Document:

exv4w3

Exhibit 4.3

CERTIFICATE OF DESIGNATIONS

2008 SERIES B CONVERTIBLE PREFERRED STOCK

(Par Value $.001 Per Share)

of

GREENHUNTER ENERGY, INC.

 

Pursuant to Section 151

of the Delaware General Corporation Law

 

     We,
Gary C. Evans, Chairman, President and CEO and Morgan F. Johnston, Sr. Vice President and
Secretary, of GreenHunter Energy, Inc., a corporation organized and existing under the laws of the
State of Delaware (the “Corporation”), DO HEREBY CERTIFY that, pursuant to the authority conferred
on the Board of Directors of the Corporation by the Certificate of Incorporation, as amended, of
the Corporation and in accordance with Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Corporation on August 21, 2008 duly adopted the following
preamble and resolution establishing and creating a series of 10,575 shares of Preferred Stock, par
value $.001 per share, of the Corporation, designated “2008 Series B Convertible Preferred Stock”:

     RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation
(the “Board of Directors”) in accordance with the provisions of its Certificate of Incorporation,
as amended, a series of Preferred Stock, par value $.001 per share, of the Corporation is hereby
created, and that the designation and number of shares thereof and the voting powers, designations,
preferences, limitations, restrictions and relative rights thereof are as follows:

     Section 1. Designation, Number of Shares and Stated Value of 2008 Series B Convertible
Preferred Stock. There is hereby authorized and established a series of Preferred Stock that
shall be designated as “2008 Series B Convertible Preferred Stock” (hereinafter referred to as
“Series B Preferred”), and the number of shares constituting such series shall be 10,575. Such
number of shares may be increased or decreased, but not to a number less than the number of shares
of Series B Preferred then issued and outstanding, by resolution adopted by the full Board of
Directors. The “Stated Value” per share of the Series B Preferred, shall initially be equal to One
Thousand Dollars ($1,000.00), as it may be adjusted from time to time pursuant to the terms hereof.

     Section 2. Definitions. In addition to the definitions set forth elsewhere herein,
the following terms shall have the meanings indicated:

     “Affiliate” shall mean, with respect to any person, any other person that directly or
indirectly controls or is controlled by or is under complete control with such person. For the
purposes of this definition, “control” when used with respect to any person means the ownership of
at least a majority of the issued and outstanding voting securities or capital interests of such
person.

     “Approved Share Plan” means any employee benefit plan which has been approved by the Board of
Directors of the Corporation, pursuant to which the Corporation’s securities may be issued to any
employee, officer, consultant or director for services provided to the Corporation.

     “Bloomberg” means Bloomberg Financial Markets.

     “Business Day” shall mean any day other than a Saturday, Sunday or a day on which
banking institutions in Dallas, Texas are authorized or obligated by law or executive order to
close.

 

 

     “Closing Bid Price” and “Closing Sale Price” shall mean, for any security as of any date, the
last closing bid price and last closing trade price, respectively, for such security on its Market,
as reported by Bloomberg, or, if the Market begins to operate on an extended hours basis and does
not designate the closing bid price or the closing trade price, as the case may be, then the last
bid price or last trade price, respectively, of such security prior to 5:00:00 p.m., New York Time,
as reported by Bloomberg, or, if the Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price, respectively, of such
security on the principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or
last trade price, respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last
trade price, respectively, is reported for such security by Bloomberg, the average of the bid
prices, or the ask prices, respectively, of any market makers for such security as reported in the
“pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such
security on such date shall be the fair market value as mutually determined by the Corporation and
the Required Holders. All such determinations shall be appropriately adjusted for any share
dividend, share split, share combination or other similar transaction during the applicable
calculation period.

     “Common Stock” shall mean the common stock, par value $0.001 per share, of the Corporation.

     “Common Stock Deemed Outstanding” means, at any given time, the number of shares of Common
Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be
outstanding pursuant to Sections 5(d)(i)(1) and 5(d)(i)(2) hereof regardless of whether the Options
or Convertible Securities are actually exercisable at such time, but excluding any shares of Common
Stock owned or held by or for the account of the Corporation or issuable upon conversion of the
Series B Preferred.

     “Conversion Amount” means the Stated Value as it may be adjusted from time to time pursuant to
the terms hereof.

     “Conversion Price” shall mean the conversion price per share of Common Stock into which the
Series B Preferred is convertible, as such conversion price may be adjusted pursuant to the
provisions hereof. The initial Conversion Price is Seven Dollars and 50/100 Cents ($7.50).

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

     “Dividend Shares” shall have the meaning set forth in the Certificate of Designations of the
Series A 8% Preferred, as may be amended or restated from time to time.

     “Excluded Securities” means any Common Stock issued or deemed to be issued in accordance with
Section 5(d) hereof by the Corporation: (A) in connection with an Approved Share Plan; (B) upon
issuance of shares of the Series A 8% Preferred or Dividend Shares or, upon conversion of the
Series A 8% Preferred, upon exercise of the Warrants, or upon issuance of shares of the Series B
Preferred or, upon conversion of the Series B Preferred; (C) issued upon exercise of Options or
Convertible Securities which are outstanding on the date immediately preceding the Subscription
Date, provided that such issuance of Common Stock upon exercise of such Options or Convertible
Securities is made pursuant to the terms of such Options or Convertible Securities in effect on the
date immediately preceding the Subscription Date and such Options or Convertible Securities are not
amended after the date immediately preceding the Subscription Date; (D) in connection with any
acquisition by the Company, whether through an acquisition of stock or a merger of any business,
assets or technologies the primary purpose of which is not to raise equity capital; and (E) issued
in connection with any share split, share dividend, recapitalization or similar transaction by the
Corporation for which adjustment is made pursuant to Section 5(d).

     “Holder” means a holder of shares of Series B Preferred.

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     “Junior Securities” means any capital stock of the Corporation issued after the Original Issue
Date and any other series of stock issued by the Corporation ranking junior as to the Series B
Preferred upon liquidation, dissolution or winding up of the Corporation.

     “Market” shall mean the any of the New York Stock Exchange, the American Stock Exchange, the
NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or The National
Association of Securities Dealers Inc.’s Over-The-Counter Bulletin Board.

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

     “Original Issue Date” shall mean the date on which shares of the Series B Preferred are first
issued.

     “Original Holders” shall mean the person or persons to whom shares of the Series B Preferred
are issued on the Original Issue Date and, as long as there is a direct chain of ownership by such
persons or persons and their Affiliates, any Affiliate of such person or persons to whom shares of
the Series B Preferred are transferred.

     “Parity Security” means any class or series of stock issued by the Corporation ranking on a
parity with the Series B Preferred upon liquidation, dissolution or winding up of the Corporation,
including the Series A 8% Preferred.

     “Person” means any individual, corporation, association, partnership, joint venture, limited
liability company, trust, estate, or other entity or organization, other than the Corporation, any
subsidiary of the Corporation, any employee benefit plan of the Corporation or any subsidiary of
the Corporation, or any entity holding shares of Common Stock for or pursuant to the terms of any
such plan.

     “Principal Market” means the American Stock Exchange.

     “Required Holders” means the Holders of shares of Series B Preferred representing at least a
majority of the aggregate shares of Series B Preferred then outstanding.

     “Securities Purchase Agreement” means that certain securities purchase agreement by and among
the Corporation and the initial Holders, dated as of the Subscription Date, as such agreement
further may be amended from time to time as provided in such agreement.

     “Senior Securities” means any class or series of stock issued and outstanding after the
Original Issue Date by the Corporation ranking senior to the Series B Preferred upon liquidation,
dissolution or winding up of the Corporation.

     “Series A 8% Preferred” means the 2007 Series A 8% Convertible Preferred Stock of the
Corporation.

     “Subscription Date” means August 21, 2008.

     “Trading Day” means any day on which the shares of Common Stock are traded on a Market;
provided that “Trading Day” shall not include any day on which the shares of Common Stock are
scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common
Stock is suspended from trading during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing time of trading on such exchange
or market, then during the hour ending at 5:00:00 p.m., New York Time).

     “Underlying Shares” means, collectively, the shares of Common Stock issuable upon conversion
of the Series B Preferred.

     “Warrants” means the warrants to purchase shares of Common Stock issued by the Corporation
pursuant to the Securities Purchase Agreement, and shall include all Warrants issued in exchange
thereof or replacement thereof.

     “Weighted Average Price” means, for any security as of any date, the dollar volume-weighted
average price for

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such security on its Market during the period beginning at 9:30:01 a.m., New York
City Time, and ending at 4:00:00 p.m., New York City Time, as reported by Bloomberg through its
“Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average
price of such security in the over-the-counter market on the electronic bulletin board for such
security during the period beginning at 9:30:01 a.m., New York City Time, and ending at 4:00:00
p.m., New York City Time, as reported by Bloomberg, or, if no dollar volume-weighted average price
is reported for such security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the
Weighted Average Price cannot be calculated for such security on such date on any of the foregoing
bases, the term “Weighted Average Price” shall be being substituted for the term “Closing Bid
Price.” All such determinations shall be appropriately adjusted for any share dividend, share split
or other similar transaction during such period.

     Section 3. Certain Covenants and Restrictions. So long as any shares of Series B
Preferred are outstanding;

     (i) The Corporation shall at all times reserve and keep available for issuance upon the
conversion of the shares of Series B Preferred such number of its authorized but unissued
 shares of Common Stock as will be sufficient to permit the conversion of all outstanding
 shares of Series B Preferred, and all other securities and instruments convertible into
 shares of Common Stock, and shall take all action necessary to increase the authorized
number of shares of Common Stock necessary to permit the conversion of all such shares of B
Preferred and all other securities and instruments convertible into shares of Common Stock.

     (ii) The Corporation represents, warrants and agrees that all shares of Common
Stock that may be issued upon exercise of the conversion rights of shares of Series B
Preferred will, upon issuance, be fully-paid and nonassessable.

     (iii) The Corporation shall pay all taxes and other governmental charges (other than
any income or franchise taxes) that may be imposed with respect to the issue or delivery of
 shares of Common Stock upon conversion of Series B Preferred as provided herein. The
Corporation shall not be required, however, to pay any tax or other charge imposed in
connection with any transfer involved in the issue of any certificate for shares of Common
Stock in any name other than that of the registered Holder of the shares of the Series B
Preferred surrendered in connection with the conversion thereof, and in such case the
Corporation shall not be required to issue or deliver any stock certificate until such tax
or other charge has been paid, or it has been established to the Corporation’s reasonable
satisfaction that no tax or other charge is due.

     Section 4. Liquidation Preference.

     (a) In the event of any liquidation, dissolution or winding up of the Corporation (in
connection with the bankruptcy or insolvency of the Corporation or otherwise), whether voluntary or
involuntary, before any payment or distribution of the assets of the Corporation (whether capital
or surplus) shall be made to or set apart for the holders of shares of any Junior Securities, the
Holders of the shares of Series B Preferred shall be entitled to receive an amount equal to the
Stated Value, multiplied by the number of shares of Series B Preferred held by them, plus all
cumulative dividends (whether or not declared) that are accrued and unpaid thereon. To the extent
the available assets are insufficient to fully satisfy such amounts, then the Holders of the Series
B Preferred shall share ratably in such distribution in the proportion that the number of each
Holder’s Series B Preferred Shares bears to the total number of shares of Series B Preferred
outstanding. No further payment on account of any such liquidation, dissolution or winding up of
the Corporation shall be paid to the Holders of the shares of Series B Preferred or the holders of
any Parity Securities unless there shall be paid at the same time to the Holders of the shares of
Series B Preferred and the holders of any Parity Securities proportionate amounts determined
ratably in proportion to the full amounts to which the Holders of all outstanding shares of Series
B Preferred and the holders of all such outstanding Parity Securities are respectively entitled
with respect to such distribution. For purposes of this Section, neither a consolidation or merger
of the
Corporation with one or more partnerships, corporations or other entities nor a sale, lease,
exchange or transfer of all or

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any substantial part of the Corporation’s assets for cash,
securities or other property shall be deemed to be a liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary.

     (b) After the payment of all amounts owing to the holders of stock ranking prior to the Common
Stock, the holders of Common Stock shall share ratably in the distribution of the remaining
available assets of the Corporation in the proportion that each holder’s shares bear to the total
number of shares of Common Stock outstanding.

     (c) Written notice of any liquidation, dissolution or winding up of the Corporation, stating
the payment date or dates when and the place or places where the amounts distributable in such
circumstances shall be payable, shall be given, not less than 15 days prior to any payment date
stated therein, to the Holders of record of the shares of Series B Preferred in accordance with
Section 15 hereof.

     Section 5. Conversion Rights. The outstanding shares of Series B Preferred are
subject to conversion in accordance with the following provisions:

     (a) At the option of the Holder, each share of Series B Preferred shall be convertible at any
time into that number of fully paid and nonassessable shares of Common Stock (calculated as to each
conversion to the nearest one-hundredth (1/100) of a share) obtained by dividing the Stated Value
by the Conversion Price in effect at such time (the “Conversion Rate”).

     (b) Each share of this Series B Preferred may be converted, in whole or in part, at the
option of the Corporation, at any time all of the following conditions are satisfied: (i) the
Closing Sale Price per share of the Common Stock is greater than or equal to twenty dollars
($20.00) for a consecutive period of thirty-one (31) Trading Days (as adjusted for splits,
recapitalization and the like), and (ii) the average daily trading volume for the shares of Common
Stock over the same 31-day period referenced in (i) above equals or exceeds 65,000 shares.

     Upon the happening of (i) and (ii), the Corporation may provide notice (the “Conversion
Notice”) to the Holder of the Series B Preferred at any time within seven (7) business days after
the occurrence of such events indicating the Corporation’s desire to have the Series B Preferred
converted. Each share of Series B Preferred so converted shall be convertible no earlier than
ninety (90) days after the date of the Conversion Notice into that number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the nearest one-hundredth
(1/100) of a share) obtained by dividing the Stated Value, by the Conversion Price in effect at
such time.

     (c) In case at any time the Corporation shall (i) subdivide the outstanding shares of Common
Stock into a greater number of shares, (ii) combine the outstanding shares of Common Stock into a
smaller number of shares or (iii) pay a dividend in Common Stock on its outstanding shares of
Common Stock, then the Conversion Price in effect immediately prior thereto shall be multiplied by
the fraction obtained:

     by dividing

(X), which is the numerator equal to the total number of issued and outstanding shares of
Common Stock immediately prior to the effectiveness of such action by the Corporation,

     by

(Y), which is the denominator that equals the actual total number of issued and outstanding
 shares of Common Stock immediately after such effectiveness.

Such adjustment shall become effective immediately after the effective date of a subdivision,
combination or stock dividend. In the event of a consolidation or merger of the Corporation with
or into another corporation or entity as a result of which a greater or lesser number of shares of
common stock of the surviving corporation or entity are issuable to
holders of capital stock of the Corporation in respect of the number of shares of its capital stock
outstanding immediately prior to such consolidation or merger, then the Conversion Price in effect
immediately prior to such consolidation or

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merger shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of capital stock of the
Corporation. The Corporation shall not effect any such consolidation or merger unless prior to or
simultaneously with the consummation thereof the successor (if other than the Corporation)
resulting from such consolidation or merger shall expressly assume, by written instrument executed
and delivered (and satisfactory in form) to the Series B Preferred Holders, (i) the obligation to
deliver to such Holders such stock as, in accordance with the foregoing provisions, such Holders
may be entitled to purchase and (ii) all other obligations of the Corporation hereunder.

     (d) Adjustment of Conversion Price upon Issuance of Common Stock. (i) If and whenever
on or after the Subscription Date, the Corporation issues or sells, or in accordance with this
Section 5(d) is deemed to have issued or sold, any shares of Common Stock (including the issuance
or sale of shares of Common Stock owned or held by or for the account of the Corporation but
excluding Excluded Securities) for a consideration per share (the “New Securities Issuance Price”)
less than a price (the “Applicable Price”) equal to the Conversion Price in effect immediately
prior to such time (a “Dilutive Issuance”), then immediately after such issue or sale, the
Conversion Price then in effect shall be reduced to an amount equal to the New Securities Issuance
Price. For purposes of determining the adjusted Conversion Price under this Section 5(d)(i), the
following shall be applicable:

     (1) Issuance of Options. If the Corporation in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion, exchange or exercise of any Convertible
Securities issuable upon exercise of such Option is less than the Applicable Price, then
such share of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Corporation at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 5(d)(i)(1), the “lowest price per share for which
one share of Common Stock is issuable upon the exercise of any such Option or upon
conversion, exchange or exercise of any Convertible Securities issuable upon exercise of
such Option” shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Corporation with respect to any one share of Common Stock upon
granting or sale of the Option, upon exercise of the Option and upon conversion, exchange or
exercise of any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Conversion Price shall be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion, exchange or exercise of such Convertible
Securities.

     (2) Issuance of Convertible Securities. If the Corporation in any manner
issues or sells any Convertible Securities and the lowest price per share for which one
share of Common Stock is issuable upon such conversion, exchange or exercise thereof is less
than the Applicable Price, then such Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Corporation at the time of the issuance of sale of such
Convertible Securities for such price per share. For the purposes of this Section
5(d)(i)(2), the “lowest price per share for which one share of Common Stock is issuable upon
such conversion, exchange or exercise” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Corporation with respect to any one
share of Common Stock upon the issuance or sale of the Convertible Security and upon the
conversion, exchange or exercise of such Convertible Security. No further adjustment of the
Conversion Price shall be made upon the actual issuance of such Common Stock upon
conversion, exchange or exercise of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for which
adjustment of the Conversion Price had been or are to be made pursuant to other provisions
of this Section 5(d)(i), no further adjustment of the Conversion Price shall be made by
reason of such issue or sale.

     (3) Change in Option Price or Rate of Conversion. If the purchase or exercise
price provided for in any Options, the additional consideration, if any, payable upon the
issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which
any Convertible Securities are convertible into or
exchangeable or exercisable for Common Stock changes at any time, the Conversion Price
in effect at the time of such change shall be adjusted to the Conversion Price which would
have been in effect at such time had such Options or Convertible Securities provided for
such changed purchase price, additional consideration or

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changed conversion rate, as the
case may be, at the time initially granted, issued or sold. For purposes of this Section
5(d)(i)(3), if the terms of any Option or Convertible Security that was outstanding as of
the date of issuance of the Preferred Shares are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such change. No adjustment shall be made if such adjustment
would result in an increase of the Conversion Price then in effect.

     (4) Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation, together
comprising one integrated transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options will be deemed to have been issued for a
consideration of $0.01. If any Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the consideration received therefor
will be deemed to be the gross amount received by the Corporation therefor. If any Common
Stock, Options or Convertible Securities are issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the Corporation will be
the fair value of such consideration, except where such consideration consists of marketable
securities, in which case the amount of consideration received by the Corporation will be
the arithmetic average of the Closing Sale Prices of such securities during the ten (10)
consecutive Trading Days ending on the date of receipt of such securities. The fair value
of any consideration other than cash or securities will be determined jointly by the
Corporation and the Required Holders. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”),
the fair value of such consideration will be determined within five (5) Business Days after
the tenth (10th) day following the Valuation Event by an independent, reputable
appraiser selected by the Corporation and the Required Holders. The determination of such
appraiser shall be deemed binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the Corporation.

     (ii) Record Date. If the Corporation takes a record of the holders of Common Stock
for the purpose of entitling them (I) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities or (II) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date of the issue or sale
of the Common Stock deemed to have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

     (iii) Other Events. If any event occurs of the type contemplated by the provisions of
this Section 5(d) but not expressly provided for by such provisions (including, without limitation,
the granting of share appreciation rights, phantom share rights or other rights with equity
features, other than Excluded Securities), then the Corporation’s Board of Directors will make an
appropriate adjustment in the Conversion Price so as to protect the rights of the Holders; provided
that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this
Section 5(d).

     (e) In the event that the Corporation proposes to take any action specified in this Section 5
which requires any adjustment of the Conversion Price, then and in each such case the Corporation
shall at least 30 days prior to any such event, and within five business days after it has
knowledge of any such pending transaction, provide to the Series B Preferred Holders written notice
of the date on which the books of the Corporation shall close or a record shall be taken for such
dividend or for determining rights to vote in respect of any such consolidation or merger. Such
notice shall also specify, as applicable, the date on which the holders of capital stock shall be
entitled thereto or the date on which the holders of capital stock shall be entitled to exchange
their stock for securities deliverable upon such consolidation or merger, as the case may be. Such
notice shall also state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act of 1933, as amended, or to a
favorable vote of security holders, if either is required. Furthermore, any notice shall state the
Conversion Price resulting from such adjustment and
the increase or decrease, if any, in the number of shares obtainable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.

     (f) The conversion of any share of Series B Preferred may be effected by the Holder
thereof by the surrender of the certificate or certificates therefor, duly endorsed, at the
principal offices of the Corporation or to such

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agent or agents of the Corporation as may be
designated by the Board of Directors and by giving written notice to the Corporation that such
Holder elects to convert the same.

     (g) After the surrender of shares of Series B Preferred for conversion, the Corporation shall
(i) as promptly as practicable issue and deliver or cause to be issued and delivered to the Holder
of such shares certificates representing the number of fully paid and non-assessable shares of
Common Stock into which such shares of Series B Preferred have been converted in accordance with
the provisions of this Section, and either (A) provided the Corporation’s designated transfer agent
(the “Transfer Agent”) is participating in The Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, crediting such aggregate number of shares of Common Stock to which the
Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its
Deposit Withdrawal Agent Commission system, or (B) if the Transfer Agent is not participating in
the DTC Fast Automated Securities Transfer Program, issuing and delivering to the address as
specified in the Conversion Notice, a certificate, registered in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder shall be entitled, and (ii)
within two business days pay to the Holder of such shares all accrued and unpaid dividends (whether
or not earned or declared) to the date of such surrender. Subject to the following provisions of
this Section, such conversion shall be deemed to have been made as of the close of business on the
date on which the shares of Series B Preferred shall have been surrendered for conversion in the
manner herein provided, so that the rights of the Holder of the shares of Series B Preferred so
surrendered shall cease at such time, and the person or persons entitled to receive the shares of
Common Stock upon conversion thereof shall be treated for all purposes as having become the record
holder or holders of such shares of Common Stock at such time; provided, however, that any such
surrender on any date when the stock transfer books of the Corporation are closed shall be deemed
to have been made, and shall be effective to terminate the rights of the Holder or Holders of the
shares of Series B Preferred so surrendered for conversion and to constitute the person or persons
entitled to receive such shares of Common Stock as the record holder or holders thereof for all
purposes, at the opening of business on the next succeeding day on which such transfer books are
open.

     (h) Corporation’s Failure to Timely Deliver Securities. If within three (3) Trading
Days after the Corporation’s receipt of the facsimile copy of a conversion notice the Corporation
shall fail to transfer the Conversion Shares to the Holder, and if on or after such third Trading
Day the Holder is required to purchase (in an open market transaction or otherwise) shares of
Common Stock in order to deliver in satisfaction of a sale initiated by the Holder in anticipation
of receiving from the Corporation the shares of Common Stock issuable upon such conversion (a
“Buy-In”), then the Corporation shall, within three (3) Business Days after the Holder’s request
and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common
Stock so purchased (the “Buy-In Price”), at which point the Corporation’s obligation to deliver
such Conversion Shares resulting from such conversion shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing such Conversion
Shares and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price
over the product of (A) such number of shares of Common Stock, times (B) the Closing Sale Price on
the date of exercise. Nothing herein shall limit the holder’s right to pursue actual damages for
the Corporation’s failure to maintain a sufficient number of authorized shares of Common Stock or
to otherwise issue shares of Common Stock upon conversion of the Series B Preferred in accordance
with the terms hereof, and the Holder shall have the right to pursue all remedies available at law
or in equity (including a decree of specific performance and/or injunctive relief).
Notwithstanding the foregoing, the Corporation shall have no obligations to deliver Conversion
Shares or to pay any Buy-In Price under this Section 5(h) if the Corporation has timely delivered
in good faith a bonafide objection to such conversion notice.

     (i) The Corporation shall not be required to issue fractional shares of stock upon the
conversion of the Series B Preferred. As to any final fraction of a share which the Holder of one
or more shares of Series B Preferred would otherwise be entitled to receive upon conversion, the
Corporation shall, in lieu of issuing any fractional share, pay the
Holder otherwise entitled to such fraction a sum in cash equal to the same fraction of the
Conversion Price on the day of conversion.

     (j) In case the Corporation shall be a party to any transaction (including without limitation,
a merger, consolidation, statutory share exchange, sale of all or substantially all of the
Corporation’s assets or recapitalization of the Common Stock), in each case as a result of which
shares of Common Stock shall be converted into the right to receive stock, securities or other
property (including cash or any combination thereof) (each of the foregoing transactions

- 8 -

 

being
referred to as a “Fundamental Change Transaction”), then the shares of Series B Preferred remaining
outstanding will thereafter no longer be subject to conversion into Common Stock pursuant to this
Section, but instead each share shall be convertible into the kind and amount of stock and other
securities and property receivable (including cash) upon the consummation of such Fundamental
Change Transaction by a holder of that number of shares of Common Stock into which one share of
Series B Preferred was convertible immediately prior to such Fundamental Change Transaction
(including an immediate adjustment of the Conversion Price if by reason of or in connection with
such merger, consolidation, statutory share exchange, sale or recapitalization any securities are
issued or event occurs which would, under the terms hereof, require an adjustment of the Conversion
Price), assuming such Holder of Series B Preferred has failed to elect to have all or a part of
such Holder’s shares redeemed or otherwise acquired. The provisions of this paragraph shall
similarly apply to successive Fundamental Change Transactions.

     (k) Dispute Resolution. In the case of a dispute as to the determination of the
Closing Sale Price or the arithmetic calculation of the Conversion Price, the Corporation shall
instruct the Transfer Agent to issue to the Holder the number of shares of Common Stock that is not
disputed and shall transmit an explanation of the disputed determinations or arithmetic
calculations to the Holder via facsimile within three (3) Business Days of receipt of such Holder’s
Conversion Notice or other date of determination. If such Holder and the Corporation are unable to
agree upon the determination of the Closing Sale Price or arithmetic calculation of the Conversion
Price within two (2) Business Days of such disputed determination or arithmetic calculation being
transmitted to the Holder, then the Corporation shall within ten (10) Business Day submit via
facsimile (A) the disputed determination of the Closing Sale Price to an independent, reputable
investment bank selected by the Corporation and approved by the Required Holders or (B) the
disputed arithmetic calculation of the Conversion Price to the Corporation’s independent, outside
accountant. The Corporation shall cause, at the Corporation ‘s expense, the investment bank or the
accountant, as the case may be, to perform the determinations or calculations and notify the
Corporation and the Holders of the results no later than two (2) Business Days from the time it
receives the disputed determinations or calculations. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all parties absent error.

     Section 6. Optional Redemption by the Corporation.

     Subject to the terms hereof, the Corporation may at its option, so long as it has sufficient
funds legally available therefore, elect to redeem, in whole or in part, the outstanding shares of
Series B Preferred at any time after the fifth anniversary of the Original Issue Date at the
redemption price per share of 100.00% of the Stated Value, plus an amount equal to accrued and
unpaid dividends, if any, to the date fixed for redemption, whether or not earned or declared. The
Redemption Price shall be paid in cash from any source of funds legally available therefore.

     Not less than 30 nor more than 60 days prior to the date fixed for any redemption of
any shares of Series B Preferred, a notice specifying the time (the “Redemption Date”) and place of
such redemption and the number of shares to be redeemed shall be given in accordance with Section
15 hereof to the Holders of record of the shares of Series B Preferred to be redeemed at their
respective addresses as the same shall appear on the books of the Corporation (but no failure to
mail such notice or any defect therein shall affect the validity of the proceedings for redemption
except as to the Holder to whom the Corporation has failed to mail such notice or except as to the
Holder whose notice was defective), calling upon each such Holder of record to surrender to the
Corporation on the Redemption Date at the place designated in such notice such Holder’s certificate
or certificates representing the then outstanding shares of Series B Preferred held by such Holder
being redeemed by the Corporation. On or after the Redemption Date, each Holder of shares of
Series B Preferred called for redemption shall surrender such Holder’s certificate or certificates
for such shares to the Corporation at the place designated in the redemption notice and shall
thereupon be entitled to receive payment of the Redemption Price, provided, that at any time prior
to the Redemption Date a Holder may exercise its option to convert its shares of
Series B Preferred pursuant to Section 5(c). From and after the Redemption Date, unless there
shall have been a default in payment of the Redemption Price, all rights of the Holders of Series B
Preferred designated for redemption (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever.

Section 7.
 Redemption at Option of Holders.

- 9 -

 

     (a) Triggering Event. A “Triggering Event” shall be deemed to have occurred at such
time as any of the following events:

     (i) the entry by a court having jurisdiction in the premises of (i) a decree or order
for relief in respect of the Corporation or any Subsidiary of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or (ii) a decree or order ordering the winding up or liquidation of its affairs,
and the continuance of any such decree or order for relief or any such other decree or order
unstayed and in effect for a period of 60 consecutive days; or

     (ii) the commencement by the Corporation or any Subsidiary of a voluntary case or
proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or
other similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by it to the entry of a decree or order for relief in respect of
the Corporation or any Subsidiary in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by
it of a petition or answer or consent seeking reorganization or relief under any applicable
Federal or State law, or the consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Corporation or any Subsidiary or of any
substantial part of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Corporation or any Subsidiary in
furtherance of any such action.

     (b) Redemption Option Upon Triggering Event. In addition to all other rights of the
Holders contained herein, after a Triggering Event, each Holder shall have the right, at such
Holder’s option, to require the Corporation to redeem all or a portion of such Holder’s shares of
Series B Preferred at a price per Preferred Share equal to 115% of, the greater of (x) the Stated
Value, and (y) the product of (A) the Conversion Rate in effect at such time as such Holder
delivers a Notice of Redemption at Option of Holder (as defined below) and (B) the Closing Sale
Price of the Common Stock on the Trading Day immediately preceding such Triggering Event, in the
case of each of clauses (x) and (y) above, plus any accrued but unpaid dividends per Preferred
Share (the “Redemption Price”).

     (c) Mechanics of Redemption at Option of Buyer. Within two (2) Business Days after the
occurrence of a qualifying Triggering Event, the Corporation shall deliver written notice thereof
via facsimile and overnight courier (“Notice of Triggering Event”) to each Holder. At any time
after the earlier of a Holder’s receipt of a Notice of Triggering Event and such Holder becoming
aware of a Triggering Event, any Holder of shares of Series B Preferred then outstanding may
require the Corporation to redeem up to all of such Holder’s shares of Series B Preferred by
delivering written notice thereof via facsimile and overnight courier (“Notice of Redemption at
Option of Holder”) to the Corporation, which Notice of Redemption at Option of Holder shall
indicate the number of shares of Series B Preferred that such Holder is electing to redeem and a
description of the facts relating to the Triggering Event pursuant to which the Holder is electing
to redeem the shares of Series B Preferred.

     (d) Payment of Redemption Price. Upon the Corporation’s receipt of a Notice(s) of
Redemption at Option of Holder from any Holder, the Corporation shall promptly notify each Holder
by facsimile of the Corporation’s receipt of such notice(s). The Corporation shall deliver on the
fifth (5th) Business Day after the Corporation’s receipt of the first Notice of
Redemption at Option of Holder the applicable Redemption Price to all Holders that deliver a Notice
of Redemption at Option of Holder prior to the fifth (5th) Business Day after the
Corporation’s receipt of the first Notice of Redemption at Option of Holder. To the extent
redemptions required by this Section 7 are deemed or determined by a court of competent
jurisdiction to be prepayments of the shares of Series B Preferred by the Corporation, such
redemptions shall be deemed to be voluntary prepayments. If the Corporation is unable to redeem all
of the shares of Series B Preferred submitted for redemption, the Corporation shall (i) redeem a
pro rata amount from each Holder based on the number of shares of Series B Preferred submitted for
redemption by such Holder relative to the total number of shares of Series B Preferred submitted
for redemption by all Holders and (ii) in addition to any remedy such Holder may have under this
Certificate of Designation and the Securities Purchase Agreement, pay to each Holder interest at
the rate of 2.0% per month (prorated for partial months) in respect of each unredeemed shares of
Series B Preferred tendered for redemption until paid in full. The

- 10 -

 

Holders and Corporation agree
that in the event of the Corporation’s inability to redeem any shares of Series B Preferred
tendered for redemption under this Section 7, the Holders’ damages resulting therefrom would be
uncertain and difficult to estimate because of the parties’ inability to predict future interest
rates and the uncertainty of the availability of a suitable substitute investment opportunity for
the Holders. Accordingly, any redemption premium due under this Section 7 is intended by the
parties to be, and shall be deemed, a reasonable estimate of the Holders’ actual loss of its
investment opportunity and not as a penalty.

     (e) Void Redemption. In the event that the Corporation does not pay the Redemption
Price within the time period set forth in Section 7(d), at any time thereafter and until the
Corporation pays such unpaid applicable Redemption Price in full, a Holder shall have the option
to, in lieu of redemption, require the Corporation to promptly return to such Holder any or all of
the shares of Series B Preferred that were submitted for redemption by such Holder under this
Section 7 and for which the applicable Redemption Price (together with any interest thereon) has
not been paid, by sending written notice thereof to the Corporation via facsimile (the “Void
Optional Redemption Notice”). Upon the Corporation’s receipt of such Void Optional Redemption
Notice, (i) the Notice of Redemption at Option of Holder shall be null and void with respect to
those shares of Series B Preferred subject to the Void Optional Redemption Notice, (ii) the
Corporation shall immediately return any shares of Series B Preferred subject to the Void Optional
Redemption Notice, and (iii) the Conversion Price of such returned shares of Series B Preferred
shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the
Void Optional Redemption Notice is delivered to the Corporation and (B) the lowest Weighted Average
Price of the Common Stock during the period beginning on the date on which the Notice of Redemption
at Option of Holder is delivered to the Corporation and ending on the date on which the Void
Optional Redemption Notice is delivered to the Corporation.

     (f) Disputes; Miscellaneous. In the event of a dispute as to the determination of the
arithmetic calculation of the Redemption Price, such dispute shall be resolved pursuant to Section
5(k) above with the term “Redemption Price” being substituted for the term “Conversion Rate”. A
Holder’s delivery of a Void Optional Redemption Notice and exercise of its rights following such
notice shall not effect the Corporation’s obligations to make any payments which have accrued prior
to the date of such notice. In the event of a redemption pursuant to this Section 7 of less than
all of the shares of Series B Preferred represented by a particular Certificate, the Corporation
shall promptly cause to be issued and delivered to the Holder of such shares of Series B Preferred
a Certificate representing the remaining shares of SeriesB Preferred which have not been redeemed,
if necessary.

     Section 8. Purchase Rights. If at any time the Corporation grants, issues or sells
any Options, Convertible Securities or rights to purchase shares, warrants, securities or other
property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then
the Holders will be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number
of shares of Common Stock acquirable upon complete conversion of the shares of Series B Preferred
(without taking into account any limitations or restrictions on the convertibility of the shares of
Series B Preferred) immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

     Section 9. Limitation on Beneficial Ownership; Principal Market Regulation. 

     (a) Limitation on Beneficial Ownership. The Corporation shall not effect and shall
have no obligation to effect any conversion of shares of Series B Preferred, and no Holder shall
have the right to convert any shares of Series B Preferred, to the extent that after giving effect
to such conversion, the beneficial owner of such shares (together with such Person’s affiliates)
would have acquired, through conversion of shares of Series B Preferred or otherwise, beneficial
ownership of a number of shares of Common Stock that exceeds 9.99% (“Maximum Percentage”) of the
number of shares of Common Stock outstanding immediately after giving effect to such conversion,
including with respect to a conversion at the option of the Corporation pursuant to Section 5(b).
For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by
a Person and its affiliates shall include the number of shares of Common Stock issuable upon
conversion of the shares of Series B Preferred that are subject to a pending conversion notice for
which the determination of whether the Maximum Percentage had been exceeded is being determined,
but shall

- 11 -

 

exclude the number of shares of Common Stock which would be issuable upon (A) conversion
of any remaining, nonconverted shares of Series B Preferred beneficially owned by such Person or
any of its affiliates not subject to a pending conversion notice and (B) exercise or conversion of
the unexercised or unconverted portion of any other securities of the Corporation (including,
without limitation, any warrants) beneficially owned by such Person or any of its affiliates that
are similarly subject to a limitation on conversion or exercise analogous to the limitation
contained in this Section 9. Except as set forth in the preceding sentence, for purposes of this
Section 9, beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. For purposes of this Section 9, in determining the
number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares
of Common Stock as reflected in (1) the Corporation’s most recent Form 8-K, Form 10-Q, Form 10-QSB,
Form 10-K or Form 10-KSB as the case may be, (2) a more recent public announcement by the
Corporation, or (3) any other notice by the Corporation or its Transfer Agent setting forth the
number of shares of Common Stock outstanding. Upon the written request of any Holder, the
Corporation shall promptly, but in no event later than one (1) Business Day following the receipt
of such notice, confirm orally and in writing to any such Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to all conversions of shares of Series B Preferred by such Holder
and its affiliates that had occurred since the date as of which such number of outstanding shares
of Common Stock was reported. By written notice to the Corporation, the Holder may increase or
decrease the Maximum Percentage to any other percentage specified in such notice; provided that (i)
any such increase will not be effective until the sixty-first (61st) day after such notice is
delivered to the Corporation, and (ii) any such increase or decrease will apply only to the Holder
and not to any other Holder.

     (b) Principal Market Regulation. Notwithstanding anything to the contrary contained
herein, the Corporation shall not be obligated to issue any shares of Common Stock upon conversion
of shares of the Series B Preferred if the issuance of such shares of Common Stock would exceed
that number of shares of Common Stock which the Corporation may issue upon conversion of the shares
of the Series B Preferred or exercise of the Warrants without breaching the Corporation’s
obligations under the rules or regulations of the Principal Market, or the market or exchange where
the Common Stock is then traded (the “Exchange Cap”), which number of shares of Common Stock was
equal to 3,979,519 in the aggregate as of the Subscription Date, except that such limitation shall
not apply in the event that the Corporation (a) obtains the approval of its stockholders as
required by the applicable rules of the Principal Market (or any successor rule or regulation) for
issuances of Common Stock in excess of such amount, or (b) obtains a written opinion from outside
counsel to the Corporation that such approval is not required, which opinion shall be reasonably
satisfactory to the Holders. Unless and until such approval or written opinion is obtained, the
Holder shall not be issued, upon exercise of Warrants or conversion of shares of Series B
Preferred, shares of Common Stock in an amount greater than the Exchange Cap.

     Section 10. Reacquired Shares. Any shares of Series B Preferred repurchased,
redeemed, converted or otherwise acquired by the Corporation shall be retired and canceled promptly
after the acquisition thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock, without designation as to series.

     Section 11. Voting Rights.

     (a) Except as otherwise provided in this Section or required by law or any provision of the
Certificate of Incorporation of the Corporation, and subject to any shareholder and voting or
similar agreement existing now or hereinafter entered into by any Original Holder and the
Corporation, the Holders shall vote together with the shares of Common Stock as a single class at
any annual or special meeting of shareholders of the Corporation, and each Holder shall be entitled
to that number of votes equal to the number of shares of Common Stock into which the shares of
Series B Preferred held by such Holder on the record date fixed for such meeting are convertible.

     (b) The Corporation shall not, without the affirmative vote or consent of at least a simple
majority of the shares of Series B Preferred voting together as a separate class:

- 12 -

 

     (i) amend, repeal or change any of the provisions of the Certificate of Incorporation
of the Corporation in any way which would materially and adversely affect the rights or
preferences of the Series B Preferred (including the Certificate of Designations relating to
the Series B Preferred) as a class; or

     (ii) authorize, create or issue, or increase the authorized or issued amount of, any
class or series of stock of Senior Securities or Parity Securities, or any security
convertible into or exchangeable for Senior Securities or Parity Securities or reclassify or
modify any Junior Securities so as to become Parity Securities or Senior Securities.

     Section 12. Ranking. For purposes of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, (i) the Junior Securities shall rank
junior to the Series B Preferred and (ii) the Parity Securities shall rank on a parity with the
Series B Preferred.

     Section 13. Participation. The Holders shall, as Holders of Series B
Preferred, be entitled to such dividends paid and distributions made to the holders of Common Stock
(other than a dividend or distribution of Common Stock, in which case Section 5(c)(iii) shall
apply) to the same extent as if such Holders had converted the Series B Preferred into Common Stock
(without regard to any limitations on conversion herein or elsewhere) and had held such Common
Stock on the record date for such dividends and distributions. Payments under the preceding
sentence shall be made concurrently with the dividend or distribution to the holders of Common
Stock.

     Section 14. Record Holders. The Corporation may deem and treat the record Holder of
any shares of Series B Preferred as the true and lawful owner thereof for all purposes, and the
Corporation shall not be affected by any notice to the contrary. Upon receipt by the Corporation of
evidence reasonably satisfactory to the Corporation of the loss, theft, destruction or mutilation
of any Certificates representing the shares of Series B Preferred, and, in the case of loss, theft
or destruction, of an indemnification undertaking by the Holder to the Corporation in customary
form and, in the case of mutilation, upon surrender and cancellation of the Certificate(s), the
Corporation shall execute and deliver new Certificate(s) of like tenor and date; provided,
however, the Corporation shall not be obligated to re-issue Certificates if the Holder
contemporaneously requests the Corporation to convert such shares of Series B Preferred into
Common Stock.

     Section 15. Notice. Except as may otherwise be provided by law or provided for
herein, all notices referred to herein shall be in writing, and all notices hereunder shall be
deemed to have been given upon receipt, in the case of a notice of conversion given to the
Corporation, or, in all other cases, upon the earlier of receipt of such notice or three Business
Days after the mailing of such notices sent by Registered Mail (unless first-class mail shall be
specifically permitted for such notice under the terms hereof) with postage prepaid, addressed: if
to the Corporation, to its principal executive offices or to any agent of the Corporation
designated as permitted hereby; or if to a Holder of the Series B Preferred, to such Holder at the
address or telecopy of such Holder of the Series B Preferred as listed in the stock record books of
the Corporation, or to such other address or telecopy as the Corporation or Holder, as the case may
be, shall have designated by notice similarly given. Notices given by facsimile transmission on
weekends, holidays or after 5:00 p.m. Central Time shall be deemed received on the next business
day.

     Section 16. Successors and Transferees. Except as otherwise expressly provided
herein, and subject to any shareholder and voting or similar agreement entered into by any Original
Holders and the Corporation, the provisions applicable to shares of Series B Preferred shall bind
and inure to the benefit of and be enforceable by the Corporation, the respective successors to the
Corporation, and by any record Holder of shares of Series B Preferred.

[SIGNATURE PAGE FOLLOWS]

- 13 -

 

     IN WITNESS WHEREOF, GreenHunter Energy, Inc. has caused its corporate seal to be hereunto
affixed and this certificate to be signed by Gary C. Evans, its Chairman, President and CEO and
Morgan F. Johnston, its Secretary, this 21 day of August, 2008.

	 	 	 
	 

	 	/s/ Gary C. Evans
	 

	 	 
	 

	 	Gary C. Evans
	 

	 	Chairman, President and CEO
	 
	 	 
	 

	 	/s/ Morgan F. Johnston
	 

	 	 
	 

	 	Morgan F. Johnston
	 

	 	Secretary

	 	 	 	 	 	 	 
	State of Texas

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	County
of Tarrant

	 	 	)	 	 	 

     This instrument was acknowledged before me on August ___, 2008, by Gary C. Evans of GREENHUNTER
ENERGY, INC., a Delaware corporation, on behalf of said corporation.

	 	 	 
	 

	 	/s/ C. Lori Tatum
	 

	 	 
	 

	 	Notary Public, State of Texas
	 
	 	 
	 

	 	 C. Lori Tatum
	 

	 	 
	 

	 	(printed name)

My Commission Expires:

          4/23/2010

- 14 -exv10w1

Exhibit
10.1

SECURITIES PURCHASE AGREEMENT

     SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of August 21, 2008, by and among
GreenHunter Energy, Inc. (the “Company”) and the investor listed on the Schedule of Buyers attached
hereto (the “Buyer”).

WHEREAS:

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

B. The Company has authorized a new series of convertible preferred stock of the Company designated
as Series B Preferred Stock, the terms of which are set forth in the certificate of designations
for such series of preferred stock (the “Certificate of Designations”) in the form attached hereto
as Exhibit A (together with any convertible Preferred Stock issued in replacement thereof
in accordance with the terms thereof, the “Preferred Stock”), which Preferred Stock shall be
convertible into the Company’s common stock, par value $0.001 per share (the “Common Stock”), in
accordance with the terms of the Certificate of Designations.

C. The Buyer (and other investors) and the Company entered into that certain securities purchase
agreement dated March 9, 2007, pursuant to which the Buyer purchased an aggregate of (i)11,750
shares of the Company’s Series A 8% Convertible Preferred Stock, (ii) warrants to purchase
1,410,000 shares of Common Stock (the “2007 Warrants”), and (iii) 470,000 shares of Common Stock.

D. Buyer wishes to return the 2007 Warrants to the Company, and the Company wishes to cancel the
2007 Warrants in connection with the transactions contemplated hereunder.

E. Buyer wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated
in this Agreement, (i) that aggregate number of shares of Preferred Stock set forth opposite
Buyer’s name in column (3) on the Schedule of Buyers (which shall be 10,575 shares of Preferred
Stock and the shares of Common Stock into which such Preferred Stock is convertible being referred
to herein as the “Conversion Shares”), and (ii) Warrants in substantially the form attached hereto
as Exhibit B (the “Warrants”), to acquire that number of shares of Common Stock (as
exercised, collectively, the “Warrant Shares”) set forth opposite Buyer’s name in column (4) on the
Schedule of Buyers.

F. The Preferred Stock, the Conversion Shares, the Warrants and the Warrant Shares are collectively
referred to herein as the “Securities”.

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

1. PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS.

     (a) Preferred Stock and Warrants. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to Buyer, and

 

 

Buyer agrees to purchase from the Company on the Closing Date (as defined below), the number
of shares of Preferred Stock, as is set forth opposite Buyer’s name in column (3) on the Schedule
of Buyers, along with Warrants to acquire that number of Warrant Shares as is set forth opposite
Buyer’s name in column (4) on the Schedule of Buyers.

     (b) Closing. The closing (the “Closing”) of the purchase of the Preferred Stock and
Warrants by the Buyer shall occur at the offices of McDermott Will & Emery LLP, 340 Madison Avenue,
New York, New York 10173. The date and time of the Closing (the “Closing Date”) shall be 10:00
a.m., New York City Time, on the date hereof, subject to the notification of satisfaction (or
waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or such later date as
is mutually agreed to by the Company and Buyer). As used herein “Business Day” means any day other
than a Saturday, Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.

     (c) Purchase Price. The purchase price for the Preferred Stock and the Warrants to be
purchased by Buyer shall be (i) $10,575,000 (the “Cash Purchase Price”), and (ii) the cancellation
of 1,410,000 2007 Warrants (together with the Cash Purchase Price, the “Purchase Price”).

     (d) Form of Payment. On the Closing Date, (A) Buyer shall pay the Purchase Price to
the Company for the Preferred Stock and the Warrants to be issued and sold to Buyer at the Closing,
(i) by wire transfer of immediately available funds equal to the Cash Purchase Price in accordance
with the Company’s written wire instructions, and (ii) the return of the 2007 Warrants to the
Company, and (B) the Company shall deliver to Buyer the Preferred Stock (in such denominations as
is set forth opposite Buyer’s name in column (3) on the Schedule of Buyers), along with the
Warrants (exercisable for the number of shares of Common Stock as are set forth opposite Buyer’s
name in column (4) on the Schedule of Buyers), each duly executed on behalf of the Company and
registered in the name of Buyer or its designee.

2. REPRESENTATIONS AND WARRANTIES.

Buyer represents and warrants that:

     (a) Organization; Authority. Buyer is an entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization with the requisite power
and authority to enter into and to consummate the transactions contemplated by the Transaction
Documents (as defined below) to which it is a party and otherwise to carry out its obligations
hereunder and thereunder.

     (b) No Public Sale or Distribution. Buyer is (i) acquiring the Preferred Stock, and
the Warrants, (ii) upon conversion of the Preferred Stock will acquire the Conversion Shares, and
(iii) upon exercise of the Warrants will acquire the Warrant Shares, in each case, for its own
account and not with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided,
however, that by making the representations herein, Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration statement or an exemption

2

 

under the 1933 Act. Buyer is not a broker-dealer registered, or required to be registered,
with the SEC under the 1934 Act. Buyer is acquiring the Securities hereunder in the ordinary course
of its business. Buyer does not presently have any agreement or understanding, directly or
indirectly, with any Person to distribute any of the Securities.

     (c) Accredited Investor Status. Buyer is an “accredited investor” as that term is
defined in Rule 501(a) of Regulation D.

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

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

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

     (g) Transfer or Resale. Buyer understands that: (i) the Securities have not been and
are not being registered under the 1933 Act or any state securities laws, and may not be offered
for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) Buyer
shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the
effect that such Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) Buyer provides the Company with
reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144
or Rule 144A promulgated under the 1933 Act, (or a successor rule thereto) (collectively, “Rule
144”); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance
with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities
under circumstances in which the seller (or the Person (as defined in Section 3(s)) through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other Person is under any obligation to
register the Securities under the 1933 Act or any state securities laws

3

 

or to comply with the terms and conditions of any exemption thereunder. The Securities may be
pledged in connection with a bona fide margin account or other loan or financing arrangement
secured by the Securities and such pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any delivery to the
Company pursuant to this Agreement or any other Transaction Document (as defined in Section 3(b)),
including, without limitation, this Section 2(g).

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

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

The legend set forth above shall be removed and the Company shall issue a certificate without such
legend to the holder of the Securities upon which it is stamped, if, unless otherwise required by
state securities laws, (i) such Securities are registered for resale under the 1933 Act, (ii) in
connection with a sale, assignment or other transfer, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that such sale, assignment or
transfer of the Securities may be made without registration under the applicable requirements of
the 1933 Act, or (iii) such holder provides the Company with reasonable assurance that the
Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A. The Company
shall bear all fees and expenses related to the removal of the legend and issuance of any new
unlegended Securities.

     (i) Validity; Enforcement. This Agreement has been duly and validly authorized,
executed and delivered on behalf of Buyer and shall constitute the legal, valid and binding
obligations of Buyer enforceable against Buyer in accordance with their respective terms, except as
such enforceability may be limited by general principles of equity or applicable bankruptcy,

4

 

insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and remedies.

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

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

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

     (m) Independent Investment Decision. Buyer has independently evaluated the merits of
its decision to purchase the Securities pursuant to this Agreement, and Buyer confirms that it has
not relied on the advice of the Company in making such decision.

     (n) Certain Fees. Buyer has not entered into an agreement whereby brokerage or
finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or other person with respect to the
transactions contemplated by this Agreement.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants to Buyer that, except as disclosed in the SEC Documents and
except as otherwise set forth on the schedule of exceptions delivered to the Buyer in connection
with the execution of this Agreement (the “Schedules”):

     (a) Organization and Qualification. The Company and its “Subsidiaries” (which for
purposes of this Agreement means any entity in which the Company, directly or indirectly, owns
capital stock or holds an equity or similar interest) are entities duly organized and validly
existing and in good standing under the laws of the jurisdiction in which they are formed, and have
the requisite power and authorization to own their properties and to carry on their business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign entity to
do business and is in good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary, except to the extent
that the failure to be so qualified or be in good standing would not have a Material Adverse
Effect. As used in this Agreement, “Material Adverse Effect” means any material adverse effect on
the business, properties, assets, operations, results of operations, condition

5

 

(financial or otherwise) or current prospects of the Company and its Subsidiaries, both taken
as a whole and individually as to any Subsidiary that is a Significant Subsidiary (as defined in
Regulation S-X), or on the transactions contemplated hereby or in the other Transaction Documents
or by the agreements and instruments to be entered into in connection herewith or therewith, or on
the authority or ability of the Company to perform its obligations under the Transaction Documents
(as defined below). The Subsidiaries and their respective ownership interests are set forth on
Schedule 3(a). The Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any liens, and all the issued and outstanding shares
of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights to subscribe for or purchase securities.

     (b) Authorization; Enforcement; Validity. The Company has the requisite corporate
power and authority to enter into and perform its obligations under this Agreement, the Certificate
of Designations, the Warrants and each of the other agreements entered into by the parties hereto
in connection with the transactions contemplated by this Agreement (collectively, the “Transaction
Documents”) and to issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of this Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby, including, without
limitation, the issuance of the Preferred Stock, the reservation for issuance and the issuance of
the Conversion Shares issuable upon conversion of the Preferred Stock, the issuance of the Warrants
and the reservation for issuance and issuance of the Warrant Shares issuable upon exercise of the
Warrants have been duly authorized by the Company’s Board of Directors and (other than any other
filings as may be required by the SEC or any state securities agencies) no further filing, consent,
or authorization is required by the Company, its Board of Directors or its stockholders. This
Agreement and the other Transaction Documents of even date herewith have been duly executed and
delivered by the Company, and constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies and except as rights to indemnification
and to contribution may be limited by federal or state securities law. The Certificate of
Designations in the form attached hereto as Exhibit A shall be filed with the Secretary of
State of the State of Delaware on or prior to Closing.

     (c) Issuance of Securities. The issuance of the Preferred Stock and the Warrants are
duly authorized and upon issuance in accordance with the terms of the Transaction Documents shall
be free from all taxes, liens and charges with respect to the issue thereof, and the Preferred
Stock shall be entitled to the rights and preferences set forth in the Certificate of Designations.
As of the Closing, the Company shall have reserved from its duly authorized capital stock not less
than the sum of 120% of (i) the maximum number of shares of Common Stock issuable upon conversion
of the Preferred Stock (without taking into account any limitations on the conversion of the
Preferred Stock set forth in the Certificate of Designations), and (ii) the maximum number of
shares of Common Stock issuable upon exercise of the Warrants (without taking into account any
limitations on the exercise of the Warrants set forth in the Warrants). Upon issuance or conversion
in accordance with the Certificate of Designations or exercise in

6

 

accordance with the Warrants, as the case may be, the Conversion Shares and the Warrant
Shares, respectively, will be validly issued, fully paid and nonassessable and free from all
preemptive or similar rights, taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. Subject to the
representations and warranties of the Buyer in this Agreement, the offer and issuance by the
Company of the Securities is exempt from registration under the 1933 Act.

     (d) No Conflicts. The execution, delivery and performance of this Agreement and the
other Transaction Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of the Preferred Stock
and the Warrants, and the reservation for issuance of the Conversion Shares and the Warrant Shares)
will not (i) result in a violation of the Certificate of Incorporation (as defined in Section 3(r))
of the Company or Bylaws (as defined in Section 3(r)) or the Certificate of Designations of the
Company or (ii) conflict with, or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any
of its Subsidiaries is a party, except to the extent such conflict, default or termination right
would not reasonably be expected to have a Material Adverse Effect, or (iii) result in a violation
of any law, 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 is bound or affected except, in the case of
clause (ii) or (iii) above, to the extent such violations would not reasonably be expected to have
a Material Adverse Effect.

     (e) Consents. The Company is not required to obtain any consent, authorization or
order of, or make any filing or registration with, any court, governmental agency or any regulatory
or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of
its obligations under or contemplated by this Agreement and the other Transaction Documents, in
each case in accordance with the terms hereof or thereof. All consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the Closing Date, and the Company is unaware
of any facts or circumstances which might prevent the Company from obtaining or effecting any of
the registration, application or filings pursuant to the preceding sentence.

     (f) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges
and agrees that Buyer is acting solely in the capacity of an arm’s length purchaser with respect to
this Agreement and the other Transaction Documents and the transactions contemplated hereby and
thereby and that Buyer is not an officer or director of the Company. The Company further
acknowledges that Buyer is not acting as a financial advisor or fiduciary of the Company or any of
its Subsidiaries (or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby, and any advice given by Buyer or any of its
representatives or agents in connection with this Agreement and the other Transaction Documents and
the transactions contemplated hereby and thereby is merely incidental to Buyer’s purchase of the
Securities. The Company further represents to Buyer that the Company’s decision to enter into this
Agreement and the other Transaction Documents has been based solely on the independent evaluation
by the Company and its representatives.

7

 

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

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

     (i) Dilutive Effect. The Company understands and acknowledges that the Warrant Shares
issuable upon exercise of the Warrants, will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Stock
in accordance with this Agreement and the Certificate of Designations and its obligation to issue
the Warrant Shares upon 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 interests of other stockholders of the Company.

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

     (k) SEC Documents; Financial Statements. Except as disclosed in the SEC Documents or
on Schedule 3(k), the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting requirements of the
1934 Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and
financial statements, notes and schedules thereto and documents

8

 

incorporated by reference therein being hereinafter referred to as the “SEC Documents”). The
Company has delivered to the Buyer or its representatives true, correct and complete copies of each
of the SEC Documents not available on the EDGAR system. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Documents, (the “Financial
Statements”) complied as to form in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto as in effect as of the time
of filing. Such Financial Statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such Financial Statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No
other information provided by or on behalf of the Company to the Buyer which is not included in the
SEC Documents, including, without limitation, information referred to in Section 2(e) of this
Agreement, contains any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein not misleading, in the light of the circumstance
under which they are or were made.

     (l) Absence of Certain Changes. Except as disclosed in the Company’s quarterly report
on Form 10-Q for the period ended June 30, 2008, since June 30, 2008, there has been no material
adverse change and no material adverse development in the business, assets, liabilities,
properties, operations, condition (financial or otherwise), results of operations or prospects of
the Company or its Subsidiaries, other than changes or developments in the ordinary course of
business of the Company or its Subsidiaries. Since the date of the Company’s most recent audited
financial statements, neither the Company nor any of its Subsidiaries has (i) declared or paid any
dividends, (ii) sold any assets, individually or in the aggregate, outside of the ordinary course
of business or (iii) had capital expenditures, in the aggregate, in excess of $500,000. Neither the
Company nor any of its Subsidiaries has taken any steps to seek protection pursuant to any
bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which
would reasonably lead a creditor to do so. The Company and its Subsidiaries, individually and on a
consolidated basis, are not as of the date hereof, and after giving effect to the transactions
contemplated hereby to occur at the Closing, will not be Insolvent (as defined below). For purposes
of this Section 3(l), “Insolvent” means, with respect to the Company, on a consolidated basis with
its Subsidiaries, (i) the present fair saleable value of the Company’s and its Subsidiaries’ assets
is less than the amount required to pay the Company’s and its Subsidiaries’ total Indebtedness (as
defined in Section 3(s)), (ii) the Company and its Subsidiaries are unable to pay their debts and
liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute
and matured or (iii) the Company and its Subsidiaries intend to incur or believe that they will
incur debts that would be beyond their ability to pay as such debts mature. The Company has not
engaged in business or in any

9

 

transaction, and is not about to engage in business or in any transaction, for which the
Company’s remaining assets constitute unreasonably small capital.

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

     (n) Conduct of Business; Regulatory Permits. Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under its Certificate of Incorporation,
the Certificate of Designations, any other certificate of designation, preferences or rights of any
other outstanding series of preferred stock of the Company or Bylaws or their organizational
charter or Articles of Incorporation or bylaws, respectively. Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order or any law, statute, ordinance, rule
or regulation applicable to the Company or any of its Subsidiaries, and neither the Company nor any
of its Subsidiaries will conduct its business in violation of any of the foregoing, except in all
cases for possible violations which would not, individually or in the aggregate, have a Material
Adverse Effect. The Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor
any such Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.

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

     (p) Sarbanes-Oxley Act.  The Company is in compliance with any and all applicable
requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any
and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of
the date hereof, except where the failure to be in compliance would not have a Material Adverse
Effect

     (q) Transactions With Affiliates. None of the officers, directors or employees of the
Company or any of its Subsidiaries is presently a party to any transaction with the Company or any
of its Subsidiaries (other than for ordinary course services as employees, officers or directors),
including any contract, agreement or other arrangement providing for the furnishing

10

 

of services to or by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any such officer, director or employee or, to the knowledge
of the Company or any of its Subsidiaries, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.

     (r) Equity Capitalization. As of the date hereof, not taking into account the issuance
of the Preferred Stock or Warrants, the authorized capital stock of the Company consists of (i)
40,000,000 shares of Common Stock, of which as of the date hereof, 19,897,600 are issued and
outstanding and (ii) 10,000,000 shares of preferred stock, of which as of the date hereof,
2,500,000 shares are issued and outstanding. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. As of the date of this
Agreement and except for the transactions contemplated hereby, (i) none of the Company’s capital
stock is subject to preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities
or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or
any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to issue additional capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries; (iii)
there are no outstanding debt securities, notes, credit agreements, loan or credit facilities or
other agreements, documents or instruments evidencing Indebtedness (as defined in Section 3(s)) of
the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may
become bound; (iv) there are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act; (v)
there are no outstanding securities or instruments of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries is or may become
bound to purchase, repurchase, retire or redeem a security of the Company or any of its
Subsidiaries; (vi) there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities; (vii) the Company does not
have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or
agreement; and (viii) the Company and its Subsidiaries have no liabilities or obligations other
than those incurred in the ordinary course of the Company’s or its Subsidiaries’ respective
businesses and which, individually or in the aggregate, do not or would not have a Material Adverse
Effect. The Company has furnished to the Buyer true, correct and complete copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the date hereof (the “Certificate of
Incorporation”), and the Company’s Bylaws, as amended and as in effect on the date hereof (the
“Bylaws”), and the terms of all securities convertible into, or exercisable or exchangeable for,
shares of Common Stock and the material rights of the holders thereof in respect thereto.

     (s) Indebtedness and Other Contracts. Neither the Company nor any of its Subsidiaries
(i) has any outstanding Indebtedness (as defined below), (ii) is a party to any contract, agreement
or instrument, the violation of which, or default under which, by the other

11

 

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

     (t) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the Company, threatened against or affecting the Company or
any of its Subsidiaries, the Common Stock or any of the Company’s Subsidiaries or any of the
Company’s or its Subsidiaries’ officers or directors which is outside of the ordinary course of
business or individually or in the aggregate material to the Company.

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

12

 

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

     (v) Employee Relations.

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

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

          (iii) To the knowledge of the Company, no key employee or group of employees has any plans to
terminate employment with the Company or any Subsidiary.

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

     (x) Intellectual Property Rights. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property rights (“Intellectual
Property Rights”) necessary to conduct their respective businesses as now conducted. None of the
Company’s or its Subsidiaries’ Intellectual Property Rights have expired, terminated or been

13

 

abandoned, or are expected to expire, terminate or be abandoned, within three years from the
date of this Agreement. The Company does not have any knowledge of any infringement by the Company
or any of its Subsidiaries of Intellectual Property Rights of others. There is no claim, action or
proceeding being made or brought, or to the knowledge of the Company, being threatened, against the
Company or any of its existing Subsidiaries regarding its Intellectual Property Rights. The Company
is unaware of any facts or circumstances which might give rise to any of the foregoing
infringements or claims, actions or proceedings. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value of all of their
Intellectual Property Rights.

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

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

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

     (bb) Internal Accounting and Disclosure Controls.  The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset and liability accountability, (iii)

14

 

access to assets or incurrence of liabilities is permitted only in accordance with
management’s general or specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable intervals and
appropriate action is taken with respect to any difference.  The Company maintains disclosure
controls and procedures (as such term is defined in Rule 13a-15 under the 1934 Act) that are
effective in ensuring that information required to be disclosed by the Company in the reports that
it files or submits under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without limitation, controls
and procedures designed to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the 1934 Act is accumulated and communicated to the
Company’s management, including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions regarding required
disclosure.  Except as otherwise disclosed in the SEC Documents, during the twelve months prior to
the date hereof, neither the Company nor any of its Subsidiaries have received any notice or
correspondence from any accountant relating to any potential material weakness in any part of the
system of internal accounting controls of the Company or any of its Subsidiaries

     (cc) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other
relationship between the Company or any of its Subsidiaries and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is
not so disclosed or that otherwise would be reasonably likely to have a Material Adverse Effect.

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

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

     (ff) Acknowledgement Regarding Buyer’s Trading Activity. It is understood and
acknowledged by the Company (i) that following the public disclosure of the transactions
contemplated by the Transaction Documents, in accordance with the terms thereof, the Buyer has not
been asked by the Company or its Subsidiaries to agree, nor has Buyer agreed with the Company or
its Subsidiaries, to desist from purchasing or selling, long and/or short, securities of the
Company, or “derivative” securities based on securities issued by the Company or to hold the
Securities for any specified term; (ii) that Buyer, and counter parties in “derivative”
transactions to which any Buyer is a party, directly or indirectly, presently may have a “short”
position in the Common Stock which were established prior to Buyer’s knowledge of the transactions
contemplated by the Transaction Documents, and (iii) that Buyer shall not be deemed to have any
affiliation with or control over any arm’s length counter party in any “derivative” transaction.
The Company further understands and acknowledges that following the public disclosure of the
transactions contemplated by the Transaction Documents, in accordance with the terms thereof, Buyer
may engage in hedging and/or trading activities at various times during

15

 

the period that the Securities are outstanding, including, without limitation, during the
periods that the value of the Conversion Shares and the Warrant Shares deliverable with respect to
Securities are being determined and (b) such hedging and/or trading activities, if any, can reduce
the value of the existing stockholders’ equity interest in the Company both at and after the time
the hedging and/or trading activities are being conducted. The Company acknowledges that such
aforementioned hedging and/or trading activities do not constitute a breach of this Agreement, the
Preferred Stock, the Warrants or any of the documents executed in connection herewith.

     (gg) [Reserved].

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

     (ii) U.S. Real Property Holding Corporation. The Company is not a U.S. real property
holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as
amended, and the Company shall so certify upon Buyer’s request.

     (jj) Disclosure. The Company understands and confirms that Buyer will rely on the
foregoing representations in effecting transactions in securities of the Company. All disclosure
provided to the Buyer regarding the Company and its Subsidiaries, their business and the
transactions contemplated by this Agreement and the other Transaction Documents, including the
Schedules and Exhibits hereto and thereto, furnished by or on behalf of the Company is true and
correct and does not contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made herein or therein, in the light of the
circumstances under which they were made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its or their business,
assets, liabilities, properties, prospects, operations or conditions (financial or otherwise),
which, under applicable law, rule or regulation, requires public disclosure at or before the date
hereof or announcement by the Company but which has not been so publicly announced or disclosed.

4. COVENANTS.

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

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

16

 

such qualification), and shall provide evidence of any such action so taken to the Buyer on or
prior to the Closing Date. The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or “Blue Sky” laws of the states of the
United States following the Closing Date.

     (c) Reporting Status. Until the date on which the Buyer shall have sold all the
Conversion Shares and Warrant Shares, and none of the Preferred Stock or Warrants is outstanding
(the “Reporting Period”), the Company shall timely file all reports required to be filed with the
SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would no longer require or otherwise permit such termination.

     (d) Use of Proceeds. The Company will use the proceeds from the sale of the Securities
for working capital purposes and for general corporate purposes.

     (e) Financial Information. The Company agrees to send the following to Buyer during
the Reporting Period (i) unless the following are filed with the SEC through EDGAR and are
available to the public through the EDGAR system, within three (3) Business Days after the filing
thereof with the SEC, a copy of its Annual Reports and Quarterly Reports on Form 10-K, 10-KSB, 10-Q
or 10-QSB, any interim reports or any consolidated balance sheets, income statements, stockholders’
equity statements and/or cash flow statements for any period other than annual, any Current Reports
on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant
to the 1933 Act, (ii) on the same day as the release thereof, facsimile copies of all press
releases issued by the Company or any of its Subsidiaries, and (iii) copies of any notices and
other information made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the stockholders.

     (f) Listing. The Company shall promptly secure the listing of all of the Conversion
Shares and Warrant Shares upon each national securities exchange and automated quotation system, if
any, upon which the Common Stock is then listed (subject to official notice of issuance) and shall
maintain such listing of all such Conversion Shares and Warrant Shares from time to time issuable
under the terms of the Transaction Documents on such exchange or automated quotation system or an
Eligible Market. The Company shall maintain the Common Stock’s authorization for quotation on an
Eligible Market. Neither the Company nor any of its Subsidiaries shall take any action which would
be reasonably expected to result in the delisting or suspension of the Common Stock on an Eligible
Market. The Company shall pay all fees and expenses in connection with satisfying its obligations
under this Section 4(f).

     (g) Fees. The Company shall reimburse West Coast Opportunity Fund, LLC, or its
designee(s) (in addition to any other expense amounts paid to Buyer prior to the date of this
Agreement) for all reasonable costs and expenses, up to $50,000, incurred in connection with the
transactions contemplated by the Transaction Documents and due diligence in connection therewith),
which amount shall be non-accountable. The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or broker’s commissions (other than for Persons
engaged by Buyer) relating to or arising out of the transactions contemplated by the Transaction
Documents. The Company shall pay, and hold Buyer harmless against, any

17

 

liability, loss or expense (including, without limitation, reasonable attorney’s fees and
out-of-pocket expenses) arising in connection with any claim relating to any such payment.

     (h) Pledge of Securities. The Company acknowledges and agrees that the Securities may
be pledged  Buyer (or its transferee) 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 Buyer (or its
transferee) effecting a pledge of Securities shall be required to provide the Company with any
notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document. The Company hereby agrees to execute and deliver such documentation as
a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to
such pledgee by Buyer (or its transferee).

     (i) Disclosure of Transactions and Other Material Information. On or before 8:30
a.m., New York time, on the fourth Business Day following the date of this Agreement, the Company
shall file a Current Report on Form 8-K describing the terms of the transactions contemplated by
the Transaction Documents in the form required by the 1934 Act and attaching (unless the Company
shall elect to defer the filing of exhibits as permitted by the 1934 Act) the material Transaction
Documents (including, without limitation, this Agreement, the Certificate of Designations and the
form of Warrants) (including all attachments, the “8-K Filing”). The Company shall not, and shall
cause each of its Subsidiaries and its and each of their respective officers, directors, employees
and agents, not to, provide Buyer (or its transferee) with any material, nonpublic information
regarding the Company or any of its Subsidiaries from and after the filing of the 8-K Filing with
the SEC without the express written consent of Buyer (or its transferee). Subject to the
foregoing, none of the Company, its Subsidiaries or Buyer (or its transferee) shall issue any press
releases or any other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior approval of Buyer (or its
transferee), to make any press release or other public disclosure with respect to such transactions
(i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause (i) Buyer (or its
transferee) shall be consulted (to the extent reasonably practicable) by the Company in connection
with any such press release or other public disclosure prior to its release). Except as set forth
above, without the prior written consent of any applicable Buyer (or its transferee), neither the
Company nor any of its Subsidiaries shall disclose the name of Buyer (or its transferee) in any
filing, announcement, release or otherwise.

     (j) Corporate Existence. So long as Buyer beneficially owns any Preferred Stock or
Warrants, the Company shall not be party to any Fundamental Transaction (as defined in the
Certificate of Designations) unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Certificate of Designations and the Warrants.

     (k) Reservation of Shares. The Company shall take all action necessary to at all times
have authorized, and reserved for the purpose of issuance, no less than 120% of (i) the maximum
number of shares of Common Stock issuable upon conversion of the Preferred Stock (assuming for
purposes hereof, that the Preferred Stock is convertible at the Conversion Price and without taking
into account any limitations on the conversion of the Preferred Stock set forth in the

18

 

Certificate of Designations) and (ii) the maximum number of shares of Common Stock issuable
upon exercise of the Warrants (assuming for purposes hereof the Exercise Price (as defined in the
Warrants), subject to adjustment for stock splits and stock dividends and without taking into
account any limitations on the exercise of the Warrants set forth in the Warrants).

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

     (m) U.S. Real Property Holding Corporation. For as long as the Buyer holds any
Securities, and unless otherwise agreed to by the Buyer who own Securities at the relevant time,
the Company will take reasonable steps to not cause its shares to be U.S. real property interests
within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, as of the date
hereof. This covenant may not be assigned by Buyer to any other person, including any transferee
of the Securities.

     (n) Legend. Certificates evidencing the Warrant Shares and Conversion Shares shall
not contain any legend (including the legend set forth above), (A) while a registration statement
covering the resale of such security is effective under the 1933 Act (provided, however, that the
Buyer’s prospectus delivery requirements under the 1933 Act will remain applicable), or (B)
following any sale of such Warrant Shares and/or Conversion Shares pursuant to Rule 144, or (C) if
such Warrant Shares and/or Conversion Shares are eligible for sale under Rule 144(k), or (D) if
such legend is not required under applicable requirements of the 1933 Act (including judicial
interpretations and pronouncements issued by the Staff of the SEC). Subject to the foregoing, upon
written request of the Buyer to have such legend removed, the Company shall cause its counsel to
issue a legal opinion to the Company’s transfer agent promptly after the effective date of any
registration statement (the “Effective Date”) if required by the Company’s transfer agent to effect
the removal of the legend hereunder. The Company agrees that following the Effective Date or at
such time as such legend is no longer required under this Section 5(n), it will, no later than
three (3) Trading Days (as defined in the Certificate of Designations) following the delivery by
the Buyer to the Company or the Company’s transfer agent of a certificate representing Warrant
Shares and/or Conversion Shares issued with a restrictive legend, deliver or cause to be delivered
to Buyer a certificate representing such Warrant Shares and/or Conversion Shares that is free from
all restrictive and other legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge(s) the restrictions on transfer set
forth herein.

     (o) Removal of Legend. In addition to the Buyer’s other available remedies and
provided that the conditions permitting the removal of legend specified in Section 4(n) are met,
the Company shall pay to the Buyer, in cash, as partial liquidated damages and not as a penalty,
for each $1,000 of Warrant Shares and/or Conversion Shares (based on the Closing Sale Price (as
defined in the Certificate of Designations) of the Common Stock on the date such Warrant Shares
and/or Conversion Shares are submitted to the Company’s transfer agent), $5 per trading day
(increasing to $10 per Trading Day five (5) trading days after such damages have begun to accrue)
for each Trading Day after the seventh (7th) trading day following delivery by the Buyer
to the Company or the Company’s transfer agent of a certificate representing Warrant Shares

19

 

and/or Conversion Shares issued with a restrictive legend, until such certificate is delivered
to the Buyer with such legend removed provided that such payments shall be suspended for two (2)
weeks if the Company has made a good-faith determination that such failure to remove the legend is
due to the fault of its transfer agent and not the fault of the Company. Nothing herein shall
limit the Buyer’s right to pursue actual damages for the failure of the Company and its transfer
agent to deliver certificates representing any securities as required hereby, and the Buyer shall
have the right to pursue all remedies available to it at law or in equity, including, without
limitation, a decree of specific performance and/or injunctive relief.

     (p) Publicity. The Company and the Buyer shall have the right to approve, before
issuance any press release or any other public statement with respect to the transactions
contemplated hereby made by any party; provided, however, that the Company shall be entitled,
without the prior approval of the Buyer, to issue any press release or other public disclosure with
respect to such transactions required under applicable securities or other laws or regulations
provided, that the Company shall use its commercially reasonable best efforts to consult the Buyer
in connection with any such press release or other public disclosure prior to its release and Buyer
shall be provided with a copy thereof upon release thereof.

     (q) No Issuances of Preferred Stock. So long as Buyer beneficially owns any Preferred
Stock, the Company will not issue any Preferred Stock (other than to the Buyer as contemplated
hereby) and the Company shall not issue any other securities that would cause a breach or default
under the Preferred Stock.

5. REGISTER.

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

     (b) Transfer Agent Instructions. The Company shall issue irrevocable instructions to
its transfer agent, and any subsequent transfer agent, to issue certificates or credit shares to
the applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name of
Buyer or its respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by Buyer to the Company in the form of Exhibit C attached
hereto (the “Irrevocable Transfer Agent Instructions”). The Company warrants that no instruction
other than the Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and stop
transfer instructions to give effect to Sections 2(g) and 2(h) hereof, will be given by the Company
to its transfer agent with respect to the Conversion Shares and the Warrant Shares, and that the
Conversion Shares and the Warrant Shares shall otherwise be freely transferable on the books and
records of the Company, as applicable, and to the extent provided in this Agreement and the other
Transaction Documents. If a Buyer effects a sale, assignment or

20

 

transfer of Conversion Shares and the Warrant Shares in accordance with Sections 2(g) and
2(h), the Company shall permit the transfer and shall promptly instruct its transfer agent to issue
one or more certificates or credit shares to the applicable balance accounts at DTC in such name
and in such denominations as specified by Buyer to effect such sale, transfer or assignment. In
the event that such sale, assignment or transfer involves Conversion Shares or Warrant Shares sold,
assigned or transferred pursuant to an effective registration statement or pursuant to Rule 144,
the transfer agent shall issue such Securities to the Buyer, assignee or transferee, as the case
may be, without any restrictive legend. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Buyer. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this Section 5(b) will be
inadequate and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 5(b), that a Buyer shall be entitled, in addition to all other available
remedies, to seek 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.

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

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

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

          (ii) Such Buyer and each other Buyer shall have delivered to the Company (A) the Cash Purchase
Price by wire transfer of immediately available funds, pursuant to the written wire instructions
provided by the Company two (2) Business Days prior to Closing, and (B) its 2007 Warrants.

          (iii) The representations and warranties of Buyer that are not qualified as to materiality
shall be true and correct in all material respects, and those that are so qualified shall be true
and correct in all respects, as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific date), and Buyer
shall have performed, satisfied and complied in all respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied with by Buyer at or
prior to the Closing Date.

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

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

21

 

          (i) The Company shall have duly executed and delivered to Buyer (A) each of the Transaction
Documents and (B) the Preferred Stock (in such numbers as is set forth across from Buyer’s name in
column (3) of the Schedule of Buyers, and the related Warrants (in such numbers as is set forth
across from Buyer’s name in column (4) of the Schedule of Buyers) being purchased by Buyer at the
Closing pursuant to this Agreement.

          (ii) Buyer shall have received the opinion of Fulbright & Jaworski L.L.P., the Company’s
outside counsel, dated as of the Closing Date, in a form reasonably acceptable to Buyer.

          (iii) The Company shall have delivered to Buyer a certificate evidencing the formation and
good standing of the Company issued by the Secretary of State of Delaware as of a date within five
(5) days of the Closing Date.

          (iv) The Company shall have delivered to Buyer a certified copy of the Certificate of
Incorporation as certified by the Secretary of State of the State of Delaware within five (5) days
of the Closing Date.

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

          (vi) The representations and warranties of the Company that are not qualified as to
materiality shall be true and correct in all material respects, and those that are so qualified
shall be true and correct in all respects, as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak as of a specific
date) and the Company shall have performed, satisfied and complied in all respects with the
covenants, agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. At the Closing, Buyer
shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as
of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably
requested by Buyer.

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

          (viii) The Certificate of Designations in the form attached hereto as Exhibit A shall
have been filed with the Secretary of State of the State of Delaware and shall be in full force and
effect, enforceable against the Company in accordance with its terms and shall not have been
amended.

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

22

 

8. TERMINATION.

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

9. MISCELLANEOUS.

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

     (b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an original, not a
facsimile signature.

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

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

23

 

enforceability of the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.

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

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

If to the Company:

GreenHunter Energy, Inc.

1048 Texan Trail

Grapevine, Texas 76051

Telephone: (469) 293-4397

Attention: Chief Financial Officer

If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies
to Buyer’s representatives as set forth on the Schedule of Buyers, or to such other address and/or
facsimile number and/or to the attention of such other Person as the recipient party has specified
by written notice given to each other party five (5) days prior to the effectiveness of

24

 

such change. Written confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by the sender’s
facsimile machine containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight courier service in
accordance with clause (i), (ii) or (iii) above, respectively.

     (g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including any purchasers of the
Preferred Stock or the Warrants. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of at least a majority of
the aggregate number of Registrable Securities issued and issuable hereunder, including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Certificate of Designations and the Warrants).
A Buyer may assign some or all of its rights hereunder in connection with transfer of any of its
Preferred Stock or Warrants, subject to compliance with the securities laws and the provisions of
Section 2(g), without the consent of the Company, in which event such assignee shall be deemed to
be a Buyer hereunder with respect to such assigned rights.

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

     (i) Survival. Unless this Agreement is terminated under Section 8, the representations
and warranties of the Company and the Buyer contained in Sections 2 and 3 shall survive the Closing
for a period of eighteen (18) months and the agreements and covenants set forth in Sections 4, 5
and 9 shall survive the Closing.

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

     (k) Indemnification. In consideration of Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless Buyer and each affiliate of a Buyer that holds Preferred Stock or
Warrants and all of their stockholders, partners, members, officers, directors, employees and
direct or indirect investors and any of the foregoing Persons’ agents or other representatives
(including, without limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of
action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to the action for
which indemnification hereunder is sought), and including reasonable attorneys’ fees and
disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any representation or
warranty

25

 

made by the Company in the Transaction Documents, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or (c) any cause of action, suit
or claim brought or made against such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company) and arising out of or resulting from (i) the
execution, delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed
or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of
the Securities, or (iii) the status of Buyer or holder of the Securities as an investor in the
Company pursuant to the transactions contemplated by the Transaction Documents; provided,
that no Buyer shall be entitled to indemnification to the extent any of the foregoing is caused by
its gross negligence or willful misconduct. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to
the rights and obligations under this Section 9(k) shall be the same as those set forth in Section
6 of the Registration Rights Agreement.

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

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

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

     (o) Payment Set Aside. To the extent that the Company makes a payment or payments to
the Buyer hereunder or pursuant to any of the other Transaction Documents or the Buyer enforce or
exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent
or preferential, set aside, recovered from, disgorged by or are required

26

 

to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other
Person under any law (including, without limitation, any bankruptcy law, foreign, state or federal
law, common law or equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement or setoff had not
occurred.

     (p) Confidentiality. Buyer agrees to maintain the confidentiality of any material
nonpublic information provided by or on behalf of the Company until the earlier of (i) the Company
has disclosed such information in its filings under the 1933 Act or the 1934 Act; (ii) such
information has otherwise become part of the public domain other than as a result of a breach of
this Section 9(p) by such Buyer; (iii) thirty days have passed from the date of this Agreement, or
(iv) such Buyer is required to disclose such information by applicable law or legislative, judicial
or administrative process.

[Signature Page Follows]

27

 

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

	 	 	 	 	 
	 	COMPANY:

GREENHUNTER ENERGY, INC.

 	 
	 	By:  	/s/
Morgan F. Johnston	 
	 	 	Name:  	Morgan F. Johnston	 
	 	 	Title:  	Senior Vice President, General Counsel
and
Secretary	 

28

 

	 	 	 	 	 

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

	 	 	 	 	 
	 	BUYERS:

WEST COAST OPPORTUNITY FUND, LLC

 	 
	 	By:  	/s/
Atticus Lowe	 
	 	 	Name:  	Atticus Lowe 	 
	 	 	Title:  	Chief Investment
Officer 	 

29

 

	 	 	 	 	 

SCHEDULE OF BUYERS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(1)	 	(2)	 	(3)	 	(4)	 	(5)	 	(6)	 	(7)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Aggregate	 	 
	 	 	 	 	Aggregate Principal	 	Aggregate	 	 	 	 	 	Number of	 	Legal Representative’s
	 	 	 	 	Amount of Preferred	 	Number of	 	Cash Purchase	 	Cancelled 2007	 	Address
	Buyer	 	Address and Facsimile Number	 	Stock	 	Warrants	 	Price	 	Warrants	 	and Facsimile Number
	West Coast

Opportunity Fund, 

LLC

	 	2151 Alessandro Drive,

Suite 215

Ventura, CA 93001

Telephone: (805) 653-5333

Facsimile: (805) 648-6488

Attention: Atticus Lowe

Residence: Delaware
	 	$10,575,000

(10,575 shares of

Preferred Stock)
	 	 	1,410,000	 	 	$	10,575,000	 	 	 	1,410,000	 	 	McDermott Will &
Emery LLP

340 Madison Avenue

New York, New York 10173

Telephone: (212) 547-5400

Facsimile: (212) 547-5444

Attention: Stephen E. Older, Esq.

Meir A. Lewittes, Esq.

30

 

EXHIBITS

	 	 	 
	Exhibit A

	 	Form of Certificate of Designations
	Exhibit B

	 	Form of Warrant
	Exhibit C

	 	Form of Transfer Agent Instructions

31

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