Document:

exhibit_10-1.htm

    
      

    

    Exhibit
10.1

    

    NOTE
AND WARRANT PURCHASE

    

    AGREEMENT

    

    

    

    

    Dated
as of July 16, 2008

    

    

    

    

    by
and among

    

    

    

    

    VALCENT
PRODUCTS INC.

    

    

    

    and

    

    

    

    THE
PURCHASERS LISTED ON EXHIBIT A

     

     

     

    

    
      
         

      

      
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              TABLE OF
      CONTENTS

            
	 	 	
              Page

            
	 	 	 
	NOTE AND WARRANT
      PURCHASE AGREEMENT	
              1

            
	 	 	 
	
              ARTICLE
      I PURCHASE AND SALE OF NOTES AND WARRANTS

            	
              1

            
	Section
1.1	Purchase and Sale of Notes
      and Warrants	
              1

            
	Section
1.2	Purchase Price and
      Closing. 	
              2

            
	Section
1.3	Conversion Shares /
      Warrant Shares.	
              2

            
	 	 	 
	ARTICLE II REPRESENTATIONS AND
      WARRANTIES	
              3

            
	Section
2.1	Representations and
      Warranties of the Company.	
              3

            
	Section
2.2	Representations and
      Warranties of the Purchasers.	
              14

            
	 	 	 
	ARTICLE III COVENANTS	
              16

            
	Section
3.1	Securities
      Compliance. 	
              16

            
	Section
3.2	Registration and
      Listing.	
              16

            
	Section
3.3	Inspection
      Rights.	
              17

            
	Section
3.4	Compliance with
      Laws.	
              17

            
	Section
3.5	Keeping of Records
      and Books of Account. 	
              17

            
	Section
3.6	Reporting
      Requirements. 	
              17

            
	Section
3.7	Other
      Agreements.	
              18

            
	Section
3.8	Use of
      Proceeds.	
              18

            
	Section
3.9	Reporting
      Status.	
              18

            
	Section
    3.10	Disclosure of
      Transaction.	
              18

            
	Section
    3.11	Disclosure of
      Material Information. 	
              19

            
	Section
    3.12	Pledge of
      Securities. 	
              19

            
	Section
    3.13	Amendments. 	
              19

            
	Section
    3.14	Distributions.	
              19

            
	Section
    3.15	Reservation of
      Shares.	
              20

            
	Section
    3.16	Transfer Agent
      Instructions.	
              20

            
	Section
    3.17	Opinions.	
              20

            
	Section
    3.18	Acquisition of
      Assets.	
              21

            
	Section
    3.19	Subsequent
      Financings.	
              21

            
	Section
    3.20	Variable Rate
      Securities.	
              22

            
	Section
    3.21	Registration
      Rights.	
              23

            
	 	 	 
	ARTICLE IV CONDITIONS	
              24

            
	Section
4.1	Conditions Precedent
      to the Obligation of the Company to Close and to Sell the
      Securities.	
              24

            
	Section
4.2	Conditions Precedent
      to the Obligation of the Purchasers to Close and to Purchase the
      Securities.	
              25

            
	 	 	 
	ARTICLE V CERTIFICATE LEGEND	
              27

            
	Section
5.1	Legend.	
              27

            
	 	 	 
	ARTICLE VI INDEMNIFICATION	
              28

            
	Section
      6.1	General
      Indemnity. 	
              28

            
	Section
6.2	Indemnification
      Procedure.	
              28

            

    

     

    
            

    

    
         

    

     

    
         

    

    
        

    

    
      
         

      

      
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              TABLE OF
      CONTENTS

            
	
               (continued)

            
	 	 	
               Page

            
	 	 	 
	ARTICLE VII MISCELLANEOUS	
              29

            
	Section
7.1	Fees and
      Expenses.	
              29

            
	Section
7.2	Specific
      Performance; Consent to Jurisdiction; Venue.	
              29

            
	Section
7.3	Entire Agreement;
      Amendment.	
              30

            
	Section
7.4	Notices.	
              30

            
	Section
7.5	Waivers.	
              31

            
	Section
7.6	Headings.	
              32

            
	Section
7.7	Successors and
      Assigns.	
              32

            
	Section
7.8	No Third Party
      Beneficiaries. 	
              32

            
	Section
      7.9	Governing
    Law.	
              32

            
	Section
    7.10	Survival.	
              32

            
	Section
    7.11	Counterparts.	
              32

            
	Section
    7.12	Publicity.	
              32

            
	Section
    7.13	Severability.	
              33

            
	Section
    7.14	Further
      Assurances.	
              33

            
	Section
    7.15	Collateral
      Agent.	
              33

            
	Section 7.16
    	Representation of
      Lead Purchaser.	
              35

            

    

    
       

    

    
            

    

    
         

    

    
         

    

    
         

    

    
        

    

    
        

    

    
        

    

    
       

    

    

    
      
         

      

      
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    NOTE
AND WARRANT PURCHASE AGREEMENT

    

    This NOTE
AND WARRANT PURCHASE AGREEMENT dated as of July 16, 2008 (this “Agreement”) by and
among Valcent Products Inc., a corporation organized under the laws of Alberta,
Canada (the “Company”), and each
of the purchasers of the senior secured convertible promissory notes of the
Company whose names are set forth on Exhibit A attached
hereto (each a “Purchaser” and
collectively, the “Purchasers”) and, for
purposes of Section 1.2 hereof, Viscount Investment, Ltd. and Bodie Investment
Group Inc..

    

    The
parties hereto agree as follows:

     

     

    ARTICLE
I

     

    PURCHASE
AND SALE OF NOTES AND WARRANTS

     

    Section
1.1           Purchase and Sale of Notes
and Warrants

     

    (a)    
       Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers, and the
Purchasers shall purchase from the Company, (i) zero coupon senior secured
convertible promissory notes in the aggregate principal amount of $2,428,160,
convertible into shares of the Company’s common stock, no par value per share
(the “Common
Stock”), in substantially the form attached hereto as Exhibit B (the “Notes”).  The
Company and the Purchasers are executing and delivering this Agreement in
accordance with and in reliance upon the exemption from securities registration
afforded by Section 4(2) of the U.S. Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the “Securities Act”),
including Regulation D (“Regulation D”),
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the investments
to be made hereunder.

    

    (b)    
       Upon the following terms and
conditions, the Purchasers shall be issued (i) Warrants, in substantially the
form attached hereto as Exhibit C-1 (the
“Series A
Warrants”), to purchase a number of shares of Common Stock equal to one
hundred percent (100%) of the number of Conversion Shares issuable upon
conversion of such Purchaser’s Note calculated on the closing date at an
exercise price per share equal to $.55 for a term of five (5) years following
the Closing Date and (ii) Warrants, in substantially the form attached hereto as
Exhibit C-2
(the “Series B
Warrants” and together with the Series A Warrants, the “Warrants”), to
purchase a number of shares of Common Stock equal to fifty percent (50%) of the
number of Conversion Shares issuable upon conversion of such Purchaser’s Note
calculated on the closing date at an initial exercise price per share equal to
$.75 for a term of five (5) years following the Closing Date.  The
number of shares of Common Stock issuable upon exercise of the Warrants issuable
to each Purchaser is set forth opposite such Purchaser’s name on Exhibit A attached
hereto.

     

     

    
 

    
      
        
        

      

      
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    Section
1.2           Purchase Price and
Closing.

     

    Subject to the terms and conditions
hereof, the Company agrees to issue and sell to the Purchasers and, in
consideration of and in express reliance upon the representations, warranties,
covenants,
terms and conditions of this Agreement, the Purchasers, severally but not
jointly, agree to purchase the Notes and Warrants for an aggregate purchase
price of up to $2,168,000 (the “Purchase
Price”).  The closing under this Agreement (the “Closing”) shall take
place on or before July 16, 2008 (the “Closing
Date”).  The closing of the purchase and sale of the Notes and
Warrants to be acquired by the Purchasers from the Company under this Agreement
shall take place at the offices of Platinum Long Term Growth VI, LLC (the “Lead Purchaser”), 152
West 57th Street,
54th
Floor, New York, 10:00 a.m. New York time; provided, that all of
the conditions set forth in Article IV hereof and applicable to the Closing
shall have been fulfilled or waived in accordance herewith.  Subject
to the terms and conditions of this Agreement, at the Closing the Company shall
deliver or cause to be delivered to each Purchaser (x) Notes for the principal
amount set forth opposite the name of such Purchaser on Exhibit A hereto and
(y) the Warrants to purchase such number of shares of Common Stock as is set
forth opposite the name of such Purchaser on Exhibit A attached
hereto.  At the Closing, each Purchaser shall deliver its Purchase
Price by wire transfer of immediately available funds to an account designated
by the Company.  All references to Dollars in this Agreement and all
other Transaction Documents shall mean and refer to United States
Dollars.  Notwithstanding anything to the contrary contained herein,
the Purchasers shall be permitted to wire their aggregate Purchase Price to the
Lead Purchaser’s counsel, to be held in escrow by the Lead Purchaser’s counsel
and to be released upon instruction of the Lead Purchaser and the Company after
receipt of the aggregate Purchase Price (it being understood that George Orr’s
Purchase Price has already been delivered to the Company).  It is
understood and agreed that a portion of the Purchase Price shall be paid
directly to repay amounts outstanding pursuant to the Bridge Note (as defined
below), amounts owed to Compass Bank by the Company, title insurance and
recording charges, the cash payment owed to the Finder (as defined below) upon
Closing and the Lead Purchaser’s legal fees (as contemplated by Section
7.1).   Funds owed pursuant to the Bridge Note and the Finder
shall be repaid on Closing; provided that the Finder and Viscount Investment,
Ltd. shall immediately reinvest such funds in the form of a bridge note, to be
repaid within 14 days of the Closing (the “Closing Note”), which
funds shall be wired to the Company on Closing.   Viscount
Investment Group, Ltd. and Bodie Investment Group Inc. have executed this
Agreement to evidence their agreement to loan to the Company the proceeds of the
Closing Note.

    

    Section
1.3           Conversion Shares / Warrant
Shares.  

     

    The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a number of its authorized but
unissued shares of Common Stock equal to one hundred fifty percent (150%) of the
aggregate number of shares of Common Stock to effect the conversion of the Notes
and exercise of the Warrants.  Any shares of Common Stock issuable
upon conversion of the Notes (and such shares when issued) are herein referred
to as the “Conversion
Shares”.  Any shares of Common Stock issuable upon exercise of
the Warrants (and such shares when issued) are herein referred to as the “Warrant
Shares”.  The Notes, the Warrants, the Conversion Shares and
the Warrant Shares are sometimes collectively referred to herein as the “Securities”.

    
      
         

      

      
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    ARTICLE
II

    

    REPRESENTATIONS
AND WARRANTIES

     

    Section
2.1           Representations and
Warranties of the Company.

     

    The Company hereby represents and
warrants to the Purchasers, as of the date hereof and the Closing Date (except
as set forth on the Schedule of Exceptions attached hereto with each numbered
Schedule corresponding to the section number herein), as follows:

    

    (a)  
         Organization, Good Standing
and Power.  The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the Province of Alberta
and has the requisite corporate power to own, lease and operate its properties
and assets and to conduct its business as it is now being
conducted.  The Company does not have any direct or indirect
Subsidiaries (as defined in Section 2.1(g)) or own securities of any kind in any
other entity except as set forth on Schedule 2.1(g)
hereto.  The Company and each such Subsidiary (as defined in Section
2.1(g)) is duly qualified as a foreign corporation, limited liability company or
limited partnership to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified will not have a Material
Adverse Effect.  For the purposes of this Agreement, “Material Adverse
Effect” means any material adverse effect on the business, operations,
properties, prospects, or financial condition of the Company and its
Subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement or any of the Transaction
Documents in any material respect.

    

    (b)   
        Authorization;
Enforcement.  The Company and the Subsidiaries (as applicable)
have the requisite corporate power and authority to enter into and perform this
Agreement, the Notes, the Warrants, the Security Agreement by and among the
Company and the Subsidiaries, on the one hand, and the Purchasers, on the other
hand, dated as of the date hereof, substantially in the form of Exhibit D attached
hereto (the “Security
Agreement”), the Guarantee to be delivered by each of the Subsidiaries,
dated as of the date hereof, substantially in the form of Exhibit E attached
hereto (the “Guarantee”), the
Officer’s Certificate to be delivered by the Company, dated as of the Closing
Date, substantially in the form of Exhibit F attached
hereto (the “Officer’s
Certificate”), the Deed of Trust, Assignment of Rents and Leases,
Security Agreement and Fixture Filing, dated as of the Closing Date, from
Valcent Manufacturing Ltd., as Grantor, substantially in the form of Exhibit G attached
hereto (the “Mortgage”), the
Environmental Indemnity Agreement, dated as of the Closing Date, between the
Company, the Subsidiaries and the Purchasers, substantially in the form of Exhibit H (the
“Environmental Indemnity Agreement”), the Patent, Trademark and Copyright
Security Agreement by and among the Company, the Subsidiaries and the Agent (as
defined in the IP Security Agreement), substantially in the form of Exhibit I attached
hereto (the “IP
Security Agreement”), and the Irrevocable Transfer Agent Instructions (as
defined in Section 3.16 hereof) (collectively, the “Transaction
Documents”) and to issue and sell the Securities in accordance with the
terms hereof.  The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action, and, except as set forth on Schedule 2.1(b), no
further consent or authorization of the Company, its Board of Directors or
stockholders is required.  When executed and delivered by the Company
and the Subsidiaries, each of the Transaction Documents shall constitute a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor’s rights and remedies or by other equitable principles of general
application.

    
      
         

      

      
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    (c)      
     Capitalization.  The
authorized capital stock and the issued and outstanding shares of capital stock
of the Company as of the Closing Date is set forth on Schedule 2.1(c)
hereto.  All of the outstanding shares of the Common Stock and any
other outstanding security of the Company have been duly and validly
authorized.  Except as set forth in this Agreement, or as set forth on
Schedule 2.1(c)
hereto, no shares of Common Stock or any other security of the Company are
entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the
Company.  Furthermore, except as set forth in this Agreement and as
set forth on Schedule
2.1(c) hereto, there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company.  Except for
customary transfer restrictions contained in agreements entered into by the
Company in order to sell restricted securities or as provided on Schedule 2.1(c)
hereto, the Company is not a party to or bound by any agreement or understanding
granting registration or anti-dilution rights to any person with respect to any
of its equity or debt securities.  Except as set forth on Schedule 2.1(c), the
Company is not a party to, and it has no knowledge of, any agreement or
understanding restricting the voting or transfer of any shares of the capital
stock of the Company.

    

    (d)      
     Issuance of
Securities.  The Notes and the Warrants to be issued at the
Closing have been duly authorized by all necessary corporate action and, when
paid for or issued in accordance with the terms hereof, the Notes shall be
validly issued and outstanding, free and clear of all liens, encumbrances and
rights of refusal of any kind.  When the Conversion Shares and Warrant
Shares are issued and paid for in accordance with the terms of this Agreement
and as set forth in the Notes and Warrants, such shares will be duly authorized
by all necessary corporate action and validly issued and outstanding, fully paid
and nonassessable, free and clear of all liens, encumbrances and rights of
refusal of any kind and the holders shall be entitled to all rights accorded to
a holder of Common Stock.

     

     

     

     

     

    
 

    
      
        
        

      

      
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    (e)   
        No
Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company and the Subsidiaries, the performance by
the Company of its obligations under the Notes and the consummation by the
Company and the Subsidiaries of the transactions contemplated hereby and
thereby, and the issuance of the Securities as contemplated hereby, do not and
will not (i) violate or conflict with any provision of the Company’s Articles of
Incorporation (the “Articles”) or Bylaws
(the “Bylaws”),
each as amended to date, or any Subsidiary’s comparable charter documents, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries’ respective properties or assets are bound, (iii)
result in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries are bound
or affected, or (iv) create or impose a lien, mortgage, security interest,
charge or encumbrance of any nature on any property or asset of the Company or
its Subsidiaries under any agreement or any commitment to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound or by which any of their respective properties or assets
are bound, except, in all cases, for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect (other than
violations pursuant to clauses (i) or (iii) (with respect to federal and state
securities laws)).  Neither the Company nor any of its Subsidiaries is
required under federal, state, foreign or local law, rule or regulation to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under the Transaction Documents or
issue and sell the Securities in accordance with the terms hereof (other than
any filings, consents and approvals which may be required to be made by the
Company under applicable state and federal securities laws, rules or
regulations.  The business of the Company and its Subsidiaries is not
being conducted in violation of any laws, ordinances or regulations of any
governmental entity.

    

    (f)       
    Commission Documents,
Financial Statements.  The Common Stock of the Company is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it on SEDAR and with the Commission pursuant
to the reporting requirements of the Exchange Act (all of the foregoing
including filings on SEDAR or EDGAR incorporated by reference therein being
referred to herein as the “Commission
Documents”).  Except for the issues raised by the Securities
and Exchange Commission to the Company’s annual report on Form 20-F for the year
ended March 31, 2007 in a letter dated May 22, 2008, attached hereto as Exhibit
J at the times of their respective filings, the Form 6-K for the fiscal quarters
ended June 30, 2007, September 30, 2007 and December 31, 2007 (collectively, the
“Quarterly
Filings”) and the Form 20-F for the fiscal year ended March 31, 2007 (the
“Form 20-F”)
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, relevant
Canadian securities laws and other federal, state and local laws, rules and
regulations applicable to such documents, and the Quarterly Filings and the Form
20-F did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  As of their respective dates, the financial
statements of the Company included in the Commission Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission or other applicable rules and
regulations with respect thereto.  Such financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
(“GAAP”)
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements), and fairly present in all
material respects the financial position of the Company and its Subsidiaries as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).

     

    
      
         

      

      
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    (g)   
        Subsidiaries. Schedule 2.1(g)
hereto sets forth each Subsidiary of the Company, showing the jurisdiction of
its incorporation or organization and showing the percentage of each person’s
ownership of the outstanding stock or other interests of such
Subsidiary.  For the purposes of this Agreement, “Subsidiary” shall
mean any corporation or other entity of which at least 50% of the securities or
other ownership interest having ordinary voting power (absolutely or
contingently) for the election of directors or other persons performing similar
functions are at the time owned directly or indirectly by the Company and/or any
of its other Subsidiaries and expressly includes Vertigro Algae Technologies,
LLC (“Vertigro”).  All
of the outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued, and are fully paid and
nonassessable.  Except as set forth on Schedule 2.1(g)
hereto, there are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or acquisition of any shares of capital stock of any
Subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital
stock.  Neither the Company nor any Subsidiary is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of the capital stock of any Subsidiary or any convertible
securities, rights, warrants or options of the type described in the preceding
sentence except as set forth on Schedule 2.1(g)
hereto.  Neither the Company nor any Subsidiary is party to, nor has
any knowledge of, any agreement restricting the voting or transfer of any shares
of the capital stock of any Subsidiary.  Each subsidiary is duly
organized, validly existing and in good standing under the laws of the
jurisdictions set forth on Schedule 2.1(g) and
has the requisite corporate or other power to own, lease and operate its
properties and assets and to conduct its business as it is now being
conducted.

    

    (h)        
   No
Material Adverse Change.  Since March 31, 2007, the Company has
not experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h)
hereto.

    

    (i)       
     No Undisclosed
Liabilities.  Except as disclosed on Schedule 2.1(i)
hereto, neither the Company nor any of its Subsidiaries has incurred any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company’s or its Subsidiaries
respective businesses or which, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect.

    

    (j)       
    No Undisclosed Events or
Circumstances.  Since March 31, 2007, except as disclosed on
Schedule 2.1(j)
hereto, no event or circumstance has occurred or exists with respect to the
Company or its Subsidiaries or their respective businesses, properties,
prospects, operations or financial condition, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed.

     

    
      
         

      

      
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    (k)       
    Indebtedness.  Schedule 2.1(k)
hereto sets forth as of the date hereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments.  For the purposes of this Agreement,
“Indebtedness” shall mean (a) any liabilities for borrowed money or amounts owed
in excess of $10,000 (other than trade accounts payable incurred in the ordinary
course of business), (b) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same are or
should be reflected in the Company’s balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and (c)
the present value of any lease payments in excess of $10,000 due under leases
required to be capitalized in accordance with GAAP.  Neither the
Company nor any Subsidiary is in default with respect to any
Indebtedness.

    

    (l)        
   Title to
Assets.  Each of the Company and the Subsidiaries has good and
valid title to all of its real and personal property reflected in the Commission
Documents, free and clear of any mortgages, pledges, charges, liens, security
interests or other encumbrances, except for those indicated on Schedule 2.1(l)
hereto or such that, individually or in the aggregate, do not cause a Material
Adverse Effect.  Any leases of the Company and each of its
Subsidiaries are valid and subsisting and in full force and
effect.  Pursuant to, and upon execution and delivery of, the Security
Agreement, the IP Security and the Mortgage, the Company and the Subsidiaries
shall have granted to the Purchasers and the Agent a perfected, first priority
security interest in substantially all of the assets of the Company and the
Subsidiaries.

    

    (m)           Actions
Pending.  There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto.  Except
as set forth in the Commission Documents or on Schedule 2.1(m)
hereto, there is no action, suit, claim, investigation, arbitration, alternate
dispute resolution proceeding or other proceeding pending or, to the knowledge
of the Company, threatened against or involving the Company, any Subsidiary or
any of their respective properties or assets, which individually or in the
aggregate, would reasonably be expected, if adversely determined, to have a
Material Adverse Effect.  There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or any officers or
directors of the Company or Subsidiary in their capacities as such, which
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

    

    (n)     
      Compliance with
Law.  The business of the Company and the Subsidiaries has been
and is presently being conducted in accordance with all applicable federal,
state and local governmental laws, rules, regulations and ordinances, except
such that, individually or in the aggregate, the noncompliance therewith could
not reasonably be expected to have a Material Adverse Effect.  The
Company and each of its Subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless
the failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    
 

    (o)           Taxes.  Except
as disclosed on Schedule 2.1(o), the
Company and each of the Subsidiaries has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company and the Subsidiaries for all current
taxes and other charges to which the Company or any Subsidiary is subject and
which are not currently due and payable.  Except as disclosed on Schedule 2.1(o)
hereto or in the Commission Documents, none of the federal income tax returns of
the Company or any Subsidiary have been audited by the Internal Revenue
Service.  The Company has no knowledge of any additional assessments,
adjustments or contingent tax liability (whether federal or state) of any nature
whatsoever, whether pending or threatened against the Company or any Subsidiary
for any period, nor of any basis for any such assessment, adjustment or
contingency.

    

    (p)         
  Certain
Fees.  Except for the finders’ fee equal to 8% of the aggregate
Purchase Price (excluding any Purchase Price payable by George Orr), which is
payable to Bodie Investment Group Inc. (the “Finder”), warrants in substantially
the form of the Warrants to purchase an aggregate of 658,824 shares of Common
Stock (consisting of 439,216 Series A Warrants and 219,608 Series B Warrants)
issued to the Finder, and the fees payable to the Finder upon the cash exercise
of the Warrants (equal to 8% of the cash exercise price), other than the
Warrants issued to George Orr, the Company has not employed any broker or finder
or incurred any liability for any brokerage or investment banking fees,
commissions, finders’ structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.  Further, no
finder’s fee is payable on the Closing Note.

    

    (q)        
   Disclosure.  Except
for the transactions contemplated by this Agreement, the Company confirms that
neither it nor any other person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that constitutes or
might constitute material, nonpublic information.  To the best of the
Company’s knowledge, neither this Agreement or the Schedules hereto nor any
other documents, certificates or instruments furnished to the Purchasers by or
on behalf of the Company or any Subsidiary in connection with the transactions
contemplated by this Agreement contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made
herein or therein, in the light of the circumstances under which they were made
herein or therein, not misleading.

    

    (r)      
     Operation of
Business.  Except as set forth on Schedule 2.1(r)
hereto, the Company and each of the Subsidiaries owns or possesses the rights to
all patents, trademarks, domain names (whether or not registered) and any
patentable improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations which are necessary for the conduct of
its business as now conducted without infringement or any conflict with the
rights of others.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    

    (s)        
   Environmental
Compliance.  The Company and each of its Subsidiaries have
obtained all material approvals, authorization, certificates, consents,
licenses, orders and permits or other similar authorizations of all governmental
authorities, or from any other person, that are required under
any  Environmental Laws.  “Environmental Laws” shall mean
all applicable laws relating to the protection of the environment including,
without limitation, all requirements pertaining to reporting, licensing,
permitting, controlling, investigating or remediating emissions, discharges,
releases or threatened releases of hazardous substances, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, into the air, surface water, groundwater or
land, or relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, material or wastes,
whether solid, liquid or gaseous in nature.  The Company has all
necessary governmental approvals required under all Environmental Laws as
necessary for the Company’s business or the business of any of its
subsidiaries.  To the best of the Company’s knowledge, the Company and
each of its subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws.  Except for such
instances as would not individually or in the aggregate have a Material Adverse
Effect, there are no past or present events, conditions, circumstances,
incidents, actions or omissions relating to or in any way affecting the Company
or its Subsidiaries that violate or may violate any Environmental Law after the
Closing Date or that may give rise to any environmental liability, or otherwise
form the basis of any claim, action, demand, suit, proceeding, hearing, study or
investigation (i) under any Environmental Law, or (ii) based on or related to
the manufacture, processing, distribution, use, treatment, storage (including
without limitation underground storage tanks), disposal, transport or handling,
or the emission, discharge, release or threatened release of any hazardous
substance.

    

    (t)         
  Books and
Records; Internal Accounting Controls.  The records and
documents of the Company and its Subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and its
Subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary.  The Company is in material compliance with
all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as
of the Closing Date.  The Company and its Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms.  The
Company’s certifying officers have evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by the
Company’s most recently filed periodic report under the Exchange Act (such date,
the “Evaluation
Date”).  The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date.  Since the Evaluation
Date, there have been no changes in the Company’s internal control over
financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.

     

    
      
         

      

      
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    (u)           Material
Agreements.  Except as disclosed in the Commission Documents or
as set forth on Schedule 2.1(u)
hereto, or as would not be reasonably likely to have a Material Adverse Effect,
(i) the Company and each of its Subsidiaries have performed all obligations
required to be performed by them to date under any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, filed or
required to be filed with the Commission (the “Material
Agreements”), (ii) neither the Company nor any of its Subsidiaries has
received any notice of default under any Material Agreement and, (iii) to the
best of the Company’s knowledge, neither the Company nor any of its Subsidiaries
is in default under any Material Agreement now in effect.  Without
limiting the generality of the foregoing, the License Agreements (as defined in
the Notes) are in full force and effect, and none of the Company or any
Subsidiary has received any notice of default thereunder, or event that, with
the passage of time or giving of notice or both would constitute a default
thereunder, nor has any of the Company or any Subsidiary received any notice of
a claim by any person that the Company or any Subsidiary party thereto is not
entitled to use the intellectual property licensed thereunder or that Pagic LP
(or any other licensor named therein) does not possess the necessary right and
authority to license such intellectual property in accordance with the terms of
the License Agreements.

    

    (v)           Transactions with
Affiliates.  Except as set forth on Schedule 2.1(v)
hereto and in the Commission Documents, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions between (a) the Company, any Subsidiary or any of their
respective customers or suppliers on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the Company, or any of its
Subsidiaries, or any person owning at least 5% of the outstanding capital stock
of the Company or any Subsidiary or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any corporation or
other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder which, in each case, is required to be
disclosed in the Commission Documents that is not so disclosed in the Commission
Documents or in such proxy statement.

    

    (w)           Securities Act of
1933.  The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Securities hereunder.  Neither the Company
nor anyone acting on its behalf, directly or indirectly, has or will sell, offer
to sell or solicit offers to buy any of the Securities or similar securities to,
or solicit offers with respect thereto from, or enter into any negotiations
relating thereto with, any person, or has taken or will take any action so as to
bring the issuance and sale of any of the Securities under the registration
provisions of the Securities Act and applicable state securities laws, and
neither the Company nor any of its affiliates, nor any person acting on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) in
connection with the offer or sale of any of the Securities.  The
Company is not, and has never been, a company described in Rule 144(i)(1) under
the Securities Act, and is a “reporting issuer” as described in Rule 144(c)(1)
under the Securities Act.  Neither the Company, nor any of its
directors, officers or controlling persons, has taken or will, in violation of
applicable law, take, any action designed to or that might reasonably be
expected to cause or result in, or which has constituted, stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the securities issued or issuable in connection with the transactions
contemplated hereunder.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    

    (x)   
        Employees.  Neither
the Company nor any Subsidiary has any collective bargaining arrangements or
agreements covering any of its employees, except as set forth on Schedule 2.1(x)
hereto.  Except as set forth on Schedule 2.1(x)
hereto, neither the Company nor any Subsidiary has any employment contract,
agreement regarding proprietary information, non-competition agreement,
non-solicitation agreement, confidentiality agreement, or any other similar
contract or restrictive covenant, relating to the right of any officer, employee
or consultant to be employed or engaged by the Company or such Subsidiary
required to be disclosed in the Commission Documents that is not so
disclosed.  No officer, consultant or key employee of the Company or
any Subsidiary whose termination, either individually or in the aggregate, would
be reasonably likely to have a Material Adverse Effect, has terminated or, to
the knowledge of the Company, has any present intention of terminating his or
her employment or engagement with the Company or any Subsidiary.

    

    (y)       
    Absence of Certain
Developments.  Except as set forth in the Commission Documents
or provided on Schedule 2.1(y)
hereto, since March 31, 2007, neither the Company nor any Subsidiary
has:

    

    (i)           issued
any stock, bonds or other corporate securities or any right, options or warrants
with respect thereto;

     

    (ii)          borrowed
any amount in excess of $100,000 or incurred or become subject to any other
liabilities in excess of $100,000 (absolute or contingent) except current
liabilities incurred in the ordinary course of business which are comparable in
nature and amount to the current liabilities incurred in the ordinary course of
business during the comparable portion of its prior fiscal year, as adjusted to
reflect the current nature and volume of the business of the Company and its
Subsidiaries;

     

    (iii)         discharged
or satisfied any lien or encumbrance in excess of $100,000 or paid any
obligation or liability (absolute or contingent) in excess of $100,000, other
than current liabilities paid in the ordinary course of business;

     

    (iv)        declared
or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements so
to purchase or redeem, any shares of its capital stock, in each case in excess
of $50,000 individually or $100,000 in the aggregate;

     

     

    
      
         

      

      
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    (v)         sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, in each case in excess of $100,000, except in the ordinary course of
business;

     

    (vi)        sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights in
excess of $100,000, or disclosed any proprietary confidential information to any
person except to customers in the ordinary course of business or to the
Purchasers or their representatives;

     

    (vii)       suffered
any material losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
prospective business;

     

    (viii)      made
any changes in employee compensation except in the ordinary course of business
and consistent with past practices;

     

    (ix)         made
capital expenditures or commitments therefor that aggregate in excess of
$100,000;

     

    (x)          entered
into any material transaction, whether or not in the ordinary course of
business;

     

    (xi)         made
charitable contributions or pledges in excess of $10,000;

     

    (xii)        suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance;

     

    (xiii)       experienced
any material problems with labor or management in connection with the terms and
conditions of their employment; or

     

    (xiv)      entered
into an agreement, written or otherwise, to take any of the foregoing
actions.

    

    (z)           
Public Utility Holding
Company Act and Investment Company Act Status.  The Company is
not a “holding company” or a “public utility company” as such terms are defined
in the Public Utility Holding Company Act of 1935, as amended.  The
Company is not, and as a result of and immediately upon the Closing will not be,
an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as
amended.

     

    
 

    
      
        
        

      

      
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    (aa)          ERISA.  No
liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to any Plan by the Company or any of its Subsidiaries which is or would
be materially adverse to the Company and its Subsidiaries.  The
execution and delivery of this
Agreement and the issuance and sale of the Securities will not involve any
transaction which is subject to the prohibitions of Section 406 of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”) or in connection
with which a tax could be imposed pursuant to Section 4975 of the Internal
Revenue Code of 1986, as amended, provided that, if any of the Purchasers, or
any person or entity that owns a beneficial interest in any of the Purchasers,
is an “employee pension benefit plan” (within the meaning of Section 3(2) of
ERISA) with respect to which the Company is a “party in interest” (within the
meaning of Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and
408(e) of ERISA, if applicable, are met.  As used in this Section
2.1(aa), the term “Plan” shall mean an “employee pension benefit plan” (as
defined in Section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any
Subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any Subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.

    

    (bb)          Independent Nature of
Purchasers.  The Company acknowledges that the obligations of
each Purchaser under the Transaction Documents are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under the
Transaction Documents.  The Company acknowledges that the decision of
each Purchaser to purchase Securities pursuant to this Agreement has been made
by such Purchaser independently of any other purchase and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or of its Subsidiaries
which may have made or given by any other Purchaser or by any agent or employee
of any other Purchaser, and no Purchaser or any of its agents or employees shall
have any liability to any Purchaser (or any other person) relating to or arising
from any such information, materials, statements or opinions.  The
Company acknowledges that nothing contained herein, or in any Transaction
Document, and no action taken by any Purchaser pursuant hereto or thereto, shall
be deemed to constitute the Purchasers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Purchasers
are in any way acting in concert or as a group with respect to such obligations
or the transactions contemplated by the Transaction Documents.  The
Company acknowledges that for reasons of administrative convenience only, the
Transaction Documents have been prepared by counsel for one of the Purchasers
and such counsel does not represent all of the Purchasers but only such
Purchaser and the other Purchasers have retained their own individual counsel
with respect to the transactions contemplated hereby.  The Company
acknowledges that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers.  The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Purchasers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated hereby or thereby.  The Company acknowledges that each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.

    
      
         

      

      
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    (cc)          No Integrated
Offering.  Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the offering of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of the Securities Act which would prevent the Company from selling the
Securities pursuant to Regulation D and Rule 506 thereof under the Securities
Act, or any applicable exchange-related stockholder approval provisions, nor
will the Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.  The Company does not have any registration statement
pending before the Commission or currently under the Commission’s review and
except as set forth on Schedule 2.1(cc)
hereto, since January 1, 2008, the Company has not offered or sold any of its
equity securities or debt securities convertible into shares of Common
Stock.

    

    (dd)         Dilutive
Effect.  The Company understands and acknowledges that its
obligation to issue Conversion Shares upon conversion of the Notes in accordance
with this Agreement and the Notes and its obligations to issue the Warrant
Shares upon the exercise of the Warrants in accordance with this Agreement and
the Warrants, is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interest of other
stockholders of the Company.

    

    (ee)           DTC
Status.  Except as set forth on Schedule 2.1(ee)
hereto, the Company’s transfer agent is a participant in and the Common Stock is
eligible for transfer pursuant to the Depository Trust Company Automated
Securities Transfer Program.  The name, address, telephone number, fax
number, contact person and email of the Company transfer agent is set forth on
Schedule
2.1(ee) hereto.

    

    (ff)           Governmental
Approvals.  Except for the filing of any notice prior or
subsequent to the Closing that may be required under applicable state and/or
federal securities laws (which if required, shall be filed on a timely basis),
no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Notes and the
Warrants, or for the performance by the Company of its obligations under the
Transaction Documents.

    

    Section
2.2           Representations and
Warranties of the Purchasers.

     

    Each of the Purchasers hereby
represents and warrants to the Company with respect solely to itself and not
with respect to any other Purchaser as follows as of the date hereof and as of
the Closing Date:

    

    (a)          
 Organization and
Standing of the Purchasers.  If the Purchaser is an entity,
such Purchaser is a corporation, limited liability company or partnership duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.

    
 

    
      
        
        

      

      
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    (b)       
    Authorization and
Power.  Each Purchaser has the requisite power and authority to
enter into and perform the Transaction Documents and to purchase the Securities
being
sold to it hereunder.  The execution, delivery and performance of the
Transaction Documents by each Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate or partnership action, and no further consent or authorization of such
Purchaser or its Board of Directors, stockholders, or partners, as the case may
be, is required.  When executed and delivered by the Purchasers, the
other Transaction Documents shall constitute valid and binding obligations of
each Purchaser enforceable against such Purchaser in accordance with their
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor’s rights and remedies or by other equitable principles of general
application.

    

    (c)        
   Acquisition for
Investment.  Each Purchaser is purchasing the Securities solely
for its own account and not with a view to or for sale in connection with
distribution.  Each Purchaser does not have a present intention to
sell any of the Securities, nor a present arrangement (whether or not legally
binding) or intention to effect any distribution of any of the Securities to or
through any person or entity; provided, however, that by
making the representations herein, such Purchaser does not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with Federal and state
securities laws applicable to such disposition.  Each Purchaser
acknowledges that it (i) has such knowledge and experience in financial and
business matters such that Purchaser is capable of evaluating the merits and
risks of Purchaser’s investment in the Company, (ii) is able to bear the
financial risks associated with an investment in the Securities and (iii) has
been given full access to such records of the Company and the Subsidiaries and
to the officers of the Company and the Subsidiaries as it has deemed necessary
or appropriate to conduct its due diligence investigation.

    

    (d)        
   Rule
144.  Each Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the Securities Act
or an exemption from registration is available.  Each Purchaser
acknowledges that such person is familiar with Rule 144 of the rules and
regulations of the Commission, as amended, promulgated pursuant to the
Securities Act (“Rule
144”), and that such Purchaser has been advised that Rule 144 permits
resales only under certain circumstances.  Each Purchaser understands
that to the extent that Rule 144 is not available, such Purchaser will be unable
to sell any Securities without either registration under the Securities Act or
the existence of another exemption from such registration
requirement.

    

    (e)        
   General.  Each
Purchaser understands that the Securities are being offered and sold in reliance
on a transactional exemption from the registration requirements of federal and
state securities laws and the Company is relying upon the truth and accuracy of
the representations, warranties, agreements, acknowledgments and understandings
of such Purchaser set forth herein in order to determine the applicability of
such exemptions and the suitability of such Purchaser to acquire the
Securities.  Each Purchaser understands that no United States federal
or state agency or any government or governmental agency has passed upon or made
any recommendation or endorsement of the Securities.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    (f)      
     No General
Solicitation.  Each Purchaser acknowledges that the Securities
were not offered to such Purchaser by means of any form of general or public
solicitation or general advertising, or publicly disseminated advertisements or
sales literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which such
Purchaser was invited by any of the foregoing means of
communications.  Each Purchaser, in making the decision to purchase
the Securities, has relied upon independent investigation made by it and has not
relied on any information or representations made by third parties.

    

    (g)           Accredited
Investor.  Each Purchaser is an “accredited investor” (as
defined in Rule 501 of Regulation D), and such Purchaser has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Securities.  Such Purchaser is not
required to be registered as a broker-dealer under Section 15 of the Exchange
Act and such Purchaser is not a broker-dealer.  Each Purchaser
acknowledges that an investment in the Securities is speculative and involves a
high degree of risk.

    

    (h)        
   Certain
Fees.  The Purchasers have not employed any broker or finder or
incurred any liability for any brokerage or investment banking fees,
commissions, finders’ structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.

    

    (i)          
 Independent
Investment.  No Purchaser has agreed to act with any other
Purchaser for the purpose of acquiring, holding, voting or disposing of the
Securities purchased hereunder for purposes of Section 13(d) under the Exchange
Act, and each Purchaser is acting independently with respect to its investment
in the Securities.

     

     

    ARTICLE
III

     

    COVENANTS

     

    The
Company covenants with each Purchaser as follows, which covenants are for the
benefit of each Purchaser and their respective permitted assignees:

     

    Section
3.1           Securities
Compliance.

     

    The Company shall notify the Commission
in accordance with its rules and regulations, of the transactions contemplated
by any of the Transaction Documents and shall take all other necessary action
and proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Purchasers, or their respective subsequent holders.

    

    Section
3.2           Registration and
Listing.

     

    The Company shall cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, to comply in all respects with its reporting and filing obligations under
the Exchange Act and any applicable Canadian securities laws, to comply with all
requirements related to any registration statement filed registering any of the
Securities for resale, and to not take any action or file any document (whether
or not permitted by the Securities Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act.  The
Company will take all action necessary to continue the listing or trading of its
Common Stock on the OTC Bulletin Board or other Trading Market (as defined in
the Notes).  If required, the Company will promptly file the “Listing
Application” for, or in connection with, the issuance and delivery of the Shares
and the Warrant Shares.  Subject to the terms of the Transaction
Documents, the Company further covenants that it will take such further action
as the Purchasers may reasonably request, all to the extent required from time
to time to enable the Purchasers to sell the Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144 promulgated under the Securities Act.  Upon the request of
the Purchasers, the Company shall deliver to the Purchasers a written
certification of a duly authorized officer as to whether it has complied with
such requirements.

    
      
         

      

      
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    Section
3.3           Inspection
Rights.

     

    Provided same would not be in violation
of Regulation FD, the Company shall permit, during normal business hours and
upon reasonable request and reasonable notice, each Purchaser or any employees,
agents or representatives thereof, so long as such Purchaser shall be obligated
hereunder to purchase the Notes or shall beneficially own any Conversion Shares
or Warrant Shares, for purposes reasonably related to such Purchaser’s interests
as a stockholder, to examine the publicly available, non-confidential records
and books of account of, and visit and inspect the properties, assets,
operations and business of the Company and any Subsidiary, and to discuss the
publicly available, non-confidential affairs, finances and accounts of the
Company and any Subsidiary with any of its officers, consultants, directors, and
key employees.

    

    Section
3.4           Compliance with
Laws.

     

    The Company shall comply, and cause
each Subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which would be reasonably likely to have a Material
Adverse Effect.

    

    Section
3.5           Keeping of Records and Books
of Account.

     

    The Company shall keep and cause each
Subsidiary to keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied, reflecting
all financial transactions of the Company and its Subsidiaries, and in which,
for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in connection
with its business shall be made.

    

    Section
3.6           Reporting
Requirements.

     

    If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports available via the Internet without charge, then the Company
shall furnish the following to each Purchaser so long as such Purchaser shall be
obligated hereunder to purchase the Securities or shall beneficially own
Securities:

    
      
         

      

      
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    (a)           Quarterly
Reports on Form 6-K as soon as practical after the document is or would have
been required to be filed with the Commission;

    

    (b)           Annual
Reports filed with the Commission on Form 20-F as soon as practical after the
document is or would have been required to be filed with the Commission;
and

    

    (c)     
      Copies of all notices, information and proxy
statements in connection with any meetings, that are, in each case, provided to
holders of shares of Common Stock, contemporaneously with the delivery of such
notices or information to such holders of Common Stock.

     

    Section
3.7           Other
Agreements.

     

    The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.

    

    Section
3.8           Use of
Proceeds.

    

    The
proceeds from the sale of the Securities hereunder shall be used by the Company
for general working capital and the repayment of indebtedness owed pursuant to
the Promissory Note, dated on or about July 2, 2008, in the original principal
amount of $200,000 (the “Bridge Note”), and to
Compass Bank in the amount set forth in Schedule 3.8.  In no event
shall the proceeds be used to redeem any Common Stock or securities convertible,
exercisable or exchangeable into Common Stock or to settle any outstanding
litigation.

    

    Section
3.9           Reporting
Status.

    

    So long
as a Purchaser beneficially owns any of the Securities, the Company shall timely
file all reports required to be filed with the Commission pursuant to the
Exchange Act and under relevant Canadian securities laws, and the Company shall
not terminate its status as an issuer required to file reports under the
Exchange Act even if the Exchange Act or the rules and regulations thereunder
would permit such termination.

    

    Section
3.10         Disclosure of
Transaction.

     

    The Company shall issue a press release
describing the material terms of the transactions contemplated hereby (the
“Press
Release”) within three Trading Days of the Closing Date.  The
Company shall also file with the Commission a Current Report on Form 6-K (the
“Form 6-K”)
describing the material terms of the transactions contemplated hereby as soon as
practicable following the Closing Date but in no event more than three (3)
Trading Days following the Closing Date, which Press Release and Form 6-K shall
be subject to prior review and comment by the Purchasers.  “Trading Day” means
any day during which the principal exchange on which the Common Stock is traded
shall be open for trading.

     

    
 

    
      
        
        

      

      
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    Section
3.11         Disclosure of Material
Information.

    The Company covenants and agrees that
neither it nor any other person acting on its behalf has provided or will
provide any Purchaser or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto such Purchaser shall have executed a written agreement regarding the
confidentiality and use of such information.  The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.  In the event
of a breach of the foregoing covenant by the Company, or any of its
Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the
Transaction Documents, the Company shall publicly disclose any material,
non-public information in a Form 6-K within five (5) Business Days of the date
that it discloses such information to any Purchaser.  In the event
that the Company discloses any material, non-public information to a Purchaser
and fails to publicly file a Form 6-K in accordance with the above, a Purchaser
shall have the right to make a public disclosure, in the form of a press
release, public advertisement or otherwise, of such material, nonpublic
information without the prior approval by the Company, its Subsidiaries, or any
of its or their respective officers, directors, employees or
agents.  No Purchaser shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees,
stockholders or agents, for any such disclosure.

    

    Section
3.12         Pledge of
Securities.

     

    The Company acknowledges that the
Securities may be pledged by a Purchaser in connection with a bona fide margin agreement
or other loan or financing arrangement that is secured by the
Securities.  The pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Purchaser
effecting a pledge of the Securities shall be required to provide the Company
with any notice thereof or otherwise make any delivery to the Company pursuant
to this Agreement or any other Transaction Document; provided that a Purchaser
and its pledge shall be required to comply with the provisions of Article V
hereof in order to effect a sale, transfer or assignment of Securities to such
pledgee. At the Purchasers’ expense, the Company hereby agrees to execute and
deliver such documentation as a pledge of the Securities may reasonably request
in connection with a pledge of the Securities to such pledgee by a
Purchaser.

    

    Section
3.13         Amendments.  

     

    The Company shall not amend or waive
any provision of the Articles or Bylaws of the Company in any way that would
adversely affect exercise rights, voting rights, conversion rights, prepayment
rights or redemption rights of the holder of the Notes or the
Warrants.

    

    Section
3.14         Distributions.

     

    Except as provided in Schedule 3.14, so
long as any Notes or Warrants remain outstanding, the Company agrees that it
shall not, and shall not permit any Subsidiary to, (i) declare or pay any
dividends or make any distributions to any holder(s) of Common Stock (or
security convertible into or exercisable for Common Stock) or (ii) purchase or
otherwise acquire for value, directly or indirectly, any Common Stock or other
equity security of the Company.

     

    
      
         

      

      
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    Section
3.15         Reservation of
Shares.

     

    So long
as any of the Notes or Warrants remain outstanding, the Company shall take all
action necessary to at all times have authorized and reserved for the purpose of
issuance, one hundred fifty percent (150%) of the aggregate number of shares of
Common Stock needed to provide for the issuance of the Conversion Shares and the
Warrant Shares.

    

    Section
3.16         Transfer Agent
Instructions

     

    The Company shall issue instructions to
its transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Purchaser or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Purchaser to the Company upon conversion of the Notes or
exercise of the Warrants in the form of Exhibit K attached
hereto (the “Irrevocable Transfer Agent
Instructions”).  The Company warrants that the Conversion
Shares and Warrant Shares shall otherwise be freely transferable on the books
and records of the Company, subject to the requirements of applicable
law.  Nothing in this Section 3.16 shall affect in any way each
Purchaser’s obligations and agreements set forth in Section 5.1 to comply with
all applicable prospectus delivery requirements, if any, or other exemption from
registration upon resale of the Conversion Shares and the Warrant
Shares.  If a Purchaser provides the Company with an opinion of
counsel, in a generally acceptable form, to the effect that a public sale,
assignment or transfer of the Conversion Shares or Warrant Shares may be made
without registration under the Securities Act or the Purchaser provides the
Company with reasonable assurances that the Conversion Shares or Warrant Shares
can be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold,
the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend.  The Company
acknowledges that a breach by it of its obligations under this Section 3.16 will
cause irreparable harm to the Purchasers by vitiating the intent and purpose of
the transaction contemplated hereby.  Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 3.16 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 3.16, that
the Purchasers shall be entitled, in addition to all other available remedies,
to an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.

    

    Section
3.17         Opinions. 

    

    The
Company will provide, at the Company’s expense, such legal opinions in the
future as are reasonably necessary for the issuance and resale of the Common
Stock issuable upon conversion of the Notes and exercise of the Warrants
pursuant to an effective registration statement, Rule 144 or an exemption from
registration.  In the event that Common Stock is sold in a manner that
complies with an exemption from registration, the Company will promptly instruct
its counsel (at its expense) to issue to the transfer agent an opinion
permitting removal of the legend (indefinitely, if more than one year has
elapsed from the Closing Date, or to permit sale of the shares if pursuant to
the other provisions of Rule 144).

    
      
         

      

      
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    Section
3.18         Acquisition of
Assets.

     

    In the event the Company or any
Subsidiary acquires any assets or other properties, such assets or properties
shall constitute a part of the Collateral (as defined in the Security Agreement)
and the Company shall take all action necessary to perfect the Purchasers’
security interest in such assets or properties pursuant to the Security
Agreement.

    

    Section
3.19         Subsequent
Financings.

     

    (a)           For
so long as the Notes remain outstanding, the Company covenants and agrees to
promptly notify (in no event later than five (5) days after making or receiving
an applicable offer) in writing (a “Rights Notice”) the
Purchasers of the terms and conditions of any proposed offer or sale to, or
exchange with (or other type of distribution to) any third party  (a
“Subsequent
Financing”), of Common Stock or any securities convertible, exercisable
or exchangeable into Common Stock, including convertible debt securities
(collectively, the “Financing
Securities”).  The Rights Notice shall describe, in reasonable
detail, the proposed Subsequent Financing, the names and investment amounts of
all investors participating in the Subsequent Financing, the proposed closing
date of the Subsequent Financing, which shall be within twenty (20) calendar
days from the date of the Rights Notice, and all of the terms and conditions
thereof and proposed definitive documentation to be entered into in connection
therewith.  The Rights Notice shall provide each Purchaser an option
(the “Rights
Option”) during the ten (10) days following delivery of the Rights Notice
(the “Option
Period”) to inform the Company whether such Purchaser will purchase
securities in such Subsequent Financing, up to its pro rata portion (as
described below) of the securities being offered in such Subsequent Financing on
the same, absolute terms and conditions as contemplated by such Subsequent
Financing.  If any Purchaser elects not to participate in such
Subsequent Financing, the other Purchasers may participate on a pro-rata
basis.  For purposes of this Section, all references to “pro rata”
means, for any Purchaser electing to participate in such Subsequent Financing,
the percentage obtained by dividing (x) the principal amount of the Notes
purchased by such Purchaser at each Closing by (y) the total principal amount of
all of the Notes purchased by all of the participating Purchasers at each
Closing.  Delivery of any Rights Notice constitutes a representation
and warranty by the Company that there are no other material terms and
conditions, arrangements, agreements or otherwise except for those disclosed in
the Rights Notice, to provide additional compensation to any party participating
in any proposed Subsequent Financing, including, but not limited to, additional
compensation based on changes in the Purchase Price or any type of reset or
adjustment of a purchase or conversion price or to issue additional securities
at any time after the closing date of a Subsequent Financing.  If the
Company does not receive notice of exercise of the Rights Option from the
Purchasers within the Option Period, the Company shall have the right to close
the Subsequent Financing on the scheduled closing date with a third party; provided that all of
the material terms and conditions of the closing are substantially the same as
those provided to the Purchasers in the Rights Notice.  If the closing
of the proposed Subsequent Financing does not occur on that date, any closing of
the contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of  Sections 3.19(a) and (c),
including, without limitation, the delivery of a new Rights
Notice.  The provisions of this Section 3.19(a) shall not apply to:
(i) issuances of securities in a Permitted Financing; or (ii) with respect to
any Purchaser that holds less than 10% of the Notes issued to it upon the
Closing.

    
      
         

      

      
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    (b)           For
purposes of this Agreement, a Permitted Financing shall not be considered a
Subsequent Financing.  A “Permitted Financing”
shall mean (i) any financing described in and meeting the requirements of
Section 3.5(c) of the Notes, (ii) any Subsequent Financing whereby the Company
issues equity securities or securities exercisable or convertible to common
stock as part of a capital raising transaction or series of transactions to
raise up to $10 million so long as such equity securities are issued by the
Company, or convertible or exercisable, at a price equal to at least $0.55 per
share (as adjusted for splits, combinations and the like occurring after the
date hereof); and (iii) any Subsequent Financing for which the proceeds will be
used to fully satisfy the Company’s obligations under the Note.

    

    (c)    
       So long as the Notes are outstanding,
if the Company enters into any Subsequent Financing on terms more favorable than
the terms governing the Notes, then each Purchaser in its sole discretion may
exchange its Note, valued at their stated value (stated principal amount),
together with accrued but unpaid interest (which interest payments shall be
payable, at the sole option of such Purchaser, in cash or in the form of the new
securities to be issued in the Subsequent Financing), for the securities issued
or to be issued in the Subsequent Financing.  The Company covenants
and agrees to promptly notify in writing the Purchasers of the terms and
conditions of any such proposed Subsequent Financing.  Neither an
exchange pursuant to this provision nor any repayment or conversion of the Note
shall have any effect on a Purchaser’s Warrants.  The Warrants
constitute a separate, detachable security from the
Notes.  Notwithstanding any such exchange, repayment or conversion,
the Purchasers shall retain all of the outstanding Warrants which they received
upon Closing, or otherwise, that have not been exercised by the
Purchasers.

    

    Section
3.20         Variable Rate
Securities.

     

    For so long as any Notes have not been
paid in full or converted in full, except for a Permitted Financing described in
clauses (ii) and (iii) of the definition of Permitted Financing in Section
3.19(b) above, the Company shall not issue or sell, or agree to issue or sell
Variable Equity Securities (as defined below), without obtaining the prior
written approval of each of the Purchasers.  For purposes hereof, the
following shall be collectively referred to herein as, the “Variable Equity
Securities”: (A) any debt or equity securities which are convertible
into, exercisable or exchangeable for, or carry the right to receive additional
shares of Common Stock either (1) at any conversion, exercise or exchange rate
or other price that is based upon and/or varies with the trading prices of or
quotations for Common Stock at any time after the initial issuance of such debt
or equity security, or (2) with a fixed conversion, exercise or exchange price
that is subject to being reset at some future date at any time after the initial
issuance of such debt or equity security due to a change in the market price of
the Company’s Common Stock since date of initial issuance, or (B) any amortizing
convertible security which amortizes prior to its maturity date, where the
Company is required to or has the option to (or the investor in such transaction
has the option to require the Company to) make such amortization payments in
shares of Common Stock (whether or not such payments in stock are subject to
certain equity conditions), or (C) any transaction involving a written agreement
between the Company and an investor or underwriter whereby the Company has the
right to “put” its securities to the investor or underwriter over an agreed
period of time and at an agreed price or price formula.

     

    
 

    
      
         

      

      
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    Section
3.21         Registration
Rights.

     

    If, within one year of the Closing
Date,  the Company shall determine to prepare and file with the
Commission a registration statement (a “Registration
Statement”) relating to an offering for its own account or the account of
others under the Securities Act of any of its equity securities, other than on
Form F-4 or Form S-8 (each as promulgated under the Securities Act), or their
then equivalents, relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or equity securities
issuable in connection with stock option or other employee benefit plans, then
the Company shall send to the Purchasers a written notice of such determination
and, if within ten days after the date of such notice, a Purchaser shall so
request in writing, the Company shall include in such Registration Statement all
or any part of the Conversion Shares or Warrant Shares as such Purchaser
requests to be registered so long as such Conversion Shares or Warrant Shares
are proposed to be disposed in the same manner as those set forth in the
Registration Statement; provided, however, that if the number of Conversion
Shares or Warrant Shares offered for participation in the proposed offering is
greater than, in the reasonable opinion of the managing underwriter (if any) of
the proposed offering, can be accommodated without adversely affecting the
proposed offering, then the number of shares of Common Stock included in such
registration shall be subject to reduction to a number deemed satisfactory by
the managing underwriter, which reduction shall be allocated pro rata among all
parties offering securities pursuant to such Registration
Statement.  The Company shall use its best efforts to cause any
Registration Statement to be declared effective by the Commission as promptly as
is possible following it being filed with the Commission and to remain effective
until all Conversion Shares subject thereto have been sold or may be sold
without limitations as to volume or the availability of current public
information under Rule 144.  All fees and expenses incident to the
performance of or compliance with this Section 3.21 by the Company shall be
borne by the Company whether or not any Conversion Shares or Warrant Shares are
sold pursuant to the Registration Statement.  The Company shall
indemnify and hold harmless each Purchaser, the officers, directors, members,
partners, agents, brokers, investment advisors and employees of each of them,
each person who controls each Purchaser (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), and the officers, directors,
members, shareholders, partners, agents and employees of each such controlling
person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as
incurred, arising out of or relating to (1) any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
prospectus included therein or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading or (2) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act or any
state securities law, or any rule or regulation thereunder, in connection with
the performance of its obligations under this Section 3.21, except, with respect
to a Purchaser, to the extent, but only to the extent, that such untrue
statements or omissions referred to in (1) above are based solely upon
information regarding such Purchaser furnished in writing to the Company by such
Purchaser expressly for use therein.

    
      
         

      

      
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    ARTICLE
IV

     

    CONDITIONS

     

    Section
4.1           Conditions Precedent to the
Obligation of the Company to Close and to Sell the
Securities.

     

    The obligation hereunder of the Company
to close and issue and sell the Securities to the Purchasers at the Closing is
subject to the satisfaction or waiver, at or before the Closing of the
conditions set forth below.  These conditions are for the Company’s
sole benefit and may be waived by the Company at any time in its sole
discretion.

    

    (a)           Accuracy of the Purchasers’
Representations and Warranties.  The representations and
warranties of each Purchaser shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though made at that time,
except for representations and warranties that are expressly made as of a
particular date, which shall be true and correct in all material respects as of
such date.

    

    (b)           Performance by the
Purchasers.  Each Purchaser shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Purchasers at or prior to the Closing Date.

    

    

    (c)           No
Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

    

    (d)           Delivery of Purchase
Price.  The Purchase Price for the Securities shall have been
delivered to or on behalf of the Company on the Closing Date; provided, that, (i) any fees
owed to the Finder shall be delivered directly to the Finder by the Purchasers
on Closing, (ii) any portion of the Purchase Price required to repay all
outstanding indebtedness owed pursuant to the Bridge Note and owed Compass Bank
shall be delivered directly by the Purchasers to such parties, (iii) legal fees
of the Lead Purchaser may be withheld by the Lead Purchaser from funds to be
delivered to the Company on Closing and (iv) any recording fees and premium
relating to title insurance may be withheld by the Lead Purchaser from funds to
be delivered to the Company on Closing.

    

    (e)           Delivery of Transaction
Documents.  The Transaction Documents shall have been duly
executed and delivered by the Purchasers to the Company.

     

    
 

    
      
        
        

      

      
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    Section
4.2           Conditions Precedent to the
Obligation of the Purchasers to Close and to Purchase the
Securities.

    The obligation hereunder of the
Purchasers to purchase the Securities and consummate the transactions
contemplated by this Agreement is subject to the satisfaction or waiver, at or
before the Closing, of each of the conditions set forth below.  These
conditions are for the Purchasers’ sole benefit and may be waived by the
Purchasers at any time in their sole discretion.

    

    (a)           Accuracy of the Company’s
Representations and Warranties.  Each of the representations
and warranties of the Company in this Agreement and the other Transaction
Documents shall be true and correct in all material respects as of the Closing
Date, except for representations and warranties that speak as of a particular
date, which shall be true and correct in all material respects as of such
date.

    

    (b)           Performance by the
Company.  The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date.

    

    

    (c)           No Suspension,
Etc.  Trading in the Common Stock shall not have been suspended
by the Commission or the OTC Bulletin Board, and, at any time prior to the
Closing Date, trading in securities generally as reported by Bloomberg Financial
Markets (“Bloomberg”) shall not
have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the New
York Stock Exchange, nor shall a banking moratorium have been declared either by
the United States or New York State authorities, nor shall there have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of such Purchaser, makes it impracticable or inadvisable to purchase
the Securities.

    

    (d)           No
Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

    

    

    (e)           No Proceedings or
Litigation.  No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.

    

    (f)           Opinion of
Counsel.  The Purchasers shall have received one or more
opinions of counsel to the Company, dated the date of the Closing, substantially
in the form of Exhibit L hereto,
with such exceptions and limitations as shall be reasonably acceptable to
counsel to the Purchasers.

    
      
         

      

      
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    (g)           Notes and Warrants;
Guarantees.  At or prior to the Closing, the Company shall have
delivered to the Purchasers the Notes (in such denominations as each Purchaser
may request) and the Warrants (in such denominations as each Purchaser may
request), and the Subsidiaries shall have delivered the
Guarantees.

    

    (h)           Secretary’s
Certificate.  The Company shall have delivered to the
Purchasers a secretary’s certificate, dated as of the Closing Date, as to (i)
the resolutions adopted by the Board of Directors approving the transactions
contemplated hereby, (ii) the Articles, (iii) the Bylaws, each as in effect at
the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.

    

    (i)           Officer’s
Certificate.  On the Closing Date, the Company shall have
delivered to the Purchasers a certificate signed by an executive officer on
behalf of the Company, dated as of the Closing Date, confirming the accuracy of
the Company’s representations, warranties and covenants as of such Closing Date
and confirming the compliance by the Company with the conditions precedent set
forth in paragraphs (a)-(e) and (k) of this Section 4.2 as of the Closing Date
(provided that, with respect to the matters in paragraphs (d) and (e) of this
Section 4.2, such confirmation shall be based on the knowledge of the executive
officer after due inquiry).

    

    (j)           Mortgaged Land and
Premises.  As of the Closing Date, the Mortgage shall have been
recorded in the land records of El Paso, Texas and shall be a first priority
lien on the land and premises described therein.  The Company and the
Subsidiaries shall deliver a title insurance policy, in form and substance
satisfactory to the Purchasers, with respect to the land and premises described
in the mortgage, the premium of which shall be paid by the Company at Closing
(or withheld by the Lead Purchaser).  The Environmental Indemnity
Agreement shall have been delivered to each Purchaser.

    

    (k)           Material Adverse
Effect.  No Material Adverse Effect shall have
occurred.

    

    (l)           Transfer Agent
Instructions.  The Irrevocable Transfer Agent Instructions, in
the form of Exhibit
K attached hereto, shall have been delivered to the Company’s transfer
agent.

    

    (m)           Security
Agreements.  At the Closing, the Company shall have executed
and delivered the Security Agreement and IP Security Agreement to each
Purchaser.

     

    
 

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

    

    (n)           UCC Financing
Statements.  The Company and the Subsidiaries shall have filed
(or authorized the filing of) all UCC and similar financing statements in form
and substance satisfactory to the Purchasers at the appropriate offices to
create a valid and perfected security interest in the Collateral (as defined in
the Security Agreement).

    

    (o)           Global Green
Agreement.   Global Green Solutions Inc. shall have
consented to the Guaranty of Vertigro and the pledge of the Company’s or
Subsidiaries’ interests in Vertigro to the Agent for the benefit of the
Purchasers.

    

    (p)           Pagic LP
Agreement.  Pagic LP and the other licensors named therein
shall have agreed with the Purchasers not to terminate, amend or modify the
License Agreements without the express written consent of the Purchasers, which
agreement shall be in form and substance satisfactory to the
Purchasers.

     

     

    ARTICLE
V

     

    CERTIFICATE
LEGEND

     

    Section
5.1           Legend.

     

    Each certificate representing the
Securities shall be stamped or otherwise imprinted with a legend substantially
in the following form (in addition to any legend required by applicable state
securities or “blue sky” laws):

    

    THE
SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR VALCENT PRODUCTS INC. SHALL HAVE RECEIVED AN OPINION OF
COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER
THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

     

    UNLESS
PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT
TRADE THE SECURITY BEFORE NOVEMBER 17, 2008.

    

    The
Company agrees to issue or reissue certificates representing any of the
Conversion Shares and the Warrant Shares, without the legend set forth above if
at such time, prior to making any transfer of any such Conversion Shares or
Warrant Shares, such holder thereof shall give written notice to the Company
describing the manner and terms of such transfer and removal as the Company may
reasonably request, and (x) such Conversion Shares and/or Warrant Shares have
been registered for sale under the Securities Act and the holder is selling such
shares and is complying with its prospectus delivery requirement under the
Securities Act, (y) the holder is selling such Conversion Shares and/or Warrant
Shares in compliance with the provisions of Rule 144 or (z) the provisions of
paragraph (b)(1)(i) of Rule 144 apply to such Shares.

     

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

     

     

    ARTICLE
VI

     

    INDEMNIFICATION

     

    Section
6.1           General
Indemnity.

     

    The Company agrees to indemnify and
hold harmless the Purchasers (and their respective directors, officers,
affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys’ fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company
herein.

     

    Section
6.2           Indemnification
Procedure.

     

    Any party entitled to indemnification
under this Article VI (an “indemnified party”) will give written notice to the
indemnifying party of any matter giving rise to a claim for indemnification;
provided, that the failure of any party entitled to indemnification hereunder to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under this Article VI except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice.  In case
any such action, proceeding or claim is brought against an indemnified party in
respect of which indemnification is sought hereunder, the indemnifying party
shall be entitled to participate in and, unless in the reasonable judgment of
the indemnifying party a conflict of interest between it and the indemnified
party exists with respect to such action, proceeding or claim (in which case the
indemnifying party shall be responsible for the reasonable fees and expenses of
one separate counsel for the indemnified parties), to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party.  In the
event that the indemnifying party advises an indemnified party that it will
contest such a claim for indemnification hereunder, or fails, within thirty (30)
days of receipt of any indemnification notice to notify, in writing, such person
of its election to defend, settle or compromise, at its sole cost and expense,
any action, proceeding or claim (or discontinues its defense at any time after
it commences such defense), then the indemnified party may, at its option,
defend, settle or otherwise compromise or pay such action or
claim.  In any event, unless and until the indemnifying party elects
in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party’s costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder.  The indemnified
party shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim.  The
indemnifying party shall keep the indemnified party fully apprised at all times
as to the status of the defense or any settlement negotiations with respect
thereto.  If the indemnifying party elects to defend any such action
or claim, then the indemnified party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense.  The
indemnifying party shall not be liable for any settlement of any action, claim
or proceeding effected without its prior written
consent.  Notwithstanding anything in this Article VI to the contrary,
the indemnifying party shall not, without the indemnified party’s prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof which imposes any future obligation on the indemnified party or
which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the indemnified party of a release from all
liability in respect of such claim.  The indemnification obligations
to defend the indemnified party required by this Article VI shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the indemnified party shall refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party was
not entitled to indemnification.  The indemnity agreements contained
herein shall be in addition to (a) any cause of action or similar rights of the
indemnified party against the indemnifying party or others, and (b) any
liabilities the indemnifying party may be subject to pursuant to the
law.

     

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

     

    ARTICLE
VII

     

    MISCELLANEOUS

     

    Section
7.1           Fees and
Expenses.

     

    Each party shall pay the fees and
expenses of its advisors, counsel, accountants and other experts, if any, and
all other expenses, incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement; provided, however, that the
Company shall pay all actual attorneys’ fees and expenses (including
disbursements and out-of-pocket expenses) incurred by the Lead Purchasers in
connection with (i) the preparation, negotiation, execution and delivery of the
Transaction Documents and the transactions contemplated thereunder, which
payment shall be made at Closing and shall not exceed $19,500 (plus
disbursements and out-of-pocket expenses), and (ii) any amendments,
modifications or waivers of this Agreement or any of the other Transaction
Documents.  In addition, the Company shall pay (i) any fees and
expenses relating to the title insurance with respect to the property described
in the Mortgage, and (ii) all reasonable fees and expenses incurred by the
Purchasers in connection with the enforcement of this Agreement or any of the
other Transaction Documents, including, without limitation, all reasonable
attorneys’ fees and expenses.

    

    Section
7.2           Specific Performance;
Consent to Jurisdiction; Venue.

     

    (a)           The
Company and the Purchasers acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or the other
Transaction Documents were not performed in accordance with their specific terms
or were otherwise breached.  It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches of
the provisions of this Agreement or the other Transaction Documents and to
enforce specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.

     

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

     

    

    (b)           The
parties agree that venue for any dispute arising under this Agreement will lie
exclusively in the state or federal courts located in New York County, New York,
and the parties irrevocably waive any right to raise forum non conveniens or any
other argument that New York is not the proper venue.  The parties
irrevocably consent to personal jurisdiction in the state and federal courts of
the state of New York.  The Company and each Purchaser consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof.  Nothing in this Section 7.2
shall affect or limit any right to serve process in any other manner permitted
by law.  The Company and the Purchasers hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
the Securities, this Agreement or the other Transaction Documents, shall be
entitled to reimbursement for reasonable legal fees from the non-prevailing
party.  The parties hereby waive all rights to a trial by
jury.

    

    Section
7.3           Entire Agreement;
Amendment.

     

    This Agreement and the Transaction
Documents contain the entire understanding and agreement of the parties with
respect to the matters covered hereby and, except as specifically set forth
herein or in the other Transaction Documents, neither the Company nor any
Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged
herein.  No provision of this Agreement may be waived or amended other
than by a written instrument signed by the Company and the Purchasers holding at
least a majority of the principal amount of the Notes then held by the
Purchasers.  Any amendment or waiver effected in accordance with this
Section 7.3 shall be binding upon each Purchaser (and their permitted assigns)
and the Company.

    

    Section
7.4           Notices.

     

    Any notice, demand, request, waiver or
other communication required or permitted to be given hereunder shall be in
writing and shall be effective (a) upon hand delivery by telecopy or facsimile
at the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur.  The addresses for such
communications shall be:

     

    
 

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

     

    If to the
Company:                              
Valcent Products Inc.

    Suite
1010 – 789 West Pender Street

    Vancouver,
British Columbia, Canada

    V6C
1H2

    Attn:
Grant Atkins

    Tel:
(604) 637-3106

    Fax:
(604) 606-7980

    

    

    with
copies (which copies

    shall not
constitute notice

    to the
Company)
to:                             Burns
Figa & Will P.C.

    6400 S. Fiddlers Green
Circle

    Suite
1000

    Greenwood
Village, CO 80111

    Attn: Theresa M.
Mehringer

    Tel:
(303) 796-2626

    Fax:
(303) 796-2777

    

    
      	
              If
      to any Purchaser:

            	
              At
      the address of such Purchaser set forth on Exhibit A to
      this Agreement, with copies to Purchaser’s counsel as set forth on Exhibit A or as
      specified in writing by such Purchaser with copies
  to:

            

    

    

    Shane W.
McCormack, Esq.

    Burak
Anderson & Melloni, PLC

    30 Main
Street, PO Box 787

    Burlington,
VT 05402-0787

    Tel:
(802) 862-0500

    Fax:
(802) 862-8176

    

    Any party
hereto may from time to time change its address for notices by giving written
notice of such changed address to the other party hereto.

     

    Section
7.5           Waivers.

     

    No waiver by either party of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.  No
consideration shall be offered or paid to any Purchaser to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents.  This provision constitutes a separate right
granted to each Purchaser by the Company and shall not in any way be construed
as the Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.

    
      
         

      

      
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      Section
7.6           Headings.

    

     

    The
article, section and subsection headings in this Agreement are for convenience
only and shall not constitute a part of this Agreement for any other purpose and
shall not be deemed to limit or affect any of the provisions
hereof.

    

    Section
7.7           Successors and
Assigns.

     

    This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and
assigns.  After the Closing, the assignment by a party to this
Agreement of any rights hereunder shall not affect the obligations of such party
under this Agreement.  The Purchasers may assign the Securities and
its rights under this Agreement and the other Transaction Documents and any
other rights hereto and thereto without the consent of the Company.

    

    Section
7.8           No Third Party
Beneficiaries.

     

    This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

    

    Section
7.9           Governing
Law.

     

    This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction.  This
Agreement shall not be interpreted or construed with any presumption against the
party causing this Agreement to be drafted.  In no event shall the
rate of interest payable hereunder or under any of the other Transaction
Documents exceed the maximum rate (if any) permitted by applicable
law.

    

    Section
7.10         Survival.

     

    The representations and warranties of
the Company and the Purchasers shall survive the execution and delivery hereof
and the Closing until the third anniversary of the Closing Date; the agreements
and covenants set forth in Articles I, III, V, VI and VII of this Agreement
shall survive the execution and delivery hereof and Closing
hereunder.

    

    Section
7.11         Counterparts.

     

    This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and shall become effective when counterparts have been signed by
each party and delivered to the other parties hereto, it being understood that
all parties need not sign the same counterpart.

    

    Section
7.12         Publicity.

     

    The Company agrees that it will not
disclose, and will not include in any public announcement, the names of the
Purchasers without the consent of the Purchasers, which consent shall not be
unreasonably withheld or delayed, or unless and until such disclosure is
required by law, rule or applicable regulation and then only to the extent of
such requirement.

     

    
      
         

      

      
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    Section
7.13         Severability.

     

    The provisions of this Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement and this Agreement shall be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of such provision, had
never been contained herein, so that such provisions would be valid, legal and
enforceable to the maximum extent possible.

    

    Section
7.14         Further
Assurances.

     

    From and after the date of this
Agreement, upon the request of the Purchasers or the Company, the Company and
each Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement and the other
Transaction Documents.

     

    Section
7.15         Collateral
Agent.

     

    (a)           Appointment.  Each
Purchaser hereby appoints the Lead Purchaser as the Collateral Agent under the
Security Agreement, the Mortgage and the IP Security Agreement (collectively,
the “Security
Documents”) and each Purchaser authorizes the Collateral Agent to take
such action as agent on its behalf and to exercise such powers under the
Security Documents as are delegated to the Collateral Agent under such
agreements and to exercise such powers as are reasonably incidental
thereto.  Without limiting the foregoing, each Secured Party hereby
authorizes the Collateral Agent to execute and deliver, and to perform its
obligations under, each of the documents to which the Collateral Agent is a
party relating to security for the obligations under the Notes, to exercise all
rights, powers and remedies that the Collateral Agent may have under such
Security Documents and, in the case of the Security Documents, to act as agent
for the Purchasers under such Transaction Documents.

    

    (b)           Instructions of
Purchasers.  The Collateral Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Purchasers holding at least 51% of the
aggregate amount of the Notes then outstanding, and such instructions shall be
binding upon all Purchasers; provided, however, that the
Collateral Agent shall not be required to take any action that (i) the
Collateral Agent in good faith believes exposes it to personal liability unless
the Collateral Agent receives an indemnification satisfactory to it from the
Purchasers with respect to such action or (ii) is contrary to this Agreement or
applicable law.

    

    
      
         

      

      
        33

        
          

        

      

      
         

      

    

    (c)           Duties are Administrative in
Nature.  In performing its functions and duties under the
Security Documents and the other documents required to be executed or delivered
in connection therewith, the Collateral Agent is acting solely on behalf of the
Purchasers and its duties are entirely administrative in nature.  The
Collateral Agent does not assume and shall not be deemed to have assumed any
obligation other than as expressly set forth herein.  The Collateral
Agent may perform any of its duties under any Security Document by or through
its agents or employees.

    

    (d)           No
Liability.  None of the Collateral Agent, any of its affiliates
or any of their respective directors, officers, agents or employees shall be
liable for any action taken or omitted to be taken by it, him, her or them under
or in connection with the Security Documents, except for its, his, her or their
own gross negligence or willful misconduct.

    

    (e)           Investigation.  Each
Secured Party acknowledges that it shall, independently and without reliance
upon the Collateral Agent or any other Secured Party conduct its own independent
investigation of the financial condition and affairs of the Company and its
Subsidiaries in connection with the issuance of the Securities.  Each
Secured Party also acknowledges that it shall, independently and without
reliance upon the Collateral Agent or any other Secured Party and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and other Transaction Documents.

    

    (f)           Indemnification.  Each
Purchaser agrees to indemnify the Collateral Agent and each of its affiliates,
and each of their respective directors, officers, employees, agents and advisors
(to the extent not reimbursed by the Company), from any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements (including fees, expenses and disbursements of
financial and legal advisors) of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against, the Collateral Agent or any of its
affiliates, directors, officers, employees, agents and advisors in any way
relating to or arising out of the Security Documents or any action taken or
omitted by the Collateral Agent under the Security Documents or the document
related thereto; provided, however, that no
Purchaser shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Collateral Agent’s or such Affiliate’s gross
negligence or willful misconduct.

    

    (g)           Resignation. The
Collateral Agent may resign at any time by giving written notice thereof to the
Purchasers and the Company.  Upon any such resignation, the Purchasers
shall have the right to appoint a successor Collateral Agent.  If no
successor Collateral Agent shall have been so appointed by the Purchasers, and
shall have accepted such appointment, within 30 days after the retiring
Collateral Agent’s giving of notice of resignation, then the retiring Collateral
Agent may, on behalf of the Purchasers, appoint a successor Collateral Agent,
selected from among the Purchasers.  Upon the acceptance of any
appointment as Collateral Agent by a successor Collateral Agent, such successor
Collateral Agent shall succeed to, and become vested with, all the rights,
powers, privileges and duties of the retiring Collateral Agent, and the retiring
Collateral Agent shall be discharged from its duties and obligations under this
Agreement, the Transaction Documents and any other documents required to be
executed or delivered in connection therewith.  Prior to any retiring
Collateral Agent’s resignation hereunder as Collateral Agent, the retiring
Collateral Agent shall take such action as may be reasonably necessary to assign
to the successor Collateral Agent its rights as Collateral Agent under the
Transaction Documents.  After such resignation, the retiring
Collateral Agent shall continue to have the benefit of this Agreement as to any
actions taken or omitted to be taken by it while it was Collateral Agent under
this Agreement, the Security Documents and any other documents required to be
executed or delivered in connection therewith.

    
      
         

      

      
        34

        
          

        

      

      
         

      

    

     

    

    (h)           Binding.  Each
Purchaser agrees that any action taken by the Collateral Agent in accordance
with the provisions of this Agreement or of the other document relating thereto,
and the exercise by the Collateral Agent or the Purchasers of the powers set
forth herein or therein, together with such other powers as are reasonably
incidental thereto, shall be authorized and binding upon all of the
Purchasers.

    

    

    (i)           
Releases.  Each
of the Purchasers hereby directs, in accordance with the terms hereof, the
Collateral Agent to release (or in the case of clause (ii) below, release or
subordinate) any Lien held by the Collateral Agent for the benefit of the
Purchasers against any of the following: (i) all of the Collateral upon payment
and satisfaction in full of all obligations under the Notes and all other
obligations under the Transaction Documents that the Collateral Agent has been
notified in writing are then due and payable; (ii) any assets that are subject
to a Lien; and (iii) any part of the Collateral sold or disposed of by the
Company or any Subsidiary if such sale or disposition is permitted by this
Agreement and the other Transaction Documents (or permitted pursuant to a waiver
or consent of a transaction otherwise prohibited by this Agreement and the other
Transaction Documents).  Each of the Purchasers hereby directs the
Collateral Agent to execute and deliver or file such termination and partial
release statements and do such other things as are necessary to release Liens to
be released pursuant to this Section 7.15 promptly upon the effectiveness of any
such release.

    

    Section
7.16         Representation of Lead
Purchaser.

     

    It is acknowledged by each Purchaser
that the Lead Purchaser has retained Burak Anderson & Melloni, PLC to act as
its counsel in connection with the transactions contemplated by the Transaction
Documents and that Burak Anderson & Melloni, PLC has not acted as counsel
for any Purchaser, other than the Lead Purchaser, in connection with the
transactions contemplated by the Transaction Documents and that none of such
Purchasers has the status of a client for conflict of interest or any other
purposes as a result thereof.

    

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

     

     

     

     

     

    
      
         

      

      
        35

        
          

        

      

      
         

      

    

    IN WITNESS WHEREOF, the
parties hereto have caused this Note and Warrant Purchase Agreement to be duly
executed by their respective authorized officers as of the date first above
written.

     

     

    
      
        	 	VALCENT PRODUCTS
      INC.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name: 	 
	 	 	Title: 	 
	 	 	 	 

      

    

     

     

    
      
        	 	PURCHASERS:	 
	 	 	 
	 	PLATINUM LONG TERM GROWTH VI,
      LLC	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name:	 
	 	 	Title: 	 
	 	 	 	 

      

    

     

    
      
        	 	ALPHA CAPITAL
    AG	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name: 	 
	 	 	Title: 	 
	 	 	 	 

      

    

     

    
      
        	 	OSHER CAPITAL PARTNERS
      LLC	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name: 	 
	 	 	Title: 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	George
      Orr 	 

      

    

    
 

    
      
         

      

      
        36

        
          

        

      

      
         

      

    

    For
purposes of Section 1.2 hereof only:

     

    
      
        	 	VISCOUNT INVESTMENT
      LTD.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name: 	 
	 	 	Title: 	 
	 	 	 	 

      

    

     

    
      
        	 	BODIE INVESTMENT GROUP
      INC.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 	 
	 	 	Name: 	 
	 	 	Title: 	 
	 	 	 	 

      

    

    

    

     

     

     

     

     

     

    

    
      
        
           

        

        
          37

          
            

          

        

        
           

        

      

    

    

    
      Schedule
3.8

    

     

    

     

    
      	
              Loan
      Payoff to Compass Bank:

            	
              $167,677.61

            

    

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    
 

    
      
         

      

      
        38

        
          

        

      

      
         

      

    

    Exhibit
A

    Names
of Purchasers

    

    

    
      	
              Purchaser

            	
              Address

            	
              Principal
      Amount of Notes

            
	
              Platinum
      Long Term Growth VI, LLC

            	
              152
      West 57th
      Street, 54th
      Floor, New York, NY 10019

            	
              $1,848,000

            
	
              Alpha
      Capital AG

            	
              150
      Central Park South

              Second
      Floor

              New
      York N.Y. 10019

            	
              $280,000

            
	
              Osher
      Capital Partners LLC

            	
              5
      Sansberry Lane

               Spring
      Valley NY 10977

            	
              $112,000

            
	
              George
      Orr

               

            	
              15276
      83rd
      Avenue

              Surrey,
      B.C. VS3 8M7

            	
              $188,160

            

    

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    
      A-1exhibit_10-2.htm

    
      

    

    Exhibit
10.2

    
 

    SECURITY
AGREEMENT

    

               This
SECURITY AGREEMENT, dated as of July 16, 2008 (this “Agreement”), is among
Valcent Products Inc., corporation organized under the laws of Alberta,
Canada (the
“Company”), all
of the subsidiaries of the Company (such subsidiaries, the “Guarantors” and
together with the Company, the “Debtors”), and Platinum
Long Term Growth VI, LLC (together with its successors and assigns, the
“Secured
Party”), as collateral agent for the investors identified in the Purchase
Agreement (the “Lenders”), which
Lenders are the holders of the Company’s Senior Secured Convertible
Promissory Notes, issued on July 16, 2008 in the aggregate original
principal amount of $2,428,160 (the “Notes”).

    

    W
I T N E S S E T H

     

    WHEREAS, pursuant to the
Notes, the Lenders have agreed to extend the loans to the Company evidenced by
the Notes;

    

    WHEREAS, pursuant to a certain
Guaranty, dated as of the date hereof (the “Guaranty”), the Guarantors have jointly and severally agreed to
guarantee and act as surety for payment of such Notes; and

    

    WHEREAS, in order to induce
the Secured Party to extend the loans evidenced by the Notes, each Debtor has
agreed to execute and deliver to the Secured Party this Agreement and to grant
the Secured Party a security interest, for the benefit of the Lenders, in
certain property of such Debtor to secure the prompt payment, performance and
discharge in full of all of the Company’s obligations under the Notes and
the Guarantors’ obligations under the Guaranty.

    

    NOW, THEREFORE, in
consideration of the agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:

    

    1.           Certain Definitions. As used
in this Agreement, the following terms shall have the meanings set forth in this
Section 1.  Terms used but not otherwise defined in this Agreement
that are defined in Article 9 of the UCC (including the terms “account”,
“chattel paper”, “commercial tort claim”, “deposit account”, “document”,
“equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”,
“inventory”, “investment property”, “letter-of-credit rights”, “proceeds”,
“securities” and “supporting obligations”) shall have the respective
meanings given such terms in Article 9 of the UCC.

    

    (a)                 “Collateral” means the
collateral in which the Secured Party is granted a security interest by
this Agreement and which shall include the following personal property of the
Debtors, whether presently owned or existing or hereafter acquired or coming
into existence, wherever situated, and all additions and accessions thereto and
all substitutions and replacements thereof, and all proceeds, products and
accounts thereof, including, without limitation, all proceeds from the sale or
transfer of the Collateral and of insurance covering the same and of any
tort claims in connection therewith, and all
dividends, interest, cash, notes, securities, equity interest or other property
at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any or all of
the Pledged Securities (as defined below):

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    

    (i)     
         All goods, including,
without limitation, (A) all machinery, equipment, computers, motor vehicles,
trucks, tanks, boats, ships, appliances, furniture, special and general tools,
fixtures, test and quality control devices and other equipment of every kind and
nature and wherever situated, together with all documents of title and documents
representing the same, all additions and accessions thereto, replacements
therefor, all parts therefor, and all substitutes for any of the foregoing and
all other items used and useful in connection with any Debtor’s businesses and
all improvements thereto; and (B) all inventory, including all materials, work
in process and finished goods;

    

    (ii)              All
contract rights and other general intangibles, including, without limitation,
all partnership interests, membership interests, stock or other securities,
rights under any of the Organizational Documents,
agreements related to the Pledged Securities, licenses, distribution and other
agreements, computer software (whether “off-the-shelf”, licensed from any third
party or developed by any Debtor), computer software development rights, leases,
franchises, customer lists, quality control procedures, grants and rights,
goodwill, trademarks, service marks, trade styles, trade names, patents, patent
applications, copyrights, and income tax refunds; 

    

    (iii)            All
accounts, together with all instruments, all documents of title representing any
of the foregoing, all rights in any merchandising, goods, equipment, motor
vehicles and trucks which any of the same may represent, and all right, title,
security and guaranties with respect to each account, including any right of
stoppage in transit; 

    

    
      	
            	
              (iv) 

            	
              All
      documents, letter-of-credit rights, instruments and chattel
      paper;

            

    

    

    
      	
            	
              (v) 

            	
              All
      commercial tort claims;

            

    

    

    
      	
            	
              (vi) 

            	
              All
      deposit accounts and all cash (whether or not deposited in such deposit
      accounts);

            

    

    

    
      	
            	
              (vii) 

            	
              All
      investment property;

            

    

    

    
      	
            	
              (viii) 

            	
              All
      supporting obligations;

            

    

    

    
      	
            	
              (ix) 

            	
              All
      files, records, books of account, business papers, and computer programs;
      and

            

    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (x)         
    the products and proceeds of all of the foregoing
Collateral set forth in clauses (i)-(ix) above.

    

    Without limiting the generality of the foregoing, the
“Collateral” shall include all
investment property and general intangibles
respecting ownership and/or other equity interests in each Guarantor, including,
without limitation, the shares of capital stock and the other equity interests
listed on Schedule H hereto (as the same may be modified from time
to time pursuant to the terms hereof), and
any other shares of capital stock and/or other equity interests of any other
direct or indirect subsidiary of any Debtor obtained in the future, and, in each
case, all certificates representing such shares and/or equity interests
and, in each case, all rights, options, warrants, stock, other securities and/or
equity interests that may hereafter be received, receivable or distributed in
respect of, or exchanged for, any of the foregoing and all rights arising under
or in
connection with the Pledged Securities, including, but not limited to, all
dividends, interest and cash.

     

    Notwithstanding
the foregoing, nothing herein shall be deemed to constitute an assignment of any
asset which, in the event of an assignment, becomes void by operation of
applicable law or the assignment of which is otherwise prohibited by applicable
law (in each case to the extent that such applicable law is not overridden by
Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar
applicable law); provided, however, that to the extent permitted by
applicable law, this Agreement shall create a valid security interest in such
asset and, to the extent permitted by applicable law, this Agreement shall
create a valid security interest in the proceeds of such asset.

    

    (b)                 “Intellectual
Property” means the collective reference to all rights, priorities and
privileges relating to intellectual property, whether arising under United
States, multinational or foreign laws or otherwise, including, without
limitation, (i) all copyrights arising under the laws of the United States, any
other country or any political subdivision thereof, whether registered or
unregistered and whether published or unpublished, all registrations and
recordings thereof, and all applications in connection therewith, including,
without limitation, all registrations, recordings and applications in the United
States Copyright Office, (ii) all letters patent of the United States, any other
country or any political subdivision thereof, all reissues and extensions
thereof, and all applications for letters patent of the United States or any
other country and all divisions, continuations and continuations-in-part
thereof, (iii) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade dress, service marks, logos,
domain names and other source or business identifiers, and all goodwill
associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof, or otherwise, and all common law
rights related thereto, (iv) all trade secrets arising under the laws of the
United States, any other country or any political subdivision thereof, (v) all
rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all
licenses for any of the foregoing, and (vii) all causes of action for
infringement of the foregoing.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

     

    (c)     
           “Necessary
Endorsement” means undated stock powers endorsed in blank or other proper
instruments of assignment duly executed and such other instruments or
documents as the Secured Party may
reasonably request.

    

    (d)             
   “Obligations” means
all of the liabilities and obligations (primary, secondary, direct,
contingent, sole, joint or several) due or to become due, or that are now or may
be hereafter contracted or acquired, or owing, of any Debtor to the Secured
Party under this Agreement, the Notes, the Purchase Agreement, the Guaranty and
any other instruments, agreements or other documents executed and/or delivered
in connection herewith or therewith, in each case, whether now or hereafter
existing, voluntary or involuntary, direct or indirect, absolute or contingent,
liquidated or unliquidated, whether or not jointly owed with others, and whether
or not from time to time decreased or extinguished and later increased, created
or incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from the Secured Party as a preference, fraudulent
transfer or otherwise as such obligations may be amended, supplemented,
converted, extended or modified from time to time.  Without limiting
the generality of the foregoing, the term “Obligations” shall include, without
limitation: (i) principal of, and interest on, the Notes and the loans extended
pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations
and liabilities of the Debtors from time to time under or in connection with
this Agreement, the Notes, the Purchase Agreement, the Guaranty and any other
instruments, agreements or other documents executed and/or delivered in
connection herewith or therewith; and (iii) all amounts (including but not
limited to post-petition interest) in respect of the foregoing that would be
payable but for the fact that the obligations to pay such amounts are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any Debtor.

    

    (e)                  “Organizational
Documents” means, with respect to any Debtor, the documents by which such
Debtor was organized (such as a certificate of incorporation, certificate of
limited partnership or articles of organization, and including, without
limitation, any certificates of designation for preferred stock or other forms
of preferred equity) and which relate to the internal governance of such Debtor
(such as bylaws, a partnership agreement or an operating, limited liability or
members agreement).

    

    (f)                  “Pledged Securities”
shall have the meaning ascribed to such term in Section 4(i).

    

    (g)                 “Purchase Agreement” means the Note
and Warrant Purchase Agreement, dated as of the date hereof, between the Company
and the Lenders.

    

    (h)                 “UCC” means the
Uniform Commercial Code of the State of New York and/or any other applicable law
of any state or states which have jurisdiction with respect to all, or any
portion of, the Collateral or this Agreement, from time to time.  It
is the intent of the parties that defined terms in the UCC should be construed
in their broadest sense so that the term “Collateral” will be construed in its
broadest sense.  Accordingly if there are, from time to time, changes
to defined terms in the UCC that broaden the definitions, they are incorporated
herein, and if existing definitions in the UCC are broader than the amended
definitions, the existing ones shall be controlling.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    

    2.           Grant of Security Interest in Collateral. As an
inducement for the Lenders to extend the loans as evidenced by the Notes and to
secure the complete and timely payment, performance and discharge in full, as
the case may be, of all of the Obligations, each Debtor hereby unconditionally
and irrevocably pledges, grants and hypothecates to the Secured Party a security
interest in and to, a lien upon, and a right of set-off against, all of its
respective right, title and interest of whatsoever kind and nature in and to the
Collateral (a “Security Interest”
and collectively, the “Security
Interests”).  To the extent there is at any time more than one
Secured Party hereunder, the Collateral will secure the Obligations to the
Secured Party on a pari passu basis, based on the then outstanding amount of
such Obligations.

    

    3.           Delivery of Certain
Collateral.  Contemporaneously
with or prior to the execution of this Agreement, each Debtor
shall deliver or cause to be delivered to the Secured Party (a) any and all
certificates and other instruments representing or evidencing the Pledged
Securities, and (b) any and all certificates and other instruments or documents
representing any of the other Collateral, in each case, together with all
Necessary Endorsements.  The
Debtors are, contemporaneously with the execution hereof, delivering
to the Secured Party, or have previously delivered to the Secured Party,
a true and correct copy of each Organizational Document governing any of the
Pledged Securities. 

    

    4.           Representations, Warranties,
Covenants and Agreements of the Debtors. Except as set forth under the
corresponding section of the disclosure schedules delivered to the Secured Party
concurrently herewith (the “Disclosure
Schedules”), which Disclosure Schedules shall be deemed a part hereof,
each Debtor represents and warrants to, and covenants and agrees with, the
Secured Party as follows:

    

    (a)                  Each
Debtor has the requisite corporate, partnership, limited liability company or
other power and authority to enter into this Agreement and otherwise to carry
out its obligations hereunder. The execution, delivery and performance by each
Debtor of this Agreement and the filings contemplated therein have been duly
authorized by all necessary action on the part of such Debtor and no
further action is required by such Debtor.  This Agreement has been
duly executed by each Debtor.  This Agreement constitutes the legal,
valid and binding obligation of each Debtor, enforceable against each Debtor in
accordance with its terms except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization and similar laws of general
application relating to or affecting the rights and remedies of creditors and by
general principles of equity.

    

    (b)                 The
Debtors have no place of business or offices where their respective books of
account and records are kept (other than temporarily at the offices of their
attorneys or accountants) or places where Collateral is stored or located,
except as set forth on Schedule A attached
hereto.  The Debtors own of record, subject only to Permitted Liens
(as defined in the Notes), the real property where such Collateral is located,
as identified on Schedule
A.  Except as disclosed on Schedule A, none of
such Collateral is in the possession of any consignee, bailee, warehouseman,
agent or processor.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    

    (c)                 Except
for Permitted Liens and except as set forth on Schedule B attached
hereto, the Debtors are the sole owners of the Collateral, free and clear of any
liens, security interests, encumbrances, rights or claims, and are fully
authorized to grant the Security Interests.  Except with respect to
Permitted Liens and except as set forth on Schedule B attached
hereto, there is not on file in any governmental or regulatory authority, agency
or recording office an effective financing statement, security agreement,
license or transfer or any notice of any of the foregoing (other than those that
will be filed in favor of the Secured Party pursuant to this Agreement) covering
or affecting any of the Collateral.  Except with respect to Permitted
Liens, except as set forth on Schedule B attached
hereto and except pursuant to this Agreement, as long as this Agreement shall be
in effect, the Debtors shall not execute and shall not knowingly permit to be on
file in any such office or agency any other financing statement or other similar
document or instrument (except to the extent filed or recorded in favor of the
Secured Party pursuant to the terms of this Agreement).

    

    (d)                 No
written claim has been received by any Debtor that any Collateral or Debtor's
use of any Collateral violates the rights of any third party. There has been no
adverse decision to any Debtor's claim of ownership rights in or exclusive
rights to use the Collateral in any jurisdiction or to any Debtor's right to
keep and maintain such Collateral in full force and effect, and there is no
proceeding involving said rights pending or, to the best knowledge of any
Debtor, threatened before any court, judicial body, administrative or regulatory
agency, arbitrator or other governmental authority.

    

    (e)                 Each
Debtor shall at all times maintain its books of account and records relating to
the Collateral at its principal place of business (except when temporarily kept
at the offices of its attorneys or accountants) and its Collateral at the
locations set forth on Schedule A attached
hereto and may not relocate such books of account and records or tangible
Collateral unless it delivers to the Secured Party at least 30 days prior to
such relocation (i) written notice of such relocation and the new location
thereof (which must be within the United States) and (ii) evidence that
appropriate financing statements under the UCC and other necessary documents
have been filed and recorded and other steps have been taken to perfect the
Security Interests to create in favor of the Secured Party, subject to Permitted
Liens, a valid, perfected and continuing perfected first priority lien in the
Collateral.

    

    (f)                 This
Agreement creates in favor of the Secured Party a valid, security interest in
the Collateral, subject only to Permitted Liens (as defined in the Notes),
securing the payment and performance of the Obligations.  Upon making
the filings described in the immediately following paragraph, all security
interests created hereunder in any Collateral which may be perfected by filing
UCC financing statements shall have been duly perfected.  Except for
the filing of the UCC financing statements referred to in the immediately
following paragraph, the recordation of the Intellectual Property Security
Agreement (as defined below) with respect to copyrights and copyright
applications in the United States Copyright Office referred to in paragraph (p),
and the delivery of the certificates and other
instruments provided in Section 3, no action is necessary to create,
perfect or protect the security interests created hereunder.  Without
limiting the generality of the foregoing, except for the filing of said
financing statements and the recordation of said Intellectual Property Security
Agreement, no consent of any third parties and no authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for (i) the execution, delivery and performance of
this Agreement, (ii) the creation or perfection of the Security Interests
created hereunder in the Collateral or (iii) the enforcement of the rights of
the Secured Party hereunder.

     

    
 

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    

    (g)                 Each
Debtor hereby authorizes the Secured Party to file one or more financing
statements under the UCC with respect to the Security Interests with the proper
filing and recording agencies in any jurisdiction deemed proper by it, which UCC
financing statement may describe the collateral as “All assets”.

    

    (h)                 The
execution, delivery and performance of this Agreement by the Debtors do not (i)
violate any of the provisions of any Organizational Documents of any Debtor or
any judgment, decree, order or award of any court, governmental body or
arbitrator or any applicable law, rule or regulation applicable to any Debtor or
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing any Debtor's debt or otherwise) or other understanding to
which any Debtor is a party or by which any property or asset of any Debtor is
bound or affected. If any, all required consents (including, without limitation,
from stockholders or creditors of any Debtor) necessary for any Debtor to enter
into and perform its obligations hereunder have been obtained.

    

    (i)                 
The capital stock and other equity interests
listed on Schedule H hereto (the
“Pledged
Securities”) represent all of
the capital stock and other equity interests in and to the
Guarantors and the other subsidiaries of
the Company, and represent all capital
stock and other equity interests owned, directly or indirectly, by the Company.  All of the Pledged
Securities are validly issued, fully paid and nonassessable, and the Company is
the legal and beneficial owner of the Pledged Securities, free and clear of any
lien, security interest or other encumbrance except for the
security interests created by this Agreement and other Permitted
Liens.  Each Debtor shall cause the pledge and
security interest of the Secured Party to be duly noted in its corporate books
and records. 

     

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

     

    (j)                
The ownership and other equity interests
in partnerships and limited liability
companies (if any) included in the
Collateral (the “Pledged
Interests”) by their express terms do not provide that they are
securities governed by Article 8 of the UCC and are not held in a securities
account or by any financial
intermediary.

    

    (k)                  Except
for Permitted Liens (as defined in the Notes), each Debtor shall at all times
maintain the liens and Security Interests provided for hereunder as valid and
perfected first priority liens and security interests in the Collateral in favor
of the Secured Party until this Agreement and the Security Interests hereunder
shall be terminated pursuant to Section 14 hereof.  Each Debtor hereby
agrees to use commercially reasonable efforts to defend the same against the
claims of any and all persons and entities and to safeguard and protect all
Collateral for the account of the Secured Party.  At the reasonable
request of the Secured Party, each Debtor will sign and deliver to the Secured
Party at any time or from time to time one or more financing statements pursuant
to the UCC in form reasonably satisfactory to the Secured Party and will
pay the cost of filing the same in all public offices wherever filing is
necessary to effect the rights and obligations provided for herein. Without
limiting the generality of the foregoing, each Debtor shall pay all fees, taxes
and other amounts necessary to maintain the Collateral and the Security
Interests hereunder, and each Debtor shall obtain and furnish to the Secured
Party from time to time, upon demand, such releases and/or subordinations
of claims and liens which may be required to maintain in accordance with this
Agreement the priority of the Security Interests hereunder.

    

    (l)                   Except
for Permitted Liens (as defined in the Notes), no Debtor will transfer, pledge,
hypothecate, encumber, license, sell or otherwise dispose of any of the
Collateral (except for sub-licenses granted by a Debtor in its ordinary course
of business and sales of inventory by a Debtor in its ordinary course of
business) without the prior written consent of the Secured Party.

    

    (m)                 Each
Debtor shall keep and preserve its equipment, inventory and other tangible
Collateral in good condition, repair and order and shall not operate or locate
any such Collateral (or cause to be operated or located) in any area excluded
from insurance coverage.

     

     

     

    
 

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

     

    (n)                 Except as provided in Schedule I, each Debtor shall maintain with financially sound and
reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or
damage of the kinds and in the amounts customarily insured against by entities
of established reputation having similar properties similarly situated and in
such amounts as are customarily carried under similar circumstances by other
such entities and otherwise as is prudent for entities engaged in
similar businesses but in any event sufficient to cover the full replacement
cost thereof.  Each Debtor shall cause each insurance policy issued in
connection herewith to provide, and the insurer issuing such policy
to certify to the Secured Party that (a) the
Secured Party will be named as lender loss payee and additional
insured under each such insurance policy; (b) if such insurance be
proposed to be cancelled or materially changed for any
reason whatsoever, such insurer will
promptly notify the Secured Party and such
cancellation or change shall not be effective as to the Secured
Party for at least thirty (30) days
after receipt by the Secured Party of such
notice, unless the effect of such change is
to extend or increase coverage under the policy; and (c) the Secured
Party will have the right (but no obligation) at
its election to remedy any default in the payment of premiums within
thirty (30) days of notice from the insurer of such
default.  If no Event of Default
(as defined in the Notes) exists and if
the proceeds arising out of any claim or series of related claims do
not exceed $100,000, loss
payments in each instance will be applied by the applicable Debtor to the repair
and/or replacement of property with respect
to which the loss was incurred to the extent reasonably feasible, and any loss
payments or the balance thereof remaining, to the extent not so applied, shall
be payable to the applicable Debtor, provided, however, that payments
received by any Debtor after an Event of Default occurs and
is continuing or in excess of $100,000 for any
occurrence or series of related occurrences shall be paid to the Secured
Party and, if received by such Debtor, shall be
held in trust for the Secured Party and
promptly paid over to the Secured Party unless otherwise directed in writing by the
Secured Party. Copies of such policies or the related certificates, in
each case, naming the Secured Party as lender
loss payee and additional insured shall be delivered to the Secured Party at least
annually and at the time any new policy of insurance is
issued.

    

    (o)                 Each
Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the
Secured Party promptly, in sufficient detail, of any material adverse change in
the Collateral, and of the occurrence of any event which would have a material
adverse effect on the value of the Collateral or on the Secured Party’s security
interest therein.

    

    (p)                 Each
Debtor shall promptly execute and deliver to the Secured Party such further
deeds, mortgages, assignments, security agreements, financing statements or
other instruments, documents, certificates and assurances and take such further
action as the Secured Party may from time to time request as necessary to
perfect, protect or enforce the Secured Party’s security interest in the
Collateral (including, without limitation, the execution and delivery of a
separate security agreement with respect to each Debtor’s Intellectual Property
(“Intellectual
Property Security Agreement”) to be delivered
on the date hereof) in which the Secured Party has been granted a security
interest hereunder, substantially in a form reasonably acceptable to the Secured
Party. 

    

    (q)                 Each
Debtor shall permit the Secured Party and its representatives and agents
reasonable access to inspect the Collateral during normal business hours, upon
reasonable prior notice and without undue interference with such Debtor’s
business operations, and to make copies of records pertaining to the Collateral
as may be reasonably requested by the Secured Party from time to
time.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

     

    (r)                  Each
Debtor shall take all steps reasonably necessary to diligently pursue and seek
to preserve, enforce and collect any rights, claims, causes of action and
accounts receivable in respect of the Collateral.

    

    (s)                 Each
Debtor shall promptly notify the Secured Party in sufficient detail upon
becoming aware of any attachment, garnishment, execution or other legal process
levied against any Collateral and of any other information received by such
Debtor that would have a material adverse effect on the value of the Collateral,
the Security Interest or the rights and remedies of the Secured Party
hereunder.

    

    (t)                  All
information heretofore, herein or hereafter supplied to the Secured Party by or
on behalf of any Debtor with respect to the Collateral is accurate and complete
in all material respects as of the date furnished.

    

    (u)                 The
Debtors shall at all times preserve and keep in full force and effect their
respective valid existence and good standing and any rights and franchises
material to their respective businesses.

    

    (v)                 No
Debtor will change its name, type of organization, jurisdiction of organization,
organizational identification number (if it has one), legal or corporate
structure, or identity, or add any new fictitious name unless it provides at
least 30 days’ prior written notice to the Secured Party of such change and, at
the time of such written notification, such Debtor provides any financing
statements or fixture filings necessary to perfect and continue the perfection
of the Security Interests granted and evidenced by this Agreement.

    

    (w)                
Except in the ordinary course of business and except for Permitted Liens (as
defined in the Notes), no Debtor may consign any of its Inventory or sell any of
its Inventory on bill and hold, sale or return, sale on approval, or other
conditional terms of sale without the consent of the Secured Party, which
shall not be unreasonably withheld.

    

    (x)                  No
Debtor may relocate its chief executive office to a new location without
providing 30 days’ prior written notification thereof to the Secured Party and
so long as, at the time of such written notification, such Debtor provides any
financing statements or fixture filings necessary to perfect and continue the
perfection of the Security Interests granted and evidenced by this
Agreement.

    

    (y)                 Each
Debtor was organized and remains organized solely under the laws of the state
set forth next to such Debtor’s name in  Schedule D attached
hereto, which Schedule
D sets forth each Debtor’s organizational identification number or, if
any Debtor does not have one, states that one does not exist

    

    (z)                  (i)
The actual name of each Debtor is the name set forth in Schedule D attached
hereto; (ii) no Debtor has any trade names except as set forth on Schedule E attached
hereto; (iii) no Debtor has used any name other than that stated in the preamble
hereto or as set forth on Schedule E for the
preceding five years; and (iv) no entity has merged into any Debtor or been
acquired by any Debtor within the past five years except as set forth on Schedule
E.

     

    
      
         

      

      
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    (aa)                At
any time and from time to time that any Collateral consists of instruments,
certificated securities or other items that require or permit possession by the
secured party to perfect the security interest created hereby, the applicable
Debtor shall deliver such Collateral to the Secured Party.

    

    (bb)               Each Debtor, in its capacity as issuer, hereby agrees to
comply with any and all reasonable
orders and instructions of Secured
Party regarding the Pledged Interests consistent
with the terms of this Agreement without
the further consent of any Debtor as contemplated by Section 8-106 (or any
successor section) of the UCC.  Further, each Debtor agrees that it
shall not enter into a similar agreement (or one that would confer “control” within the
meaning of Article 8 of the UCC) with any other person or
entity.

    

    (cc)                Each
Debtor shall cause all tangible chattel paper constituting Collateral to be
delivered to the Secured Party, or, if such delivery is not possible, then to
cause such tangible chattel paper to contain a legend noting that it is subject
to the security interest created by this Agreement.  To the extent
that any Collateral consists of electronic chattel paper, the applicable Debtor
shall cause the underlying chattel paper to be “marked” within the meaning of
Section 9-105 of the UCC (or successor section thereto).

    

    (dd)               If
there is any investment property or deposit account included as Collateral that
can be perfected by “control” through an account control agreement, the
applicable Debtor shall cause such an account control agreement, in form and
substance in each case reasonably satisfactory to the Secured Party, to be
entered into and delivered to the Secured Party.

    

    (ee)                To
the extent that any Collateral consists of letter-of-credit rights, the
applicable Debtor shall cause the issuer of each underlying letter of credit to
consent to an assignment of the proceeds thereof to the Secured
Party.

    

    (ff)                 To
the extent that any Collateral is in the possession of any third party, the
applicable Debtor shall join with the Secured Party in notifying such third
party of the Secured Party’s security interest in such Collateral and shall
endeavor to obtain an acknowledgement and agreement from such third party with
respect to the Collateral, in form and substance reasonably satisfactory to the
Secured Party.

    

    (gg)               If
any Debtor shall at any time hold or acquire a commercial tort claim, such
Debtor shall promptly notify the Secured Party in a writing signed by such
Debtor of the particulars thereof and grant to the Secured Party in such writing
a security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance reasonably
satisfactory to the Secured Party.

     

    
      
         

      

      
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    (hh)               Each
Debtor shall promptly provide written notice to the Secured Party of any and all
accounts which arise out of contracts with any governmental authority and, to
the extent necessary to perfect or continue the perfected status of the Security
Interests in such accounts and proceeds thereof, shall execute and deliver to
the Secured Party an assignment of claims for such accounts and cooperate
with the Secured Party in taking any other steps required under the Federal
Assignment of Claims Act or any similar federal, state or local statute or rule
to perfect or continue the perfected status of the Security Interests in such
accounts and proceeds thereof.

    

    (ii)                 Each
Debtor shall cause each subsidiary of such
Debtor with operations or material operations (which, if in doubt, shall be
in the sole determination of the Secured Party) to immediately become a party
hereto (an “Additional
Debtor”), by executing and delivering an Additional Debtor Joinder in
substantially the form of Annex A attached
hereto and comply with the provisions hereof applicable to the
Debtors.  As of the date hereof, the each Debtor represents and
warrants that none of its subsidiaries have any operations or material assets
(other than the Guarantors).  Concurrent therewith, the Additional
Debtor shall deliver replacement schedules for, or supplements to all other
Schedules to (or referred to in) this Agreement, as applicable, which
replacement schedules shall supersede, or supplements shall modify, the
Schedules then in effect.  The Additional Debtor shall also deliver
such opinions of counsel, authorizing resolutions, good standing certificates,
incumbency certificates, organizational documents, financing statements and
other information and documentation as the Secured Party may reasonably
request.  Upon delivery of the foregoing to the Secured Party, the
Additional Debtor shall be and become a party to this Agreement with the same
rights and obligations as the Debtors, for all purposes hereof as fully and to
the same extent as if it were an original signatory hereto and shall be deemed
to have made the representations, warranties and covenants set forth herein as
of the date of execution and delivery of such Additional Debtor Joinder, and all
references herein to the “Debtors” shall be deemed to include each Additional
Debtor.

    

    (jj)                
Each Debtor shall vote the Pledged Securities to
comply with the covenants and agreements set forth herein and in the
Notes and the other
Transaction Documents (as defined in the Purchase Agreement).

    

    (kk)               Each Debtor shall register the pledge of the
applicable Pledged Securities on the books
of such Debtor.  Each Debtor shall notify each issuer of Pledged
Securities to register the pledge of the applicable Pledged Securities in the
name of the Secured Party on the books of such issuer.  Further, except
with respect to certificated securities
delivered to the Secured
Party, the applicable Debtor shall
endeavor to deliver to the
Secured
Party an acknowledgement of pledge (which, where appropriate,
shall comply with the requirements of the relevant UCC with respect to perfection by registration) signed by the issuer
of the applicable Pledged Securities, which acknowledgement shall confirm that:
(a) it has registered the pledge on its books and records; and (b) at any time
directed by the Secured
Party during the continuation of an Event of Default, such issuer will
transfer the record ownership of such Pledged Securities into the name of any
designee of the Secured
Party, will take such steps as may be
necessary to effect the transfer, and will comply with all other reasonable
instructions of the Secured
Party regarding such Pledged Securities
without the further consent of the applicable Debtor.

     

    
      
         

      

      
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    (ll)                 In the event that, upon an occurrence of an Event of
Default, the Secured Party shall sell all or any of the Pledged Securities to another party or parties (herein called the
“Transferee”) or shall
purchase or retain all or any of the Pledged Securities, each Debtor shall, to
the extent applicable: (i) deliver to the
Secured Party or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock
certificate books, corporate seals, deeds, leases, indentures, agreements,
evidences of indebtedness, books of account, financial records and all other
Organizational Documents and records of such Debtor and its
direct and indirect subsidiaries; (ii) use
its best efforts to obtain resignations of the persons then serving as officers
and directors of such Debtor and its
direct and indirect subsidiaries, if so
requested; and (iii) use its best efforts to obtain any approvals that are required by any
governmental or regulatory body in order to permit the sale of the Pledged
Securities to the Transferee or the purchase or retention of the Pledged
Securities by the Secured Party and allow the
Transferee or Secured Party to continue
the business of such Debtor and its
direct and indirect
subsidiaries.

    

    (mm)             Without
limiting the generality of the other obligations of the Debtors hereunder, each
Debtor shall promptly (i) cause to be registered at the United States Copyright
Office all of its material copyrights, (ii) cause the security interest
contemplated hereby with respect to all Intellectual Property registered at the
United States Copyright Office or United States Patent and Trademark Office to
be duly recorded at the applicable office, and (iii) give the Secured
Party notice whenever it acquires (whether absolutely or by license) or
creates any additional material Intellectual Property.

    

    (nn)               Each
Debtor will from time to time, at the joint and several expense of the Debtors,
promptly execute and deliver all such further instruments and documents, and
take all such further action as may be necessary or desirable, or as the Secured
Party may reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable the Secured
Party to exercise and enforce its rights and remedies hereunder and with respect
to any Collateral or to otherwise carry out the purposes of this
Agreement.

    

    (oo)             
Schedule F
attached hereto lists all of the patents, patent applications, trademarks,
trademark applications, registered copyrights, and domain names owned by any of
the Debtors as of the date hereof.  Schedule F lists all
material licenses in favor of any Debtor for the use of any patents, trademarks,
copyrights and domain names as of the date hereof.  All material
patents and trademarks of the Debtors have been duly recorded at the United
States Patent and Trademark Office and all material copyrights of the Debtors
have been duly recorded at the United States Copyright Office.

     

    
      
         

      

      
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    (pp)               Except
as set forth on Schedule G attached
hereto, none of the account debtors or other persons or entities obligated on
any of the Collateral is a governmental authority covered by the Federal
Assignment of Claims Act or any similar federal, state or local statute or rule
in respect of such Collateral.

    

    5.           Effect of Pledge on Certain
Rights. If any of the Collateral subject to this Agreement
consists of nonvoting equity or ownership interests (regardless of
class, designation, preference or rights)
that may be converted into voting equity or ownership interests upon the
occurrence of certain events (including, without limitation, upon the transfer
of all or any of the other stock or assets of the issuer), it is agreed that the
pledge of such equity or ownership interests pursuant to this Agreement or the
enforcement of any of the Secured
Party’s
rights hereunder shall not be deemed to be the type of event which would trigger
such conversion rights notwithstanding any
provisions in the Organizational Documents or agreements to which any Debtor is
subject or to which any Debtor is party.

    

    6.           Defaults. The following events
shall be “Events of
Default”:

    

    (a)                 The
occurrence of an Event of Default under the Notes;

    

    (b)                
Any representation or warranty of any Debtor in this Agreement shall prove to
have been incorrect in any material respect when made; or

    

    (c)            
   The failure by any Debtor to observe or perform any of its
obligations hereunder for five (5) days after delivery to such Debtor of notice
of such failure by or on behalf of the
Secured Party unless such default is capable of cure but cannot be cured
within such time frame and such Debtor is using best efforts to cure same in a
timely fashion.

    

    7.           Duty To Hold In
Trust.

    

    (a)             
   Upon the occurrence and during the continuance of any Event of
Default and at any time thereafter, each Debtor shall, upon receipt of any
revenue, income, dividend, interest or
other sums subject to the Security Interests, whether payable pursuant to the
Notes or otherwise, or of any check, draft, note, trade acceptance or other
instrument evidencing an obligation to pay any such sum, hold the same in trust
for the Secured Party and shall forthwith endorse and transfer any such sums or
instruments, or both, to the Secured Party.  

    

    (b)            
   If any Debtor shall become
entitled to receive or shall receive any securities or other property
(including, without limitation, shares of Pledged Securities or instruments
representing Pledged Securities acquired after the date hereof, or any
options, warrants, rights or other similar
property or certificates representing a dividend, or any distribution in
connection with any recapitalization, reclassification or increase or reduction
of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect
subsidiaries) in respect of the Pledged Securities (whether as an addition to,
in substitution of, or in exchange for, such Pledged Securities or otherwise),
such Debtor agrees to (i) accept the same as the agent of the
Secured Party; (ii) hold the same in trust on behalf of and for the
benefit of the Secured Party; and (iii) deliver any and all certificates or
instruments evidencing the same to the
Secured Party on or before the close of business on the fifth
business day following the receipt thereof
by such Debtor, in the exact form received together with the Necessary
Endorsements, to be held by the
Secured Party subject to the terms of this Agreement as
Collateral.

     

    
      
         

      

      
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      8.      
    Rights and Remedies Upon
Default.

    

    

    (a)                 Upon
the occurrence of any Event of Default and at any time thereafter, the Secured
Party shall have the right to exercise all of the remedies conferred
hereunder and under the Notes, and the Secured Party shall have all the rights
and remedies of a secured party under the UCC.  Without
limitation, the Secured Party shall have the following rights and
powers:

    

    (i)         The
Secured Party shall have the right to take possession of the Collateral and, for
that purpose, enter by reasonable means, with the aid and assistance of any
person, any premises where the Collateral, or any part thereof, is or may be
placed and remove the same, and each Debtor shall assemble the Collateral and
make it available to the Secured Party at places which the Secured Party shall
reasonably select, whether at such Debtor's premises or elsewhere, and make
reasonably available to the Secured Party, without rent, all of such Debtor’s
respective premises and facilities for the purpose of the Secured
Party taking possession of, removing or putting the Collateral in saleable
or disposable form.

    

    (ii)         Upon written
notice to the Debtors by the Secured Party,
all rights of each Debtor to exercise the voting and other consensual rights
which it would otherwise be entitled to exercise and all rights of each
Debtor to receive the dividends and
interest which it would otherwise be authorized to receive and retain, shall
cease.  Upon such notice, the
Secured Party shall have the right to receive any interest, cash
dividends or other payments on the Collateral and, at the option of the
Secured Party, to exercise in the Secured Party’s discretion all
voting rights pertaining thereto.  Without limiting the generality of
the foregoing, the Secured
Party shall have the right (but not the obligation) to
exercise all rights with respect to the
Collateral as if it were the sole
and absolute owner thereof, including,
without limitation, to vote and/or to exchange, at its sole discretion, any or
all of the Collateral in connection with a merger, reorganization,
consolidation, recapitalization or other
readjustment concerning or involving the Collateral or any Debtor or any of its
direct or indirect subsidiaries.

     

     

     

     

     

    
      
         

      

      
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    (iii)         The
Secured Party shall have the right to assign, sell, lease or otherwise dispose
of and deliver all or any part of the Collateral, at public or private sale or
otherwise, either with or without special conditions or stipulations, for cash
or on credit or for future delivery, in such parcel or parcels and at such time
or times and at such place or places, and upon commercially reasonable terms and
conditions.  Upon each such sale, lease, assignment or other transfer
of Collateral, the Secured Party, may, unless prohibited by applicable law which
cannot be waived, purchase all or any part of the Collateral being sold, free
from and discharged of all trusts, claims, right of redemption and equities of
any Debtor, which are hereby waived and released.

    

    (iv)         The
Secured Party shall have the right (but not the obligation) to notify any
account debtors and any obligors under instruments or accounts to make payments
directly to the Secured Party, and to enforce the Debtors’ rights against such
account debtors and obligors.

    

    (v)         The Secured
Party, may (but is not obligated to) direct any financial intermediary or any
other person or entity holding any investment property to transfer the same to
the Secured Party, or its designee.

    

    (vi)         The
Secured Party may (but is not obligated to) transfer any or all Intellectual
Property registered in the name of any Debtor at the United States Patent and
Trademark Office and/or Copyright Office into the name of the Secured Party or
any designee or any purchaser of any Collateral.

    

    (b)                 The Secured
Party shall comply with any applicable law in connection with a
disposition of Collateral and such compliance will not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral.  The Secured Party may
sell the Collateral without giving any warranties and may specifically disclaim
such warranties.  In addition, each Debtor waives any and all rights that it may have to a judicial hearing in
advance of the enforcement of any of the Secured Party’s rights and
remedies hereunder, including, without limitation, its right following an Event
of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect
thereto.

     

    (c)                
For the purpose of enabling the Secured Party to
further exercise rights and remedies under this Section 8 or elsewhere provided
by agreement or applicable law, each Debtor hereby grants to the Secured Party, an
irrevocable, nonexclusive license (exercisable without payment of royalty or
other compensation to such Debtor) to use, license or sublicense following an
Event of Default, any Intellectual Property now owned or hereafter acquired by
such Debtor, and wherever the same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored
and to all computer software and programs used for the compilation or printout
thereof.

     

    
      
         

      

      
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    9.           Applications of Proceeds. The
proceeds of any such sale, lease or other disposition of the Collateral
hereunder or from payments made on account of any insurance policy insuring any
portion of the Collateral shall be applied first, to the reasonable and actually
incurred expenses of retaking, holding, storing, processing and preparing for
sale, selling, and the like (including, without limitation, any taxes, fees and
other costs reasonably incurred in connection therewith) of the Collateral, to
the reasonable attorneys’ fees and expenses incurred by the Secured Party in
enforcing the Secured Party’s rights hereunder and in connection with
collecting, storing and disposing of the Collateral, and then to satisfaction of
the Obligations, and to the payment of any other amounts required by applicable
law, after which the Secured Party shall pay to the applicable Debtor any
surplus proceeds. If, upon the sale, license or other disposition of the
Collateral, the proceeds thereof are insufficient to pay all amounts to which
the Secured Party is legally entitled, the Debtors will be liable for the
deficiency, together with interest thereon, at the rate of 18% per annum or the
lesser amount permitted by applicable law (the “Default Rate”), and
the reasonable fees of any attorneys employed by the Secured Party to collect
such deficiency.  To the extent permitted by applicable law, each
Debtor waives all claims, damages and demands against the Secured Party arising
out of the repossession, removal, retention or sale of the Collateral, unless
due solely to the gross negligence or willful misconduct of the Secured Party as
determined by a final judgment (not subject to further appeal) of a court of
competent jurisdiction.

    

    10.           Securities Law Provision.  Each Debtor recognizes that the Secured Party may
be limited in its ability to effect a sale to the public of all or part of the
Pledged Securities by reason of certain prohibitions in the Securities Act of
1933, as amended, or other federal or state securities laws (collectively,
the “Securities Laws”), and may be
compelled to resort to one or more sales to a restricted group of purchasers who
may be required to agree to acquire the Pledged Securities for their own
account, for investment and not with a view to the distribution or
resale thereof.  Each Debtor
agrees that sales so made may be at prices and on terms less favorable than if
the Pledged Securities were sold to the public, and that the Secured
Party has no obligation to delay the sale
of any Pledged Securities for the period of
time necessary to register the Pledged Securities for sale to the public under
the Securities Laws.  Each Debtor shall cooperate with the Secured
Party in its reasonable attempt
to satisfy any requirements under the Securities Laws (including, without
limitation, registration thereunder if
reasonably requested by the
Secured Party) applicable to the sale of the Pledged Securities by
the Secured Party.

    

    11.           Costs and Expenses. Each
Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses
incurred in connection with any filing required hereunder, including without
limitation, any financing statements pursuant to the UCC, continuation
statements, partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Secured
Party.  The Debtors shall also pay all other claims and charges which
would be reasonably likely to prejudice, imperil or otherwise affect the
Collateral or the Security Interests therein.  The Debtors will also,
upon demand, pay to the Secured Party the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, which the Secured Party, may incur in connection with (i)
the enforcement of this Agreement, (ii) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Collateral, or
(iii) the exercise or enforcement of any of the rights of the Secured Party
under the Notes and the other Transaction Documents. Until so paid, any fees
payable hereunder shall be added to the principal amount of the Notes and shall
bear interest at the Default Rate.

     

    
      
         

      

      
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    12.           Responsibility for Collateral.
The Debtors assume all liabilities and responsibility in connection with all
Collateral, and the Obligations shall in no way be affected or diminished by
reason of the loss, destruction, damage or theft of any of the Collateral or its
unavailability for any reason.  Without limiting the generality of the
foregoing, (a) in no event shall the Secured Party (i) have any duty (either
before or after an Event of Default) to collect any amounts in respect of the
Collateral or to preserve any rights relating to the Collateral, or (ii) have
any obligation to clean-up or otherwise prepare the Collateral for sale, and (b)
each Debtor shall remain obligated and liable under each contract or agreement
included in the Collateral to be observed or performed by such Debtor
thereunder.  The Secured Party shall not have any obligation or
liability under any such contract or agreement by reason of or arising out of
this Agreement or the receipt by the Secured Party of any payment relating to
any of the Collateral, nor shall the Secured Party be obligated in any manner to
perform any of the obligations of any Debtor under or pursuant to any such
contract or agreement, to make inquiry as to the nature or sufficiency of any
payment received by the Secured Party in respect of the Collateral or as to the
sufficiency of any performance by any party under any such contract or
agreement, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to the Secured Party or to which the Secured Party may be entitled at
any time or times.

    

    13.           Security Interests Absolute. All rights and all
obligations of the parties hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Notes or any agreement entered into in connection with the foregoing, or any
portion hereof or thereof; (b) any change in the time, manner or place of
payment or performance of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Notes or any other agreement entered into in connection with the
foregoing; (c) any exchange, release or nonperfection of any of the Collateral,
or any release or amendment or waiver of or consent to departure from any other
collateral for, or any guarantee, or any other security, for all or any of the
Obligations; (d) any action by the Secured Party to obtain, adjust, settle and
cancel in its reasonable discretion any insurance claims or matters made or
arising in connection with the Collateral; or (e) any other circumstance which
might otherwise constitute any legal or equitable defense available to a Debtor,
or a discharge of all or any part of the Security Interests granted
hereby.  Until the Obligations shall have been paid and performed in
full, the rights of the Secured Party shall continue even if the Obligations are
barred for any reason, including, without limitation, the running of the statute
of limitations or bankruptcy.  Each Debtor expressly waives
presentment, protest, notice of protest, demand, notice of nonpayment and demand
for performance. In the event that at any time any transfer of any Collateral or
any payment received by the Secured Party hereunder shall be deemed by final
order of a court of competent jurisdiction to have been a voidable preference or
fraudulent conveyance under the bankruptcy or insolvency laws of the United
States, or shall be deemed to be otherwise due to any party other than the
Secured Party, then, in any such event and to the extent thereof, each Debtor’s
obligations hereunder shall survive cancellation of this Agreement, and shall
not be discharged or satisfied by any prior payment thereof and/or cancellation
of this Agreement, but shall remain a valid and binding obligation enforceable
in accordance with the terms and provisions hereof.  Each Debtor
waives all right to require the Secured Party to proceed against any other
person or entity or to apply any Collateral
which the Secured Party may hold at any time, or to marshal assets, or to pursue
any other remedy. 

     

    
      
         

      

      
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    14.         Term of Agreement. This
Agreement and the Security Interests shall terminate on the date on which all
payments under the Notes have been indefeasibly paid or otherwise satisfied in
full (including by way of conversion of the Notes) and all other Obligations
have been paid or discharged (other than contingent indemnification
obligations).

    

    15.         Obligations of Vertigro Algae
Technologies LLC.  Notwithstanding any other provision of this
Agreement or the Loan Documents with respect to Vertigro Algae Technologies LLC
(“Vertigro”) the Security Interest created by this Agreement only applies to
Vertigro to the extent the Guaranty is effective with respect to Vertigro
pursuant to Section 4 thereof.

    

    16.         Power of Attorney; Further
Assurances.

    

    (a)                 Each
Debtor authorizes the Secured Party, and does hereby make, constitute and
appoint the Secured Party and its officers, agents, successors or assigns
with full power of substitution, as such Debtor’s true and lawful
attorney-in-fact, with power, in the name of the Secured Party or such Debtor,
to, after the occurrence and during the continuance of an Event of Default, (i)
endorse any note, checks, drafts, money orders or other instruments of payment
(including payments payable under or in respect of any policy of insurance) in
respect of the Collateral that may come into possession of the Secured Party;
(ii) to sign and endorse any financing statement pursuant to the UCC or any
invoice, freight or express bill, bill of lading, storage or warehouse receipts,
drafts against debtors, assignments, verifications and notices in connection
with accounts, and other documents relating to the Collateral; (iii) to pay or
discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on or threatened against the Collateral; (iv) to demand,
collect, receipt for, compromise, settle and sue for monies due in respect of
the Collateral; (v) to transfer any Intellectual Property or provide licenses
respecting any Intellectual Property; and (vi) generally, at the option of the
Secured Party, and at the expense of the Debtors, at any time, or from time to
time, to execute and deliver any and all documents and instruments and to do all
acts and things which the Secured Party deems necessary to protect, preserve and
realize upon the Collateral and the Security Interests granted therein in order
to effect the intent of this Agreement and the Notes all as fully and
effectually as the Debtors might or could do; and each Debtor hereby ratifies
all that said attorney shall lawfully do or cause to be done by virtue
hereof.  This power of attorney is coupled with an interest and shall
be irrevocable for the term of this Agreement and thereafter as long as any of
the Obligations shall be outstanding.  The designation set forth herein shall be deemed to amend and supersede any
inconsistent provision in the Organizational Documents or other documents or
agreements to which any Debtor is subject or to which any Debtor is a
party.  Without limiting the generality of the foregoing, after
the occurrence and during the continuance of an Event of Default, the Secured
Party is specifically authorized to execute and file any applications for or
instruments of transfer and assignment of any patents, trademarks, copyrights or
other Intellectual Property with the United States Patent and Trademark Office
and the United States Copyright Office.

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

    

    (b)                 On
a continuing basis, each Debtor will make, execute, acknowledge, deliver, file
and record, as the case may be, with the proper filing and recording agencies in
any jurisdiction, including, without limitation, the jurisdictions indicated on
Schedule C
attached hereto, all such instruments, and take all such action as may
reasonably be deemed necessary or advisable, or as reasonably requested by the
Secured Party, to perfect the Security Interests granted hereunder and otherwise
to carry out the intent and purposes of this Agreement, or for assuring and
confirming to the Secured Party the grant or perfection of a perfected security
interest in all the Collateral under the UCC.

    

    (c)                 Each
Debtor hereby irrevocably appoints the Secured Party as such Debtor’s
attorney-in-fact, with full authority in the place and instead of such Debtor
and in the name of such Debtor, from time to time in the Secured Party’s
discretion, to take any action and to execute any instrument which the Secured
Party may deem necessary or advisable to accomplish the purposes of this
Agreement, including the filing, in its sole discretion, of one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral without the signature of such Debtor where permitted by law,
which financing statements may (but need not) describe the Collateral as “all
assets” or “all personal property” or words of like import, and ratifies all
such actions taken by the Secured Party.  This power of attorney is
coupled with an interest and shall be irrevocable for the term of this Agreement
and thereafter as long as any of the Obligations shall be
outstanding.

    

    17.         Notices. Any demand upon or
notice to the Debtors hereunder shall be effective when delivered by hand or
when properly deposited in the mails postage prepaid, or sent by telex,
answerback received, or electronic facsimile transmission, receipt acknowledged,
or delivered to a telegraph company or overnight courier, in each case addressed
to the Debtor at the address shown below or such other address as the Debtors
may advise the Secured Party in writing.  Any notice by the Debtors to
the Secured Party shall be given as aforesaid, addressed to the Secured Party at
the address shown below or such other address as the Secured Party may advise
the Debtors in writing.

    

    
      	
              Secured
      Party: 

            	
              Platinum
      Long Term Growth VI, LLC

              152 West 57th Street, 54th Floor

              New York, NY
10019

            

    

                                                                                                                           

    
      	
              Debtors: 

            	
              c/o
      Valcent Products Inc.

              789 West Pender Street, Suite 1010

              Vancouver, BC V6C
1H2

            

    

     

    
      	
              With
      a copy to:

            	
              Burns
      Figa & Will P.C.

               

              6400 S. Fiddlers Green Circle

              Suite 1000

              Greenwood Village, CO 80111

              Attn: Theresa M. Mehringer

              Tel: (303) 796-2626

              Fax: (303)
796-2777

            

    

     

     

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    

     

    18.        
Other Security. To the
extent that the Obligations are now or hereafter secured by property other than
the Collateral or by the guarantee, endorsement or property of any other person,
firm, corporation or other entity, then the Secured Party shall have the
right, in its sole discretion, to pursue, relinquish, subordinate, modify or
take any other action with respect thereto, without in any way modifying or
affecting any of the Secured Party’s rights and remedies hereunder.

    

    19.         Miscellaneous.

    

    (a)                 No
course of dealing between the Debtors and the Secured Party, nor any failure to
exercise, nor any delay in exercising, on the part of the Secured Party, any
right, power or privilege hereunder or under the Notes shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.

    

    (b)                 All
of the rights and remedies of the Secured Party with respect to the Collateral,
whether established hereby or by the Notes, the Transaction Documents or by any
other agreements, instruments or documents or by law shall be cumulative and may
be exercised singly or concurrently.

    

    (c)                 This
Agreement, together with the exhibits and schedules hereto, the Notes and the
related agreements contemplated hereby and thereby contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into this
Agreement and the exhibits and schedules hereto. No provision of this
Agreement may be waived, modified, supplemented or amended except in a written
instrument signed, in the case of an amendment, by the Debtors and the Secured
Party or, in the case of a waiver, by the party against whom enforcement of any
such waived provision is sought.  

    

    (d)                 If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

     

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    

    (e)                 No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such
right.

    

    (f)                 This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns.  The Company and the
Guarantors may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Secured Party (other than by
merger).  Upon the receipt of the Company’s prior written consent
which shall not be unreasonably withheld, the Secured Party may assign any or
all of its rights under this Agreement to any Person to whom the Secured Party
assigns or transfers any Securities, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions of
this Agreement that apply to the “Secured Party.”

    

    (g)                 Each
party shall take such further action and execute and deliver such further
documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.

    

    (h)                 All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof.  Each Debtor agrees that all
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement, the Transaction Documents and the
Notes (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, partners, members, employees or agents) shall
be commenced exclusively in the state and federal courts sitting in the City of
New York, Borough of Manhattan. Each Debtor hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
New York, Borough of Manhattan for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court or that such proceeding is improper. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law.  Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby. If any
party shall commence a proceeding to enforce any provisions of this Agreement,
then the prevailing party in such proceeding shall be reimbursed by the other
party for its reasonable attorney’s fees and other reasonable costs and expenses
incurred with the investigation, preparation and prosecution of such
proceeding.

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

     

     

    (i)                 This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same Agreement. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
were the original thereof.

    

    (j)               
  Except as provided in Paragraph 15, all Debtors shall jointly and
severally be liable for the obligations of each Debtor to the Secured Party
hereunder.

    

    (k)                 Each
Debtor shall indemnify, reimburse and hold harmless the Secured Party and each
Lender, and each of their respective partners, members, shareholders, officers,
directors, employees and agents (and any other persons with other titles that
have similar functions) (collectively, “Indemnitees”) from and against any and
all losses, claims, liabilities, damages, penalties, suits, costs and expenses,
of any kind or nature, (including fees relating to the cost of investigating and
defending any of the foregoing) imposed on, incurred by or asserted against such
Indemnitee in any way related to or arising from or alleged to arise from this
Agreement or the Collateral, except any such losses, claims, liabilities,
damages, penalties, suits, costs and expenses which result from the gross
negligence or willful misconduct of the Indemnitee as determined by a final,
nonappealable decision of a court of competent jurisdiction.  This
indemnification provision is in addition to, and not in limitation of, any other
indemnification provision in the Notes, the Transaction Documents or any other
agreement, instrument or other document executed or delivered in connection
herewith or therewith.

    

    (l)       
          Nothing in this Agreement shall be construed to subject
the
Secured Party to liability as a partner in any Debtor or any of its direct or
indirect subsidiaries that is a partnership
or as a member in any Debtor or any of its direct or indirect subsidiaries that
is a limited liability company, nor shall the Secured Party
be deemed to have assumed any obligations under any partnership
agreement or limited liability company
agreement, as applicable, of any such Debtor or any of its direct or
indirect subsidiaries or otherwise, unless and until the Secured Party
exercises its right to be substituted for such Debtor as a partner or member, as
applicable, pursuant
hereto.

    

    (m)                 To the extent that the grant of the security interest in
the Collateral and the enforcement of the terms hereof require the consent,
approval or action of any partner or member, as applicable, of any Debtor or any
direct or indirect subsidiary of any Debtor
or compliance with any provisions of any of the Organizational Documents, the
Debtors hereby grant such consent and approval and waive any such noncompliance
with the terms of said documents.

    

    (n)                 The Lenders have, pursuant to the Purchase Agreement appointed the Agent, as their agent
for purposes of exercising any and all rights and remedies of the secured
parties hereunder.  Such appointment shall continue until revoked in
writing (with a copy delivered to the Debtors) in accordance with the
Purchase Agreement.

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     

    

    IN WITNESS WHEREOF, the
parties hereto have caused this Security Agreement to be duly executed on
the day and year first above written.

    

    
      
        	VALCENT PRODUCTS INC 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	By:	
                /s/

              	 	 	
                 

              	 
	 	
                Name

              	 	 	
                 

              	 
	 	
                Title 

              	 	 	
                 

              	 

      

    

     

    
      	VALCENT USA INC. 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	By:	
              /s/

            	 	 	
               

            	 
	 	
              Name

            	 	 	
               

            	 
	 	
              Title 

            	 	 	
               

            	 

    

     

    
      	VALCENT MANUFACTURING,
    LTD. 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	By:	
              /s/

            	 	 	
               

            	 
	 	
              Name

            	 	 	
               

            	 
	 	
              Title 

            	 	 	
               

            	 

    

     

    
      	VALCENT MANAGEMENT LLC 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	By:	
              /s/

            	 	 	
               

            	 
	 	
              Name

            	 	 	
               

            	 
	 	
              Title 

            	 	 	
               

            	 

    

     

    
      	VERTIGRO ALGAE
      TECHNOLOGIES, LLC 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	By:	
              /s/

            	 	 	
               

            	 
	 	
              Name

            	 	 	
               

            	 
	 	
              Title 

            	 	 	
               

            	 

      	VALCENT PRODUCTS EU
    LIMITED 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	By:	
              /s/

            	 	 	
               

            	 
	 	
              Name

            	 	 	
               

            	 
	 	
              Title 

            	 	 	
               

            	 

    

     

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    
      	PURCHASER:	 	 	 	 
	 	 	 	 	 	 
	PLATINUM LONG TERM GROWTH VI,
      LLC 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	By:	
              /s/

            	 	 	
               

            	 
	 	
              Name

            	 	 	
               

            	 
	 	
              Title 

            	 	 	
               

            	 

    

     

    
      	ALPHA CAPITAL AG 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	By:	
              /s/

            	 	 	
               

            	 
	 	
              Name

            	 	 	
               

            	 
	 	
              Title 

            	 	 	
               

            	 

    

     

    
      	OSHER CAPITAL PARTNERS
LLC 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	By:	
              /s/

            	 	 	
               

            	 
	 	
              Name

            	 	 	
               

            	 
	 	
              Title 

            	 	 	
               

            	
               

            

    

     

    
      	GEORGE ORR 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	 	 	 
	By:	
              /s/

            	 	 	
               

            	 
	 	
              Name

            	 	 	
               

            	 
	 	
              Title 

            	 	 	
               

            	 

    

     

     

     

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    

    SCHEDULE
A

    

    

    Principal
Place of Business of Debtors:

    

    828
Harbourside Drive, Suite 208

    North Vancouver, BC V7P
3R9

    

    Rented
Locations Where Collateral is Located or Stored:

    

    828
Harbourside Drive, Suite 208

    North
Vancouver, BC V7P 3R9

     

    

    

    Locations
Owned:

     

     

     

     

    
 

    
      
         

      

      
        A-1

        
          

        

      

      
         

      

    

    

    SCHEDULE
B

    Other
Owners or Collateral or Lienholders

     

     

     

     

     

     

     

     

     

     

    
 

    

    
      
         

      

      
        B-1

        
          

        

      

      
         

      

    

    

    SCHEDULE
C

     

     

     

     

     

     

     

     

     

     

     

    

    
      
         

      

      
        C-1

        
          

        

      

      
         

      

    

    SCHEDULE
D

    Legal
Names and Organizational Identification Numbers

    

    
      	
              NAME

            	
              STATE
      OF ORGANIZATION

            	
              ID
      #

            
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      

    

    

     

     

     

     

     

    
 

    
      
         

      

      
        D-1

        
          

        

      

      
         

      

    

    SCHEDULE
E

    Names;
Mergers and Acquisitions

     

     

     

     

     

     

     

     

     

    
 

    
      
         

      

      
        E-1

        
          

        

      

      
         

      

    

    SCHEDULE
F

    Intellectual
Property

    

    See
Collateral Assignment of Patents and Trademarks delivered by the Debtors on the
date hereof to the Agent.

     

     

     

     

     

     

     

     

     

    
      
        
        

      

      
        F-1

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
G

    Account
Debtors

    

    

     

     

     

     

     

     

    
 

    
      
         

      

      
        G-1

        
          

        

      

      
         

      

    

    SCHEDULE
H

    Pledged
Securities

    

    

    
      	
              Name
      Of Issuer/Guarantor

            	
              Type
      of Securities

            	
              No.
      of shares

              owned

            	
              Percentage
      of Issuer owned

            	
              Stock
      Certificate

              No.

            
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      

    

    

    

    

     

    
 

    

    
      
         

      

      
        H-1

        
          

        

      

      
         

      

    

    ANNEX
A

    to

    SECURITY

    AGREEMENT

    

    
      FORM
OF ADDITIONAL DEBTOR JOINDER

    

    

               Security
Agreement dated as of July 16, 2008 made by Valcent Products,
Inc., and its subsidiaries party thereto from time to time, as
Debtors to and in favor of the Secured Party identified therein (the
“Security
Agreement”)

    

               Reference
is made to the Security Agreement as defined above; capitalized terms used
herein and not otherwise defined herein shall have the meanings given to such
terms in, or by reference in, the Security Agreement.

    

               The
undersigned hereby agrees that upon delivery of this Additional Debtor Joinder
to the Secured Party referred to above, the undersigned shall (a) be an
Additional Debtor under the Security Agreement, (b) have all the rights and
obligations of the Debtors under the Security Agreement as fully and to the same
extent as if the undersigned was an original signatory thereto and (c) be deemed
to have made the representations and warranties set forth therein as of the date
of execution and delivery of this Additional Debtor Joinder.  WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO
THE SECURED PARTY A SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH
IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY
TRIAL PROVISIONS SET FORTH THEREIN.

    

               Attached
hereto are supplemental and/or replacement Schedules to the Security Agreement,
as applicable.

    

               An
executed copy of this Joinder shall be delivered to the Secured Party, and the
Secured Party may rely on the matters set forth herein on or after the date
hereof.  This Joinder shall not be modified, amended or terminated
without the prior written consent of the Secured Party.

     

     

     

    
      
         

      

      
        AA-1

        
          

        

      

      
         

      

    

               IN
WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the
name and on behalf of the undersigned.

    

    
      	 	
              [Name
      of Additional Debtor]

            

    

    

    
      	 	
              By:

            

    

    
      	 	
              Name:

            

    

    
      	 	
              Title:

            

    

    

    
      	 	
              Address:

            

    

    

    

    

    

    

    
      Dated:

    

    
 

     

     

     

     

    AA-2

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