Document:

Exhibit 10.1

 

 

THIRD AMENDMENT TO

FIRST AMENDED AND
RESTATED CREDIT AGREEMENT

 

Dated as of
September 27, 2007

 

among

 

MERITAGE
HOMES CORPORATION,

as the Borrower,

 

GUARANTY
BANK

as Administrative Agent and Swing Line Lender,

 

JPMORGAN
CHASE BANK, N.A.,

as Syndication Agent,

 

WACHOVIA
BANK, NATIONAL ASSOCIATION and BANK OF AMERICA, N.A.,

as Co-Documentation
Agents,

 

COUNTRYWIDE BANK, FSB,

U. S. BANK NATIONAL
ASSOCIATION,

CITICORP NORTH AMERICA,
INC.,

DEUTSCHE BANK TRUST
COMPANY AMERICAS,

UBS SECURITIES LLC, and
BNP PARIBAS

as Managing Agents,

 

SUNTRUST BANK,

as Co-Agent,

 

and

 

The Other Lenders Party
Hereto

 

 

GUARANTY
BANK,

as Joint Lead Arranger and Joint Book Manager

 

and

 

J. P.
MORGAN SECURITIES, INC.,

as Joint Lead Arranger
and Joint Book Manager

 

 

THIRD AMENDMENT TO

FIRST AMENDED AND
RESTATED CREDIT AGREEMENT

 

This Third Amendment to First Amended and Restated
Credit Agreement (this “Third Amendment”) dated as of September 27,
2007, is entered into among Meritage Homes Corporation, a Maryland corporation
(the “Borrower”), the lenders listed on the signature pages hereof as
Lenders (the “Lenders”), and Guaranty Bank, in its capacity as
Administrative Agent (the “Administrative Agent”).

 

BACKGROUND

 

A.            The
Borrower, the Lenders and the Administrative Agent are parties to that certain
First Amended and Restated Credit Agreement dated as of May 16, 2006, as
amended by that certain First Amendment and Commitment Increase Agreement,
dated as of June 30, 2006, and that certain Second Amendment to First
Amended and Restated Credit Agreement, dated as of May 18, 2007 (as
amended, modified, supplemented or restated, the “Credit Agreement”). Capitalized
terms used herein and not otherwise defined herein shall have the meanings
attributed to them in the Credit Agreement (as defined below).

 

B.            The Borrower
has requested certain amendments to the Credit Agreement.

 

C.            The Lenders
and the Administrative Agent hereby agree to amend the Credit Agreement,
subject to the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the covenants,
conditions and agreements hereafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are all hereby acknowledged,
the Borrower, the Lenders, and the Administrative Agent covenant and agree as
follows:

 

1.             AMENDMENTS.

 

(a)           Section 1.01 of the
Credit Agreement is hereby amended by adding the defined terms thereto in
proper alphabetical order to read as follows:

 

“Liquidity”
means, as of any date of determination, the amount by which (a) the lesser
of (i) the Borrowing Base and (ii) the Aggregate Commitments exceeds
(b) the Total Outstandings.

 

“Partial
Suspension Period” means the one-time period of up to three consecutive
fiscal quarters (all of which must occur within the Reduction Period)
commencing with the beginning of a fiscal quarter contained within the
Reduction Period chosen by the Borrower, but no later than the second fiscal
quarter of fiscal year 2008. The Borrower shall designate the Partial
Suspension Period concurrently with its delivery to the Administrative Agent of
a Compliance Certificate for the first fiscal quarter of such period by
delivering its notice of designation (the “Partial Suspension Designation”)
to the Administrative Agent. The Partial Suspension Designation is irrevocable
upon the Administrative Agent’s receipt thereof.

 

 

“Reduction
Period” means the one-time period of nine consecutive fiscal quarters,
commencing with the fiscal quarter chosen by the Borrower, but no later than
the second fiscal quarter of fiscal year 2008. The Borrower shall designate the
Reduction Period concurrently with its delivery to the Administrative Agent of
a Compliance Certificate for the first fiscal quarter of such period by
delivery of its notice of designation (the “Reduction Designation”) to
the Administrative Agent. The Reduction Designation is irrevocable upon the
Administrative Agent’s receipt thereof. For the avoidance of doubt, the
Reduction Period includes the Partial Suspension Period.

 

“Reduction
Period Prohibited Payment” means (a) any cash dividend or other cash
distribution with respect to any Equity Interest of the Borrower or any
Restricted Subsidiary, or any cash payment, including any sinking fund or
similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such Equity Interest or of any
option, warrant or other right to acquire any such Equity Interest and
(b) any prepayment of principal, interest, premium or penalty on the
Senior Notes or any other Public Indebtedness or any Subordinated Debt of any
Loan Party or any defeasance, redemption, purchase, repurchase or other
acquisition or retirement for value, in whole or in part, of the Senior Notes
or any other Public Indebtedness or any Subordinated Debt (including, without
limitation, the setting aside or the deposit of funds therefor); provided,
however, a refinancing of the Senior Notes or any other Public
Indebtedness or any Subordinated Debt, to the extent consisting of the
repayment of the Senior Notes or any other Public Indebtedness or any
Subordinated Debt and the related incurring of new Indebtedness in respect of
the Senior Notes or such other Public Indebtedness or such Subordinated Debt (“Reduction
Period Refinancing Indebtedness”), respectively, shall not constitute a
Reduction Period Prohibited Payment so long as (i) any Reduction Period
Refinancing Indebtedness consisting of Subordinated Debt is subordinated to the
Obligations (or Guarantor’s obligations under its Guaranty, as applicable) to
the same extent as the Indebtedness being refunded, refinanced or extended, and
(ii) the Reduction Period Refinancing Indebtedness is scheduled to mature
no earlier than the current maturity date of such Indebtedness.

 

“Third
Amendment Closing Date” means the date that all conditions precedent set
forth in Section 3 of the Third Amendment to First Amended and Restated
Credit Agreement, dated as of September 27, 2007, among the Borrower, the
Lenders and the Administrative Agent are satisfied.

 

(b)           The
definition of “Applicable Rate” set forth in Section 1.01 of
the Credit Agreement is hereby amended to read as follows:

 

“Applicable
Rate” means the following percentages per annum:

 

2

 

	
  Pricing

  Level

  	
   

  	
  Leverage Ratio

  	
   

  	
  Commitment

  Fee

  	
   

  	
  Eurodollar

  Rate; all Letters

  of Credit

  	
   

  	
  Base

  Rate

  	
   

  
	
  1

  	
   

  	
  Greater than 1.75 to 1

  	
   

  	
  0.300

  	
  %

  	
  2.000

  	
  %

  	
  0.250

  	
  %

  
	
  2

  	
   

  	
  Greater than 1.50 to 1
  but less than or equal to 1.75 to 1

  	
   

  	
  0.275

  	
  %

  	
  1.750

  	
  %

  	
  0.250

  	
  %

  
	
  3

  	
   

  	
  Greater than 1.25 to 1
  but less than or equal to 1.50 to 1

  	
   

  	
  0.250

  	
  %

  	
  1.625

  	
  %

  	
  0.000

  	
  %

  
	
  4

  	
   

  	
  Greater than 1.00 to 1
  but less than or equal to 1.25 to 1

  	
   

  	
  0.250

  	
  %

  	
  1.500

  	
  %

  	
  0.000

  	
  %

  
	
  5

  	
   

  	
  Less than or equal to
  1.00 to 1

  	
   

  	
  0.225

  	
  %

  	
  1.250

  	
  %

  	
  0.000

  	
  %

  
	
  6

  	
   

  	
  Less than or equal to
  1.00 to 1 and maintenance of Required Debt Rating

  	
   

  	
  0.200

  	
  %

  	
  1.125

  	
  %

  	
  0.000

  	
  %

  

 

Any increase or decrease in the Applicable Rate resulting from a change
in the Leverage Ratio shall become effective as of the first Business Day
immediately following the date a Compliance Certificate is delivered pursuant
to Section 6.02(b); provided, however, that
(x) if a Compliance Certificate is not delivered when due in accordance
with such Section, or (y) there shall occur an Event of Default, then
Pricing Level 1 shall apply as of the first Business Day after the date on
which such Compliance Certificate was required to have been delivered or such
Event of Default shall have occurred, as applicable. Thereafter, as to
clause (x) above only, any decrease in the Applicable Rate resulting from
a change in the Leverage Ratio shall become effective as of the first Business
Day immediately following the date a Compliance Certificate is delivered. In
addition to the Leverage Ratio required above, in connection with a decrease in
the Applicable Rate to Pricing Level 6, such decrease shall occur only if
the Borrower shall have and maintain a Debt Rating of at least (i) BBB-
by S&P or Fitch and (ii) Baa3 by Moody’s (the “Required Debt Rating”).
Thereafter, if Pricing Level 6 is in effect and a publicly announced
downgrade in any Debt Rating to a level below the Required Debt Rating shall
occur, the Applicable Rate shall be increased to Pricing Level 5 effective
during the period commencing on the date of the public announcement thereof and
ending on the date immediately preceding the effective date of the next such
change. Notwithstanding the foregoing, (a) the Applicable Rate in effect
from and after the Third Amendment Closing Date through and including the date
the Compliance Certificate is delivered pursuant to Section 6.02(b) for
the third fiscal quarter of fiscal year 2007 shall be Pricing Level 4 and
(b) in no event shall Pricing Level 6 be in effect at any time at
which the Interest Coverage Ratio is less than 2.00 to 1.00 during the
Reduction Period.

 

Notwithstanding
the foregoing, at any time at which the Interest Coverage Ratio is less than
2.00 to 1.00 during the Reduction Period, the Applicable Rate for the
Eurodollar Rate, Letters of Credit and the Base Rate determined as provided
above shall be increased based upon the Interest Coverage Ratio as follows:

 

3

 

	
  Interest Coverage Ratio

  	
   

  	
  Increase in Applicable Rate for Eurodollar

  Rate, Letters of Credit and Base Rate

  	
   

  
	
  Less than 2.00 to 1.00 but greater than or equal to
  1.50 to 1.00

  	
   

  	
  0.250

  	
  %

  
	
  Less than 1.50 to 1.00 but greater than or equal to
  1.00 to 1.00

  	
   

  	
  0.375

  	
  %

  
	
  Less than 1.00 to 1.00

  	
   

  	
  0.500

  	
  %

  

 

Further,
notwithstanding the foregoing, at any time during the Partial Suspension Period
at which the Interest Coverage Ratio is less than 1.00 to 1.00 and the Leverage
Ratio is greater than 1.10 to 1.00, the total increase in the Applicable Rate
for the Eurodollar Rate, Letters of Credit and the Base Rate shall be 0.650%.

 

The
determination of the Interest Coverage Ratio and the Leverage Ratio shall be
made from the then most recent Compliance Certificate delivered by the Borrower
pursuant to Section 6.02(b), and the adjustment in the Applicable
Rate, if any, shall become effective as of the first Business Day immediately
following the date a Compliance Certificate is delivered; provided, however,
if (x) a Compliance Certificate is not delivered when due in accordance
with such Section or (y) there shall occur an Event of Default, then an
increase in the Applicable Rate of 0.650% shall apply as of the first Business
Day after the date on which such Compliance Certificate was required to have
been delivered or such Event of Default shall have occurred, as applicable. Thereafter,
as to clause (x) above only, any decrease in the Applicable Rate resulting
from a change in the Interest Coverage Ratio or Leverage Ratio, as appropriate,
shall become effective as of the first Business Day following the date a
Compliance Certificate is delivered.

 

In the event
that any financial statement delivered pursuant to Section 6.01(a)
or 6.01(b) or any Compliance Certificate delivered pursuant to Section 6.02(b)
is shown to be inaccurate (regardless of whether this Agreement or the
Commitments are in effect when such inaccuracy is discovered), and such
inaccuracy, if corrected, would have led to a higher Applicable Rate for any
period (an “Applicable Period”) than the Applicable Rate applied for
such Applicable Period, then (i) the Borrower shall immediately deliver to
the Administrative Agent a correct Compliance Certificate for such Applicable
Period, (ii) the Applicable Rate shall be determined using the Pricing
Level applicable for such Applicable Period based upon the corrected Compliance
Certificate, and (iii) the Borrower shall immediately pay to the
Administrative Agent the accrued additional interest and fees owing as a result
of such increased Applicable Rate for such Applicable Period, which payment
shall be promptly applied by the Administrative Agent in accordance with the terms
hereof. This paragraph shall not limit the rights of the Administrative Agent
and the Lenders under Section 2.08 and Article VIII and
other provisions of this Agreement. The obligations of the Borrower under this
paragraph shall

 

4

 

survive termination of the Commitments and the repayment of all other
Obligations hereunder.

 

(c)           The
definition of “Borrowing Base” set forth in Section 1.01 of
the Credit Agreement is hereby amended to read as follows:

 

“Borrowing
Base” means with respect to an Inventory Valuation Date for which it is to
be determined, an amount equal to the sum (without duplication) of the
following assets of each Loan Party (but only to the extent that such assets
set forth in subparagraphs (a) through (g) below are not subject to any
Liens other than Permitted Liens):

 

(a)           90% of the Net Book
Value of Presold Units;

 

(b)           80% of the Net Book
Value of Eligible Model Units;

 

(c)           80% of the Net Book
Value of Unsold Units Under Construction;

 

(d)           80% of the Net Book
Value of Completed Unsold Units Less Than 18 Months Since Completion;

 

(e)           70% of the Net Book
Value of Finished Lots;

 

(f)            60% of the Net Book
Value Land/Lots Under Development; and

 

(g)           50% of the Net Book
Value of Unimproved Entitled Land (provided that no Unimproved Entitled Land
shall be included in the Borrowing Base during the Reduction Period);

 

provided, however, that (i) at no
time shall more than 70% of the Borrowing Base be comprised of the items set
forth in subparagraphs (e), (f) and (g) above, (ii) at no time shall
more than 40% (or 30% during the Reduction Period) of the Borrowing Base be
comprised of the items set forth in subparagraphs (f) and (g) above, and
(iii) at no time shall the aggregate amount of condominiums exceed 15% of
the aggregate number of Units comprising the items set forth in
subparagraphs (a), (b), (c) and (d) in the aggregate.

 

(d)           Section 7.06 of the
Credit Agreement is hereby amended by adding the following paragraph to the end
thereof to read as follows:

 

Notwithstanding
anything in Section 7.06 above to the contrary, the Borrower may
not declare or make, directly or indirectly, any Reduction Period Prohibited
Payment during the Reduction Period; provided that, if no Default exists or
would result therefrom, the Borrower may make the Restricted Payments provided
for in Sections 7.06(a), 7.06(d)(iii) and 7.06(e).

 

(e)           Section 7.11(b) of the
Credit Agreement is hereby amended to read as follows:

 

5

 

(b)           Leverage Ratio. Permit
the Leverage Ratio at the end of any fiscal quarter of the Borrower
(i) not during the Reduction Period to be greater than 2.25 to 1.00,
(ii) during the Reduction Period (but excluding the Partial Suspension
Period) to be greater than:

 

(A)          2.00 to 1.00, if the
Interest Coverage Ratio at the end of such fiscal quarter is less than 2.00 to
1.00, but greater than or equal to 1.75 to 1.00;

 

(B)           1.75 to 1.00, if the
Interest Coverage Ratio at the end of such fiscal quarter is less than 1.75 to
1.00, but greater than or equal to 1.50 to 1.00;

 

(C)           1.50 to 1.00, if the
Interest Coverage Ratio at the end of such fiscal quarter is less than 1.50 to
1.00, but greater than or equal to 1.25 to 1.00; or

 

(D)          1.40 to 1.00, if the
Interest Coverage Ratio at the end of such fiscal quarter is less than 1.25 to
1.00; or

 

(iii) during the Partial Suspension Period, to be greater than
1.40 to 1.00.

 

(f)            Section 7.11(c) of the
Credit Agreement is hereby amended to read as follows:

 

(c)           Interest Coverage Ratio.
(A) Permit the Interest Coverage Ratio (i) at the end of any fiscal
quarter of the Borrower not during the Reduction Period to be less than 2.00 to
1.00, (ii) at the end of any fiscal quarter of the Borrower during the
Reduction Period (but excluding the Partial Suspension Period) to be less than:

 

(A)          1.00 to 1.00 at the end
of the first six fiscal quarters during the Reduction Period;

 

(B)           1.25 to 1.00 at the end
of the seventh fiscal quarter during the Reduction Period;

 

(C)           1.50 to 1.00 at the end
of the eighth fiscal quarter during the Reduction Period; or

 

(D)          1.75 to 1.00 at the end
of the ninth fiscal quarter during the Reduction Period; or

 

(iii) during
the Partial Suspension Period to be less than 0.50 to 1.00; provided  that
if the Reduction Period commenced with the third fiscal quarter of 2007 and the
Partial Suspension commenced with the second fiscal quarter of 2008, the
Interest Coverage Ratio shall not be less than 1.00 to 1.00 at the end of the
third fiscal quarter of the Partial Suspension Period; or

 

(B)           Permit the ratio of
(x) Consolidated EBITDA for any individual fiscal quarter to
(y) Consolidated Interest Incurred for such fiscal quarter (i.e., the
Interest Coverage Ratio

 

6

 

calculated on
an individual quarterly basis rather than a period of four fiscal quarters) to
be less than 1.00 to 1.00 for five consecutive quarters during the Reduction
Period.

 

(g)           Section 7.11 of the
Credit Agreement is hereby amended by adding a new subsection (i) thereto
to read as follows:

 

(i)            Liquidity. At
any time that the Interest Coverage Ratio during the Partial Suspension Period
is less than 1.00 to 1.00, permit Liquidity to be less than $75,000,000.

 

(h)           The
Aggregate Commitments are hereby reduced to $800,000,000 and the Commitment of
each Lender is hereby reduced to be the amount set forth opposite each Lender’s
name on Schedule 2.01, which is hereby amended to be in the form of
Schedule 2.01 attached to this Third Amendment.

 

(i)            Exhibit D, the
Compliance Certificate, is hereby amended to be in the form of Exhibit D
attached to this Third Amendment.

 

(j)            Exhibit H, the
Borrowing Base Certificate, is hereby amended to be in the form of Exhibit H
attached to this Third Amendment.

 

2.             REPRESENTATIONS
AND WARRANTIES. By its execution and delivery hereof,
the Borrower represents and warrants that, as of the date hereof:

 

(a)           the
representations and warranties contained in the Credit Agreement and the other
Loan Documents are true and correct on and as of the date hereof as made on and
as of such date, except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they are true and correct
as of such earlier date, and except that the representations contained in
subsections (a) and (b) of Section 5.05 of the Credit
Agreement shall be deemed to refer to the most recent statements furnish
pursuant to subsections (a) and (b), respectively, of Section 6.01
of the Credit Agreement;

 

(b)           no event has
occurred and is continuing which constitutes a Default or an Event of Default;

 

(c)           (i) the
Borrower has full power and authority to execute and deliver this Third
Amendment, (ii) this Third Amendment has been duly executed and delivered
by the Borrower and (iii) this Third Amendment and the Credit Agreement,
as amended hereby, constitute the legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable Debtor Relief Laws and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law) and except as rights to indemnity may be
limited by federal or state securities laws;

 

(d)           neither the
execution, delivery and performance of this Third Amendment or the Credit
Agreement, as amended hereby, nor the consummation of any transactions
contemplated herein or therein, will violate any Law or conflict with any
Organization Documents of the

 

7

 

Borrower, or any
indenture, agreement or other instrument to which the Borrower or any of it
property is subject; and

 

(e)           no
authorization, approval, consent, or other action by, notice to, or filing
with, any Governmental Authority or other Person not previously obtained is
required for (i) the execution, delivery or performance by the Borrower of
this Third Amendment or (ii) the acknowledgement by each Guarantor of this
Third Amendment.

 

3.             CONDITIONS
TO EFFECTIVENESS. All provisions of this Third Amendment
shall be effective on September 27, 2007, subject to the satisfaction or
completion of the following:

 

(a)           the
Administrative Agent shall have received counterparts of this Third Amendment
executed by the Lenders, the Borrower and acknowledged by each Guarantor;

 

(b)           the
Administrative Agent shall have received a certified corporate resolution of
the Borrower authorizing the execution, delivery and performance of this Third
Amendment;

 

(c)           the
Administrative Agent shall have received an opinion of the Borrower’s counsel,
in form and substance satisfactory to the Administrative Agent, with respect to
matters set forth in Sections 2(c), (d), and (e) of this Third Amendment;

 

(d)           the
Administrative Agent shall have received immediately available funds from the
Borrower, for the account of each Lender that executes this Third Amendment, in
an amount agreed to by the Borrower and such Lender; and

 

(e)           the
Administrative Agent shall have received, in form and substance satisfactory to
the Administrative Agent and its counsel, such other documents, certificates
and instruments as the Administrative Agent shall require.

 

4.             REFERENCE TO
THE CREDIT AGREEMENT.

 

(a)           Upon the
effectiveness of this Third Amendment, each reference in the Credit Agreement
to “this Agreement”, “hereunder”, or words of like import shall mean and be a
reference to the Credit Agreement, as modified hereby. This Third Amendment
shall be a Loan Document.

 

(b)           The Credit
Agreement, as modified herein, shall remain in full force and effect and is
hereby ratified and confirmed.

 

5.             COSTS,
EXPENSES AND TAXES. The Borrower agrees to pay on demand
all costs and expenses of the Administrative Agent in connection with the
preparation, reproduction, execution and delivery of this Third Amendment and
the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Agent with respect thereto).

 

6.             GUARANTORS
ACKNOWLEDGMENT. By signing below, each Guarantor
(a) acknowledges, consents and agrees to the execution, delivery and performance
by the

 

8

 

Borrower of this Third
Amendment, (b) acknowledges and agrees that its obligations in respect of
its Guaranty are not released, diminished, waived, modified, impaired or
affected in any manner by this Third Amendment or any of the provisions
contemplated herein, (c) ratifies and confirms its obligations under its
Guaranty, and (d) acknowledges and agrees that it has no claims or offsets
against, or defenses or counterclaims to, its Guaranty.

 

7.             EXECUTION IN
COUNTERPARTS. This Third Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which when taken together shall constitute but one
and the same instrument. For purposes of this Third Amendment, a counterpart
hereof (or signature page thereto) signed and transmitted by any Person party
hereto to the Administrative Agent (or its counsel) by facsimile machine,
telecopier or electronic mail is to be treated as an original. The signature of
such Person thereon, for purposes hereof, is to be considered as an original
signature, and the counterpart (or signature page thereto) so transmitted is to
be considered to have the same binding effect as an original signature on an
original document.

 

8.             GOVERNING
LAW; BINDING EFFECT. This Third Amendment shall be deemed to
be a contract made under and governed by and continued in accordance with the
internal laws of the State of Texas applicable to agreements made and to be
performed entirely within such state, provided that each party shall retain all
rights arising under federal law. This Third Amendment shall be binding upon
the parties hereto and their respective successors and assigns.

 

9.             HEADINGS. Section
headings in this Third Amendment are included herein for convenience of
reference only and shall not constitute a part of this Third Amendment for any
other purpose.

 

10.           ENTIRE
AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS THIRD AMENDMENT,
AND THE OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

 

	
  REMAINDER
  OF PAGE LEFT INTENTIONALLY BLANK

  

 

9

 

IN WITNESS WHEREOF, the parties hereto have executed
this Third Amendment by their duly authorized officers as of the date first
above written.

 

	
   

  	
  MERITAGE HOMES CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
  Vice President – Treasurer

  

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  GUARANTY BANK, as
  Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Sam Meade

  	
   

  
	
   

  	
   

  	
  Sam
  Meade

  
	
   

  	
   

  	
  Senior Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTY BANK, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Sam Meade

  	
   

  
	
   

  	
   

  	
  Sam
  Meade

  
	
   

  	
   

  	
  Senior Vice President

  

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  JPMORGAN CHASE BANK, N.A., as
  a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Vanessa Chiu

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Vanessa Chiu

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  BANK OF AMERICA, N.A.,

  
	
   

  	
  as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  WACHOVIA BANK, NATIONAL

  
	
   

  	
  ASSOCIATION, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kevin M. Cole, I

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Kevin M. Cole, I

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Assistance Vice President

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  U. S. BANK NATIONAL ASSOCIATION,
  as a

  
	
   

  	
  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Adrian Montero

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Adrian Montero

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  WELLS FARGO BANK, NATIONAL

  
	
   

  	
  ASSOCIATION, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald Rogza

  	
   

  
	
   

  	
   

  	
  Name:

  	
  RONALD ROGZA

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  CITICORP NORTH AMERICA, INC.,
  as a

  
	
   

  	
  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Marni McManus

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Marni McManus

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Director

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  DEUTSCHE BANK TRUST COMPANY

  
	
   

  	
  AMERICAS, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
							

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  UBS LOAN FINANCE LLC, as a
  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Irja R. Otsa

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Irja R. Otsa

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Associate Director

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mary E. Evans

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Mary E. Evans

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Associate Director

  	
   

  
							

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  PNC BANK, NATIONAL ASSOCIATION,
  as a

  
	
   

  	
  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
						

 

 

Signature Page to
Meritage Third Amendment

 

 

	
   

  	
  SUNTRUST BANK, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  COMERICA BANK, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Casey L. Stevenson

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Casey L. Stevenson

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  COMPASS BANK, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Chad Mantel

  	
   

  
	
   

  	
   

  	
  Name:

  	
  CHAD MANTEL

  	
   

  
	
   

  	
   

  	
  Title:

  	
  VP

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  REGIONS BANK (successor by
  merger with

  
	
   

  	
  AmSouth Bank), as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronny Hudspeth

  	
   

  
	
   

  	
   

  	
  Name:

  	
  RONNY HUDSPETH

  	
   

  
	
   

  	
   

  	
  Title:

  	
  SR. VICE PRESIDENT

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  BANK OF OKLAHOMA, N.A., as a
  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patricia A. Richards

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Patricia A. Richards

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  LASALLE BANK, N.A., as a
  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Nathan Dever

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Nathan Dever

  	
   

  
	
   

  	
   

  	
  Title:

  	
  First Vice President

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  KEYBANK NATIONAL ASSOCIATION,
  as a

  
	
   

  	
  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  NORTHERN TRUST COMPANY, as a
  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Christopher Mata

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Christopher Mata

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Commercial Banking Officer

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  CALIFORNIA BANK & TRUST, a California

  
	
   

  	
  banking corporation, as a
  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephanie Lantz

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Stephanie Lantz

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  BNP PARIBAS, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
							

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
  COUNTRYWIDE BANK, FSB, as a
  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Douglas A. Dixon

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Douglas A. Dixon

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  	
   

  
						

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
   

  	
  ACKNOWLEDGED AND
  AGREED TO:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MERITAGE HOMES OF ARIZONA, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MERITAGE PASEO CROSSING, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Meritage Homes of Arizona, Inc., its Sole

  
	
   

  	
   

  	
   

  	
  Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MERITAGE HOMES CONSTRUCTION, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MERITAGE PASEO CONSTRUCTION, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Meritage Homes Construction, Inc., its Sole

  
	
   

  	
   

  	
   

  	
  Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
   

  	
  MERITAGE
  HOMES OF TEXAS HOLDING,

  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MERITAGE HOLDINGS, L.L.C.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Meritage Homes of Texas Holding, Inc., its

  
	
   

  	
   

  	
   

  	
  Sole Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MERITAGE HOMES OF TEXAS JOINT

  
	
   

  	
   

  	
  VENTURE HOLDING COMPANY, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Meritage Homes of Texas, LLC, its Sole

  
	
   

  	
   

  	
   

  	
  Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Meritage Homes of Texas Holding, Inc., its

  
	
   

  	
   

  	
   

  	
  Sole Member

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MERITAGE HOMES OF CALIFORNIA, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
   

  	
  MERITAGE
  HOMES OF NEVADA, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MTH-CAVALIER, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Meritage Homes Construction, Inc., its

  
	
   

  	
   

  	
   

  	
  Sole Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MTH GOLF, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Meritage Homes Construction, Inc., its Sole

  
	
   

  	
   

  	
   

  	
  Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MERITAGE HOMES OF COLORADO, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MERITAGE HOMES OF FLORIDA, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
   

  	
  CALIFORNIA
  URBAN BUILDERS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CALIFORNIA URBAN HOMES, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Meritage Homes of California, Inc., its Sole

  
	
   

  	
   

  	
   

  	
  Member and Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GREATER HOMES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MERITAGE HOMES OPERATING

  COMPANY, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Meritage Holdings, L.L.C., its Manager

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Meritage Homes of Texas Holding, Inc., its

  
	
   

  	
   

  	
   

  	
  Sole Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  

 

 

Signature Page to Meritage Third Amendment

 

 

	
   

  	
   

  	
  MERITAGE HOMES OF TEXAS, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Meritage Homes of Texas Holding, Inc., its

  
	
   

  	
   

  	
   

  	
  Sole Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John B. Carroll

  	
   

  
	
   

  	
   

  	
   

  	
  John B. Carroll

  
	
   

  	
   

  	
   

  	
  Vice President – Treasurer

  

 

 

Signature Page to Meritage Third Amendment

 

SCHEDULE 2.01

 

COMMITMENTS

AND PRO
RATA SHARES

 

	
  Lender

  	
   

  	
  Commitment

  	
   

  	
  Pro Rata Share

  	
   

  
	
  Guaranty Bank

  	
   

  	
  $

  	
  84,705,882.00

  	
   

  	
  10.588235294

  	
  %

  
	
  JPMorgan Chase Bank, N.A., a national banking
  association

  	
   

  	
  $

  	
  75,294,118.00

  	
   

  	
  9.411764706

  	
  %

  
	
  Wachovia Bank, National Association

  	
   

  	
  $

  	
  65,882,353.00

  	
   

  	
  8.235294118

  	
  %

  
	
  Bank of America, N.A.

  	
   

  	
  $

  	
  56,470,588.00

  	
   

  	
  7.058823529

  	
  %

  
	
  Countrywide Bank, FSB

  	
   

  	
  $

  	
  51,764,706.00

  	
   

  	
  6.470588235

  	
  %

  
	
  U. S. Bank National Association

  	
   

  	
  $

  	
  47,058,824.00

  	
   

  	
  5.882352941

  	
  %

  
	
  Citicorp North America, Inc.

  	
   

  	
  $

  	
  47,058,824.00

  	
   

  	
  5.882352941

  	
  %

  
	
  Deutsche Bank Trust Company Americas

  	
   

  	
  $

  	
  47,058,824.00

  	
   

  	
  5.882352941

  	
  %

  
	
  UBS Loan Finance, LLC

  	
   

  	
  $

  	
  47,058,824.00

  	
   

  	
  5.882352941

  	
  %

  
	
  BNP Paribas

  	
   

  	
  $

  	
  47,058,824.00

  	
   

  	
  5.882352941

  	
  %

  
	
  SunTrust Bank

  	
   

  	
  $

  	
  32,941,176.00

  	
   

  	
  4.117647059

  	
  %

  
	
  Comerica Bank

  	
   

  	
  $

  	
  23,529,412.00

  	
   

  	
  2.941176471

  	
  %

  
	
  Compass Bank

  	
   

  	
  $

  	
  23,529,412.00

  	
   

  	
  2.941176471

  	
  %

  
	
  Regions Bank

  	
   

  	
  $

  	
  23,529,412.00

  	
   

  	
  2.941176471

  	
  %

  
	
  Bank of Oklahoma, N.A.

  	
   

  	
  $

  	
  23,529,412.00

  	
   

  	
  2.941176471

  	
  %

  
	
  LaSalle Bank, N.A.

  	
   

  	
  $

  	
  23,529,412.00

  	
   

  	
  2.941176471

  	
  %

  
	
  PNC Bank, National Association

  	
   

  	
  $

  	
  23,529,412.00

  	
   

  	
  2.941176471

  	
  %

  
	
  KeyBank National Association

  	
   

  	
  $

  	
  18,823,529.00

  	
   

  	
  2.3592941176

  	
  %

  
	
  Wells Fargo Bank, National Association

  	
   

  	
  $

  	
  14,117,647.00

  	
   

  	
  1.764705882

  	
  %

  
	
  Northern Trust Company

  	
   

  	
  $

  	
  14,117,647.00

  	
   

  	
  1.764705882

  	
  %

  
	
  California Bank & Trust, a California banking
  corporation

  	
   

  	
  $

  	
  9,411,765.00

  	
   

  	
  1.176470588

  	
  %

  
	
  Total

  	
   

  	
  $

  	
  800,000,000.00

  	
   

  	
  100.000000000

  	
  %

  

 

 

EXHIBIT D

 

FORM OF
COMPLIANCE CERTIFICATE

 

Financial Statement Date:             

 

To:                              Guaranty
Bank, as Administrative Agent, L/C Issuer and Swing Line Lender

 

Ladies and Gentlemen:

 

Reference is made to that certain First Amended and
Restated Credit Agreement, dated as of May 16, 2006 (as amended, restated,
extended, supplemented or otherwise modified in writing from time to time, the “Agreement;”
the terms defined therein being used herein as therein defined), among Meritage
Homes Corporation (the “Borrower”), the Lenders from time to time party
thereto, and Guaranty Bank, as Administrative Agent, L/C Issuer and Swing Line
Lender.

 

The undersigned Responsible Officer hereby certifies
as of the date hereof that he/she is the                                         of
the Borrower, and that, as such, he/she is authorized to execute and deliver
this Certificate to the Administrative Agent on the behalf of the Borrower, and
that:

 

[Use following for fiscal year-end
financial statements]

 

Attached hereto as Schedule 1 are the
year-end audited financial statements required by Section 6.01(a)
of the Agreement for the fiscal year of the Borrower ended as of the above
date, together with the report and opinion of an independent certified public
accountant required by such section.

 

[Use following for fiscal quarter-end
financial statements]

 

1.             Attached
hereto as Schedule 1 are the unaudited financial statements
required by Section 6.01(b) of the Agreement for the fiscal quarter
of the Borrower ended as of the above date. Such financial statements fairly
present the financial condition, results of operations and cash flows of the
Borrower and its Subsidiaries in accordance with GAAP as at such date and for
such period, subject only to normal year-end audit adjustments and the absence
of footnotes.

 

2.             The
undersigned has reviewed and is familiar with the terms of the Agreement and
has made, or has caused to be made under his/her supervision, a detailed review
of the transactions and condition (financial or otherwise) of the Borrower
during the accounting period covered by the attached financial statements.

 

3.             A
review of the activities of the Borrower during such fiscal period has been
made under the supervision of the undersigned with a view to determining
whether during such fiscal period the Borrower performed and observed all its
Obligations under the Loan Documents, and

 

1

 

[select one:]

 

[to the best knowledge of the undersigned as of
the date hereof no Default or Event of Default under the Agreement has occurred
and its continuing.]

 

—or—

 

[the following is a list of each such Default or
Event of Default and its nature and status:]

 

4.             The
financial covenant analyses and information set forth on Schedule 2
attached hereto are true and accurate on and as of the date of this
Certificate.

 

IN WITNESS WHEREOF, the
undersigned has executed this Certificate as of                        ,                           .

 

	
   

  	
  MERITAGE HOMES CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
						

 

2

 

For the
Month/Quarter/Year ended                              (“Statement
Date”)

 

SCHEDULE
2

to the Compliance Certificate

($ in 000’s)

 

	
  I.

  	
  Leverage Ratio – For Determination of Applicable
  Rate.

  
	
   

  	
   

  
	
   

  	
  A.

  	
  Consolidated Indebtedness:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.

  	
  Indebtedness of the Loan Parties:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (a)

  	
  Without duplication, all obligations for borrowed
  money and all obligations evidenced by bonds, debentures, notes, loan
  agreements or other similar instruments:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (b)

  	
  Without duplication, all direct or contingent
  obligations arising under letters of credit (including standby and
  commercial), banker’s acceptances, bank guaranties, surety bonds and similar
  instruments:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (c)

  	
  Without duplication, all net obligations under any
  Swap Contract:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (d)

  	
  Without duplication, all obligations to pay the
  deferred purchase price of property or services (except (i) Trade
  accounts payable that are not more 30 days past the date the invoice was
  approved and entered into the computer system by such Loan Party,
  (ii) accrued expenses incurred by such Person in the ordinary course of
  business, (iii) marketing fees payable to developers of master planned
  communities incurred by such Person in the ordinary course of business, (iv) reimbursement
  obligations for impact or development fee credits to be received by such
  Person incurred in the ordinary course of business, (v) deferred lot
  premium or profit participation obligations payable to developers of master
  planned communities incurred in the ordinary course of business and
  (vi) obligations to developers or owners of master planned communities
  in form of a performance encumbrance of such Person incurred in the ordinary
  course of business):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (e)

  	
  Without duplication, indebtedness (excluding prepaid
  interest thereon) secured by a Lien on property owned or being purchased
  (including indebtedness arising under conditional sales or other title
  retention agreements), whether or not such indebtedness shall have been
  assumed or is limited in recourse:

  	
   

  	
  $                              

  

 

3

 

	
   

  	
   

  	
   

  	
  (f)

  	
  Without duplication, obligations under Capital
  Leases:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (g)

  	
  Without duplication, Synthetic Lease Obligations and
  other Off-Balance Sheet Liabilities:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (h)

  	
  Without duplication, obligations in respect of
  Redeemable Stock:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (i)

  	
  Without duplication, any Receivables Facility
  Attributed Indebtedness:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (j)

  	
  Without duplication, any “withdrawal liability” as
  such term is defined under Part I of Subtitle E of Title IV of
  ERISA:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (k)

  	
  Without duplication, all Guarantees in respect of
  any of the foregoing:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (l)

  	
  Indebtedness (Lines I.A.1(a) + (b) + (c) + (d) + (e)
  + (f) + (g) + (h) + (i) + (j) + (k)):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.

  	
  Indebtedness of one Loan Party to another Loan
  Party:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3.

  	
  Consolidated Indebtedness (Line I.A.1(l) - Line
  I.A.2):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Consolidated Tangible Net Worth:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.

  	
  Shareholders’ Equity of the Loan Parties:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.

  	
  Intangible Assets of the Loan Parties:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3.

  	
  Consolidated Tangible Net Worth: (Line I.B.1 - Line
  I.B.2):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Leverage Ratio:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.

  	
  Consolidated Indebtedness:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.

  	
  The face amount of all undrawn Performance Letters
  of Credit issued for the account of, or guaranteed by, the Loan Parties:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3.

  	
  Attributable Indebtedness in respect of Synthetic
  Lease Obligations and other Off-Balance Sheet Liabilities and Guarantees with
  respect thereto:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.

  	
  Total ((Lines I.C.1 - I.C.2 - I.C.3)   ̧
  Line I.B.3):

  	
   

  	
              
  to 1

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  II.

  	
  Section 7.02(j) – Limitation
  on other Investments.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Actual amount of Investments other than those
  permitted by subsections (a) through (i) of Section 7.02:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Maximum in aggregate amount at any one time
  outstanding (Line I.B.3. x 30%):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  III.

  	
  Section 7.03 – Limitation on
  Indebtedness.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Aggregate amount of secured Indebtedness, provided
  that such Liens are on assets other than Borrowing Base Assets:

  	
   

  	
  $                              

  

 

4

 

	
   

  	
  B.

  	
  Maximum amount at any time outstanding  (Line I.B.3. x 10%):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Aggregate amount of Indebtedness guarantied pursuant
  to Springing Guarantees:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  D.

  	
  Maximum amount permitted (50% of Line I.B.3):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  IV.

  	
  Section 7.11(a)
  – Minimum Net Worth.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Actual Consolidated Tangible Net Worth (Line I.B.3):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Minimum Net Worth:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.

  	
  50% of Consolidated Net Income earned in each full
  fiscal quarter ending after December 31, 2006 (with no deduction for a
  net loss during any such period):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.

  	
  50% of aggregate increases in Consolidated Tangible
  Net Worth of the Borrower and its Subsidiaries after December 31, 2006
  by reason of the issuance and sale of Equity Interests or other equity
  interests of the Borrower or any Subsidiary (other than issuances to the
  Borrower or a wholly-owned Subsidiary), including any conversion of debt
  securities of the Borrower into such Equity Interests or other equity
  interests:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3.

  	
  An amount equal to the net worth of any Person that
  becomes a Subsidiary or is merged into or consolidated with the Borrower or
  any Subsidiary or substantially all of the assets of which are acquired by
  the Borrower or any Subsidiary, in each case after December 31, 2006:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.

  	
  Required Minimum Net Worth ($600,000,000 + Line
  IV.B.1. + 2. + 3.):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  V.

  	
  Section 7.11(b) – Maximum
  Leverage Ratio.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Leverage Ratio (Line I.C.3.):

  	
   

  	
              
  to 1.00

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Maximum Leverage Ratio (See Section 7.11(b) for
  Maximum Permitted):

  	
   

  	
              
  to 1.00

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  VI.

  	
  Section 7.11(c) — Minimum
  Interest Coverage Ratio.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Consolidated EBITDA for the period of four fiscal
  quarters ending on the date of date of determination (the “Subject Period”):

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.

  	
  Consolidated Net Income of the Loan Parties for the
  Subject Period:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.

  	
  To the extent deducted from revenues in determining
  Consolidated Net Income, Consolidated Interest Expense for the Subject
  Period:

  	
   

  	
  $                              

  
							

 

5

 

	
   

  	
   

  	
  3.

  	
  To the extent deducted from revenues in determining
  Consolidated Net Income, expense for income taxes paid or accrued for the
  Subject Period:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.

  	
  To the extent deducted from revenues in determining
  Consolidated Net Income, depreciation for the Subject Period:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  5.

  	
  To the extent deducted from revenues in determining
  Consolidated Net Income, amortization for the Subject Period:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  6.

  	
  To the extent deducted from revenues in determining
  Consolidated Net Income, all other non-cash items reducing Consolidated Net
  Income (excluding any non-cash charge that results in an accrual of a reserve
  for cash charges in the future) for the Subject Period:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  7.

  	
  To the extent deducted from revenues in determining
  Consolidated Net Income, the amount of dividends accrued or payable by the
  Loan Parties in respect of Disqualified Equity Interests or any Preferred
  Stock of any Restricted Subsidiary (excluding any amount payable to any Loan Party),
  which amount shall be “grossed up” to include any applicable taxes on income
  that would be used to pay such dividends, provided, however,
  that interest, dividends or other payments or accruals of a consolidated
  Subsidiary that is not wholly owned shall be included only to the extent of
  the interest of such Person in such Subsidiary:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  8.

  	
  Consolidated EBITDA (Lines VI.A.1. + 2. + 3. + 4. +
  5. + 6. + 7.):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Consolidated Interest Incurred for the Subject
  Period:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Interest Coverage Ratio (Line VI.A.8.  ̧
  VI.B.):

  	
   

  	
              
  to 1.00

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  D.

  	
  Minimum Interest Coverage Ratio (See Section 7.11(c)
  for Minimum Required – Note that calculation for Section 7.11(c)(B) is
  for each fiscal quarter and not Subject Period)

  	
   

  	
              
  to 1.00

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  VII.

  	
  Section 7.11(d) – Borrowing
  Base Debt.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Borrowing Base as of date of determination (from
  Borrowing Base Report):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Consolidated Indebtedness as of such date of
  determination (Line I.A.3):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Any portion of any Subordinated Debt of any Loan
  Party which is due and payable more than one year from such date of
  determination:

  	
   

  	
  $                              

  

 

6

 

	
   

  	
  D.

  	
  Indebtedness secured by Liens on assets that are not
  part of any of the Borrowing Base Assets, but only to the extent that the
  Indebtedness secured by Liens on such assets (x) does not exceed the Net Book
  Value of such asset as determined by GAAP and (y) does not exceed in
  aggregate amount the amount set forth in Section 7.03(f):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  E.

  	
  The face amount of all undrawn Performance Letters
  of Credit, in each case issued for the account of, or guaranteed by the Loan
  Parties:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  F.

  	
  Cash and Cash Equivalents and Receivables of the
  Loan Parties not subject to any Lien securing Indebtedness in an aggregate
  amount in excess of $5,000,000:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  G.

  	
  Borrowing Base Debt (Lines VII.B. - C. - D. - E. -
  F.):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  VIII.

  	
  Section 7.11(e) – Total Land
  Restrictions.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Net Book Value of Unentitled Land:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Net Book Value of Unimproved Entitled Land:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Net Book Value of Land/Lots Under Development:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  D.

  	
  Net Book Value of Finished Lots:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  E.

  	
  Actual (Lines VIII.A. + B. + C. + D.):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  F.

  	
  Line I.B.3 x 125%:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  G.

  	
  50% of outstanding Subordinated Debt:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  H.

  	
  Maximum Total Land Restrictions (Lines VIII.F. +
  G.):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  IX.

  	
  Section 7.11(f) – Raw Land
  Restrictions.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Net Book Value of Unentitled Land:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Net Book Value of Unimproved Entitled Land:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Actual (Lines IX.A. + B.):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  D.

  	
  Maximum Raw Land Restrictions (Line I.B.3 x 20%):

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  X.

  	
  Section 7.11(g) – Unsold
  Units.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Actual Number of Unsold Units existing as of the end
  of the fiscal quarter:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Number of Unit Closings within the four fiscal
  quarters ending on the last day of the fiscal quarter x 30%:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Number of Units of Closings within two fiscal
  quarters ending on the last day of the fiscal quarter x 60%:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  D.

  	
  Maximum Unsold Units (Greater of Line X.B. and Line
  X.C.):

  	
   

  	
  $                              

  

 

7

 

	
  XI.

  	
  Section 7.11(h) – Model Units.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Actual Number of Model Units existing as of the end
  of the fiscal quarter:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Number of Unit Closings within the four fiscal
  quarters ending on the last day of the fiscal quarter:

  	
   

  	
  $                              

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Maximum Model Units (Line XI.B. x 10%):

  	
   

  	
  $                              

  

 

8

EXHIBIT H

 

FORM OF BORROWING BASE CERTIFICATE

 

Date:                        

 

To:          Guaranty Bank, as
Administrative Agent, L/C Issuer and Swing Line Lender

 

Ladies and Gentlemen:

 

Reference is made to that certain First Amended and
Restated Credit Agreement, dated as of May 16, 2006 (as amended, extended,
supplemented or otherwise modified in writing from time to time, the “Agreement;”
the terms defined therein being used herein as therein defined), among Meritage
Homes Corporation (the “Borrower”), the Lenders from time to time party
thereto, and Guaranty Bank, as Administrative Agent, L/C Issuer and Swing Line
Lender.

 

This Borrowing Base Certificate is delivered pursuant
to Section 6.02(c) of the Credit Agreement.  All capitalized terms used herein and defined
in the Credit Agreement shall be used herein as so defined.  

 

I.              Borrowing Base [to be completed
monthly] 

 

Borrower hereby represents and warrants that the
following Borrowing Base Report is true and correct in all respects as of               ,
               
(the “Reporting Date”).  The Borrowing
Base is determined as follows:

 

	
  1.

  	
  Net Book Value of
  Presold Units:

  	
  $                          

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Net Book Value of
  Eligible Model Units:

  	
  $                          

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Net Book Value of
  Unsold Units Under Constructions:

  	
  $                          

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Net Book Value of
  Completed Unsold Units Less Than 18 
  Months Since Completion:

  	
  $                          

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Net Book Value of
  Finished Lots:

  	
  $                          

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Net Book Value of
  Land/Lots Under Development:

  	
  $                          

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Net Book Value of
  Unimproved Entitled Land:

  	
  $                          

  
	
   

  	
   

  	
   

  
	
  8.

  	
  Borrowing Base on
  Reporting Date ((90% x Line 1.) +  (80%
  x Line 2.) + (80% x Line 3.) + (80% x Line 4.) + (70% x Line 5.) + (60% x
  Line 6.) + (50% (0% during the Reduction Period) x Line 7.)):

  	
  $                          

  

 

1

 

	
  9.

  	
  Borrowing Base Debt

  
	
   

  	
   

  
	
   

  	
  A.

  	
  Consolidated
  Indebtedness as of Reporting Date (Line I.A.3 of Compliance Certificate):

  	
   

  	
  $                          

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Any portion of any
  Subordinated Debt of any Loan Party which is due and payable more than one
  year from such date of determination:

  	
   

  	
  $                          

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Indebtedness secured by
  Liens on assets that are not part of any of the Borrowing Base Assets, but
  only to the extent that the Indebtedness secured by Liens on such assets (i)
  does not exceed the Net Book Value of such asset as determined by GAAP and
  (ii) does not exceed in aggregate amount the amount set forth in Section
  7.03(f):

  	
   

  	
  $                          

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  D.

  	
  The face amount of all
  undrawn Performance Letters of Credit, in each case issued for the account
  of, or guaranteed by the Borrower or any of its Subsidiaries (other than
  Unrestricted Subsidiaries):

  	
   

  	
  $                          

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  E.

  	
  Cash and Cash
  Equivalents of the Loan Parties not subject to any Lien securing Indebtedness
  in an aggregate amount in excess of $5,000,000:

  	
   

  	
  $                          

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  F.

  	
  Borrowing Base Debt
  (Lines 9.A. - B. - C. - D. - E.):

  	
   

  	
  $                          

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  Availability (Line 8 -
  Line 9.F.)

  	
   

  	
  $                          

  

 

II.            Borrowing Base Certifications 

 

Borrower hereby represents and warrants that as of the
Reporting Date:

 

1.             No more
than 70% of the Borrowing Base is comprised of the items set forth in
lines 5, 6 and 7 above.

 

2.             No more
than 40% (30% during the Reduction Period) of the Borrowing Base is comprised
of the items set forth in lines 6 and 7 above.

 

3.             The
aggregate amount of condominiums included in the Borrowing Base does not exceed
15% of the aggregate number of Units comprising the items set forth in lines 1,
2, 3 and 4 in the aggregate. 

 

2

 

III.           Liquidity
[To be completed monthly when required to be maintained pursuant to
Section 7.11(i)]

 

	
  1.

  	
   

  	
  Total Outstandings:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Borrowing Base (see I.8):

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Aggregate Commitments:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Lesser of Line 2. and
  Line 3.:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Liquidity (Line 4 –
  Line 1):

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Minimum Required:

  	
   

  	
  $

  	
  75,000,000

  	
   

  

 

3

 

IN WITNESS WHEREOF, the
undersigned has executed this Certificate as of                 ,            .

 

	
   

  	
  MERITAGE HOMES CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
						

 

4Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”), dated September 27, 2007, is entered into by
and between Nova Biosource Fuels, Inc., a Nevada corporation (the “Company”), and the purchaser identified on the signature
page hereto (the “Purchaser”).

 

RECITALS

 

A.            Subject to the terms and conditions set
forth in this Agreement and pursuant to Section 4(2) of the Securities Act (as
defined below) and/or Rule 506 of Regulation D promulgated thereunder, the Company
desires to issue and sell to the Purchaser, without registration under the
Securities Act, and the Purchaser desires to purchase from the Company certain
Securities (as defined below), as more fully described in this Agreement.

 

B.            Contemporaneously with this Agreement, the
Company intends to enter into substantially identical agreements (the “Other Purchase Agreements”) with other purchasers
(collectively with the Purchaser, the “Purchasers”)
whose obligations with regard to the Company and under the Transaction
Documents (as defined below) will be several and not joint with the obligations
of any other Purchasers, including the Purchaser.

 

C.            The Securities will be convertible into
shares of the Company’s Common Stock (as defined below), as more fully described
in this Agreement.

 

D.            The proceeds from the sale of the
Securities contemplated hereby will be used by the Company to fund the purchase
price of the acquisition of substantially all of the assets of Clinton County
Bio Energy, L.L.C., an Iowa limited liability company (the “Clinton County Seller”) pursuant to an
Asset Purchase Agreement (the “Acquisition
Agreement”), dated as of August 15, 2007, by and among Nova Biofuels
Clinton County, LLC, a Delaware limited liability company, the Clinton County
Seller, and certain members of the Clinton County Seller.

 

E.             The Company’s obligations under the
Indenture shall be unconditionally guaranteed, jointly and severally, on a
senior basis by each of the Guarantors (as defined below).

 

AGREEMENT

 

NOW, THEREFORE, IN CONSIDERATION of the
mutual covenants contained in this Agreement, and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
Company and the Purchaser agree as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1           Definitions. In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms shall have the meanings indicated in this
Section 1.1:

 

 

“Action” means
any action, suit, inquiry, notice of violation, proceeding (including any
partial proceeding such as a deposition) or investigation pending or threatened
in writing against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or administrative
agency, regulatory authority (federal, state, county, local or foreign), stock
market, stock exchange or trading facility.

 

“Affiliate”
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144.

 

“Asset
Purchase Agreement” means the Asset Purchase Agreement dated as of
August 15, 2007  by and among Nova
Biofuels Clinton County, LLC, Clinton County Bio Energy, L.L.C. and the Members
of Clinton County Bio Energy, L.L.C.

 

“Board”
means the board of directors of the Company.

 

“Business Day”
means any day except Saturday, Sunday and any day which shall be a federal
legal holiday or a day on which banking institutions in the State of New York
are authorized or required by law or other governmental action to close.

 

“Closing” means
the closing of the purchase and sale of the Securities pursuant to Article II.

 

“Closing
Agent” means Jefferies & Company, Inc., serving in the capacity
as closing agent.

 

“Closing
Escrow Agreement” means the Closing Escrow Agreement to be entered
into as of the date hereof, by and between the Company, the Closing Agent and
the Escrow Agent.

 

“Collateral
Agent” means The Bank of New York Trust Company, N.A.

 

“Commission”
means the United States Securities and Exchange Commission.

 

“Common Stock”
means the common stock of the Company, $0.001 par value per share.

 

“Conversion
Shares” means the shares of Common Stock issuable upon conversion of
the Securities, pursuant to their terms.

 

“Disclosure Materials”
has the meaning set forth in Section 3.1(i).

 

“Effective Date”
means the date that the Registration Statement required by Section 2(a) of the
Registration Rights Agreement is first declared effective by the Commission.

 

“Escrow
Agent” means The Bank of New York Trust Company, N.A.

 

“Exchange Act”
means the Securities Exchange Act of 1934, as amended.

 

2

 

“Guarantee”
means the guarantee of the obligations of the Company under the Securities,
including the due and punctual payment of interest on the Securities, jointly
and severally, on a senior basis, by each of the Guarantors.

 

“Guarantors”
means Nova Holding Clinton County, LLC and Nova Biofuels Clinton County, LLC.

 

“Indenture”
means the Indenture to be dated as of the date of the Closing between the
Company, each of the Guarantors and the Trustee, pursuant to which the
Securities will be issued.

 

“Lien” means any
lien, charge, encumbrance, security interest, right of first refusal or other
restrictions of any kind.

 

“Person” means
an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

 

“Placement
Agent” means Jefferies & Company, Inc.

 

“Pledge
Agreement” means the Pledge Agreement to be entered into as of the
date of the Closing by and between the Company, the Purchasers and the
Collateral Agent.

 

“Purchase Price”
means $1,000 for each $1,000 of principal amount of Securities to be purchased
by the Purchaser at the Closing, which aggregate amount is set forth on
Schedule A hereto.

 

“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.

 

“Registration Rights
Agreement” means the Registration Rights Agreement, dated as of the
date of this Agreement, among the Company and the Purchasers, in the form of Exhibit
A.

 

“Registration Statement”
means a registration statement meeting the requirements set forth in the
Registration Rights Agreement and covering the resale by the Purchasers of the
Registrable Securities (as defined in the Registration Rights Agreement).

 

“Rule 144” means
Rule 144 promulgated by the Commission pursuant to the Securities Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such Rule.

 

“Security
Agreement” means the Security Agreement to be entered into as of the
date of the Closing, by and between each of the Guarantors, the Purchasers and
the Collateral Agent.

 

“Security
Documents” means the Pledge Agreement, the Security Agreement and
all agreements, certificates and other documents to be executed and delivered
thereunder or in connection therewith.

 

3

 

“Securities”
means the Company’s 10% Senior Secured Convertible Notes due 2012.

 

“Securities Act”
means the Securities Act of 1933, as amended.

 

“Subsidiary”
means any subsidiary, joint venture or any entity in which the Company,
directly or indirectly, owns greater than 2% of the capital stock or equity or
similar interests.

 

“Trading Day”
means (i) a day on which the Common Stock is traded on a Trading Market, or
(ii) if the Common Stock is not listed on a Trading Market, a day on which the
Common Stock is traded in the over-the-counter market, as reported by the OTC
Bulletin Board System, or (iii) if the Common Stock is not quoted on the OTC
Bulletin Board System, a day on which the Common Stock is quoted in the
over-the-counter market as reported by The Pink Sheets, LLC (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as
set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business
Day.

 

“Trading Market”
means whichever of The New York Stock Exchange, the American Stock Exchange,
The NASDAQ Capital Market, The NASDAQ Global Market or The NASDAQ Global Select
Market on which the Common Stock is listed or quoted for trading on the date in
question.

 

“Transaction Documents”
means this Agreement, the Registration Rights Agreement, the Indenture, the
Security Documents, the Other Purchase Agreements and any other documents or
agreements executed in connection with the transactions contemplated hereunder.

 

“Trustee”
means The Bank of New York Trust Company, N.A.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1           Closing. Subject
to the terms and conditions set forth in this Agreement, at the Closing the
Company shall issue and sell to the Purchaser, and the Purchaser shall purchase
from the Company, the number of Securities set forth on the signature page
hereto. The Closing shall take place on the date hereof (the “Closing Date”) at the offices of Jones Day, 222 East 41st
Street, New York, New York 10017-6702 or at such other time and location as the
parties may agree.

 

2.2           Closing Deliveries
and Conditions to Closing.

 

(a)           At the Closing, the
Company shall deliver or cause to be delivered to the Purchaser, and the
obligations of the Purchaser to close the purchase of the Securities shall be
subject to the fulfillment or satisfaction of, each of the following:

 

(i)            The
Indenture duly executed by the Company, each of the Guarantors and the Trustee
and a note duly executed by the Company and authenticated by the Trustee
pursuant to the terms of the Indenture evidencing the principal amount of
Securities set forth below the Purchaser’s name on the signature page hereto.

 

4

 

(ii)           The
Guarantees duly executed by each of the Guarantors pursuant to the terms of the
Indenture.

 

(iii)          The legal opinions of Woodburn & Wedge,
special Nevada counsel to the Company, and Baker & McKenzie LLP, special
counsel to the Company, each in agreed form, addressed to the Purchaser.

 

(iv)          The
Registration Rights Agreement duly executed by the Company.

 

(v)           The
Security Documents duly executed by the Company, each of the Guarantors and the
Collateral Agent, as applicable, and the Company and each of the Guarantors
shall have taken all actions required thereunder to perfect the security
interests to be granted under the Security Documents.

 

(vi)          The
representations and warranties made by the Company in Article III 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 specified date), all covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company and each of the
Guarantors prior to the Closing shall have been performed or complied with (or
waived by the Purchaser), and the Company and each of the Guarantors shall have
obtained any approvals, consents and qualifications necessary to perform their
respective obligations hereunder.

 

(vii)         The Company shall have delivered to the
Purchaser at the Closing a certificate signed on its behalf by its Chief
Executive Officer certifying that the conditions specified in Section 2.2
hereof have been fulfilled.

 

(viii)        At the Closing, the Company shall have
delivered to the Purchaser copies of each of the following, in each case
certified by the Secretary of the Corporation to be in full force and effect on
the date of the Closing:

 

(a)           the
articles of incorporation of the Company and certificate of formation for each
of the Guarantors as of the Closing (which shall be the Articles) certified by
the Secretary of State of the State of Nevada as of a date not more than ten
(10) days prior to the Closing;

 

(b)           a
good standing certificate with respect to the Company and each of the
Guarantors certified by the Secretary of State of the requisite entity’s state
of incorporation or formation as of a date not more than ten (10) days prior to
the Closing;

 

(c)           the
by-laws of the Company and operating agreement of each of the Guarantors;

 

5

 

(d)           resolutions
of the board or directors, and, as necessary, the shareholders of the Company,
authorizing the execution, delivery and performance of the Asset Purchase Agreement,
the Transaction Documents, and the transactions contemplated hereby and
thereby, including the issuance and sale of the Securities and the reservation
of the Conversion Shares; and

 

(e)           resolutions
of the board of directors, and, as necessary, the members of each of the
Guarantors, authorizing the execution, delivery and performance of the Asset
Purchase Agreement, Transaction Documents, as applicable, and the transactions
contemplated hereby and thereby.

 

(f)            a
certificate with respect to the Company and each of the Guarantors evidencing
the Company’s and each of the Guarantors’ qualification as a foreign
corporation or limited liability company, as applicable, and good standing
issued by the Secretary of State (or comparable office) of each jurisdiction in
which the Company and each of the Guarantors conduct business, as of a date
within 10 days of the Closing Date.

 

(x)            At
the Closing, the Company shall pay (or reimburse the Purchaser for) the fees
and expenses of the Purchaser specified in Section 5.1 as payable by the
Company.

 

(xi)           As
of the Closing, the purchase of the Securities by the Purchaser shall be
legally permitted by all laws and regulations to which the Purchaser, the
Company and each of the Guarantors are subject.

 

(xii)          As of the Closing, all authorizations,
approvals or permits of, or filings with any governmental authority, including
state securities or “Blue Sky” offices, that are required by law in connection
with the lawful sale and issuance of the Securities, including the conversion
of the Securities into the Conversion Shares, shall have been duly obtained by
the Company, and shall be effective as of the Closing.

 

(xiii)         All corporate and other proceedings in
connection with the transactions contemplated by the Transaction Documents, and
all documents and instruments incident to such transactions, shall be
satisfactory in form and substance to the Purchaser, and the Purchaser shall
have received at or prior to the Closing all such documents as the Purchaser
shall have requested.

 

(xiv)        The Company shall have received net proceeds in
the aggregate from the sale of the Securities to the Purchasers under this
Agreement and the Other Purchase Agreements in an amount not less than the
amount set forth on Schedule A hereto.

 

(xv)         The
Acquisition shall have been consummated substantially as contemplated by the
Asset Purchase Agreement. Other than Permitted Indebtedness (as defined in the
Indenture), the Acquisition will be consummated without the incurrence of any
indebtedness by the Company.

 

6

 

(xvi)        The Securities shall have been approved for
trading on the Private Offerings, Resales and Trading through Automatic
Linkages (“PORTAL”) system of the
National Association of Securities Dealers, Inc., subject only to notice of
issuance at or prior to the time of purchase.

 

(xvii)       The Company shall have delivered to the
Purchaser lock-up agreements in the form attached hereto as Exhibit B
(the “Lock-Up Agreement”) executed and
delivered by the directors and officers of the Company.

 

(xiii)         The Company shall have delivered the Letter of
Credit to the LC Agent.

 

(xix)         The
Company, the Closing Agent and the Escrow Agent shall have executed and
delivered the Closing Escrow Agreement.

 

(b)           At the Closing, the
Purchaser shall deliver or cause to be delivered to the Company, and the
obligations of the Company to close the purchase and sale of the Securities
shall be subject to the fulfillment or satisfaction of, the following:

 

(i)            the
aggregate principal amount of Securities, as set forth below the Purchaser’s
name on the signature page hereto, in United States dollars and in immediately
available funds, by wire transfer to the account set forth on Schedule A hereto
or to such other account designated in writing by the Company for such purpose;

 

(ii)           the
Registration Rights Agreement duly executed by the Purchaser;

 

(iii)          the Security Agreement duly executed by the
Purchaser to the extent the Purchaser is a party thereto;

 

(iv)          the
representations and warranties of the Purchaser shall be true and correct in
all material respects (except for those representations and warranties that are
qualified by materiality, 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 specified date), and the Purchaser
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Purchaser at or prior to the
Closing Date; and

 

(v)           The
Company shall have received net proceeds in the aggregate from the sale of the
Securities to the Purchasers under this Agreement and the Other Purchase
Agreements in an amount not less than the amount set forth on Schedule A
hereto.

 

2.3           Closing Mechanics

 

(a)           Closing Agent to
Contact Purchasers. By the second business day prior to the Closing, the
Closing Agent, will contact the Purchasers to confirm the closing mechanics set
forth herein.

 

7

 

(b)           Company to Deliver
Executed Securities to Closing Agent for Purchasers. At least two business
days prior to the Closing Date, the Company will deliver to the Closing Agent
duly executed certificates representing the Securities in the form contemplated
by the Indenture, registered in the names previously provided by the Closing
Agent to the Company, which certificates the Closing Agent shall hold until the
Closing Agent is directed to release such certificates by the Company for sale
to the Purchasers.

 

(c)           Purchasers to Fund
Purchase Price. On or before 10:00 a.m., New York City time, on the
Business Day prior to the Closing Date, each of the Purchasers will deliver
their respective portions of the Purchase Price to the Closing Agent by wire
transfer in immediately available funds according to the wire transfer
instructions previously delivered to each of such Purchasers. Purchasers will
receive from the Company interest on the amount they funded according to the
prior sentence at the initial interest rate to be borne by the Securities for
the number of days such funds remain deposited into the escrow account of the
Closing Escrow Agreement (computed on the basis of a 360-day year), payable on
the Closing Date, as set forth in the Closing Escrow Agreement; if there is no
Closing, Purchasers will receive from the Company interest on the amount they
funded according to the prior sentence based on the return on Permitted
Investments (as defined in the Closing Escrow Agreement) applicable to such
funded amounts, payable when such funds are returned to such Purchasers, as set
forth in the Closing Escrow Agreement. The delivery of funds from such
Purchaser to the Closing Agent shall be deemed to constitute irrevocable
instructions from such Purchaser to the Closing Agent that the Purchasers’
conditions to the Closing will be deemed to be satisfied upon (i) receipt by
the Closing Agent of the Company Closing Certificate (as defined below) and
(ii) the written consent of Schulte Roth & Zabel LLP (which may be by
email), upon behalf of Highbridge International LLC, that the Purchasers’
conditions to Closing have been satisfied, and, in such event, such Purchaser
agrees that the Closing Agent may instruct the Escrow Agent to release the
funds as contemplated by, and subject to, the provisions of Section 2.3(f). Funds
received by the Closing Agent pursuant to this Section 2.3 (or funded by
the Closing Agent in its sole discretion pursuant to Section 2.3(d)) will be
held in trust for the applicable Purchasers and not as property or in the title
of the Closing Agent.

 

(d)           Closing Agent Right
to Fund for Late Purchasers. In the event that any Purchaser shall fail to
deliver all or any of its respective portion of the Purchase Price on or before
9:00 a.m., New York City time, on the Closing Date:

 

(i)            The
Closing Agent may, in its sole discretion, but shall not be obligated to, fund
the unfunded portion of the Purchase Price applicable to such Purchaser, on
behalf of such Purchaser. The funding of any portion of the Purchase Price by
the Closing Agent pursuant to this Section 2.3(d) shall not relieve a
defaulting Purchaser of any liability that it may have to the Company or the
Closing Agent pursuant to this Agreement or for the breach of its obligations
under this Agreement.

 

(ii)           In
the event that the Closing Agent shall have funded any such unfunded portion as
set forth in the preceding clause (i), the Closing Agent may, in its sole
discretion, but shall not be obligated to, (A) retain, at and following the
Closing, beneficial ownership in the Securities as such Purchaser would have
been entitled to had it timely funded, (B) direct the disposition of such Note
to another party or (C) require

 

8

 

such
Purchaser, upon written notice, to purchase such Securities from the Closing
Agent within two business days after the Closing Date at a price equal to the
initial offering price of such Securities plus accrued and unpaid interest to
the date of settlement.

 

(iii)          In the case of the preceding clause (ii)(A)
or (B), if so requested by the Closing Agent, (A) such Purchaser shall take any
action reasonably requested by the Closing Agent to effect the transfer of the
applicable Securities to the Closing Agent or such other party, as the case may
be, and shall be deemed to have consented to the Closing Agent retaining and
taking beneficial ownership, or directing the disposition, of such Securities
and (B) the Company shall transfer registration of such Securities to, or as
directed by, the Closing Agent.

 

(e)           Distribution of
Purchase Price Received by Closing Agent to Escrow Agent. Upon receipt of
the Purchase Price from any Purchaser, the Closing Agent will distribute such
funds to the Escrow Agent for deposit into the escrow account to be established
pursuant to the Closing Escrow Agreement (the “Closing  Escrow Account”).

 

(f)            Release of Purchase
Price Funds; Delivery of Securities. On the Closing Date:

 

(i)            upon
(A) receipt by the Closing Agent of a certificate from the Chief Executive
Officer of the Company (the “Company Closing
Certificate”) certifying that the conditions to the Purchasers’
obligations to close, as set forth in Section 2.2(a), have been satisfied and
(B) the consent of Schulte Roth & Zabel LLP, upon behalf of Highbridge
International LLC, that such conditions have been satisfied, the Closing Agent
will instruct the Escrow Agent, pursuant to the terms of the Closing Escrow
Agreement, to release the Purchase Price as set forth in the Closing Escrow
Agreement; and

 

(ii)           in
consideration for the receipt of the Purchase Price deposited in the Closing
Escrow Account as specified above, the Company shall deliver the Securities to
the applicable Purchasers in accordance with the instructions contained in Annex
A hereto.

 

(g)           Returning of Funds from the Closing Agent.
To the extent the Closing Agent receives any funds from the Escrow Agent for
the benefit of any Purchaser pursuant to the Closing Escrow Agreement, whether
upon termination of the transactions contemplated hereby, as interest upon
funds held in the escrow account or otherwise, the Closing Agent shall wire such
funds to the applicable Purchaser, in accordance with instructions provided by
such Purchaser(s), within one (1) Business Day of receipt of such funds by the
Closing Agent.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1           Representations and
Warranties of the Company. The Company hereby makes the following
representations and warranties to the Purchaser and to the Placement Agent (as
defined below):

 

9

 

(a)           Organization and
Qualification. Each of the Company and each Subsidiary is an entity duly
incorporated or otherwise organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted. Neither
the Company nor any Subsidiary is in violation of any of the provisions of its
respective articles of incorporation, bylaws or other organizational or charter
documents. Each of the Company and each Subsidiary is duly qualified to conduct
business and is in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually
or in the aggregate, have or reasonably be expected to result in (i) an adverse
effect on the legality, validity or enforceability of any Transaction Document,
(ii) a material and adverse effect on the operations, results of operations,
assets, properties, prospects, business or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or (iii) an adverse
impairment to the Company’s ability to perform on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”).

 

(b)           Subsidiaries. The
Company has no direct or indirect Subsidiaries other than those listed in Schedule
3.1(b). Except as disclosed in Schedule 3.1(b), the Company owns,
directly or indirectly, all of the capital stock of each Subsidiary free and
clear of any and all Liens, and all the issued and outstanding shares of
capital stock of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights.

 

(c)           Authorization;
Enforcement. The Company and each of the Guarantors have the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents, as applicable, and otherwise
to carry out their obligations thereunder. The execution, delivery and
performance of each of the Transaction Documents by the Company and each of the
Guarantors, as applicable, and the consummation by the Company and each of the
Guarantors of the transactions contemplated thereby have been duly authorized
by all necessary corporate action on the part of the Company and its
shareholders and each of the Guarantors and no further corporate action is
required by the Company or its shareholders or each of the Guarantors in
connection therewith. Each Transaction Document has been duly executed by the
Company and each of the Guarantors, as applicable, and, when delivered in
accordance with the terms hereof, will constitute the valid and binding
obligation of the Company and each of the Guarantors, enforceable against the
Company and each of the Guarantors in accordance with its terms, except (i) as
rights to indemnity and contribution may be limited by state or federal
securities laws or the public policy underlying such laws, (ii) as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and (iii) as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law) (clauses (i) – (iii) collectively, the “Enforceability Exceptions”).

 

(d)           The Securities and
the Guarantees. The Securities have been duly authorized by the Company and
each Guarantor and, when duly executed, authenticated, and delivered as
provided in the Indenture and paid for as provided herein, will be duly and
validly issued and will constitute valid and binding obligations of the Company
enforceable against the Company in

 

10

 

accordance with their terms, subject to the
Enforceability Exceptions, and will be entitled to the benefits of the
Indenture; and the Guarantees have been duly authorized by each of the
Guarantors and, when the Securities and the Guarantees by each of the
Guarantors have been duly executed, authenticated, issued and delivered as
provided in the Indenture and paid for as provided herein, as the case may be,
will be valid and binding obligations of each of the Guarantors, enforceable
against each of the Guarantors in accordance with their terms, subject to the
Enforceability Exceptions, and will be entitled to the benefits of the
Indenture.

 

(e)           No Conflicts. The
execution, delivery and performance of the Transaction Documents by the Company
and each of the Guarantors, as applicable, and the consummation by the Company
and each of the Guarantors, as applicable, of the transactions contemplated
thereby, including the issuance and sale of the Securities (including the
Guarantees and the issuance of the Conversion Shares), do not and will not (i)
conflict with or violate any provision of the Company’s or any Subsidiary’s
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that 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 (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
other instrument or other understanding to which the Company or any Subsidiary is
a party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected; except
in the case of clauses (ii) and (iii), such as could not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.

 

(f)            Filings, Consents
and Approvals. The Company and each of the Guarantors are not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company and each of the Guarantors
of the Transaction Documents, as applicable, including the issuance of the
Securities (including the Guarantees and the issuance of the Conversion
Shares), other than:  (i) the filing with
the Commission of one or more Registration Statements in accordance with the
requirements of the Registration Rights Agreement, (ii) notice filings required
by state securities laws, the failure of which to make will not affect the
validity of the Securities or the enforceability of this Agreement, and (iii)
those that have been made or obtained prior to the date of this Agreement. The
Company and its Subsidiaries are unaware of any facts or circumstances that
would reasonably be expected to prevent the Company or any of the Guarantors
from obtaining or effecting any of the registration, application or filings
pursuant to the preceding sentence.

 

(g)           Issuance of
Securities and Conversion Shares. The Conversion Shares have been duly
authorized and reserved for issuance upon conversion of the Securities by all
necessary corporate action of the Company. The issuance of the Securities, upon
issuance in accordance with the terms of the Transaction Documents, will be
free from all taxes, liens and charges. All Conversion Shares, when so issued
in accordance with the Company’s Articles of Incorporation and delivered upon
such conversion in accordance with the terms of the Indenture and the

 

11

 

Securities, will be duly authorized and validly
issued, fully paid and nonassessable and free and clear of all liens,
encumbrances, equities, claims or preemptive or similar rights with the holders
being entitled to all rights accorded to a holder of Common Stock.

 

(h)           Capitalization. The
authorized capital stock of the Company consists solely of 500,000,000 shares
of Common Stock and 5,000,000 shares of preferred stock, $0.001 par value per
share. As of the date hereof prior to Closing: 
(i) the number of shares of Common Stock set forth on Schedule 3.1(h)
hereto are issued and outstanding and no shares of Common Stock are held in
treasury, (ii) the number of shares of Common Stock set forth on Schedule
3.1(h) hereto are reserved for future issuance pursuant to the Company’s
equity incentive plan, pursuant to outstanding warrants and the Securities as
indicated in such schedule, (iii) no shares of preferred stock are issued and
outstanding and (iv) the number of shares of Common Stock set forth on Schedule
3.1(h) are reserved for issuance pursuant to securities exercisable or
exchangeable for, or convertible into, shares of Common Stock. All outstanding
shares of common stock are validly issued, fully paid and nonassessable.

 

Except as
disclosed in Schedule 3.1(h), (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 which are required to be disclosed in any Exchange Act report,
(iv) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of their securities
under the Securities Act; (v) 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; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (vii) the Company does not have any stock appreciation rights
or “phantom stock” plans or agreements or any similar plan or agreement; (viii)
the Company and its Subsidiaries have no liabilities or obligations required to
be disclosed in the SEC Reports but not so disclosed in the SEC Reports, 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; and (ix) 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.
The Company has filed in its SEC Reports with the Commission true, correct and
complete copies of the Company’s Articles of Incorporation, as amended and as
in effect on the date hereof, and the Company’s Bylaws, as amended and as in
effect on the date hereof, and the

 

12

 

form of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock.

 

(i)            SEC Reports;
Financial Statements. During the two (2) years prior to the date hereof,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof (the foregoing
materials including all exhibits and schedules thereto, being collectively
referred to herein as the “SEC Reports”
and, together with the Schedules to this Agreement, the Confidential
Information Memorandum dated August 20, 2007, as supplemented on September 27,
2007 and any other materials prepared by the Company and delivered to the
Purchaser in writing, the “Disclosure
Materials”). The Company has delivered to the Purchaser or its
representative true, correct and complete copies of the SEC Reports not
available on the EDGAR system. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and, except to the extent superseded by an amended SEC
Report filed at least five (5) Business Days prior to the date hereof, none of
the SEC Reports or the Disclosure Materials, when filed or prepared, as
applicable, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of the Company included in
the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company and its consolidated Subsidiaries
as of and for the dates thereof and the results of operations and cash flows
for the periods then ended, subject, in the case of unaudited statements, to
normal, immaterial, year-end audit adjustments or as otherwise disclosed in the
SEC Reports. No other information provided by or on behalf of the Company to
the Purchaser which is not included in the SEC Reports and that has not be
subsequently modified, corrected, supplemented or superceded in writing,
including, without limitation, information referred to in Section 3.2(g) of
this Agreement or in any disclosure schedules, 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 not misleading.

 

(j)            Litigation. Except
as disclosed in Schedule 3.1(j), there is no Action pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries, or any of the Company’s Subsidiaries or any of the Company’s or
its Subsidiaries’ officers or directors that (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Indenture or (ii) could, if there were an unfavorable
decision, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, neither the Company nor any Subsidiary,
nor any director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty and there has not been,
and to the knowledge of the Company there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director or officer of the Company.

 

13

 

The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.

 

(k)           Transactions With
Affiliates and Employees. Except as set forth on Schedule 3.1(k),
none of the officers, directors or employees of the Company or any Subsidiary
is presently a party to any transaction with the Company or any Subsidiary
(other than for ordinary course services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

 

(l)            Internal Accounting
and Disclosure Controls. The Company and the Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset 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 differences. The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-14 under the Exchange 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 Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms of the Commission, including, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange 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. Except as disclosed in Schedule 3.1(l),
since March 31, 2006, neither the Company nor any of its Subsidiaries have
received any notice or correspondence from any accountant relating to any
material weakness in any part of the system of internal accounting controls of
the Company or any of its Subsidiaries.

 

(m)          Certain Fees. Except
for dealings with the Placement Agent, no brokerage or finder’s fees or
commissions are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by the Transaction
Documents. The Purchaser shall have no obligation with respect to any fees or
with respect to any claims (other than such fees or commissions owed by the
Purchaser pursuant to written agreements executed by the Purchaser which fees
or commissions shall be the sole responsibility of the Purchaser) made by or on
behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by the Transaction
Documents. Other than the Placement Agent and the Placement Agent’s fees,
neither the Company nor any of its Subsidiaries has engaged any placement agent
or other agent in connection with the sale of the

 

14

 

Securities and has not incurred any placement agent’s
fees, financial advisory fees, or broker’s commissions relating to or arising
out of the transactions contemplated hereby.

 

(n)           Certain Registration
Matters. Assuming the accuracy of the Purchaser’s representations and
warranties set forth in Section 3.2(c) through (g), no registration under the
Securities Act is required for the offer and sale of the Securities (including
the Guarantees) by the Company and each of the Guarantors to the Purchaser
under the Transaction Documents. The Company has not offered the Securities by
means of any form of general solicitation or general advertising, including but
not limited to the following:  (A) any
advertisement, article, notice or other communication published in a newspaper
or magazine or similar media or broadcast over television or radio whether
closed circuit or generally available or (B) any seminar, meeting or industry
investor conference whose attendees were invited by any general solicitation or
general advertising. As of the date hereof, the Company is eligible to register
the resale of its Common Stock on Form S-3 promulgated under the Securities
Act.

 

(o)           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 by any security,
under circumstances that would require registration of the issuance of any of
the Securities under the Securities Act, whether through integration with prior
offerings or otherwise. 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 the issuance of any
of the Securities under the Securities Act or cause the offering of the
Securities to be integrated with other offerings for purposes of any such
applicable stockholder approval provisions.

 

(p)           Investment Company.
The Company is not, and upon consummation of the sale of 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” within the meaning of the Investment Company Act of 1940, as amended.

 

(q)           No Additional
Agreements. The Company does not have any agreement or understanding with
the Purchaser or any other Purchasers with respect to the transactions
contemplated by the Transaction Documents other than as specified in this
Agreement and the Other Purchase Agreements, respectively. This Purchase
Agreement is identical with each of the Other Purchase Agreements, other than
the provisions of the Other Purchase Agreements concerning the identity of the
other Purchasers, the amount of Securities purchased by such other Purchasers,
certain representations and warranties and covenants relating to the material
non-public information and the disclosure thereof.

 

(r)            ERISA; Employee
Relations. Each employee benefit plan (as defined in Section 3(3) of
ERISA) and any other plan, agreement or arrangement for the benefit of any
director, officer or employee of the Company (each, an “Employee Benefit Plan”) has been operated
in material compliance with its terms and with all applicable laws, including,
but not limited to, ERISA and the Code. All contributions due and payable on or
before the Closing in respect of any Employee Benefit Plan have been made in
full.

 

15

 

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, except where such
failure would not, either individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. No executive officer of the
Company or any of its Subsidiaries (as defined in Rule 501(f) of the Securities
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 reasonably 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 similar contract or agreement or any restrictive covenant, and the
continued employment of each such executive officer would not reasonably be
expected to subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters.

 

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 employments 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.

 

(s)           Tax. The Company
and each of its Subsidiaries have filed all foreign, federal, state and local
tax reports and returns required by any law or regulation to be filed by it,
and such returns are true and correct, except where such failure would not,
either individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. The Company and each of its Subsidiaries have paid all
taxes, interest and penalties, if any, reflected on such tax returns or
otherwise due and payable by it, except where such failure would not, either
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. Each of the Company and each of its Subsidiaries have
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. Any deficiencies proposed as a result of any governmental
audits or such tax returns have been paid or settled, and there are no present
disputes as to taxes payable by the Company. The Company has not elected
pursuant to the Internal Revenue Code of 1986, as amended (the “Code”), to be treated as a Subchapter S
corporation or a collapsible corporation pursuant to Section 1362(a) or Section
341(f) of the Code, respectively, nor has it made any other elections pursuant
to the Code (other than elections that relate solely to methods of accounting,
depreciation or amortization) that would have a material adverse effect on the
Company, its financial condition, its business as presently conducted or
proposed to be conducted or any of its properties or material assets. The
Company has withheld or collected from each payment made to each of its
employees, the amount of all taxes (including, but not limited to, federal
income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment
Tax Act taxes) required to be withheld or collected therefrom, and has paid the
same to the proper tax receiving officers or authorized depositories, except
where such failure would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.

 

16

 

(t)            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 articles of incorporation or the laws of the
State of Nevada which is or could become applicable to any Purchaser as a
result of the transactions contemplated by this Agreement, including, without
limitation, the Company’s issuance of the Securities and any Purchaser’s
ownership of the Securities. The Company and its Board of Directors have taken
all necessary action, if any, in order to render inapplicable any stockholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.

 

(u)           Absence of Certain
Changes. Since October 31, 2006, there has been no material adverse changes
or developments in the business, properties, operations, condition (financial
or otherwise), results of operations or prospects of the Company or its
Subsidiaries that have resulted, or could reasonably be expected to result, in
a Material Adverse Effect. Since October 31, 2006, the Company has not (i)
declared or paid any dividends or (ii) sold any assets, individually or in the
aggregate, in excess of $500,000 outside of the ordinary course of business. Neither
the Company nor any of its Subsidiaries has 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 that would reasonably lead a
creditor to do so. The Company and its Subsidiaries, individually and on a
consolidated basis, are not as of the date hereof, and after giving effect to
the transactions contemplated hereby to occur at the Closing, will not be
Insolvent (as defined below). For purposes of this Section 3.1(u), “Insolvent” means, with respect to any
Person, (i) the present fair saleable value of such Person’s assets is less
than the amount required to pay such Person’s total Indebtedness (as defined in
Section 3.1(hh)), (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.

 

(v)           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 Commission
thereunder that are effective as of the date hereof.

 

(w)          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, trade secrets and other intellectual
property rights (“Intellectual Property
Rights”) necessary to conduct their respective businesses as
conducted on the date of this Agreement, except where such failure would not,
either individually or in the aggregate, reasonably be expect to result in a
Material Adverse Effect. 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, except where such expiration,
termination or abandonment would not,

 

17

 

either individually or in the aggregate, reasonably be
expect to result in a Material Adverse Effect. No product or service of the
Company or its Subsidiaries infringes the Intellectual Property Rights of
others, except where such infringement would not, either individually or in the
aggregate, reasonably be expect to result in a Material Adverse Effect. There
is no claim, action or proceeding being made or brought, or to the knowledge of
the Company or its Subsidiaries, being threatened, against the Company or its
Subsidiaries regarding (i) its Intellectual Property Rights, or (ii) that the
products or services of the Company or its Subsidiaries infringe the
Intellectual Property Rights of others, except where such claim, action or
proceeding would not, either individually or in the aggregate, reasonably be expect
to result in a Material Adverse Effect. The Company and its Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and
value of all of their Intellectual Property Rights.

 

(x)            Environmental Laws.
The Company and its Subsidiaries (i) are in compliance with any and all
Environmental Laws (as hereinafter defined and (ii) are in compliance with all
terms and conditions of any such permit, license or approval where, in each of
the foregoing clauses (i) and (ii), 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.

 

(y)           Manipulation of
Price. The Company has not, and 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.

 

(z)            Collateral. As
of the Closing Date, (A) the Company and each of the Guarantors, as applicable,
will own the collateral pledged pursuant to the Security Documents (the “Collateral”) free and clear of all liens
except for the lien in favor of the Collateral Agent under the Security
Documents and Permitted Liens (as defined in the Indenture), and no financing
statements in respect of the Collateral will be on file in favor of any Person
other than the Collateral Agent; (B) when executed and delivered, the Security
Documents will create a valid lien on, and enforceable security interests in
favor of the Collateral Agent for the ratable benefit of the holders of the
Securities, in the Collateral, which security interests will secure the
repayment of the Securities and the other obligations purported to be secured
thereby; (C) the representations and warranties of the Company and each of the
Guarantors in the Security Documents will be true and correct (if such
representations and warranties are not qualified with

 

18

 

respect to materiality, in which case such
representations will be true and correct in all respects) in all material
respects; (D) upon the filing and recording of financing statements in the
appropriate jurisdictions, the lien securing the Securities will have been duly
perfected as to the Collateral as to which perfection may be accomplished
through the filing of financing statements pursuant to the applicable Uniform
Commercial Code or other applicable law in such jurisdictions; and (E) the
liens of the Security Documents shall be prior to any other lien on any of the
Collateral, other than liens expressly permitted to be prior pursuant to the
Security Documents.

 

(aa)         U.S. Real Property
Holding Corporation. The Company is not, has not been since January 1,
2006, and so long as any Securities remain outstanding, shall not become, a
U.S. real property holding corporation within the meaning of Section 897
of the Code.

 

(bb)         Disclosure. Neither
the Company nor any other Person acting on its behalf has provided any of the
Purchaser or its agents or counsel with any information that constitutes or
could reasonably be expected to constitute material non-public information
other than concerning the transactions contemplated by this Agreement which
shall be disclosed pursuant to Section 4.10 or disclosed pursuant to a
non-disclosure agreement with the Purchaser. The Company acknowledges that the
Purchaser will rely on the foregoing representations in effecting transactions
in securities of the Company. 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.

 

(cc)         Acknowledgment
Regarding Purchaser’s Purchase of Securities. The Company acknowledges and
agrees that each Purchaser 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 Purchaser is (i) an officer or
director of the Company, (ii) an “affiliate” of the Company or any of its
Subsidiaries (as defined in Rule 144 of the Securities 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 Exchange Act). The
Company further acknowledges that no Purchaser 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 Purchaser or any of
its representatives or agents in connection with the Transaction Documents and
the transactions contemplated hereby and thereby is merely incidental to the
Purchaser ‘s purchase of the Securities. The Company further represents to each
Purchaser 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.

 

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

 

19

 

(ee)                            Conduct
of Business; Regulatory Permits. Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under its Articles of
Incorporation, any certificate of designations of any outstanding series of
preferred stock of the Company or the Bylaws or their organizational charter or
bylaws, respectively. Neither the Company nor any of its Subsidiaries is in
default (and no event has occurred which, with notice or lapse of time or both,
would constitute such a default or an event of default) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its Subsidiaries pursuant to, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which it is a party or by which it is bound or to which any of its property or
assets is subject, or 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 defaults
or 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 any Trading Market and has no knowledge of any facts or
circumstances that would reasonably lead to delisting or suspension of the
Common Stock by the applicable Trading Market on which the Company is currently
listed in the foreseeable future. Since May 14, 2007, (i) the Common
Stock has been designated for quotation on the Trading Market on which the
Company is listed, (ii) trading in the Common Stock has not been suspended
by the Commission or the applicable Trading Market and (iii) the Company
has received no communication, written or oral, from the Commission or the
applicable Trading Market regarding the suspension or delisting of the Common
Stock from such Trading Market. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate regulatory
authorities necessary to conduct their respective businesses as conducted on
the date hereof, including without limitation, those required as of the date
hereof under applicable Environmental Laws, 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.

 

(ff)                                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.

 

(gg)                          Indebtedness.
Except as disclosed in Schedule 3.1(gg), neither the Company nor
any of its Subsidiaries has any outstanding Indebtedness (as defined below). Schedule 3.1(gg)
provides the amount of the obligation, the terms of its payment, a brief
description of the material terms under which it could be accelerated or
increased and the nature of any recourse provisions that would enable the
Company or such Subsidiary to recover from third persons and a brief description
of any other material terms of any such outstanding Indebtedness. For

 

20

 

purposes of this
Agreement:  (x) “Indebtedness”
of any Person means, without duplication (A) all indebtedness for borrowed
money in excess of $100,000 in principal amount, (B) all obligations in
excess of $100,000 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 in excess of
$100,000 in principal amount 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 in
excess of $100,000 in principal amount 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 in excess of $100,000 in
principal amount 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 excess of
$100,000 in principal amount in respect of indebtedness or obligations of
others of the kinds referred to in clauses (A) through (G) above and
(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.

 

(hh)                          Insurance.
The Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the
businesses in which the Company and its Subsidiaries are engaged.

 

(ii)                                  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 (A) such as are described in Schedule 3.1(ii), (B) for
liens, encumbrances and defects described in clauses (vii) through (xi) of
the definition of Permitted Liens (as defined in the Indenture) or (C) 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.

 

21

 

(jj)                                  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.

 

(kk)                            Ranking
of Securities. Except as set forth on Schedule 3.1(kk), no
Indebtedness of the Company is senior to or ranks pari passu with the Securities in right of payment, whether
with respect of payment of redemptions, interest, damages or upon liquidation
or dissolution or otherwise.

 

(ll)                                  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.

 

(mm)                      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 Purchaser 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.

 

(nn)                          Acknowledgement
Regarding Purchaser’s Trading Activity. Except as set forth in Section 3.2(j),
anything in this Agreement or elsewhere herein to the contrary notwithstanding,
but subject to compliance by the Purchaser with applicable law, it is
understood and acknowledged by the Company that (i) past or future open
market or other transactions by the Purchaser, including, without limitation,
short sales or “derivative” transactions, before or after the closing of this
or future private placement transactions, may negatively impact the market
price of the Company’s publicly-traded securities; (ii) the Purchaser, and
counter parties in “derivative” transactions to which the Purchaser is a party,
directly or indirectly, presently may have a “short” position in the
Common Stock, and (iii) the Purchaser 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, to the
extent permitted by applicable law, (a) the Purchaser 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 deliverable with respect to Securities
are being determined and (b) such hedging and/or trading activities (if
any) could reduce the value of the existing stockholders’ equity interests in
the Company at and after the time that the hedging and/or trading activities
are being conducted.

 

(oo)                          Bank
Holding Company. Neither the Company nor any of its Subsidiaries or
Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the
Federal Reserve System (the “Federal Reserve”).
Neither the Company nor any of its Subsidiaries or Affiliates owns or controls,
directly or indirectly, five percent or more of the outstanding shares of any class of
voting securities or twenty-five percent or more of the total equity of a bank
or any entity that is subject to the BHCA and to regulation by the Federal
Reserve. Neither the Company nor any of its

 

22

 

Subsidiaries or Affiliates
exercises a controlling influence over the management or policies of a bank or
any entity that is subject to the BHCA and to regulation by the Federal
Reserve.

 

3.2                                 Representations
and Warranties of the Purchaser. The Purchaser hereby represents and
warrants to the Company and the Placement Agent as follows:

 

(a)                                  Organization;
Authority. The Purchaser 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 and otherwise to carry out its obligations thereunder. The execution,
delivery and performance by the Purchaser of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate or, if the
Purchaser is not a corporation, such partnership, limited liability company or
other applicable like action, on the part of the Purchaser. Each of this
Agreement and the Registration Rights Agreement has been duly executed by the
Purchaser, and when delivered by the Purchaser in accordance with terms hereof,
will constitute the valid and legally binding obligation of the Purchaser,
enforceable against it in accordance with its terms, except as rights to
indemnity and contribution may be limited by state or federal securities
laws or the public policy underlying such laws, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ and contracting parties’ rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in equity
or at law).

 

(b)                                 No
Conflicts. The execution, delivery and performance by the Purchaser of the
Transaction Documents to which it’s a party and the consummation by the
Purchaser of the transactions contemplated hereby and thereby will not (i) result
in a violation of the organizational documents of the Purchaser or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Purchaser 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 the Purchaser,
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 the Purchaser to perform its obligations hereunder.

 

(c)                                  Investment
Intent. The Purchaser is acquiring the Securities as principal for its own
account for investment purposes only and not with a view to or for distributing
or reselling such Securities or any part thereof except pursuant to sales
registered or exempted under the Securities Act, without prejudice, however, to
the Purchaser’s right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Securities pursuant to an effective registration
statement under the Securities Act or under an exemption from such registration
or in a transaction not subject to the registration provisions of the
Securities Act and in compliance with applicable federal and state securities
laws. Subject to the immediately preceding sentence, nothing contained herein
shall be deemed a representation or warranty by the Purchaser to hold the
Securities for any period of time. The Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.

 

23

 

The Purchaser does not
have any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.

 

(d)                                 Purchaser
Status. At the time the Purchaser was offered the Securities, it was, and
at the date hereof it is, and on each date on which it exercises the Warrants
it will be, an “accredited investor” as defined in Rule 501 (a) of
Regulation D under the Securities Act. The Purchaser is not a registered
broker-dealer under Section 15 of the Exchange Act.

 

(e)                                  Experience
of the Purchaser. The Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. The Purchaser is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford
a complete loss of such investment.

 

(f)                                    General
Solicitation. No Securities were offered or sold to the Purchaser by means
of:  (A) any advertisement, article,
notice or other communication published in a newspaper or magazine or similar
media or broadcast over television or radio whether closed circuit or generally
available or (B) any seminar, meeting or industry investor conference
whose attendees were invited, to the knowledge of the Purchaser, by any general
solicitation or general advertising.

 

(g)                                 Access
to Information. The Purchaser acknowledges that it had the opportunity to
review the Disclosure Materials and has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the
Subsidiaries and their respective financial condition, results of operations,
business, properties, management and prospects sufficient to enable it to
evaluate its investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without
unreasonable effort or expense.

 

(h)                                 Reliance.
The Purchaser understands and acknowledges that:  (i) the Securities are being offered and
sold to it without registration under the Securities Act in a private placement
that is exempt from the registration provisions of the Securities Act and (ii) the
availability of such exemption depends in part on, and the Company will
rely upon the accuracy and truthfulness of, the foregoing representations and
the Purchaser hereby consents to such reliance.

 

(i)                                     Residency.
The Purchaser is a resident of the jurisdiction set forth immediately below the
Purchaser’s name on the signature page hereto.

 

(j)                                     Certain
Trading Activities. The Purchaser has not, directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with the
Purchaser, engaged in any transactions in any securities of the Company
following the date on which the Purchaser was aware of this Transaction, other
than this Transaction, transactions in compliance with federal

 

24

 

and state securities laws
or transfers by the Purchaser to any of its affiliated funds which affiliated
funds have not engaged in any such transactions.

 

(k)                                  Transfer
or Resale. The Purchaser understands that except as provided in the
Registration Rights Agreement:  (i) the
Securities, the Guarantees and the Conversion Shares have not been and are not
being registered under the Securities Act or any state securities laws, and may not
be offered for sale, sold, assigned or transferred unless (A) the sale of
such securities are subsequently registered thereunder, (B) the Purchaser
shall have delivered to the Company an opinion of counsel, in a form reasonably
acceptable to the Company, to the effect that such Securities, the Guarantees
or Conversion Shares to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C) the
Purchaser provides the Company with reasonable assurance that such Securities,
the Guarantees or the Conversion Shares can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the Securities
Act, as amended, (or a successor rule thereto) (collectively, “Rule 144”); and (ii) any sale of
the Securities, the Guarantees or the Conversion Shares 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, the
Guarantees or Conversion Shares under circumstances in which the seller (or the
Person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the Securities Act) may require compliance
with some other exemption under the Securities Act or the rules and
regulations of the Commission thereunder. Notwithstanding the foregoing, the
Securities and the Conversion Shares may be pledged in connection with a
bona fide margin account or other loan or financing arrangement secured by the
Securities or the Conversion Shares and such pledge of Securities or Conversion
Shares shall not be deemed to be a transfer, sale or assignment of the
Securities or the Conversion Shares hereunder, and in effecting a pledge of
Securities or the Conversion Shares, the Purchaser shall not 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, this Section 3.2(k).

 

(l)                                     Acknowledgements
Regarding Placement Agent. The Purchaser acknowledges that (i) the
Placement Agent is acting as the Company’s placement agent for the sale of the
Securities being offered hereby and will be compensated solely by the Company
in such capacity; (ii) the Placement agent may or will not have
conducted thorough due diligence with respect to the Company or the transaction
contemplated by the Transaction Documents and the decision of the Purchaser to
purchase Securities pursuant to the Agreement and the other Transaction
Documents has been made independently of, and without reliance on, the
Placement Agent; and (iii) no representation, warranty or covenant,
express or implied, is or will be made by the Placement Agent with respect to
the Company, the Confidential Information Memorandum dated August 2007 and
any supplements or amendments thereto, the Securities, the Guarantees, the
Conversation Shares, the Transaction Documents or the transactions contemplated
thereby.

 

25

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1                                 Best
Efforts. Each party shall use its best efforts timely to satisfy each of
the conditions to be satisfied by it as provided in Section 2.2 of this
Agreement.

 

4.2                                 Restricted
Securities.

 

(a)                                  Securities
and Conversion Shares may only be disposed of pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant to
an available exemption from or in a transaction not subject to the registration
requirements of the Securities Act, and in compliance with any applicable state
securities laws. In connection with any transfer of the Securities or
Conversion Shares, other than pursuant to an effective registration statement,
a Rule 144 transfer, to the Company or to an Affiliate of the Purchaser,
the Company may require the transferor thereof to provide to the Company
an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
or Conversion Shares under the Securities Act.

 

(b)                                 Certificates
evidencing the Securities and the Conversion Shares will contain the following
legend, so long as is required by this Section 4.2(b) or Section 4.2(c):

 

[NEITHER
THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT BEEN REGISTERED]
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR REFINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

(c)                                  Following
the date that the Securities and the Conversion Shares are registered for
resale under the Securities Act or, subject to receipt of appropriate
representations from the Purchaser and, if applicable its broker, at such
earlier time as a legend is no longer required for the Securities and the
Conversion Shares under this Section 4.2(c), the Company will, no later
than three Trading Days following the delivery by the Purchaser to the Company
or the Company’s transfer agent of a certificate representing Securities or
Conversion Shares containing a restrictive legend, together with a request to
issue a certificate without a restrictive legend, deliver or cause to be
delivered to the Purchaser a certificate representing such Securities or
Conversion Shares that is free from all restrictive and other legends or, at
the Company’s

 

26

 

option upon the holder’s
request, issue such Securities or Conversion Shares to the nominee of The
Depository Trust Company with instructions to credit the account of the
participant designated by the holder. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section except
as it may reasonably determine are necessary or appropriate to comply or
to ensure compliance with those applicable laws that are enacted or modified
after the Closing.

 

4.3                                 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 the
Purchaser promptly upon request after such filing. The Company, on or before
the Closing Date, shall 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 Purchaser 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 Purchaser on or prior to the
Closing Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities by the Company and to the resale of the
Securities and the Conversion Shares by the Purchaser required under applicable
securities or “Blue Sky” laws of the states of the United States promptly
following the Closing Date.

 

4.4                                 Furnishing
of Information; Information Rights. As long as the Purchaser owns any of
the Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act and to disclose in the Registration Statement any material,
nonpublic information provided to the Purchaser except to the extent previously
disclosed or the Company determines that such information is no longer
material, and the Company shall not terminate its status as an issuer required
to file reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would otherwise permit such termination except in
connection with a Fundamental Transaction (as defined in the Indenture). In
furtherance of the foregoing, the Company shall make available to the Purchaser
or file with the Commission via the EDGAR system:  (a) as soon as practicable, but in any
event within ninety (90) days after the end of each fiscal year of the Company,
(i) a balance sheet as of the end of such year; (ii) statements of
income and of cash flows for such year; and (iii) a statement of
stockholders’ equity as of the end of such year, audited and certified by
independent registered public accounting firm selected by the Company, (b) as
soon as practicable, but in any event within forty-five (45) days after the end
of each of the first three (3) quarters of each fiscal year of the
Company, unaudited statements of income and of cash flows for such fiscal
quarter, and an unaudited balance sheet as of the end of such fiscal quarter,
all prepared in accordance with GAAP (except that the financial statements may (i) be
subject to normal year-end audit adjustments and (ii) not contain all
notes thereto that may be required in accordance with GAAP), (c) unless
available to the public through the EDGAR system, within one (1) Business
Day of the filing thereof with the Commission, unless the following are filed
with the Commission through EDGAR and are available to the public through the
EDGAR system, a copy of its Annual Reports and Quarterly Reports on Form 10-K,
10-KSB, 10-Q or 10-QSB, 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

 

27

 

pursuant to the
Securities Act and (d) 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 .

 

4.5                                 Pledge
of Securities. The Company acknowledges and agrees that the Securities may be
pledged by a Holder (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 3.2(k) hereof; provided that an
Investor and its pledgee shall be required to comply with the provisions of Section 3.2(k)
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.

 

4.6                                 Integration.
The Company shall not, and shall use its best efforts to ensure that no
Subsidiary or Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that will be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchaser, or that will be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.

 

4.7                                 Use
of Proceeds. The Company shall use the net proceeds from the sale of the
Securities hereunder and pursuant to the Other Purchase Agreements to
consummate the Acquisition, to repay existing indebtedness relating to the
assets acquired in the Acquisition, to make capital expenditures to modify the
refinery acquired in the Acquisition to incorporate the Company’s pretreatment
process and for other general corporate purposes of the Company.

 

4.8                                 Disclosure
of Transactions and Other Material Information. On or before 8:30 a.m.,
New York City 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 Exchange Act and
attaching the material Transaction Documents (including, without limitation,
this Agreement and all schedules thereto, the Indenture (including the form of
the Securities and the Guarantees), the Security Documents, the Letter of
Credit and the form of the Registration Rights Agreement, the Other
Purchase Agreements and any other documents or agreements executed in
connection with the transactions contemplated hereunder) as exhibits to such
filing (including all attachments, the “8-K
Filing”), but not including the names of the Purchasers or the
individual amount of Securities purchased thereby. From and after the filing of
the 8-K Filing with the Commission, the Purchaser, as a consequence of
participating in the transactions contemplated by this Agreement or pursuant to
due diligence in connection therewith, shall not be in possession of any
material, nonpublic information received from the Company, any of its
Subsidiaries or any of their respective officers, directors, employees or
agents, that is not disclosed in the 8-K Filing unless the Purchaser has
executed a non-disclosure agreement

 

28

 

relating to such
information. 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 the Purchaser with any material, nonpublic information regarding
the Company or any of its Subsidiaries from and after the filing of the 8-K
Filing with the Commission without the consent of the Purchaser. If the
Purchaser has, or believes it has, received any such material, nonpublic
information regarding the Company or any of its Subsidiaries from the Company,
any of its Subsidiaries or any of their officers, directors, employees or
agents prior to the Closing Date, it shall provide the Company with written
notice thereof and the Company shall within two (2) Trading Days
thereafter, make public disclosure of such material, nonpublic information if
permitted under applicable law or without breach or violation of any agreement,
contract or other obligation of the Company; provided, that if the Company
shall fail to make such public disclosure within such two (2) Trading Day
period, the Purchaser shall be entitled to make public disclosure of such
information to the extent permitted under applicable law or without breach or
violation of any agreement, contract or other obligation of the Company. Without
the prior written consent of the Purchaser, unless required by applicable law,
none of the Company, its Subsidiaries or their respective affiliates shall
disclose the name of the Purchaser in any filing, announcement, release or
other public or non-confidential communication.

 

4.9                                 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.

 

4.10                           Reliance
by the Placement Agent and Closing Agent. Each of the Company and the
Purchaser agrees and acknowledges that the Placement Agent and the Closing
Agent may rely on the representations, warranties, covenants and
agreements of each of the Company and the Purchaser, as applicable, contained
in this Agreement as if such representations, warranties, covenants and
agreements, as applicable, were made directly to the Placement Agent and the
Closing Agent.

 

4.11                           Limitation
on Duties of Closing Agent and Placement Agents; Exculpation. Each party
hereto agrees for the express benefit of each of the Closing Agent and the
Placement Agent, their respective affiliates and their respective
representatives that neither the Closing Agent, nor any of its respective
affiliates or any of their representatives has any duties or obligations other
than those specifically set forth herein.

 

4.12                           Closing
Agent’s and Placement Agent’s Reliance and Indemnification. Each of the
Closing Agent, the Placement Agent, their respective affiliates and their
respective representatives shall be entitled to (1) rely on, and shall be
protected in acting upon, any certificate, instrument, opinion, notice, letter
or any other document or security delivered to any of them by or on behalf of
the Company, and (2) be indemnified by the Company for acting as Placement
Agent and Closing Agent, respectively, hereunder pursuant the indemnification provisions
set forth in the Placement Agency Agreement, which hereby are incorporated by
reference herein.

 

4.13                           Additional
Securities; Variable Securities; Dilutive Issuances. So long as any
Purchaser beneficially owns any Securities, the Company will not issue any
Securities other than

 

29

 

to the Purchaser as
contemplated hereby and the Company shall not issue any other securities that
would cause a breach or default under the Indenture. For so long as any Securities
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
unless the conversion, exchange or exercise price of any such security cannot
be less than the closing bid price of the Common Stock on the date of issuance
of any such security. For so long as any Securities remain outstanding, the
Company shall not, in any manner, enter into or affect any dilutive issuances
if the effect of such dilutive issuance is to cause the Company to be required
to issue upon conversion of any Security any shares of Common Stock in excess
of that number of shares of Common Stock which the Company may issue upon
conversion of the Securities without breaching the Company’s obligations under
the rules or regulations of the Trading Market.

 

4.14                           Additional
Issuances of Securities.

 

(a)                                  For
purposes of this Section 4.14,
the following definitions shall apply.

 

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

 

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

 

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

 

(b)                                 From
the date hereof until the date that is sixty-one (61) Trading Days following
the Effective Date (as defined in the Registration Rights Agreement) (the “Trigger Date”), the
Company will not, directly or indirectly, file any registration statement with
the Commission other than the Registration Statement (as defined in the
Registration Rights Agreement) and the registration statement contemplated in
the Share Loan Registration Rights Agreement among the Company, the lenders named
therein and Jefferies & Company, Inc. From the date hereof until
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 solely for cash,
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”).

 

(c)                                  From
the Trigger Date until the later of (i) third anniversary of the Closing
Date and (ii) the date no Securities remain outstanding, the Company will
not, directly

 

30

 

or indirectly, effect any
Subsequent Placement unless the Company shall have first complied with this Section 4.14(c).

 

(i)                                     The Company shall
deliver to each Purchaser an irrevocable prior written notice of five (5) Business
Days (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, subject to such Purchaser’s
prior agreement to maintain the confidentiality of such Offer Notice, which
Offer Notice shall (w) identify and describe the Offered Securities,
(x) describe the price (which may be expressed as a formula) 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 (unless the Company or the placement agent is
prohibited from doing so by contract or by law) and (z) offer to issue and sell
to or exchange with the Purchaser up to fifty percent (50%) of the Offered
Securities, allocated among the Purchaser and the other Purchasers (a) based
on such Purchaser’s pro rata portion of the aggregate principal amount of Securities purchased hereunder (the “Basic Amount”), and (b) with
respect to each Purchaser that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the Basic Amounts
of other Purchasers as the Purchaser shall indicate it will purchase or acquire
should the other Purchasers subscribe for less than their Basic Amounts (the “Undersubscription Amount”),
which process shall be repeated until the Purchaser shall have an opportunity
to subscribe for any remaining Undersubscription Amount; provided, that
the time period for any Purchaser to elect to purchase any Undersubscription
Amount shall be one (1) Business Day; provided, further,
that the total time period for electing to participate in the Offer, including
in connection with any Undersubscription Amount, shall be no longer than seven (7) Business
Days.

 

(ii)                                  To accept an Offer,
in whole or in part, the Purchaser must deliver a written notice to the Company
prior to the end of the fifth (5th) Business Day after the Purchaser’s receipt
of the Offer Notice (the “Offer Period”),
setting forth the portion of the Purchaser’s Basic Amount that the Purchaser
elects to purchase and, if the Purchaser shall elect to purchase all of its
Basic Amount, the Undersubscription Amount, if any, that the Purchaser elects
to purchase (in either case, the “Notice of Acceptance”).
If the Basic Amounts subscribed for by the Purchaser and the other Purchasers
are less than the total of all of the Basic Amounts, then each Purchaser 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 Purchaser 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 the Purchaser bears to the total Basic Amounts of the
Purchaser and the other Purchasers that have subscribed for Undersubscription
Amounts, subject to rounding by the Company to the extent its deems reasonably
necessary.

 

31

 

(iii)                               The Company shall have
twenty-five (25) calendar days from the expiration of the Offer Period above to
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 Purchaser (the “Refused Securities”), but only to the offerees described in
the 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, 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 Commission on a Current Report on Form 8-K
with such Subsequent Placement Agreement and any documents contemplated therein
filed as exhibits thereto.

 

(iv)                              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 4.14(c)(iii) above),
then each Purchaser 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 the Purchaser elected to purchase pursuant to Section 4.14(c)(ii) 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 the Purchaser
pursuant to Section 4.14(c)(iii) 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 Purchaser 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
Purchaser in accordance with Section 4.14(c)(i) above.

 

(v)                                 Upon the closing of
the issuance, sale or exchange of all or less than all of the Refused
Securities, the Purchaser shall acquire from the Company, and the Company shall
issue to the Purchaser, the number or amount of Offered Securities specified in
the Notices of Acceptance, as reduced pursuant to Section 4.14(c)(iv) above
if the Purchaser has so elected, upon the terms and conditions specified in the
Offer. The purchase by the Purchaser of any Offered Securities is subject in
all cases to the preparation, execution and delivery by the Company and the
Purchaser of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Purchaser and their
respective counsel.

 

(vi)                              Any Offered Securities
not acquired by the Purchaser or other persons in accordance with Section 4.14(c)(iii) above
may not be issued, sold or exchanged until they are again offered to the
Purchaser under the procedures specified in this Agreement.

 

(vii)                           The Company and the
Purchaser agree that if any Purchaser elects to participate in the Offer, (x)
neither the Subsequent Placement Agreement with

 

32

 

respect to such Offer nor any other transaction documents related
thereto (collectively, the “Subsequent Placement
Documents”) shall include any term or provisions whereby any
Purchaser shall be required to agree to any restrictions in trading as to any
securities of the Company owned by the Purchaser prior to such Subsequent
Placement, and (y) any registration rights set forth in such Subsequent
Placement Documents shall be similar in all material respects to the
registration rights contained in the Registration Rights Agreement.

 

(viii)                        Notwithstanding anything to the
contrary in this Section 4.14 and unless otherwise agreed to by the
Purchaser, the Company shall either confirm in writing to the Purchaser that
the transaction with respect to the Subsequent Placement has been abandoned or
shall publicly disclose its intention to issue the Offered Securities, in
either case in such a manner such that the Purchaser will not be in possession
of material non-public information, by the thirty-fifth (35th) calendar day
following delivery of the Offer Notice. If by the thirty-fifth (35th) calendar
day following delivery of the Offer Notice no public disclosure regarding a
transaction with respect to the Offered Securities has been made, and no notice
regarding the abandonment of such transaction has been received by the
Purchaser, such transaction shall be deemed to have been abandoned and the
Purchaser shall not be deemed to be in possession of any material, non-public
information with respect to the Company. Should the Company decide to pursue
such transaction with respect to the Offered Securities, the Company shall
provide each Purchaser with another Offer Notice and each Purchaser will again
have the right of participation set forth in this Section 4.14(c).

 

(d)                                 The
restrictions contained in subsections (b) and (c) of this Section 4.14
shall not apply in connection with the issuance of any Excluded Securities (as
defined in the Indenture) or in connection with any Common Shares issued or
issuable pursuant to a bona fide firm commitment underwritten public offering
with a nationally recognized underwriter which generates gross proceeds to the
Company in excess of $20,000,000 (other than an “at-the-market offering” as
defined in Rule 415(a)(4) under the Securities Act and an “equity
line”).

 

4.15                           Incorporation
by Reference of Indenture Provision.                Each
of Sections 4.04(a) and 4.04(e) of the Indenture are hereby
incorporated by reference in this Agreement as if such provisions were included
herein; provided, that all references to Holder or Holders shall instead
refer to Purchaser or Purchasers, respectively.

 

ARTICLE V.

MISCELLANEOUS

 

5.1                                 Fees
and Expenses. The Company shall be responsible for the payment of the
Placement Agent’s fees relating to or arising out of the transactions
contemplated hereby, including, without limitation, any commissions payable to
the Placement Agent. Subject to Section 5.14 below, at Closing, the
Company shall pay an expense allowance to Highbridge International LLC (a
Purchaser) or its designee(s) (in addition to any other expense amounts paid to
any Purchaser prior to the date of this Agreement) for all actual costs and
expenses incurred in connection with the transactions contemplated by the
Transaction Documents (including all

 

33

 

reasonable legal fees and
disbursements in connection therewith, documentation and implementation of the
transactions contemplated by the Transaction Documents and due diligence in
connection therewith), in an amount not to exceed $169,000 (in addition to any
other expense amounts paid to any Purchaser prior to the date of this
Agreement), which amount may be withheld by the Purchaser from its
Purchase Price at the Closing. Except as specified in the Registration Rights
Agreement and in this Section 5.1, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of the Transaction Documents. The
Company shall pay all stamp and other taxes and duties levied in connection
with the sale of the Securities.

 

5.2                                 Entire
Agreement. The Transaction Documents, together with the Exhibits and
Schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the
parties acknowledge have been merged into such documents, exhibits and
schedules.

 

5.3                                 Notices.
Any and all notices or other communications or deliveries required or permitted
to be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number specified
in this Section prior to 5:00 p.m. (Central time) on a Business Day, (b) the
next Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Business Day or later than 5:00 p.m.
(Central time) on any date and earlier than 11:59 p.m. (Central time) on
such date, (c) the Business Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:

 

	
  If to the Company:

  	
  Nova Biosource Fuels, Inc.

  363 North Sam Houston Parkway East

  Suite 630

  Houston, Texas 77060

  Tel:   (713) 869-6682

  Fax:  (713)583-8478

  Attention:  President

  
	
   

  	
   

  
	
  with a copy to:

  	
  Baker & McKenzie LLP

  2300 Trammell Crow Center

  2001 Ross Avenue

  Dallas, Texas 75201

  Tel:   (214) 978-3095

  Fax:  (214)978-3099

  Attention:  Roger W. Bivans, Esq.

  
	
   

  	
   

  
	
  If to the Purchaser:

  	
  To the address set forth under the
  Purchaser’s name on the signature pages 

  

 

34

 

	
   

  	
  hereof;

  
	
   

  	
   

  
	
  with a copy (for informational purposes
  only) to:

  	
  Schulte Roth & Zabel LLP 

  919 Third Avenue

  New York, New York 10022

  Telephone:                                    (212)
  756-2000

  Facsimile:                                            (212)
  593-5955

  Attention:                                         Eleazer
  N. Klein, Esq.

  

 

or such other
address as may be designated in writing hereafter, in the same manner, by
such Person.

 

5.4                                 Amendments;
Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed by the Company and the Purchaser. No
waiver of any default with respect to any provision, condition or requirement
of this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of either party to
exercise any right hereunder in any manner impair the exercise of any such
right.

 

5.5                                 Construction.
The headings herein are for convenience only, do not constitute a part of
this Agreement and shall not be deemed to limit or affect any of the provisions
hereof. 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. This Agreement shall be
construed as if drafted jointly by the parties, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement or any of the Transaction Documents.

 

5.6                                 Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit
of the parties and their successors and permitted assigns. The Company may not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Purchaser. The Purchaser may assign any or all of
its rights under this Agreement to any Person to whom the Purchaser assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof
that apply to the “Purchaser.”

 

5.7                                 No
Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any
other Person except as provided in Sections 4.12 and 4.14 hereof.

 

5.8                                 Governing
Law. ALL QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS
OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF THAT WOULD APPLY ANY OTHER LAW. Each party agrees that all
Proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective

 

35

 

Affiliates, employees or
agents) may be commenced in the state and federal courts sitting in the
City of New York, Borough of Manhattan (the “New
York Courts”). Each party hereto hereby irrevocably submits to the
non-exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any such New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum. Each party
hereto hereby irrevocably waives personal service of process and consents to
process being served in any such Proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for 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 HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

 

5.9                                 Survival.
The representations, warranties, agreements and covenants contained herein
shall survive the Closing and the delivery of the Shares and Warrants.

 

5.10                           Execution.
This Agreement may be executed in two or more counterparts, all of which
when taken together 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, it being understood that both parties need not sign the
same counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original
thereof.

 

5.11                           Severability.
If any provision of this Agreement is held to be invalid or unenforceable in
any respect, the validity and enforceability of the remaining terms and
provisions of this Agreement shall not in any way be affected or impaired
thereby and the parties will attempt to agree upon a valid and enforceable
provision that is a reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Agreement.

 

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

 

5.13                           Independent
Nature of Purchaser’s Obligations and Rights. The obligations of the
Purchaser under any Transaction Document are several and not joint with the
obligations of the other Purchasers, and the Purchaser shall not be responsible
in any way for the performance of the obligations of the other Purchasers under
any Transaction Document. The decision of the

 

36

 

Purchaser to purchase
Securities pursuant to the Transaction Documents has been made by the Purchaser
independently of, and without reliance on, the other Purchasers or any other
Purchasers’ legal counsel or financial advisors. Nothing contained herein or in
any Transaction Document, and no action taken by the Purchaser pursuant
thereto, shall be deemed to constitute the Purchaser, together with the other
Purchasers, as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that such parties are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. The Purchaser acknowledges that none
of the other Purchasers has acted as agent for the Purchaser in connection with
making its investment hereunder and that none of the other Purchasers will be
acting as agent of the Purchaser in connection with monitoring its investment
in the Securities or enforcing its rights under the Transaction Documents. The
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any of the
other Purchasers to be joined as an additional party in any proceeding for such
purpose.

 

5.14                           Termination.
This Agreement may be terminated and the sale and purchase of the
Securities abandoned at any time prior to the Closing by either the Company or
the Purchaser, upon written notice to the other, if the Closing has not been
consummated on or prior to 5:00 p.m. (New York City time) on the date that
is five Business Days after the date hereof; provided,
however, that the right to
terminate this Agreement under this Section 5.14 shall not be available to
any party whose failure to comply with its obligations under this Agreement has
been the cause of or resulted in the failure of the Closing to occur on or
before such time. Nothing in this Section 5.14 shall be deemed to release
any party from any liability for any breach by such party of the terms and
provisions of this Agreement or the other Transaction Documents or to impair
the right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction Documents. Except as
set forth in the immediately preceding sentence, upon a termination in
accordance with this section, the Company and the Purchaser shall not have any
further obligation or liability (including arising from such termination) to
the other.

 

[SIGNATURE PAGES ON FOLLOWING PAGES]

 

37

 

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

 

	
   

  	
  NOVA
  BIOSOURCE FUELS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  J.D. McGraw

  
	
   

  	
   

  	
  President

  

 

[SIGNATURE PAGES FOR PURCHASER ON NEXT
PAGE]

 

Company Signature Page to

Nova Biosource Fuels, Inc.

Securities Purchase Agreement

 

IN WITNESS
WHEREOF, the parties have executed this Securities Purchase Agreement as of the
date first written above. The Purchaser, intending to be legally bound, hereby
executes and delivers to the Company this signature page to the Securities
Purchase Agreement and authorizes the Company to attach it to the counterpart of
the Agreement executed or to be executed by the Company, which when so attached
shall be considered effective and one and the same agreement.

 

	
   

  	
   

  	
  PURCHASER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [

  	
  ]

  
	
   

  	
   

  	
  (Insert
  full legal name that the Purchaser desires to appear on the

  Securities. If the registered holder is a nominee, state “as nominee for”

  and insert the full legal name of the Purchaser. )

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address for
  Notice:

  	
   

  	
  With a copy
  to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Facsimile No:

  	
   

  	
   

  	
  Facsimile No:

  	
   

  
	
  Attention:

  	
   

  	
   

  	
  Attention:

  	
   

  
												

 

 

	
  Jurisdiction
  of Organization:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SSN/Taxpayer
  Identification Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Purchase
  Price:

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Principal
  Amount of Securities:

  	
   

  	
  $

  

 

 

Disclosure
Schedule

 

Pursuant
to the Securities Purchase Agreements, dated as of September 27, 2007 (the
“Purchase Agreement”), among Nova Biosource Fuels, Inc., a Nevada
corporation (the “Company”) and the purchasers signatory thereto (the “Purchasers”),
this Disclosure Schedule is being delivered by the Company to the
Purchasers. All terms used herein with initial capital letters have the same
meanings assigned to them in the Purchase Agreement, unless otherwise defined. This
Disclosure Schedule is qualified in its entirety by reference to the
Purchase Agreement and should be read in its entirety. The headings and
subheadings contained in this Disclosure Schedule are for descriptive
purposes and convenience of reference only and have no substantive effect.

 

 

Schedule 3.1(b)—Subsidiaries

 

The following chart shows the Company and each of
its direct and indirect Subsidiaries:

 

	
  Nova Biosource Fuels, Inc. (Nevada)

  
	
   

  
	
  100%
  à

  	
  Nova
  Holding Clinton County, LLC (Delaware)

  
	
   

  	
   

  
	
   

  	
  100%
  à

  	
  Nova
  Biofuels Clinton County, LLC (Delaware)

  
	
   

  	
   

  	
   

  
	
  91.75%
  à

  	
  Nova
  Holding Seneca, LLC (Delaware)

  
	
   

  	
   

  
	
   

  	
  100%
  à

  	
  Nova
  Biofuels Seneca, LLC (Delaware)

  
	
   

  	
   

  	
   

  
	
  100%
  à

  	
  NBF
  Operations, LLC (Delaware)

  
	
   

  	
   

  
	
   

  	
  100%
  à

  	
  Nova
  Holding Seneca SIP, LLC (Delaware)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  100%
  à

  	
  Nova
  Biofuels Seneca SIP, LLC (Delaware)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  100%
  à

  	
  Nova
  Holding Lincoln, LLC (Delaware)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  100%
  à

  	
  Nova
  Biofuels Lincoln, LLC (Delaware)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  100%
  à

  	
  Nova
  Holding Oklahoma, LLC (Delaware)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  100%
  à

  	
  Nova
  Biofuels Oklahoma, LLC (Delaware)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  100%
  à

  	
  Nova
  Holding Midwest, LLC (Delaware)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  100%
  à

  	
  Nova
  Biofuels Midwest, LLC (Delaware)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  100%
  à

  	
  Nova
  Holding Trade Group, LLC (Delaware)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  100%
  à 

  	
  Nova
  Biofuels Trade Group, LLC (Delaware)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  100%
  à

  	
  Biosource
  America, Inc. (Texas)

  
	
   

  	
   

  	
   

  
	
   

  	
  100%
  à

  	
  Nova
  Biosource Technologies, LLC (Texas)

  

 

 

Schedule 3.1(h)—Capitalization

 

1.                                       3.1(h), Paragraph 1, Item (i). The number of shares of Common Stock issued
and outstanding as of September 24, 2007 is 110,099,050.

 

2.                                       3.1(h), Paragraph 1, Item (ii). The Company has shares of Common Stock
reserved for future issuance pursuant to (i) options granted under the
Company’s 2006 Equity Incentive Plan (the “2006 Plan”), (ii) warrants
issued in connection with certain private placements completed in July 2006
and December 2006 (collectively, the “Private Placements”) as described in
the Company’s Quarterly Report on Form 10-QSB for the quarterly period
ending July 31, 2006 and the Company’s Annual Report on Form 10-KSB
for the fiscal year ending October 31, 2006 and (iii) the conversion
rights under the Securities. The number of shares of Common Stock reserved for
issuance pursuant to the foregoing are:

 

	
  Options under 2006 Plan:

  	
  6,052,365 (outstanding)

  10,000,000 (reserved)

  
	
  Warrants granted in Private Placements:

  	
  15,525,845

  
	
  The Securities

  	
  18,032,787

  

 

3.                                       3.1(h), Paragraph 1, Item (iv). See Section 2 of this Schedule 3.1(h).

 

4.                                       3.1(h), Paragraph 2, Item (i). The Transaction Documents establish
preemptive rights in favor of the Purchasers.

 

5.                                       3.1(h), Paragraph 2, Item (ii). As disclosed in Section 2 of this Schedule 3.1(h),
there are options outstanding under the 2006 Plan and the warrants outstanding
pursuant to the Private Placements.

 

6.                                       3.1(h), Paragraph 2, Item (iii).

 

•                                          See Schedule 3.1(gg) below.

 

•                                          See Note 5 to the Company’s Quarterly Report
on Form 10-QSB for the quarterly period ending July 31, 2007.

 

7.                                       3.1(h), Paragraph 2, Item (iv).

 

•                                          See the Registrations Rights Agreements
attached as Exhibits 10.9, 10.12 and 10.15 to the Company’s Quarterly Report on
Form 10-QSB for the quarterly period ending July 31, 2006, which
required the Company to register the sale of shares. Such shares have been
registered.

 

•                                          See Omnibus Amendment to Asset Purchase
Agreement and operative documents, dated as of April 28, 2006, among the
Company, the members and assignees of the Company, Nova Oil, Inc. and
Biosource America, Inc. attached as Exhibit 2.3 to the Company’s
Quarterly Report on Form 10-QSB for the quarterly period ended April 30,
2006, which requires the Company to register the sale of shares. Such shares
have been registered.

 

 

•                                          Agreement with consultants to register shares
on Form S-8, which shares have been registered.

 

•                                          See the Registration Rights Agreement
attached as Exhibit 99.2 to the Company’s Current Report on Form 8-K
dated December 19, 2006, which required the Company to register the sale
of shares. Such shares have been registered.

 

•                                          The Share Loan Registration Rights Agreement
to be entered into among the Company, the lenders named therein and the
Placement Agent requires the registration of the sale of shares. Such shares
have not been registered as of the date hereof.

 

•                                          The Registration Rights Agreement to be entered
into in connection with the transaction contemplated by the Purchase Agreement
requires the Company to register the sale of shares. Such shares have not been
registered as of the date hereof.

 

8.                                       3.1(h), Paragraph 2, Item (v). Under the 2006 Plan, the Company may be
obligated to accept shares from the participants with respect to payment of the
aggregate purchase price and any withholding taxes applicable to the awards
issued thereunder.

 

9.                                       3.1(h), Paragraph 2, Item (vii). The 2006 Plan provides for the issuance of
stock appreciation rights or phantom stock. As of the date hereof, no such
stock appreciation rights or phantom stock have been issued.

 

10.                                 3.1(h), Paragraph 2, Item (ix). The following financing statements have
been filed against the Company and its Subsidiaries:

 

	
  Debtor

  	
   

  	
  Secured Party

  	
   

  	
  State of Filing

  	
   

  	
  Filing Date

  	
   

  	
  Filing No.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Biosource America, Inc.

  	
   

  	
  Biosource Fuels, Inc.

  	
   

  	
  Texas

  	
   

  	
  2/21/2006

  	
   

  	
  06-0005755008

  
	
  Biosource America, Inc.

  	
   

  	
  Biosource Fuels, Inc.

  	
   

  	
  Texas

  	
   

  	
  5/1/2006

  	
   

  	
  06-00185568

  
	
  Nova Biofuels Clinton County, LLC*

  	
   

  	
  Quad City Bank & Trust

  	
   

  	
  Delaware

  	
   

  	
  8/29/2007

  	
   

  	
  2007 3295531

  
	
  Nova Biofuels Seneca, LLC

  	
   

  	
  Caterpillar Financial Services Corporation

  	
   

  	
  Delaware

  	
   

  	
  7/19/2007

  	
   

  	
  2007 2716636

  

 

* To be released at closing.

 

 

Schedule 3.1(i)—SEC
Reports; Financial Statements

 

As of the date hereof, the Company has not filed the
Indenture or the related notes and guarantees with the Commission.

 

 

Schedule 3.1(j)—Litigation

 

See risk factor in the Company’s Quarterly Report
on Form 10-QSB for the quarterly period ending July 31, 2007 titled “An
NASD review of the trading activity in our shares of common stock could have a
material adverse effect on us.”

 

 

Schedule 3.1(k)—Transactions with
Affiliates or Employees

 

1.                                       The Company’s Chief Financial Officer, David
G. Gullickson, is also a partner of Tatum, LLC. In connection with his
employment by the Company, the Company entered into an Executive Services
Agreement with Tatum, LLC, which is attached as Exhibit 10.4 to the
Company’s Quarterly Report on Form 10-QSB for the quarterly period ending January 31,
2007. Pursuant to this Agreement, the Company pays Mr. Gullickson directly
as an employee, but also pays Tatum, LLC a monthly fee for Mr. Gullickson’s
services.

 

2.                                       Pursuant to the Master Share Loan Agreement
to be entered into in connection with the transaction contemplated by the
Purchase Agreement, certain of the Company’s officer’s and directors will make
their shares available for borrowing and will receive customary fees in
connection therewith.

 

 

Schedule 3.1(l)—Internal Accounting and
Disclosure Controls

 

1.                                       See Part I, Item 3 of the Company’s Quarterly Report on Form 10-QSB/A for
the quarterly period ending April 30, 2006.

 

2.                                       See Part I, Item 3 of the Company’s Quarterly Report on Form 10-QSB/A for
the quarterly period ending July 31, 2006.

 

3.                                       See Item 8A of the Company’s
Annual Report on Form 10-KSB for the fiscal year ended October 31,
2006.

 

 

Schedule 3.1(u)—Absence of
Certain Changes

 

The intercompany indebtedness owed to the Company by
Biosource America, Inc., an Unrestricted Subsidiary (as defined by the
Indenture), exceeds the present fair saleable value of its assets.

 

 

Schedule 3.1(z)—Collateral

 

1.                                       See that certain UCC-1 financing statement
filed by Quad City Bank & Trust disclosed in Section 10 of Schedule 3.1(h) above.
The lien secured by this financing statement (which is a liability of the
Clinton County Seller) will be paid off with the proceeds from the sale of the
Securities and this financing statement will be terminated following the
closing.

 

2.                                       There is an existing mortgage filed on the
real property to be purchased under the Acquisition Agreement. The mortgagor
under this mortgage and the borrower under the related loan documents is the
Clinton County Seller. A UCC-1 financing statement has also been filed against
the Clinton County Seller to secure this loan, which financing statement covers
the personal property and fixtures to be acquired under the Acquisition
Agreement. This loan will be paid off with the proceeds from the sale of the
Securities and the mortgage and related UCC filings will be released and/or
terminated following the closing.

 

3.                                       There is a UCC-1 financing statement filed
against the Clinton County Seller by the Iowa Department of Economic
Development (“IDED”) covering the general business assets of the Clinton County
Seller, which include the assets to be acquired under the Acquisition Agreement.
This UCC-1 secures the economic development incentive described in Section 5
of Schedule 3.1(gg) of this Disclosure Schedule. IDED has agreed to
release this UCC-1 in connection with the assignment and assumption of the
economic development incentives and the related guaranty of the Company
described in Section 5 of Schedule 3.1(gg) of this Disclosure
Schedule. Accordingly, this UCC-1 will be terminated following the closing.

 

4.                                       See Schedule 3.1(gg) of this Disclosure
Schedule.

 

5.                                       Other liens on the Collateral may include:

 

•                  Liens to secure the performance of statutory
obligations, performance bonds or other obligations of a like nature incurred
in the ordinary course of business;

 

•                  Liens for taxes, assessments or charges,
claims or other obligations owed to governmental or quasi-governmental
authorities, including the Eastern Iowa Community College District in
connection with its job training program, that are not yet delinquent or that
are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided  that any reserve or other
appropriate provision as is required in conformity with GAAP has been made
therefor;

 

•                  Liens imposed by law, such as carriers’, warehousemen’s,
materialmans’, landlord’s and mechanics’ Liens, in each case, incurred in the
ordinary course of business and securing obligations that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded; provided that any reserve or
other appropriate provision as if required in conformity with GAAP has been
made therefor; and

 

•                  survey exceptions, easements or reservations
of, or rights of others for, licenses, rights-of-way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real

 

 

property that were not
incurred in connection with and do not secure indebtedness and that do not,
individually or in the aggregate, materially adversely affect the value of said
properties or materially impair their use in the operation of the business of
such the Company or the Guarantors.

 

 

Schedule 3.1(gg)—Existing Indebtedness

 

1.                                       The Company has a note payable outstanding to
AICCO, Inc. to finance insurance premiums in the original principal amount
of approximately $330,940 for various insurance policies covering the Company
and its Subsidiaries. This amount was financed over a 9-month period. As of the
date hereof, there are approximately 4 payments remaining of approximately $37,833.22
each. The interest rate on the outstanding balance is 6.88% per annum. Payments
under this note are not secured by any assets of the Company, but the lender may cause
the Company’s insurance policies to be cancelled for nonpayment.

 

2.                                       On January 11, 2007, Nova Biofuels
Seneca, LLC (“Nova Seneca”) completed the purchase of approximately 54 acres of
land in the Shipyard Industrial Park of Seneca, Illinois for $3,650,000.  Nova Seneca paid $1,130,000 in cash and issued
a note payable to Centrue Bank (“Centrue”) for the balance of $2,520,000. The
note payable bears interest at 8.25% per annum and is secured by a mortgage on
the land (the “Seneca Mortgage”). The loan provides for monthly interest-only
payments for the first eighteen months followed by monthly principal and
interest payments of $22,000 for the remaining eighteen months of the term. A
final principal payment is due at maturity on February 11, 2010. The loan may be
accelerated following an event of default for nonpayment or failure to maintain
certain loan covenants as described in the Commercial Loan Agreement and
related loan documents attached as Exhibits 10.7 through 10.10 of the Company’s
Quarterly Report on Form 10-QSB for the quarterly period ended January 31,
2007.  The loan is guaranteed by Nova
Holdings Seneca, LLC under a guaranty, which is attached as Exhibit 10.10
of the Company’s Quarterly Report on Form 10-QSB for the quarterly period
ended January 31, 2007.

 

3.                                       See the Master Netting, Setoff, Credit and
Security Agreement, dated as of July 26, 2006, between Nova Biofuels
Oklahoma LLC and ConAgra Trade Group, Inc. included as Exhibit 10.21
of the Company’s Quarterly Report on Form 10-QSB for the quarterly period
ended July 31, 2006. This agreement does not allow for acceleration of
indebtedness, but does require the posting of certain letters of credit as
described therein.

 

4.                                       See Note 12 to the Company’s Quarterly Report
on Form 10-QSB for the quarterly period ended July 31, 2007 regarding
certain rail car leases entered into by the Nova Biofuels Trade Group, LLC, an
Unrestricted Subsidiary (as defined in the Indenture).

 

5.                                       The Clinton County Seller is the recipient of
an enterprise zone financial assistance contract with the Iowa Department of Economic
Development that provides for a $400,000 incentive package with a 60 month term
and a 0% interest rate, of which $100,000 is forgivable so long as local
employment criteria continue to be met and 6% interest rate if the local
employment criteria are not met. The Clinton County Seller will assign the enterprise
zone financial assistance contract in connection with the closing under the
Acquisition Agreement and the IDED has agreed to consent to such assignment and
to release all associated governmental or quasi-governmental liens on the
property upon delivery of a guaranty by the Company with respect to the
obligations under the enterprise zone financial assistance contract.

 

6.                                       The Company is also party to an office lease
for its corporate headquarters located at 363 North Sam Houston Parkway East,
Houston, Texas 77060. The lease calls for monthly rental payments of
approximately $6,300 (including additional rent) through June 30, 2010. The
rental payments may be increased based on the landlord’s increased
operating costs, including maintenance, insurance and taxes.

 

 

Schedule 3.1(ii)—Title

 

See disclosure in Schedule 3.1(gg) regarding
the Seneca Mortgage.

 

 

Schedule 3.1(kk)—Ranking of Securities

 

See Sections 1, 4, 5 and 6 of Schedule 3.1(gg)
regarding certain indebtedness of the Company that may rank senior or pari passu with the Securities. The Securities will be
structurally subordinated to all indebtedness and other liabilities, including
trade payables, of the Subsidiaries (other than the Guarantors).

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