obligation on
the part of Venture hereunder, and (ii) any and all Claims arising out of or
relating to the foregoing.

(c)           Notification.
If any demand, claim or suit is asserted or instituted with respect to which a
party may be entitled to indemnification under Sections 12(a) and (b) hereof,
such party will give prompt notice thereof to the party who or which may be
liable for indemnification, including full details to the extent known.

(d)           Third-Party
Intellectual Property Claims. With respect to infringement claims by
third parties against Sublicensee asserting that Sublicensee’s use of the Mark
infringes their rights, Sublicensee will give prompt notice thereof to Venture
and Owner. Subject to the Master License and the approval of Owner, Venture
shall have the right to control, defend, and settle the 

 14
 

 

claim at its option, and the reasonable costs
thereof (including attorneys’ fees, costs, disbursements and the cost of
settlement), if any, shall be divided evenly between Venture and Sublicensee,
unless such claims are based on the breach of this Agreement by Sublicensee, in
which case such costs shall be borne exclusively by Sublicensee. If Venture
declines to exercise this option, it shall not be liable or responsible for any
of the costs arising from the defense and settlement of the claim, unless the
claim arises from Venture’s breach of its representations and/or warranties
pursuant to this Agreement

(e)           Limitation
of Liability. EXCEPT AS PROVIDED IN SECTIONS 4(d), 12(a), 12(b) AND
26 HEREOF, EACH PARTY’S SOLE REMEDY AGAINST THE OTHER FOR LOSS OR DAMAGE
ARISING OUT OF THE PERFORMANCE OR NON-PERFORMANCE UNDER THIS AGREEMENT WILL BE
PROVEN DIRECT, ACTUAL DAMAGES AND NEITHER PARTY WILL BE LIABLE FOR ANY
INDIRECT, INCIDENTAL, RELIANCE, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF
ITS PERFORMANCE OR NON-PERFORMANCE UNDER THIS AGREEMENT, WHETHER OR NOT THAT
PARTY HAD BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING
ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL THE CUMULATIVE
AMOUNTS PAID BY VENTURE IN CONNECTION WITH ANY OR ALL LOSSES, DAMAGES OR
LIABILITIES PURSUANT TO THIS AGREEMENT EXCEED THE TOTAL OF ALL AGREEMENT
PAYMENTS THAT VENTURE HAS THEN RECEIVED TO DATE PURSUANT TO THIS AGREEMENT.

13.           Insurance.

(a)           Liability. Sublicensee shall throughout the Term
of this Agreement and for a period of two (2) years thereafter, obtain and
maintain at its own cost and expense, from a qualified insurance company,
general liability and product liability insurance, the form of which must be
acceptable to Owner and Venture, naming, with respect to such policy, Venture
and Owner as additional named insureds. The amount of coverage for such policy
shall be a minimum of Ten Million Dollars ($10,000,000) combined single limit,
with a commercially reasonable deductible amount, for each single occurrence
for bodily injury and/or for property damage. Such policy shall provide for
twenty (20) days notice to Venture and Owner from the insurer by registered or
certified mail, return receipt requested, in the event of any modification,
cancellation or termination of such insurance. Sublicensee agrees to furnish to
each of Venture and Owner certificates of insurance evidencing same within
thirty (30) days after execution of this Agreement and, in no event, shall
Sublicensee use the Mark prior to receipt by Owner and Venture of such evidence
of insurance.

(b)           Errors and Omissions. Sublicensee shall
throughout the Term of this Agreement, obtain and maintain at its own cost and
expense, from a qualified insurance company, errors and omissions insurance,
the form of which must be acceptable to Owner and Venture, naming with respect
to such policy, Owner and Venture as additional named insureds. The amount of
coverage for such policy shall be a minimum of Five Million Dollars
($5,000,000), with a commercially reasonable deductible amount, and shall cover
any and all loss, damage, or liability resulting from Sublicensee’s use of the
Mark pursuant to this Agreement. Such policy shall provide for twenty (20) days
notice to Owner and Venture from the insurer by registered or certified mail,
return receipt requested, in the event of any modification, cancellation or
termination of such 

 15
 

 

insurance. Sublicensee agrees to furnish Owner and Venture certificates
of insurance evidencing same within thirty (30) days after execution of this
Agreement and, in no event, shall Sublicensee use the Mark prior to receipt by
Owner and Venture of such evidence of insurance.

14.           Notices.
Except as provided in Section 6(b) of this Agreement with respect to Agreement
Payments and Accounting Statements, all notices required to be sent to a party
shall be in writing to the following addresses unless notification of a new
address is properly provided in accordance herewith. All notices shall be
delivered by facsimile and simultaneously sent for next day delivery via a
nationally recognized overnight courier service that obtains written
acknowledgment of receipt by the addressee (“Receipt
Acknowledgement”). Notice shall be deemed given upon receipt, as
established by the Receipt Acknowledgement.

	
  To Venture:

  	
   

  	
  Biodiesel Venture, L.P.

  
	
   

  	
   

  	
  c/o Mark
  Rothbaum & Associates

  
	
   

  	
   

  	
  36 Mill Plain
  Road

  
	
   

  	
   

  	
  Room 406

  
	
   

  	
   

  	
  Danbury,
  Connecticut 06811

  
	
   

  	
   

  	
  Attn: Mark
  Rothbaum

  
	
   

  	
   

  	
  (f) (203)
  791-9014

  
	
   

  	
   

  	
   

  
	
  and

  	
   

  	
  Haynes and Boone, LLP

  
	
   

  	
   

  	
  901 Main Street

  
	
   

  	
   

  	
  Suite 3100

  
	
   

  	
   

  	
  Dallas, Texas
  75202

  
	
   

  	
   

  	
  Attn: William C.
  Wilshusen, Esq.

  
	
   

  	
   

  	
  (f) (214)
  200-0635

  
	
   

  	
   

  	
   

  
	
  To Sublicensee:

  	
   

  	
  Earth Biofuels, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (f)

  	
   

  
	
   

  	
   

  	
   

  
	
  and

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (f)

  	
   

  
	
   

  	
   

  	
   

  
	
  To Owner:

  	
   

  	
  Willie Nelson

  
	
   

  	
   

  	
  c/o Mark
  Rothbaum

  
	
   

  	
   

  	
  36 Mill Plain
  Road

  
	
   

  	
   

  	
  Room 406

  
	
   

  	
   

  	
  Danbury,
  Connecticut 06811

  
	
   

  	
   

  	
  (f) (203)
  791-9014

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 16
 

 

 

	
  and

  	
   

  	
  Greenberg Traurig LLP

  
	
   

  	
   

  	
  3290 Northside
  Pkwy

  
	
   

  	
   

  	
  Suite 400

  
	
   

  	
   

  	
  Atlanta, Georgia
  30327

  
	
   

  	
   

  	
  Attn: Robert A.
  Rosenbloum. Esq.

  
	
   

  	
   

  	
  (f) (678)
  553-2212

  

 

15.           Relationship of
the Parties.
This Agreement does not constitute and will not be construed as constituting a
partnership or joint venture between Venture and Sublicensee, and neither
Venture nor Sublicensee shall hold itself out to third parties to the contrary.
It is expressly acknowledged and agreed to by Sublicensee that Sublicensee
shall have no authority to bind Venture.

16.           Choice of Laws. THIS AGREEMENT
HAS BEEN ENTERED INTO IN THE STATE OF TEXAS, AND THE VALIDITY, INTERPRETATION
AND LEGAL EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF TEXAS APPLICABLE TO CONTRACTS ENTERED INTO AND PERFORMED ENTIRELY WITHIN THE
STATE OF TEXAS (WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES UNDER
TEXAS LAW). THE TEXAS COURTS (STATE AND FEDERAL), SHALL HAVE SOLE AND EXCLUSIVE
JURISDICTION OF ANY CONTROVERSIES REGARDING THIS AGREEMENT; ANY ACTION OR OTHER
PROCEEDING WHICH INVOLVES SUCH A CONTROVERSY SHALL BE BROUGHT IN THOSE COURTS
IN                           
COUNTY, TEXAS AND NOT ELSEWHERE. THE PARTIES WAIVE ANY AND ALL OBJECTIONS TO
VENUE IN THOSE COURTS AND HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THOSE
COURTS. ANY PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY, AMONG OTHER METHODS,
BE SERVED UPON A PARTY BY DELIVERING IT OR MAILING IT, BY REGISTERED OR
CERTIFIED MAIL OR BY OVERNIGHT COURIER OBTAINING PROOF OF DELIVERY, DIRECTED TO
THE ADDRESS SET FORTH IN SECTION 14 OR SUCH OTHER ADDRESS AS A PARTY MAY
DESIGNATE PURSUANT TO SECTION 14. ANY SUCH DELIVERY OR MAIL SERVICE SHALL BE
DEEMED TO HAVE THE SAME FORCE AND EFFECT AS PERSONAL SERVICE WITHIN THE STATE
OF TEXAS. THE NON-PREVAILING PARTY IN ANY LEGAL ACTION BETWEEN THE PARTIES
ARISING FROM OR RELATED TO THIS AGREEMENT, WHETHER INSTITUTED BY VENTURE OR BY
SUBLICENSEE, SHALL PROMPTLY REIMBURSE THE PREVAILING PARTY FOR ALL COSTS AND
EXPENSES (INCLUDING REASONABLE ATTORNEYS’ FEES) INCURRED IN CONNECTION
THEREWITH.

17.           Waiver. No waiver by any
party of a breach or a default hereunder shall be deemed a waiver by such party
of a subsequent breach or default of a similar nature.

18.           Severability. In the event
that any term or provision of this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other term or provision and this
Agreement shall be interpreted and construed as if such term or provision, to
the extent, but only to the extent, the same shall have been held to be
invalid, illegal or unenforceable, had never been contained herein.

 17
 

 

19.           Headings. The headings in
this Agreement are solely for convenience only and shall not be used to
interpret or construe this Agreement.

20.           Revocation of
Prior Agreements. This Agreement represents the entire understanding between
the parties hereto, or their respective Affiliates, with respect to the subject
matter hereof and supersedes all previous representations, understandings or
agreements, oral or written, between the parties with respect to the subject
matter hereof and cannot be modified except by a written instrument signed by
all of the parties hereto. Accordingly, any and all prior understandings and
agreements relative to the licensing of all or part of the Mark and to any
other matters discussed herein, are hereby revoked, and the provisions of this
Agreement alone shall be determinative of the conditions pursuant to which
Sublicensee shall be licensed to use the Mark and the resolution of such other
described matters. Each party hereto expressly disclaims reliance upon any
facts, promises, undertakings or representations made by any other party, or
its agents, representatives or attorneys, prior to the execution of this
Agreement.

21.           Third-Party
Beneficiaries. Venture and Sublicensee acknowledge and agree that Owner
is intended as and hereby constitutes a third party beneficiary of this
Agreement and as such shall be fully entitled and authorized to enforce any of
the covenants, obligations or commitments made or undertaken by Venture
hereunder against such party as full as if Owner were a party hereto
(including, without limitation, Section 26 hereof). Except as expressly set
forth in the immediately preceding sentence with respect to Owner, no other
Person shall be a direct or indirect beneficiary of, or shall have any direct
or indirect cause of action or claim in connection with, this Agreement.

22.           Counsel. Each of Venture
and Sublicensee acknowledges and agrees that it has been represented by
independent counsel of its own choice for purposes of advising it in connection
with the negotiation and execution of this Agreement.  Additionally, each of Venture and Sublicensee
acknowledges and agrees that either it or its independent legal counsel has had
the opportunity to investigate and inquire about all of the relevant facts,
circumstances and effects in connection with its entering into and executing
this Agreement.  The parties acknowledge
to each other that each party and its respective counsel have participated in
drafting and have edited this Agreement. Accordingly, the normal rule of
construction to the effect that any ambiguities are resolved against the
drafting party will not be employed in the interpretation of this Agreement.

23.           Incorporation. All exhibits
mentioned in this Agreement are hereby incorporated by reference into this
Agreement as fully as if copied herein verbatim.

24.           Counterparts. This Agreement
may be executed in any number of counterparts, each of which shall constitute
an original and all of which together shall constitute one and the same
agreement. The signature of a party obtained via facsimile shall be valid and
binding for all purposes.

25.           Binding Effect;
Successors and Assigns. Except as otherwise provided in this Agreement, this
Agreement, and the rights and obligations of the parties hereunder, will be
binding upon and inure to the benefit of their respective successors and
permitted assigns.

 18
 

 

26.           Injunctive Relief. Sublicensee
agrees that a breach of any of the covenants contained in this Agreement may
cause irreparable injury to Owner and Venture for which the remedy at law may
be inadequate and would be difficult to ascertain. Therefore, in the event of
the breach or threatened breach of any such covenants, Venture shall be
entitled, in addition to any other rights and remedies it may have at law or in
equity, to seek an injunction to restrain Sublicensee from any threatened or
actual activities in violation of any such covenants. Sublicensee hereby
consents and agrees that temporary and permanent injunctive relief may be
granted in any proceedings which might be brought to enforce any such covenants
without the necessity of proving of actual damages or posting a bond, and in
the event Venture does apply for such an injunction, Sublicensee shall not
raise as a defense thereto that Venture has an adequate remedy at law.

27.           Defined Terms.

“Affiliate” of a
person shall mean any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with, such
person, as applicable. The term “control,”
as used in the immediately preceding sentence, shall mean with respect to a
corporation or limited liability company the right to exercise, directly or
indirectly, more than fifty percent (50%) of the voting rights attributable to
the controlled corporation or limited liability company, and, with respect to
any individual, partnership, trust, other entity or association, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the controlled entity.

“Applicable Law”
shall mean any law, rule, statute, regulation, order, judgment, decree, treaty,
directive or other requirement in force at any time during the Term which
applies to or is otherwise intended to govern or regulate any activity
(including, without limitation, the blending or Distribution of biodiesel fuel
or Petroleum Fuel) or Person.

“Biodiesel Fuel”
shall mean biodiesel fuel, whether or not blended with Petroleum Fuel,
Distributed hereunder bearing the Mark, which notwithstanding anything
contained herein, shall meet the then current highest industry standards for
biodiesel fuel.

“Contract Year”
means each successive period of twelve (12) months occurring during the Term
commencing upon the Effective Date.

“Distribute” or “Distribution” or “Distributing”
shall mean the sale and/or distribution of Biodiesel Fuel to retail sellers,
distributors, users and/or consumers of Biodiesel Fuel.

“Mark” shall mean
the trademark BIOWILLIE, including U.S. Application Serial No. 78/569432
therefor.

“Master License”
shall mean that certain Master License Agreement, by and between Owner and
Venture, as amended from time to time.

“Owner” shall mean
Willie Nelson.

“Owner Identification”
shall mean (a) the name, image and likeness of Owner, and (b) any and all
copyrights, marks, trade names, trademarks, design marks, logos or other items
of 

 19
 

 

intellectual property
owned or controlled by, or in any way affiliated or associated with, Owner or
his Affiliates, other than the Mark.

“Person” shall
mean any natural person or any corporation, association, partnership, limited
liability company, joint venture, company, business trust, organization,
business, other incorporated or unincorporated legal entity or form, or
government or any governmental agency or political subdivision of any
government.

“Sole Discretion”
shall mean Venture’s right, in its sole and absolute discretion (subject to and
in accordance with the Master License and Owner’s Sole Discretion rights
contained therein), to take or refrain from taking a particular action.

“Territory” shall
mean the world.

[Signatures are on the
Next Page.]

 

 20
 

 

IN WITNESS WHEREOF,
by their execution below, the parties hereto have agreed to all of the terms
and conditions of this Agreement as of the Effective Date.

	
  

  	
   

  	
   

  	
  VENTURE:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  BIODIESEL
  VENTURE, L.P.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  Biodiesel Venture GP, LLC,

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  its General Partner

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
  

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Willie Nelson

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
  Willie Nelson

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
  Manager

  	
   

  

 

	
  

  	
   

  	
   

  	
  SUBLICENSEE:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  EARTH
  BIOFUELS, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  

  	
   

  	
   

  	
  By:

  	
  /s/ Dennis McLaughlin, III

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Dennis McLaughlin, III

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  	
   

  

 

 21Exhibit 10.79

EXECUTION COPY

SECURITIES PURCHASE AGREEMENT

SECURITIES
PURCHASE AGREEMENT (the “Agreement”),
dated as of August 11, 2006, by and among Earth Biofuels, Inc., a Delaware
corporation, with its corporate headquarters located at 3001 Knox Street, Suite 403, Dallas, Texas 75205 (the ”Company”), and the investors listed on the
Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).

WHEREAS:

A.            The Company and each Buyer are
executing and delivering this Agreement in reliance upon the exemption from
securities registration afforded by Section 4(2) of the Securities Act of 1933,
as amended (the “1933 Act”), and
Rule 506 of Regulation D (“Regulation D”)
as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.

B.            The Company has authorized a new
series of senior convertible notes of the Company, in the form attached hereto
as Exhibit A (the “Notes”), which
Notes shall be convertible into the Company’s common stock, par value $0.001
per share (the ”Common Stock”)
(as converted, the “Conversion Shares”),
in accordance with the terms of the Notes.

C.            Each Buyer wishes to purchase, and
the Company wishes to sell, upon the terms and conditions stated in this
Agreement, (i) that aggregate principal amount of the Notes set forth opposite
such Buyer’s name in column (3) on the Schedule of Buyers attached hereto
(which aggregate amount for all Buyers shall be $1,350,000), (ii) warrants, in
substantially the form attached hereto as Exhibit B-1 (the “Series A Warrants”),
to acquire up to that number of additional shares of Common Stock set forth
opposite such Buyer’s name in column (4) of the Schedule of Buyers (as
exercised, collectively, the “Series A Warrant Shares”) and (iii) warrants,
in substantially the form attached hereto as Exhibit B-2 (the “Series B Warrants”,
and together with the Series A Warrants, the “Warrants”),
to acquire up to that number of additional shares of Common Stock set forth
opposite such Buyer’s name in column (5) of the Schedule of Buyers (as
exercised, collectively, the “Series B Warrant Shares”, and together with
the Series A Warrant Shares, the “Warrant Shares”).

D.            Contemporaneously with the execution
and delivery of this Agreement, the parties hereto are executing and delivering
a Registration Rights Agreement, substantially in the form attached hereto as Exhibit
C (the “Registration Rights Agreement”),
pursuant to which the Company will agree to provide certain registration rights
with respect to the Registrable Securities (as defined in the Registration
Rights Agreement) under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.

E.             The Notes, the Conversion Shares,
the Warrants and the Warrant Shares collectively are referred to herein as the “Securities”.

NOW,
THEREFORE, the Company and each Buyer hereby agree as
follows:

1.             PURCHASE
AND SALE OF NOTES AND WARRANTS.

(a)           Purchase of Notes and Warrants.

(i)            Notes
and Warrants.  Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, on the Closing
Date (as defined below), the Company shall issue and sell to each Buyer, and
each Buyer severally, but not jointly, shall purchase from the Company, (x) a
Note in the principal amount as is set forth opposite such Buyer’s name in
column (3) on the Schedule of Buyers, (y) the Series A Warrants to acquire up
to that number of Series A Warrant Shares as is set forth opposite such Buyer’s
name in column (4) on the Schedule of Buyers and (z) the Series B Warrants to
acquire up to that number of Series B Warrant Shares as is set forth opposite
such Buyer’s name in column (5) on the Schedule of Buyers (the “Closing”).

(ii)           Closing.  The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m., CST time, on August 11,
2006 (or such other date as is mutually agreed to by the Company and each
Buyer) after notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below at the offices of the Company, 3001
Knox Street, Suite 403, Dallas, Texas 
75205.

(iii)          Purchase
Price.  The aggregate purchase price
for the Notes and the Warrants to be purchased by each such Buyer at the
Closing (the “Purchase Price”)
shall be the amount set forth opposite each Buyer’s name in column (6) of the
Schedule of Buyers.  Each Buyer shall pay
$1.00 for each $1.00 of principal amount of Notes and related Warrants to be
purchased by such Buyer at the Closing.

(b)           Form of Payment.  On the Closing Date, (i) each Buyer shall pay
its Purchase Price to the Company for the Notes and the Warrants to be issued
and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company’s written wire instructions and
(ii) the Company shall deliver to each Buyer Notes (allocated in the
principal amounts as such Buyer shall request) with an aggregate principal
amount as is set forth opposite such Buyer’s name in column (3) on the Schedule
of Buyers along with the Warrants (allocated in the amounts as such Buyer shall
request) to acquire up to an aggregate number of Warrant Shares as is set forth
opposite such Buyer’s name in column (4) on the Schedule of Buyers, in each
case duly executed on behalf of the Company and registered in the name of such
Buyer.

2.             BUYER’S
REPRESENTATIONS AND WARRANTIES.

Each Buyer represents and
warrants to the Company with respect to only itself that:

(a)           No Public Sale or Distribution.  Such Buyer is (i) acquiring the Notes and the
Warrants and (ii) upon conversion of the Notes and exercise of the Warrants
will acquire the Conversion Shares issuable upon conversion of the Notes and
the Warrant Shares issuable upon exercise of the Warrants, for investment
purposes, as principal for its own account and not with a

 2
 

view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however,
that by making the representations herein, such Buyer does not agree to hold
any of the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or pursuant
to a registration statement or an exemption under the 1933 Act.  Such Buyer is acquiring the Securities
hereunder in the ordinary course of its business.  Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.

(b)           Accredited Investor Status.  At the time such Buyer was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises Notes or Warrants it will be, an “accredited investor” as defined in
Rule 501(a) under the 1933 Act.  Such
Buyer is not a registered broker-dealer under Section 15 of the 1934 Act.

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

(d)           Information.  Such Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by such Buyer.  Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company.  Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors, if any, or
its representatives shall modify, amend or affect such Buyer’s right to rely on
the Company’s representations and warranties contained herein.  Such Buyer understands that its investment in
the Securities involves a high degree of risk. 
Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to
its acquisition of the Securities.

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

(f)            Transfer or Resale.  Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a form reasonably acceptable to the Company,
to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) such Buyer provides the Company with reasonable assurance that such
Securities can be sold, assigned or transferred pursuant to Rule

 3
 

144 or Rule 144A promulgated under the 1933
Act, as amended, (or a successor rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in reliance
on Rule 144 may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the Person (as defined in Section 3(s))
through whom the sale is made) may be deemed to be an underwriter (as that term
is defined in the 1933 Act) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and
(iii) neither the Company nor any other Person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.  The Securities may be pledged in connection
with a bona fide margin account or other loan or financing arrangement secured
by the Securities and such pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Buyer
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document (as defined in Section 3(b)),
including, without limitation, this Section 2(f).

(g)           Legends.  Such Buyer understands that the certificates
or other instruments representing the Notes and the Warrants and, until such
time as the resale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear any legend as required by
the “blue sky” laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of
such stock certificates):

[NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE]  [EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO
RULE 144 OR RULE 144A UNDER SAID ACT. 
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

The legend set forth
above shall be removed and the Company shall issue a certificate without such
legend to the holder of the Securities upon which it is stamped, if, unless
otherwise required by state securities laws, (i) such Securities are registered
for resale under the 1933 Act (a

 4
 

“Registration
Event”), or (ii) in connection with a sale, assignment or other
transfer, such holder provides the Company with an opinion of counsel, in a
form reasonably acceptable to the Company, to the effect that such sale or
transfer of the Securities may be made without registration under the
applicable requirements of the 1933 Act, or (iii) following a sale of transfer
of such Securities pursuant to Rule 144 (assuming the transferor is not an
affiliate of the Company), or (iv) while such Securities are eligible for sale
under Rule 144(k).

(h)           Validity; Enforcement.  This Agreement and the Registration Rights
Agreement to which such Buyer is a party have been duly and validly authorized,
executed and delivered by such Buyer and constitute the legal, valid and
binding obligations of such Buyer enforceable against such Buyer in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

(i)            No Conflicts.  The execution, delivery and performance by
such Buyer of this Agreement and the Registration Rights Agreement to which
such Buyer is a party and the consummation by such Buyer of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which such Buyer is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment  or decree
(including federal and state securities laws) applicable to such Buyer, except
in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the ability of such
Buyer to perform its obligations hereunder.

(j)            Residency.  Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.

(k)           Independent Investment Decision.  Such Buyer has independently evaluated the
merits of its decision to purchase Securities pursuant to the Transaction
Documents, and such Buyer confirms that it has not relied on the advice of the
Company nor any other Buyer’s business and/or legal counsel in making such
decision.

(l)            Certain Trading Activities.  Buyer has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with such
Buyer, engaged in any transactions in the securities of the Company (including,
without limitations, any Short Sales involving the Company’s securities) since
the time that such Buyer was first contacted by the Company  regarding the transactions contemplated
hereby.  Such Buyer covenants that neither
it nor any Person acting on its behalf or pursuant to any understanding with it
will engage in any transactions in the securities of the Company (including Short
Sales) prior to the time that the transactions contemplated by this Agreement
are publicly disclosed.  For the purpose
of this Agreement, “Short
Sales” include, without limitation, all “short sales” as defined in
Rule 200 promulgated under
Regulation SHO under the 1934 Act and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, swaps and similar
arrangements (including

 5
 

on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers.

(m)          General Solicitation.  Such Buyer is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar.

(n)           Organization.  Such Buyer is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the applicable
Transaction Documents (as defined below) and otherwise to carry out its
obligations thereunder.

3.             REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.

The Company represents
and warrants to each of the Buyers that:

(a)           Organization and Qualification.  The Company and its “Subsidiaries” (which for purposes of this Agreement means
any joint venture or any entity (i) in which the Company, directly or
indirectly, owns 50% or more of the outstanding capital stock or holds an
equity or similar interest representing 50% or more of the outstanding equity
or similar interest of such entity, (ii) that is a significant subsidiary of
the Company as defined under Regulation S-X of the 1934 Act or (iii) in which
the Company controls or operates all or part of the business, operations or
administration of such entity) are entities duly organized and validly existing
in good standing under the laws of the jurisdiction in which they are formed,
and have the requisite power and authorization to own their properties and to carry
on their business as now being conducted.  
Each of the Company and its Subsidiaries is duly qualified as a foreign
entity to do business and is in good standing in every jurisdiction in which
its ownership of property or the nature of the business conducted by it makes
such qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not reasonably be expected to have a
Material Adverse Effect.  As used in this
Agreement, “Material Adverse Effect” means any
material adverse effect on the business, properties, assets, operations,
results of operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby and the other Transaction Documents or by the agreements
and instruments to be entered into in connection herewith or therewith, or on
the authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). 
The Company has no Subsidiaries except as set forth on Schedule 3(a).

(b)           Authorization; Enforcement;
Validity.  The Company has the
requisite power and authority to enter into and perform its obligations under
this Agreement, the Notes, the Registration Rights Agreement, the Irrevocable
Transfer Agent Instructions (as defined in Section 5(b)), the Warrants, and
each of the other agreements entered into by the parties hereto in connection
with the transactions contemplated by this Agreement (collectively, the “Transaction Documents”) and to issue the Securities in
accordance with the terms hereof and thereof. 
The execution and delivery of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby, including, without limitation,

 6
 

the issuance of the Notes and the Warrants,
the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion of the Notes and the reservation
for issuance and issuance of Warrant Shares issuable upon exercise of the
Warrants have been duly authorized by the Company’s Board of Directors and
other than (i) the filing of a Form D under Regulation D of the 1933 Act,
(ii) the filing with the SEC of one or more Registration Statements in
accordance with the requirements of the Registration Rights Agreement, (iii)
such filings as are required by the Principal Market (as defined below) and
(iv) such filings required under applicable securities or “Blue Sky” laws of
the states of the United States, no further filing, consent, or authorization
is required by the Company, its Board of Directors or its stockholders.  This Agreement and the other Transaction
Documents of even date herewith have been duly executed and when delivered by
the Company will constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.

(c)           Issuance of Securities.  The issuance of the Notes and the Warrants
are duly authorized and are free from all taxes, liens and charges with respect
to the issue thereof.  As of the Closing,
a number of shares of Common Stock shall have been duly authorized and reserved
for issuance which equals 130% of the maximum number of shares Common Stock
issuable upon conversion of the Notes (assuming such conversion occurred at
Closing) and upon exercise of the Warrants (assuming such exercise occurred at
Closing).  Upon conversion in accordance
with the Notes or exercise in accordance with the Warrants, as the case may be,
the Conversion Shares and the Warrant Shares, respectively, when issued, will
be validly issued, fully paid and nonassessable and free from all preemptive or
similar rights, taxes, liens and charges with respect to the issue thereof,
with the holders being entitled to all rights accorded to a holder of Common
Stock.  Based in part upon the accuracy
of the representations and warranties of the Buyers’ set forth in Article 2,
issuance by the Company of the Securities is, or will be upon issuance, exempt
from registration under the 1933 Act.

(d)           No Conflicts.  The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without limitation,
the issuance of the Notes and the Warrants, and reservation for issuance and
issuance of the Conversion Shares and the Warrant Shares) will not (i) result
in a violation of any certificate of incorporation, certificate of formation,
any certificate of designations or other constituent documents of the Company
or any of its Subsidiaries, any capital stock of the Company or any of its
Subsidiaries or bylaws of the Company or any of its Subsidiaries or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) in any respect under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including foreign, federal and state
securities laws and regulations and the rules and regulations of the OTC
Bulletin Board as reported on Bloomberg Financial Markets LP (the “Principal Market”)) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected; except in the case of each of clauses (ii)
and (iii), such as

 7
 

could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect.

(e)           Consents.  Other than as contemplated in Section 3(b),
and otherwise as set forth on Schedule 3(e), the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof.  All consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the Closing
Date (other than those which the Company is not required to obtain in
accordance with the Transaction Documents until after the Closing Date) and the
Company and its Subsidiaries are unaware of any facts or circumstances which
might prevent the Company from obtaining or effecting any of the registration,
application or filings pursuant to the preceding sentence.  The Company is not in violation of the listing
requirements of the Principal Market and has no knowledge of any facts which
would reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.

(f)            Acknowledgment Regarding Buyer’s
Purchase of Securities.  The Company
acknowledges and agrees that each Buyer is acting solely in the capacity of an
arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an
officer or director of the Company, (ii) to the Company’s knowledge, an “affiliate”
of the Company (as defined in Rule 144 of the 1933 Act) or (iii) to the
knowledge of the Company, a “beneficial owner” of more than 10% of the shares
of Common Stock (as defined for purposes of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the “1934 Act”)).  The
Company further acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company or any of its Subsidiaries (or in any similar
capacity) with respect to the Transaction Documents and the transactions contemplated
hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such Buyer’s
purchase of the Securities.  The Company
further represents to each Buyer that the Company’s decision to enter into the
Transaction Documents has been based solely on the independent evaluation by
the Company and its representatives.

(g)           No General Solicitation; Placement
Agent’s Fees.  Neither the Company,
nor any of its affiliates, nor any Person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the
Securities.  The Company shall be
responsible for the payment of any placement agent’s fees, financial advisory
fees, or brokers’ commissions (other than for persons engaged by any Buyer or
its investment advisor) relating to or arising out of the transactions
contemplated hereby.  The Company shall
pay, and hold each Buyer harmless against, any liability, loss or expense
(including, without limitation, attorney’s fees and out-of-pocket expenses)
arising in connection with any such claim. 
The Company acknowledges that it has engaged Cowen and Company as
placement agent (the “Placement Agent”) in connection with the sale of the Securities.  Other than the Placement Agent, the Company
has not engaged any placement agent or other agent in connection with the sale
of the Securities.

 8
 

(h)           No Integrated Offering.  None of the Company, its Subsidiaries, any of
their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to
be integrated with prior offerings by the Company for purposes of the 1933 Act
or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated.  None of the Company, its
Subsidiaries, their affiliates and any Person acting on their behalf will take
any action or steps referred to in the preceding sentence that would require
registration of any of the Securities under the 1933 Act or cause the offering
of the Securities to be integrated with other offerings.

(i)            Dilutive Effect.  The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances.  The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Notes in accordance with this Agreement and the Notes and its obligation to
issue the Warrant Shares upon exercise of the Warrants in accordance with this
Agreement and the Warrants, in each case, is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.

(j)            Application of Takeover
Protections; Rights Agreement.  The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of Incorporation
or the laws of the jurisdiction of its formation which is or could become
applicable to any Buyer as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company’s issuance of the
Securities and any Buyer’s ownership of the Securities.  The Company has not adopted a stockholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.

(k)           SEC Documents; Financial
Statements.  Except as disclosed in Schedule
3(k), since October 7, 2005, the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the 1934 Act (all of the foregoing
filed prior to the date hereof and all exhibits included therein and financial
statements, notes and schedules thereto and documents incorporated by reference
therein being hereinafter referred to as the “SEC Documents”).  The
Company has delivered to the Buyers or their respective representatives true,
correct and complete copies of the SEC Documents not available on the EDGAR
system.  As of their respective dates,
the SEC Documents complied in all material respects with the requirements of
the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. 
As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto.

 9
 

Such financial statements have been prepared
in accordance with generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may exclude footnotes or may
be condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results
of its operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).  No other information provided by or on behalf
of the Company to the Buyers which is not included in the SEC Documents,
including, without limitation, information referred to in Section 2(d) of this
Agreement, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made and not misleading.

(l)            Absence of Certain Changes.  Except as
disclosed in Schedule 3(l), since October 7, 2005, there has been no
material adverse change and no material adverse development in the business,
properties, operations, condition (financial or otherwise), results of
operations or prospects of the Company or its Subsidiaries.  Except as
disclosed in Schedule 3(1), since October 7, 2005, the Company
has not (i) declared or paid any dividends, (ii) sold any assets, individually
or in the aggregate, in excess of $100,000 outside of the ordinary course of
business or (iii) had capital expenditures, individually or in the aggregate,
in excess of $100,000.  The Company has
not taken any steps to seek protection pursuant to any bankruptcy law nor does
the Company have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings or any actual knowledge of any
fact which would reasonably lead a creditor to do so.  The Company and its Subsidiaries,
individually and on a consolidated basis, will not, after giving effect to the
transactions contemplated hereby to occur at the Closing, be Insolvent (as
defined below).  For purposes of this
Section 3(l), “Insolvent” means, with respect to
any Person (as defined in Section 3(s)), (i) the present fair saleable value of
such Person’s assets is less than the amount required to pay such Person’s
total Indebtedness (excluding the Notes) (as defined in Section 3(s)), (ii)
such Person is unable to pay its debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured, (iii) such Person intends to incur or believes that it will incur
debts that would be beyond its ability to pay as such debts mature or (iv) such
Person has unreasonably small capital with which to conduct the business in
which it is engaged as such business is now conducted and is proposed to be
conducted.

(m)          No Undisclosed Events, Liabilities,
Developments or Circumstances.  No
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.

(n)           Conduct of Business; Regulatory
Permits.  Neither the Company nor its
Subsidiaries is in violation of any term of or in default under its Certificate
of Incorporation, any certificate of designations of any outstanding series of
preferred stock of the Company or Bylaws or their organizational charter or
bylaws, respectively.  Neither the
Company nor any of its

 10
 

Subsidiaries is in violation of any judgment,
decree or order or any statute, ordinance, rule or regulation applicable to the
Company or its Subsidiaries, and neither the Company nor any of its
Subsidiaries will conduct its business in violation of any of the foregoing,
except for possible violations which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.  Without limiting the generality of the
foregoing, the Company is not in violation of any of the rules, regulations or
requirements of the
Principal Market and has no knowledge of any facts or circumstances that
would reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the foreseeable future. 
Since October 7, 2005, the Common Stock has been designated for
quotation on the Principal Market.  Since
October 7, 2005, (i) trading in the Common Stock has not been suspended by the
SEC or the Principal Market and (ii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market.  The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.

(o)           Foreign Corrupt Practices.  Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
(iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.

(p)           Sarbanes-Oxley Act.  The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.

(q)           Transactions With Affiliates.  Except as set forth in the SEC Documents
filed at least ten (10) days prior to the date hereof and other than the grant
of stock options disclosed on Schedule 3(q), none of the officers,
directors or employees of the Company or any of its Subsidiaries is presently a
party to any transaction with the Company or any of its Subsidiaries (other
than for ordinary course services as employees, officers or directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director or employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.

 11
 

(r)            Equity Capitalization.  As of the date hereof, the authorized capital
stock of the Company consists of (i) 400,000,000 shares of Common Stock, of
which as of the date hereof, 217,182,455 are issued and outstanding, up to
4,000,000 shares will be reserved for issuance pursuant to the Company’s stock
option and purchase plans and 64,698,391 shares are reserved for issuance
pursuant to securities (other than the Notes and the Warrants) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii)
15,000,000 shares of preferred stock, of which as of the date hereof, no shares
are issued and outstanding.  All of such
outstanding shares have been, or upon issuance will be, validly issued and are
fully paid and nonassessable.  Except as
disclosed in Schedule 3(r): (i) none of the Company’s capital stock is
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company; (ii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings
or arrangements by which the Company or any of its Subsidiaries is or may
become bound to issue additional capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any of its Subsidiaries; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may
become bound; (iv) there are no financing statements securing obligations in
any material amounts, either singly or in the aggregate, filed in connection
with the Company or any of its Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except
pursuant to the Registration Rights Agreement); (vi) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or “phantom stock” plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company’s or
its Subsidiaries’ respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect.  The Company has furnished to the Buyers true,
correct and complete copies of the Company’s Certificate of Incorporation, as
amended and as in effect on the date hereof (the “Certificate of Incorporation”), and the Company’s Bylaws, as
amended and as in effect on the date hereof (the “Bylaws”),
and the terms of all securities convertible into, or exercisable or
exchangeable for, shares of Common Stock and the material rights of the holders
thereof in respect thereto.  Schedule
3(r) sets forth the shares of Common Stock owned beneficially or of record
and Common Stock Equivalents (as defined below) held by each director and
executive officer.

(s)           Indebtedness and Other Contracts.  Except as disclosed in Schedule 3(s),
neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or
instrument, the violation of which, or default

 12
 

under which, by the other party(ies) to such
contract, agreement or instrument could reasonably be expected to result in a
Material Adverse Effect, (iii) is in violation of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness,
except where such violations and defaults would not result, individually or in
the aggregate, in a Material Adverse Effect, or (iv) is a party to any
contract, agreement or instrument relating to any Indebtedness, the performance
of which, in the judgment of the Company’s officers, has or is expected to have
a Material Adverse Effect.  Schedule
3(s) provides a detailed description of the material terms of any such
outstanding Indebtedness.  For purposes
of this Agreement:  (x) “Indebtedness” of any Person means, without duplication (A)
all indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services, including
(without limitation) “capital leases” in accordance with generally accepted
accounting principles (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising
under any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any
Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means, as to any Person, any direct
or indirect liability, contingent or otherwise, of that Person with respect to
any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the
primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto; and (z) “Person” means
an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.

(t)            Absence of Litigation.  Except as set forth on Schedule 3(s),
there is no action, suit, proceeding or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock or
any of the Company’s Subsidiaries or any of the Company’s or its Subsidiaries’
officers or directors, whether of a civil or criminal nature or otherwise.

(u)           Insurance.  The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts

 13
 

as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged.  Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
have a Material Adverse Effect.

(v)           Employee Relations.  (i) 
Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union.  The Company and its Subsidiaries believe that
their relations with their employees are good. 
No executive officer of the Company or any of its Subsidiaries (as
defined in Rule 501(f) of the 1933 Act) has notified the Company or any such
Subsidiary that such officer intends to leave the Company or any such
Subsidiary or otherwise terminate such officer’s employment with the Company or
any such Subsidiary.  No executive
officer of the Company or any of its Subsidiaries is, or is now expected to be,
in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or any
of its Subsidiaries to any liability with respect to any of the foregoing
matters.

(ii)           The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.

(w)          Title.  The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company and any of its Subsidiaries.   Any real property and facilities held under
lease by the Company and any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.

(x)            Intellectual Property Rights.
The Company and its Subsidiaries own or possess adequate rights or licenses to
use all trademarks, service marks and all applications and registrations
therefor, trade names, patents, patent rights, copyrights, original works of
authorship, inventions, licenses, approvals, governmental authorizations, trade
secrets and other intellectual property rights (“Intellectual Property Rights”) necessary to conduct their
respective businesses as now conducted. 
None of the Company’s registered, or applied for, Intellectual Property
Rights have expired or terminated or have been abandoned, or are expected to
expire or terminate or expected to be abandoned, within three years from the
date of this Agreement.  The Company does
not have any knowledge of any infringement by the Company or its Subsidiaries
of Intellectual Property Rights of others. 
There is no claim, action or

 14
 

proceeding being made or brought, or to the
knowledge of the Company, being threatened, against the Company or any of its
Subsidiaries regarding its Intellectual Property Rights.  The Company is unaware of any facts or
circumstances which might give rise to any of the foregoing infringements or
claims, actions or proceedings.  The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their Intellectual Property Rights.

(y)           Environmental Laws.  The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. 
The term “Environmental Laws”
means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous
Materials”) into the
environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.

(z)            Subsidiary Rights.  The Company or one of its Subsidiaries has
the unrestricted right to vote, and (subject to limitations imposed by
applicable law) to receive dividends and distributions on, all capital
securities of its Subsidiaries as owned by the Company or such Subsidiary.

(aa)         Investment Company.  The Company is not, and upon consummation of
the sale of the Securities will not be, an “investment company,” a company
controlled by an “investment company” or an “affiliated person” of, or “promoter”
or “principal underwriter” for, an “investment company” as such terms are
defined in the Investment Company Act of 
1940, as amended.

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

(cc)         Internal Accounting and Disclosure
Controls.  The Company and each of
its Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable

 15
 

assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference.  The Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-14
under the 1934 Act) that are effective in ensuring that information required to
be disclosed by the Company in the reports that it files or submits under the
1934 Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed in to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is accumulated and communicated to the Company’s management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure.  Since
October 7, 2005, neither the Company nor any of its Subsidiaries have received
any notice or correspondence from any accountant identifying a material
weakness in any part of the system of internal accounting controls of the
Company or any of its Subsidiaries which is not specified in the Company’s
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005.

(dd)         Off Balance Sheet Arrangements.  There is no transaction, arrangement, or
other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its
Exchange Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.

(ee)         Ranking of Notes.  Except as set forth on Schedule (ee),
no Indebtedness of the Company is senior to the Notes in right of payment,
whether with respect of payment of redemptions, interest, damages or upon
liquidation or dissolution or otherwise.

(ff)           Form SB-2 Eligibility.  The Company is eligible to register the
Conversion Shares and the Warrant Shares for resale by the Buyers using Form
SB-2 promulgated under the 1933 Act.

(gg)         Transfer Taxes.  On the Closing Date, all stock transfer or
other taxes (other than income or similar taxes) which are required to be paid
in connection with the sale and transfer of the Securities to be sold to each
Buyer hereunder will be, or will have been, fully paid or provided for by the
Company, and all laws imposing such taxes will be or will have been complied
with.

(hh)         Manipulation of Price.  The Company has not, and to its knowledge no
one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of any of
the Securities, (ii) other than the Placement Agent, sold, bid for, purchased,
or paid any compensation for soliciting purchases of, any of the Securities, or
(iii) other than the Placement Agent, paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.

 16
 

(ii)           Acknowledgement Regarding Buyers’
Trading Activity.  It is understood
and acknowledged by the Company (i) that following the public disclosure of the
transactions contemplated by the Transaction Documents in accordance with the
terms hereof, none of the Buyers have been asked to agree, nor has any Buyer
agreed, to desist from purchasing or selling, long and/or short, securities of
the Company, or “derivative” securities based on securities issued by the
Company or to hold the Securities for any specified term, (ii) that any Buyer,
and counter parties in “derivative” transactions to which any such Buyer is a
party, directly or indirectly, which were established prior to their learning
of the transactions contemplated by the Transaction Documents, presently may
have a “short” position in the Common Stock, and (iii) that each Buyer shall
not be deemed to have any affiliation with or control over any arm’s length
counter-party in any “derivative” transaction. 
The Company further understands and acknowledges that, following the
public disclosure of the transactions contemplated by the Transaction Documents
in accordance with the terms hereof, (a) one or more Buyers may engage in
hedging and/or trading activities at various times during the period that the
Securities are outstanding, including, without limitation, during the periods
that the value of the Conversion Shares and the Warrant Shares deliverable with
respect to Securities are being determined and (b) such hedging and/or trading
activities, if any, can reduce the value of the existing stockholders’ equity
interest in the Company both at and after the time the hedging and/or trading
activities are being conducted.  The
Company acknowledges that such aforementioned hedging and/or trading activities
do not constitute a breach of this Agreement, the Notes, the Warrants or any of
the documents executed in connection herewith.

(jj)           U.S. Real Property Holding
Corporation.  The Company is not, nor
has ever been, a U.S. real property holding corporation within the meaning of
Section 897 of the Internal Revenue Code of 1986, as amended, and the Company
shall so certify upon Buyer’s request.

(kk)         Disclosure.  The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Buyers or their
agents or counsel with any information that constitutes material, nonpublic
information concerning the Company or its Subsidiaries other than the existence
of the transactions contemplated by this Agreement or the other Transaction
Documents.  The Company understands and
confirms that each of the Buyers will rely on the foregoing representations in
effecting transactions in securities of the Company.  All disclosure provided to the Buyers
regarding the Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the
Company is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading.  Each press
release issued by the Company or any of its Subsidiaries during the twelve (12)
months preceding the date of this Agreement did not at the time of release
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.  No event or circumstance has
occurred or information exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.

 17
 

4.             COVENANTS.

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

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

(c)           Reporting Status.  Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the
Conversion Shares and Warrant Shares and
none of the Notes or Warrants is
outstanding (the “Reporting Period”),
the Company shall file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.

(d)           Use of Proceeds.  The Company will use the proceeds from the
sale of the Securities for general corporate and for working capital purposes,
provided, however, that the Company may not use the proceeds from the sale of
the Securities for (i) the repayment of any other outstanding Indebtedness of
the Company or any of its Subsidiaries or (ii) the redemption or repurchase of
any of its or its Subsidiaries’ equity securities.

(e)           Financial Information.  The Company agrees to send the following to
each Investor (as defined in the Registration Rights Agreement) during the
Reporting Period (i) unless the following are filed with the SEC through EDGAR
and are available to the public through the EDGAR system, within one (1)
Business Day after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-K or 10-KSB, any interim reports or any consolidated balance
sheets, income statements, stockholders’ equity statements and/or cash flow
statements for any period other than annual, any Current Reports on Form 8-K
and any registration statements (other than on Form S-8) or amendments
filed pursuant to the 1933 Act, (ii) on the same day as the release thereof, if
not publicly filed, facsimile or e-mailed copies of all press releases issued
by the Company or any of its Subsidiaries, and (iii) copies of any notices and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.  As used herein, “Business Day” means any day other than Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

(f)            Listing.  The Company shall promptly secure the listing
of all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which the Common Stock is

 18

then listed (subject to official notice of
issuance) and shall maintain such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents.  The Company shall maintain the Common Stocks’
authorization for quotation on the Principal Market.  Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market.  The Company shall pay all fees and expenses
in connection with satisfying its obligations under this Section 4(f).

(g)           Fees.  The Company shall reimburse Investor for all
reasonable costs and expenses incurred in connection with the transactions
contemplated by the Transaction Documents, which amount shall be withheld by
such Buyer from its Purchase Price at the Closing.  The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or broker’s
commissions (other than for Persons engaged by any Buyer) relating to or
arising out of the transactions contemplated hereby, including, without
limitation, any fees or commissions payable to the Placement Agent.  The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney’s fees and out-of-pocket expenses) arising in
connection with any claim against a Buyer relating to any such payment.  Except as otherwise set forth in the
Transaction Documents, each party to this Agreement shall bear its own expenses
in connection with the sale of the Securities to the Buyers.

(h)           Pledge of Securities.  The Company acknowledges and agrees that the
Securities may be pledged by an Investor (as defined in the Registration Rights
Agreement) in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Securities.  The pledge of Securities shall not be deemed
to be a transfer, sale or assignment of the Securities hereunder, and no
Investor effecting a pledge of Securities shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document, including,
without limitation, Section 2(f) hereof; provided that an Investor and its
pledgee shall be required to comply with the provisions of Section 2(f) hereof
in order to effect a sale, transfer or assignment of Securities to such
pledgee.  The Company hereby agrees to
execute and deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to such
pledgee by an Investor.

(i)            Disclosure of Transactions and
Other Material Information.  On or
before 11:30 a.m., CST time, on the first Business Day following the date of
this Agreement, the Company shall issue a press release and file a Current
Report on Form 8-K describing the terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and attaching the
material Transaction Documents (including, without limitation, this Agreement
(and all schedules to this Agreement), the form of the Notes, the form of
Warrant and the form of the Registration Rights Agreement) as exhibits to such
filing (including all attachments, the “8-K Filing”).  From
and after the filing of the 8-K Filing with the SEC, no Buyer shall be in
possession of any material, nonpublic information received from the Company,
any of its Subsidiaries or any of its respective officers, directors, employees
or agents, that is not disclosed in the 8-K Filing.  The Company shall not, and shall cause each
of its Subsidiaries and its and each of their respective officers, directors,
employees and agents, not to, provide any Buyer with any material, nonpublic
information regarding the Company or any of its

 19
 

Subsidiaries from and after the filing of the
8-K Filing with the SEC without the express written consent of such Buyer or as
may be required under the terms of the Transaction Documents.  If a Buyer has, or believes it has, received
any such material, nonpublic information regarding the Company or any of its
Subsidiaries, it shall provide the Company with written notice thereof.  The Company shall, within five (5) Trading
Days (as defined in the Note) of receipt of such notice, make public disclosure
of such material, nonpublic information. 
In the event of a breach of the foregoing covenant by the Company, any
of its Subsidiaries, or any of its or their respective officers, directors,
employees and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, nonpublic information without the prior approval by the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents.  No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, stockholders or agents for any
such disclosure.  Subject to the
foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release).  Without the prior written consent of any
applicable Buyer, neither the Company nor any of its Subsidiaries or affiliates
shall disclose the name of such Buyer in any filing, announcement, release or
otherwise, unless such disclosure is required by law, regulation or the
Principal Market.

(j)            Restriction on Redemption and
Cash Dividends.  So long as any Notes
are outstanding, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash dividend or distribution on, the Common Stock without
the prior express written consent of the Required Holders (as defined in the
Notes).

(k)           Additional Notes; Variable
Securities; Dilutive Issuances.  So
long as any Notes remain outstanding, the Company will not issue any Notes
other than to the Buyers as contemplated hereby and the Company shall not issue
any other securities that would cause a breach or default under the Notes.  For long as any Notes or Warrants remain
outstanding, the Company shall not, in any manner, issue or sell any rights,
warrants or options to subscribe for or purchase Common Stock or directly or
indirectly convertible into or exchangeable or exercisable for Common Stock at
a price which varies or may vary with the market price of the Common Stock,
including by way of one or more reset(s) to any fixed price (other than
pursuant to antidilution provisions) unless the conversion, exchange or
exercise price of any such security cannot be less than the then applicable
Conversion Price (as defined in the Notes) with respect to the Common Stock into
which any Note is convertible or the then applicable Exercise Price (as defined
in the Warrants) with respect to the Common Stock into which any Warrant is
exercisable.  For long as any Notes or
Warrants remain outstanding, the Company shall not, in any manner, enter into
or affect any Dilutive Issuance (as defined in the Notes) if the effect of such
Dilutive Issuance is to cause the Company to be required to issue upon
conversion of any Note or exercise of any Warrant any shares of Common Stock in
excess of that number of shares of Common Stock which the Company may issue
upon conversion of the Notes and exercise of

 20
 

the Warrants without breaching the Company’s
obligations under the rules or regulations of the Eligible Market (as defined
in the Registration Rights Agreement).

(l)            Corporate Existence.  So long as any Notes remain outstanding, the
Company shall not be party to any Fundamental Transaction (as defined in the
Notes) unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Notes and the Warrants.

(m)          Reservation of Shares.  So long as any Notes or Warrants remain
outstanding, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, no less than 130% of the
number of shares of Common Stock issuable upon conversion of all of the Notes
and issuable upon exercise of the Warrants then outstanding (without taking
into account any limitations on the conversion of the Notes or exercise of the
Warrants set forth in the Notes and Warrants, respectively).

(n)           Conduct of Business.  The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.

(o)           Additional Issuances of Securities.

(i)            For
purposes of this Section 4(o), the following definitions shall apply.

(1)           “Convertible Securities” means any stock or
securities (other than Options) convertible into or exercisable or exchangeable
for shares of Common Stock.

(2)           “Options” means any rights, warrants or options to subscribe
for or purchase shares of Common Stock or Convertible Securities.

(3)           “Common Stock Equivalents” means,
collectively, Options and Convertible Securities.

(ii)           From
the date hereof until the date that is 30 calendar days following the Effective
Date (as defined in the Registration Rights Agreement) (the “Trigger Date”), the Company will not, directly or
indirectly, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition of) any of its or its Subsidiaries’ equity or equity equivalent
securities, including without limitation any debt, preferred stock or other
instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for shares of Common Stock or Common Stock Equivalents (any such
offer, sale, grant, disposition or announcement being referred to as a “Subsequent Placement”).

(iii)          For
a period of 24 months following the Effective Date (as defined in the
Registration Rights Agreement), the Company will not, directly or indirectly,
effect

 21
 

any Subsequent Placement unless the Company shall have first complied
with this Section 4(o)(iii).

(1)           The
Company shall deliver to each Buyer who purchased Notes hereunder with at least
a principal amount of $5 million (each, an “Eligible
Buyer”) a written notice (the ”Offer Notice”) of any proposed or intended issuance or sale
or exchange (the ”Offer”) of the
securities being offered (the “Offered Securities”)
in a Subsequent Placement, which Offer Notice shall (w) identify and describe
the Offered Securities, (x) describe the price and other terms upon which
they are to be issued, sold or exchanged, and the number or amount of the
Offered Securities to be issued, sold or exchanged, (y) identify the
persons or entities (if known) to which or with which the Offered Securities
are to be offered, issued, sold or exchanged and (z) offer to issue and sell to
or exchange with such Eligible Buyers at least 50% of the Offered Securities,
allocated among such Eligible Buyers (a) based on such Eligible Buyer’s pro
rata portion of the aggregate principal amount of Notes purchased hereunder by Eligible Buyers (the “Basic Amount”), and (b) with respect to each Eligible Buyer
that elects to purchase its Basic Amount, any additional portion of the Offered
Securities attributable to the Basic Amounts of other Eligible Buyers as such
Eligible Buyer shall indicate it will purchase or acquire should the other
Eligible Buyers subscribe for less than their Basic Amounts (the “Undersubscription Amount”), which process shall be repeated
until the Buyers shall have an opportunity to subscribe for any remaining
Undersubscription Amount.

(2)           To
accept an Offer, in whole or in part, such Eligible Buyer must deliver a
written notice to the Company prior to the end of the seventh (7th) Business Day after such
Eligible Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion of such Eligible
Buyer’s Basic Amount that such Eligible Buyer elects to purchase and, if such
Eligible Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Eligible Buyer elects to purchase
(in either case, the “Notice of Acceptance”).  If the Basic Amounts subscribed for by all
Eligible Buyers are less than the total of all of the Basic Amounts, then each
Eligible Buyer who has set forth an Undersubscription Amount in its Notice of
Acceptance shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed for; provided,
however, that if the Undersubscription Amounts subscribed for exceed the
difference between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the “Available
Undersubscription Amount”), each Eligible Buyer who has subscribed
for any Undersubscription Amount shall be entitled to purchase only that
portion of the Available Undersubscription Amount as the Basic Amount of such
Eligible Buyer bears to the total Basic Amounts of all Eligible Buyers that
have subscribed for Undersubscription Amounts, subject to rounding by the
Company to the extent its deems reasonably necessary.

(3)           The
Company shall have ten (10) Business Days from the expiration of the Offer
Period above to (i) offer, issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by the
Eligible Buyers (the “Refused Securities”),
but only to the offerees described in the

 22
 

Offer Notice (if so described therein) and only upon terms and
conditions (including, without limitation, unit prices and interest rates) that
are not more favorable to the acquiring person or persons or less favorable to
the Company than those set forth in the Offer Notice and (ii) to publicly
announce (a) the execution of such Subsequent Placement Agreement (as defined
below), and (b) either (x) the consummation of the transactions contemplated by
such Subsequent Placement Agreement or (y) the termination of such Subsequent
Placement Agreement, which shall be filed with the SEC on a Current Report on
Form 8-K with such Subsequent Placement Agreement and any documents
contemplated therein filed as exhibits thereto (the “Offer 8-K”).  In the
event of a breach of the foregoing covenant by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, nonpublic information without the prior approval by the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents.  No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, stockholders or agents for any
such disclosure.

(4)           In
the event the Company shall propose to sell less than all the Refused
Securities (any such sale to be in the manner and on the terms specified in
Section 4(o)(iii)(3) above), then each Eligible Buyer may, at its sole option
and in its sole discretion, reduce the number or amount of the Offered
Securities specified in its Notice of Acceptance to an amount that shall be not
less than the number or amount of the Offered Securities that such Eligible
Buyer elected to purchase pursuant to Section 4(o)(iii)(2) above multiplied by
a fraction, (i) the numerator of which shall be the number or amount of Offered
Securities the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Eligible Buyers pursuant to Section
4(o)(iii)(3) above prior to such reduction) and (ii) the denominator of which
shall be the original amount of the Offered Securities.  In the event that any Eligible Buyer so
elects to reduce the number or amount of Offered Securities specified in its
Notice of Acceptance, the Company may not issue, sell or exchange more than the
reduced number or amount of the Offered Securities unless and until such
securities have again been offered to the Eligible Buyers in accordance with
Section 4(o)(iii)(1) above.

(5)           Upon
the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, the Eligible Buyers shall acquire from the Company, and the
Company shall issue to the Eligible Buyers, the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 4(o)(iii)(3) above if the Eligible Buyers have so elected, upon the
terms and conditions specified in the Offer. 
The purchase by the Eligible Buyers of any Offered Securities is subject
in all cases to the preparation, execution and delivery by the Company and the
Eligible Buyers of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Eligible Buyers and their
respective counsel.

(6)           Any
Offered Securities not acquired by the Eligible Buyers or other persons in
accordance with Section 4(o)(iii)(3) above may not be issued, sold or

 23
 

exchanged until they are again offered to the Eligible Buyers under the
procedures specified in this Agreement.

(iv)          The
restrictions contained in subsections (ii) and (iii) of this Section 4(o) shall
not apply in connection with the issuance of any Excluded Securities (as
defined in the Notes).

(v)           In
exchange for the Company’s willingness to agree to these procedures, each
Eligible Buyer hereby irrevocably agrees that it will hold in strict confidence
any and all Offer Notices, the information contained therein, and the fact that
the Company is contemplating a Subsequent Placement, from the date such
Eligible Buyer receives such Offer Notice until the earlier to occur of (1) the
date the Offer 8-K is filed with the SEC and (2) the date such information is
disclosed to the public by any Eligible Buyer in accordance with Section
4(o)(iii)(3) above.  Notwithstanding
anything in this Section 4(o) to the contrary, at any time any Eligible Buyer
may elect, by delivering written notice to the Company, not to receive any
Offer Notices hereunder and, until such time as such Eligible Buyer or its
successor elects, by delivering written notice to the Company, to receive Offer
Notices hereunder, the Company shall not be obligated to deliver any Offer
Notices to such Eligible Buyer.

(p)           Letter of Credit.  On any Disclosure Date (as defined in the
Notes), including, without limitation, any Disclosure Date following any LC
Test Satisfaction Date (as defined below), the Company shall obtain (or
maintain, as applicable) an irrevocable letter of credit (the “Letter of Credit”), in the amount of 30% of the principal
amount of the outstanding Notes as of such Disclosure Date (the “Required Letter of Credit Amount”) issued
in favor of                        
(the “LC Agent”) by a bank
acceptable to such LC Agent (the “Letter of Credit Bank”)
and in form and substance acceptable to such LC Agent; provided, however, that
if on any Disclosure Date the amount available to be drawn on a Letter of
Credit then outstanding (together with any amounts previously drawn on such
Letter of Credit by the LC Agent) is less than the Required Letter of Credit
Amount, the Company shall amend or replace such Letter of Credit with a Letter
of Credit (together with any amounts previously drawn on such Letter of Credit
by the LC Agent) in the Required Letter of Credit Amount and in form and
substance acceptable to such LC Agent. 
If the Net Cash Balance Test (as defined in the Note) for the Fiscal
Quarter (as defined in the Note) immediately following such Disclosure Date is
met, the Company shall no longer be required to maintain such Letter of Credit
(such date, the “LC Test Satisfaction Date”);
provided, however, that the foregoing shall not effect the Company’s obligation
to obtain (or maintain, as applicable) a Letter of Credit with respect to any
Disclosure Date that occurs after such LC Test Satisfaction Date.  Subject to the last three sentences of this
Section 4(q), the Letter of Credit shall expire not earlier than the earlier to
occur of (i) the applicable LC Test Satisfaction Date and (ii) 91 days after
the Maturity Date of the Notes (the “LC Expiration Date”).  Upon the occurrence and during the
continuance of an Event of Default under (and as defined in) the Notes, the LC
Agent shall be entitled to draw under the Letter of Credit for the full Letter
of Credit Amount (as defined in the Notes) then available thereunder, it being
understood that the LC Agent shall act for the benefit of the Buyers on a pro
rata basis based on the principal amount of the Notes held by each of the
Buyers and hold such amount as collateral security for the obligations under
the Notes for the benefit of the Buyers. 
The Company shall obtain such renewals, extensions or replacements of
the Letter of

 24
 

Credit as necessary to ensure that the Letter
of Credit shall not expire prior to the LC Expiration Date (unless the Letter
of Credit shall have been reduced to zero in accordance with the terms
contained in this Section 4(q) prior to such date).  If, at any time, the Company cannot obtain a
renewal, extension or replacement of the Letter of Credit such that the Letter
of Credit will expire prior to the LC Expiration Date (a “Withdrawal Event”), the Company and the Letter of Credit
Bank shall each give the LC Agent written notice of the occurrence of a
Withdrawal Event at least forty-five (45) days prior to the then current
expiration date of the Letter of Credit. 
Following a Withdrawal Event, the LC Agent shall be entitled to draw
down the Letter of Credit Amount in its entirety (whether or not an Event of
Default shall have occurred or be continuing under any of the Notes) and hold
such amount as collateral security for the obligations under the Notes for the
benefit of the Buyers.

(q)           LC Agent.                      
is hereby appointed as the LC Agent for the Buyers hereunder, and each Buyer
hereby authorizes the LC Agent (and its officers, directors, employees and
agents) to take any and all such actions on behalf of such Buyer with respect
to the Letter of Credit in accordance with the terms of this Agreement.  The LC Agent shall not have, by reason hereof
or any of the other Transaction Documents, a fiduciary relationship in respect
of the Buyers.  Neither the LC Agent nor
any of its officers, directors, employees and agents shall have any liability
to the Buyers for any action taken or omitted to be taken in connection hereof
except to the extent caused by its own gross negligence or willful misconduct,
and the Buyers agree to defend, protect, indemnify and hold harmless the LC
Agent and all of its officers, directors, employees and agents (collectively,
the “Indemnitees”)
from and against any losses, damages, liabilities, obligations, penalties,
actions, judgments, suits, fees, costs and expenses (including, without
limitation, reasonable attorneys’ fees, costs and expenses) incurred by such
Indemnitee, as incurred, whether direct, indirect or consequential, arising
from or in connection with the performance by such Indemnitee of the duties and
obligations of the LC Agent pursuant hereto.

(r)            Stockholder Approval.  If at any time the Exchange Cap (as defined
in the Notes) would limit the aggregate number of shares of Common Stock which
the Company may issue upon conversion or exercise, as applicable, of the Notes
and Warrants, at the written request of holders of a majority of the Conversion
Shares and Warrant Shares outstanding at such time (as determined assuming full
conversion of the Notes and full exercise of the Warrants prior to such date
without taking into account any limitations on the conversion of the Notes or
exercise of the Warrants set forth in the Notes and Warrants, respectively)
(the date of such request, the “Stockholder
Meeting Request Date”), the Company shall provide each stockholder entitled
to vote at a special or annual meeting of stockholders of the Company (the “Stockholder Meeting”), which shall be promptly called and
held not later than ninety (90) calendar days after the Stockholder Meeting
Request Date (the “Stockholder Meeting
Deadline”), a proxy statement, substantially in the form which has
been previously reviewed by the Buyers, soliciting each such stockholder’s
affirmative vote at the Stockholder Meeting for approval of resolutions
providing for the Company’s issuance of all of the Securities as described in
the Transaction Documents in accordance with applicable law and the rules and
regulations of the Principal Market and such affirmative approval being
referred to herein as the “Stockholder Approval”),
and the Company shall use its reasonable best efforts to solicit its
stockholders’ approval of such resolutions 
and to cause the Board of Directors of the Company to recommend to the
stockholders that they approve such resolutions.  The Company shall be obligated to use

 25
 

its reasonable best efforts to obtain the
Stockholder Approval by the Stockholder Meeting Deadline.  If, despite the Company’s reasonable best
efforts the Stockholder Approval is not obtained on or prior to the Stockholder
Meeting Deadline, the Company shall cause an additional Stockholder Meeting to
be held every six (6) months thereafter until such Stockholder Approval is
obtained or the Notes are no longer outstanding.

5.             REGISTER;
TRANSFER AGENT INSTRUCTIONS.

(a)           Register.  The Company shall maintain at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to each holder of Securities), a register for the Notes and
the Warrants in which the Company shall record the name and address of the
Person in whose name the Notes and the
Warrants have been issued (including the name and address of each transferee),
the principal amount of Notes held by such Person, the number of Conversion
Shares issuable upon conversion of the Notes and the number of Warrant Shares
issuable upon exercise of the Warrants held by such Person.  The Company shall keep the register open and
available at all times during business hours for inspection of any Buyer or its
legal representatives upon reasonable notice.

(b)           Transfer Agent Instructions.  The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates or credit shares to the applicable balance accounts at The
Depository Trust Company (“DTC”),
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares issued at the Closing or upon
conversion of the Notes or exercise of the Warrants in such amounts as
specified from time to time by each Buyer to the Company upon conversion of the
Notes or exercise of the Warrants in the form of Exhibit D attached
hereto (the “Irrevocable Transfer Agent Instructions”).  The Company warrants that no instruction
other than the Irrevocable Transfer Agent Instructions referred to in this
Section 5(b), and stop transfer instructions to give effect to Section 2(g)
hereof, will be given by the Company to its transfer agent, and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the other
Transaction Documents.  Upon a
Registration Event or if a Buyer effects a sale, assignment or transfer of the
Securities in accordance with Section 2(f), the Company shall promptly instruct
its transfer agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment and, with
respect to any transfer, shall permit the transfer.  In the event that a Registration Event has
occurred or such sale, assignment or transfer involves Conversion Shares or
Warrant Shares sold, assigned or transferred pursuant to an effective
registration statement or pursuant to Rule 144, the transfer agent shall issue
such Securities to the Buyer, assignee or transferee, as the case may be,
without any restrictive legend.  The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer.  Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 5(b),
that a Buyer shall be entitled, in addition to all other available remedies, to
an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.

 26
 

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

Closing Date.  The obligation of the Company hereunder to
issue and sell the Notes and the related Warrants to each Buyer at the Closing
is subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the Company’s sole
benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:

(a)           Such Buyer shall have executed each
of the Transaction Documents to which it is a party and delivered the same to
the Company.

(b)           Such Buyer and each other Buyer shall
have delivered to the Company the Purchase Price, less the amounts withheld
pursuant to Section 4(g), for the Notes and the related Warrants being
purchased by such Buyer at the Closing, by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company.

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

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

Closing Date.  The obligation of each Buyer hereunder to
purchase the Notes and the related
Warrants at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer’s sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:

(a)           The Company is consummating the
Initial Exchange Transaction simultaneously with the Closing hereunder.

(b)           The Company shall have duly executed
and delivered to such Buyer (i) each of the Transaction Documents and (ii) the
Notes (allocated in such principal amounts as such Buyer shall request), being
purchased by such Buyer at the Closing pursuant to this Agreement, (iii) the
related Series A Warrants (allocated in such amounts as such Buyer shall
request) being purchased by such Buyer at the Closing pursuant to this
Agreement and (iv) the related Series B Warrants (allocated in such amounts as
such Buyer shall request) being purchased by such Buyer at the Closing pursuant
to this Agreement.

(c)           Such Buyer shall have received the
opinion of Scheef & Stone, LLP, the Company’s outside counsel, dated as of
the Closing Date, in substantially the form of Exhibit E attached
hereto.

 27
 

(d)           The Company shall have delivered to
such Buyer a copy of the Irrevocable Transfer Agent Instructions, in the form
of Exhibit D attached hereto, which instructions shall have been
delivered to and acknowledged in writing by the Company’s transfer agent.

(e)           The Company shall have delivered to
such Buyer a true copy of certificate evidencing the formation and good
standing of the Company and each of its Subsidiaries in such entity’s
jurisdiction of formation issued by the Secretary of State (or comparable
office) of such jurisdiction, as of a date within 10 days of the Closing Date.

(f)            The Company shall have delivered to
such Buyer a true copy of certificate evidencing the Company’s qualification as
a foreign corporation and good standing issued by the Secretary of State (or
comparable office) of each jurisdiction in which the Company conducts business,
as of a date within 10 days of the Closing Date.

(g)           The Company shall have delivered to
such Buyer a certified copy of the Certificate of Incorporation as certified by
the Secretary of State of the State of Delaware within ten (10) days of the
Closing Date.

(h)           The Company shall have delivered to
such Buyer a certificate, executed by the Secretary of the Company and dated as
of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as
adopted by the Company’s Board of Directors in a form reasonably acceptable to
such Buyer, (ii) the Certificate of Incorporation and (iii) the Bylaws, each as
in effect at the Closing, in the form attached hereto as Exhibit F.

(i)            The representations and warranties
of the Company shall be true and correct in all material respects (except for
those representations and warranties that are qualified by materiality or
Material Adverse Effect, which shall be true and correct in all respects) as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date,
which shall be true and correct as of such specific date) and the Company shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by the Transaction Documents to
be performed, satisfied or complied with by the Company at or prior to the
Closing Date.  Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form attached
hereto as Exhibit G.

(j)            The Company shall have delivered to
such Buyer a letter from the Company’s transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five days of the Closing
Date.

(k)           The Common Stock (I) shall be
designated for quotation or listed on the Principal Market and (II) shall not
have been suspended, as of the Closing Date, by the SEC or the Principal Market
from trading on the Principal Market nor shall suspension by the SEC or the
Principal Market have been threatened, as of the Closing Date, either (A) in
writing by the SEC or the Principal Market or (B) by falling below the minimum
listing maintenance requirements of the Principal Market.

 28
 

(l)            The Company shall have obtained all
governmental, regulatory or third party consents and approvals, if any,
necessary for the sale of the Securities.

(m)          The Company shall have delivered to
such Buyer such other documents relating to the transactions contemplated by
this Agreement as such Buyer or its counsel may reasonably request.

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

 

9.             MISCELLANEOUS.

(a)           Governing Law; Jurisdiction; Jury
Trial.  All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of
the State of New York or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of New
York.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in The City of New York, Borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. 
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

(b)           Counterparts.  This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon

 29
 

the signatory thereto with the same force and
effect as if the signature were an original, not a facsimile signature.

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

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

(e)           Entire Agreement; Amendments.  This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. 
No provision of this Agreement may be amended other than by an instrument
in writing signed by the Company and the Required Holders, and any amendment to
this Agreement made in conformity with the provisions of this Section 9(e)
shall be binding on all Buyers and holders of Securities, as applicable.  No provision hereof may be waived other than
by an instrument in writing signed by the party against whom enforcement is
sought.  No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
applicable Securities then outstanding. 
No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration also is offered to all of the parties
to the Transaction Documents, holders of Notes or holders of the Warrants, as
the case may be.  The Company has not,
directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents.  Without limiting the foregoing, the Company
confirms that, except as set forth in this Agreement, no Buyer has made any
commitment or promise or has any other obligation to provide any financing to
the Company or otherwise.

(f)            Notices.  Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one Business Day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the
same.  The addresses and facsimile
numbers for such communications shall be:

	
   

  	
  If to the Company:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Earth Biofuels,
  Inc.

  
	
   

  	
   

  	
  3001 Knox
  Street, Suite 403,

  
	
   

  	
   

  	
  Dallas, Texas
  75205

  

 

 30
 

 

	
  

  	
   

  	
  Telephone:

  	
  (214) 389-9800

  
	
   

  	
   

  	
  Facsimile:

  	
  (214) 389-9806

  
	
   

  	
   

  	
  Attention:

  	
  Dennis McLaughlin

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Copy to (for informational purposes only):

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Scheef & Stone, LLP

  
	
   

  	
   

  	
  Telephone:

  	
  (214) 706-4200

  
	
   

  	
   

  	
  Facsimile:

  	
  (214) 706-4242

  
	
   

  	
   

  	
  Attention:

  	
  Roger A. Crabb, Esq.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to the Transfer
  Agent:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Nevada Agency
  and Trust Company

  
	
   

  	
   

  	
  50 West Liberty
  Street

  
	
   

  	
   

  	
  Suite 800

  
	
   

  	
   

  	
  Reno, Nevada
  89501

  
	
   

  	
   

  	
  Telephone:

  	
  (775) 322-0626

  
	
   

  	
   

  	
  Facsimile:

  	
  (775) 322-5623

  
	
   

  	
   

  	
  Attention:

  	
  Mary Ramsey

  

 

If to a Buyer, to its
address and facsimile number set forth on the Schedule of Buyers, with copies
to such Buyer’s representatives as set forth on the Schedule of Buyers, or to
such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party five (5) days prior to the effectiveness of such change.  Written confirmation of receipt (A) given by
the recipient of such notice, consent, waiver or other communication, (B) mechanically
or electronically generated by the sender’s facsimile machine containing the
time, date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii)
above, respectively.

(g)           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes or the Warrants.  The Company shall not assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
Required Holders (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants).  A Buyer may assign some or
all of its rights hereunder without the consent of the Company, in which event
such assignee shall be deemed to be a Buyer hereunder with respect to such
assigned rights.

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

(i)            Survival.  Unless this Agreement is terminated under
Section 8, the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3 and the agreements and covenants set forth in
Sections 4, 5 and 9 shall survive the Closing and the

 31
 

delivery and exercise of Securities, as
applicable.  Each Buyer shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.

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

(k)           Indemnification.  In consideration of each Buyer’s execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company’s other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing Persons’ agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a
result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (b) any breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby or (c) any cause of
action, suit or claim brought or made against such Indemnitee by a third party
(including for these purposes a derivative action brought on behalf of the
Company) and arising out of or resulting from (i) the execution, delivery,
performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i) or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant
to the transactions contemplated by the Transaction Documents.  To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.  Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under this
Section 9(k) shall be the same as those set forth in Section 6 of the
Registration Rights Agreement.

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

(m)          Remedies.  Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the

 32
 

rights which such holders have under any
law.  Any Person having any rights under
any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. 
Furthermore, the Company recognizes that in the event that it fails to
perform, observe, or discharge any or all of its obligations under the Transaction
Documents, any remedy at law may prove to be inadequate relief to the
Buyers.  The Company therefore agrees
that the Buyers shall be entitled to seek temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages and
without posting a bond or other security.

(n)           Rescission and Withdrawal Right.  Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Buyer exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.

(o)           Payment Set Aside.  To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights hereunder
or thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be fraudulent
or preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company, a trustee, receiver or
any other Person under any law (including, without limitation, any bankruptcy
law, foreign, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force and effect as if such payment had not been made or such enforcement or
setoff had not occurred.

 33
 

(p)           Independent Nature of Buyers’
Obligations and Rights.  The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any other
Buyer under any Transaction Document. 
Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents and the Company
acknowledges that the Buyers are not acting in concert or as a group, and the
Company will not assert any such claim, with respect to such obligations
or the transactions contemplated by the Transaction Documents.  Each Buyer confirms that it has independently
participated in the negotiation of the transaction contemplated hereby with the
advice of its own counsel and advisors. 
Each Buyer shall be entitled to independently protect and enforce its
rights, including, without limitation, the rights arising out of this Agreement
or out of any other Transaction Documents, and it shall not be necessary for
any other Buyer to be joined as an additional party in any proceeding for such
purpose.

[Signature Page Follows]

 34

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.

	
   

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EARTH BIOFUELS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Dennis G. McLaughlin, III

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Dennis G. McLaughlin, III

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
						

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.

	
  

  	
   

  	
  BUYERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EXCALIBUR LIMITED PARTNERSHIP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ William Hechter

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  William Hechter

  
	
   

  	
   

  	
   

  	
  Title:

  	
  President of [illegible]

  
						

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.

	
  

  	
   

  	
  WHALEHAVEN CAPITAL FUND LTD.:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
						

 

 

SCHEDULE OF BUYERS

 

	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  	
   

  	
  (6)

  	
   

  	
  (7)

  	
   

  
	
  Buyer

  	
   

  	
  Address and

  Facsimile Number

  	
   

  	
  Aggregate

  Principal

  Amount of

  Notes

  	
   

  	
  Number of

  Series A

  Warrant Shares

  	
   

  	
  Number of

  Series B

  Warrant Shares

  	
   

  	
  Purchase Price

  	
   

  	
  Legal Representative’s Address

  and Facsimile Number

  	
   

  
	
  Excalibur Limited Partnership

  	
   

  	
  33
  Prince Arthur Avenue

  Toronto, Ontario

  Canada M5R 1B2

  Attention: Will Hecter

  Facsimile: (204) 848-4427

  Telephone: (416) 964-9077

  Residence: Canada

  	
   

  	
  $

  	
  500,000

  	
   

  	
  86,207

  	
   

  	
  —

  	
   

  	
  $

  	
  500,000

  	
   

  	
  N/A

  	
   

  
	
  Whalehaven Capital Fund Ltd.

  	
   

  	
  33 Prince
  Arthur Avenue

  Toronto, ON M5R 1B2

  Attention: Michael Finklestein

  Facsimile: (416) 323-3693

  Telephone: (416) 323-9962

  Residence: Canada

  	
   

  	
  $

  	
  850,000

  	
   

  	
  146,552

  	
   

  	
  —

  	
   

  	
  $

  	
  850,000

  	
   

  	
  N/A

  	
   

  
	
   

  	
   

  	
  TOTAL

  	
   

  	
  $

  	
  1,350,000

  	
   

  	
  232,759

  	
   

  	
  —

  	
   

  	
  $

  	
  1,350,000

  	
   

  	
   

  	
   

  

 

 

EXHIBITS

	
  Exhibit
  A

  	
   

  	
  Form of Notes

  
	
  Exhibit B-1

  	
   

  	
  Form of Series A Warrants

  
	
  Exhibit B-2

  	
   

  	
  Form of Series B Warrants

  
	
  Exhibit C

  	
   

  	
  Registration Rights Agreement

  
	
  Exhibit D

  	
   

  	
  Irrevocable Transfer Agent Instructions

  
	
  Exhibit E

  	
   

  	
  Form of Outside Company Counsel Opinion

  
	
  Exhibit F

  	
   

  	
  Form of Secretary’s Certificate

  
	
  Exhibit G

  	
   

  	
  Form of Officer’s Certificate

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}]]