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                         UNITED STATES BANKRUPTCY COURT

                          FOR THE DISTRICT OF COLORADO

IN RE:                                      )
                                            )           Case No. 06-18117-ABC
SPARTA SURGICAL CORPORATION;                )           Chapter 11
EIN:     22-2870438                         )
                                            )
         Debtor.                            )

                             PLAN OF REORGANIZATION
                             DATED NOVEMBER 6, 2006

         Sparta  Surgical  Corp. , Debtor and  Debtor-in-Possession  pursuant to
Chapter 11, Title 11 of the United States Code,  proposes the following  Plan of
Reorganization.

                                    ARTICLE I

                                  INTRODUCTION

         Sparta Surgical Corp.  ("Sparta","Debtor",  or "Company") is a Delaware
corporation. Sparta is a public company that was incorporated on March 23, 1984.
Sparta was previously  engaged in the research,  development,  manufacturing and
marketing of surgical and electrotherapy  products for the worldwide  healthcare
industry. In May 2002 Sparta divested substantially all of its assets and ceased
ongoing business  operations.  Subsequently,  Sparta retained no business assets
and  performed  administrative  duties as a shell  corporation.  In October 2006
Sparta  entered into an agreement  with Spectra Group,  Inc.  ("Spectra")  under
which  Sparta would become an exclusive  independent  sales  representative  for
certain Spectra products and reestablish itself in the medical products industry
along with its  affiliate  BJCR  Electro-Therapy  Inc.  The Chapter 11 case will
provide Sparta with the ability to restructure itself in order to facilitate the
further development of Sparta's business.  Sparta filed for relief under Chapter
11 of the Bankruptcy Code on November 6, 2006.

         This Plan provides for the  reorganization  of the Debtor under Chapter
11 of  the  Bankruptcy  Code.  A  more  complete  history  of  the  Debtor,  its
operations,  an  explanation  of this  Plan and a  description  of the  Debtor's

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financial  condition and future business activity is contained in the Disclosure
Statement  which  accompanies  this  Plan.  Reference  should  be  made  to  the
Disclosure  Statement by all  creditors  and parties who intend to cast a ballot
for or against this Plan.

                                   ARTICLE II

                                   DEFINITIONS

         2.01 -  Administrative  Claim  shall  mean a Claim  for  payment  of an
administrative  expense of a kind  specified  in ss503(b) or  1114(e)(2)  of the
Bankruptcy  Code and  entitled  to  priority  pursuant  to ss  507(a)(1)  of the
Bankruptcy Code, including,  but not limited to: (a) the actual, necessary costs
and expenses,  incurred  after the Petition  Date, of preserving  the estate and
operating the business of the Debtor,  including wages, salaries, or commissions
for  services  rendered  after the  commencement  of the  Chapter  11 Case;  (b)
Professional  Fee Claims;  (c) all fees and charges  assessed against the estate
under 28 U.S.C.  ss1930;  and (d) all  Allowed  Claims  that are  entitled to be
treated as  Administrative  Claims  pursuant to a Final Order of the  Bankruptcy
Court under ss546(c)(2)(A) of the Bankruptcy Code.

         2.02 - Allowed  Claim shall mean a claim in respect of which a Proof of
Claim has been  filed  with the  Court  within  the  applicable  time  period of
limitation  fixed  by  Court  Order  in this  case or  scheduled  in the list of
creditors  prepared and filed with the Court pursuant to Bankruptcy Rule 1007(b)
and not listed as disputed,  contingent or  unliquidated  as to amount,  in this
case as to which no timely  objection  to the  allowance  thereof has been filed
pursuant to Bankruptcy Rules 3001 and 3007 or as to which any such objection has
been determined by a Final order.

         2.03 - Allowed  Secured  Claim shall mean an allowed claim secured by a
lien, security interest or other charge against or interest in property in which
the Debtor has an interest,  or which is subject to setoff under  Section 553 of
the Code, to the extent the value  (determined in accordance with Section 506(a)
of the Code) of the  interest  of the holder of any such  allowed  claim and the
Debtor's  interests in such  property or to the extent of the amount  subject to
such setoff as the case may be.

         2.04 - Avoidance  Actions means the Debtor's  estate's  interest in any
and all Claims,  rights and causes of action which have been or may be commenced
by or on behalf of the Debtor to avoid and  recover  any  transfers  of property
determined to be preferential,  fraudulent or otherwise avoidable pursuant to ss

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ss 544,  545, 547,  548,  549, 550 or 553 of the  Bankruptcy  Code, or under any
other applicable law, or otherwise subject to equitable  subordination  under ss
510 of the Bankruptcy Code,  regardless of whether or not such actions have been
commenced prior to the Effective Date.

         2.05  -  BJCR  shall  mean  BJCR  Electro-Therapy,   Inc.,  a  Delaware
corporation which, is an Affiliate of the Debtor and will be the exclusive sales
representative  for Spectra  Group,  Inc.  d/b/a  Spectra  Electro-Therapy  with
respect to its Electrotherapy  Devices and which company will provide the Debtor
with  30,000  shares of its  common  stock  (the  "BJCR  Shares")  which will be
provided to Sparta  creditors and interest  holders who receive New Common Stock
under this Plan.

         2.06 - Claim shall mean any right to payment, or right to any equitable
remedy  for  breach of  performance  if such  breach  gives rise to the right to
payment,  against the Debtor in existence on or as of the Petition Date, whether
or not such  right to  payment  or right to an  equitable  remedy is  reduced to
judgment,  liquidated,  unliquidated,  fixed,  contingent,  natured,  unmatured,
disputed, undisputed, legal, secured or unsecured.

         2.07 - Class  shall  mean any  Class  into  which  Allowed  Claims  are
classified  pursuant to Article  III.  2.08 - Class  1,2,3,4,5  and 6 Claims and
Interests  shall mean the Allowed  Claims and Interests so classified in Article
III.

         2.09 - Code shall mean the  Bankruptcy  Code, 11 U.S.C.  ss 101 et seq.
and any amendments thereof.

         2.10 -  Confirmation  Date  shall mean the date upon which the Order of
Confirmation is entered by the Court.

         2.11 - Court  shall mean the  United  States  Bankruptcy  Court for the
District of Colorado in which the  Debtor's  Chapter 11 case,  pursuant to which
this Plan is proposed, is pending and any Court having competent jurisdiction to
hear appeal or certiorari proceedings therefrom.

         2.12 - Debtor  shall mean the Debtor who is  proposing  this Chapter 11
Plan.

         2.13 - Disclosure  Statement shall mean the Disclosure  Statement which
is approved or  conditionally  approved by the Court  according to 11 U.S.C.  ss
1125 to be utilized to solicit votes for this Plan.

         2.14 - Disputed  Claim means any Claim  which is not an Allowed  Claim,
including,  without limitation, any Claim designated as disputed,  contingent or
unliquidated  in Debtors'  schedules  filed in connection with this case, or any
Claim against which an objection to the allowance  thereof has been  interposed,
and as to which no Final Order has been entered.

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         2.15 -  Effective  Date of the Plan  shall  mean the date on which  the
Order of  Confirmation  is entered or if a stay is entered pending appeal of the
Order of Confirmation, the date on which the stay is no longer in effect.

         2.16 - Final Order  shall mean an order or  judgment of the  Bankruptcy
Court which shall not have been reversed,  stayed, modified or amended and as to
which (a) at the time to appeal from or to seek review,  rehearing or certiorari
shall have  expired  and (b) no appeal or  petition  for  review,  rehearing  or
certiorari  is pending or if appealed  shall have been  affirmed,  or the appeal
dismissed by the highest court to which such order was  appealed,  or if review,
rehearing or certiorari  was sought,  such review,  rehearing or certiorari  has
been denied and no further hearing, appeal or petition for review,  rehearing or
certiorari can be taken or granted or as to which any right to appeal or to seek
a review, rehearing or certiorari has been waived.

         2.17 - Interest means any ownership  interest in the Debtor,  including
but not limited to preferred or common stock and any option, warrant or right of
any nature,  contractual  or  otherwise,  to acquire a stock or other  ownership
interest in the Debtor.

         2.18 - New Common Stock shall mean newly issued common shares in Sparta
issued to creditors,  interest holders or otherwise issued pursuant to this Plan
following the entry of an Order of Confirmation by the Court.

         2.19 - Order of Confirmation  shall mean the Order entered by the Court
confirming the Plan in accordance with the provisions of Chapter 11 of the Code.

         2.20 - Petition  Date shall mean the date on which the  Debtor's  order
for relief entered.

         2.21 - Plan shall mean this Chapter 11 Plan,  as amended in  accordance
with the terms hereof or modified in  accordance  with the Code,  including  all
exhibits and schedules attached hereto or referenced.

         2.22 -  Priority  Claim  means any  pre-petition  Claim  entitled  to a
priority  in  payment  under ss 507(a)  of the  Bankruptcy  Code,  but shall not
include any Administrative Claim or Tax Claims.

         2.23 - Pro Rata shall mean the ratio of an Allowed Claim or Interest in
a particular Class to the aggregate amount of all Allowed Claims or Interests in
that Class.

         2.24  -  Professional   Fees  means  the   Administrative   Claims  for
compensation  and  reimbursement  submitted  pursuant to Sections  330,  331 and
503(b) of the Bankruptcy Code by a Professional Person.

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         2.25 - Rules shall mean the Federal Rules of  Bankruptcy  Procedure and
Local Bankruptcy Rules for the District of Colorado as adopted by the Court.

         2.26 - Tax  Claims  means  any Claim of a  governmental  unit for taxes
entitled to priority pursuant to 11 U.S.C. ss 507(a)(8).

         2.27 -  Unclassified  Priority  Claims  shall mean  Claims  pursuant to
Section 507(a)(1) which are  Administrative  Claims Allowed under Section 503(b)
of the Code and any fees and charges  against the estates  under  Chapter 123 of
Title 28 of the United  States Code and shall  further  mean  Allowed  unsecured
Claims of governmental  units to the extent provided for in Section 507(a)(8) of
the Code.

         2.28 - Other Definitions.  Unless the context otherwise  requires,  any
capitalized  term used and not defined  herein or elsewhere in the Plan but that
is defined in the Bankruptcy Code or Bankruptcy Rules shall have the meaning set
forth  therein.  Further,  any terms  defined in the  Agreement  and not defined
herein shall have the meanings set forth in the Agreement.

                                   ARTICLE III

                       DESIGNATION OF CLAIMS AND INTERESTS

         The following is a  designation  of all classes of Claims and Interests
other than those Claims of a kind specified in Sections 507(a)(1),  507(a)(2) or
507(a)(8) of the Code.

         Class 1 - All Allowed unsecured Claims specified in Section  507(a)(3),
507(a)(4) or 507(a)(5) of the Code as having priority.

         Class 2 - The Allowed Secured Claim held by LKDTBJP Living Trust.

         Class 3 - The Allowed Claims of unsecured creditors.

         Class 4 - The Allowed Interests held by 1992 Non-Cumulative Convertible
Preferred Shareholders.

         Class 5 - The Allowed Interests held by Series A Cumulative Convertible
Preferred Shareholders.

         Class  6  -  The  Allowed   Interests  held  by   pre-petition   common
shareholders.

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                                   ARTICLE IV

                   SPECIFICATION AND TREATMENT OF UNCLASSIFIED

                                 PRIORITY CLAIMS

         Pursuant  to Section  1123(a)(1)  of the Code,  the Claims  against the
Debtor  covered  in this  Article  IV are not  classified.  The  holders of such
Allowed Claims are not entitled to vote on the Plan.

         4.1 - The holders of Allowed  Claims of the type  specified  in Section
507(a)(1) of the Code,  Administrative  Claims,  shall receive cash equal to the
Allowed amount of such Claim or a lesser amount or different treatment as may be
acceptable and agreed to by particular holders of such Claims. Such Claims shall
be paid in full on the  Effective  Date of the Plan,  or  treated  as  otherwise
agreed  to  by  the  particular  holders  of  such  Claims.   Section  507(a)(1)
Administrative  Claims that are Allowed by the Court after the Effective Date of
the Plan shall be paid upon Allowance.

         4.2 - The Allowed  Claims of a type  specified in Section  507(a)(8) of
the Code, Tax Claims of governmental taxing authorities,  shall be paid monthly,
on an amortized  basis  extending over a period not greater than five years from
the Petition Date. Interest shall accrue on the unpaid balance of such claims at
the rate of 6% per annum.

         4.3 - The Debtor will make all payments required to be paid to the U.S.
Trustee pursuant to 28 U.S.C. ss 1930(a)(6) until the case is closed, converted,
or  dismissed.  All payments due to the U.S.  Trustee  pursuant to 28 U.S.C.  ss
1930(a)(6) shall be paid on the Effective Date of the Plan, and the U.S. Trustee
shall thereafter be paid fees due on a quarterly basis until the case is closed,
converted, or dismissed.

                                    ARTICLE V

                  SPECIFICATION AND TREATMENT OF CLASS 1 CLAIMS

         5.1 - The Allowed Class 1 Priority  Claims shall be paid in full on the
Effective Date. The Class 1 Claims for certain  pre-petition  wages and employee
Claims ar e more particularly  described in Sections 507(a)(3),  507(a)(4),  and
507(a)(5) of the Code. No Class 1 claims are believed to exist.

                                   ARTICLE VI

             SPECIFICATION AND TREATMENT OF SECURED CREDITOR CLAIMS

         6.1 - LKDTBJP  Living  Trust.  Class 2 consists of the allowed  secured
claim of LKDT BJP Living Trust.  Class 2 is impaired by this Plan. Class 2 shall
be treated as set forth below:

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         a.  The  Class  2  claim  shall  be  allowed  at  zero  pursuant  to 11
U.S.C.ss.506.  The assets which serve as collateral for the Class 2 claim have a
negligible net worth. Therefore the claim will not be allowed as a secured claim
and the claims held by the LKDTBJP Living Trust shall all be allowed and treated
as Class 3 unsecured claims.

                                   ARTICLE VII

            SPECIFICATION AND TREATMENT OF UNSECURED CREDITOR CLAIMS

         7.1 - Class 3 consists of the Allowed Claims of unsecured  creditors of
Sparta.  Class 3 shall  be  treated  as set  forth  in this  paragraph.  Class 3
claimants shall receive a pro-rata  distribution of 158,000 shares of New Common
Stock in Sparta and a pro-rata  distribution of 15,000 BJCR Shares on account of
their Allowed Claims within 30 days of the Effective Date of the Plan.

                                  ARTICLE VIII

                    SPECIFICATION AND TREATMENT OF INTERESTS

         8.1 - Classes 4, 5, and 6 include the  Interests  in Sparta held by the
pre-confirmation  preferred  and  common  shareholders.  Classes 4, 5, and 6 are
impaired  under the Plan and will receive the  distributions  set forth below in
exchange of their interests:

         a. Class 4 interest  holders  will receive a pro-rata  distribution  of
10,000  shares of New  Common  Stock and a pro-rata  distribution  of 5,000 BJCR
Shares;

         b. Class 5 interest  holders  will receive a pro-rata  distribution  of
20,000  shares of New  Common  Stock and a pro-rata  distribution  of 5,000 BJCR
Shares; and

         c. Class 6 interest  holders  will receive a pro-rata  distribution  of
20,000  shares of New  Common  Stock and a pro-rata  distribution  of 5,000 BJCR
Shares.

                                   ARTICLE IX

                         MEANS FOR THE PLAN'S EXECUTION

         9.0 - Operation  of Business.  The Debtor will  continue to develop its
business activities following confirmation of the Plan. The Debtor will continue
to operate as a reorganized Debtor following confirmation of the Plan.

         9.1 - Additional  Authorized Shares. On the Effective Date of the Plan,
the Debtor's  authorized common shares,  par value $.002 shall be increased from
25,000,000 to 50,000,000.

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         9.2 - Effectuating  the Plan. On the Effective Date of the Plan,  Allan
J.  Korn  shall be  appointed  as the agent of Sparta  pursuant  to 11  U.S.C.ss
1142(b) for the purpose of  carrying  out the terms of the Plan,  and taking all
actions deemed  necessary or convenient to  consummating  the terms of the Plan,
including  but not limited to execution of  documents.  Mr. Korn may resign such
position at any time.

         9.3 - Agreement with Spectra Group, Inc. ("Spectra").  On the Effective
Date  of the  Plan,  Sparta  will  assume  its  Exclusive  Sales  Representative
Agreement with Spectra.  This Agreement  provides Sparta with an exclusive sales
representative  agreement  with Spectra for certain  products  known as surgical
devices  throughout  the United States.  In addition,  Spectra has provided to a
Sparta  affiliate,  BJCR, an exclusive  sales  representative  agreement for its
separate line of Electrotherapy Devices and accessories.  In addition to the New
Common Stock that will be issued to the Sparta creditors and  shareholders  with
Allowed  Claims and Interests  under this Plan, all such  recipients  shall also
receive on a pro rata basis  specifically  allocated shares of BJCR common stock
in the total amount of 30,000.

         9.4 - Disputed Claim Procedure. Distributions of cash, New Common Stock
or BJCR shares to any class of creditor  will only be made on account of Allowed
Claims.  In the  event  that  distributions  are  made  at a time  that a  claim
objection  is pending  before the Court or a judgment has entered to establish a
Claim and the  judgment  is not  subject to a Final  Order,  the  portion of the
distribution  that would be paid or issued to the disputed claimant will be held
by the Debtor until the Claim is Allowed or  disallowed.  If Allowed,  the Claim
will be paid its  appropriate  share of the withheld  payment  with  interest or
issued the appropriate amount of New Common Stock and BJCR stock. If disallowed,
the withheld distribution will not be paid or issued.

         9.5 -  Claims  and  Litigation  Bar  Date.  All  Claim  objections  and
Avoidance  Actions in the case must be filed no later than 45 days following the
Effective Date of the Plan.

         9.6 -  Administrative  Expense Bar Date. All applications for allowance
and payment of Administrative Claims, including Professional Fees, must be filed
within 30 days following the Effective Date of the Plan.

         9.7 - Monthly  Installments.  Whenever the Plan provides for payment in
monthly  installments or a payment due in a certain month,  the payment shall be
due on the last day of the  calendar  month in which the payment is due,  unless

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otherwise  specified  in the Plan.  The Debtor  shall then have a five day grace
period within which the monthly payment must be received by the payee before the
Debtor shall be in default.

         9.8 - Final  Decree.  The Debtor will  request  entry of a final decree
closing the case on or before the later of the date all Claim objections and any
pending  litigation  is  concluded or 180 days after the  Effective  Date of the
Plan.

         9.9 -  Quarterly  Fees.  Prior to the  entry of the final  decree,  the
Debtor shall continue to remit quarterly fees and  post-confirmation  reports to
the United States Trustee, as required by statute.

                                    ARTICLE X

                    EXECUTORY CONTRACTS AND UNEXPIRED LEASES

         10.1 - On the  Effective  Date of the Plan,  the Debtor  hereby  assume
those  executory  contracts  and  unexpired  leases listed in Exhibit A attached
hereto and  incorporated  herein by  reference,  which have not been  assumed by
prior  Order of the Court  prior to the  Confirmation  Date.  On the date of the
entry of an Order  confirming  the Plan,  the Debtor  shall be the holder of all
right,  title and interest to the assumed  leases and contracts and such assumed
leases and contracts shall be in full effect and binding upon the Debtor and the
respective  lessees.  Confirmation of the Plan shall  constitute a determination
that the payments to be made to said creditors  pursuant to the Plan satisfy all
conditions precedent to assumption set forth in 11 U.S.C. ss 365(b).

         10.2 - On the  Effective  Date of the Plan,  the Debtor will reject all
executory contracts and unexpired leases to which it is a party which are listed
in Exhibit B, attached  hereto and  incorporated  herein by reference which have
not been  rejected by prior Order of the  Bankruptcy  Court prior to the date of
confirmation. Executory contracts and unexpired leases will be rejected pursuant
to the  provisions  of 11 U.S.C.ss  365. Any  executory  contract not assumed in
accordance with the Plan shall be rejected.

         10.3 - An Order confirming this Plan constitutes  approval by the Court
of the assumption or rejection of the executory  contracts and unexpired  leases
described  herein in accordance  with the provisions of 11 U.S.C. ss 365 and the
Rules.

         10.4 - Claims Arising from Rejection.  All proofs of claim with respect
to claims  arising  from the  rejection of any  executory  contract or unexpired
lease shall be filed with the Bankruptcy Court within twenty (20) days after the
earlier of (i) the date of the  Bankruptcy  Court order  approving  the Debtor's
rejection of such executory contract or unexpired lease or (ii) the Confirmation

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Date.  Any claims not filed within such time shall be forever barred against the
Debtor, its estate and property and any such Claims shall be disallowed in full.
Claims arising from such rejection,  to the extent Allowed,  shall be treated as
Class D unsecured Claims.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

          11.1  Revestment.  The entry of an Order  confirming  this Plan  shall
revest in the Debtor  all  property  of the  estate  free and clear of all liens
except those specifically set forth in the Plan.

         11.2 Retention of  Jurisdiction.  Notwithstanding  confirmation  of the
Plan, the Court shall retain jurisdiction for the following purposes:

         1.   Determination of the allowability of claims upon objection to such
              claims  by the  Debtor-in-Possession  or by  any  other  party  in
              interest;

         2.   Determination  of the request  for  payment of claims  entitled to
              priority under 11 U.S.C. Section 507(a)(1), including compensation
              of the parties entitled thereto;

         3.   Resolution of any disputes regarding interpretation of the Plan;

         4.   Implementation  of the  provisions of the Plan and entry of orders
              in aid of consummation of the Plan,  including without limitation,
              appropriate  orders to protect the revested  Debtor from action by
              creditors;

         5.   Modification of the Plan pursuant to 11 U.S.C.ss 1127;

         6.   Adjudication  of any causes of action,  including  avoiding powers
              actions,   brought   by   the    Debtor-in-Possession,    by   the
              representative of the estate or the Debtor post-confirmation;

         7.   Adjudication   of   any   cause   of   action   brought   by   the
              Debtor-in-Possession, by the representative of the estate, or by a
              Trustee  appointed  pursuant to the Code,  or the revested  Debtor
              exercising  rights and powers as provided in 11 U.S.C. ss 542-549.
              This  section  shall not be  construed to limit any other power or
              right which the Debtor may possess  under any section of the Code;
              and

         8.   Entry of a final decree.

         11.3  Satisfaction  of  Claims.  The  confirmation  of this Plan  shall
constitute a discharge of Sparta from all dischargeable debts in accordance with
11 U.S.C. ss 1141(d).  Confirmation of the Plan shall  constitute a modification
of any note or  obligation  for which  specification  and  treatment is provided

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under the Plan as set forth in the Plan. Any  obligation or note,  previously in
default,  so modified,  shall be cured as modified as of the Confirmation  Date.
This provision shall be operable regardless of whether the Plan provides for any
obligation to be evidenced by a rewritten  loan or security  document  following
confirmation of the Plan.

         11.4  Headings.  The headings used in the Plan are for  convenience  of
reference  only and shall not  limit or in any  manner  affect  the  meaning  or
interpretation of the Plan

         11.5 Notices. All notices,  requests,  demands, or other communications
required or permitted in this Plan must be given in writing to the party(ies) to
be notified.  All  communications  will be deemed delivered when received at the
following addresses:

                  a.       To Sparta: Allan J. Korn, President 5445 DTC Parkway,
                           Suite 520 Greenwood Village, CO 80111

                           With a copy to:
                           Lee M. Kutner, Esq.
                           Kutner Miller, P.C.
                           303 East 17th Avenue, Suite 500
                           Denver, CO 80203
                           Fax: 303-832-1510
                           Email:lmk@kutnerlaw.com

                  b.       To an allowed claimant, at the addresses set forth in
                           the allowed Proof of Claim,  if filed,  other, at the
                           address set forth for the  claimant  in the  Debtors'
                           Schedules filed with the Court.

         11.6 Successors and Assigns.  The Plan will be binding upon the Debtor,
any  creditor  and  interest  holder  affected  by the  Plan  and  their  heirs,
successors, assigns and legal representatives.

         11.7 Unclaimed  Payments.  If a person or entity  entitled to receive a
payment or distribution pursuant to this Plan fails to negotiate a check, accept
a  distribution  or leave a  forwarding  address in the event  notice  cannot be
provided as set forth in paragraph  11.3,  within one (1) year of the  Effective
Date of the Plan,  the person or entity is deemed to have released and abandoned
any right to payment or distribution under the Plan.

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                                   ARTICLE XII

                              CONFIRMATION REQUEST

         12.1 - The Debtor, as proponent of the Plan,  requests  confirmation of
the Plan pursuant to 11 U.S.C.  ss 1129.  The Debtor will solicit  acceptance of
the Plan after its  Disclosure  Statement  has been approved by the Court and is
transmitted to the creditors,  interest holders and parties in interest.  In the
event the Debtor does not obtain the necessary  acceptances  of its Plan, it may
make application to the Court for confirmation of the Plan pursuant to 11 U.S.C.
ss 1129(b). The Court may confirm the Plan if it does not discriminate  unfairly
and is fair and equitable with respect to each class of Claims or Interests that
is impaired and has not voted to accept the Plan.

DATED: November 6, 2006                     SPARTA SURGICAL CORPORATION

                                            By:
                                              ------------------------------
                                               Allan J. Korn, President
Lee M. Kutner, Esq.
KUTNER MILLER, P.C.
303 East 17th Avenue, Suite 500
Denver, CO 80203
Telephone:  303- 832-2400
Fax: 303-832-1510
Email: lmk@kutnerlaw.com
ATTORNEYS FOR
SPARTA SURGICAL CORPORATION

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         Appellant Sparta Surgical  Corporation  ("Sparta" or "Debtor"),  by and
through its attorneys,  Kutner Miller Brinen,  P.C., for its Brief in Support of
Appeal, respectfully states:

I.  STATEMENT OF APPELLATE JURISDICTION

         The United States District Court has appellate jurisdiction pursuant to
28 U.S.C. ss. 158(a).

II. STATEMENT OF ISSUES ON APPEAL AND STANDARD OF APPELLATE REVIEW

A.       STATEMENT OF ISSUES

         1.  Whether  the  Bankruptcy  Court's  findings  of fact  were  clearly
erroneous.

         2.  Whether  the  Bankruptcy  Court's  findings of fact are based on an
abuse of discretion.

         3.  Whether  the  Bankruptcy  Court erred as a matter of law in holding
that the Debtor's Disclosure Statement was not adequate.

         4.  Whether  the  Bankruptcy  Court  erred  as a  matter  of law in not
confirming the Debtor's Chapter 11 Plan of Reorganization.

         5.  Whether the  Bankruptcy  Court erred in holding  that the  Debtor's
Disclosure Statement was inadequate in a small business case where the Court had
previously  conditionally approved the Disclosure Statement and after notice and
hearing no party in interest contested the adequacy of the Disclosure  Statement
and creditors had accepted the Debtor's Plan.

B.       STANDARD OF REVIEW

         The  Bankruptcy  Court's  findings of fact are reviewed under a clearly
erroneous  standard.  Federal Rule of Bankruptcy  Procedure 8013. The Bankruptcy
Court's findings are clearly erroneous when, even though there exists supporting
evidence,  the  reviewing  Court  looking  at the entire  evidence  is left with

                                       1
<PAGE>

definite and firm conviction  that a mistake has been made. TMA Associates,  160
B.R. 172 (D. Colo.  1993). The Court's legal  conclusions are subject to de novo
review. In re RFI Transport, Inc., 122 B.R. 124 (D. Colo. 1990).

III.      STATEMENT OF THE CASE AND RELEVANT FACTS

The Debtor

         The Debtor was  originally  incorporated  in the State of  Delaware  on
March  23,  1984.   The  Debtor  was  engaged  in  the  research,   development,
manufacturing  and  marketing  of surgical and  electrotherapy  products for the
worldwide  healthcare industry.  In May 2002, the Debtor divested  substantially
all of its  assets  and  ceased  operations.  Since  that  time,  the Debtor has
performed  administrative  duties as a  "shell"  corporation  and has  continued
reporting as a public company.

         In September, 2006, pre-petition, the Debtor negotiated a contract with
Spectra Group, Inc. d/b/a Spectra Instruments  ("Spectra") under which it became
an exclusive  independent sales representative for Spectra. The Spectra products
generally  consist of medical surgical  instruments and critical care disposable
products.  The Debtor intends to reorganize  around this new  relationship  with
Spectra, which forms the basis for its future business activities and income.

Debt and Equity

         In order to operate profitably under its new business relationship with
Spectra and to obtain financing for its new business operations,  the Debtor had
to restructure its existing debt obligations. The Debtor's secured debt consists
of various  convertible  secured promissory notes  ("Convertible  Notes") in the
aggregate  amount of $380,286.00  issued to the LKDTBJF Living Trust  ("Trust").
The Convertible Notes and all accrued interest were due in December, 2006.

                                       2
<PAGE>

         In  addition,  in  September  2005,  the Debtor  entered into a secured
Revolving  Credit Facility  Agreement  ("Agreement")  with Gary A. Agron and the
Trust  (collectively  "Lender").  In consideration for the loans pursuant to the
Agreement, the Debtor agreed that the Lender would be provided a junior security
interest in the Debtor's assets.  Subject to certain  conditions,  the Agreement
allows  the  Debtor to borrow up to  $100,000  with  interest  charged at 6% per
annum, and all principal and interest are due on February 7, 2007. This date has
since been extended to April 1, 2007.

         The total amount due on the secured claims was  approximately  $573,711
as of the  Petition  Date.  Of this  amount,  $16,786  is due Mr.  Agron and the
balance is due to the Trust.  This entire  amount was to be  converted to equity
under the Debtor's proposed plan

         The unsecured  debt owing to creditors  was scheduled at  approximately
$710,000.

         The Debtor is a public company. On the petition date it had two classes
of preferred shareholders with different rights and preferences. The Debtor also
had a class of common shareholders.

Small Business Case

         On  November  6, 2006  (the  "Petition  Date"),  the  Debtor  filed its
Voluntary  Petition for Relief under Chapter 11 of Title 11 of the United States
Code (the  "Bankruptcy  Code").  The Debtor is a "small business  debtor" as the
term is defined in Bankruptcy Code ss. 101(51D). The Debtor's bankruptcy case is
therefore a small business  case. 11 U.S.C.  ss.  101(51C).  In a small business
case, the Debtor must file the plan and a disclosure  statement,  if any, within

                                        3
<PAGE>

300  days  of the  order  for  relief.(1)  11 ss  U.S.C.  ss.  1121(e)(2).  If a
disclosure statement is filed,  Bankruptcy Code ss. 1124(f)(3) provides that the
Court may  conditionally  approve  the  disclosure  statement  for  solicitation
purposes, "if the debtor provides adequate information to each holder of a claim
or interest that is solicited."  Once the plan is filed, the Court must consider
confirmation of the plan within 45 days.(2) 11 U.S.C. ss. 1129(e).

         On  the  Petition   Date,   the  Debtor  filed  its  proposed  Plan  of
Reorganization   (the  "Plan")  and   accompanying   Disclosure   Statement  (as
subsequently amended, the "Disclosure Statement"). Given the short time frame of
45 days within  which the Court can confirm the Plan,  the Debtor also filed its
Motion for  Expedited  Hearing  (the  "Expedite  Motion"),  requesting  that the
Bankruptcy  Court  set  a  hearing  to  consider  conditional  approval  of  the
Disclosure  Statement  pursuant  to  Bankruptcy  Code ss.  1124(f)(3)  and set a
hearing  for  confirmation  of the Plan and  final  approval  of the  Disclosure
Statement.

         On November 8, 2006,  the  Bankruptcy  Court entered its Order granting
the relief  requested in the Expedite  Motion,  setting November 13, 2006 as the
date to conduct a status conference on the case. At the hearing,  the Bankruptcy
Court considered the adequacy of the Disclosure Statement on a conditional basis
under Bankruptcy Code ss. 1124(f)(3),  commented on the Disclosure Statement and
required the Debtor to make certain changes to the Disclosure  Statement  before
granting conditional approval of the Disclosure Statement. On November 14, 2006,

------------------------------------

1 In a small  business  case, a disclosure  statement need not be filed and used
for plan  solicitation  purposes if the Court  determines that the plan provides
adequate information and a disclosure statement is not necessary.

2 The 45 day period may be extended pursuant to Bankruptcy Code ss.  1121(e)(3),
which provides that an extension may be granted, upon notice to creditors,  only
"if the debtor  establishes by a  preponderance  of the evidence that it is more
likely than not that the court will confirm a plan within a reasonable period of
time."

                                       4
<PAGE>

the Debtor  filed its  amendments  to the  Disclosure  Statement  to address the
comments of the Court.  On November 15, 2006,  the  Bankruptcy  Court entered an
Order conditionally  approving the Disclosure Statement and setting December 19,
2006 as the date to consider confirmation of the Plan. The Court further ordered
that ballots accepting or rejecting the Plan had to be submitted by December 15,
2006. Objections to confirmation of the Plan were due the same date.

         On November 15, 2006, the Debtor commenced the solicitation  process by
serving the Plan,  Disclosure Statement,  and Ballots upon  parties-in-interest.
This included serving a copy of the Plan and extensive  Disclosure  Statement on
approximately 430 creditors and shareholders.  A copy of the Plan and Disclosure
Statement was also served on the U.S. Securities and Exchange Commission ("SEC")
and the State of Colorado.

The Plan

         The Plan divides creditors into 6 classes:  (1) Class 1 is comprised of
creditors  holding allowed  unsecured claims specified in Bankruptcy Code ss.ss.
507(a)(3),  507(a)(4) or 507(a)(5) as having priority;  (2) Class 2 is comprised
of the  allowed  secured  claim of the Trust;  (3) Class 3 is  comprised  of the
allowed claims of general unsecured  creditors;  (4) Class 4 is comprised of the
allowed interests held by 1992 non-cumulative convertible preferred shareholders
of Sparta;  (5) Class 5 is comprised of the allowed  interests  held by series A
cumulative  convertible  preferred  shareholders  of Sparta;  and (6) Class 6 is
comprised of the allowed interests held by pre-petition common shareholders.

                                       5
<PAGE>

         The Plan calls for  unclassified  administrative  expense  claimants to
received  payment on the effective date of the Plan(3) or as otherwise agreed to
by the parties. The only anticipated administrative expense claimant is Debtor's
bankruptcy counsel, Kutner Miller Brinen P.C.

         The  Plan  as  filed  proposed  to  pay  taxing   authorities   holding
unclassified  priority  claims  monthly  payments  amortized  over 5 years  with
interest  accruing at 6% per annum. The two taxing authority  claimants are: (a)
the  Internal  Revenue  Service  (the  "IRS"),  with a  claim  of  approximately
$85,580.00  and (b) the  State  of  California,  with a claim  of  approximately
$6,452.00.

         No Class 1 claims  exist,  though,  if any were to exist,  such  claims
would be paid upon the effective date of the Plan.

         As of the Petition Date,  the Debtor had no material  assets other than
its new contractual relationship with Spectra.  Accordingly,  the Plan calls for
the Class 2 secured claim to be allowed at zero pursuant to Bankruptcy  Code ss.
506 and to be allowed and treated as a Class 3 general unsecured claim.

         Class 3 is receiving under the Plan a pro-rata  distribution of 158,000
shares of new  common  stock in Sparta  and a  pro-rata  distribution  of 15,000
shares of BJCR Electro-Therapy,  Inc. ("BJCR")(4) common stock within 30 days of
the effective date of the Plan.

         Classes 4, 5, and 6 consist of the  pre-confirmation  equity holders of
the Debtor who,  under the Plan,  will receive the  distributions  as follows in
exchange for their interests:  (a) Class 4 shareholders  will receive a pro-rata
distribution  of 10,000  shares of new  common  stock in Sparta  and a  pro-rata
distribution of 5,000 shares of BJCR common stock; (b) Class 5 shareholders will

----------------------------------------
3 The effective date is the date upon which an order confirming the Plan becomes
final.

4 BJCR Electro-Therapy,  Inc. was established as an affiliate of Sparta and will
be  the  exclusive  sales   representative  for  Spectra  with  respect  to  its
electrotherapy devices.

                                       6
<PAGE>

receive a pro-rata  distribution  of 20,000 shares of new common stock in Sparta
and a pro-rata  distribution of 5,000 shares of BJCR common stock; and (c) Class
6  shareholders  will receive a pro-rata  distribution  of 20,000  shares of new
common  stock in Sparta  and a  pro-rata  distribution  of 5,000  shares of BJCR
common stock.

         The Plan  solicitation  process was  concluded on December 15, 2006. On
December 18, 2006, the Debtor filed its Summary of Voting  Results  showing that
all classes and an  overwhelming  majority of the creditors,  over 96%, voted to
accept the Plan.  No class member of Class 1 voted and Class 1 is deemed to have
accepted the Plan. In re Ruti-Sweetwater,  836 F.2d 1263 (10th Cir. 1988). Class
2, the Trust,  voted to accept the Plan.  Class 3 unsecured  creditors  voted to
accept  the Plan.  Classes 4 and 5  preferred  shareholders  voted to accept the
Plan. Class 6 common  shareholders voted and 96% of those voting cast ballots in
favor of the Plan.  Only one small  shareholder  in Class 6, voted to reject the
Plan.

         The IRS was the only creditor to file an objection to  confirmation  of
the Plan  asserting  that the Plan did not  properly  classify  a portion of its
claim as secured.  The Debtor and the IRS entered into a stipulation  filed with
the  Bankruptcy  Court which  provides  that the IRS' claim shall be allowed and
treated as follows: (a) the IRS shall hold a priority tax claim in the amount of
$30,172.34  (the "Priority  Claim");  and (b) a general  unsecured  claim in the
amount of $47,287.33 (the "General  Unsecured Claim").  The stipulation  further
provides  that  language of the Plan is modified only with respect to the IRS to
provide that the Priority  Claim shall be paid  monthly,  on an amortized  basis
extending  over a period not greater than five years from the Petition Date with
interest  accruing  on the unpaid  balance at the rate of 8%  compounded  daily.
During  discussions,  the IRS informed the Debtor that it is not  authorized  to

                                       7
<PAGE>

receive stock in  satisfaction  of its General  Unsecured  Claim. To address the
IRS'  issue,  the  Debtor's  officers  and/or  directors  agreed that one of the
Debtor's officers and/or directors,  within 30 days of confirmation of the Plan,
will pay to the IRS $5,400 in full  satisfaction of the General Unsecured Claim.
The payment would not involve the Debtor. Upon execution of the stipulation, the
IRS withdrew its objection to confirmation of the Plan.

         The Debtor also received an informal  objection to  confirmation of the
Plan  from the  State of  California,  stating  that the  interest  on its claim
proposed under the Plan was insufficient  under  applicable  California law. The
Debtor and the state of  California  entered into a  stipulation  filed with the
Court  providing that interest will accrue on the unpaid balance of the State of
California's claim at the rate of 7% per annum.

         On December 19, 2006, the Bankruptcy  Court commenced and concluded the
hearing  to  consider  confirmation  of  the  Plan  and  final  approval  of the
Disclosure  Statement.  The Debtor proceeded on an uncontested basis. The Debtor
put on evidence  establishing  that the Plan satisfied all the  requirements  of
Bankruptcy  Code  ss.  1129(a)  and  therefore  is  confirmable.  A copy  of the
transcript  from the  confirmation  hearing is attached hereto as Exhibit A (the
"Transcript").  In a manner  consistent  with the Court's normal practice for an
uncontested plan confirmation  hearing, the Debtor proffered evidence in support
of confirmation  of the Plan and the elements of ss. 1129(a),  including (a) the
Debtor complied with all aspects of its obligations under Chapter 11;(5) (b) the
Debtor  timely  filed  its Plan and  Disclosure  Statement;  (c) the  Disclosure
Statement was conditionally  approved and votes were solicited;  (d) all classes
under the Plan voted to accept the Plan; (e) the Plan was proposed in good faith
in  an  effort  to   reorganize   and  provide  a  recovery  for  creditors  and
shareholders;   (f)  the  Plan   provides   that  all  costs  and   expenses  of
administration of the estate are subject to Court approval as to reasonableness;
and (g) there is no governmental  regulatory  commission with  jurisdiction over
setting rates for the Debtor.  Transcript  at pages 10 - 11. The Debtor  furt

-----------------------------------
5 Including,  the Debtor satisfied all of its reporting obligations and attended
the  Bankruptcy  Code ss.  341  meeting  of  creditors  and the  initial  debtor
interview.

                                       8
<PAGE>
her
proffered  testimony  establishing that unsecured  creditors were receiving more
under the Plan than the creditors  would receive if the case were converted to a
case under Chapter 7. The proffered testimony  established that the Debtor has a
minimal  amount of assets  that can be  liquidated,  whose value does not exceed
$30,000.  Because the IRS holds a priority claim greater than $30,000, under the
Bankruptcy  Code's  absolute  priority rule,  there would be no  distribution to
unsecured creditors in a Chapter 7 case. Under the Plan, unsecured creditors are
receiving  stock in the  reorganized  Debtor  that will be  marketable  and will
provide  a  recovery  for  unsecured  creditors.  Transcript  at  pages 11 - 12.
Therefore, the best interest of the creditors test is met. ss. 1129(a)(7).

         To establish  feasibility  of the Plan,  the Debtor called as a witness
Thomas  Reiner,  Chairman of the Board for Sparta.  Mr.  Reiner's  testimony  is
provided on pages 13 - 31 of the Transcript.  The most  significant  portions of
the testimony are summarized below. Mr. Reiner testified that Sparta has current
and ongoing business operations.  He explained that in October, 2006, Sparta and
Spectra  entered  into a  strategic  partnership  whereby  the Debtor will be an
exclusive  independent  sales  representative  for  the  Spectra  products.  The
business relationship provides Sparta with marketable inventory and Spectra with
the name  recognition  associated  with  Sparta.  Sparta has been in the medical
device industry since the 1970s, has excellent name recognition and an excellent
reputation  with  doctors  and  hospitals.  In fact,  many  doctors are and were
trained using Sparta products. Transcript at pages 14, 19, 27.

                                       9
<PAGE>

         Sparta,   in  connection   with  Spectra,   is  marketing  and  selling
electrotherapy   equipment  and  specialty   surgical  equipment  and  products.
Transcript  at pages  18-19.  The first  month  after  Sparta  entered  into the
partnership  with  Spectra,  Sparta  obtained a $15,000  contract with the Naval
Medical  Center in  Virginia.  There  were also a number of  smaller  contracts.
Sparta  receives a 20% commission for generating  each sale.  Transcript at page
27. Other  significant  contracts  Sparta has obtained  since  entering into the
partnership  include a $23,000  contract with LSU Medical  Center.  In addition,
Sparta has entered into negotiation, solicitation and agreement with the Defense
Personnel  Center in  Philadelphia  to bid on a contract with a minimum price of
$1.2  million and a three year renewal  option of $3.6  million.  Transcript  at
pages 14-15. Sparta is also receiving weekly sales contracts beginning at $2,000
and as high as $1 million.  Transcript at page 24.  Sparta's sales have remained
constant  through the months of October  through  December.  Transcript at pages
26-27.

         To  provide  funding  for the  Debtor's  ongoing  business  operations,
including marketing,  the Debtor has obtained a $100,000 line of credit. Lending
under the line of credit is conditioned upon  confirmation of the Plan. The line
of credit will be used to develop sales and  promotional  materials,  to develop
the internal  structure of the company,  and to redevelop  partnerships with key
medical equipment and supply distributors to enhance Sparta's sales and profits.
Transcript  at pages  22-23.  The Debtor is being  managed  and  operated by Mr.
Reiner and Allan Korn, both of whom have  significant  experience in the medical
device  sales  field.  Transcript  at  pages  20-22.  The  feasibility  test was
therefore met. ss. 1129(a)(11).

         Clearly,  the Debtor's  creditors and  shareholders  had  absolutely no
chance of any  recovery on account of their  claims and stock  interests  on the
date the  Chapter 11 case was filed.  The Plan and its  confirmation  would have
allowed priority tax claims to be paid,  unsecured  creditors to recover through

                                       10
<PAGE>

the new shares of stock  they would be  receiving,  and common  shareholders  to
similarly  recover through their  restructured  equity interests.  Notably,  all
shareholder  and  creditor  classes  accepted  the Plan and neither the SEC, the
I.R.S.,  the States of California  and Colorado,  nor the United States  Trustee
objected to Plan confirmation.

         Notwithstanding the uncontraverted evidence submitted in support of the
Plan,  the  Bankruptcy  Court's  prior  conditional  approval of the  Disclosure
Statement,   and  the  uncontested  nature  of  the  confirmation  hearing,  the
Bankruptcy  Court denied final approval of the Disclosure  Statement and refused
to confirm the Plan. Transcript at page 37.

                                  IV. ARGUMENT

                   THE BANKRUPTCY COURT ERRED IN DENYING FINAL
                      APPROVAL OF THE DISCLOSURE STATEMENT

         The   structure  of  the   disclosure   statement   approval  and  plan
confirmation  process in a small  business case is designed to  "streamline  the
small business chapter 11 procedures." 7 Allan N. Resnick, Collier on Bankruptcy
P. 1125.04  (15th Ed.  2006)  (citing  Footnote 5. Pub L. No.  109-8 ss.  431(2)
(2005).  One  purpose  of  this  streamlined  procedure  is to  provide  a  more
expeditious,  less  complex and less costly  confirmation  process for the small
business debtor.  In re Aspen Limousine  Service,  187 B.R. 989, 994 (Bankr.  D.
Colo.  1995).  6 See also In re:  Coleman  Enterprises,  Inc., 266 B.R. 423, 431
(Bankr.  Minn.  2001) (the "small business fast track"  confirmation  process is

----------------------------
6 Prior to the  amendments  made to the  Bankruptcy  Code in October,  2005, the
small  business  case was an  election a business  debtor  could make if certain
criteria were met. After October, 2005, the small business case became mandatory
if the  criteria  were met.  There were certain  additional  changes made to the
small business case in the October, 2005 amendments that are not material to the
issues before this Court,  nor did the amendments  change the concept of putting
the small business confirmation process on the fast track.

                                       11
<PAGE>

designed to reduce cost and delay) (citing In the Defense of Debtor Exclusivity:
Assessing Four of the 1994 Amendments to the Bankruptcy Code, 69 AM. BANKR. L.J.
287,  298 (1995)).  The  intended  beneficiary  of this  streamlined  process is
principally,  but  not  exclusively,  the  small  business debtor. In  re  Aspen
Limousine Service, 187 B.R. at 994. See also In re: Coleman  Enterprises,  Inc.,
266 B.R.  at 438 (in the small  business  case,  the debtor is  "primacy  in the
Court's considerations.").

         On the same date that the  Debtor  filed its  Voluntary  Petition,  the
Debtor  filed its Plan and  Disclosure  Statement.  The  Debtor  also  filed the
Expedite Motion.  Pursuant to the relief  requested in the Expedite Motion,  the
Bankruptcy  Court  conducted a hearing  whereat it  considered  whether to grant
conditional  approval of the  Disclosure  Statement.  The United States  Trustee
attended  the hearing.  No party in interest  raised  objection  to  conditional
approval of the Disclosure  Statement.  The  Bankruptcy  Court raised issue with
specific  aspects of the  Disclosure  Statement and directed the Debtor to amend
the Disclosure  Statement  before  conditional  approval  could be granted.  The
Debtor  promptly filed an amended  Disclosure  Statement  that was  subsequently
approved,  conditionally,  by the  Bankruptcy  Court.  While the Court raised an
issue with the Disclosure Statement that it wanted changed before approval, none
of the issues mentioned by the Court at the confirmation  hearing as a basis for
its finding of inadequate  disclosure  were  mentioned at all at the  Disclosure
Statement hearing.  The Plan and Disclosure  Statement were mailed to parties in
interest for solicitation  purposes.  On December 19, 1006, the Bankruptcy Court
conducted the hearing to consider final approval of the Disclosure Statement and
confirmation  of the Plan. No party objected to  confirmation of the Plan or the
adequacy  of the  Disclosure  Statement.  All  Classes  under  the  Plan and the
overwhelming  majority of creditors and  shareholders  voted to accept the Plan.
Notwithstanding  the creditor  support for the Plan and the  Bankruptcy  Court's
prior approval of the Disclosure  Statement,  the Bankruptcy  Court denied final
approval of the Disclosure  Statement and therefore  denied  confirmation of the
Plan.

                                       12
<PAGE>

         The actions of the Bankruptcy Court are in direct  contravention of the
established  bankruptcy  principles and the intention of Congress that the small
business  confirmation proceed is to be streamlined,  expeditious,  less costly,
less complex,  and  primarily for the benefit of the Debtor.  It was an abuse of
the  Bankruptcy   Court's  discretion  to,  after  having  held  a  hearing  and
conditionally  approved the Disclosure Statement and after notice and hearing no
party in  interest  contested  the  adequacy  of the  Disclosure  Statement  and
creditors  had  accepted  the  Debtor's  Plan,  to deny  final  approval  of the
Disclosure Statement.  A small business debtor can do no more to comply with its
obligations  under the Bankruptcy Code than, as the Debtor did, seek conditional
approval of its  disclosure  statement  and address all the  Bankruptcy  Court's
issues to obtain that conditional  approval prior to commencing the solicitation
process.  The Debtor must then  recognize that a party in interest may object as
to the adequacy of the  disclosure  statement at the final  hearing.  See In re:
Coleman  Enterprises,  Inc.,  266 B.R. at 438 n.8 (the  expedited  nature of the
small business  confirmation  process breaks down if a meritorious  objection is
presented at the final hearing).  The  streamlined  process is not served when a
Bankruptcy Court conditionally approves the disclosure statement as adequate and
then,  sua  sponte,  based  on no new or  additional  information  revokes  that
approval  at a final  hearing.  This is  particularly  true  when,  as here,  no
sustainable objection by a party in interest including the SEC, has been filed.

         Contrary to the finding by the Bankruptcy Court that the  conditionally
approved   Disclosure   Statement  was  inadequate,   it  did  provide  adequate
information as  contemplated  by Bankruptcy  Code ss.  1125(a)(1).  It should be
noted that Section 1125(a)(1)  provides that the Court, in determining whether a
disclosure  statement is adequate,  "shall  consider the complexity of the case,
the  benefit  of  additional  information  to  creditors  and other  parties  in
interest,  and the  cost of  providing  additional  information."  None of these
issues were addressed by the Bankruptcy  Court.  The creditors and  shareholders

                                       13
<PAGE>

already  had  substantial  information  on all of the  points  mentioned  by the
Bankruptcy Court. It is inconceivable that they would vote any way other than to
accept the Plan even if they had volumes of added information. They had the most
relevant information,  namely, without the Plan their claims and interests would
continue to be worth zero.

         The  Bankruptcy  Court  found  without any  articulated  basis that the
Disclosure Statement provides inadequate information about (1) the entities that
are behind the restructuring effort; (2) the individuals who will be controlling
the Debtor; (3) tax consequences for investors; (4) the Debtor's future products
and  operations;  (5) the  settlement  with the IRS;  (6) the  $100,000  line of
credit;  and (7) the fact that the  insiders  will  receive the  majority of the
shares of the reorganized Debtor. Transcript at pages 38-39. All of these points
are addressed in the Disclosure Statement or are simply incorrect statements.

         Given this is a small business case with a Debtor of limited resources,
the Debtor did adequately  address each of the seven issues which the Bankruptcy
Court listed as providing a basis for concluding  the  Disclosure  Statement was
inadequate.  The Disclosure  Statement  discusses in detail in the  "Background,
Events  Leading to Chapter 11  Filing,  and Future  Prospects"  section at pages
4-12, the Debtor's  pre-Petition Date business  operations,  its debt and equity
structure, the factors that caused the Debtor to seek relief under Chapter 11 of
the Bankruptcy  Code, and its future business  arising from its partnership with
Spectra.  The Debtor provided in the  "Description  of  Liabilities"  section at
pages 8-9 a detailed  description of all claims,  secured,  priority and general
unsecured,  existing  against  the Debtor,  and the  holders of the claims.  The
"Description  of the Plan" section,  immediately  following the  "Description of
Liabilities" section, at pages 9-11, reiterates information about the claims and
details  the   distributions   claimants  are  receiving  under  the  Plan.  The
"Feasibility  of the Plan"  section at pages  13-14  provides  detail  about the

                                       14
<PAGE>

$100,000 line of credit,  including  its ability to be converted to equity,  and
attached as an exhibit the Debtor's  2005 and 2006  financial  statement  with a
reference to the S.E.C.'s website for additional  information  about the Debtor.
The  "Post-Confirmation  Management" section, at pages 16-17 details who will be
managing the Debtor and the shareholder  structure  post-confirmation.  The "Tax
Consequences"  section  at page 18  provides  basic  tax  information  about the
potential tax consequences to creditors receiving a distribution under the Plan.
There were no other material tax issues known.  The settlement  with the IRS was
reached after the filing of the  Disclosure  Statement and  solicitation  of the
Plan. The  settlement  was filed with the Court.  The settlement has no negative
impact upon  creditors,  is consistent  with the Plan and  Bankruptcy  Code, and
actually  benefits  creditors as the IRS general  Unsecured  Claim is being paid
outside the Plan by a  non-Debtor  entity.  The IRS general  Unsecured  Claim is
therefore not diluting the  distribution to other general  unsecured  creditors.
Accordingly,  the Debtor's Disclosure Statement did provide adequate information
in accordance with the standard  espoused by Bankruptcy  Code ss.  1125(a).  The
Bankruptcy Court's fact finding to the contrary is clearly erroneous.

         The  Bankruptcy  Court's claim that more  disclosure is required on the
"fact that insiders  will receive the majority of the shares of the  reorganized
Debtor"  is  simply  wrong  and  unsupported  by the  record.  Exhibit  D to the
Disclosure   Statement   contains  a  chart   depicting  the   distribution   of
post-confirmation  shares of the Debtor.  It is clear that the vast  majority of
the shares were to be issued to creditors and the new lender.  To the extent the

                                       15
<PAGE>

Bankruptcy  Judge  believed  either the Trust or Mr. Agron were  insiders he was
very  mistaken.  The Trust and Mr. Agron are identified as lenders and creditors
throughout the Disclosure  Statement and Plan. The only insider receiving shares
of stock is Mr. Korn who will receive 5%, hardly a majority. The term insider is
defined in the Bankruptcy Code at ss. 101(31) while the term includes  officers,
directors and persons in control, it doesn't include creditors or shareholders.

         The Bankruptcy  Court completely  ignored the recent  amendments to the
Bankruptcy Code, ss. 1125(f) that address the "small business case". ss. 1125(f)
in addition to providing for the conditional approval of a disclosure statement,
provides that the "court may determine  that the plan itself  provides  adequate
information  and that a separate  disclosure  statement  is not  necessary.  ss.
1125(f)(1).  This lends  further  support to the position  that  disclosure is a
fluid and relative concept to be tailored to the particulars of each case.

                                       16
<PAGE>

                          THE PLAN SHOULD BE CONFIRMED

         The standard for confirmation of a plan is set forth in Bankruptcy Code
ss. 1129(a).  The evidence in this case established that each of the elements of
Section  1129(a) is satisfied,  including  that the Debtor has complied with its
obligations under Chapter 11 and the Debtor has proposed the Plan in good faith.
The Plan is feasible, as the Debtor did restart operations in October, 2006, has
prospects with existing business,  and the individuals operating the Debtor have
over 65 years of  combined  experience  with sales and  marketing,  finance  and
operations in the medical device field. The Debtor has a line of credit in place
to fund ongoing  operations.  The Debtor has a current  business around which to
reorganize.   Creditors  are  receiving  value  under  the  Plan.   Without  the
reorganization, unsecured creditors will receive nothing.

         The Bankruptcy  Court also raises issue,  in dictum,  that the Plan may
not be confirmable if the Plan seeks to avoid the securities laws. Transcript at
page 39. As explained by the United States Trustee at the confirmation  hearing,
the securities  agencies of the federal government are charged with objecting to
plans of  reorganization  that seek to avoid the securities laws.  Transcript at
page 8. The  Debtor  served all  applicable  pleadings,  including  the Plan and
Disclosure Statement, upon the State Attorney General, the Securities Divisions,
and the SEC.  Transcript at page 6. No governmental agency filed an objection to
confirmation  of the Plan. To the extent the Court was concerned  about adequate
disclosure for the purposes of securities  laws, the SEC or a governmental  unit
is the only party  with the  statutory  ability to  challenge  the  adequacy  of
disclosure.  11 U.S.C. ss. 1129(d).  The lack of such an objection  demonstrates
that the Plan and disclosure do not violate the securities  laws and there is no
basis for the Court to deny confirmation on this basis.

                                       17
<PAGE>

         Since the Debtor's Plan complies with the  provisions of Chapter 11 and
was filed in accordance with 11 U.S.C.  ss.  1121(e),  it was mandatory that the
Court  confirm the Plan within 45 days of the date it was filed.  11 U.S.C.  ss.
1129(e).  This  provision  of the  Bankruptcy  Code  requires  that in a  "small
business  case, the court shall confirm a Plan that complies with the applicable
provisions of this title". ss. 1129(e).

                                  V. CONCLUSION

         The  Bankruptcy  Court's Order denying final approval of the Disclosure
Statement and denying  confirmation  of the Plan was based on clearly  erroneous
fact findings,  unsupported by the record and erroneous legal conclusions.  This
Court  should  reverse the  Bankruptcy  court and enter an Order  approving  the
Disclosure Statement on a final basis and confirming the Plan.

DATED:  February 14, 2007

                                         Respectfully submitted,

                                         /s/Lee M. Kutner
                                         ---------------------------
                                         Lee M. Kutner, #10966
                                         Aaron A. Garber, #36099
                                         KUTNER MILLER BRINEN, P.C.
                                         303 East 17th Avenue, Suite 500
                                         Denver, CO 80203
                                         Telephone: (303) 832-2400
                                         Telecopy: (303) 832-1510
                                         Email: lmk@kutnerlaw.com
                                                -----------------

                                       18

--------------------------------------------------------------------------------
<PAGE>
================================================================================

                         UNITED STATES BANKRUPTCY COURT
                          FOR THE DISTRICT OF COLORADO

IN RE:                                    )
                                          )        Case No. 06-18117-ABC
SPARTA SURGICAL CORPORATION               )
                                          )        Chapter 11
     Debtor.                              )

                                NOTICE OF APPEAL

         Sparta Surgical Corporation, appeals under 28 U.S.C. ss 158(a)(1) or
(a)(3) from the Order denying Final Approval under 11 U.S.C. Section 1125 of the
Debtor's Disclosure Statement and denying confirmation of the Debtor's Chapter
11 Plan of Reorganization entered on the 19th day of December, 2006. The names
of the parties attending the hearing at which the Order appealed from was
entered and the names, addresses, and telephone numbers of their respective
attorneys are as follows:

      Debtor/Appellant:       Sparta Surgical Corporation
      Attorneys:              Lee M. Kutner #10966
                              Kutner Miller, P.C.
                              303 East 17th Avenue, Suite 500
                              Denver, CO 80203

      Parties-in-Interest:    Internal Revenue Service   United States Trustee
      Attorneys:              Michael Lloyd #20233       Leo Weiss #15294
                              1244 Speer Blvd.           999 - 18th Street
                              Suite 500                  Suite 1551
                              Denver, CO 80204           Denver, CO 80202

DATED: December 27, 2006                   Respectfully submitted,

                                           By:
                                           ------------------------------------
                                              Lee M. Kutner #10966

                                              KUTNER MILLER, P.C.
                                              303 East 17th Avenue, Suite 500
                                              Denver, CO 80203
                                              Telephone: (303) 832-2400
                                              Telecopy: (303) 832-1510

<PAGE>

                             CERTIFICATE OF MAILING

         I do hereby certify that on this _____ day of December, 2006, a true
and correct copy of the foregoing NOTICE OF APPEAL was deposited in the United
States mail, postage prepaid, addressed to the following:

Leo Weiss, Esq.

United States Trustee
999 - 18th Street
Suite 1551
Denver, CO 80202

Michael Lloyd, Esq.
Internal Revenue Service
1244 Speer Blvd.
Suite 500
Denver, CO 80204

------------------------------------------
Vicky L. Martina

--------------------------------------------------------------------------------Exhibit
10.96

 

 

 

 

26 October   2007

 

Mr. Steven G. Stewart

2134523 S. Sunset Circle

Bountiful, UT 
84010

 

Re:                          Employment Agreement

 

Dear Steve:

 

I am pleased to confirm your employment as Chief
Financial Officer of Headwaters Incorporated (“the Company”) and offer terms
and conditions of employment as set forth in this letter agreement (this “Agreement”).  This Agreement supersedes the terms of the
Employment Transition Agreement between you and the Company dated 1 October
2005 (“Transition Agreement”).  You may
accept this Agreement by signing and returning a copy of this Agreement as
provided below.

 

1.             Term of Employment.    Your new employment assignment as CFO commenced
effective 4 September 2007 (“CFO Start Date”) and shall continue under this
Agreement until 30 September 2010, unless it is terminated earlier either by
you or the Company or is extended by both you and the Company in a signed
writing (“Transition Date”), and then for an additional 24 months (“Separation
Date”).  Your employment under this
Agreement is terminable at will by you or the Company at any time (for any
reason or for no reason) subject to the provisions of Section 3.   This Agreement is personal to you and you
may not assign or delegate any of your rights or obligations hereunder.

 

2.             Position and Duties. 
Between the CFO Start Date and the Transition Date (“CFO Service Period”),
you shall report to the Chief Executive Officer of the Company.  Your duties shall include the duties set
forth in the bylaws of the Company for your position and as customarily
performed by the CFO of Headwaters and any other duties the Board and the Chief
Executive Officer of the Company may delegate to you from time to time.  You will be expected to commit your attention
and efforts to the position on a full-time basis.  During the CFO Service Period, you may serve
on two boards, either corporate, civic, or charitable, as long as such
activities do not materially conflict with the performance of your duties under
this Agreement.  Between the Transition Date
and the Separation Date (“Transition Period”), you will be employed as the
Director of Financial Affairs of the company to work on such projects as
determined by the Chief Executive Officer or Chief Financial Officer of the
Company.

 

 

 

3.             Compensation and Benefits.  In consideration for your services to the
Company during the time period in which this Agreement is effective, you shall
receive the following compensation and benefits:

 

                (a)           Base Salary.  During the CFO Service Period, the
Company shall pay you an annual base salary at the rate of $304,685 per
year.  Your salary will be reviewed on an
annual basis during the CFO Service Period, and may be increased at the
discretion of the Company.  During the
Transition Period, the Company shall pay you an annual base salary at the rate
of $120,000 per year.  At all times, your
salary shall be paid in installments according to the Company’s regular payroll
policy.  The Company shall withhold and
deduct all applicable federal and state income and employment and disability
taxes from your salary and other compensation payable under this Agreement or
otherwise, as required by applicable laws.

 

                (b)           Annual Incentive Opportunity.  During the CFO Service
Period, you shall be eligible to participate in any bonus plan which the
Company may maintain or establish for its executives on the terms of such plan
and the awards thereunder.  Currently, the
Company maintains a Short Term Incentive Bonus Plan (“STIB Plan”).  You will be eligible to participate in the
STIB Plan effective 1 October 2007 with a Bonus Percent of 40 percent and subject
to other terms of the STIB Plan, as may be amended.  In lieu of participating in the FY2007 STIB
Plan, you have received a bonus payment in September 2007 in the amount of
$88,700.  On the appropriate future date
or dates consistent with the STIB Plan and awards thereunder, you will be paid
any banked bonus amounts.

 

                (c)           Retention Bonus.  Conditioned upon your remaining continuously
employed as CFO through 31 December 2008 and that you perform your duties in a
manner acceptable to the CEO, you will be paid a retention bonus amount of
$90,000 (less taxes and applicable withholdings) in the first full pay period
of January 2009.

 

                (d)           Long Term Incentives.  During the CFO Service Period, you shall be
eligible to participate in future long term incentive programs which the
Company may establish for its executives, on the terms of such programs and
grants thereunder.

 

                (e)           Section 401(k) Plan and ESPP. During the CFO Service Period, you will be eligible to
participate in the Company’s 401(k) Plan and Employee Stock Purchase Plan, subject
to the terms of those plans.

 

                (f)            Health,
Welfare, and other Benefits.  Subject
to the terms of such other plans, you shall be eligible to receive through the
Separation Date such other benefits or rights as may be provided under any
employee benefit plans provided by the Company to its executives that are now
or hereafter will be in effect, including participation in life, medical,
disability, and dental insurance plans, and participation in the Company
Vehicle Policy.

 

 

2

 

 

                (g)           Extended
Medical Benefit.  Conditioned
upon your remaining continuously employed as CFO through 30 September 2010
(provided that this condition shall not apply in the case of termination
without Cause or for Good Reason if Section 3(i)(2) is applicable), you and
your spouse (Paula Stewart) will be eligible to participate in the medical
benefit plan provided by the Company to its regular, full-time executives through
the dates that you and your spouse individually become eligible for federal
Medicare, at the Company’s regular level of expense contribution.  Each year at open enrollment, you will be
notified of changes in medical plan benefits and you will be given the same election
options available to the Company’s regular, full-time executives.  The foregoing extended medical benefit shall
begin after the termination of COBRA benefits following the Separation Date. During
the COBRA period, all COBRA premiums will be paid by the Company.  The Company will be responsible to pay the
cost of your participation and your spouse’s participation in the extended
medical benefit plan through the date that you become eligible for Medicare
benefits.  You will be responsible to pay
the cost of your spouse’s participation after the date that you become eligible
for Medicare benefits.  The benefits
provided by the Company under this provision will be reported on Form W-2 or
Form 1099, as applicable, and you will be responsible for any associated tax
obligation.  If for any reason, the
Company ceases to offer medical benefits to its regular, full-time executives,
the Company shall be under no obligation to continue the foregoing extended
medical benefit to you or your spouse.  In
such case, the Company shall pay you a lump sum payment equal to the fair value
of the Company’s past level of expense contribution for benefits that you would
have received, but not more than $50,000.

 

                (h)           Vacation and Sick Leave.  You shall be entitled to four weeks paid
vacation plus sick leave on the same basis as all other executives of the
Company in accordance with the terms and conditions of the Company’s vacation
and sick leave policies.

 

                (i)            Termination and
Change in Control.

 

                                (1)           Termination for any Reason.  In the event that your employment with the
Company is terminated for any reason (including Cause, as defined in section
3(j)(1) below), then you (or your estate, if applicable) shall be entitled to
payment of your accrued but unpaid salary and vacation pay through the date of
the termination of your employment.

 

                                (2)           Termination Without Cause or for Good
Reason.   In the event that
your employment is terminated by the Company without Cause or is terminated by
you for a Good Reason prior to the Separation Date and no later than six months
following the initial existence of the condition constituting Good Reason,
then, provided that you execute and deliver within 45 days of termination an
effective release in a form to be provided by the Company with terms
substantially as set forth in the attached Exhibit A, you shall be entitled to:

 

(A)                          continued
participation in the medical benefit plan provided by the Company to its
executives then in effect as provided in section 3(g) above;

 

 

3

 

(B)           payment in a lump sum 60 days
following termination of the product of two multiplied by the sum of:

                                                                                (i)            your annual base salary at the rate
in effect as of your termination of employment, or, if higher, the highest rate
in effect during the two-year period prior to the date of termination, and

                                                                                (ii)           the highest amount of any additional
cash incentive compensation, including but not limited to any sums awarded
under the Company’s STIB Plan (or any replacement or successor plans), awarded
to you for either (but not both) of the two preceding fiscal years most
recently ended.

                (C)           the continued use for sixty days of the Company vehicle on
similar terms.

                                (3)           Change
in Control.   The Company will
enter into a change in control agreement with you effective as of the CFO Start
Date, which agreement is incorporated by reference.  In the event you become eligible to receive
the severance payments and benefits under the change in control agreement, such
as in the event your employment with the Company is terminated within the
protection period prior to and following a “Change in Control” as defined in
the change in control agreement, then any severance payments and benefits to be
provided to you by the Company shall be made under the change in control
agreement in lieu of severance payments and benefits under this Agreement, except
that upon a Change in Control, you will be entitled to the extended medical
benefit provided under section 3(g) above, notwithstanding anything in the
change in control agreement to the contrary, and the provisions of the change
in control agreement pertaining to the your employment and post-termination
covenants and arbitration as provided in the change in control agreement shall
apply to you instead of the provisions herein pertaining to your employment and
post-termination covenants and arbitration set forth in Sections 5 and 9,
respectively.

 

                (j)            Definitions.

 

                As
used in this Agreement, the following terms shall have the meanings set forth
below:

 

                                (1)           “Cause”
shall mean:

 

                                                (i)            your engaging in willful misconduct
against the Company that is materially injurious to the Company; provided that
any action undertaken with a reasonable and good faith belief that it is in the
best interests of the Company shall not constitute willful misconduct for
purposes of this clause (i).

 

                                                (ii)           your engaging in any activity that is
a conflict of interest or competitive with the Company;

 

 

4

 

 

                                                (iii)          your engaging in any act of fraud or
dishonesty that is materially injurious to the Company or any of their subsidiaries
or any material breach of federal or state securities or commodities laws or
regulations;

 

                                                (iv)          your engaging in an act of assault or
other acts of violence in the workplace;

 

                                                (v)           your harassment of any individual in
the workplace based on age, gender, or other protected status or class or
violation of any policy of the Company regarding harassment;  or

 

                                                (vi)          your conviction, guilty plea or plea
of nolo contendre for any felony crime.

 

Provided, that upon the CEO or General
Counsel of the Company obtaining knowledge of any of the foregoing conditions,
the Company must provide written notice to you of the existence of any of the
foregoing conditions (i) through (vi) within 60 days of the knowledge of the
existence of the condition, and if you have the ability and in fact cure the
condition and harm caused thereby within thirty (30) days following the written
notice, Cause shall be deemed not to exist.

 

                                (2)             “Good Reason”  shall mean any
one of the following without your consent:

 

                                                (i)            a demotion or any action by the
Company which results in material diminution of your position, reporting
relationship, authority, duties or responsibilities (other than changes
permitted by this Agreement or any insubstantial action not taken in bad
faith);

 

                                                (ii)           requirement that you report to work
more than 50 miles from the Company’s existing headquarters (not including
normal business travel required of your position);

 

                                                (iii)          a material reduction in your base
salary or benefits (unless, in the case of a reduction in benefits only, such
reduction in benefits applies generally to executives of the Company, and not including
changes permitted by this Agreement or otherwise resulting from your change in
position upon the Transition Date pursuant to this Agreement); or

 

                                                (iv)          a material breach by the Company of
its obligations hereunder.

 

Provided, that you must provide written
notice to the Board of the existence of any of the foregoing conditions (i)
through (iv) within 60 days of the initial existence of the condition, and if
the Company cures the condition within thirty (30) days following the written
notice, Good Reason shall be deemed not to exist.

 

 

5

 

 

 

4.             Code Section 409A Compliance.

 

                (a)           To the
fullest extent applicable, amounts and other benefits payable under this
Agreement, and amounts and benefits payable under any other agreements or plans
referenced in this Agreement are intended to be exempt from the definition of “nonqualified
deferred compensation” under Section 409A of the Internal Revenue Code in
accordance with one or more of the exemptions available under the final
Treasury regulations promulgated under Section 409A.  In
this regard, each payment under this Agreement, including without limitation,
each payment other than a life annuity (within the meaning of Treasury
Regulation Section 1.409A-2(b)(2)(ii)) in a series of scheduled installments
(within the meaning of Treasury Regulation Section 1.409A-2(b)(2)(iii)), shall
be deemed a separate payment for purposes of Code Section 409A.  To the extent that any such amount or
benefit is or becomes subject to Section 409A due to a failure to qualify for
an exemption from the definition of nonqualified deferred compensation in
accordance with such final Treasury regulations, this Agreement is intended to
comply with the applicable  requirements
of Section 409A with respect to such amounts or benefits.   This Agreement shall be interpreted and
administered to the extent possible in a manner consistent with the foregoing
statement of intent.

 

                (b)           Notwithstanding anything in this
Agreement or elsewhere to the contrary, if you are a “specified employee” as
determined by the Company’s Compensation Committee on the date of termination
of employment within the meaning of Code Section 409A, and the Company
reasonably determines that any amount or other benefit payable under this
Agreement, including Transition Period compensation and benefits, on account of
your termination of employment constitutes nonqualified deferred compensation
that will subject  you to “additional tax”
under Section 409A(a)(1)(B) of the Code (together with any interest or
penalties imposed with respect to, or in connection with, such tax, a “409A Tax”)
with respect to the payment of such amount or the provision of such benefit if
paid or provided at the time specified in the Agreement, then the payment or
provision thereof shall be postponed to the first business day of the seventh
month following the date of termination or, if earlier, the date of your death
(the “Delayed Payment Date”). You and the Company may agree to take other
actions to avoid the imposition of a 409A Tax at such time and in such manner
as permitted under Section 409A.  In the event that this Section 4 requires a
delay of any payment, such payment shall be accumulated and paid in a single
lump sum on the Delayed Payment Date.  In addition, the provisions of this Agreement
which require the commencement of payments subject to Section 409A upon a
termination of employment shall be interpreted to require that you have a “separation
from service” with the Company as defined for purposes of Code Section 409A.

 

5.             Employment and Post
Termination Covenants.   By
accepting the terms of this Agreement and as a condition for the termination
payments and benefits you hereby agree to the following covenants in addition
to any obligations you may have by law and make the following representations:

 

 

6

 

 

                (a)           Confidentiality.  You acknowledge that, in connection with your
employment by the Company, you will have access to trade secrets of the Company
and its subsidiaries and other information and materials which the Company
desires to keep confidential, including customer lists, supplier lists,
financial statements, business records and data, marketing and business plans,
and information and materials relating to the Company’s services, products,
methods of operation, key personnel, proprietary software and other proprietary
intellectual property and information disclosed to the Company of third parties
to which the Company owes a duty of nondisclosure (collectively, the “Confidential
Information”); provided, however, that Confidential Information does not
include information which (i) is or becomes publicly known other than as a
result of your actions in violation of this Agreement; (ii) is or becomes
available to you from a source (other than the Company) that you reasonably
believe is not prohibited from disclosing such information to you by a
contractual or fiduciary obligation to the Company, (iii) has been made
available by the Company, directly or indirectly, to a non-affiliated third
party without obligation of confidentiality; (iv) you are obligated to produce
as a result of a court order or pursuant to governmental action or proceeding,
provided that you give the Company prompt written notice of such requirement
prior to such disclosure and assistance in obtaining an order protecting such
Confidential Information from public disclosure; or (v) business knowledge you
have acquired unrelated to any specific proprietary information relating to the
Company.  You covenant and agree that,
both during and after the term of your employment with the Company, you will
keep secret all Confidential Information and will not disclose, reveal, divulge
or otherwise make known any Confidential Information to any person (other than
the Company or its employees or agents in the course of performing you duties
hereunder) or use any Confidential Information for your own account or for the
benefit of any other individual or entity, except with the prior written consent
of the Company.

 

                (b)           Ownership of Intellectual
Property.  You agree that
all inventions, copyrightable material, software, formulas, trademarks, trade
secrets and the like which are developed or conceived by you in the course of
your employment by the Company or on the Company’s time or property
(collectively, the “Intellectual Property”) shall be disclosed promptly to the
Company and the Company shall own all right, title and interest in and to the
Intellectual Property.  The parties
expressly agree that any and all of the Intellectual Property developed by the
Employee shall be considered works made-for-hire for the Company pursuant to
the United States Copyright Act of 1976, as amended from time to time.  In order to ensure that the Company shall own
all right, title and interest in and to the Intellectual Property in the event
that any of the Intellectual Property is not deemed a work made-for-hire (as
defined in the Copyright Act of 1976) and in any other event, you hereby sell
and assign all right, title and interest in and to all such Intellectual
Property to the Company, and you covenant and agree to affix to the
Intellectual Property appropriate legends and copyright notices indicating the
Company’s ownership of all Intellectual Property and all underlying
documentation to the extent reasonably appropriate, and shall execute such
instruments of transfer, assignment, conveyance or confirmation as the Company
reasonably considers necessary to transfer, confirm, vest, perfect, maintain or
defend the Company’s right, title and interest in and to the Intellectual Property
throughout the world. Your obligation under this Section 4(b) to 

 

 

7

 

 

assign to the Company inventions created or
conceived by you shall not apply to an invention that you developed entirely on
your own time without using the Company’s equipment, supplies, facilities, or
trade secret information, provided that those inventions (i) do not or did not
relate directly, at the time of conception or reduction to practice of the
invention, to the Company’s business as conducted at such time or actual or
demonstrably anticipated research or development of the Company; and (ii) do
not or did not result from any work performed by you for the Company.

 

                (c)           Non-Solicitation. 
You agree for a period of not less than twenty four (24) months
following termination of your employment or service with the Company that you
shall not solicit the services or employment or engage the services or employ
any of the employees of the Company or its affiliated companies.

 

                (d)           Non-Competition.  For a period of 24 months following the termination of your
employment or service with the Company, you agree not to compete directly or
indirectly by becoming a principal, partner, shareholder, equity holder,
limited liability company member, agent, officer, other employee, advisor,
consultant, member of a board of directors, or by becoming interested in any
other capacity, with any business that competes with any activity of the Company
or its affiliates conducted at
any time during the two years prior to termination, or conducted during the six
months period following the termination, as a result of plans initiated prior
to such termination, including acquisitions.

 

                (e)           Authorization
to Work for the Company.  You
represent that you are legally authorized to work in the United States and that
your employment with the Company shall not constitute a violation of any
contractual or other legal obligation you may have to another entity or
employer.

 

                (f)            Breach
of Terms of Section 5.  The
parties to this Agreement agree that (i) if you breach the provisions set forth
in Sections 5, 7 and 9 of this Agreement, the damage to the Company may be
substantial, although difficult to ascertain, and money damages will not afford
the Company an adequate remedy, and (ii) if you are in breach of any provisions
of Sections 5 and 7 of this Agreement or threaten a breach of any provision of
Sections 5 and 7 of this Agreement, the Company shall be entitled, in
additional to all other rights and remedies as may be provided by law, to seek
specific performance and injunctive and other equitable relief to prevent or
restrain a breach of any provision of this Sections 5 and 7 of this Agreement.

 

6.             Business Expenses. 
You shall be entitled to reimbursement by the Company for such
customary, ordinary and necessary business expenses as are incurred by you in
the performance of your duties and activities associated with promoting or
maintaining the business of the Company. 
All expenses as described in this paragraph shall be reimbursed only
upon presentation by you of such documentation as may be reasonably necessary
to substantiate that all such expenses were incurred in the performance of your
duties in accordance with the Company’s policies.

 

 

8

 

 

7.             Return of Company Property.  On the Separation Date or as earlier
requested by the Company, you agree to return to the Company all Company
documents (and all copies thereof) and other Company property in your
possession or control, including, but not limited to, Company files,
correspondence, memos, notebooks, notes, drawings, records, business plans and
forecasts, financial information, specifications, computer-recorded
information, tangible property and equipment, credit cards, entry cards,
identification badges and keys; and any materials of any kind that contain or
embody any proprietary or confidential information of the Company (and all
reproductions thereof in whole or in part) (collectively, the “Company Property”).
You agree to conduct a good faith and diligent search of your belongings in
advance of the aforementioned deadline to ensure your compliance with the
provisions of this Section 7.

 

8.             Binding on Successors. 
This Agreement may be assigned by the Company to a successor by merger,
acquisition, consolidation or otherwise to the business formerly carried on by
the Company and shall be binding upon the Company and any entity which is a
successor by merger, acquisition, consolidation or otherwise to the business
formerly carried on by the Company, or an affiliate of any such entity, and
becomes your employer by reason of (or as the direct result of) any direct or
indirect sale or other disposition of the Company or substantially all of the
assets of the business currently carried on by the Company, without regard to
whether or not such person actively adopts this letter agreement.

 

9.             Arbitration.  The parties agree that any future disputes between you and
the Company under this Agreement including but not limited to disputes relating
to the Release of Claims shall be resolved by binding arbitration, except where
the law specifically forbids the use of arbitration as a final and binding
remedy as provided below, except as provided in Section 9(g) below.

 

                (a)           The
complainant shall provide the other party a written statement of the
claim.  Such statement shall identify any
supporting witnesses or documents and the relief requested.

 

                (b)           The
respondent shall furnish a statement of the relief, if any, that it is willing
to provide, and identifying supporting witnesses or documents.  If the matter is not resolved, the parties
agree to submit their dispute to a non-binding mediation paid for by the
Company, provided, however, that if the amount in dispute is $50,000 or less,
this step may be waived at the election of either party.

 

                (c)           If
the matter is not resolved, the parties agree that the dispute shall be
resolved by binding arbitration pursuant to the commercial arbitration rules of
the International Institute of Conflict Prevention and Resolution (“CPR”),
including any provisions thereof pertaining to discovery.  If the parties are not able to agree upon the
selection of an arbitrator, an arbitrator shall be selected according to the
applicable procedures established by the CPR.

 

 

9

 

 

                (d)           The
arbitrator shall have the authority to determine whether the conduct complained
of in Section 9(a) violates the complainant’s rights under this Agreement
and, if so, to grant any relief authorized by law; subject to the provisions of
Section 9(g) below.  The arbitrator shall
not have the authority to modify, change or refuse to enforce any lawful term
of this Agreement and the Release of Claims.

 

                (e)           The
Company shall pay for the arbitrator’s fees, while each party shall pay its own
attorneys’ fees.

 

                (f)            Arbitration
shall be the exclusive final remedy for any dispute between the parties under
this Agreement and disputes involving claims for discrimination or harassment
(such as claims under the Fair Employment and Housing Act, Title VII of the
Civil Rights Act of 1964, the Americans with Disabilities Act, or the Age
Discrimination in Employment Act), wrongful termination, breach of contract,
breach of public policy, physical or mental harm or distress or any other
disputes, and the parties agree that no dispute shall be submitted to
arbitration where the complainant has not complied with the preliminary steps
provided for in Sections 9(a) and (b) above.

 

                (g)           The
parties agree that the arbitration award shall be enforceable in any court
having jurisdiction to enforce this Agreement and Release of Claims, so long as
the arbitrator’s findings of fact are supported by substantial evidence on the
whole and the arbitrator has not made errors of law; however, either party may
bring an action in a court of competent jurisdiction, regarding or related to
matters involving the Company’s confidential, proprietary or trade secret information,
or regarding or related to inventions that you may claim to have developed
prior to or after joining the Company, seeking preliminary injunctive relief in
court to preserve the status quo or prevent irreparable injury before the
matter can be heard in arbitration.

 

                (h)           The arbitration shall be held at a
location within Salt Lake City, Utah unless the parties mutually agree to a
different location for the arbitration.

 

                (i)            In the event that the Company wishes
to contest or dispute a termination for Good Reason by you, it must give
written notice of such dispute within the ninety (90) calendar day period after
the date of your resignation.  If you wish
to contest or dispute a termination for Cause by the Company, or any failure to
make payments claimed to be due hereunder, you must give written notice of such
dispute within ninety (90) calendar days of receiving a Notice of
Termination.  You may, at either your or
the Company’s option, be suspended from all duties during the pendency of such
a contest or dispute.  If you prevail in
any such contest or dispute, the Company or its successor or assign shall
thereupon be liable for the full amounts due under Section 3 as of the date of
termination after adjustments for amounts already paid.

 

10.          Indemnification.  The Company has
entered into an indemnification agreement with you effective as of the CFO Start
Date, which agreement is incorporated by reference.

 

 

10

 

 

11.          Miscellaneous.

 

(a)           This Agreement constitutes the complete, final and
exclusive embodiment of the entire agreement between you and the Company with
regard to the terms and conditions of your employment with the Company and your
anticipated termination of employment. It is entered into without reliance on
any promise or representation, written or oral, other than those expressly
contained herein, and it supersedes any other such promises, warranties or
representations and any other written or oral statements concerning your rights
to any compensation, equity, or benefits from the Company, its predecessors or
successors in interest, including specifically, but not limited to, the
Transition Agreement.

 

(b)           Subject to the mandatory arbitration provided in Section 9
above, jurisdiction and venue in any action to enforce any arbitration award or
to enjoin any action that violates the terms of this Agreement shall be in the
state and federal courts serving the locality of Salt Lake City, Utah.

 

(c)           This Agreement may not be modified or amended except in a
writing signed by both you and a duly authorized officer of the Company. This
Agreement shall bind the heirs, personal representatives, successors and
assigns of both you and the Company, and inure to the benefit of both you and
the Company, their heirs, successors and assigns. If any provision of this
Agreement is determined to be invalid or unenforceable, in whole or in part,
this determination shall not affect any other provision of this Agreement and
the provision in question shall be modified by the court so as to be rendered
enforceable in a manner consistent with the intent of the parties insofar as
possible.  Headings and subheadings in
this Agreement are solely for convenience and do not constitute terms of this
Agreement.

 

(d)           This Agreement may be signed in counterparts and the
counterparts taken together shall constitute one agreement. Facsimile or
photocopied signatures shall be deemed as effective as original signatures.

 

(e)           This Agreement shall be deemed to have been entered into
and shall be construed and enforced in accordance with the laws of the State of
Utah irrespective of any conflicts of law analysis.

 

If this Agreement is acceptable to you,
please sign below and return the original, fully executed Agreement to Harlan
M. Hatfield, General Counsel.  A copy of
the Agreement is also being provided to you for your records.

 

 

11

 

 

I look forward to your future contributions
to the Company.

 

	
  Sincerely,

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  HEADWATERS INCORPORATED

  	
   

  	
  AGREED AND ACCEPTED:

  
	
   

  	
   

  	
   

  
	
      /s/
  Kirk A. Benson

  	
   

  	
      /s/
  Steven G. Stewart

  
	
  Kirk
  A. Benson

  	
   

  	
  Steven
  G. Stewart

  
	
  Chief Executive Officer

  	
   

  	
  Date: 10-26-07

  

 

 

12

 

 

EXHIBIT A

GENERAL
RELEASE LANGUAGE

 

Executive agrees, for himself, his spouse, heirs,
executor or administrator, assigns, insurers, attorneys and other persons or
entities acting or purporting to act on his behalf (the “Executive’s Parties”),
to irrevocably and unconditionally release, acquit and forever discharge the
Company, its parent, affiliates, subsidiaries, directors, officers, employees,
shareholders, partners, agents, representatives, predecessors, successors,
assigns, insurers, attorneys, benefit plans sponsored by the Company and said
plans’ fiduciaries, agents and trustees (the “Company’s Parties”), from any and
all actions, cause of action, suits, claims, obligations, liabilities, debts,
demands, contentions, damages, judgments, levies and executions of any kind,
whether in law or in equity, known or unknown, which the Executive’s Parties
have, have had, or may in the future claim to have against the Company’s
Parties by reason of, arising out of, related to, or resulting from Executive’s
employment with the Company or the termination thereof.  This release specifically includes without
limitation any claims arising in tort or contract, any claim based on wrongful
discharge, any claim based on breach of contract, any claim arising under
federal, state or local law prohibiting race, sex, age, religion, national
origin, handicap, disability or other forms of discrimination, any claim
arising under federal, state or local law concerning employment practices, and
any claim relating to compensation or benefits. 
This specifically includes, without limitation, any claim which the
Executive has or has had under Title VII of the Civil Rights Act of 1964, as
amended, the Age Discrimination in Employment Act, as amended, the Americans
With Disabilities Act, as amended, and the Employee Retirement Income Security Act
of 1974, as amended.  It is understood
and agreed that the waiver of benefits and claims contained in this section
does not include a waiver of the right to payment of any vested, nonforfeitable
benefits to which the Executive or a beneficiary of the Executive may be
entitled under the terms and provisions of any employee benefit plan of the
company which have accrued as of the separation date and does not include a
waiver of the right to benefits and payment of consideration to which Executive
may be entitled under this Agreement or any of the agreements contemplated
hereby (including the indemnification agreement and the stock option
agreements).  Executive acknowledges that
he is only entitled to the severance benefits and compensation set forth in
this Agreement, and that all other claims for any other benefits or
compensation are hereby waived, except those expressly stated in the preceding
sentence.

 

The Company agrees to irrevocably and unconditionally
release, acquit and forever discharge Executive from any and all actions, cause
of action, suits, claims, obligations, liabilities, debts, demands,
contentions, damages, judgments, levies and executions of any kind, whether in
law or in equity, known or unknown, which the Company has, has had, or may in
the future claim to have against the Executive, liability for which the Company
would otherwise be obligated to indemnify the Executive under Delaware law, the
Certificate of Incorporation of the Company, the bylaws of the Company, or the
Executive’s indemnification agreement with the Company by reason of, arising
out of, related to, or resulting from Executive’s employment with the Company
or the termination thereof (the “Company’s Release”), provided that (i)
Executive shall have 

 

 

13

 

 

acted in good faith and in a manner that Executive
reasonably believed to be in or not opposed to the best interest of the
Company, and shall not have engaged in willful misconduct or breach of an
agreement with the Company; and (ii) the Company’s Release shall not extend to
any acts or omissions of the Executive for which the Company would be
prohibited from indemnifying the Executive under Delaware Law,  the provisions of the Certificate of
Incorporation, or  the Bylaws of the
Company then in effect or which would excuse, negate, or invalidate the
obligations of the insurer under any director and officer liability policy
procured by the Company and covering the Executive.

 

 

14

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