Document:

EX-10.1

	 	 	 	 	 
	
Memory Pharmaceuticals Corp.
 100 Philips Parkway
Montvale, New Jersey 07645
Phone: (201) 802-7104
Fax: (201) 802-7190
	 	James R. Sulat

	www.memorypharma.com
	 	President & CEO

	 
	 	 	 	 

May 3, 2006

Dear Mike:

We are pleased to extend an offer to you to join Memory Pharmaceuticals Corp. (the “Company”)
as Vice President of Business Development. We look forward to you joining our team, and are
confident that you will contribute significantly to the value of our organization. We are
therefore pleased to provide you with the terms of your anticipated employment by the Company.

1. Position. Your position will be Vice President of Business Development, based out
of the Company’s offices currently located in Montvale, New Jersey, and you will report directly
to the Company’s President and Chief Executive Officer. As Vice President of Business
Development, you will be part of the Company’s senior management team, and will work closely with
this team to establish strategic, value-building relationships with pharmaceutical companies and
contract research organizations. Your responsibilities shall include, but not be limited to,
managing the Company’s business development activities. In addition to performing duties and
responsibilities associated with the position of Vice President of Business Development, from time
to time the Company may assign you other duties and responsibilities and/or may assign you to a
different location.

As a full-time employee of the Company, you will be expected to devote your full business
time and energies to the business and affairs of the Company. You agree not to engage in any
activities outside of the scope of your employment that would detract from, or interfere with, the
fulfillment of your responsibilities or duties under this letter agreement. You agree that you
will not, without the prior consent of the Company’s Board of Directors, serve as a director or
the equivalent position of any company or entity and you will not render services of a business,
professional or commercial nature to any other person or firm. Your performance will be reviewed
formally after six (6) months of employment and annually thereafter at the end of each calendar
year. You acknowledge that a performance review does not guarantee a salary increase.

2. Starting Date/Nature of Relationship. It is expected that your employment will
start on June 1, 2006 or on such other date as we may mutually agree (the “Start Date”). No
provision of this letter shall be construed to create an express or implied employment contract
for a specific period of time. Either you or the Company may terminate the employment
relationship at any time and for any reason, by giving at least thirty (30) days’ prior written
notice to the other party. The Company, in its sole discretion, may elect to terminate your
employment immediately or during such thirty (30) day notice period, but in this event you will
continue to receive an amount equal to your base salary, less applicable deductions, that you
otherwise would have received during the balance of such thirty (30) day notice period.

3. Compensation.

(a) Your initial base salary will be at the semi-monthly rate of $10,416.67, less applicable
deductions, (annualized at $250,000.00).

(b) You will receive a one-time sign-on bonus of $50,000.00, less applicable deductions,
payable within thirty (30) days of the Start Date (the “Sign-on Bonus”). If you resign or the
Company terminates your employment for Cause (as defined below) within eighteen (18) months of
your Start Date, you will be obligated to repay the full amount of the Sign-on Bonus to the
Company.

(c) On the Start Date, you will receive stock options to purchase 150,000 shares of the
Company’s Common Stock, which will be in the form of incentive stock options, to the extent
permissible under applicable law, and the balance will be in the form of non-qualified stock
options. Such stock options (i) will entitle you to purchase the Company’s Common Stock at the
closing price per share of the Company’s Common Stock on the Nasdaq National Market (“NASDAQ”) on
the Start Date, in accordance with the Company’s Amended and Restated 2004 Stock Incentive Plan
(the “Plan”), and (ii) shall vest in quarterly increments over a period of four (4) years
commencing on the Start Date, as described in the Company’s standard form of Stock Option
Agreement, which you agree to execute and deliver to the Company on or before the Start Date.

(d) You will also be entitled to a subsequent grant of stock options to purchase 100,000
shares of the Company’s Common Stock, not later than October 1, 2006, which will be in the form of
incentive stock options to the extent permissible under applicable law, and the balance will be in
the form of non-qualified stock options. Such stock options (i) will entitle you to purchase the
Company’s Common Stock at the closing price per share of the Company’s Common Stock on the NASDAQ
on the option grant date, as determined by the Board, in accordance with the Plan and (ii) shall
vest in quarterly increments over a period of four (4) years as described in the standard form of
Stock Option Agreement, which you agree to execute and deliver to the Company on or before the
option grant date.

(e) You will be eligible to receive an annual bonus dependent on the performance of the
Company and your individual performance, subject to the discretion of the Board of Directors.
Your target bonus will be equal to twenty five percent (25%) of your base salary, assuming the
achievement of such Company and individual performance objectives. The actual amount paid, if
any, shall be determined by the Board of Directors in its sole discretion.

(f) Upon termination of your employment for any reason, the Company will pay you within two
(2) weeks of such termination, your current base salary earned through the termination date, plus
accrued and unused vacation, if any, and other benefits or payments, if any, to which you are
entitled. In the event your employment is terminated by the Company without “Cause” (as defined
below) or by you for “Good Reason” (as defined below), then for the twelve (12) month period after
such termination, the Company will continue to pay you your semi-monthly rate in effect at the
time of termination and provide and pay the Company’s portion of your medical insurance.
Notwithstanding the foregoing, the Company’s payments for your medical insurance will terminate
when you have obtained such coverage through an alternate source before the end of the twelve (12)
month period following your termination. The Company will reconcile such payments with you
quarterly, and any additional payments owed to you by the Company, and any payments owed to the
Company by you, will be paid respectively within two (2) weeks following such reconciliation
period. The Company will not be obligated to continue any such payments to you under this
paragraph 3(f) in the event you materially breach the terms of this letter agreement or the
Confidentiality Agreement (as defined below). Notwithstanding any termination of your employment
for any reason (with or without Cause or for Good Reason), you shall continue to be bound by the
provisions of the Confidentiality Agreement.

All payments and benefits provided pursuant to this paragraph 3(f) shall be conditioned upon
your execution and non-revocation of a general release substantially in the form attached hereto
as Exhibit A at the time of termination. Your refusal to execute a general release shall
constitute a waiver by you of any and all benefits referenced in this paragraph 3(f). The
Company will not be

obligated to continue any such payments to you under this paragraph 3(f) in the event you
materially breach the terms of this letter agreement or the Confidentiality Agreement.

(g) For the purposes of this paragraph, “Cause” shall include (i) your conviction of a
felony, either in connection with the performance of your obligations to the Company or otherwise,
which adversely affects your ability to perform such obligations or materially adversely affects
the business activities, reputation, goodwill or image of the Company, (ii) your willful
disloyalty, deliberate dishonesty, breach of fiduciary duty, (iii) your breach of the terms of
this letter agreement, or your failure or refusal to carry out any material tasks or
responsibilities assigned to you by the Company in accordance with the terms hereof, which breach
or failure continues for a period of more than thirty (30) days after your receipt of written
notice thereof from the Company, (iv) the commission by you of any act of fraud, embezzlement or
deliberate disregard of a rule or policy of the Company known to you or contained in a policy and
procedure manual provided to you which results in material loss, damage or injury to the Company,
or (v) the material breach by you of any of the provisions of the Confidentiality Agreement.

(h) For the purpose of this paragraph 3, the termination of your employment for “Good Reason”
shall mean the termination by you of your employment with the Company within eighteen (18) months
after a “Change in Control” (as defined below) or the sale of a majority of the assets,
obligations, or business of the Company (whether by merger, sale of stock or otherwise), provided
such termination occurs:

	 	(i)	 	within three (3) months after a material diminution in your responsibilities
(provided that such diminution is not in connection with the termination of your
employment for Cause),

	 	(ii)	 	within three (3) months after you no longer report to the Company’s Chief
Executive Officer,

	 	(iii)	 	within three (3) months of your principal work location changing to be more
than fifty (50) miles from the Company’s principal offices, or

	 	(iv)	 	within three (3) months after the reduction by the Company of the amount of
your base salary, unless such reduction is pursuant to a plan and as a consequence the
base salaries of the Registrant’s executives are reduced generally.

Provided, however, that with respect to any of the foregoing events, you shall  be
required to provide the Company thirty (30) calendar days prior written notice of your intention
to resign and the Company shall have the opportunity during such thirty (30) day period to cure
such event if such event is capable of being cured. The Company shall notify you, within sixty
(60) days of receipt of your notice of intent to terminate your employment for Good Reason if the
Company disagrees with your intent to terminate under this paragraph. For the purposes of this
letter agreement, “Change of Control” shall be deemed to have occurred if the Company is
consolidated with or acquired by another entity in a merger, sale of all or substantially all of
the Company’s assets or shares of stock or otherwise (excluding (A) transactions solely for the
purpose of reincorporating the Company in a different jurisdiction or recapitalizing or
reclassifying the Company’s stock, or (B) any merger or consolidation in which the shareholders of
the Company immediately prior to such merger or consolidation continue to own at least a majority
of the outstanding voting securities of the Company or the surviving entity after such merger of
consolidation).

4. Benefits. You will be entitled as an employee of the Company to receive such
benefits as are generally provided its employees and executives and for which you are eligible in
accordance with Company policy as in effect from time to time. The Company retains the right to
change, add or cease any particular benefit relating to its employees and executives generally.
At this time, the Company is offering a benefit program, consisting of medical, dental, life and
short/long term disability insurance, as well as a 401(k) retirement plan and flexible spending
plan. You will be eligible for eleven (11) paid holidays, four (4) floating holidays and four (4)
weeks paid vacation per year, which will be pro-rated for the 2006 calendar year based on the
Start Date. You will accrue additional vacation days in accordance with Company policy.

5. Relocation Expenses. The Company will pay or reimburse you for all reasonable
out-of-pocket relocation and relocation-related expenses not to exceed $150,000.00, including any
Tax Payment (as defined below) and any Gross-up Payment (as defined below), which may be billed
directly to the Company or paid by you and submitted for reimbursement, including, without
limitation, the following:

(a) costs of services of moving companies (including packing, transportation and relocation
expenses, including the transportation of automobiles);

(b) costs associated with your search for a new residence (including, without limitation, the
costs of airfare, automobile rental, meals and hotel accommodations for yourself and your
immediate family);

(c) commissions payable to brokers in connection with the sale of your current residence;

(d) costs attendant to the sale of your current residence and the purchase of a new residence
in the Northern New Jersey area (including, without limitation, the costs of home inspections,
survey, appraisal, title insurance, transfer fees, attorneys’ fees, accountants’ fees, and closing
costs);

(e) loan origination fees (points) related to the purchase of your new residence in an amount
of up to three percent (3%) of the loan amount (and the Company will provide assistance to you
relating to the selection of a mortgage lender that will pre-qualify you for a mortgage loan to
purchase your new residence);

(f) costs associated with commuting from your current residence to the Company’s offices
(including, without limitation, the costs of airfare, automobile rental, meals and hotel
accommodations for you) for a period of up to six months, subject to extension upon our mutual
agreement;

(g) automobile rental charges prior to establishment of a permanent residence in Northern New
Jersey;

(h) rent and other expenses associated with temporary housing for yourself and your immediate
family for a period of up to six months (which may include up to two months after the purchase and
closing of title on your new residence), subject to extension upon our mutual agreement; and

(i) payment of any duplicate mortgage loan payments and house expenses to preclude your
paying for your current residence and your new residence concurrently.

All such payments will be subject to the Company receiving reasonably acceptable
documentation evidencing the incurring of such cost, expense or fee. In the event that it should
be determined that any payment shall be due by you for taxes of any kind or nature relating to
amounts paid to you or on your behalf by the Company in connection with your relocation as
provided above (“Taxes”), the Company will deliver to you a payment equal to the amount of such
Taxes (the “Tax Payment”) plus an additional payment in an amount equal to any additional taxes
payable by you applicable to your receipt of the Tax Payment (the “Gross-Up Payment”). All such
payments are fully refundable to the Company if you terminate your employment with the Company,
for any reason other than Good Reason, within eighteen (18) months of your Start Date.

6. Confidentiality. The Company considers the protection of its confidential
information and proprietary materials to be very important. Therefore, as a condition of your
employment, you will be required to execute and deliver to the Company, on or before the Start
Date, a Confidentiality and Noncompetition Agreement substantially in the form of Exhibit
B to this letter (the “Confidentiality Agreement”).

7. General.

(a) This letter agreement, together with the Confidentiality Agreement and the Stock Option
Agreement(s), when executed, will constitute our entire agreement as to your employment by the
Company and will supersede any prior agreements or understandings, whether in writing or oral.

(b) This letter agreement shall be subject to and contingent upon the satisfactory results of
the Company’s due diligence, such as a medical examination, satisfactory reference, background and
education verification.

(c) This letter agreement shall be subject to our receipt of satisfactory documentation of
your freedom to operate in the CNS field. By signing this letter agreement, you represent and
warrant to the Company that your execution of this letter and performance by you of the activities
contemplated hereby on behalf of the Company will not conflict with, violate or constitute a
breach of any agreement to which you are a party or by which you may be bound.

(d) This letter agreement and the Company’s obligations hereunder shall be subject to review
and approval by the Company’s Board of Directors and the Compensation Committee thereof.

(e) This letter agreement shall be governed by the law of the State of New Jersey. In the
event of any legal proceedings relating to this letter agreement and/or the subject matter
thereof, the parties consent to the exclusive jurisdiction of the courts located in the State of
New Jersey. THE PARTIES HEREBY EXPRESSLY WAIVE THEIR RIGHT TO HAVE A JURY TRIAL.

You may accept this offer of employment and the terms thereof by signing the enclosed
additional copy of this letter agreement and the Confidentiality Agreement, which execution will
evidence your agreement with the terms set forth herein and therein, and returning them to the
Company.

Unless accepted by you prior to May 5, 2006, this offer of employment will expire at the
close of business on May 5, 2006 and is contingent upon your agreement to commence employment on
or before the Start Date. We look forward to you joining our team, and we believe that your
skills will compliment those of our existing management team, and that you will make a significant
contribution to the Company’s growth. We look forward to your prompt response to this offer
letter.

Sincerely,

Memory Pharmaceuticals Corp.

	 	 	 
	By:

	 	/s/ James R. Sulat
	
 
	 	 
	Name:

	 	James R. Sulat

President & CEO

	 	 	ACCEPTED AND AGREED:

/s/ Michael Smith

	 	 	Michael Smith

Date:      

1

EXHIBIT A

FORM OF GENERAL RELEASE OF CLAIMS

GENERAL RELEASE OF CLAIMS

For and in consideration of the payments and other benefits described in the letter agreement
dated as of April 27, 2006 (the “Letter Agreement”) by and between Memory Pharmaceuticals Corp.
(the “Company”), and Michael Smith (“Employee”) and for other good and valuable consideration,
Employee hereby releases the Company and its respective divisions, operating companies, affiliates,
subsidiaries, parents, branches, predecessors, successors, assigns, officers, directors, trustees,
employees, agents, shareholders, administrators, representatives, attorneys, insurers and
fiduciaries, past, present and future (the “Released Parties”), from any and all claims of any kind
arising out of or related to Employee’s employment with the Company, Employee’s separation from
employment with the Company or derivative of Employee’s employment, which Employee now has or may
have against the Released Parties, whether known or unknown to Employee, by reason of facts which
have occurred on or prior to the date that Employee has signed this General Release of Claims.
Such released claims include, without limitation, any alleged violation of the Age Discrimination
in Employment Act, as amended, the Older Worker Benefits Protection Act; Title VII of the Civil
Rights of 1964, as amended; Sections 1981 through 1988 of Title 42 of the United States Code; the
Civil Rights Act of 1991; the Equal Pay Act; the Americans with Disabilities Act; the
Rehabilitation Act; the Family and Medical Leave Act; the Fair Labor Standards Act; the Employee
Retirement Income Security Act of 1974, as amended; the Worker Adjustment and Retraining
Notification Act; the National Labor Relations Act; the Fair Credit Reporting Act; the Occupational
Safety and Health Act; the Uniformed Services Employment and Reemployment Act; the Employee
Polygraph Protection Act; the Immigration Reform Control Act; the retaliation provisions of the
Sarbanes-Oxley Act of 2002; the Federal False Claims Act; the New Jersey Law Against
Discrimination; the New Jersey Domestic Partnership Act; the New Jersey Conscientious Employee
Protection Act; the New Jersey Family Leave Act; the New Jersey Wage and Hour Law; the New Jersey
Equal Pay Law; the New Jersey Occupational Safety and Health Law; the New Jersey Smokers’ Rights
Law; the New Jersey Genetic Privacy Act; the New Jersey Fair Credit Reporting Act; the retaliation
provisions of the New Jersey Workers’ Compensation Law (and including any and all amendments to the
above) and/or any other alleged violation of any federal, state or local law, regulation or
ordinance, and/or contract or implied contract or tort law or public policy or whistleblower claim,
having any bearing whatsoever on Employee’s employment by and the termination of Employee’s
employment with the Company, including, but not limited to, any claim for wrongful discharge, back
pay, vacation pay, sick pay, wage, commission or bonus payment, money or equitable relief or
damages of any kind, attorneys’ fees, costs, and/or future wage loss.

It is understood that this General Release of Claims is not intended to and does not affect or
release any future rights or any claims arising after the date hereof.

Employee understands that the consideration provided to him under the terms of the Letter
Agreement or otherwise does not constitute an admission by the Company that it has violated any law
or legal obligation.

Employee agrees, to the fullest extent permitted by law, that he will not commence, maintain,
prosecute or participate in any action or proceeding of any kind against the Company based on any
of the claims waived herein occurring up to and including the date of his signature. Employee
represents and warrants that he has not done so as of the effective date of this General Release of
Claims. Notwithstanding the foregoing agreement, representation and warranty, if Employee violates
any of the provisions of this paragraph, Employee agrees to indemnify and hold harmless the Company
from and against any and all costs, attorneys’ fees and other expenses authorized by law which
result from, or are incident to, such violation. This paragraph is not intended to preclude
Employee from (1) enforcing the terms of the Letter Agreement; (2) challenging the validity of this
General Release of Claims; or (3) filing a charge or participating in any investigation or
proceeding conducted by the Equal Employment Opportunity Commission.

Employee further agrees to waive his right to any monetary or equitable recovery should any
federal, state or local administrative agency pursue any claims on his behalf arising out of or
related to his employment with and/or separation from employment with the Company and promises not
to seek or accept any award, settlement or other monetary or equitable relief from any source or
proceeding brought by any person or governmental entity or agency on his behalf or on behalf of any
class of which he is a member with respect to any of the claims he has waived.

Employee acknowledges and agrees that Employee has read this General Release of Claims
carefully, and acknowledges that he has been given at least twenty one (21) days from the date of
receipt of this General Release of Claims to consider all of its terms and has been advised to
consult with any attorney and any other advisors of the Employee’s choice prior to executing this
General Release of Claims. Employee fully understands that, by signing below, Employee is
voluntarily giving up any right which Employee may have to sue or bring any other claims against
the Released Parties, including any rights and claims under the Age Discrimination in Employment
Act. The terms of this General Release of Claims shall not become effective or enforceable until
eight (8) days following the date of its execution by Employee, during which time Employee may
revoke the Letter Agreement. Employee may revoke the Letter Agreement by notifying the Company in
writing (to the attention of the President and Chief Executive Officer with a copy to Vice
President of Legal Affairs). For Employee’s revocation to be effective, written notice must be
received by no later than the close of business on the eighth (8th) day after Employee
signs this General Release of Claims. The terms of this offer to provide the payments and other
benefits described in paragraph 3(e) of the Letter Agreement, will expire if not accepted during
the 21 day review period.

Employee agrees to keep confidential all information contained in this General Release of
Claims and relating to this General Release of Claims, except (1) to the extent the Company
consents in writing to such disclosure; (2) if Employee is required by process of law to make such
disclosure and Employee promptly notifies the Company of his receipt of such process; or (3)
because Employee must disclose certain terms on a confidential basis to his financial consultant,
attorney or spouse.

This General Release of Claims shall be construed and enforced in accordance with, and
governed by, the laws of the State of New Jersey, without regard to principles of conflict of laws.
If any clause of this General Release of Claims should ever be determined to be unenforceable, it
is agreed that this will not affect the enforceability of any other clause or the remainder of this
General Release of Claims.

This General Release of Claims is final and binding and may not be changed or modified except
as set forth herein or in a writing signed by both parties. The parties have executed this General
Release of Claims with full knowledge of any and all rights they may have, and they hereby assume
the risk of any mistake in fact in connection with the true facts involved, or with regard to any
facts which are now unknown to them.

By signing this General Release of Claims, Employee acknowledges that: (1) he has read this
General Release of Claims completely; (2) he has had an opportunity to consider the terms of this
General Release of Claims; (3) he has had the opportunity to consult with an attorney of his
choosing prior to executing this General Release of Claims to explain this General Release of
Claims and its consequences; (4) he knows that he is giving up important legal rights by signing
this General Release of Claims; (5) he has not relied on any representation or statement not set
forth in this General Release of Claims; (6) he understands and means everything that he has said
in this General Release of Claims, and he agrees to all its terms; and (7) he has signed this
General Release of Claims voluntarily and entirely of his own free will.

	 	 	 
	     

Date

	 	     

Michael Smith
	 
	 	 
	     

Date

	 	     

Memory Pharmaceuticals Corp.

2

EXHIBIT B

FORM OF CONFIDENTIALITY AGREEMENT

	 	 	 	 	 
	Memory Pharmaceuticals Corp.
 100 Philips Parkway
Montvale, New Jersey 07645
Phone: (201) 802-7100
Fax: (201) 802-7190
www.memorypharma.com

CONFIDENTIALITY AND NONCOMPETITION AGREEMENT

May 3, 2006

Dear Mr. Smith:

This letter is to confirm our understanding with respect to (i) your agreement to protect and
preserve information and property which is confidential and proprietary to Memory Pharmaceuticals
Corp. or its parent, subsidiaries or affiliates, if any, (the “Company”), and (ii) your agreement
not to compete with the Company (the terms and conditions agreed to in this letter shall
hereinafter be referred to as this “Agreement”). In consideration of the mutual promises and
covenants contained in this Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby mutually acknowledged, we have agreed as follows:

1. Protected Information. You shall at all times, both during and after the
termination of your employment with the Company, by either you or the Company, with or without
cause, maintain in confidence and shall not, without the prior written consent of the Company,
directly or indirectly use, except in the course of performance of your duties for the Company,
directly or indirectly disclose or give to others any fact, information or document (whether
printed, typed, handwritten, electronic or stored on computer disks, tapes, hard drives or any
other tangible medium) which was disclosed to or developed by you during the course of performing
services for, and/or receiving training from, the Company, and is not generally available to the
public, including but not limited to, information, facts and documents concerning business plans,
research and development, customers, suppliers, licensors, licensees, partners, investors,
affiliates or others, training methods and materials, financial information, sales prospects,
client lists, methodologies, formulae, designs, schematics, charts, Inventions (as defined in
Section 2), or any other scientific, technical, trade or business secret or confidential or
proprietary information (“Confidential Information”) of the Company or of any third party provided
to you during the course of your training and/or employment.

In the event you are questioned by anyone not employed by the Company or by an employee of or
a consultant to the Company not authorized to receive such information, in regard to any
Confidential Information or any other secret or confidential work of the Company, or concerning any
fact or circumstance relating thereto, or in the event that you become aware of the unauthorized
use of Confidential Information by any party, whether competitive with the Company or not, you will
promptly notify the President and Chief Executive Officer and Vice President – Legal Affairs of the
Company.

2. Ownership of Ideas, Copyrights and Patents.

(a) Property of the Company. You agree that all ideas, discoveries, creations,
manuscripts and properties, innovations, improvements, know-how, Inventions, designs, developments,
apparatus, techniques, algorithms, software, mask works, methods, and formulae (all of the
foregoing being hereinafter referred to as the “Inventions”) which may be used in the business of
the Company, whether patentable, copyrightable, protectable as mask works or not, which you may
conceive, reduce to practice or develop alone or in conjunction with another, or others, and
whether at the request or upon the suggestion of the Company, or otherwise, during the period in
which you perform services for or at the request of the Company (the “Term”) and, with respect to
Inventions in Field of Interest (as defined below), for a period of one (1) year thereafter, shall
be the sole and exclusive property of the Company, that you shall promptly disclose any such
Inventions to the Company both during and after the Term, and that you shall not publish any such
Inventions without the prior written consent of the Company. You hereby assign to the Company all
of your rights, title and interests in and to all of the foregoing. You further represent and
agree that to the best of your knowledge and belief, none of the Inventions will violate or
infringe upon any right, patent, copyright, trademark or right of privacy, or constitute libel or
slander against or violate any other rights of any person, firm or corporation, and that you will
use your best efforts to prevent any such violation. You also agree that you will neither disclose
to the Company or any of its employees nor use for their benefit any other person’s or company’s
trade secret or proprietary information, or information which you have agreed not to disclose or
use.

(b) Cooperation. At any time during or after the Term, you agree that you will fully
cooperate with the Company, its attorneys and agents in the preparation and filing of all papers
and other documents as may be required to perfect and protect the Company’s rights in and to any of
such Inventions, including, but not limited to, joining in any proceeding to obtain and enforce
letters patent, copyrights, mask work registrations, trademarks or other legal rights of the United
States and of any and all other countries on such Inventions, provided that the Company will bear
the expense of such proceedings, and that any patent, copyright, mask work registration, trademark
or other legal right so issued to you, personally, shall be assigned by you to the Company without
charge by you.

3. Prohibited Competition.

(a) Certain Acknowledgments and Agreements.

(i) We have discussed, and you recognize and acknowledge the competitive and proprietary
aspects of the business of the Company.

(ii) You further acknowledge and agree that, during the course of your performing services for
the Company, the Company will furnish, disclose or make available to you Confidential Information
related to the Company’s business and that the Company may provide you with unique and specialized
training. You also acknowledge that such Confidential Information and such training have been
developed and will be developed by the Company through the expenditure by the Company of
substantial time, effort and money. You acknowledge that such Confidential Information and
training, if used by you to compete with the Company, will cause irreparable harm to the Company.
You also acknowledge that the Company has a legitimate business interest in protecting its
Confidential Information.

(iii) You acknowledge that the Company is engaged in the research, development or
commercialization of agents to affect memory, cognitive abilities or any related neurological or
psychiatric function (the “Field of Interest”) and that any engagement by you, directly or
indirectly, in the Field of Interest will be deemed competitive. You further acknowledge that the
foregoing description is not exclusive and that the Company’s products and services and planned
products and services will change from time to time without notice to you and without formal
amendment of this Agreement.

(b) Covenants Not to Compete. During the Term and for a period of one (1) year
following the expiration or termination of the Term, whether such termination is voluntary or
involuntary, with or without cause, you shall not, without the prior written consent of the
Company:

(i) for yourself or on behalf of any other person or entity, directly or indirectly, either as
principal, agent, employee, consultant, representative or in any other capacity, own, manage,
operate or control, or be connected or employed by, or otherwise associate in any manner with, or
engage in any business which is in the Field of Interest within the United States, Europe or Japan
(the “Restricted Territory”); or

(ii) either individually or on behalf of or through any third party, solicit, divert or
appropriate or attempt to solicit, divert or appropriate, for the purpose or with the effect of
competing with the Company in the Field of Interest or any present or future parent, subsidiary or
other affiliate of the Company which is engaged in a similar business as the Company, any customers
or patrons of the Company, or any prospective customers or patrons with respect to which the
Company has developed or made a sales presentation (or similar offering of services), located
within the Restricted Territory; or

(iii) either individually or on behalf of or through any third party, directly or indirectly,
solicit, entice or persuade or attempt to solicit, entice or persuade any other employees of or
consultants to the Company or any present or future parent, subsidiary or affiliate of the Company,
to leave the services of the Company or any such parent, subsidiary or affiliate for any reason.
You acknowledge that the Company has invested a substantial amount of time and money in attracting
and retaining its employees and in training its employees in the Company’s particular business.
You acknowledge that the Company has a legitimate interest in protecting this investment.

(c) Reasonableness of Restrictions. You further recognize and acknowledge that (i)
the types of activities and employment which are prohibited by Section 3 are narrow and reasonable
in relation to the skills which represent your principal salable asset both to the Company and to
your other prospective employers, and (ii) the geographical scope of the provisions of Section 3 is
reasonable, legitimate and fair to you in light of the geographic scope of the Company’s business,
and in light of the limited restrictions on the type of employment prohibited herein compared to
the types of employment for which you are qualified to earn your livelihood.

4. Survival of Acknowledgments and Agreements. Your acknowledgments and agreements
set forth in Sections 1, 2 and 3 shall survive the expiration or termination of this Agreement and
the termination of your employment with the Company for any reason.

5. Disclosure to Future Employers. You agree that you will provide, and that the
Company may similarly provide in its discretion, a copy of the covenants contained in Sections 1, 2
and 3 of this Agreement to any business or enterprise which you may directly, or indirectly, own,
manage, operate, finance, join, control or in which you participate in the ownership, management,
operation, financing, or control, or with which you may be connected as an officer, director,
employee, partner, principal, agent, representative, consultant or otherwise.

6. Records. Upon termination of your relationship with the Company, you shall deliver
immediately to the Company any property of the Company which may be in your possession including
products, materials, memoranda, notes, records, reports, or other documents or photocopies of the
same, including, without limitation, any of the foregoing recorded on any computer or any machine
readable medium.

7. No Conflicting Agreements. You have set forth on Exhibit 1 hereto all computer
software and/or Inventions made or conceived by you prior to the date of this Agreement which you
own an interest in and wish to exclude from this Agreement and have listed on Exhibit 1 and
attached copies hereto of any agreements with other parties which may prevent your full compliance
with the terms stated herein. You hereby represent and warrant that, except as set forth on
Exhibit 1, you have no commitments or obligations inconsistent with this Agreement and you hereby
agree to indemnify and hold the Company harmless against loss, damage, liability or expense arising
from any claim based upon circumstances alleged to be inconsistent with such representation and
warranty.

8. General.

(a) Notices. All notices, requests, consents and other communications hereunder shall
be in writing, shall be addressed to the receiving party’s address set forth below or to such other
address as a party may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) made by telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv) sent by
registered or certified mail, return receipt requested, postage prepaid.

	 	 	 	 	 
	If to the Company:
	 	Memory Pharmaceuticals Corp.

	100 Philips Parkway
Montvale, New Jersey 07645
	 	 	 	 
	Attention: President and Chief Executive Officer

	With a copy to:
	 	Sills Cummis Epstein & Gross, P.C.

	One Riverfront Plaza
Newark, New Jersey 07102
Attention: Ira A. Rosenberg, Esq.
	 	 	 	 
	If to Employee:
	 	Michael Smith

All notices, requests, consents and other communications hereunder shall be deemed to have been
given either (i) if by hand, at the time of the delivery thereof to the receiving party at the
address of such party set forth above, (ii) if made by telecopy or facsimile transmission, at the
time that receipt thereof has been acknowledged by electronic confirmation or otherwise, (iii) if
sent by overnight courier, on the next business day following the day such notice is delivered to
the courier service, or (iv) if sent by registered or certified mail, on the fifth business day
following the day such mailing is made.

(b) Entire Agreement. This Agreement embodies the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and supersedes all prior oral
or written agreements and understandings relating to the subject matter hereof. No statement,
representation, warranty, covenant or agreement of any kind not expressly set forth in this
Agreement shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.

(c) Modifications and Amendments. The terms and provisions of this Agreement may be
modified or amended only by written agreement executed by the parties hereto.

(d) Waivers and Consents. The terms and provisions of this Agreement may be waived,
or consent for the departure therefrom granted, only by written document executed by the party
entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to
be or shall constitute a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be effective only in the
specific instance and for the purpose for which it was given, and shall not constitute a continuing
waiver or consent.

(e) Assignment. The Company may assign its rights and obligations hereunder to any
person or entity who succeeds to all or substantially all of the Company’s business or that aspect
of the Company’s business in which you are principally involved. Your rights and obligations under
this Agreement may not be assigned by you without the prior written consent of the Company.

(f) Benefit. All statements, representations, warranties, covenants and agreements in
this Agreement shall be binding on the parties hereto and shall inure to the benefit of the
respective successors and permitted assigns of each party hereto. Nothing in this Agreement shall
be construed to create any rights or obligations except among the parties hereto, and no person or
entity shall be regarded as a third-party beneficiary of this Agreement.

(g) Governing Law. This Agreement and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the law of the State of New Jersey,
without giving effect to the conflict of law principles thereof.

(h) Jurisdiction and Service of Process. Any legal action or proceeding with respect
to this Agreement shall be brought in the courts of the State of New Jersey or of the United States
District Court for the District of New Jersey. By execution and delivery of this Agreement, each
of the parties hereto accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each of the parties hereto irrevocably
consents to the service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by certified mail, postage prepaid, to the party at its
address set forth in Section 8(a) hereof.

(i) Severability. The parties intend this Agreement to be enforced as written.
However, (i) if any portion or provision of this Agreement shall to any extent be declared illegal
or unenforceable by a duly authorized court having jurisdiction, then the remainder of this
Agreement, or the application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion
and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by
law; and (ii) if any provision, or part thereof, is held to be unenforceable because of the
duration of such provision or the geographic area covered thereby, the Company and you agree that
the court making such determination shall have the power to reduce the duration and/or geographic
area of such provision, and/or to delete specific words and phrases (“blue-pencilling”), and in its
reduced or blue-pencilled form such provision shall then be enforceable and shall be enforced.

(j) Interpretation. The parties hereto acknowledge and agree that the terms and
provisions of this Agreement, shall be construed fairly as to all parties hereto and not in favor
of or against a party, regardless of which party was generally responsible for the preparation of
this Agreement.

(k) Headings and Captions. The headings and captions of the various subdivisions of
this Agreement are for convenience of reference only and shall in no way modify, or affect the
meaning or construction of any of the terms or provisions hereof.

(l) Injunctive Relief. You hereby expressly acknowledge that any breach or threatened
breach of any of the terms and/or conditions set forth in Sections 1, 2 or 3 of this Agreement will
result in substantial, continuing and irreparable injury to the Company. Therefore, you hereby
agree that, in addition to any other remedy that may be available to the Company, the Company shall
be entitled to injunctive or other equitable relief by a court of appropriate jurisdiction, without
posting a bond, in the event of any breach or threatened breach of the terms of Sections 1, 2 or 3
of this Agreement.

(m) No Waiver of Rights, Powers and Remedies. No failure or delay by a party hereto
in exercising any right, power or remedy under this Agreement, and no course of dealing between the
parties hereto, shall operate as a waiver of any such right, power or remedy of the party. No
single or partial exercise of any right, power or remedy under this Agreement by a party hereto,
nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, shall
preclude such party from any other or further exercise thereof or the exercise of any other right,
power or remedy hereunder. The election of any remedy by a party hereto shall not constitute a
waiver of the right of such party to pursue other available remedies. No notice to or demand on a
party not expressly required under this Agreement shall entitle the party receiving such notice or
demand to any other or further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the party giving such notice or demand to any other or further action in
any circumstances without such notice or demand.

(n) Expenses. Should any party breach this Agreement, in addition to all other
remedies available at law or in equity, such breaching party shall pay all of any other party’s
costs and expenses resulting therefrom and/or incurred in enforcing this Agreement, including legal
fees and expenses.

9. Counterparts. This Agreement may be executed in one or more counterparts, and by
different parties hereto on separate counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.

If the foregoing accurately sets forth our agreement, please so indicate by signing and
returning to us the enclosed copy of this letter.

Very truly yours,

MEMORY PHARMACEUTICALS CORP.

	 	 	 	 	 
	By: ___________________________

	Name:
	 	James R. Sulat

	Title:
	 	President & CEO

Accepted and Approved:

     

Michael Smith

3

EXHIBIT 1

PRIOR INVENTIONS AND/OR CONFLICTING AGREEMENTS

4EX-10.1

STOCK PURCHASE AGREEMENT

by and among

BPZ Energy, Inc. and

the Investors Named Herein

	 
	 

	Dated June 30, 2006

	 

1

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT (this “Agreement”), dated June 30, 2006, is made by and among
BPZ Energy, Inc., a Colorado corporation (the “Company”), and the Investors named on Schedule 1.1
hereto (the “Investors”).

RECITALS

Whereas, the Company has received from each Investor a Purchaser Suitability
Questionnaire (the “Questionnaire”) relating to the transactions contemplated in this Agreement,
and each Investor has executed a Confidentiality Agreement relating to the Company’s business and
each Investor acknowledges that he has been given full access by the Company to all information
concerning the business and financial condition, properties, operations and prospects of the
Company that Investor has deemed relevant for purposes of making the investment contemplated by
this Agreement.

Whereas, the Company proposes to issue and sell to Investors, and Investors desire to
purchase from the Company, shares of the Company’s common stock, no par value (the “Common Stock”),
on the terms set forth herein.

AGREEMENT

Now, Therefore, in consideration of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:

1. Purchase

1.1 Purchase and Sale of Stock. Subject to the terms and conditions of this
Agreement, the Company will issue and sell to each Investor, and each Investor severally agrees to
purchase from the Company, the number of shares of the Company’s authorized but unissued Common
Stock (the “Shares”) set forth with respect to such Investor on Schedule 1.1 hereto, at a price per
share equal to $2.75. The closing (the “Closing”) of the sale of the Shares shall be effected at
the offices of the Company on June xx, 2006, or at such other time and place as may be agreed to by
the Investors and the Company (the “Closing Date”). At the Closing, subject to the terms and
conditions hereof, the Company shall cause the issuance of the Shares purchased by such Investor
from the Company, against payment of the full amount of such Investor’s aggregate purchase price by
wire transfer of immediately available funds to the Company’s bank account.

1.2 Legends. All certificates representing the Shares shall bear the following legend
(in addition to any legend required by the blue sky or securities laws of any state or jurisdiction
to the extent such laws are applicable to the shares represented by the certificate so legended):

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS
OF SUCH ACT OR SUCH LAWS, PROVIDED THAT THE SELLER DELIVERS TO THE COMPANY AN OPINION OF
COUNSEL (WHICH OPINION AND COUNSEL ARE REASONABLY SATISFACTORY TO THE COMPANY) CONFIRMING
THE AVAILABILITY OF SUCH EXEMPTION.”

The legend set forth above shall be removed and the Company shall issue a certificate without such
legend to the holder of the Shares upon which it is stamped, if, unless otherwise required by state
securities laws, (i) such Shares are registered for resale under the Securities Act of 1933, as
amended (the “Securities 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 Shares may be made without registration under
the applicable requirements of the Securities Act, or (iii) such holder provides the Company with
reasonable assurance that the Shares can be sold, assigned or transferred pursuant to Rule 144 or
Rule 144A promulgated under the Securities Act.

1.3  Stop Transfer Orders. All certificates representing the Shares will be subject
to a stop transfer order with the Depository Trust Company or with the Company’s transfer agent
that restricts the transfer of such shares except in compliance with this Agreement.

2. Representations and Warranties of the Company. The Company hereby makes the
following representations and warranties to the Investors:

2.1 Organization, etc. The Company is a corporation, duly organized and validly
existing and in good standing under the laws of the State of Colorado, and is qualified or licensed
to do business and is in good standing as a foreign corporation in each other jurisdictions in
which the conduct of its business or the ownership of property requires such qualification or
licensing, except where failure to be so qualified or licensed would not have a material adverse
effect on the financial condition or operations of the Company and its Subsidiaries (as defined
below), taken as a whole (for the Company and its Subsidiaries, a “Material Adverse Effect”). Each
company (each, a “Subsidiary”) listed on Schedule 2.1 hereof is duly organized and validly existing
and in good standing under the laws of the jurisdiction of its organization, and is qualified or
licensed to do business and is in good standing as a foreign corporation in each other jurisdiction
in which the conduct of its business or the ownership of property requires such qualification or
licensing, except where failure to be so qualified or licensed would not have a Material Adverse
Effect. Except for the Subsidiaries, the Company does not own, of record or beneficially, the
securities of any other entity.

2.2 Authority. The Company has the corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder, and such action has been duly
authorized by all necessary action of the Company’s Board of Directors. The issuance and sale of
the Shares has been duly authorized and if, as and when issued in accordance with the terms of this
Agreement and delivered to the Investors, the Shares will be duly and validly issued and
outstanding, fully paid and non-assessable and will be free of any Encumbrance (as defined below)
created by the Company, in the Company’s control, or of which the Company has actual knowledge,
other than those imposed pursuant to this Agreement and securities laws of general application. As
used in this Agreement, “Encumbrance” shall mean any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right of way, encroachment, private building or use
restriction, conditional sales agreement, encumbrance or other right of third parties, whether
voluntarily incurred or arising by operation of law, and includes, without limitation, any
agreement to give any of the foregoing in the future, and any contingent sale or other title. The
issuance and sale of the Shares will not be subject to preemptive or other similar rights of any
holder of the Company’s securities.

2.3 Enforceability. This Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding agreement and obligation of the Company
enforceable against it in accordance with its terms subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect generally relating to
or affecting creditors’ rights.

2.4 No Violation. Except as set forth on Schedule 2.4, the execution and the delivery
by the Company of this Agreement and the performance by the Company of its obligations hereunder,
including the issuance and sale of the Shares, does not and will not (i) conflict with or result in
a breach of the terms, conditions or provisions of, (ii) constitute a default under, (iii) result
in a violation of, or (iv) require any authorization, consent or approval not heretofore obtained
pursuant to, any binding written or oral agreement or instrument including, without limitation, any
charter, bylaw, trust instrument, indenture or evidence of indebtedness, lease, contract or other
obligation or commitment (each, a “Contractual Obligation”) binding upon the Company or any
Subsidiary or any of their respective properties or assets, or any law, rule, regulation,
restriction, order, writ, judgment, award, determination, injunction or decree of any court or
government, or any decision or ruling of any arbitrator (each, a “Requirement of Law”) binding upon
or applicable to the Company or any Subsidiary or any of their respective properties or assets and
which would have a Material Adverse Effect.

2.5 Litigation. Except as set forth in Schedule 2.5 or the SEC Reports (as defined in
Section 2.7 below), there are no pending or overtly threatened actions, claims, orders, decrees,
investigations, suits or proceedings by or before any governmental authority, arbitrator, court or
administrative agency which would have a Material Adverse Effect.

2.6 Capitalization. The authorized capital stock of the Company consists of
250,000,000 shares of Common Stock, no par value, 42,633,747 shares of which have been validly
issued and are outstanding as of June 16, 2006 (and such issued shares are fully paid and
non-assessable), and 25,000,000 shares of preferred stock, no par value, none of which are issued
or outstanding as of June 16, 2006. Except as set forth on Schedule 2.6, the Company owns 100% of
the capital stock of each of the Subsidiaries. Except as set forth on Schedule 2.6 hereto, there
do not exist any other authorized or outstanding securities, options, warrants, calls, commitments,
rights to subscribe or other instruments, agreements or rights of any character, or any pre-emptive
rights, convertible into or exchangeable for, or requiring or relating to the issuance, transfer or
sale of, any shares of capital stock or other securities of the Company or any Subsidiary.

2.7 Annual Report; Financial Statements. Except as qualified by Schedule 2.7, the
Company’s Annual Report on Form 10-KSB for the year ended December 31, 2005 (the “SEC Report”) has
been filed with the SEC and the SEC Report complied in all material respects with the rules of the
SEC applicable to such SEC Reports on the date filed with the SEC, and the SEC Report did not
contain, on the date of filing with the SEC, and do not contain as of the date hereof, and the SEC
Report will not contain as of the Closing Date, any untrue statement of a material fact, or omit to
state any material fact necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading. As of the date hereof, except as set forth in Schedule 2.7,
the SEC Report has not been amended. Except as qualified by Schedule 2.7, all of the consolidated
financial statements included in the SEC Reports (the “Company Financial Statements”): (i) have
been prepared from and on the basis of, and are in accordance with, the books and records of the
Company and with generally accepted accounting principles applied on a basis consistent with prior
accounting periods; (ii) fairly and accurately present in all material respects the consolidated
financial condition of the Company as of the date of each such Company Financial Statement and the
results of its operations for the periods therein specified; and (iii) in the case of the annual
financial statements, are accompanied by the audit opinion of the Company’s independent public
accountants. Except as set forth in Schedule 2.7 or in the Company Financial Statements, as of the
date hereof and as of the Closing Date, the Company has no liabilities other than (i) liabilities
which are reflected or reserved against in the Company Financial Statements and which remain
outstanding and undischarged as of the date hereof, (ii) liabilities arising in the ordinary course
of business of the Company since December 31, 2005, (iii) liabilities incurred as a result of the
transactions described on Schedule 2.7, or (iv) liabilities which were not required by generally
accepted accounting principles to be reflected or reserved on the Company Financial Statements.
Since December 31, 2005, except as set forth on Schedule 2.7 hereto, there has not been any event
or change which has had or could reasonably be expected to have a Material Adverse Effect and the
Company has no knowledge of any event or circumstance that would reasonably be expected to result
in such a Material Adverse Effect.

2.8 Absence of Certain Changes. Since December 31, 2005 (the “Balance Sheet Date”),
except as set forth on Schedule 2.7 hereto, and in the SEC Report, neither the Company nor any of
its Subsidiaries has:

(a) redeemed, purchased or otherwise acquired directly or indirectly any shares of any class
or series of its capital stock, or any instrument or security which consists of or includes a right
to acquire such shares (other than repurchases of restricted stock at cost required pursuant to
agreements outstanding on the date of this Agreement or entered into after the date of this
Agreement in compliance with the provisions hereof);

(b) paid, discharged or satisfied any claim, liability or obligation (whether absolute,
accrued, contingent or otherwise) other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities and obligations reflected or
reserved against in the Company Balance Sheet in the SEC Report or incurred in the ordinary course
of business and consistent with past practice since the Balance Sheet Date;

(c) permitted or allowed any of its material properties or assets (real, personal or mixed,
tangible or intangible) to be subjected to any mortgage, pledge, claim, lien, security interest,
encumbrance, restriction or charge of any kind outside of the ordinary course of business;

(d) cancelled any debt or waived any claim or right of substantial value;

(e) sold, transferred, licensed, leased, pledged, mortgaged or otherwise disposed of any of
its material properties or assets (real, personal or mixed, tangible or intangible) or any material
amount of property or assets, except in the ordinary course of business;

(f) disposed of or permitted to lapse any right to the use of any Proprietary Rights (as
defined in Section 2.14 hereof), or disposed of or disclosed to any person or entity, other than
representatives of the Investors and persons subject to a nondisclosure agreement, any trade
secret, formula, process, know-how or other Proprietary Right not yet a matter of public knowledge;

(g) granted any material increase or accrual in or accelerated, any benefit or compensation
payable or to become payable to any officer, director, employee or consultant, including any such
increase, accrual or acceleration pursuant to any benefit plan except in connection with a
promotion or job change or any general increase in the compensation payable or to become payable to
officers, employees or directors in the ordinary course of business, or entered into or amended in
any material way any employment, material consulting, severance, termination or material benefit
plan agreement or arrangement other than in the ordinary course of business;

(h) declared, paid or set aside for payment any dividend or other distribution in respect of
its capital stock or redeemed, purchased or otherwise acquired, directly or indirectly, any shares
of capital stock or other securities of the Company or any of its Subsidiaries;

(i) made any change in any method of tax or financial statement accounting or accounting
practice that would or would reasonably be expected to result in any material change in the Company
Financial Statements;

(j) paid, loaned or advanced any amount to, or sold, transferred or leased any material
properties or assets (real, personal or mixed, tangible or intangible) to, or entered into any
agreement or arrangement with, any of its officers or directors or employees or any Affiliate (as
defined in Section 7.1) of any of its officers or directors or employees, except for directors’
fees and compensation to officers in the ordinary course of business;

(k) amended its certificate of incorporation or by-laws or similar organizational documents;

(l) issued, sold, transferred, pledged, disposed of or encumbered any shares of any class or
series of its capital stock, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of any class or series of
its capital stock, other than shares of Common Stock reserved for issuance on the date of this
Agreement pursuant to the Company’s 2005 Long-Term Incentive Compensation Plan, the exercise of any
warrants or options to purchase Common Stock described on Schedule 2.6 or existing agreements that
require the Company to issue shares of Common Stock;

(m) terminated or materially modified or amended any of its material contracts or waived,
released or assigned any material rights under any material contract or claims, except in the
ordinary course of business and consistent with past practice;

(n) revalued in any material respect any of its assets, including writing down the value of
inventory or writing-off notes or accounts receivable, other than in the ordinary course of
business consistent with past practice or as required by GAAP;

(o) adopted a plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any of its Subsidiaries;
or

(p) agreed, whether in writing or otherwise, to take any action described in this section.

2.9 Income Tax Returns. Except as set forth on Schedule 2.9, the Company and the
Subsidiaries have filed all federal and state income tax returns which are required to be filed,
and have paid, or made provision for the payment of, all taxes which have become due pursuant to
said returns or pursuant to any assessment received by the Company or any Subsidiary, except such
taxes, if any, as are being contested in good faith and as to which adequate reserves have been
provided. The Company has no knowledge of any pending assessments or adjustments of the income tax
payable of the Company or its Subsidiaries with respect to any year.

2.10 Permits; Compliance With Law. The Company and each Subsidiary possesses, and
will hereafter possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable
them to conduct the business in which it is now engaged in compliance with applicable law, except
where failure to do so would not have a Material Adverse Effect. The Company and each Subsidiary
are in compliance with all federal, state and local laws, regulations and ordinances (“Requirements
of Law”) in the conduct of its business and corporate affairs, except where failure to comply,
singly or in the aggregate, would not have a Material Adverse Effect.

2.11 ERISA. Except as set forth on Schedule 2.11, the Company and each Subsidiary is
in compliance in all material respects with any applicable provisions of ERISA; the Company and
each Subsidiary has not violated any provision of any Plan maintained or contributed to by it; no
Reportable Event as defined in ERISA has occurred and is continuing with respect to any employee
benefit plan (“Plan”) initiated by the Company or any Subsidiary; the Company and each Subsidiary
has met its minimum funding requirements under ERISA with respect to any Plan; and any Plan will be
able to fulfill its benefit obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles. Schedule 2.11 describes each Plan maintained by
the Company and each of its Subsidiaries.

2.12 Contracts. Schedule 2.12 sets forth a description of each Contractual Obligation
not filed as an exhibit to the SEC Reports that provides for payments to or by the Company or any
Subsidiary in excess of $250,000, or is otherwise material to the operations of the Company or any
Subsidiary. Except as set forth on Schedule 2.4, neither the Company nor any Subsidiary is in
default on any Contractual Obligation, except for such defaults which would not have a Material
Adverse Effect.

2.13 Environmental Matters. Except as set forth on Schedule 2.13, since September 10,
2004, the Company and its subsidiaries (including the Subsidiaries) have at all times been in
compliance in all material respects with all environmental laws and regulations applicable to the
Company’s current business except where the failure to so comply would not cause a Material Adverse
Effect. Except as described in the SEC Report or as set forth on Schedule 2.13, to the Company’s
knowledge none of the operations of the Company or any Subsidiary is the subject of any federal or
state investigation evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any toxic or hazardous waste or substance into the environment.
Except as set forth on Schedule 2.13, neither the Company nor any Subsidiary has received notice of
any actual or threatened claim, investigation, proceeding, order or decree in connection with any
release of any toxic or hazardous waste or substance into the environment.

2.14 Trademarks, etc. The Company and the Subsidiaries own, have sufficient title to,
or have the right to use (or can obtain the right to use on reasonable commercial terms), all
patents, trademarks, service marks, trade names, copyrights, licenses, trade secrets or other
proprietary rights (collectively, the “Proprietary Rights”) necessary to their business as now
conducted without infringing upon the right of any person. Except for employee confidentiality
agreements with employees and consultants, there are no outstanding material options, licenses or
agreements relating to intellectual property rights of the Company or any Subsidiary necessary to
their business as now conducted, nor is the Company or any Subsidiary bound by or a party to any
material options, licenses or agreements with respect to the Proprietary Rights of any other person
or entity. To the Company’s knowledge, neither the Company nor any Subsidiary has violated or is
in current violation of, and neither the Company nor any Subsidiary has received any communications
alleging that the Company or any Subsidiary has violated or, by conducting its business as
proposed, would violate, any of the Proprietary Rights of any other person or entity. The Company
and the Subsidiaries are not aware of any material violation by a third party of any of their
Proprietary Rights necessary to their business as now conducted.

2.15 Employees. Except as set forth on Schedule 2.15, all employees of the Company
and each Subsidiary are employed “at will” and may be terminated without payment of severance or
incurrence of any other liability of the Company or the Subsidiaries; no employee of the Company is
in violation of any material term of any employment contract, confidentiality agreement or any
other material Contractual Obligation relating to the right of any such employee to be employed by
the Company or any Subsidiary; and neither the Company nor any Subsidiary has any employee
severance agreement covering any of its employees. There are no labor disputes or union
organization activities pending or threatened between the Company or the Subsidiaries and their
employees.

2.16 Title to Properties. The assets owned or leased by the Company and its
Subsidiaries are all of the assets necessary to conduct the business of the Company and its
Subsidiaries as currently being conducted. The Company and its Subsidiaries have good and
marketable title to substantially all of the assets they own, real and personal, movable and
immovable, tangible and intangible, free and clear of any charge, claim, lien, pledge, security
interest or other encumbrance, except for: (a) liens for taxes not yet due and payable, (b)
encumbrances described on Schedule 2.16 hereto, or (c) minor imperfections of title and
encumbrances, if any, which (i) are not substantial in amount, (ii) do not detract from the value
of the property subject thereto, impair the operations of the business of the Company, or the use
or license of certain of the assets of the Company, and (iii) have arisen in the ordinary course of
business consistent with past practice.

2.17 Related Party Transactions. Except for those contracts described in the SEC
Reports or on Schedule 2.17 hereto, no existing Contractual Obligation of the Company or its
Subsidiaries is with or for the direct benefit of (i) any party owning, or formerly owning,
beneficially or of record, directly or indirectly, in excess of five percent (5%) of the
outstanding capital stock of the Company, (ii) any director, officer or similar representative of
the Company, (iii) any natural person related by blood, adoption or marriage to any party described
in (i) or (ii), or (iv) any entity in which any of the foregoing parties has, directly or
indirectly, at least a five percent (5%) beneficial interest (a “Related Party”). Without limiting
the generality of the foregoing, no Related Party, directly or indirectly, owns or controls any
material assets or material properties which are used in the Company’s business and to the actual
knowledge of the Company, no Related Party, directly or indirectly, engages in or has any
significant interest in or connection with any business which is, or has been within the last two
years, a competitor, customer or supplier of the Company or has done business with the Company or
which currently sells or provides products or services which are similar or related to the products
or services sold or provided in connection with the Business.

2.18 Brokers. The Company will issue warrants to purchase 150,000 shares to Morgan
Keegan & Company, Inc. (the Financial Advisor). Except for such warrants, the Company has not
agreed to pay or incurred any obligation in respect of any finder’s fee, brokerage fee or other
commission in connection with the sale of Shares contemplated by this Agreement.

2.19 Securities Law Matters. Except as set forth on Schedule 2.7, since January 1,
2005, the Company has filed all reports, registration statements, proxy statements and other
materials, together with any amendments required to be made with respect thereto, that were
required to be filed with (i) the SEC under the Securities Act, or the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and (ii) any applicable state securities authorities.
Subject to the accuracy of the representations and warranties of the Investors set forth in Section
3, the offer, sale and issuance of the Shares to the Investors will be exempt from registration
under the Securities Act.

2.20 No Anti-Dilution Rights. Except as set forth on Schedule 2.20, the transactions
contemplated hereby will not trigger any anti-dilution provisions contained in any existing
agreements.

2.21 Full Disclosure. No representation, warranty, schedule or certificate of the
Company made or delivered pursuant to this Agreement contains or will contain any untrue statement
of fact, or omits or will omit to state a material fact the absence of which makes such
representation, warranty or other statement misleading.

3. Representations and Warranties of Investors. Each Investor, severally and not
jointly, hereby makes the following representations and warranties as to such Investor:

3.1 Organization. Investor, if not a natural person, is duly organized and validly
existing and in good standing under the laws of the state of its organization.

3.2 Authority. Investor has the corporate or other authority to execute and deliver
this Agreement and the Questionnaire to which such Investor is a party and to perform its
obligations hereunder.

3.3 No Violation. The execution and the delivery by Investor of this Agreement and
the Questionnaire, and its purchase of the Shares and the consummation of the transactions
contemplated hereby or to be effected concurrently herewith do not and will not (a) conflict with
or result in a breach of the terms, conditions or provisions of, (b) constitute a default under,
(c) result in a violation of, or (d) require any authorization, consent or approval not heretofore
obtained pursuant to, any Contractual Obligation or Requirement of Law to which Investor is a party
or is otherwise subject.

3.4 Enforceability. This Agreement and the Questionnaire constitute the legal, valid
and binding obligation of Investor and is enforceable against Investor in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors’ rights.

3.5 Investment Intent. Investor is acquiring the Shares for its own account for
investment and not with a view to, or for resale in connection with, any “distribution” thereof for
purposes of the Securities Act. Investor is an “accredited investor” as such term is defined in
Regulation D under the Securities Act. Investor acknowledges that the Shares shall be “restricted
securities” within the meaning of Rule 144 (“Rule 144”) under the Securities Act, will contain a
transfer restriction legend and may only be resold pursuant to an effective registration statement
filed with the SEC under the Securities Act, or pursuant to Rule 144 or another valid exemption
from the registration requirements of the Act as established by an opinion of counsel reasonably
acceptable to the Company.

3.6 Investigation. Investor acknowledges that he has been given full access by the
Company to all information concerning the business and financial condition, properties, operations
and prospects of the Company that Investor has deemed relevant for purposes of making the
investment contemplated by this Agreement. By reason of Investor’s knowledge and experience in
financial and business matters in general, the business of the Company and investments of the type
contemplated by this Agreement in particular, Investor is capable of evaluating the merits and
risks of making the investment in the Shares and is able to bear the economic risk of the
investment (including a complete loss of its investment in the Shares). Subject to the truth and
accuracy of the representations and warranties made by the Company hereunder, Investor has
conducted such investigation as it deems relevant in connection with its consummation of the
transactions contemplated by this Agreement.

3.7 Brokers. Investor has not agreed to pay or incurred any obligation in respect of
any finder’s fee, brokerage fee or other commission in connection with the sale of Shares
contemplated by this Agreement.

4. Conditions to the Obligations of the Company. The obligations of the Company to
consummate the transactions contemplated by this Agreement on the Closing Date shall be subject to
the satisfaction of each of the conditions set forth in this Section 4, unless waived by the
Company, on or prior to the Closing Date.

4.1 Representations and Warranties. If this Agreement is not signed on the Closing
Date, the representations and warranties of the Investors set forth in Section 3 shall be true and
correct in all material respects as of the Closing Date as though made on and as of such date.

4.2 No Proceedings. No order, injunction, decree or other action or legal,
administrative, arbitration or other proceeding by any person other than the Company or
investigation by any governmental agency or authority shall be pending or threatened, challenging
or imposing a material limitation on the execution, delivery or performance of this Agreement, or
the consummation of any of the transactions contemplated hereby.

4.3 Compliance with Laws. The purchase of the Shares by each Investor hereunder shall
be legally permitted by all laws and regulations to which each Investor or the Company is subject.

4.4 Approval of Documents. All proceedings taken in connection with the transactions
contemplated hereby and all documents incident to such transactions shall be reasonably
satisfactory in form and substance to the Company and its counsel.

4.5 Questionnaire. Each investor shall have completed and executed and delivered to
the Company a Questionnaire in a manner reasonably acceptable to the Company.

5. Conditions to the Obligations of Investors. The obligations of each Investor to
consummate the transactions under this Agreement on the Closing Date shall be subject to the
satisfaction of each of the conditions set forth in this Section 5, unless waived by each Investor,
on or prior to the Closing Date.

5.1 Representations and Warranties. If this Agreement is not signed on the Closing
Date, the representations and warranties of the Company set forth in Section 2 shall be true and
correct in all material respects as of the Closing Date as though made on and as of such date; the
Company shall have performed all obligations and complied with all covenants required to be
performed or complied with by the Company under this Agreement on or prior to the Closing Date; and
each Investor shall have received on the Closing Date from the Company a certificate or
certificates, dated the Closing Date, to such effect, which certificate or certificates shall be
signed by an authorized officer of the Company.

5.2 No Proceedings. No order, injunction, decree or other action or legal,
administrative, arbitration or other proceeding by any person or investigation by any governmental
agency or authority shall be pending or, to the knowledge of the Company, threatened, challenging
or imposing a material limitation on the execution, delivery or performance of this Agreement, the
consummation of any of the transactions contemplated thereby or the operation by the Company of its
businesses as now conducted.

5.3 Approval of Documents. All proceedings taken in connection with the transactions
contemplated hereby and all documents incident to such transactions shall be reasonably
satisfactory in form and substance to each Investor and its counsel.

5.4 Compliance with Laws. The purchase of the Shares by each Investor hereunder shall
be legally permitted by all laws and regulations to which each Investor or the Company is subject.

5.5 No Material Adverse Change. Except as described in the SEC Reports or in Schedule
2.7, there shall have been no event that has had or could reasonably be expected to have a
Materially Adverse Effect since December 31, 2005.

5.6 Opinion of Counsel. Investor shall have received an opinion of counsel to the
Company in substantially the form attached as Schedule 5.6 hereto.

6. Certain Covenants of the Company.

6.1 Listing of Common Stock. The Company shall use its reasonable best efforts to
cause the Common Stock to be listed on the American Stock Exchange (or, if such listing cannot be
obtained, upon NASDAQ or another exchange) as soon as practicable following the date hereof. The
Company shall cause the Shares to be listed or included on each securities exchange or automated
quotation system on which similar securities issued by the Company are then listed or included.

6.2 Shelf Registration. The Company shall prepare and file or cause to be prepared
and filed with the SEC, as soon as practicable but in any event no later than thirty (30) days
after the date of filing the Company’s restated Form 10-K for the years ended December 31, 2005 and
2004, including the quarterly periods contained therein, as well as, its restated Form 8-K/A filed
on January 17, 2006 and its Form 10-Q for the quarter ended March 31, 2006 (the “Registration
Statement Filing Deadline”), a Registration Statement on Form SB-2 or S-1 (or such other form as
the Company is then eligible to use) for an offering to be made on a delayed or continuous basis
pursuant to Rule 415 of the Securities Act registering the resale from time to time by the
Investors of the Shares pursuant to plans of distribution reasonably acceptable to the Investors
(the “Registration Statement”). Each Investor agrees to promptly provide to the Company, in
writing, such information as the Company may reasonably request for inclusion in the Registration
Statement. The Company shall use its reasonable best efforts to cause the Registration Statement
to be declared effective under the Securities Act no later than sixty (60) days after its filing
date or in the event of SEC review, ninety (90) days from the date of filing (the “Effectiveness
Deadline”), and to keep such Registration Statement continuously effective under the Securities Act
until the earlier of (i) the date on which all Shares covered by the Registration Statement may be
sold without volume restrictions pursuant to either Rule 144 or Rule 144(k) as determined by the
counsel to the Company pursuant to a written opinion letter to such effect, addressed to the
Company’s transfer agent and to the Investors, or (ii) such date as all Shares registered on such
Registration Statement have been resold (the earlier to occur of (i) or (ii) is the “Registration
Termination Date”).

(a) If a Registration Statement ceases to be effective for any reason at any time prior to the
applicable Registration Termination Date, the Company shall use its reasonable best efforts to
reinstate the effectiveness thereof.

(b) The Company shall supplement and amend the Registration Statement if required by the
rules, regulations or instructions applicable to the registration form used by the Company for such
Registration Statement, if required by the Securities Act or, to the extent to which the Company
does not reasonably object, as requested by the Investors.

(c) All Registration Expenses incurred in connection with the registrations pursuant to this
Section 6.2 shall be borne by the Company. “Registration Expenses” shall mean all expenses incurred
by the Company in complying with this Section 6.2 hereof including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of counsel for the Company,
blue sky fees and expenses, and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company and Selling Expenses, as defined hereinafter). All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne by the Investors.
“Selling Expenses” shall mean all brokerage and selling commissions applicable to a sale of the
Shares pursuant to the Registration Statement.

(d) The Company may suspend sales of Shares pursuant to the Registration Statement for a
period of not more than thirty (30) days during any six (6) month period in the event it determines
in good faith that such Registration Statement contains or may contain an untrue statement of
material fact or omits or may omit to state a material fact required to be stated therein or
necessary to make the statement therein not misleading; provided that the Company shall promptly
amend such Registration Statement in order to correct any untrue statement and/or ensure that such
Registration Statement is not misleading; provided further that subject to the time limitations set
forth above, the Company may delay such amendment if the Company determines that such delay is in
the best interest of the Company in order to avoid premature public announcements of potential
acquisitions or other extraordinary transactions. At the time the Registration Statement is
declared effective, each Investor shall be named as a selling securityholder in the Registration
Statement and the related prospectus in such a manner as to permit such Investor to deliver such
prospectus to purchasers of Shares in accordance with applicable law.

(e) The Company shall promptly furnish to the Investors, upon request and without charge, (A)
any correspondence from the SEC or the staff of the SEC to the Company or its representatives
relating to any Registration Statement, and (B) after the same is prepared and filed with the SEC,
one copy of any Registration Statement and any amendment(s) thereto, including financial statements
and schedules, all documents incorporated therein by reference and all exhibits.

(f) The Company shall furnish to the Investors such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the Securities Act, and
such other documents as they may reasonably request in order to facilitate the disposition of the
Shares owned by them.

(g) The Company shall use its reasonable best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky laws of such
jurisdictions as shall be reasonably requested by the Investors, provided that the Company shall
not be required in connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or jurisdictions.

(h) The Company shall notify immediately each Investor holding Shares covered by such
registration statement at any time when a prospectus relating thereto is required to be delivered
under the Securities Act of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing; provided, however, that,
subject to Section 6.2(d) the Company shall promptly amend such Registration Statement in order to
correct any untrue statement and/or ensure that such Registration Statement is not misleading.

(i) If the Registration Statement covering the Shares required to be filed by the Company
pursuant to this Section 6.2 is not filed with the Commission by the date that is the Registration
Statement Filing Deadline, then the Company shall make the payments to the Investors as provided in
the next sentence as liquidated damages and not as a penalty. If the Registration Statement
covering the Shares required to be filed by the Company pursuant to this Section 6.2 is not filed
with the Commission by the date that is the Registration Statement Filing Deadline, a one-time
amount equal to three percent (3%) of the purchase price for the Shares shall be paid by the
Company to the Investors.

(j) If the Registration Statement covering the Shares required to be filed by the Company
pursuant to this Section 6.2 is not declared effective by the Commission by the date that is thirty
(30) days after the Effectiveness Deadline (an “Initial Date”) then the Company shall make the
payments to the Investors as provided in the next sentence as liquidated damages and not as a
penalty. If the Registration Statement covering the Shares required to be filed by the Company
pursuant to this Section 6.2 is not declared effective by the date that is the Effectiveness
Deadline, an amount equal to two percent (2%) (the “Liquidated Damage Rate”) of the purchase price
for the Shares shall be paid by the Company to the Investors. The amount to be paid by the Company
to the Investors under the Liquidated Damage Rate shall be determined as of each Computation Date
(as defined below) and for each thirty (30)-day period of any subsequent Computation Dates
thereafter, calculated on a pro rata basis to the date on which the Registration Statement is
declared effective by the Commission (the “Periodic Amount”). However, payments under the
Liquidated Damage Rate are subject to a cap of ten percent (10%) or five (5) thirty (30)-day
periods.

(k) If the Registration Statement covering the Shares required to be filed by the Company
pursuant to this Section 6.2 is not declared effective by the Commission by the date that is one
hundred fifty (150) days after the date hereof, then the Company shall make a one-time payment to
the Investors equal to five percent (5%) of the purchase price for the Shares.

(l) The amounts payable under sections 6.2 (i),(j) or (k) above shall be paid by the Company
to the Investors, pro rata, at the option and sole discretion of the Company, by (i) wire transfer
of immediately available funds within five (5) business days after each Computation Date or (ii) by
the issuance of additional Common Stock; the number of shares to be issued shall be calculated as
the Periodic Amount to which each investor is entitled for each thirty (30)-day computation period,
divided by two dollars and seventy-five cents ($2.75) per share.

As used in this Section 6.2, “Computation Date” means the date which is thirty (30) days after
the Initial Date and, if the Registration Statement to be filed by the Company pursuant to this
Section 6.2 has not theretofore been filed with the Commission or declared effective by the
Commission, as the case may be, each date which is thirty (30) days after the previous Computation
Date until such Registration Statement is so filed or declared effective, or until the liquidated
damages limit has been reached, as the case may be. Notwithstanding the above, if the Registration
Statement covering the Shares required to be filed by the Company pursuant to this Section 6.2 is
not filed with the Commission by the Registration Statement Filing Deadline, the Company shall be
in default of the terms of this Section 6.2, and the Investors shall be entitled to damages as set
forth above.

6.3 Termination of Registration Rights. All rights and obligations provided for in
Section 6.2 shall terminate on the date on which the Company has no obligation to maintain the
effectiveness of the Registration Statement; provided that the rights of any Investor under Section
6.2 shall terminate the earlier of (i) the date on which all Shares covered by the Registration
Statement may be sold without volume restrictions pursuant to either Rule 144 or Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion letter to such effect,
addressed to the Company’s transfer agent and to the Investors, or (ii) such date as all Shares
registered on such Registration Statement have been resold.

6.4 Reports Under Securities Exchange Act of 1934. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act (“SEC Rule 144”) and
any other rule or regulation of the SEC that may at any time permit Investors to sell securities of
the Company to the public without registration or pursuant to a Registration Statement, the Company
agrees to:

(a) use its reasonable best efforts to make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times so long as the Company remains
subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act;

(b) use its reasonable best efforts to take such action as is necessary to enable the
Investors to utilize Form SB-2 or S-1 or such other registration statement form as may be
applicable for the sale of their Shares;

(c) use its reasonable best efforts to file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the Exchange Act; and

(d) furnish to any Investor, so long as the Investor owns any Shares, forthwith upon request
(i) a written statement by the Company that it has complied with the reporting requirements of the
Securities Act and the Exchange Act, or that it qualifies as a registrant whose securities may be
resold pursuant to Form SB-2 or S-1 (or such other form as the Company is then eligible to use),
(ii) a copy of the most recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be reasonably requested
in availing any Investor of any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.

7. Indemnification.

7.1 Indemnification by the Company. The Company will indemnify each Investor, its
officers, directors, employees, partners, affiliates, agents, representatives and legal counsel,
and each person controlling (or deemed controlling) such Investor within the meaning of the
Securities Act, (collectively, the “Investors’ Agents”) with respect to which registration,
qualification or compliance has been effected pursuant to Section 6.2, against all claims, losses,
damages and liabilities (or actions in respect thereof), joint or several, arising out of or based
on (A) (i) any untrue statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other similar document or any amendments or supplements thereto
(including any related registration statement and amendments or supplements thereto, notification
or the like) incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the circumstances under
which they were made, and will reimburse the Investors and the Investors’ Agents for any legal or
any other expenses reasonably incurred in connection with investigating or defending any such
claim, loss, damages, liability or action, as incurred, or (ii) any violation by the Company of any
federal, state or common law rule or regulation applicable to the Company in connection with any
such registration, qualification or compliance, and will reimburse each Investor, and each
Investors’ Affiliates, for any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action; or (B) any breach of
any covenant, agreement, representation or warranty of the Company in this Agreement.
Provided, however, that the Company shall not be liable under this Section 7: (a) in any
such case to the extent that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission based upon written information furnished to the Company
by an instrument duly executed by such Investor and stated to be specifically for use therein or
furnished in writing by such Investor to the Company in response to a request by the Company
stating specifically that such information will be used by the Company therein, (b) for any amount
paid in settlement of claims without the Company’s written consent (which consent shall not be
unreasonably withheld), or (c) to the extent that it is finally judicially determined that such
Liabilities resulted primarily from the willful misconduct or bad faith of such indemnified party;
provided, further, that if and to the extent that such indemnification is held, by final
judicial determination to be unenforceable, in whole or in part, for any reason, the Company shall
make the maximum contribution to the payment and satisfaction of such indemnified Liability. In
connection with the obligation of the Company to indemnify for expenses as set forth above, if an
indemnified party is reimbursed hereunder for any expenses, such reimbursement of expenses shall be
refunded to the extent it is finally judicially determined that the Liabilities in question
resulted primarily from the willful misconduct or bad faith of such indemnified party.

7.2 Indemnification by Investors. Each Investor will indemnify the Company, each of
its directors and officers, each legal counsel and independent accountant of the Company, each
person who controls the Company within the meaning of the Securities Act, any underwriter, and each
other Investor, against all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on (A) any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular or other similar
document, or any omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and will reimburse the Company, such directors, and
officers, control persons, underwriter and each other Investor for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such claim, loss, damage,
liability or action, as incurred, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished in writing to the Company by an instrument duly
executed by such Investor and stated to be specifically for use therein or furnished by such
Investor to the Company in response to a request by the Company stating specifically that such
information will be used by the Company therein; or (B) any breach of any representation or
warranty of such Investor in this Agreement. Provided, however, that the indemnity
agreement provided in this Section 7 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without the written consent
of the Investor, which consent shall not be unreasonably withheld. In no event shall an Investor’s
indemnification obligation exceed the net proceeds received from its sale of Shares in such
offering.

7.3 Notification; Procedure.

(a) Each party entitled to indemnification under this Section 7 (the “Indemnified Party”)
shall give notice to the party required to provide indemnification (the “Indemnifying Party”)
promptly after such Indemnified Party has received written notice of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who
shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party
(whose approval shall not be unreasonably withheld). The Indemnified Party may participate in such
defense at such party’s expense; provided, however, that the Indemnifying Party shall bear the
expense of such defense of the Indemnified Party if representation of both parties by the same
counsel would be inappropriate due to actual or potential conflicts of interest. The failure of any
Indemnified Party to give notice within a reasonable period of time as provided herein shall
relieve the Indemnifying Party of its obligations under this Section 7, but only to the extent that
such failure to give notice shall materially adversely prejudice the Indemnifying Party in the
defense of any such claim or any such litigation. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.

(b) If the indemnification provided for in this Section 7 is held to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder,
shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations; provided, that in no event shall
any contribution by an Investor under this Section 7 exceed the net proceeds from the offering
received by such Investor. The relative fault of the Indemnifying Party and of the Indemnified
Party shall be determined by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties’ relative intent,
knowledge, access to information, and opportunity to correct or prevent such statement or omission.

(c) The obligations of the Company and each Investor under this Section 7 shall survive the
completion of any offering of the Shares in a Registration Statement under this Section 7, any
investigation made by or on behalf of the Indemnified Party or any officer, director or controlling
Person of such Indemnified Party and will survive the transfer of securities.

(d) Each Investor shall furnish to the Company such information regarding such Investor and
the distribution proposed by such Investor as the Company may reasonably request in writing and as
shall be reasonably required in connection with any registration, qualification or compliance
referred to in this Section 7.

7.4 Registration Rights. Each Investor agrees that if such Investor wishes to sell
securities pursuant to the Registration Statement, it will do so in accordance with this Agreement.

8. Survival of Representations and Warranties. All representations, warranties and
agreements made by the Company and Investors in this Agreement or in any certificate or other
instrument delivered pursuant hereto shall survive the Closing and any investigation and discovery
by the Company or by Investors, as the case may be, made at any time with respect thereto.

9. Miscellaneous Provisions.

9.1 Deliveries. The Company and Investors hereby covenant and agree to use their
respective reasonable best efforts to perform each of their obligations hereunder, to deliver all
certificates and to satisfy all other conditions set forth in this Agreement and to close the
transactions contemplated by this Agreement on the Closing Date.

9.2 Successors and Assigns. This Agreement is executed by, and shall be binding upon
and inure to the benefit of, the parties hereto and each of their respective successors and
assigns; provided, however, that neither this Agreement nor any right pursuant
hereto nor interest herein shall be assignable except (a) by the Company with the consent of a
Majority of the Investors (as defined in Section 9.9), (b) by the Company in connection with a
merger, consolidation or sale of all or substantially all of its assets, (c) by an Investor with
the prior written consent of the Company or (d) by an Investor in connection with a sale or other
transfer of the Shares. None of the provisions of this Agreement shall be for the benefit of or
enforceable by any other person.

9.3 Notices. All notices, demands and other communications provided for or permitted
hereunder shall be made in writing and shall be by registered or certified first-class mail, return
receipt requested, telecopier, courier service or personal delivery:

if to the Investors at the address set forth on the signature page hereof:

	 	 	 
	if to the Company at the following address:

	 	with a copy to:
	 
	 	 
	BPZ Energy, Inc.

580 Westlake Park Blvd., Suite 525

Houston, Texas 77079

Attn: Chief Executive Officer and President

Fax: (281) 556-6377

Attn: Chief Financial Officer

	 	Adams and Reese LLP

4400 One Houston Center

1221 McKinney

Houston, Texas 77010

Attn: Mark W. Coffin

Fax: (713) 652-5152

All such notices and communications shall be deemed to have been duly given: when delivered by
hand, if personally delivered; when delivered by courier, if delivered by commercial overnight
courier service; five business days after being deposited in the mail, postage prepaid, if mailed;
and when receipt is acknowledged, if telecopied.

9.4 Counterparts. This Agreement may be executed in any number of counterparts, and
each such counterpart will for all purposes be deemed an original, and all such counterparts shall
constitute one and the same instrument.

9.5 Governing Law; Forum. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware applicable to contracts entered into
and to be wholly performed therein. Each party to this Agreement hereby irrevocably agrees that
any legal action or proceeding arising out of or relating to this Agreement or any agreements or
transactions contemplated hereby shall be brought in the courts of the State of Delaware or of the
United States of America for the District of Delaware and hereby expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and expressly waives any claim of
improper venue and any claim that such courts are an inconvenient forum. Each party hereby
irrevocably consents to the service of process of any of the aforementioned courts in any such
suit, action or proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 9.3, such service to become effective 10 days
after such mailing.

9.6 Attorneys’ Fees. If any party should institute any action to enforce or interpret
any term or provision of this Agreement, the party prevailing in such action, after all appeals
have been exhausted, shall be entitled to its attorneys’ fees, out-of-pocket disbursements and all
other expenses from the non-prevailing party in such action.

9.7 Entire Agreement. This Agreement (together with all Exhibits and Schedules
hereto) constitutes the entire understanding and agreement between the parties hereto with respect
to the subject matter hereof and supersedes all prior and contemporaneous written and oral
negotiations, discussions, agreements and understandings with respect to such subject matter.

9.8 Section Headings. The section and subsection headings contained in this Agreement
are included for convenience only and form no part of the agreement between the parties.

9.9 Consent of Investors. Any term or condition hereof may be waived or amended by
the consent of all Investors who have purchased the shares hereunder.

9.10 Interpretation. Each of the Investors and the Company have participated in the
negotiation and drafting of this Agreement. Accordingly, each of the parties hereby waives any
statutory provision, judicial precedent or other rule of law to the effect that contractual
ambiguities are to be construed against the party who shall have drafted the same.

9.11 Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be or become prohibited or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Agreement except to the extent
that any provision would clearly be contemplated by the parties to be conditioned upon the validity
and enforceability of such invalid or prohibited provision.

9.12 Public Announcements. The Company may, at its option, issue a press release
regarding the closing of this offering within a reasonable period after the Closing. Except for
such disclosure as the Company is advised by counsel is required to be included in documents filed
with the Securities and Exchange Commission or otherwise required by law, the Company shall not
use the name of, or make reference to, any Investor or any of its Affiliates in any press release
or in any public manner (including any reports or filings made by the Company under the Exchange
Act) without such Investor’s prior written consent which consent shall not be unreasonably
withheld.

2

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by
their respective representatives hereunto duly authorized as of the date first above written.

BPZ ENERGY, INC.,

a Colorado corporation

     

Manuel Pablo Zúñiga-Pflücker

President and Chief Executive Officer

580 Westlake Park Blvd., Suite 525

Houston, Texas 77079

INVESTOR

     

Signature

     

Name

     

Title

Address:

     

     

     

3

Schedule 1.1

Investors

Investor Shares

4

Schedule 2.1

Organization, etc.

Subsidiaries

1. BPZ Energy, Inc., a Texas corporation

2. SMC Ecuador, Inc., a Delaware corporation

3. Navidec Financial Services, Inc., a Colorado corporation (a)

Branch Offices

1. BPZ Energy, Inc., Sucursal Peru, a registered Peruvian branch office

2. SMC Ecuador, Inc., Sucursal, a registered Ecuadorian branch office

(a) Note:

The Company is contractually bound to spin-off Navidec Financial Services, Inc. (“NFS”) to the
pre-merger shareholders of Navidec.  Pending the distribution of NFS common shares to the
beneficiaries of the spin-off, the Company is the nominal owner of those shares.  While the Company
may be deemed to have majority nominal ownership of the common stock of NFS, it does not control
NFS.  As such, the Company has determined that the equity method of accounting is the most
appropriate manner to reflect its nominal ownership of NFS during the period of time between the
Merger and its ultimate spin-off to the pre-merger shareholders of Navidec. The Company’s nominal
ownership interest in NFS was approximately 65.1% as of December 31, 2005.

The Company previously amended and restated certain of its issued financial statements and other
financial information on January 17, 2006 in response to previous SEC review comments. In its
amended SEC filings, the Company accounted for its relationship with NFS under the equity method of
accounting as stated above. Subsequent to the January 17, 2006 restatement, the Company has had an
ongoing dialogue with the SEC concerning the SEC’s continuing review of the accounting treatment of
the Company’s relationship with NFS and other matters related to the Merger. Based upon this
review, the Company may have to restate its financial statements to fully consolidate the financial
results of NFS subsequent to the merger until the shares of NFS are determined to have been
distributed to the pre-merger shareholders of Navidec. See Schedule 2.7.

5

Schedule 2.4

No Violation

None.

6

Schedule 2.5

Litigation

On February 14, 2006, the Company filed a petition in the District Court of Arapahoe County,
Colorado for the judicial dissolution of Navidec Financial Services, Inc. (“NFS”) and the
appointment of a receiver for NFS. BPZ is seeking this action on behalf of those shareholders
entitled to the spin-off of NFS shares pursuant to the Merger Agreement with Navidec, Inc. dated
July 8, 2004. Despite the fact that the Merger was consummated in September 2004, the spin-off has
not occurred and it appears highly unlikely or impossible that it will be completed.

On May 19, 2006, BPZ Energy, Inc. (the “Company”) entered into a Settlement Agreement and Mutual
Release (the “Agreement”) by and among the Company, NFS, and John McKowen, the Chief Executive
Officer of NFS and former Chief Executive Officer and Director of the Company (collectively, the
“Parties”).

The Agreement settles all disputes amongst the Parties relating to a civil action filed by the
Company in February, 2006 against NFS in District Court, Arapahoe County, Colorado, Case Number
2006-CV-941 (“the Action”), seeking dissolution of NFS, the appointment of a receiver, and access
to the NFS corporate records. The Action was more fully described in a Form 8-K filing made by the
Company on February 14, 2006. The Agreement provides for (i) a complete mutual release between the
Parties of any and all claims relating to the Action, (ii) the agreement of the Parties that NFS
will file for declaratory relief or a declaratory action in Arapahoe County District Court solely
on the issue of whether BPZ is or was a record owner of NFS shares at any time after September 9,
2004, (iii) access by the Company to the financial records of NFS as may be necessary for the
Company to restate its financial statements and make required SEC filings as described in Item 4.02
of this Form 8-K filing and (iv) the granting of certain rights extending the exercise period for
options and warrants held by NFS and certain of its affiliates, certain rights concerning cashless
exercise of those securities if they are not registered by January 30, 2007, and certain
modifications to the registration rights held by NFS and certain of its affiliates, permitting the
Company to complete the registration of securities issued in the $34.4 million private placement
completed by the Company in July, 2005, before registering Company securities held by NFS and
certain of its affiliates.

7

Schedule 2.6

Capitalization

Ownership of Equity Interest

Other than Navidec Financial Services, Inc. (“NFS”), of which the Company’s nominal ownership
interest was approximately 65.1% as of December 31, 2005, the Company owns 100% of the capital
stock of each of the Subsidiaries. See Schedule 2.1 for further discussion regarding NFS.

Dilutive Securities

In addition to the shares issued and outstanding, the Company has the following potentially
dilutive securities.

	 	 	 	 	 
	Stock options outstanding	 	1,378,652
	Warrants outstanding	 	1,325,000
	Merger earn-out shares	 	9,000,000
	Contingent earn-out shares	 	485,000
	Shares and options granted under LTIP	 	2,520,000
	Total potentially dilutive securities issued
	 	 	14,708,652	 
	Shares and options available under LTIP
	 	 	1,4840,000	 

Stock Options Outstanding

In connection with the Merger, BPZ, as the accounting acquirer, assumed all Navidec stock options
outstanding, which were fully vested on the date of the Merger and expire on September 10, 2007.
Exercise prices on these stock options range from $1.30 to $1.93 per share. Under the terms of the
Merger agreement, NFS is entitled to receive all proceeds from the exercise of these options. As
of June 16, 2006, there were 378,652 Navidec stock options outstanding.

Additionally, the Company granted options to purchase 1,000,000 shares of common stock at an
exercise price of $1.30 per share to the former CEO of Navidec in connection with his service as a
director and financial consultant to the Company. Of such stock options, 500,000 were fully vested
on the date of the Merger. The remaining 500,000 stock options will vest upon the receipt of
additional investment proceeds totaling $6 million, including proceeds from the exercise of
outstanding warrants, provided such funding is received no later than September 10, 2006. These
stock options, when vested, expire 10 years from the date of grant.

Warrants Outstanding

In connection with the Merger, BPZ issued warrants to purchase 1,500,000 shares of common stock at
an exercise price of $2.00 per share in connection with an agreement for investor relations, public
relations and other financial advisory services.  Such warrants expire on July 31, 2006.
Subsequent to the Merger, NFS conveyed 540,000 of such warrants to third parties. As of June 16,
2006, there were 1,225,000 of such warrants outstanding, of which 810,000 were held by NFS.

In connection with the private placement on July 19, 2005, the Company issued to the placement
agent warrants to purchase 100,000 shares of the Company’s common stock at an exercise price of
$3.00 per share with a five-year term.

Merger Earn-Out Shares

Under the terms of the Merger Agreement, the Company was committed to issue an additional
18,000,000 shares to the former shareholders of BPZ on a contingent earn-out basis if the Company
is able to achieve certain reserve and production goals.  The first earn-out target relating to
reserves was achieved in December 2004 and 9,000,000 of the earn-out shares were issued on July 1,
2005.  The remaining 9,000,000 earn-out shares are contingent on the Company achieving production
of 2,000 barrels of oil per day or its equivalent (approximately 12 million cubic feet of gas per
day) prior to December 28, 2007.

Contingent Earn-Out Shares

As of December 31, 2005, the Company had an obligation to issue 485,000 shares of contingent
restricted common stock, to three of its officers, which will vest only if the Company achieves the
second earn-out target under the Merger Agreement. Such earn-out target requires that the Company
achieve production of 2,000 barrels of oil per day or its equivalent (approximately 12 million
cubic feet of gas per day) prior to December 28, 2007.

Long-Term Incentive Compensation Plan

The Company adopted the BPZ Energy, Inc. Long-Term Incentive Compensation Plan (the “LTIP”) in July
2005. The LTIP will be administered and managed within the discretion of the compensation
committee of the Company or, in the absence of such committee, by the Board of Directors.
Incentives under the LTIP may be granted to eligible employees, directors or consultants in any one
or a combination of incentive options, non-statutory stock options, stock appreciation rights,
restricted stock grants, stock grants and performance shares. As of June 16, 2006, the Company had
granted restricted stock awards totaling 1,190,000 shares (of which 1,120,000 are issued and
outstanding, and 855,000 remain unvested as of June 16, 2006); had granted 1,330,000 options to
purchase shares, to certain employees and board of directors, at strike prices of $3.20 and $3.35
respectively, all of which are unvested as of June 16, 2006; and had 1,480,000 shares of common
stock available for the grant of incentives under the LTIP.

8

Schedule 2.7

Annual Report; Financial Statements; Absence of Certain Changes

Amended Financial Statements

As of the date hereof, the following SEC reports have been amended:

	 	•	 	Form 10-QSB/A Amended Quarterly Report for the quarter ended June 30, 2005,
filed January 17, 2006;

	 	•	 	Form 10-QSB/A Amended Quarterly Report for the quarter ended March 31, 2005, filed
January 17, 2006;

	 	•	 	Form 10KSB/A Amendment No. 2 to Annual Report for the fiscal year ended December 31,
2004, filed January 17, 2006;

	 	•	 	Form 10KSB/A Amendment No. 1 to Annual Report for the fiscal year ended December 31,
2004, filed December 23, 2005; and

	 	•	 	Form 8-K/A Amended Current Report for the report dated September 10, 2004, filed
January 17, 2006.

Absence of Certain Changes

As of November 16, 2005, the Company’s Registration Statement on Form SB-2 had not been declared
effective. Accordingly, the Company is subject to the payment of liquidated damages in the amount
of $343,980 for each 30-day period from that date until the Registration Statement is declared
effective. Certain of the July 2005 private placement investors, totaling 79% of the aggregate
investment, agreed to accept common stock in lieu of cash for a maximum period of 90 days which
ended February 14, 2006.

The Company received additional review comments from the SEC on or about April 5, 2006 and
concluded that a further restatement of its prior period financial statements is likely. The
issues raised by the SEC include (i) the accounting treatment for the Company’s relationship with
NFS, (ii) the financial statement presentation of the pre-merger operations of BPZ Energy, Inc., a
Texas corporation (BPZ-Texas), during the period it was a privately-held company under control of
its then-parent company, BPZ & Associates, Inc., and (iii) the timing and accounting treatment for
the distribution of the first tranche of earn-out shares payable to the pre-merger shareholders of
BPZ-Texas. This restatement will not affect the Company’s current cash position. Additional
discussion of these accounting matters may be found in the Form 8-K described above. These matters
have been discussed with the Company’s Independent Registered Public Accounting Firm, Johnson
Miller & Co., CPA’s, P.C., who are expected to assist with the necessary restatements.

In light of the SEC’s comment letter and the likelihood of a further restatement, the Company filed
a Form 8-K on May 22, 2006 indicating that its previously issued financial statements and other
financial information contained in the Company’s Forms 10-KSB for the years ended December 31, 2005
and 2004, including the quarterly periods contained therein, and its Form 8-K/A filed on January
17, 2006 should no longer be relied upon. Additionally, the Company will not be able to file its
Form 10-Q for the quarter ended March 31, 2006, nor will it file its 2006 Annual Proxy Statement,
until the restatement has been completed. The Company expects the restatement process to be
completed by mid-August 2006, though it can give no assurance that any required restatements will
be completed by that date. An independent consulting firm, Opportune, LLP, has been engaged to
assist the Company with the preparation of any required amendments to its SEC filings.

The Company’s ongoing review of the accounting issues discussed above and any required restatements
will further delay the effectiveness of the Company’s pending Form SB-2 registration statement. As
discussed above, this delay will subject the Company to monthly penalties of $343,980 under the
terms of the $34.4 million private placement financing closed in July 2005. The Company has
initiated discussions with the relevant investors to determine whether some or all of these
penalties may be paid in common stock in lieu of cash. Certain of the private placement investors,
totaling 74% of the aggregate investment, agreed to accept common stock in lieu of cash beginning
on April 17, 2006.

On March 8, 2006 the Company completed a private placement of common stock for proceeds of $5.0
million. The Company sold 1,670,000 shares to four institutional and accredited investors at a
price of $3.00 per share. There were no warrants or dilutive securities issued to the investors in
connection with the offering. The offering was placed directly by the Company and there were no
placement fees or other direct expenses related to the offering. As of June 8, 2006, the Company’s
Registration Statement on Form SB-2 had not been filed. Accordingly, the Company is subject to the
payment of liquidated damages in the amount of $50,100 for each 30-day period from that date until
the Registration Statement is filed and declared effective. These penalties will be paid in common
stock in lieu of cash.

In December 2005, the Company notified Perupetro that it has exercised its exclusive option to
convert the current Technical Evaluation Agreement (“TEA”) in Area VI, which covers 1,444,175 acres
and encompasses the entire Lancones Basin, to a License Contract for the exploration and
development of hydrocarbons. The former Area VI, will now be referred to as Block XXII and will
cover 948,000 acres. In addition, the Company announced that it will not apply for a license
contract for Area XVI. The technical work conducted by the Company over the past two years has not
demonstrated the upside potential and economics to meet the Company’s objectives. Area XVI is a
relatively small block consisting of 109,612 acres in the Talara Basin.

On June 17, 2006 the Company was notified that it had won the licensing tender for Block XXIII
(247,827 acres) that is located onshore, between Blocks Z-1 and XIX. The next step in the process
is to finalize the corresponding License Contract with Perupetro.

9

Schedule 2.9

Income Tax Returns

As a result of the ongoing legal conflict between the Company and NFS, as discussed in Schedules
2.1 and 2.5, the Company has been unable to file its federal income tax return for the year ended
December 31, 2004. However, as a result of its net operating losses, the Company believes that it
does not have a tax liability for said year.

10

Schedule 2.11

ERISA

ERISA Compliance

None.

Employee Benefit Plans

1. BPZ Energy, Inc. Long-Term Incentive Compensation Plan

The Company adopted the BPZ Energy, Inc. Long-Term Incentive Compensation Plan (the “LTIP”) in
April 2005 and it was approved by the Company’s shareholders in July 2005. The LTIP will be
administered and managed within the discretion of the compensation committee of the Company or, in
the absence of such committee, by the Board of Directors. Incentives under the LTIP may be granted
to eligible employees, directors or consultants in any one or a combination of incentive options,
non-statutory stock options, stock appreciation rights, restricted stock grants, stock grants and
performance shares.

Key Terms

The following is a summary of the key provisions of the LTIP:

	 	 	 	 	 
	Plan Term:

	 	 	 	April 15, 2005 to April 15, 2015.
	 
	 	 	 	 
	Eligible

Participants:

	 	 	 	The Company’s directors, employees and consultants and the employees of

certain of its affiliates. The Company currently has 25 employees and

four directors who are eligible to participate under the LTIP.
	 
	 	 	 	 
	Shares Authorized:

	 	 	 	4,000,000, subject to adjustment to reflect stock splits and similar

events. The LTIP provides a further limit of 1,600,000 shares of the

4,000,000, which may be issued as restricted stock grants, stock grants,

other stock-based incentives and performance shares.
	 
	 	 	 	 
	Award Types:

	 	•
	 	incentive stock options under Section 422 of the Internal Revenue Code;

	 	•	 	non-statutory stock options not covered under Section 422 of the
Internal Revenue Code;

	 	•	 	stock appreciation rights, granting the recipient the right to receive
an excess in the fair market value of shares of stock over a specified
reference price;

	 	•	 	restricted stock, which will be nontransferable until it vests over time;

	 	•	 	qualified performance-based incentives to employees who qualify as
covered employees within the meaning of Section 162(m) of the Internal
revenue Code;

	 	•	 	unrestricted stock, which will be immediately transferable; and

	 	•	 	other stock-based incentive awards.

	 	•	 	incentive stock options under Section 422 of the Internal Revenue Code;

Vesting: To be determined by the compensation committee. Awards will generally
vest in four years unless otherwise determined in the compensation
committee’s discretion.

The Board may discontinue the LTIP at any time and may amend or revise the terms of the LTIP
as permitted by applicable statute; except that it may not revoke or alter, in a manner
unenforceable to the grantees of any incentives, any incentives outstanding, nor may the Board
amend the LTIP without shareholder approval where the absence of such approval would cause the LTIP
to fail to comply with Rule 166-3 under the Securities Exchange Act of 1934, or any other
applicable law or regulation.

Vesting and Exercise of Stock Options

The exercise price of stock options or stock appreciation rights granted under the LTIP may
not be less than the fair market value of the common stock on the date of grant. The term of these
awards may not be longer than ten years. The compensation committee will determine at the date of
grant when each such award becomes vested and/or exercisable.

Vesting of Restricted Stock Awards and Options

The compensation committee may make the grant, issuance, retention and/or vesting of
restricted stock awards and options contingent upon continued employment (or engagement) with
Company, the passage of time, or such performance criteria and the level of achievement compared to
such criteria as it deems appropriate.

Eligibility Under Section 162(m)

Awards may, but need not, include performance criteria that satisfy Section 162(m) of the Tax
Code. To the extent that awards are intended to qualify as “performance-based compensation” under
Section 162(m), the performance criteria may include the following criteria, either individually,
alternatively or in any combination, applied to either the company as a whole or to a business unit
or subsidiary, either individually, alternatively, or in any combination, and measured either
annually or cumulatively over a period of years, on an absolute basis or relative to a
pre-established target, to previous years’ results or to a designated comparison group, in each
case as specified by the compensation committee in the award:

	 	•	 	pre-tax or after-tax net earnings,

	 	•	 	sales growth,

	 	•	 	operating earnings,

	 	•	 	operating cash flow

	 	•	 	return on net assets,

	 	•	 	return on shareholders’ equity,

	 	•	 	return on assets,

	 	•	 	return on capital,

	 	•	 	stock price grown,

	 	•	 	gross or net profit margin,

	 	•	 	earnings per share,

	 	•	 	price per share of stock,

	 	•	 	market share, and

	 	•	 	such other performance measures as the compensation committee may determine.

To the extent that an award under the LTIP is designated as a “performance award,” but is not
intended to qualify as performance-based compensation under Section 162(m), the performance
criteria can include the achievement of strategic objectives as determined by the Board.

Notwithstanding satisfaction of any completion of any performance criteria described above, to
the extent specified at the time of grant of an award, the number of shares of common stock, stock
options or other benefits granted, issued, retainable and/or vested under an award on account of
satisfaction of performance criteria may be reduced by the compensation committee on the basis of
such further considerations as the compensation committee in its sole discretion determines.

Transferability

Awards granted under the LTIP are not transferable except by will or the laws of descent and
distribution except that the compensation committee may consent to permit the transfer of a
non-qualified stock option. The LTIP specifically prohibits transfers by an individual for
consideration.

Administration

The compensation committee will administer the LTIP. The compensation committee will select
the Company employees and other participants who receive awards, determine the number of shares
covered thereby, and, subject to the terms and limitations expressly set forth in the LTIP,
establish the terms, conditions and other provisions of the grants. The compensation committee may
interpret the LTIP and establish, amend and rescind any rules relating to the LTIP. The
compensation committee may delegate to a committee of one or more directors or to Company officers
the ability to grant awards and take certain other actions with respect to participants who are not
executive officers.

Amendments

The Board of Directors may terminate or discontinue the LTIP at any time and may amend the
plan at any time, as permitted by applicable statutes. However, the Board may not revoke or alter,
in a manner unfavorable to the LTIP’s participants, the terms of any award under the LTIP then
outstanding. The Board of Directors is further restricted from amending the LTIP without
shareholder approval if the absence of such approval would cause the LTIP to fail to comply with
Rule 16b-3 under the Securities Exchange Act of 1934 or any other applicable law or regulation.

Adjustments

In the event of a stock dividend, recapitalization, stock split, combination of shares,
reorganization, or exchange of Company’s common stock, or any similar event affecting Company’s
common stock, the compensation committee shall adjust the number and kind of shares available for
grant under the LTIP, and subject to the various limitations set forth in the LTIP, the number and
kind of shares subject to outstanding awards under the LTIP, and the exercise or settlement price
of outstanding stock options and of other awards.

The impact of a merger or other reorganization of Company on awards granted under the LTIP
shall be specified in the agreement relating to the merger or reorganization, subject to the
limitations and restrictions set forth in the LTIP. Such agreement may provide for, among other
things, assumption of outstanding awards, accelerated vesting or accelerated expiration of
outstanding awards, or settlement of outstanding awards in cash.

2. Navidec, Inc. 2004 Stock Option Plan

        Subsequent to the Merger, the Company discontinued the Navidec 2004 Stock Option Plan
(the “Navidec Plan”) and no options were granted under the Navidec Plan subsequent to the Merger.

11

Schedule 2.12

Contracts

Platform Refurbishment

In July 2005 (amended in January 2006), the Company signed a service contract with Tecnomarine
S.A.C. of Peru for the refurbishment of the Corvina CX-11X platform. Total refurbishment costs are
expected to approximate $2.0 million.

Power Plant Engineering Services Agreement

In August 2005 (amended February 2006), the Company signed an Engineering Service Agreement with
BTEC Turbines LP (“BTEC”) for approximately $3.8 million, whereby BTEC will provide, design and
engineering services for the Company’s planned 180 megawatt power plant.

Drilling

In December 2005, the Company signed a drilling contract with Petrex S.A., a subsidiary of Saipem
SpA of Italy. Under the contract, Petrex S.A. will provide a platform rig capable of drilling to
16,000 feet and upgrade the rig to meet the Company’s specifications. The Company intends to
utilize the rig for the initial development of the Corvina gas field and may also utilize it for
the expected development of the Albacora oil field, and potential appraisal wells in the Piedra
Redonda gas field. The Company has agreed to pay a $5.5 million fee to mobilize and upgrade the
rig. In exchange, the Company will receive a competitive fixed day rate and exclusive rights to
use the rig, at its option, during the two-year period commencing with delivery of the rig.

Barge Purchase & Towing

In February 2006, the Company entered in to contracts with four vendors for the purchase of a
tender barge with a 200 ton crane and ancillary equipment, including a smaller 35 ton crane and
additional anchoring and winch systems, and towage of the barge from Seattle, Washington to Peru.
Such barge and related equipment will be utilized in the Company’s drilling operations. The total
cost, including towage, is approximately $6.5 million.

12

Schedule 2.13

Environmental Matters

None.

13

Schedule 2.15

Employees

None.

14

Schedule 2.16

Title to Properties

Encumbrances

None.

15

Schedule 2.17

Related Party Transactions

None.

16

Schedule 2.20

No Anti-Dilution Rights

None.

17

Schedule 5.6

Form of Opinion of Counsel

See attached.

18

FORM OF LEGAL OPINION

[ADAMS AND REESE LETTERHEAD]

June 30, 2006

To the Investors

Listed on Schedule A hereto:

Ladies and Gentlemen:

This opinion is furnished to you pursuant to the Stock Purchase Agreement by and among the
purchasers signatory thereto (the “Investors”) and BPZ Energy, Inc., a Colorado corporation (the
“Company”), dated as of June xx, 2006, (the “Agreement”), which provides for the issuance and sale
by the Company of Common Stock on the Closing Date. All terms used herein have the meanings
defined for them in the Agreement unless otherwise defined herein.

We have acted as counsel for the Company in connection with the offering of Common Stock to
the persons named on Schedule A hereto (the “Investors”).

As counsel, we have made such legal and factual examinations and inquiries as we have deemed
advisable or necessary for the purpose of rendering this opinion. We have examined and are
familiar with the following:

	 	1.	 	The Agreement executed by each Investor;

	 	2.	 	The Purchaser Suitability Questionnaire executed by each Investor;

	 	3.	 	A copy, certified by the Secretary of the Company, of resolutions
adopted by the Board of Directors of the Company on June 15, 2006, authorizing the
execution and delivery of the Agreement;

	 	4.	 	A Certificate of the Secretary of the State of Colorado dated June 20,
2006 as to the legal existence and good standing of the Company in Colorado;

	 	5.	 	A certificate of the President and Secretary of the Company confirming
certain factual matters for purposes of the opinions expressed below; and

	 	6.	 	Such other documents and instruments as we have considered necessary
for the purposes of the opinions hereinafter set forth.

In our examination of the foregoing, we have assumed the authenticity of all documents
submitted to us as original documents, the conformity to the originals of all documents submitted
to us as copies, the genuineness of signatures, and the legal capacity of all signatories. We have
also relied upon a certificate or certificates of an official, officer, or authorized
representative of the particular governmental authority, corporation, company, firm or other person
or entity concerned with respect to the factual determinations underlying the legal conclusions set
forth herein. We have not attempted to verify independently such representations and statements. We
have also assumed, without independent verification, the accuracy of the representations made by
the Investors in the Agreement.

We have not made any investigation of the laws of any jurisdiction other than the State of
Texas, the federal securities laws of the United States, the Colorado Business Corporation Act
statute (the “Colorado Act”), and we are opining herein solely with respect to the laws of the
State of Texas, and the federal securities laws of the United States.

The opinions hereinafter expressed are qualified to the extent that the validity or
enforceability of any of the agreements, documents or obligations referred to herein may be subject
to or affected by (i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other laws relating to or affecting the rights of creditors generally, (ii) statutory
or decisional law concerning recourse by creditors to security in the absence of notice and hearing
and (iii) duties and standards imposed on creditors and parties to contracts, including, without
limitation, requirements of good faith, reasonableness and fair dealing. Furthermore, we express no
opinion as to the availability of any equitable or specific remedy upon any breach of such
documents or any of the agreements, documents or obligations referred to therein, inasmuch as the
availability of such remedies may be subject to the discretion of a court, nor do we express any
opinion herein as to the enforceability of any of the indemnification or contribution provisions
included in any of the agreements, documents or obligations referred to herein.

We have assumed that each Investor has full power and authority to execute and deliver the
Agreement between such Investor and the Company and that such Agreement has been fully executed and
delivered by such Investor and is enforceable against such Investor in accordance with its terms.

For purposes of our opinions set forth in paragraphs 1 through 3 below as to the legal
existence and good standing of the Company in the State of Colorado, we have relied solely on the
certificates described in paragraphs 4 and 5 above, respectively, and such opinions are,
accordingly, rendered as of the respective dates of such certificates, with telephonic confirmation
of the continuing accuracy of the certificates as of the Closing Date.

Our opinions in paragraphs 5 and 7 below are limited in that we express no opinion with
respect to any federal or state securities antifraud laws or fraudulent transfer laws.

Any reference to “our knowledge”, “knowledge”, “to our attention” or any variation of any of
the foregoing shall mean the conscious awareness of the attorneys in this firm, who have rendered
substantive attention to this transaction, of the existence or absence of any facts which would
contradict our opinions set forth below. We have not undertaken any independent investigation to
determine the existence or absence of such facts, and no inference as to our knowledge of the
existence or absence of such facts should be drawn from the fact of our representation of the
Company.

Based upon the foregoing, we are of the opinion that:

1. The Company is a corporation duly organized, validly existing and in good standing under
the laws of the State of Colorado.

2. The Company has all requisite corporate power and authority to own, lease and use its
properties and conduct the business in which it is engaged as described in the Company’s SEC
filings.

3. The Company has all requisite corporate power and authority to execute and deliver the
Agreement, and to issue the Common Stock in accordance with and upon the terms and conditions set
forth in the Agreement and to otherwise perform its obligations under the Agreement.

4. The Agreements have been duly authorized, executed and delivered by the Company.

5. Based in part on, and assuming the accuracy of, the representations and warranties made by
the Company and the Investors in the Agreements, the offer and sale to the Investors of Common
Stock in the Company was made pursuant to an exemption from the registration requirements of the
Securities Act of 1933, as amended.

6. The Common Stock being delivered to the Investors pursuant to the Agreements have been duly
and validly authorized and, when issued, delivered and paid for as contemplated in the Agreements
will be duly and validly issued, fully paid and non-assessable.

7. The execution, delivery and performance of the Agreements by the Company and the
consummation by the Company of the transactions contemplated thereby, including, without
limitation, the issuance of the Common Shares, does not and will not (i) result in a violation of
the Company’s Certificate of Incorporation or By-Laws; (ii) conflict with, or constitute a material
default (or an event that with notice or lapse of time or both would become a default) under,
require a consent under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement to which the Company is a party that is filed as an exhibit
to the Company’s most recent filing on Form 10-K; or (iii) result in a violation of any federal or
state law, rule or regulation or any rule or regulation of the Trading Market applicable to the
Company or by which any property or asset of the Company is bound or affected, except for such
violations as would not, individually or in the aggregate, have a material economic effect on the
Company.

This opinion is based upon currently existing statutes, rules, regulations and judicial
decisions, and we disclaim any obligation to advise you of any change in any of these sources of
law or subsequent legal or factual developments which might affect any matters or opinions set
forth herein.

Please note that we are opining only as to the matters expressly set forth herein, and no
opinion should be inferred as to any other matters. This opinion is solely for your benefit in
connection with transactions described above and may not be quoted or relied upon by any person or
entity or used for any other purpose, without our prior written consent. This letter speaks only
as of the date hereof and we have no responsibilities to update or supplement it after such date.

Very truly yours,

Adams and Reese llp

19

SCHEDULE A

INVESTORS OF BPZ ENERGY, INC.

June 30, 2006

Investor Shares

20

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00106-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00106-of-00352.parquet"}]]