Document:

ex10x2.htm

    Exhibit
10.2

     

    ASPENBIO
PHARMA, INC

    

    Warrant
To Purchase Common Stock

    

    Warrant
No.:                                                                                                                                          

    Number of
Shares of Common Stock:_____________

    Date of
Issuance: May 5, 2010 ("Issuance Date")

    

    AspenBio
Pharma, Inc., a Colorado corporation (the "Company"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, [INVESTOR NAME], the registered holder hereof or its
permitted assigns (the "Holder"), is entitled, subject
to the terms set forth below, to purchase from the Company, at the Exercise
Price (as defined below) then in effect, upon surrender of this Warrant to
Purchase Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the "Warrant"), at any time or
times on or after the date hereof (the “Exercisability Date”), but not
after 11:59 p.m., New York time, on the Expiration Date (as defined below),
[______________ (_____________)]1 fully paid
nonassessable shares of Common Stock (as defined below) (the "Warrant
Shares").  Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section
15.  This Warrant is the Warrant to purchase Common Stock (this
"Warrant") issued
pursuant to (i) Section 2 of that
certain Subscription Agreement (the “Subscription Agreement”),
dated as of April 30, 2010 (the "Subscription Date"), by and
between the Company and the Holder (the "Subscription Agreement") and
(ii) the Company’s Registration Statement on Form S-3 (File number 333-159249)
as amended (the “Registration
Statement”).

     

    1.  EXERCISE OF
WARRANT.

     

    (a) Mechanics of
Exercise.  Subject to the terms and conditions hereof, this
Warrant may be exercised by the Holder on any day on or after the Exercisability
Date, in whole or in part, by delivery of a written notice, in the form attached
hereto as Exhibit
A (the "Exercise
Notice"), of the Holder's election to exercise this Warrant. Within one
(1) Trading Day following an exercise of this Warrant as aforesaid, the Holder
shall deliver payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to which this
Warrant is being exercised (the "Aggregate Exercise Price") in
cash or by wire transfer of immediately available funds if the Holder did not
notify the Company in such Exercise Notice that such exercise was made pursuant
to a Cashless Exercise (as defined in Section
1(d)).  The Holder shall not be required to deliver the
original Warrant in order to effect an exercise hereunder.  Execution
and delivery of the Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original Warrant and
issuance of a new Warrant evidencing the right to purchase the remaining number
of Warrant Shares.  On or before the first (1st)
Business Day following the date on which the 

     

    
       

       

        
          

        

      

       

      
        
        

      

    

    
      
        	
                1

              	
                Insert
      a number of shares equal to 28.5% of the number of Common Shares purchased
      under the Subscription Agreement.

              

      

       

       

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    
      Company
has received the Exercise Notice (the Company shall transmit by facsimile an
acknowledgment of confirmation of receipt of the Exercise Notice to the Holder
and Corporate Stock Transfer, Inc. (the Company’s "Transfer
Agent").  On or before the third (3rd)
Business Day following the date on which the Company has received all of the
Exercise Notice (the "Share
Delivery Date"), the Company shall (X) provided that the Transfer Agent
is participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of Warrant Shares to which the Holder is entitled pursuant to
such exercise to the Holder's or its designee's balance account with DTC through
its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is
not participating in the DTC Fast Automated Securities Transfer Program, issue
and dispatch by overnight courier to the address as specified in the Exercise
Notice, a certificate, registered in the Company's share register in the name of
the Holder or its designee, for the number of shares of Common Stock to which
the Holder is entitled pursuant to such exercise.  Upon delivery of
the Exercise Notice, the Holder shall be deemed for all corporate purposes to
have become the holder of record of the Warrant Shares with respect to which
this Warrant has been exercised, irrespective of the date such Warrant Shares
are credited to the Holder's DTC account or the date of delivery of the
certificates evidencing such Warrant Shares, as the case may be.  If
this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the
number of Warrant Shares represented by this Warrant submitted for exercise is
greater than the number of Warrant Shares being acquired upon an exercise, then
the Company shall as soon as practicable and in no event later than three
Business Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d))
representing the right to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised.  No
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall be
rounded up to the nearest whole number.  The Company shall pay any and
all taxes which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.  Notwithstanding the
foregoing, except in the case where an exercise of this Warrant is validly made
pursuant to a Cashless Exercise (as defined in Section 1(d)), the Company’s
failure to deliver Warrant Shares to the Holder on or prior to the second
(2nd)
Trading Day after the Company’s receipt of the Aggregate Exercise Price shall
not be deemed to be a breach of this Warrant.

    

     

    (b) Exercise
Price.  For purposes of this Warrant, "Exercise Price" means $4.82,
subject to adjustment as provided herein.

     

    (c) Company's Failure to Timely
Deliver Securities.  If the Company shall fail, for any reason
or for no reason, to issue to the Holder within the later of (i) three (3)
Trading Days after receipt of the applicable Exercise Notice and (ii) two (2)
Trading Days after the Company’s receipt of the Aggregate Exercise Price (or
valid notice of a Cashless Exercise) (such later date, the “Share Delivery Deadline”), a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company's share
register or to credit the Holder's balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder's
exercise of this Warrant, and if on or after such Share Delivery Deadline the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of shares of Common
Stock issuable upon such exercise that the Holder anticipated receiving from the
Company (a "Buy-In"),
then the Company shall, within three (3) Business Days after the Holder's
request and in the Holder's discretion, either (i) pay cash to the Holder in an
amount equal to the Holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the "Buy-In Price"), at which
point the Company's obligation to deliver such certificate (and to issue such
Warrant Shares) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such Warrant
Shares and pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) the Closing Bid Price on the date of exercise.

     

    (d) Cashless Exercise.
 Notwithstanding
anything contained herein to the contrary, if a registration statement covering
the Warrant Shares that are the subject of the Exercise Notice (the "Unavailable Warrant Shares"),
or an exemption from registration, is not
available for the resale of such Unavailable Warrant Shares, the Holder may, in
its sole discretion, exercise this Warrant in whole or in part and, in lieu of
making the cash payment otherwise contemplated to be made to the Company upon
such exercise in payment of the Aggregate Exercise Price, elect instead to
receive upon such exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "Cashless
Exercise"):

    
    

     

    
      	 	Net Number
    =	(A x B) - (A x
      C)	 
	 	 	B	 

    

    
       

      
        	 	

                For
      purposes of the foregoing formula:

              
	 	 	 	 

      

      
        
          	 	A= the total number
      of shares with respect to which this Warrant is then being
      exercised.
	 	 	 	 

        

        
          
            	 	

                    
                      B=
      the arithmetic average of the Closing Sale Prices of the shares of Common
      Stock for the five (5) consecutive Trading Days ending on the date
      immediately preceding the date of the Exercise
    Notice.

                    

                  
	 	 	 	 

          

        

      

    

    
      
        
          	 	

                  
                    

                      C=
      the Exercise Price then in effect for the applicable Warrant Shares at the
      time of such exercise.

                    

                  

                
	 	 	 	 

        

      

       

    

    (e) Rule
144.  For purposes of Rule 144 promulgated under the Securities
Act, as in effect on the date hereof, it is intended that the Warrant Shares
issued in a Cashless Exercise shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Subscription Agreement.

     

    (f) Disputes.  In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed.

     

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (g)  Beneficial
Ownership.  The Company shall not effect the exercise of this
Warrant, and the Holder shall not have the right to exercise this Warrant, to
the extent that after giving effect to such exercise, such Person (together with
such Person's affiliates) would beneficially own in excess of 4.99% (the "Maximum Percentage") of the
shares of Common Stock outstanding immediately after giving effect to such
exercise.  For purposes of the foregoing sentence, the aggregate
number of shares of Common Stock beneficially owned by such Person and its
affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude shares of Common Stock which would be
issuable upon (i) exercise of the remaining, unexercised portion of this Warrant
beneficially owned by such Person and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company beneficially owned by such Person and its affiliates (including,
without limitation, any convertible notes or convertible preferred stock or
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein.  Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.  For purposes of this Warrant, in determining the
number of outstanding shares of Common Stock, the Holder may rely on the number
of outstanding shares of Common Stock as reflected in (1) the Company's most
recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing
with the Securities and Exchange Commission, as the case may be, (2) a more
recent public announcement by the Company or (3) any other notice by the Company
or the Transfer Agent setting forth the number of shares of Common Stock
outstanding.  For any reason at any time, upon the written or oral
request of the Holder, the Company shall within two (2) Business Days confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding.  In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Warrant, by the Holder and its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.  By written notice to the Company, the
Holder may from time to time increase or decrease the Maximum Percentage to any
other percentage not in excess of 9.99% specified in such notice; provided that (i) any such
increase will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company, and (ii) any such increase or
decrease will apply only to the Holder.  The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 1(h) to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended beneficial ownership limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation.

     

    2.  ADJUSTMENT OF EXERCISE PRICE
AND NUMBER OF WARRANT SHARES.  The Exercise Price and the
number of Warrant Shares shall be adjusted from time to time as
follows:

     

    (a) Adjustment upon Subdivision
or Combination of Common Stock.  If the Company at any time on
or after the Subscription Date subdivides (by any stock split, stock dividend,
recapitalization, reorganization, scheme, arrangement or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased.  If the Company at any time on or after the
Subscription Date combines (by any stock split, stock dividend,
recapitalization, reorganization, scheme, arrangement or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination will
be proportionately increased and the number of Warrant Shares will be
proportionately decreased.  Any adjustment under this Section 2(a) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) Other
Events.  If any event occurs of the type contemplated by the
provisions of this Section 2 but not
expressly provided for by such provisions (including, without limitation, the
granting of stock appreciation rights, phantom stock rights or other rights with
equity features), then the Company's Board of Directors will make an appropriate
adjustment in the Exercise Price and the number of Warrant Shares so as to
protect the rights of the Holder; provided that no such adjustment pursuant to
this Section
2(b) will increase the Exercise Price or decrease the number of Warrant
Shares as otherwise determined pursuant to this Section
2.

     

    3.  RIGHTS UPON DISTRIBUTION OF
ASSETS.  If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"), at any time
after the issuance of this Warrant, then, in each such case:

     

    (a) any
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution shall be reduced, effective as of the close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid
Price of the shares of Common Stock on the Trading Day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company's Board of Directors) applicable to one share of Common
Stock, and (ii) the denominator shall be the Closing Bid Price of the shares of
Common Stock on the Trading Day immediately preceding such record date;
and

     

    (b) the
number of Warrant Shares shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of shares of
Common Stock entitled to receive the Distribution multiplied by the reciprocal
of the fraction set forth in the immediately preceding paragraph (a); provided that in the event
that the Distribution is of shares of Common Stock (or common stock) ("Other Shares of Common Stock")
of a company whose common shares are traded on a national securities exchange or
a national automated quotation system, then the Holder may elect to receive a
warrant to purchase Other Shares of Common Stock in lieu of an increase in the
number of Warrant Shares, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the number of shares
of Other Shares of Common Stock that would have been payable to the Holder
pursuant to the Distribution had the Holder exercised this Warrant immediately
prior to such record date and with an aggregate exercise price equal to the
product of the amount by which the exercise price of this Warrant was decreased
with respect to the Distribution pursuant to the terms of the immediately
preceding paragraph (a) and the number of Warrant Shares calculated in
accordance with the first part of this paragraph (b).

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4.  PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS.

     

    (a) Purchase
Rights.  In addition to any adjustments pursuant to Section 2 above, if
at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of shares of Common Stock (the
"Purchase Rights"), then
the Holder will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Warrant (without regard to any limitations on the
exercise of this Warrant) immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of shares of Common Stock are
to be determined for the grant, issue or sale of such Purchase
Rights.

     

    (b) Fundamental
Transactions.  The Company shall not enter into or be party to
a Fundamental Transaction unless the Successor Entity assumes this Warrant in
accordance with the provisions of this Section (4)(b),
including agreements to deliver to each holder of Warrants in exchange for such
Warrants a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant, including, without
limitation, an adjusted exercise price equal to the value for the shares of
Common Stock reflected by the terms of such Fundamental Transaction, and
exercisable for a corresponding number of shares of capital stock equivalent to
the shares of Common Stock acquirable and receivable upon exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
prior to such Fundamental Transaction, and satisfactory to the
Holder.  Upon the occurrence of any Fundamental Transaction, the
Successor Entity shall succeed to, and be substituted for (so that from and
after the date of such Fundamental Transaction, the provisions of this Warrant
referring to the “Company” shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant with the same effect as if such
Successor Entity had been named as the Company herein. Notwithstanding the
foregoing, and without limiting Section 9, hereof,
the Holder may elect, at its sole option, by delivery of written notice to the
Company to waive this Section 4(b) to
permit the Fundamental Transaction without the assumption of this
Warrant.  In addition to and not in substitution for any other rights
hereunder, prior to the consummation of any Fundamental Transaction pursuant to
which holders of shares of Common Stock are entitled to receive securities or
other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company
shall make appropriate provision to insure that the Holder will thereafter have
the right to receive upon an exercise of this Warrant at any time after the
consummation of the Fundamental Transaction but prior to the Expiration Date, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property) purchasable upon the exercise of the Warrant prior to such
Fundamental Transaction, such shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had the Warrant been exercised immediately prior
to such Fundamental Transaction.  If holders of Common Stock are given
any choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Holder shall be given the same choice as to
the consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction.   The provisions of this Section 4 shall apply
similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied without regard to any limitations on the exercise of
this Warrant.  Notwithstanding the foregoing, in the event of a
Fundamental Transaction, at the request of the Holder delivered before the 90th
day after such Fundamental Transaction, the Company (or the Successor Entity)
shall purchase this Warrant from the Holder by paying to the Holder, within five
Business Days after such request (or, if later, on the effective date of the
Fundamental Transaction), cash in an amount equal to the Black Scholes Value of
the remaining unexercised portion of this Warrant on the date of such
Fundamental Transaction.

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5. NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Articles of Incorporation, as amended, Amended and Restated Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder.  Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares
of Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock upon the exercise of this Warrant,
and (iii) shall, so long as this Warrant is outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, 100% of the number of shares of Common Stock issuable upon exercise of
this Warrant then outstanding (without regard to any limitations on
exercise).

     

    6.  WARRANT HOLDER NOT DEEMED A
STOCKHOLDER.  Except as otherwise specifically provided herein,
the Holder, solely in such Person's capacity as a holder of this Warrant, shall
not be entitled to vote or receive dividends or be deemed the holder of share
capital of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the Holder, solely in such Person's capacity
as the Holder of this Warrant, any of the rights of a stockholder of the Company
or any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which such Person is then entitled to receive upon the due
exercise of this Warrant.  In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on the Holder to purchase
any securities (upon exercise of this Warrant or otherwise) or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company.

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    7.  REISSUANCE OF
WARRANTS.

     

    (a) Transfer of
Warrant.  If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)),
registered as the Holder may request, representing the right to purchase the
number of Warrant Shares being transferred by the Holder and, if less then the
total number of Warrant Shares then underlying this Warrant is being
transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being
transferred.

     

    (b) Lost, Stolen or Mutilated
Warrant.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section
7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

     

    (c) Exchangeable for Multiple
Warrants.  This Warrant is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Warrant
or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.

     

    (d) Issuance of New
Warrants.  Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the
Warrant Shares designated by the Holder which, when added to the number of
shares of Common Stock underlying the other new Warrants issued in connection
with such issuance, does not exceed the number of Warrant Shares then underlying
this Warrant), (iii) shall have an issuance date, as indicated on the face of
such new Warrant which is the same as the Issuance Date, and (iv) shall have the
same rights and conditions as this Warrant.

     

    8.  NOTICES.  Whenever
notice is required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with Section 7 of Annex I
to the Subscription Agreement.  The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Warrant,
including in reasonable detail a description of such action and the reason
therefore.

     

    9.  AMENDMENT AND
WAIVER.  Except as otherwise provided herein, the provisions of
this Warrant may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Holder.

     

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    10.  GOVERNING
LAW.  This Warrant shall be governed by and construed and
enforced in accor­dance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant shall be governed by,
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.

     

    11.  CONSTRUCTION;
HEADINGS.  This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any person as
the drafter hereof.  The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant.

     

    12.  DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within two (2) Business Days of receipt of the Exercise Notice giving
rise to such dispute, as the case may be, to the Holder.  If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two (2) Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent, outside accountant.  The Company shall
cause at its expense the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
Holder of the results no later than ten Business Days from the time it receives
the disputed determinations or calculations.  Such investment bank's
or accountant's determination or calculation, as the case may be, shall be
binding upon all parties absent demonstrable error.

     

    13.  REMEDIES, OTHER OBLIGATIONS,
BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this
Warrant shall be cumulative and in addition to all other remedies available
under this Warrant, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
right of the Holder to pursue actual damages for any failure by the Company to
comply with the terms of this Warrant.

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    14.  TRANSFER.  This
Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company.

     

    15.  CERTAIN
DEFINITIONS.  For purposes of this Warrant, the following terms
shall have the following meanings:

     

    (a) "Black Scholes Value" means the
value of this Warrant based on the Black and Scholes Option Pricing Model
obtained from the "OV" function on Bloomberg using (i) a price per share of
Common Stock equal to the Weighted Average Price of the Common Stock for the
Trading Day immediately preceding the date of consummation of the
applicable  Fundamental Transaction, (ii) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of this Warrant as of the date of consummation of the applicable Fundamental
Transaction and (iii) an expected volatility equal to the ninety (90) day
volatility obtained from the HVT function on Bloomberg determined as of the
Trading Day immediately following the public announcement of the applicable
Fundamental Transaction.

     

    (b) "Bloomberg" means Bloomberg
Financial Markets.

     

    (c) "Business Day" means any day
other than Saturday, Sunday or other day on which commercial banks in The City
of New York are authorized or required by law to remain closed.

     

    (d) "Change of Control" means any
Fundamental Transaction other than (A) any reorganization, recapitalization or
reclassification of the Common Stock, in which holders of the Company's voting
power immediately prior to such reorganization, recapitalization or
reclassification continue after such reorganization, recapitalization or
reclassification to hold publicly traded securities and, directly or indirectly,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities, or (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.

     

    (e) "Closing Bid Price" and "Closing Sale Price" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or the last trade price,
respectively, of such security prior to 4:00:00 p.m., New York time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing bid price or last
trade price, respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.).  If the Closing Bid Price or the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Closing Bid Price or the Closing Sale Price, as the case may be, of such
security on such date shall be the fair market value as mutually determined by
the Company and the Holder.  All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation period.

     

    (f) "Common Stock" means
(i) the Company's shares of Common Stock, no par value per share, and
(ii) any share capital into which such Common Stock shall have been changed
or any share capital resulting from a reclassification of such Common
Stock.

     

    (g)  "Convertible Securities" means
any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for shares of Common Stock.

     

    (h) "Eligible Market" means the
Principal Market, The New York Stock Exchange, Inc., The American Stock
Exchange, The NASDAQ Global Select Market or The NASDAQ Capital
Market.

     

    (i) "Expiration Date" means the
date that is eight (8) months following the Date of Issuance or, if such date
falls on a day other than a Business Day or on which trading does not take place
on the Principal Market (a "Holiday"), the next date that
is not a Holiday.

     

    (j) "Fundamental Transaction" means
that the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person, or (ii) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or
assets of the Company to another Person, or (iii) allow another Person to make a
purchase, tender or exchange offer that is accepted by the holders of more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the Person or Persons making or party to, or associated or
affiliated with the Persons making or party to, such purchase, tender or
exchange offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or
party to, such stock purchase agreement or other business combination), (v)
reorganize, recapitalize or reclassify its Common Stock, or (vi) any "person" or
"group" (as these terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act) is or shall become the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Common
Stock.

     

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

     

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (l) "Parent Entity" of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

     

    (m) "Person" means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

     

    (n) "Principal Market" means The
NASDAQ Capital Market.

     

    (o) "Successor Entity" means the
Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting
from or surviving any Fundamental Transaction or the Person (or, if so elected
by the Holder, the Parent Entity) with which such Fundamental Transaction shall
have been entered into.

     

    (p) "Trading Day" means any day on
which the Common Stock are traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock are
then traded; provided
that "Trading Day" shall not include any day on which the Common Stock are
scheduled to trade on such exchange or market for less than 4.5 hours or any day
that the Common Stock are suspended from trading during the final hour of
trading on such exchange or market (or if such exchange or market does not
designate in advance the closing time of trading on such exchange or market,
then during the hour ending at 4:00:00 p.m., New York time).

     

    (q) "Weighted Average Price" means,
for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market during the period beginning at 9:30:01
a.m., New York City time, and ending at 4:00:00 p.m., New York City time, as
reported by Bloomberg through its "Volume at Price" function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York City time,
and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg, or, if
no dollar volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid price and the
lowest closing ask price of any of the market makers for such security as
reported in the "pink sheets" by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.).  If the Weighted Average Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Weighted Average Price of such security on such date shall be the fair market
value as mutually determined by the Company and the Holder.  If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 12 with the
term "Weighted Average Price" being substituted for the term "Exercise Price."
All such determinations shall be appropriately adjusted for any share dividend,
share split or other similar transaction during such period.

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    [Signature
Page Follows]

     

     

     

     

     

     

     

     

     

     

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     IN WITNESS WHEREOF, the
Company has caused this Warrant to Purchase Common Stock to be duly executed as
of the Issuance Date set out above.

     

     

    
      
        	 	
                ASPENBIO PHARMA,
      INC.

                 

                 

                 

              
	 	By:	 
	 	Name:	 
	 	Title:	 

      

       

    

     

     

     

     

     

     

     

     

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     EXHIBIT
A

    

    EXERCISE
NOTICE

    TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

    WARRANT
TO PURCHASE COMMON STOCK

    

    ASPENBIO
PHARMA, INC.

    The undersigned holder hereby exercises
the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of AspenBio
Pharma, Inc., a Colorado corporation (the "Company"), evidenced by the
attached Warrant to Purchase Common Stock (the "Warrant").  Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant.

    

    1.  Form of Exercise
Price.  The Holder intends that payment of the Exercise Price shall be
made as:

    

    
      	
               
      

            	
              ____________

            	
              a
      "Cash
      Exercise" with respect to _________________ Warrant Shares;
      and/or

            

    

    

    
      	
               
      

            	
              ____________

            	
              a
      "Cashless
      Exercise" with respect to ______________ Warrant
      Shares.

            

    

    

    2.  Payment of Exercise
Price.  In the event that the holder has elected a Cash Exercise with
respect to some or all of the Warrant Shares to be issued pursuant hereto, the
holder shall pay the Aggregate Exercise Price in the sum of $___________________
to the Company in accordance with the terms of the Warrant.

    

    3.  Delivery of Warrant
Shares.  The Company shall deliver to the holder __________ Warrant
Shares in accordance with the terms of the Warrant.

    

    Date:
_______________ __, ______

     

     

    

     

    
      	 	 
	Name of Registered
      Holder	 

    

     

       

    

     

    
      	By:	 	 	 
	 	Name:	 	 
	 	Title:	 	 

    

     

           

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    ACKNOWLEDGMENT

    

    

    The Company hereby acknowledges this
Exercise Notice and hereby directs Corporate Stock Transfer, Inc., its “Transfer
Agent” to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated [____], 201[_] from the
Company and acknowledged and agreed to by Corporate Stock Transfer,
Inc.

     

     

     

    
      
        ASPENBIO
PHARMA, INC.

       

      
        
          	 	By:	 
	 	 	Name:
	 	 	Title:gnba10q20081231ex10-1.htm

    Exhibit 10.1

    
      

      

    

    Execution
Version

     

     

    NOTE
PURCHASE AGREEMENT

     

    This NOTE
PURCHASE AGREEMENT is made as of October 9, 2008, by and among GROEN BROTHERS AVIATION, INC., a Utah corporation (the “Company”), and the lenders
appearing on the signature pages hereto (each a “Lender” and collectively,
the “Lenders”).

     

    WHEREAS, the Company desires to
issue and the undersigned Lenders desire to purchase from time to time secured
promissory notes on the terms set forth herein.

     

    NOW, THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:

     

    1.           PURCHASE
AND SALE OF NOTES; CLOSING.

     

    1.1           Note Purchase.  Subject
to the terms and conditions of this Agreement, the Company agrees from time to
time to sell to each Lender and each Lender severally agrees from time to time
to purchase from the Company at one or more Closings (as defined below), Secured
Promissory Notes in the form attached to this Agreement as Exhibit A (individually a
“Note” and collectively
the “Notes”) in the aggregate
principal amounts of up to one million five hundred thousand dollars
($1,500,000) (the “Aggregate Principal Amount”).  Capitalized
terms not otherwise defined herein shall have the meaning set forth in the form
of Note.

     

    1.2           Closing.  Subject
to the terms and conditions of this Agreement, the purchase and sale of the
Notes shall take place at the offices of the Company (or remotely via the
exchange of facsimile signature pages), at closings (each, a “Closing” and,
together with all such closings hereunder, the “Closings”) to be
held on dates mutually agreeable to the Company and the Lender; provided, however, that (i) the Company will
provide to the Lender a Draw Notice (as defined below) at least five (5)
business
days prior to any proposed sale of a Note, (ii) the aggregate principle amount
of the Notes issued hereunder will not exceed one million five hundred thousand
dollars ($1,500,000), and (iii) each purchase of a Note
will be at the sole and absolute discretion of each Lender and will be in
allocations among the Lenders
as determined by the Lenders in their sole discretions.  Each such
notice (a “Draw Notice”) must be given in
writing (by telecopy, electronic transmission or overnight courier) and shall
include the principal loan amount requested, the specific intended use of
proceeds, the proposed Closing date, and additional information required under
Section 3 hereof. At each Closing, each Lender will deliver to the Company an
amount equal to the principal amount of the Note being purchased by such Lender
by (i) a check payable to the Company’s order, (ii) wire transfer of funds to
the Company, or (iii) any combination
of the foregoing.  At such Closing, the Company will deliver to each
Lender a duly executed Note in
substantially the form attached hereto as Exhibit A.

     

    1.3           Tax Reporting.  The
Company and the Lenders, having adverse interests and as a result of
arms-length bargaining, agree that (i) neither the Lenders nor any of their
respective officers, directors, representatives, partners, members or employees
has rendered or has agreed to render any services to the Company
in connection with this Agreement or the issuance of the Notes; and (ii) for the
purposes and within
the meaning of Section 1273(c)(2) of the Code the issue price of the Notes to be
sold at the Closing(s)
is the aggregate face value of such Notes.

     

    1.4           Use of Proceeds. The Company may
only use the proceeds from the sale of a particular Note for
the specific purposes set forth in the Draw Notice.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

    2.           REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.

     

    In order
to induce the Lenders to enter into this Agreement and consummate the
transactions contemplated hereby, the Company hereby makes to the Lenders the
following representations and warranties, which representations and warranties
shall be qualified as set forth on schedules of exceptions attached hereto (the
“Disclosure Schedules”), which exceptions
shall be deemed to qualify the corresponding sections of this Section 2 as
specifically set forth on the Disclosure Schedules:

     

    2.1           Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Utah and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in Utah
and in each other jurisdiction in which the failure so to qualify could
reasonably be expected to have a Material Adverse Effect. For purposes of this
agreement, “Material Adverse Effect” means any change,
development or effect that has been or would reasonably be expected to have
(individually or in the aggregate) a materially
adverse effect on the business, assets, liabilities, operations, financial
condition, operating results, or earnings of the Company or its subsidiaries
taken as a whole or on the ability of any party hereto to
consummate timely the transactions contemplated hereby.

     

    2.2           Capitalization. The authorized
capital stock of the Company consists of Seven Hundred Million (700,000,000)
shares of stock, no par value, of which Five Hundred Million (500,000,000)
shares are designated as Common Stock, and Two Hundred Million (200,000,000)
shares of which are designated Preferred Stock.  Of the authorized
shares of Preferred Stock, Fifty Million (50,000,000) shares have been
designated as Series A Preferred Stock and Fifty Million (50,000,000) shares
have been designated as Series B Preferred Stock.  As of the date
hereof, there are (i) 171,317,499 shares of Common Stock issued and outstanding;
(ii) 140,000 shares of Series A Preferred Stock issued and outstanding; (iii)
65,633.94 shares of Series B Preferred Stock issued and outstanding; (iv) no
shares of Series C Preferred Stock issued and outstanding; (v) no shares of
Series D Preferred Stock issued and outstanding; and (vi) except as set forth on
Schedule 2.2 attached hereto, no options to purchase Common Stock have been
issued and remain outstanding to employees, officers, directors or consultants
immediately prior to the Closing.  Except as contemplated under this
Agreement there are no other outstanding subscriptions, warrants, options,
rights or other commitments obligating the Company to issue or
sell any shares of capital stock and there are no claims, charges, liens or
encumbrances on, or in respect of, any shares of capital stock of the
Company.  Other than as set forth in the Restated Charter, the Company
is not a party or subject to any agreement or understanding, and to the
Company’s knowledge there is no agreement or understanding between any persons
or entities that affects or relates to the voting or giving of written consents
with respect to any security or by a director of the Company.  All
issued and outstanding shares of the capital stock of the Company are duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act of 1933, as amended (the “Securities Act”) and any relevant
state securities laws or pursuant to valid exemptions therefrom.  All
options granted to employees, officers, directors or consultants of the Company
have been granted in accordance with applicable law and the Company’s stock
option plan.

     

    2.3           Subsidiaries. The Company does
not own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity.  Each of the
Company’s subsidiaries is qualified to carry on its business under the laws of
each jurisdiction in which it carries on a material portion of its business. All
of the issued and outstanding shares of the Company’s subsidiaries are validly
issued as fully paid and non-assessable. The Company is, directly or indirectly,
the beneficial holder of all such
issued and outstanding shares and holds such shares with valid and marketable
title to the shares free and clear of any liens, pledges, charges, encumbrances,
security interests or other claims whatsoever (other
bank security), and no person, firm, corporation or other entity holds any
securities convertible or exchangeable into shares of any of the subsidiaries or
has any agreement, warrant, option, right or privilege (whether pre-emptive or
contractual) being or capable of becoming an agreement, warrant, option or right
or warrants of any of the subsidiaries. The Company is not a participant in any
joint venture, partnership or similar arrangement.

    

      
        
           

        

        
          -2-

          
            

          

        

        
           

        

      

    

     

    2.4           Authorization of Transaction Documents.  All
corporate action on the part of the Company, and its officers, directors and
stockholders necessary for the authorization, execution and delivery of this
Agreement, the Notes and the Security Agreement (the “Security Agreement”), the form of
which is attached as Exhibit B, and the
Intellectual Property Security Agreement (the “IP Security Agreement” and, together with
the Security Agreement, the “Security Agreements”), the form of
which is

    attached
hereto as Exhibit C, and all other
agreements and documents entered into in connection therewith (collectively,
the “Transaction Documents”), and the
performance of all obligations of the Company under each of the Transaction
Documents, has been taken or will be taken on the date hereof and/or at the
Closings
(as applicable). The Transaction Documents constitute valid and legally binding
obligations of the
Company, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors’ rights generally or by
equitable principles, (b) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (c) to
the extent that the enforceability of indemnification provisions may be limited
by applicable laws. The execution, delivery and performance by the Company of
the Transaction Documents and the consummation by the Company of the
transactions contemplated thereby and the fulfillment by the Company of the
terms thereof, do not and will not, directly or indirectly (with or without
notice or lapse of time), violate, breach, conflict with, constitute a default
under, result in the imposition of any lien or encumbrance upon any asset or
property of the Company pursuant to, or accelerate or permit the acceleration of
the performance required by, (x) any of the terms of the Restated Articles of
Incorporation of the Company, as amended (the “Restated Charter”) or Bylaws of the
Company, or any resolution adopted by the board of directors of the Company or
stockholders of the Company, (y) any note, debt instrument, security agreement,
mortgage or any other contract to which the Company is a party or by which it is
bound, or (z) any law, judgment, decree, order or other legal requirement of any
government authority applicable to the Company.

     

    2.5           Litigation.

     

    (a)           There
is no action, suit, proceeding, investigation or other legal, administrative, or
governmental proceeding pending or, to the Company’s knowledge, currently
threatened against the Company or affecting the properties or assets of the
Company, or, as to matters related to the Company, against any officer, director
or stockholder or key employee of the Company, including without limitation any
litigation that (a) questions the validity of the Transaction Documents or the
transactions contemplated
thereunder or the right of the Company to enter into the Transaction Documents
or to consummate the transactions contemplated thereby, (b) will have, either
individually or in the aggregate, a
Material Adverse Effect, (c) will result in any change in the current equity
ownership of the Company, or (d)
involves the prior employment of any of the Company’s employees, their use in
connection with the Company’s business of any information or techniques
allegedly proprietary to any of their former employers,
or their obligations under any agreements with prior employers. There is no
action, suit, proceeding
or investigation by the Company currently pending or that the Company intends to
initiate. No claim has been asserted in writing against the Company for
renegotiation or price redetermination of any business transaction.

    

    (b)           None
of the U.S. Securities and Exchange Commission, nor any other securities
commission or similar regulatory authority or exchange in Canada or the United
States has issued any order which is currently outstanding preventing or
suspending trading in any securities of the Company, and no
such proceeding is, to the knowledge of the Company, pending, contemplated or
threatened. The Company is not in default of any material requirement of
applicable securities laws and the Company is entitled to avail itself of the
applicable prospectus exemptions available under such applicable securities
laws.

    

    
      
        
           

        

        
          -3-

          
            

          

        

        
           

        

      

    

     

    2.6           Corporate Records. The corporate
record books of the Company accurately record all corporate action taken by its
stockholders, Board of Directors and committees thereof. The copies of the
corporate records of the Company, as made available to the Lenders for review,
are true and complete copies of the originals of such documents.

     

    2.7           Financial Statements; Activity Reports. The Company has
delivered to the Lenders its financial statements (including balance sheet) for
the nine-month period ended March 31, 2008 (collectively referred to as the
“Financial Statements”). The Financial
Statements have in all material respects been prepared in accordance with United
States generally accepted accounting principles (“GAAP”) applied on a
consistent basis throughout the periods indicated and with each other, except
that the Financial Statements may not contain all footnotes required by GAAP and
are subject to normal year end adjustments. The Financial Statements contain no
material misstatements and fairly present, in all material respects, the
financial condition and operating results of the Company as of the dates, and
for the periods, indicated therein.

     

    2.8           Absence of Undisclosed Liabilities.

     

    (a)           There
has not been any material change in the capital, assets, liabilities (absolute,
accrued, contingent or otherwise), obligations, business, operations, capital or
condition (financial or otherwise) of the Company and its subsidiaries (taken as
a whole) except as set forth in the Financial Statements. There has not been any
adverse material change in the capital, assets, liabilities (absolute, accrued,
contingent or otherwise), obligations, business, operations, capital or
condition (financial or otherwise) of the Company and its subsidiaries (taken as
a whole) since March 31, 2008 and since that date there have been no material
facts, transaction, events or occurrences which could have a Material Adverse
Effect.

     

    (b)           The
Company does not have any material liabilities or obligations of any nature,
whether accrued, absolute, contingent or otherwise, asserted or unasserted,
known or unknown (including, without limitation, liabilities for taxes due or to
become due, regardless of whether claims in respect thereof had been asserted as
of such date), other than (i) liabilities incurred in the ordinary course of
business of the Company subsequent to March 31, 2008 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under GAAP to be reflected in the Financial Statements, which, in both
cases, individually or in the aggregate are not material to the financial
condition or operating results of the Company.  The Company maintains
and will continue to maintain a standard system of accounting established and
administered in accordance with GAAP.

     

    2.9           Transactions with Affiliates.  To the
knowledge of the Company, no stockholder, director,
officer or employee of the Company, or any of their respective spouses or family
members, owns directly or indirectly on an individual or joint basis any
interest in, or serves as an officer or director, or in another similar
capacity, of any competitor, customer, distributor or supplier of the Company or
any organization which has a material contract or arrangement with the
Company.  No employee, officer, stockholder or director of the Company
or member of his or her immediate family is indebted to the Company, nor is the
Company indebted (or committed to make loans or extend or guarantee credit) to
any of them, other than (i) for payment of salary for services rendered, (ii)
reimbursement for reasonable expenses incurred on behalf of the Company, and
(iii) for other standard employee benefits made generally available to
all employees (including stock option
agreements outstanding approved by the Board of
Directors of the Company).  To the Company’s knowledge, except as
provided for in this Agreement or in connection with employment arrangements, no
officer, director, or stockholder or any member of their immediate families is,
directly or indirectly, interested in any contract or transaction with the
Company.

     

    
      
        
           

        

        
          -4-

          
            

          

        

        
           

        

      

    

     

    2.10           Title to Properties.

     

    The
Company has good, valid and (if applicable) marketable title to all of its
assets (tangible and intangible), free and clear of all liens, restrictions or
encumbrances and none of such assets is subject to any mortgage, pledge, lien or
conditional sale agreement. To the Company’s knowledge, such assets constitute
all property which is necessary to the business of the Company and all equipment
included therein is in good condition and repair (ordinary wear and tear
excepted) and all leases of real or personal property to which the Company is a
party are fully effective and, to its knowledge, afford the Company peaceful
possession of the subject matter of the lease and true and complete copies
thereof have been made available to the Lenders or their counsel. To its
knowledge, the Company is not in violation of any zoning, building or safety
ordinance, regulation or requirement or other law or regulation applicable to
the operation of its leased properties, nor has it received any notice of such
violation. There are no defaults by the Company, or, to the knowledge of the
Company, by any other party, which might curtail in any respect the present use
of the property of the Company.  The performance by the Company of the
Transaction Documents and the transactions contemplated thereby will not result
in the termination of, or in any increase of any amounts payable under, any of
its leases for real property or material liens for personal property or will
require the consent or approval from any other party to such
leases.

     

    2.11          Tax Matters. The Company has
timely and properly filed all federal, state, local and foreign tax returns
required to be filed by it through the date hereof, all such returns being true
and correct in all material respects when filed, and has paid or caused to be
paid all taxes, required to be paid by it through the date hereof whether
disputed or not, except taxes which have not yet accrued or otherwise become
due. There are no currently pending, and to the Company’s knowledge, there are
no threatened, examinations or audits of any tax returns or reports by any
federal, state, local, or foreign tax agency. The provisions for taxes in the
Financial Statements and balance sheets therein are sufficient as of their
respective dates for the payment of any accrued and unpaid taxes of any nature
of the Company.  All taxes and other assessments and levies which the
Company was or is required to withhold or collect have been withheld and
collected and have been paid over to the proper governmental authorities. The
Company has never received written notice of any audit or of any proposed
deficiencies from the Internal Revenue Service (the “IRS”) or any other
taxing authority (other than routine audits undertaken in the ordinary course
which have been resolved on or prior to the date hereof). There are in effect no
waivers of applicable statutes of limitations with respect to any taxes owed by
the Company for any year.  Neither the IRS nor any other taxing
authority is now asserting or, to the knowledge of the Company, threatening to
assert against the Company any deficiency or claim for additional taxes or
interest thereon or penalties in connection therewith in respect of the income
or sales of the Company.  The Company has never been a member of an
affiliated group of corporations filing a combined federal income tax return nor
does the Company have any liability for taxes of any other person under Treasury
Regulations §1.1502.6 (or any similar provision of foreign, state or local law)
or otherwise. The Company is not a party to any tax allocation or sharing
arrangement.  The Company is not a party to any contract, agreement,
plan or arrangement covering any employee or former employee thereof, that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Section 280G or 162 of the Internal Revenue
Code (the “Code”). The Company is
not a “foreign person” within the meaning of Section 145 of the Code and
Treasury Regulations § 1.1445-2.

     

    2.12 Labor Matters.  Except
as specifically disclosed by the Company to the Lenders prior to the date
hereof, the Company is not delinquent in payments to any of its employees,
consultants or independent
contractors for any wages, salaries, commissions, bonuses or other direct
compensation for any service performed for it to the date hereof or amounts
required to be reimbursed to such employees, consultants or independent
contractors. The Company is in compliance in all respects with all applicable
laws and regulations, respecting labor, employment, fair employment practices,
terms and conditions of employment, and wages and hours, except where such
noncompliance would not reasonably be expected to have a Material Adverse
Effect. The Company has not received any written or oral notice of any charges
of employment discrimination, sexual harassment or unfair labor practices, nor
are there any strikes, slowdowns, stoppages of work, or any other concerted
interference with normal operations existing, pending or, to the knowledge of
the Company, threatened against or involving the Company. There are no union
organizing activities pending, or, to the knowledge of the Company, threatened
with respect to the Company.  To the knowledge of the Company, there
are no grievances, complaints or charges that have been filed against the
Company under any dispute resolution procedure (including, but not limited to,
any proceedings under any dispute resolution procedure under any collective
bargaining agreement).  No arbitration or similar proceeding is
pending and, to the knowledge of the Company, no claim therefor has been
asserted against the Company.  To the knowledge of the Company, no
collective bargaining agreement is in effect or is currently being or is about
to be negotiated by the Company.  To its knowledge, the Company is,
and at all times the Company has been, in compliance with the requirements of
the Immigration Reform Control Act of 1986. There are no changes pending or, to
the knowledge of the Company, threatened including, without limitation, the
resignation of senior management or any key employee or independent contractors
of the Company, nor has the Company received any notice or information
concerning any prospective change with respect to such senior management, key
employees or
independent contractors.

    

    
      
        
           

        

        
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    2.13           Employee Benefit Programs. The terms and
operation of every employee deferred compensation agreement, employee bonus plan
or incentive plan, employee profit sharing plan, employee retirement agreement
or plan, employee benefits plan, stock option plan, pension plan, retirement
plan and other
similar plan or arrangement of the Company (each, an “Employee Program”) comply in all
material respects with all applicable laws and regulations relating to such
Employee Program.

     

    2.14           Certain Contracts and Arrangements.

     

    The
Company is not a party or subject to or bound by:

     

    (i)           any
contract or agreement involving (i) potential commitment or payment
by the Company in excess of $10,000 or (ii) which is otherwise material to the
operation of the
Company’s business and not entered into in the ordinary course of
business;

     

    (ii)           the
license of any Intellectual Property Right (as defined in Section 2.16)
to or
from the Company;

    

    (iii)           any
indenture, mortgage, promissory note, loan agreement, guaranty or other
agreement or commitment for borrowing or any pledge or security
arrangement;

     

    (iv)           any
agreement with any stockholder of the Company which includes, without
limitation, anti-dilution rights, registration rights, preemptive rights, voting
arrangements or operating covenants and any other agreement concerning the
securities of the Company;

     

    (v)           any
loans or advances to any person or entity other than ordinary advances for
travel;

    

    
      
        
           

        

        
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    (vi)           any
royalty, dividend or similar arrangement based on the revenues or profits of the
Company;

     

    (vii)           any
joint venture, partnership, manufacturer, development, distribution, supply or
similar agreement; or

     

    (viii)           any
acquisition, merger, sale of assets outside the ordinary course of business, or
similar agreement.

     

    2.15           Intellectual Property Rights.  The
Company owns or has the right to use all trademarks, tradenames, copyrights,
patents, trade secrets, licenses, information and proprietary rights and
processes and know-how and other intellectual property necessary to its business
as currently conducted or proposed to be conducted (the “Intellectual Property Rights”).

     

    2.16           Insurance. The Company is
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts that are customary in the business in which it is
engaged; to the best of the Company’s knowledge, all policies of insurance and
fidelity or surety bonds insuring the Company or its business, assets,
employees, officers and directors are in full force and effect, the Company is
in compliance with the terms of such policies and instruments in all material
respects and there are no material claims by the Company under any such policy
or instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause; and the Company
has no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a Material Adverse Effect on the
condition (financial or otherwise),
prospects, earnings, business or properties of the Company.

     

    2.17           Permits; Compliance with Laws and Instruments. The Company has
all franchises, permits, licenses, and any similar authority (“Permits”) necessary to
permit it to own its property and to conduct its business as it is presently
conducted and all such Permits are valid and in full force and effect, except
where the failure to obtain such a Permit or its invalidity, in whole or in
part, would not have a Material Adverse Effect. No Permit is subject to
termination as a result of the execution of the Transaction Documents or
consummation of the transactions contemplated thereby.  The Company is
in compliance with all applicable statutes, ordinances, orders, rules and
regulations promulgated by any federal, state, municipal or other governmental
authority, which apply to the conduct of its business, except where the failure
to so comply would not have a Material Adverse Effect. The Company has
never
entered into or been subject to any judgment, consent decree, compliance order
or administrative order with respect to any aspect of the business, affairs,
properties or assets of the Company or received any request for information,
notice, demand letter, administrative inquiry or formal or informal complaint or
claim from any regulatory agency with respect to any aspect of the business,
affairs, properties or assets of
the Company.  The Company is not in violation of its Restated Charter
or Bylaws or in violation of or default under any material indenture, audit
agreement, mortgage, lease, agreement, instrument, commitment
or arrangement to which it is a party or by which it is bound.

     

    2.18           Information Supplied by the Company.  This
Agreement, and the disclosures and the certificates and statements furnished
pursuant to this Agreement by or on behalf of the Company do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not misleading in the light of
the circumstances under which they were made.  There is no material
fact directly relating to the business, operations, condition or prospects of
the Company (including any competitive developments but other than facts which
relate to general economic or industry trends or conditions) that materially
adversely affects the same that has not been set forth in this Agreement or in
written disclosures to the Lenders.  To the knowledge of the Company,
none of the officers
or directors of the Company during the previous five years has been (a) subject
to voluntary or involuntary petition under the federal bankruptcy laws or any
state insolvency law or the appointment of a receiver, fiscal agent or similar
officer by a court for his business or property; (b) convicted in a criminal
proceeding or named as a subject of a pending criminal proceeding (excluding
traffic violations and other minor offenses); (c) subject to any order,
judgment, or decree (not subsequently reversed, suspended or vacated) of any
court of competent jurisdiction permanently or temporarily enjoining him from,
or otherwise imposing limits or conditions on his, engaging in any securities,
investment advisory, banking, insurance or other type of business or acting as
an officer or director of a public company; or (d) found by a court of competent
jurisdiction in a civil action or by the Securities and Exchange Commission or
the Commodity Futures Trading Commission to have violated any federal or state
commodities, securities or unfair trade practices law, which such judgment or
finding has not been subsequently reversed, suspended,
or vacated.

     

    
      
        
           

        

        
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    2.19           Absence of Certain Developments.  Since
September 1, 2008 the Company has conducted its business only in the ordinary
course consistent with past practice and, there has not been:

     

    (a)           any
adverse change in the financial condition, properties, assets, liabilities,
business, operations or prospects of the Company;

     

    (b)           any
mortgage, encumbrance or lien placed on any of the properties of the
Company
or any incurrence of indebtedness or guarantee of the indebtedness of another
person;

     

    (c)           any
purchase, sale or other disposition, or any agreement or other arrangement for
the purchase, sale or other disposition, of any material properties or assets by
the Company, including any of its Intellectual Property Rights;

     

    (d)           to
the knowledge of the Company, any damage, destruction or loss, whether or not
covered by insurance;

     

    (e)           any
declaration, setting aside or payment of any dividend by the Company, or the
making of any other distribution in respect of the capital stock of the Company,
or any direct or indirect redemption, purchase or other acquisition by the
Company of its own capital stock;

     

    (f)           any
labor trouble or claim of unfair labor practices involving the Company, any
change in the compensation payable or to become payable by the Company to any of
its officers or employees other than normal merit increases in accordance with
its usual practices, or any bonus payment or arrangement made to or with any of
such officers or employees or any establishment or creation of any employment,
deferred compensation or severance arrangement or employee benefit plan with
respect to such persons or the amendment of any of the foregoing;

     

    (g)           material
loss of personnel of the Company or change in the terms and conditions of the
employment of the Company’s officers or key personnel;

     

    (h)           any
payment or discharge of a material lien or liability of the Company which was
not shown on the Financial Statements or incurred in the ordinary course of
business thereafter;

     

    (i)           any
cancellation of any material debt or claim owing to, or waiver of any material
right of, the Company, including any write-off or compromise of any accounts
receivable;

     

    (j)           any
material change in accounting methods or practices, collection policies, pricing
policies or payment policies of the Company;

    

    
      
        
           

        

        
          -8-

          
            

          

        

        
           

        

      

    

     

    (k)           any
loss, of any significant supplier, customer, distributor or account of the Company;

     

    (l)           any
amendment or termination of any material contract or agreement to which the
Company is a party or by which it is bound;

     

    (m)           any
arrangements relating to any royalty, dividend or similar payment based on the
sales volume of the Company, whether as part of the terms of the Company’s
capital stock or by any separate agreement;

     

    (n)           any
agreement with respect to the endorsement of the Company’s products or services;

     

    (o)           any
transaction or agreement involving fixed price terms or fixed volume arrangements;

     

    (p)           any
other material transaction entered into by the Company other than transactions
in the ordinary course of business;

     

    (q)           any
transaction with an employee or holder of the Company’s securities other than
payment of salary or as contemplated by this Agreement; or

     

    (r)           any
agreement or understanding whether in writing or otherwise, for the Company
to take any of the actions specified in paragraphs (a) through (q)
above.

     

    2.20           Environmental.

     

    (a)           Except
to the extent that any violation or other matter referred to in this Section
2.20 does
not have a Material Adverse Effect on the business, financial condition, assets,
properties, liabilities or operations of the Company or its subsidiaries (taken
as a whole):

    

    (i)           the
Company and each of its subsidiaries is not in violation of any applicable
federal, provincial, state, municipal or local laws, regulations, orders,
government decrees or ordinances with respect to environmental, health or safety
matters (collectively, “Environmental Laws”);

     

    (ii)           the
Company and each of its subsidiaries has operated its business at all times has
received, handled, used, stored, treated, shipped and disposed of all
contaminants without violation of Environmental Laws;

     

    (iii)           there
have been no spills, releases, deposits or discharges of hazardous or toxic
substances, contaminants or wastes into the earth, air or into any body of water
or any municipal or other sewer or drain water systems by the Company or its
subsidiaries, if any, that have not been remedied;

     

    (iv)           no
orders, directions or notices have been issued and remain outstanding pursuant
to any Environmental Laws relating to the business or assets of the Company or
any subsidiary of which the Company has notice;

     

    (v)           the
Company and each of its subsidiaries has not failed to report to the proper
federal, provincial, state, municipal or other political subdivision,
government, department,
commission, board, bureau, agency or instrumentality, domestic or foreign
(“Government Authority”) the occurrence of
any event which is required to be so reported by any Environmental Law;
and

    

    
      
        
           

        

        
          -9-

          
            

          

        

        
           

        

      

    

     

    (vi)           the
Company and each of its subsidiaries holds all licenses, permits and approvals
required under any Environmental Laws in connection with the operation of its
business and the ownership and use of such assets, all such licenses, permits
and approvals are in full
force and effect, and except for notifications and conditions of general
application to assets of the type owned by the Company, the Company has not
received any notification pursuant to any Environmental
Laws that any work, repairs, constructions or capital expenditures are required
to be made
by it as a condition of continued compliance with any Environmental Laws, or any
license, permit or approval issued pursuant thereto, or that any license, permit
or approval referred
to above is about to be reviewed, made subject to limitation or conditions,
revoked, withdrawn
or terminated.

     

    (b)           In
the ordinary course of its business, the Company has periodically reviewed the
effect of Environmental Laws on its business, operations and properties in the
course of which it identifies
and evaluates associated costs and liabilities (including, without limitation,
any capital or operating expenditures required for cleanup, closure of
properties, abandonment of wells or compliance with
Environmental Laws, or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties); the
Company also has conducted pre-acquisition investigations
of new properties to identify potential violations of Environmental Laws, trains
management personal in the recognition of and proper response to incidents of
noncompliance with Environmental Laws and establishes procedures for
communicating such incidents to its senior management.
On the basis of such review, the Company has concluded that any associated costs
and liabilities would not, singly or in the aggregate, have a Material Adverse
Effect on the condition (financially
or otherwise), prospects, earnings, business or properties of the Company,
whether or not arising from transactions in the ordinary course of
business.

     

    2.21           Books and Records. The minute books
for each of the Company and its subsidiaries contain full, true and correct
copies of the incorporating documents and the bylaws of the Company and
its
subsidiaries, as applicable, and contain copies of all minutes of all meetings
and all consent resolutions of the
directors, committees of directors and shareholders of the Company and its
subsidiaries, respectively, and all such meetings were duly called and properly
held and all consent resolutions were properly adopted.

     

    2.22           Brokers.  Except
as contemplated in this Agreement, the Company has not incurred and will not
incur any obligation or liability to any broker, finder or agent with respect to
the transactions contemplated by this Agreement.

     

    3.           CONDITIONS
TO CLOSING.

     

    3.1           Conditions to Lenders’ Obligations at the Closing. The obligations of
any Lender to acquire Notes at any Closing are subject to the fulfillment, on or
before such Closing, of each of the following conditions:

     

    (a)           the
Company shall have delivered to each Lender a Draw Notice, which Draw Notice (i)
specifies the aggregate principal amount of the Note(s) being proposed for sale
and the proposed Closing date, (ii) certifies that each of the representations
and warranties of the Company contained
in Section 2 shall be true and correct on and as of such Closing, and (iii)
certifies that no default exists under any previously issued Note;

    

    
      
        
           

        

        
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    (b)           the
Company shall have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before such Closing and shall have obtained all
approvals, consents and qualifications necessary to complete the purchase and
sale described herein;

     

    (c)           the
Board of Directors of the Company shall have duly adopted resolutions and shall
have taken all action necessary for the purpose of authorizing the Company to
consummate all of the transactions contemplated to occur at such Closing hereby
including, without limitation, the issuance of the Notes;

     

    (d)           the
Company shall have delivered to each Lender a Note in the form of Exhibit A in the
principal amount set forth on the corresponding Draw Notice;

     

    (e)           in
connection with the initial Closing hereunder, the Company shall have delivered
to the Lenders an executed copy of the Security Agreement in the form attached
hereto as Exhibit B, and the IP
Security Agreement in the form attached hereto as Exhibit C;

     

    (f)           the
Company shall have delivered to each Lender evidence of having obtained any
consents required to consummate the transactions contemplated
hereby;

     

    (g)           in
connection with the initial Closing only, the Company shall have delivered to
the Lenders certificates of good standing issued by (i) the Secretary of State
of the State of Utah, and (ii) the relevant governmental authority in each of
those jurisdictions in which the Company is qualified as a foreign corporation;
and

     

    (h)           the
Company shall have issued a promissory note to each holder of the Series B
15%
Cumulative Non-Voting Preferred Stock of the Company (the “Series B Stock”) set forth on
Schedule
3.1(h), in a principal amount set forth adjacent to the name of each such holder
thereon (which amount is equal to the unpaid dividends on such holder’s shares
of Series B Stock accrued through the date hereof), such note to be
substantially in the form attached hereto as Exhibit D.

     

    3.2           Conditions to Company’s Obligations. The obligations
of the Company to sell and issue Notes to each Lender at any Closing are subject
to the fulfillment or waiver on or before such Closing of the following
conditions by such Lender:

     

    (a)           such
Lender shall have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before such Closing and shall have obtained all
approvals, consents and qualifications necessary to complete the purchase and
sale described herein; and

     

    (b)           each
Lender shall have delivered to the Company payment in full by check payable to
the Company’s order and/or by wire transfer of funds to the Company for the
principal amount of the Note in the amount set forth opposite such Lender’s name
on the corresponding Draw Notice.

     

    4.           COVENANTS
The Company covenants and agrees with each Lender that:

     

    4.1           Financial Statements, Reports, Etc. The Company shall
furnish to each Lender the following reports for so long as such Lender holds a
Note:

    

      
        
           

        

        
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    (a)           Annual Financial Statements.  Within
ninety (90) days after the end of each fiscal year of the Company, a
consolidated balance sheet of the Company and its subsidiaries, if any, as of
the end of such fiscal year and the related consolidated statements of income,
equityholders’ equity and cash flows for the fiscal year then ended, prepared in
accordance with generally accepted accounting principles and certified by a firm
of independent public accountants of recognized national standing selected by
the Board of Directors of the Company.

     

    (b)           Quarterly Financial Statements. Within forty-five
(45) days after the end of each quarter in each fiscal year (including the last
quarter in each fiscal year), a consolidated balance sheet of the Company and
its subsidiaries, if any, and the related consolidated statements of income,
equityholders’ equity and cash flows, unaudited but prepared in accordance with
generally accepted accounting principles and certified by the Chief Financial
Officer of the Company, such consolidated balance sheet to be as of the end of
such quarter and such consolidated statements of income, equityholders’ equity
and cash flows to be for such quarter and for the period from the beginning of
the fiscal year to the end of such quarter, in each case with comparative
statements for the prior fiscal year and with a written management discussion
and analysis on such financial statements and a summary of the state
of the business. In addition, the Company shall provide copies of any internal
service reports and any notices or reports prepared for or received from its
other lenders.

     

    (c)           Weekly Status Calls. The Company will
make its senior management available to the
Lenders, their designees and advisors for weekly conference calls to discuss the
current status of the Company,
including without limitation its financial performance and business
prospects.

     

    (d)           Annual Budget. No later than
thirty (30) days prior to the start of each fiscal year, consolidated capital
and operating expense budgets, cash flow projections and income and loss
projections for the Company and its subsidiaries in respect of such fiscal year,
all itemized in reasonable detail and prepared on a monthly basis, and, promptly
after preparation, any revisions to any of the foregoing.

     

    (e)           Monthly Budgets.  No
later than five (5) days prior to the start of each calendar month, an
accounting of expenses to be paid, expenses accrued, expenses outstanding, and
sources of cash for the Company and its subsidiaries in respect of such month,
all itemized in reasonable detail, and, promptly after preparation, any
revisions to any of the foregoing.

     

    (f)           Notices. (i) Notice of the
occurrence of any Event of Default (as defined in the Note) or any default under
any other indebtedness of the Company and (ii) promptly after the commencement
thereof, notice of all actions, suits, claims, proceedings, investigations and
inquiries that could materially and adversely affect the Company or any of its
subsidiaries, if any.

     

    4.2           Corporate Existence. The Company shall
maintain and cause each of its subsidiaries, if any,
to:

     

    (a)           carry
on and conduct its business in substantially the same manner and in
substantially the same fields of enterprise as it is presently
conducted;

     

    (b)           do
all things necessary to remain duly incorporated or organized, validly existing
and (to the extent such concept applies to such entity) in good standing as a
domestic corporation, partnership or limited liability company in its
jurisdiction of incorporation or organization, as the case may be, and maintain
all requisite authority to conduct its business in each jurisdiction in which
its business is conducted;

     

    
      
        
           

        

        
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    (c)           keep
adequate books and records with respect to its business activities in which
proper entries, reflecting all financial transactions, are made in accordance
with GAAP and on a basis consistent with the Financial Statements delivered to
the Lenders pursuant to Section 4.1; and

     

    (d)           at
all times maintain, preserve and protect all of its assets and properties used
or useful in the conduct of its business, and keep the same in good repair,
working order and condition in all material respects (taking into consideration
ordinary wear and tear) and from time to time make, or cause to be made, all
necessary or appropriate repairs, replacements and improvements thereto
consistent with industry practices.

     

    4.3           Properties, Business Insurance. The Company shall
obtain and maintain and cause each of its Subsidiaries to maintain with
financially sound and reputable insurers having an A rating from Best’s Rating
Service insurance with respect to their respective properties and businesses
against such casualties and contingencies as are in accordance with the general
practices of businesses engaged in similar activities in similar geographic
areas.  If the Company or any of its Subsidiaries at any time or times
hereafter shall fail to obtain or maintain any of the policies of insurance
required above or to pay all premiums relating thereto, such Lender may at any
time or times thereafter obtain and maintain such policies of insurance and pay
such premiums and take any other action with respect thereto which such Lender
deems advisable. No Lender shall have any obligation to obtain insurance for the
Company or any
subsidiary or pay any premiums therefor.  By doing so, such Lender
shall not be deemed to have waived any Default or Event of Default arising from
the Company or any subsidiary’s failure to maintain such
insurance or pay any premiums therefor.  All sums so disbursed,
including reasonable attorneys’ fees,
court costs and other charges related thereto, shall be payable on demand by the
Company to such Lender
and shall be additional obligations hereunder secured by the Collateral (as
defined in the Security Agreement).

     

    4.4           Appraisals. Whenever a Default
or Event of Default exists under the Note, and at such other times as an Lender
reasonably requests, the Company shall, at its sole expense, provide such Lender
with appraisals or updates thereof of their assets from an appraiser selected
and engaged by such Lender, and prepared on a basis satisfactory to such Lender,
such appraisals and updates to include, without limitation, information required
by applicable law and regulations and by the internal policies of such
Lender.

     

    4.5           Inspection, Consultation and Advice. The Company shall
permit and cause each of its subsidiaries, if any, to permit the Lenders and
such persons as such Lender may designate, at such Lender’s expense, to visit
and inspect any of the properties of the Company and its subsidiaries, examine
their books and take copies and extracts therefrom, discuss the affairs,
finances and accounts of the Company and its subsidiaries with their officers,
employees and public accountants (and the Company hereby authorizes said
accountants to discuss with such Lender and such designees such affairs,
finances and accounts), and consult with and advise the management of the
Company and its subsidiaries as to their affairs, finances and accounts, all at
reasonable times and upon reasonable notice during normal business
hours.

     

    4.6           Restrictive Agreements Prohibited. Neither the
Company nor any of its subsidiaries shall become a party to any agreement which
by its terms expressly restricts the Company’s performance of any of
the Transaction Documents or that prohibits, restricts or imposes any condition
upon (a) its ability to
create, incur or permit to exist any Lien upon any of its property or assets, or
(b) the ability of any of the Company’s subsidiaries to pay dividends or other
distributions with respect to any equity interests or to make or repay loans or
advances to the Company or to guarantee indebtedness of the
Company.

     

    
      
        
           

        

        
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    4.7           Compliance with Laws and Taxes. The Company shall
comply, and cause each of its direct and indirect subsidiaries to comply, with
all applicable laws, rules, regulations and orders, noncompliance with which
could materially adversely affect its business or condition, financial or
otherwise. The Company will timely file complete and correct U.S. federal and
applicable foreign, state and local tax returns required by law and pay when due
all taxes, assessments and governmental charges and levies upon it or its
income, profits, or property, except those which are being contested in good
faith by appropriate proceedings and with respect to which adequate reserves
have been set aside in accordance with GAAP.

     

    4.8           Prohibited Actions. Without the prior
written consent of the holder(s) of the Note(s) representing a majority of the
Aggregate Principal Amount of the Note(s) then outstanding (a “Majority Interest”), the Company
shall not (by way of merger, consolidation, operation of law or otherwise) and
shall not permit any subsidiary to:

     

    (a)           liquidate,
dissolve or wind up its operations, effect a recapitalization or reorganization
(including, without limitation, any reorganization into a limited liability
company, a partnership or any other non-corporate entity which is treated as a
partnership for federal income tax purposes);

     

    (b)           declare
or pay any dividends or make any distributions of cash, property or securities
of the Company in respect to any of its equity interests, or directly or
indirectly redeem, retire, purchase or otherwise acquire for consideration (or
pay into or set aside for a sinking fund for such purpose), directly or
indirectly, through subsidiaries or otherwise, any of its equity
interests;

     

    (c)           permit
any subsidiary of the Company to issue any equity interests, other than to the Company;

     

    (d)           issue
notes of the Company or otherwise incur indebtedness, except for indebtedness
not to exceed $57,000,000 in the aggregate (the “Debt Cap”); provided that, subject to
Section 4.18 hereof, the Company may incur indebtedness in excess of the Debt
Cap if all proceeds from such indebtedness are applied immediately upon receipt
by the Company toward the repayment of the Notes or other outstanding debt of
the Company owing to the Lender and/or its affiliates;

     

    (e)           make
any changes to the Company’s governing documents (including its Restated
Charter and by-laws), option plans or Board of Directors;

     

    (f)           make
any expenditure in excess of $10,000, or expenditures in excess of $25,000 in
the aggregate, which are not approved by the Board of Directors of the
Company;

     

    (g)           sell
or exchange any equity interests or rights, options or warrants to acquire
equity interests of any subsidiary;

     

    (h)           enter
into (A) a merger or consolidation of the Company with or into another entity
(with respect to which less than a majority of the outstanding voting power of
the surviving or consolidated company immediately following such event is held
by persons or entities who were equityholders of the Company immediately prior
to such event); (B) any acquisition by any person (or group of affiliated or
associated persons) of beneficial ownership of a majority of the equity of the
Company or any material subsidiary (whether or not newly-issued shares) in a
single transaction or a series of related transactions; (C) the redemption or
repurchase of shares representing a majority of the voting power of the
outstanding equity interests of the Company; or (D) any other change of control
of 50% or more
of the outstanding voting power of the Company;

    

    
      
        
           

        

        
          -14-

          
            

          

        

        
           

        

      

    

     

    (i)           effect
any acquisitions (asset, stock or otherwise) or enter into any agreement with
respect thereto;

     

    (j)           effect
the sale, transfer or license, in a single transaction or a series of
transactions, of any assets of the Company or any subsidiary outside the
ordinary course of business or effect any securitization transaction, except as
expressly permitted hereunder;

     

    (k)           enter
into any acquisition of beneficial ownership of a majority of the equity of
another entity in a single transaction or a series of related
transactions;

     

    (l)       
    form or permit the formation of any direct or indirect
subsidiary;

     

    (m)           engage
in any sale-leaseback, synthetic lease or similar transaction involving any
assets of the Company or any subsidiary;

     

    (n)           directly
or indirectly make any material change in the nature of its business or add any
material lines of business not presently conducted by it; or

     

    (o)           permit
any affiliate or direct or indirect subsidiary to enter into any activity that
could reasonably be deemed competitive with the business of the
Company.

     

    4.9           Liens. For so long as any
of the Notes remain outstanding, the Company will not create, incur, or suffer
to exist any lien (statutory or other), mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, the interest of a vendor or lessor under any
conditional sale, capitalized lease or other title retention agreement) (a
“Lien”) in, of, or on its
property or the property of its subsidiaries, if any, except the following
(collectively, “Permitted Liens”):

     

    (a)           Liens
for taxes, fees, assessments, or other governmental charges or levies on the
property of the Company or its subsidiaries if such taxes (A) shall not at the
time be delinquent or (B) do not secure obligations in excess of $10,000, are
being contested in good faith and by appropriate proceedings diligently pursued,
adequate reserves in accordance with GAAP have been set aside on the books of
such Credit Party, and a stay of enforcement of such Lien is in
effect;

     

    (b)           Liens
imposed by law, such as carrier’s, warehousemen’s, and mechanic’s Liens and
other similar Liens arising in the ordinary course of business which secure
payment of obligations not more than ten days past due or which are being
contested in good faith by appropriate proceedings diligently pursued and for
which adequate reserves shall have been set aside on the Company or its
subsidiaries’ books;

     

    (c)           statutory
Liens in favor of landlords of real property leased by the Company or
its
subsidiaries; provided that, such entity is current
with respect to payment of all rent and other amounts due to such landlord under
any lease of such real property;

     

    (d)           Liens
arising out of pledges or deposits under worker’s compensation laws,
unemployment insurance, old age pensions, or other social security or retirement
benefits, or similar legislation or to secure the performance of bids, tenders,
or contracts (other than for the repayment of indebtedness) or to secure
indemnity, performance, or other similar bonds for the performance of bids,
tenders, or contracts (other than for the repayment of indebtedness) or to
secure statutory obligations (other than liens arising under ERISA or
environmental laws) or surety or appeal bonds, or to secure indemnity,
performance, or other similar bonds;

     

    
      
        
           

        

        
          -15-

          
            

          

        

        
           

        

      

    

     

    (e)           utility
easements, building restrictions, and such other encumbrances or charges against
real property as are of a nature generally existing with respect to properties
of a similar character and which do not in any material way affect the
marketability of such real property or interfere with the use thereof in the
business of the Company or its subsidiaries;

     

    (f)           purported
Liens evidenced by the filing of UCC financing statements relating solely to
operating leases of personal property entered into in the ordinary course of
business.

     

    If Liens
other than Permitted Liens exist, the Company and its subsidiaries immediately
shall take, execute and deliver all actions, documents and instruments as are
reasonably necessary to release and terminate such Liens.

     

    4.10           Prepayment of Indebtedness.  Neither
the Company nor any of its subsidiaries shall, directly or indirectly,
voluntarily purchase, redeem, defease or prepay any principal of, premium, if
any, interest or other amount payable in respect of any indebtedness prior to
its scheduled maturity, other than (i) the Note; or (ii) indebtedness secured by
a Permitted Lien if the asset securing such indebtedness has been sold or
otherwise disposed of in accordance with this Agreement.

     

    4.11           Cancellation of Indebtedness. The Company shall
not, and shall not permit any of its subsidiaries to, cancel any claim or debt
owing to it or sell or otherwise dispose of any notes receivable, except for
reasonable consideration negotiated on an arm’s-length basis and in the ordinary
course of its business consistent with past practices.

     

    4.12           Blocked Persons and Prohibited Transactions. Neither the
Company nor any of its subsidiaries (i) will be or become a person whose
property or interests in property are blocked or subject to blocking pursuant to
Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit or Support
Terrorism (66 Fed. Reg.
49079(2001), (ii) will engage in any dealings or transactions prohibited by
Section 2 of such executive order, or otherwise be associated with any such
person in any manner violative of Section 2 of such
executive order, or (iii) otherwise will become a person on the list of
Specially Designated Nationals and Blocked Persons or subject to the limitations
or prohibitions under any other OFAC regulation or executive
order.

     

    4.13           Affiliated Transactions. All transactions
by and between the Company and any officer, employee, director or equityholder
of the Company or persons controlling, controlled by, under common control with
or otherwise affiliated with such officer, employee, director or equityholder
shall be conducted on an arm’s-length basis, shall be on terms and conditions no
less favorable to the Company than could be obtained from nonrelated persons and
shall be approved in advance by a Majority Interest.

     

    4.14           Management Compensation.  Compensation
paid by the Company to its management and other employees will be both
reasonably comparable to compensation paid to similarly situated employees
in companies in the same or similar businesses of similar size and maturity and
with comparable financial performance and reasonable in relation to the
Company’s overall compensation structure.
Any grants of equity interests or options to employees, officers, directors or
consultants of the Company shall be made pursuant to the Equity Incentive Plan,
and conditioned upon the grantee agreeing to be bound by the terms of an option
and/or stock agreement containing first refusal rights of the Company
with respect to the transfer of such stock or options and such other provisions
as are approved or requested by a Majority Interest.

    

    
      
        
           

        

        
          -16-

          
            

          

        

        
           

        

      

    

     

    4.15           Financings. The Company will
promptly provide to the Lenders the details and terms of, and any brochures or
investment memoranda prepared by the Company related to, any possible financing
of any nature for the Company, whether initiated by the Company or any other
person or entity.

     

    4.16           [intentionally
omitted]

     

    4.17           Indemnification.

     

    (a)           Without
limitation of any other provision of this Agreement or any agreement executed in
connection herewith, the Company agrees to defend, indemnify and hold each
Lender, its respective affiliates and direct and indirect partners (including
partners of partners and equityholders and members of partners), members,
equityholders, directors, officers, employees and agents and each person who
controls any of them within the meaning of Section 15 of the Securities Act, or
Section 20 of the Exchange Act (collectively, the “Lender Indemnified Parties” and,
individually, an “Lender Indemnified Party”) harmless from and
against any and all claims, damages, liabilities, losses, Taxes, fines,
penalties, costs and expenses (including, without limitation, reasonable fees of
a single counsel representing the Lender Indemnified Parties), as the same are
incurred, of any kind or nature whatsoever (whether or not arising out of
third-party claims and including all amounts paid in investigation, defense or
settlement of the foregoing) which may be sustained or suffered by any of the
Lender Indemnified Party (“Losses”), based upon,
arising out of, or by reason of (i) any breach of any representation or warranty
made by the Company in this Agreement or any other Transaction Document, (ii)
any breach of any covenant or agreement made by the Company in this Agreement,
in any other Transaction Document or in any other agreement executed in
connection herewith or therewith, or (iii) any third party or governmental
claims relating in any way to such Lender Indemnified Party’s status as a
security holder, creditor, director, agent, representative or controlling person
of the Company or otherwise relating to such Lender Indemnified Party’s
involvement with the Company (including, without limitation, any and all Losses
under the Securities Act, the Exchange Act or other federal or state statutory
law or regulation, at common law or otherwise, which relate directly or
indirectly to the registration, purchase, sale or ownership of any securities of
the Company or to any fiduciary obligation owed with respect thereto),
including, without limitation, in connection with any third party or
governmental action or claim relating to any action taken or omitted to be taken
or alleged to have been taken or omitted to have been taken by any Lender
Indemnified Party as security holder, director, agent, representative or
controlling person of the Company or otherwise, alleging so-called control
person liability or securities law liability; provided, however, that the Company
will not be liable to the extent that such Losses arise from and are based on
(A) an untrue statement or omission or alleged untrue statement or omission in a
registration statement or prospectus which is made in reliance on and in
conformity with written information furnished to the Company by or on behalf of
such Lender Indemnified Party, or (B) conduct by an Lender Indemnified Party
which constitutes fraud or willful misconduct.

     

    (b)           If
the indemnification provided for in Section 4.17(a) above for any reason is held
by a court of competent jurisdiction to be unavailable to an Lender Indemnified
Party in respect of any Losses referred to therein, then the Company, in lieu of
indemnifying such Lender Indemnified Party thereunder, shall contribute to the
amount paid or payable by such Lender Indemnified Party as a result of such
Losses (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and such Lender, or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and such Lender in connection
with the action or inaction which resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault of the Company and such
Lender shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
and the Lender and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.

     

    
      
        
           

        

        
          -17-

          
            

          

        

        
           

        

      

    

     

    (c)           Each
of the Company and the Lenders agrees that it would not be just and equitable if
contribution pursuant to Section 4.17(b) were determined by pro rata or per
capita allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph.

     

    4.18           Right of First Refusal. The Company agrees
that it will not (a) sell or issue:  (i) any shares of capital stock
of the Company, (ii) securities convertible into or exercisable or exchangeable
for capital stock of the Company, (iii) options, warrants or rights carrying any
rights to purchase capital stock of the Company, or (iv) debt (in any form), or
(b) enter into a Sale Event (as defined below), unless the Company first submits
a written notice to the Lenders identifying the terms of the proposed
transaction (including price, number or aggregate principal amount of securities
and/or debt and all other material terms), and offers to the Lenders the
opportunity to purchase the such securities and/or assets on terms and
conditions, including price, not less favorable than those on which the Company
proposes to sell such securities and/or assets to a third party or
parties.  The Company’s offer pursuant to this Section 4.18 shall
remain
open and irrevocable for a period of seven (7) days following receipt by the
Lenders of such written
notice.  “Sale Event” shall mean either: (Y) a transaction or series
of related transactions in which a person, or a group of related persons,
acquires from stockholders of the Company shares representing more than fifty
percent (50%) of the outstanding voting power of the Company, or (Z) a
transaction that is or could be treated as a Liquidation Event (as defined in
the Restated Charter).

     

    4.19           Intellectual Property.  The
Company will, and will cause each subsidiary to conduct its business and affairs
without infringement of or interference with any Intellectual Property of any
other person.

     

    4.20           ERISA.  The
Company shall not, nor shall it permit any subsidiary to, cause or permit any
ERISA Affiliate to, cause or permit to occur an event which could result in the
imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of
ERISA.

     

    4.21           No Impairment of Intercompany Transfers. The Company shall
not, nor shall it permit any subsidiary to enter into or become bound by any
agreement, instrument, indenture or other obligation (other than this Agreement
and the other Transaction Documents) which could directly or indirectly
restrict, prohibit or require the consent of any person with respect to the
payment of dividends or distributions or the making or repayment of intercompany
loans by a subsidiary to the Company.

     

    4.22           No Speculative Transactions. The Company shall
not, nor shall it permit any subsidiary to engage in any transaction involving
commodity options, futures contracts or similar transactions, except solely to
hedge against fluctuations in the prices of commodities owned or purchased by it
and the values of foreign currencies receivable or payable by it and interest
swaps, caps or collars.

     

    4.23           Further Assurances.  At any
time or from time to time upon the request of the Lenders, the
Company will, at its expense, promptly execute, acknowledge and deliver such
further documents and do such other acts and things as the Lenders may
reasonably request in order to effect fully the purposes of the
Transaction Documents.  In furtherance and not in limitation of the
foregoing, the Company shall take such
actions as the Lenders may reasonably request from time to time to ensure that
the Company’s obligations under the Transaction Documents and are secured by
substantially all of the assets of the Company, and shall give the Lenders
prompt written notice of its acquisition of any asset or assets with a value in
excess of $5,000 to the extent that the Lenders’ security interest therein to
secure such obligations
will not be perfected by the Uniform Commercial Code
filings currently in effect at such time.

     

    
      
        
           

        

        
          -18-

          
            

          

        

        
           

        

      

    

     

    4.24           Amended and Restated Articles of Incorporation. As soon as
practicable after the execution hereof, but in no case later than ten (10) days
following the date hereof, the Company shall have filed amended and restated
Articles of Incorporation with the Secretary of State of the State of Utah in
the form attached hereto as Exhibit E.

     

    5.           MISCELLANEOUS.

     

    5.1           Survival of Representations and Warranties. The
representations, warranties, covenants and agreements made herein or in any
certificates or documents executed in connection herewith shall survive the
execution and delivery hereof and the Closings contemplated hereby and shall
bind the successors and assigns of the relevant party, whether so expressed or
not, and all such covenants, agreements, representations and warranties shall
inure to the benefit of the successors and assigns of the parties hereto and to
transferees of the Notes, whether so expressed or not.

     

    5.2           Entire Agreement. The Transaction
Documents constitute the full and entire understanding and agreement among the
parties hereto with respect to the subject matters hereof and thereof, and any
and all other written or oral agreements existing prior to or contemporaneously
herewith are expressly superseded and canceled.

     

    5.3           Amendments, Waivers and Consents.  For the
purposes of this Agreement, and all agreements, documents and instruments
executed pursuant hereto, except as otherwise specifically set forth herein or
therein, no course of dealing between the Company on the one hand and any Lender
on the other and no delay on the part of any party hereto in exercising any
rights hereunder or thereunder shall operate as a waiver of the rights hereof
and thereof.  Any term or provision of this Agreement, the Transaction
Documents, and all agreements, documents and instruments executed pursuant
thereto, may be amended, terminated or waived (either generally or in a
particular instance and either retroactively or prospectively) with the written
consent of the Company and a Majority Interest. Any amendment or waiver effected
in accordance with this Section 5.3 shall be binding upon each holder of Notes
purchased under this Agreement at the time outstanding and the
Company.

     

    5.4           Notices and Demands.  All
notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if faxed (with transmission
acknowledgment received), delivered personally or mailed by certified or
registered mail (return receipt requested) as follows:

     

    
      
        	
                 
      

              	To the Company:  	
                
                  Groen
      Brothers Aviation, Inc.

                  2640
      West California Avenue, Suite A Salt Lake City, Utah 84104

                  Facsimile:
      (801) 973-4027

                  Attention:  David
      Groen

                

              

      

       

    

    
      
        
          	
                   
      

                	To the Lenders: 	
                  
                    
                      To
      the addresses indicated on the signature pages
      hereto

                    

                  

                

        

      

    

     

    
      	
               
      

            	
              With
      a copy to:

            	
              Proskauer
      Rose LLP

              One
      International Place

              Boston,
      MA 02110

              
                Attention:  Alexander
      B. Temel

                Telecopy
      No.:  (617)
529-9899

              

            

    

     

    or to
such other address or fax number of which any party may notify the other parties
as provided above. Notices shall be effective as of the date of such delivery,
mailing or fax.

     

    
      
        
           

        

        
          -19-

          
            

          

        

        
           

        

      

    

     

    5.5           Severability.  Whenever
possible, each provision of this Agreement shall be interpreted in such a manner
as to be effective and valid under applicable law, but if any provision of this
Agreement shall be deemed prohibited or invalid under such applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
and such prohibition or invalidity shall not invalidate the remainder of such
provision or the other provisions of this Agreement.

     

    5.6           Expenses. The Company agrees
to pay all reasonable expenses of the Lenders, including reasonable fees and
disbursements of Proskauer Rose LLP as the counsel to all of the Lenders, in
connection with the negotiation, preparation and consummation of the Transaction
Documents.

     

    5.7           Counterparts. This Agreement and
any Exhibit or Schedule hereto may be executed in multiple counterparts, each of
which shall constitute an original but all of which shall constitute but one and
the same instrument. One or more counterparts of this Agreement or any Exhibit
or Schedule hereto may be delivered via telecopier, with the intention that they
shall have the same effect as an original counterpart hereof.

     

    5.8           Effect of Headings; Construction. The descriptive
headings in this Agreement have been inserted for convenience only and shall not
be deemed to limit or otherwise affect the construction of any provision thereof
or hereof. The parties have participated jointly in the negotiation and drafting
of the Transaction Documents with counsel sophisticated in investment
transactions. In the event an ambiguity or question of intent or interpretation
arises, this Agreement and the agreements, documents and instruments executed
and delivered in connection herewith shall be construed as if drafted jointly by
the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement and the agreements, documents and instruments executed and delivered
in connection herewith.

     

    5.9           Governing Law.  This
Agreement shall be governed by and construed in accordance with the laws of the
state of New York without giving effect to conflict of laws principles in such
jurisdiction. Each of the parties hereto irrevocably and unconditionally submits
to the non-exclusive general jurisdiction of any state or federal court of
competent jurisdiction in New York, New York.

     

    5.10           Waiver of Jury Trial.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

     

    5.11           Marshalling; Payments Set Aside.  No
Lender shall be under any obligation to marshal any assets in favor of the
Company or any other person or against or in payment of any or all of the
obligations hereunder. To the extent that the Company makes a payment or
payments to the Lenders or Lenders enforce any security interests, and such
payment or payments or the proceeds of such enforcement or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, any other
state or federal law, common law or any equitable cause, then, to the extent of
such recovery, the obligation or part thereof originally intended to be
satisfied, and all Liens, rights and remedies therefor or related thereto, shall
be revived and continued in full force and effect as if such payment or payments
had not been made or such enforcement had not occurred.

     

    
      
        
           

        

        
          -20-

          
            

          

        

        
           

        

      

    

     

    5.12           Obligations Several; Independent Nature of Lenders’ Rights. The obligations of
the Lenders hereunder are several and no Lender shall be responsible for the
obligations or commitments of any other Lender hereunder.  Nothing
contained herein or in any other Transaction Document, and no action taken by
Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of
entity.  The amounts payable at any time hereunder to each Lender
shall be a separate and independent debt, and each Lender shall be entitled to
protect and enforce its rights arising out hereof and it shall not be necessary
for any other Lender to be joined as an additional party in any proceeding for
such purpose.

     

    [SIGNATURE
PAGES FOLLOW NEXT]

    

    

     

    

    

    

    
      
        
           

        

        
          -21-

          
            

          

        

        
           

        

      

    

     

    IN WITNESS
WHEREOF, the undersigned have executed this NOTE PURCHASE AGREEMENT as of
the day and year first above written.

     

    

     

    
      	 	THE
      COMPANY:
	 	 
	 	GROEN BROTHERS AVIATION,
INC.
	 	 
	 	 
	 	 
	 	 
	 	By:  /s/ David
      Groen                                                       
       
	 	       
      Name:  David Groen 
	 	       
      Its:  President & CEO

    

     

    

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

     

    
      	 	LENDERS:
	 	 
	 	 
	 	WESTFORD
      SPECIAL SITUATIONS
	 	MASTER
      FUND, L.P.
	 	 
	 	By:  
      Westford Global Asset Management Ltd.
	 	Its:   
      General Partner
	 	 
	 	 
	 	By:  /s/ Steve G.
      Stevanovich                     
      
	 	Name:  Steve G.
      Stevanovich
	 	Title: 
      Director
	 	 
	 	 
	 	Address:
	 	Grand Rue 3, 6th
      Floor
	 	Montreaux, CH-1820,
      Switzerland fax:
	 	Facsimile:      
      +41 21 966 79 22
	 	 
	 	 
	 	EPSILON GLOBAL MASTER FUND
LP
	 	 
	 	By:  Epsilon
      Global Asset Management Ltd..
	 	Its:  General
      Partner
	 	 
	 	 
	 	
              By: 
      /s/ Steve G.
      Stevanovich                    
      

            
	 	Name:  Steve G.
      Stevanovich 
	 	Title: 
      Director
	 	 
	 	 
	 	
              Address:

            
	 	Grand Rue 3, 6th
      Floor
	 	Montreaux, CH-1820,
      Switzerland fax:
	 	Facsimile:      
      +41 21 966 79 22
	 	 
	 	 

    

     

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

     

    Exhibit
A

     

     Form
of Note

     

     

    

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

     

    
      Exhibit
B

      
Form
of Security Agreement

       

       

    

    
       

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

       

    

    Exhibit
C

     

    Form
of IP Security Agreement

     

     

     

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

     

    Exhibit
D

    

    Form
of Series B Stockholder Note

     

     

    

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

     

    Exhibit
E

    

    Form
of Amended and Restated Articles of Incorporation

     

     

    

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

     

    Schedule
3.1(h)

     

    

    
      	
               

               

              Holder
      of Series B Stock

            	
               

               

              Principal
      Amount

            
	
               

               

              Capital
      Strategies Fund, Ltd.

            	
               

               

              $9,611,350.00

            
	
               

               

              Westford
      Special Situations Master Fund,
      L.P.

            	
               

               

              $27,350,280.00

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