-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NVrTtTNrkOPW3Mb9Omw1EnUrQw123MP44Tb0c7tkHytmFBpjxFVUVkoRdvuYfMgf 1/3Ft5Jv6B7UyNOZxlb2Ow== 0000902664-08-002686.txt : 20080821 0000902664-08-002686.hdr.sgml : 20080821 20080821172325 ACCESSION NUMBER: 0000902664-08-002686 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20080821 DATE AS OF CHANGE: 20080821 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PNG VENTURES INC CENTRAL INDEX KEY: 0001016900 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 880350286 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-84091 FILM NUMBER: 081032865 BUSINESS ADDRESS: STREET 1: 2038 CORTE DEL NOGAL STREET 2: SUITE 110 CITY: CARLSBAD STATE: CA ZIP: 92011 BUSINESS PHONE: (760) 230-2300 MAIL ADDRESS: STREET 1: 2038 CORTE DEL NOGAL STREET 2: SUITE 110 CITY: CARLSBAD STATE: CA ZIP: 92011 FORMER COMPANY: FORMER CONFORMED NAME: PAPER COMPUTER CORP DATE OF NAME CHANGE: 20000509 FORMER COMPANY: FORMER CONFORMED NAME: PNG VENTURES INC/CA DATE OF NAME CHANGE: 20000229 FORMER COMPANY: FORMER CONFORMED NAME: TELECOMMUNICATIONS TECHNOLOGIES LTD DATE OF NAME CHANGE: 20000229 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SANDELL ASSET MANAGEMENT CORP CENTRAL INDEX KEY: 0001140474 IRS NUMBER: 000000000 STATE OF INCORPORATION: E9 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 40 WEST 57TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2126035700 MAIL ADDRESS: STREET 1: 40 WEST 57TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 SC 13D/A 1 p08-1310sc13da.txt PNG VENTURES, INC.
----------------------------------- OMB APPROVAL ----------------------------------- UNITED STATES OMB Number: 3235-0145 SECURITIES AND EXCHANGE COMMISSION ----------------------------------- Washington, D.C. 20549 Expires: February 29, 2009 ----------------------------------- Estimated average burden hours per response. . . . . . . 14.5 -----------------------------------
------------- SCHEDULE 13D/A (Rule 13d-102) (Amendment No. 2) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) Under the Securities Exchange Act of 1934 PNG Ventures, Inc. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock - -------------------------------------------------------------------------------- (Title of Class of Securities) 69350G303 - -------------------------------------------------------------------------------- (CUSIP Number) Sandell Asset Management Corp. 40 West 57th Street 26th Floor New York, NY 10019 Attention: Richard Gashler, General Counsel 212-603-5700 With a Copy to: Eleazer Klein, Esq. Schulte Roth & Zabel LLP 919 Third Avenue New York, NY 10019 212-756-2000 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) August 19, 2008 ------------------ (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. - -------------------- * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). (Continued on following pages) (Page 1 of 10 Pages) - ---------------------------- ---------------------------- CUSIP No. 69350G303 SCHEDULE 13D Page 2 of 10 Pages - ---------------------------- ---------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Castlerigg PNG Investments LLC - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_| (b) |X| - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------------- ----------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED 7,000,000 shares of Common Stock pursuant to irrevocable proxy of Earth Biofuels, Inc. (includes the 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc.) (See Item 4 below) $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) WITH 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc. (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) - ------------- ----------- ----------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 7,000,000 shares of Common Stock pursuant to irrevocable proxy of Earth Biofuels, Inc. (includes the 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc.) (See Item 4 below) $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) - ------------- ----------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 70.54% (See Item 4 below) - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON OO - ------------- ----------------------------------------------------------------- - ---------------------------- ---------------------------- CUSIP No. 69350G303 SCHEDULE 13D Page 3 of 10 Pages - ---------------------------- ---------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Castlerigg Master Investments Ltd. - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_| (b) |X| - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS WC - ------------- ----------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION British Virgin Islands - ------------- ----------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED 7,000,000 shares of Common Stock pursuant to irrevocable proxy of Earth Biofuels, Inc. (includes the 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc.) (See Item 4 below) $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) WITH 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc. (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) - ------------- ----------- ----------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 7,000,000 shares of Common Stock pursuant to irrevocable proxy of Earth Biofuels, Inc. (includes the 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc.) (See Item 4 below) $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) - ------------- ----------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 70.54% (See Item 4 below) - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON OO - ------------- ----------------------------------------------------------------- - ---------------------------- ---------------------------- CUSIP No. 69350G303 SCHEDULE 13D Page 4 of 10 Pages - ---------------------------- ---------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Sandell Asset Management Corp. - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_| (b) |X| - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Cayman Islands - ------------- ----------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED 7,000,000 shares of Common Stock pursuant to irrevocable proxy of Earth Biofuels, Inc. (includes the 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc.) (See Item 4 below) $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) WITH 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc. (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) - ------------- ----------- ----------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 7,000,000 shares of Common Stock pursuant to irrevocable proxy of Earth Biofuels, Inc. (includes the 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc.) (See Item 4 below) $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) - ------------- ----------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 70.54% (See Item 4 below) - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON CO - ------------- ----------------------------------------------------------------- - ---------------------------- ---------------------------- CUSIP No. 69350G303 SCHEDULE 13D Page 5 of 10 Pages - ---------------------------- ---------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Castlerigg International Limited - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_| (b) |X| - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION British Virgin Islands - ------------- ----------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED 7,000,000 shares of Common Stock pursuant to irrevocable proxy of Earth Biofuels, Inc. (includes the 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc.) (See Item 4 below) $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) WITH 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc. (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) - ------------- ----------- ----------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 7,000,000 shares of Common Stock pursuant to irrevocable proxy of Earth Biofuels, Inc. (includes the 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc.) (See Item 4 below) $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) - ------------- ----------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 70.54% (See Item 4 below) - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON OO - ------------- ----------------------------------------------------------------- - ---------------------------- ---------------------------- CUSIP No. 69350G303 SCHEDULE 13D Page 6 of 10 Pages - ---------------------------- ---------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Castlerigg International Holdings Limited - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_| (b) |X| - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION British Virgin Islands - ------------- ----------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED 7,000,000 shares of Common Stock pursuant to irrevocable proxy of Earth Biofuels, Inc. (includes the 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc.) (See Item 4 below) $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) WITH 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc. (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) - ------------- ----------- ----------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 7,000,000 shares of Common Stock pursuant to irrevocable proxy of Earth Biofuels, Inc. (includes the 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc.) (See Item 4 below) $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) - ------------- ----------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 70.54% (See Item 4 below) - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON OO - ------------- ----------------------------------------------------------------- - ---------------------------- ---------------------------- CUSIP No. 69350G303 SCHEDULE 13D Page 7 of 10 Pages - ---------------------------- ---------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Thomas E. Sandell - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_| (b) |X| - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Sweden - ------------- ----------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED 7,000,000 shares of Common Stock pursuant to irrevocable proxy of Earth Biofuels, Inc. (includes the 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc.) (See Item 4 below) $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) WITH 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc. (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) - ------------- ----------- ----------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 7,000,000 shares of Common Stock pursuant to irrevocable proxy of Earth Biofuels, Inc. (includes the 5,800,000 shares of Common Stock issuable upon either the exchange of the Amended and Restated Senior Secured Convertible Exchangeable Note or Series B Senior Secured Convertible Exchangeable Note of Earth Biofuels, Inc.) (See Item 4 below) $55,928.57 principal amount of a 12% Convertible Promissory Note of Issuer convertible into 621,429 shares of Common Stock (See Item 4 below) $3,188,235 principal amount of 15% Subordinated Convertible Promissory Notes of Issuer convertible into 318,824 shares of Common Stock (See Item 4 below) Warrants exercisable into 797,059 shares of Common Stock (See Item 4 below) - ------------- ----------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 70.54% (See Item 4 below) - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IN - ------------- ----------------------------------------------------------------- - ---------------------------- ---------------------------- CUSIP No. 69350G303 SCHEDULE 13D Page 8 of 10 Pages - ---------------------------- ---------------------------- Pursuant to Rule 13d-2 promulgated under the Act, this Schedule 13D/A (the "Amendment No. 1") amends the Schedule 13D filed on July 10, 2008 [File Number 005-84091] (the "Original Schedule 13D"), as amended by the Schedule 13D filed on August 8, 2008 (the Original Schedule 13D as amended, the "Amended Schedule 13D"). This Amendment No. 2 is being filed by Castlerigg PNG Investments LLC, a Delaware limited liability company ("Castlerigg LLC"); Castlerigg Master Investments Ltd., a British Virgin Islands company ("Castlerigg Master Investments"); Sandell Asset Management Corp., a Cayman Islands exempted company ("SAMC"); Castlerigg International Limited, a British Virgin Islands company ("Castlerigg International"); Castlerigg International Holdings Limited, a British Virgin Islands company ("Castlerigg Holdings"); and Thomas E. Sandell ("Sandell"). Castlerigg LLC, Castlerigg Master Investments, SAMC, Castlerigg International, Castlerigg Holdings, and Sandell are collectively referred to herein as the "Reporting Persons". The filing of this statement on Schedule 13D/A and any future amendments hereto, and the inclusion of information herein and therein, shall not be construed as an admission that any of the Reporting Persons, for the purpose of Section 13(d) of the Act or otherwise, is the beneficial owner of any shares of Common Stock. The Reporting Persons are making this single, joint filing because they may be deemed to constitute a "group" within the meaning of Section 13(d)(3) of the Act. The agreement among the Reporting Entities to file jointly (the "Joint Filing Agreement") was filed as Appendix II to the Original Schedule 13D. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION Item 3 of the Amended Schedule 13D is being amended by adding the following: Funds for the purchase of the Bridge Subordinated Note (as defined below) and the Bridge Warrant (as defined below) were derived from general working capital and margin account borrowings made in the ordinary course of business. ITEM 4. PURPOSE OF TRANSACTION Item 4 of the Amended Schedule 13D is being amended by adding the following: The Reporting Persons acquired the Bridge Subordinated Note and the Bridge Warrant for investment purposes in the ordinary course of business because the Reporting Persons believed they represented an attractive investment opportunity. The beneficial ownership of the Reporting Persons is subject to the Bridge Blocker (as defined in Item 5 below) and the Reporting Persons have elected to file this Schedule 13D/A at this time because of the matters set forth in this Item 4. On August 19, 2008, the Issuer and Castlerigg LLC entered into a Securities Purchase Agreement (the "Bridge Securities Purchase Agreement"), pursuant to which the Issuer sold, and Castlerigg LLC purchased, a 15% Subordinated Convertible Promissory Note in the principal amount of $3,188,235 (the "Bridge Note"), initially convertible into 318,824 shares of Common Stock, and a Warrant to Purchase Common Stock initially exercisable into 797,059 shares of Common Stock (the "Bridge Warrant"). Concurrently with the closing of the transactions contemplated by the Bridge Securities Purchase Agreement, on August 19, 2008, Castlerigg LLC, the Issuer and Fourth Third LLC, agent for the lenders (the "Senior Agent") pursuant to that certain Amended and Restated Credit Agreement, dated as of June 26, 2008 (the "Senior Credit Agreement"), by and between the Issuer, the Senior Agent and the other lenders party thereto (such lenders, the "Senior Lenders"), entered into a Subordination and Intercreditor Agreement (the "Subordination Agreement"), in which Castlerigg LLC - ---------------------------- ---------------------------- CUSIP No. 69350G303 SCHEDULE 13D Page 9 of 10 Pages - ---------------------------- ---------------------------- agreed to subordinate certain of its rights under the Bridge Notes to the rights of the Senior Lenders holding loans under the Senior Credit Agreement. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER Item 5 of the Amended Schedule 13D is being amended by adding the following: Neither the Bridge Warrant nor the Bridge Note may be exercised or converted if, after such exercise or conversion, the Reporting Persons would beneficially own, as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, including, without limitation, any beneficial ownership determinations based on any Reporting Persons being deemed part of a group for purposes of Section 13(d), more than 9.99% of the number of shares of Common Stock then issued and outstanding, unless the Reporting Persons elect to increase or decrease their ownership limit (with any increase only being effective on 61 days prior written notice to the Issuer) to a different percentage (all of the foregoing, the "Bridge Blocker"). PURSUANT TO THE BRIDGE BLOCKER, AS OF THE DATE OF THIS FILING, NEITHER THE BRIDGE WARRANT NOR THE BRIDGE NOTE MAY BE EXERCISED OR CONVERTED. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER Item 6 of the Amended Schedule 13D is being amended by adding the following: As described in Item 4 above, on August 19, 2008, the Issuer and Castlerigg LLC entered into the Bridge Securities Purchase Agreement (a copy of which is attached hereto as Exhibit 11) and was issued the Bridge Note (a copy of which is attached hereto as Exhibit 12) and the Bridge Warrant (a copy of which is attached hereto as Exhibit 13). Also as described in Item 4 above, on August 19, 2008, the Issuer, the Senior Agent and Castlerigg LLC entered into the Subordination Agreement (a copy of which is attached hereto as Exhibit 14). ITEM 7. MATERIAL TO BE FILED AS EXHIBITS Item 7 of the Amended Schedule 13D is being amended by adding the following: 11. Securities Purchase Agreement, dated as of August 19, 2008, by and between the Issuer and Castlerigg LLC. 12. 15% Subordinated Convertible Promissory Note, dated August 19, 2008, issued by the Issuer in favor of Castlerigg LLC, in the principal amount of $3,188,235. 13. Warrant to Purchase Common Stock, dated August 19, 2008, issued by the Issuer in favor of Castlerigg LLC, initially exercisable into 797,059 shares of Common Stock. 14. Subordination and Intercreditor Agreement, dated as of August 19, 2008, by and between the Issuer, the Senior Agent and Castlerigg LLC. [The remainder of this page is intentionally left blank] - ---------------------------- ---------------------------- CUSIP No. 69350G303 SCHEDULE 13D Page 10 of 10 Pages - ---------------------------- ---------------------------- Signature After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: August 19, 2008 CASTLERIGG PNG INVESTMENTS LLC By: Castlerigg Master Investments Ltd., its managing member and sole member By: Sandell Asset Management Corp., its Investment Manager By: /s/ Richard A. Gashler ---------------------- Richard A. Gashler, Authorized Person CASTLERIGG MASTER INVESTMENTS LTD. By: Sandell Asset Management Corp., its Investment Manager By: /s/ Richard A. Gashler ---------------------- Richard A. Gashler, Authorized Person SANDELL ASSET MANAGEMENT CORP. By: Sandell Asset Management Corp., its Investment Manager By: /s/ Richard A. Gashler ---------------------- Richard A. Gashler, Authorized Person CASTLERIGG INTERNATIONAL LIMITED By: Sandell Asset Management Corp., its Investment Manager By: /s/ Richard A. Gashler ---------------------- Richard A. Gashler, Authorized Person CASTLERIGG INTERNATIONAL HOLDINGS LIMITED By: Sandell Asset Management Corp., its Investment Manager By: /s/ Richard A. Gashler ---------------------- Richard A. Gashler, Authorized Person THOMAS E. SANDELL By: /s/ Richard A. Gashler ---------------------- Richard A. Gashler, Authorized Person EX-99 2 p08-1310exh99_1.txt EXHIBIT 99.1 FINAL EXECUTION SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of August 19, 2008, by and among PNG Ventures, Inc., a Nevada corporation, with headquarters located at 3001 Knox Street, suite 403, Dallas, Texas 75205 (the "COMPANY"), and the investors listed on the Schedule of Buyers attached hereto (individually, a "BUYER" and collectively, the "BUYERS"). WHEREAS: A. The Company and each Buyer is executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT"), and Regulation D ("REGULATION D") promulgated by the United States Securities and Exchange Commission (the "SEC") under the 1933 Act. B. The Company has authorized a new series of convertible notes of the Company (the "NOTES"), which Notes shall be convertible into shares (as converted, collectively, the "CONVERSION SHARES") of the Company's common stock, $0.001 par value per share (the "COMMON STOCK"), in accordance with the terms of the Notes. C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, (i) that aggregate principal amount of Notes, in substantially the form attached hereto as EXHIBIT A, set forth opposite such Buyer's name in column (3) on the Schedule of Buyers (which aggregate amount for all Buyers shall be $3,188,235) and (ii) warrants, in substantially the form attached hereto as EXHIBIT B (the "WARRANTS"), to acquire that number of shares (as exercised, collectively, the "WARRANT SHARES") of Common Stock set forth opposite such Buyer's name in column (4) on the Schedule of Buyers. D. The Notes, the Conversion Shares, the Warrants and the Warrant Shares, are collectively are referred to herein as the "SECURITIES." NOW, THEREFORE, the Company and each Buyer hereby agree as follows: 1. PURCHASE AND SALE OF NOTES AND WARRANTS. (a) AMOUNT. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and each Buyer severally, but not jointly, agrees to purchase from the Company on the Closing Date (as defined below), a principal amount of Notes as is set forth opposite such Buyer's name in column (3) on the Schedule of Buyers, along with Warrants to acquire that number of Warrant Shares as is set forth opposite such Buyer's name in column (4) on the Schedule of Buyers. (b) CLOSING. The closing (the "CLOSING") of the purchase of the Notes and the Warrants by the Buyers shall occur at the offices of Fox Rothschild LLP, 100 Park Avenue, Suite 1500, New York, NY 10017. The date and time of the Closing (the "CLOSING DATE") shall be 10:00 a.m., New York City Time, on the date hereof, subject to notification of satisfaction (or waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and each Buyer). (c) PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") of the Notes and related Warrants to be purchased by each Buyer at the Closing shall be equal to $1.00 for each $1.00 of principal amount of Notes being purchased by such Buyer at the Closing. The Buyers and the Company agree that the Notes and the Warrants constitute an "investment unit" for purposes of Section 1273(c)(2) of the Internal Revenue Code of 1986, as amended (the "CODE"). The Buyers and the Company mutually agree that the allocation of the issue price of such investment unit between the Notes and the Warrants in accordance with Section 1273(c)(2) of the Code and Treasury Regulation Section 1.1273-2(h) shall be an aggregate amount of $197,389 allocated to the Warrants, and the balance of the Purchase Price allocated to the Notes, and neither the Buyers nor the Company shall take any position inconsistent with such allocation in any tax return or in any judicial or administrative proceeding in respect of taxes. (d) FORM OF PAYMENT. On the Closing Date, (i) each Buyer shall, subject to the provisions set forth below in this Section 1(d), pay its aggregate Purchase Price to the Company for the Notes and the Warrants to be issued and sold to such Buyer at the Closing, by wire transfer of immediately available funds in accordance with the Company's written wire instructions, and (ii) the Company shall deliver to each Buyer the Notes (in the denominations as such Buyer shall have requested prior to the Closing) which such Buyer is then purchasing along with the Warrants (in the denominations as such Buyer shall have requested prior to the Closing) such Buyer is purchasing, duly executed on behalf of the Company and registered in the name of such Buyer or its designee. The Company agrees that, at the Closing, the Buyer(s) shall, as a dollar-for-dollar credit towards the Purchase Price: (x) withhold and reserve the sum of $478,235.25 to be applied as Prepaid Interest under the Notes; (y) withhold the further sum of $180,000 reflecting the application and receipt of a prior interim advance made by the Buyer to the Company on August 15, 2008; and (z) fund a reserve account in the sum of $1,000,000 with Fourth Third, LLC for the benefit of the Company (the "RESERVE AMOUNT") to be applied against regularly scheduled interest payments as they become due and payable under the Company's outstanding Amended and Restated Credit Agreement with Fourth Third, LLC. as in effect as of the Closing Date (the "FOURTH THIRD CREDIT AGREEMENT"). 2. BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer represents and warrants with respect to only itself that: (a) ORGANIZATION; AUTHORITY. Such Buyer is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Buyer of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of such Buyer. Each Transaction Document to which it is a party has been duly executed by such Buyer, and when delivered by such Buyer in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Buyer, enforceable against it in accordance with its terms, except: (i) -2- as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. (b) NO PUBLIC SALE OR DISTRIBUTION. Such Buyer is (i) acquiring the Notes and the Warrants, (ii) upon conversion of the Notes will acquire the Conversion Shares, and (iii) upon exercise of the Warrants will acquire the Warrant Shares, in each case, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof in a manner that would violate the 1933 Act, except pursuant to sales registered or exempted under the 1933 Act; PROVIDED, HOWEVER, that by making the representations herein, such Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. Such Buyer is acquiring the Securities hereunder in the ordinary course of its business. Such Buyer does not presently have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities. (c) INVESTOR STATUS. Such Buyer is an "accredited investor" as that term is defined in Rule 501(a) of Regulation D. (d) GENERAL SOLICITATION. Such Buyer is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. (e) RELIANCE ON EXEMPTIONS. Such Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire the Securities. (f) INFORMATION. Such Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Buyer. Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer's right to rely on the Company's representations and warranties contained herein. Such Buyer understands that its investment in the Securities involves a high degree of risk and illiquidity. Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. Buyer acknowledges the risks of illiquidity and longer holding period under Rule 144 (as hereinafter defined), as a result of the Company recently having been a shell company (as such term is defined under Rule 405 under the 1933 Act), including, without limitations, risks related to illiquidity in the event that the -3- Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c) under the 1933 Act. (g) NO GOVERNMENTAL REVIEW. Such Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. (h) TRANSFER OR RESALE. Such Buyer understands that except as provided for in Section 4(q), the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or, in each case, a successor rule thereto)(collectively, "RULE 144"); or some other applicable exemption from registration under the 1933 Act or the rules and regulations of the SEC thereunder, PROVIDED, HOWEVER, that the Securities may be pledged in connection with a bona fide margin account or other loan or financing arrangement secured by the Securities and such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document (as defined in Section 3(b)), including, without limitation, this Section 2(h). (i) LEGENDS. Such Buyer understands that the certificates or other instruments representing the Notes and the Warrants and, until such time as the Conversion Shares and the Warrant Shares have been registered under the 1933 Act, as contemplated by Section 4(q) hereof, the stock certificates representing the Conversion Shares and the Warrant Shares, shall bear any legend as required by the "blue sky" laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates): NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE][EXERCISABLE] HAVE BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND APPLICABLE STATE SECURITIES -4- LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OR OTHER AVAILABLE EXEMPTION UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities upon which it is stamped, if (i) such Securities are registered under the 1933 Act, (ii) in connection with a sale, assignment or other transfer, such holder provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that such sale, assignment or transfer of the Securities may be made without registration under the applicable requirements of the 1933 Act, or (iii) such Securities are sold, assigned or transferred pursuant to Rule 144, or such holder provides the Company with reasonable assurance that the Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A. (j) VALIDITY; ENFORCEMENT. This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and shall constitute the legal, valid and binding obligations of such Buyer enforceable against such Buyer in accordance with its terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. (k) NO CONFLICTS. The execution, delivery and performance by such Buyer of this Agreement and the consummation by such Buyer of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of such Buyer or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Buyer to perform its obligations hereunder. (l) RESIDENCY. Such Buyer is a resident of that jurisdiction specified below its address on the Schedule of Buyers. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As an inducement to the Buyers to enter into this Agreement and to consummate the transactions contemplated hereby, the Company represents and warrants to each of the Buyers that each and all of the following representations and warranties (as modified by the disclosure schedules delivered to the Buyers contemporaneously with the execution and delivery of this Agreement (the "SCHEDULES")) are true and correct as of the date of this Agreement. The -5- Schedules shall be arranged by the Company in paragraphs corresponding to the sections and subsections contained in this Article 3. (a) ORGANIZATION AND QUALIFICATION. The Company and its "SUBSIDIARIES" (which for purposes of this Agreement means any entity in which the Company, directly or indirectly, owns capital stock or holds an equity or similar interest) are entities duly organized and validly existing in good standing under the laws of the jurisdiction in which they are formed, and have the requisite power and authorization to own their properties and to carry on their business as now being conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse effect on the business, properties, assets, operations, results of operations, condition (financial or otherwise) or prospects of the Company and its Subsidiaries, taken as whole, or on the transactions contemplated hereby and the other Transaction Documents, or by the agreements and instruments to be entered into in connection herewith or therewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents. The Company has no Subsidiaries, except as set forth on SCHEDULE 3(a). (b) AUTHORIZATION; ENFORCEMENT; VALIDITY. The Company has the requisite power and authority to enter into and perform its obligations under this Agreement, the Notes, the Warrants, and the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement (collectively, the "TRANSACTION DOCUMENTS") and to issue the Securities in accordance with the terms hereof and thereof. The execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Notes, the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion of the Notes, the issuance of the Warrants and the reservation for issuance and issuance of the Warrant Shares issuable upon exercise of the Warrants, have been duly authorized by the Company's Board of Directors and (other than the filing with the SEC of a Form D and one or more Registration Statements in accordance with the requirements of the registration rights provisions in this Agreement and other than filings with "Blue Sky" authorities as required therein) no further filing, consent, or authorization is required by the Company, its Board of Directors or its stockholders. This Agreement and the other Transaction Documents of even date herewith have been duly executed and delivered by the Company, and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. (c) ISSUANCE OF SECURITIES. The issuance of the Notes and the Warrants are duly authorized and are free from all taxes, liens and charges with respect to the issue thereof. As of the Closing, a number of shares of Common Stock shall have been duly authorized and reserved for issuance which equals at least 130% of the sum of the maximum number of shares of -6- Common Stock issuable (A) upon conversion of the Notes (assuming for purposes hereof, that the Notes are convertible at the Conversion Price and without taking into account any limitations on the conversion of the Notes set forth in the Notes) and (B) upon exercise of the Warrants (without taking into account any limitations on the exercise of the Warrants set forth in the Warrants). Upon conversion in accordance with the Notes or exercise in accordance with the Warrants, as the case may be, the Conversion Shares and the Warrant Shares, respectively, will be validly issued, fully paid and nonassessable and free from all preemptive or similar rights, taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. The offer and issuance by the Company of the Securities is exempt from registration under the 1933 Act. (d) NO CONFLICTS. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Notes, the Warrants, and the reservation for issuance of the Conversion Shares and the Warrant Shares) will not (i) result in a violation of the Articles of Incorporation or Bylaws (each as defined in Section 3(r)) of the Company or any of its Subsidiaries or the terms of any capital stock of the Company or any of its Subsidiaries; (ii) other than as set forth on SCHEDULE 3(d), conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party; or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and the rules and regulations of the principal market, exchange or quotation system (including the OTC Bulletin Board and the Pink sheets) upon which the shares of the Company trade (the "PRINCIPAL MARKET") applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. (e) CONSENTS. Other than as set forth on SCHEDULE 3(e), the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents, in each case in accordance with the terms hereof or thereof (other than (x) the filing with the SEC of a Form D or one or more Registration Statements in accordance with the registration provisions of this Agreement and (y) filings with "Blue Sky" authorities as required thereby. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the Closing Date, and the Company and its Subsidiaries are unaware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings pursuant to the preceding sentence. The Company is not in violation of the listing requirements of the Principal Market and has no knowledge of any facts which would reasonably lead to delisting or suspension of the Common Stock in the foreseeable future. The Company is not in violation of the listing requirements of the Principal Market and has no knowledge of any facts which would reasonably lead to delisting or suspension of the Common Stock in the foreseeable future. -7- (f) ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF SECURITIES. The Company acknowledges and agrees that each Buyer or any Person acting as an affiliate of such Buyer, is acting solely in the capacity of an arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer is: (i) an officer or director of the Company, (ii) acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further represents to each Buyer that the Company's decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives. (g) NO GENERAL SOLICITATION; PLACEMENT AGENT'S FEES. Neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities. The Company shall be responsible for the payment of any placement agent's fees, financial advisory fees, or brokers' commissions (other than for persons engaged by any Buyer or its investment advisor) relating to or arising out of the transactions contemplated hereby. The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, attorneys' fees and out-of-pocket expenses) arising in connection with any such claim. The Company has not engaged the services of a placement agent or other financial advisor in connection with the sale of the Securities. (h) NO INTEGRATED OFFERING. Assuming the accuracy of the Buyer's representations and warranties set forth in Article 2, neither the Company, its Subsidiaries, any of their affiliates or any Person acting on their behalf, has directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of: (i) the 1933 Act which would require the registration of any such securities under the 1933 Act; or (ii) any applicable shareholder approval provision of any Eligible Market on which any of the securities of the Company are listed. (i) DILUTIVE EFFECT. The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Notes, and the number of Warrant Shares issuable upon exercise of the Warrants, will increase in certain circumstances. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Notes in accordance with this Agreement and the Notes and its obligation to issue the Warrant Shares upon exercise of the Warrants in accordance with this Agreement and the Warrants is, in each case, absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. (j) APPLICATION OF TAKEOVER PROTECTIONS; RIGHTS AGREEMENT. The Company and its board of directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Articles of Incorporation of the Company or the laws of the jurisdiction of its formation which is or could become applicable to any Buyer as a result of the transactions contemplated by this Agreement, including, without limitation, the Company's issuance of the Securities and any Buyer's ownership of the Securities. -8- The Company has not adopted a stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company. (k) SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed in SCHEDULE 3(k), during the two (2) years prior to the date hereof, the Company (which, for the avoidance of doubt, includes only PNG Ventures, Inc., a Nevada corporation, and not any Subsidiary of the Company) has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC DOCUMENTS"). The Company has delivered to the Buyers or their respective representatives, true, correct and complete copies of the SEC Documents not available on the EDGAR system. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, other than as may have been subsequently restated or amended in an amended or subsequent report. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to each of the Buyers which is not included in the SEC Documents, including, without limitation, information referred to in Section 2(f) of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. (l) ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE 3(l), since June 30, 2008 (the "Schedule 3(l) Date"), there has been no material adverse change and no material adverse development in the business, assets, properties, operations, condition (financial or otherwise), results of operations or prospects of the Company or its Subsidiaries. Except as disclosed in SCHEDULE 3(l), since the Schedule 3(l) Date, the Company has not (i) declared or paid any dividends, (ii) sold any assets outside of its ordinary course of business, or (iii) had capital expenditures, individually or in the aggregate, in excess of $100,000. The Company has not taken any steps to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. The Company is not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing, will not be "Insolvent" (as defined below). For purposes of this -9- Section 3(l), "INSOLVENT" means (i) the present fair saleable value of the Company's assets is less than the amount required to pay the Company's total Indebtedness (as defined in Section 3(s)), (ii) the Company is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, (iii) the Company intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature or (iv) the Company has unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted. (m) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. Except as set forth on SCHEDULE 3(m), since the Schedule 3(l) Date, no event, liability, development or circumstance has occurred or exists, or is contemplated to occur with respect to the Company, that has caused or could cause a Material Adverse Effect. (n) CONDUCT OF BUSINESS; REGULATORY PERMITS. Neither the Company nor its Subsidiaries is in violation of any term of or in default under any certificate of designations of any outstanding series of preferred stock of the Company, its Articles of Incorporation or Bylaws or their organizational charter or certificate of incorporation or bylaws, respectively. Other than as set forth on SCHEDULE 3(n), neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company or its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing, except for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect. Except as set forth on SCHEDULE 3(n), the Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. (o) FOREIGN CORRUPT PRACTICES. Neither the Company nor any of its Subsidiaries nor any director, officer, agent, employee or other Person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. (p) SARBANES-OXLEY ACT. The Company is in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of the date hereof. (q) TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE 3(q), none of the officers, directors or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for ordinary course services as employees, -10- officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any such officer, director, or employee has a substantial interest or is an officer, director, trustee or partner. (r) EQUITY CAPITALIZATION. As of the date hereof, the authorized, issued and outstanding capital stock of the Company and shares reserved for issuance is set forth on SCHEDULE 3(r). All of such shares set forth on SCHEDULE 3(r) have been, or upon issuance will be, validly issued and are fully paid and non-assessable. Except as disclosed in SCHEDULE 3(r): (i) none of the Company's share capital is subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any share capital of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional share capital of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any share capital of the Company or any of its Subsidiaries; (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (iv) there are no financing statements securing obligations in any material amounts, either singly or in the aggregate, filed in connection with the Company or any of its Subsidiaries; (v) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act ; (vi) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (vii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; (viii) there are no outstanding securities or instruments of the Company that contain: (A) anti-dilution or similar provisions that will be triggered by the issuance of any securities of the Company; or (B) anti-dilution or similar provisions that could result in a reduction of an exercise price, conversion price or increase in the number of shares issuable upon the exercise or conversion of a convertible instrument in the case of the issuance of any securities by the Company (other than standard anti-dilution adjustments in the case of a stock dividend, recapitalization, forward or reverse split or business combination); (ix) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement; and (x) the Company and its Subsidiaries have no liabilities or obligations required to be disclosed in the SEC Documents but not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company's or its Subsidiaries' respective businesses and which, individually or in the aggregate, do not or would not have a Material Adverse Effect. SCHEDULE 3(r) contains a schedule of all outstanding registration rights granted by the Company which are still in effect, as well as true and correct copies of any agreements containing registration rights granted by the Company. The Secretary's Certificate in substantially the form attached hereto as Exhibit E contains true, correct and complete copies of -11- the Company's Articles of Incorporation, as amended and as in effect on the date hereof (the "ARTICLES OF INCORPORATION"), and the Company's Bylaws, as amended and as in effect on the date hereof (the "BYLAWS"). (s) INDEBTEDNESS AND OTHER CONTRACTS. Except as disclosed in SCHEDULE 3(s), neither the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness, (ii) is a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument would result in a Material Adverse Effect, (iii) is in violation of any term of or in default under any contract, agreement or instrument relating to any Indebtedness, or (iv) is a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of the Company's officers, has or is expected to have a Material Adverse Effect. SCHEDULE 3(s) provides a detailed description of the material terms of any such outstanding Indebtedness. For purposes of this Agreement: (x) "INDEBTEDNESS" of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, "capital leases" in accordance with generally accepted accounting principles) (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, (H) all amounts for which the Company is responsible to repurchase or redeem any of its existing securities; and (I) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (H) above; (y) "CONTINGENT OBLIGATION" means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; and (z) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (t) ABSENCE OF LITIGATION. Except as set forth in SCHEDULE 3(t), there is not now, nor has there been in the last three years, any action, suit, proceeding, inquiry or investigation -12- before or by any court, public board, government agency (including the SEC), self-regulatory organization or body pending or, to the knowledge of the Company, involving, threatened against or affecting the Company, the Common Stock or, to the best of the Company's knowledge, any of the Company's Subsidiaries or any of the Company's or its Subsidiaries' officers, directors, consultants or agents. (u) INSURANCE. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. (v) EMPLOYEE RELATIONS. Neither Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union. The Company and its Subsidiaries believe that their relations with their employees are good. No executive officer of the Company or any of its Subsidiaries has notified the Company or any such Subsidiary that such officer intends to leave the Company or any such Subsidiary or otherwise terminate such officer's employment with the Company or any such Subsidiary. No executive officer of the Company or any of its Subsidiaries, to the knowledge of the Company or any such Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or any such Subsidiary to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. (w) TITLE. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects (other than any lien, encumbrance or defect disclosed under Section 3(s) of this Agreement or Schedule 3(s) attached hereto) except such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries. Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries. (x) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service -13- mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights ("INTELLECTUAL PROPERTY RIGHTS") necessary to conduct their respective businesses as now conducted. Except as set forth in SCHEDULE 3(x), none of the Company's Intellectual Property Rights have expired or terminated, or are expected to expire or terminate, within three (3) years from the date of this Agreement. The Company does not have any knowledge of any infringement by the Company or its Subsidiaries of Intellectual Property Rights of others. There is no claim, action or proceeding being made or brought, or to the knowledge of the Company, being threatened, against the Company or its Subsidiaries regarding its Intellectual Property Rights. The Company is unaware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties. (y) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in compliance with any and all Environmental Laws (as hereinafter defined), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. The term "ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder. (z) SUBSIDIARY RIGHTS. Except as set forth in SCHEDULE 3(z), the Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital stock of its Subsidiaries as owned by the Company or such Subsidiary. (aa) INVESTMENT COMPANY. The Company is not an "investment company," a company controlled by an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended. (bb) TAX STATUS. The Company and each of its Subsidiaries (i) has made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to -14- the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. (cc) INTERNAL ACCOUNTING AND DISCLOSURE CONTROLS. The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15 under the 1934 Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or furnishes under the 1934 Act is accumulated and communicated to the Company's management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure. (dd) OFF BALANCE SHEET ARRANGEMENTS. There is no transaction, arrangement, or other relationship between the Company and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise would be reasonably likely to have a Material Adverse Effect. (ee) RANKING OF NOTES. Except with respect to the "SENIOR DEBT" (as defined in the Notes) and as set forth on SCHEDULE (ee), no Indebtedness of the Company will rank senior to or PARI PASSU with the Notes in right of payment, whether with respect of payment of principal, interest, damages or upon liquidation or dissolution or otherwise. (ff) FORM S-1 ELIGIBILITY. The Company is eligible to register the Conversion Shares and the Warrant Shares for resale by the Buyers using Form S-1 promulgated under the 1933 Act. (gg) TRANSFER TAXES. On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the sale and transfer of the Securities to be sold to each Buyer hereunder will be, or will have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with. (hh) MANIPULATION OF PRICE. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities (except for customary placement fees payable in connection with this transaction), or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company (except for customary placement fees payable in connection with this transaction). (ii) ACKNOWLEDGEMENT REGARDING BUYERS' TRADING ACTIVITY. It is understood and acknowledged by the Company that (i) none of the Buyers have been asked to agree, nor has any Buyer agreed, to desist from purchasing or selling, long and/or short, securities of the Company, -15- or "derivative" securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) any Buyer, and counter parties in "derivative" transactions to which any such Buyer is a party, directly or indirectly, presently may have a "short" position in the Common Stock, and (iii) each Buyer shall not be deemed to have any affiliation with or control over any arm's length counter-party in any "derivative" transaction. The Company further understands and acknowledges that (a) one or more Buyers may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Conversion Shares and the Warrant Shares deliverable with respect to Securities are being determined and (b) such hedging and/or trading activities, if any, can reduce the value of the existing stockholders' equity interest in the Company both at and after the time the hedging and/or trading activities are being conducted. The Company acknowledges that such aforementioned hedging and/or trading activities do not constitute a breach of this Agreement, the Notes, the Warrants or any of the documents executed in connection herewith. (jj) U.S. REAL PROPERTY HOLDING CORPORATION. The Company is not, nor has ever been, a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Buyer's request. (kk) NO ADDITIONAL AGREEMENTS. The Company does not have any agreement or understanding with any Buyer with respect to the transactions contemplated by the Transaction Documents other than as specified in the Transaction Documents. (ll) BANK HOLDING COMPANY ACT. Neither the Company nor any of its Subsidiaries or affiliates is subject to the Bank Holding Company Act of 1956, as amended (the "BHCA") and to regulation by the Board of Governors of the Federal Reserve System (the "FEDERAL RESERVE"). Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. (mm) DISCLOSURE. The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Buyers or their agents or counsel with any information that constitutes or could reasonably be expected to constitute material, nonpublic information. The Company understands and confirms that each of the Buyers will rely on the foregoing representations in effecting transactions in securities of the Company. All disclosure provided to the Buyers regarding the Company, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each press release issued by the Company during the twelve (12) months preceding the date of this Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the -16- circumstances under which they are made, not misleading. No event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under the 1934 Act and the rules and regulations promulgated thereunder , requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed. 4. COVENANTS. (a) COMMERCIALLY REASONABLE EFFORTS. Each party shall use commercially reasonable efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement. (b) FORM D AND BLUE SKY. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or "Blue Sky" laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date. The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or "Blue Sky" laws of the states of the United States following the Closing Date. (c) REPORTING STATUS. Until the date on which all of the Buyers and their permitted assignees shall have sold all the Common Stock, the Conversion Shares, and Warrant Shares and none of the Notes or Warrants is outstanding (the "REPORTING PERIOD"), the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination. (d) USE OF PROCEEDS. The Company hereby agrees that the proceeds from the sale of the Securities shall be used solely for the payment of the Prepaid Interest (as defined in the Note), to fund the Reserve Amount in an amount of $1 million, to pay approximately $580,000 of the principal balance owed by the Company's under its outstanding Indebtedness to Black Forest International, LLC, and for general corporate purposes, including general and administrative expenses, , and not for (i) the repayment of the principal amount under any other outstanding Indebtedness of the Company or any of its Subsidiaries, (ii) the redemption or repurchase of any of its or its Subsidiaries' equity securities, or (iii) the settlement of any claims, actions or proceedings against the Company or any of its Subsidiaries. (e) FINANCIAL INFORMATION. The Company agrees to send the following to each Buyer during the Reporting Period (i) unless filed with the SEC through EDGAR and available to the public through the EDGAR system, within one "Business Day" (as defined below), after the filing thereof with the SEC, a copy of all Annual Reports on Form 10-K, any interim reports or any consolidated balance sheets, income statements, stockholders' equity statements and/or cash flow statements for any period other than annual, any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act, -17- (ii) within one day after the release thereof, copies of all press releases issued by the Company or any of its Subsidiaries, and (iii) copies of any notices and other information made available or given to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders. As used herein, "BUSINESS DAY" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed. (f) LISTING. The Company shall promptly secure the listing of no less than 130% of all of the Common Shares, Conversion Shares and Warrant Shares (the "REGISTRABLE SECURITIES") upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed (subject to official notice of issuance) and shall maintain such listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents. The Company shall maintain the Common Stocks' authorization for quotation on the Principal Market. Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the Common Stock on the Principal Market. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(f). (g) FEES. The Company shall reimburse Castlerigg Master Investments Ltd. ("Castlerigg") (a Buyer) or its designee(s) (in addition to any other expense amounts paid to any Buyer prior to the date of this Agreement) for all reasonable costs and expenses incurred in connection with the transactions contemplated by the Transaction Documents (including all reasonable legal fees and disbursements in connection therewith, documentation and implementation of the transactions contemplated by the Transaction Documents and due diligence in connection therewith), which amounts shall be withheld by such Buyer from its Purchase Price at the Closing. The Company shall be responsible for the payment of any placement agent's fees, financial advisory fees, or broker's commissions (other than for Persons engaged by any Buyer) relating to or arising out of the transactions contemplated hereby. The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable attorney's fees and out-of-pocket expenses) arising in connection with any claim relating to any such payment. (h) PLEDGE OF SECURITIES. The Company acknowledges and agrees that the Securities may be pledged by a Buyer in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Investor effecting a pledge of Securities shall be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document, including, without limitation, Section 2(h) hereof; provided that an Investor and its pledge shall be required to comply with the provisions of Section 2(h) hereof in order to effect a sale, transfer or assignment of securities to such pledge. The Company hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by a Buyer. (i) DISCLOSURE OF TRANSACTIONS AND OTHER MATERIAL INFORMATION. On or before 8:00 a.m., New York City time, on the first Business Day following the date of this Agreement, the Company shall issue a press release and file a Current Report on Form 8-K describing, among -18- other things, the terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and attaching the material Transaction Documents (including, without limitation, this Agreement (and all schedules to this Agreement), the form of Notes and the form of Warrant) (including all attachments, the "8-K FILING"). Any material non-public information provided by the Company to any Buyer in connection with this transaction, shall be included by the Company within the aforementioned Form 8-K or otherwise make publicly available. Following the date upon which the Buyer notifies the Company that it shall no longer be in a position to receive and hold non-public information, the Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents, not to, provide any Buyer with any material, nonpublic information regarding the Company or any of its Subsidiaries from and after the filing of the 8-K Filing with the SEC without the express written consent of such Buyer. If a Buyer has, or believes it has, thereafter received any such material, nonpublic information regarding the Company or any of its Subsidiaries, it shall provide the Company with written notice thereof. The Company shall, within two (2) Trading Days of receipt of such notice, make public disclosure of such material, nonpublic information. In the event of a breach of the foregoing covenant by the Company, any of its Subsidiaries, or any of its or their respective officers, directors, employees and agents, in addition to any other remedy provided herein or in the Transaction Documents, a Buyer shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material, nonpublic information without the prior approval by the Company, its Subsidiaries, or any of its or their respective officers, directors, employees or agents. No Buyer shall have any liability to the Company, its Subsidiaries, or any of its or their respective officers, directors, employees, stockholders or agents for any such disclosure. Subject to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filings and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) each Buyer shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release). Without the prior written consent of any applicable Buyer, neither the Company nor any of its Subsidiaries or affiliates shall disclose the name of such Buyer in any filing, announcement, release or otherwise. (j) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS So long as any Notes are outstanding, the Company shall not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution on, the Common Stock without the prior express written consent of the holders of Notes representing not less than a majority of the aggregate principal amount of the then outstanding Notes. (k) ADDITIONAL NOTES; VARIABLE SECURITIES; DILUTIVE ISSUANCES. For so long as any Notes or Warrants remain outstanding, the Company shall not, in any manner, issue or sell any rights, warrants or options to subscribe for or purchase Common Stock or directly or indirectly convertible into or exchangeable or exercisable for Common Stock at a price which varies or may vary after issuance with the market price of the Common Stock, including by way of one or more reset(s) to any fixed price, unless the conversion, exchange or exercise price of any such security cannot be less than the then applicable Conversion Price (as defined in the Notes) with respect to -19- the Common Stock into which any Note is convertible or the then applicable Exercise Price (as defined in the Warrants) with respect to the Common Stock into which any Warrant is exercisable. For purposes of clarification, this does not prohibit the issuance of securities with customary "weighted average" or "full ratchet" anti-dilution adjustments which adjust a fixed conversion or exercise price of securities sold by the Company in the future. For so long as any Notes or Warrants remain outstanding, the Company shall not, in any manner, enter into or effect any Dilutive Issuance (as defined in the Notes) if the effect of such Dilutive Issuance is to cause the Company to be required to issue upon conversion of any Notes or exercise of any Warrant any shares of Common Stock in excess of that number of shares of Common Stock which the Company may issue upon conversion of the Notes and exercise of the Warrants without breaching the Company's obligations under the rules or regulations of the Principal Market or any applicable "Eligible Market" on which the Company's Common Stock is then traded or on which the Company has applied for listing. "ELIGIBLE MARKET" means any of the of The New York Stock Exchange, the American Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market, The NASDAQ Capital Market or OTC Bulletin Board or the Pink Sheets. (l) CORPORATE EXISTENCE. So long as any Buyer beneficially owns any Securities, the Company shall not be party to any Fundamental Transaction (as defined in the Notes) unless the Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Notes and the Warrants. (m) INCURRENCE OF LIENS. So long as any Notes are outstanding, the Company shall not, directly or indirectly, allow or suffer to exist any Lien, other than Permitted Liens (as defined in the Notes), upon any property or assets (including accounts and contract rights) owned by the Company. (n) RESERVATION OF SHARES. So long as any Buyer owns any Notes or Warrants, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 130% of the sum of the number of shares of Common Stock issuable (i) upon conversion of the Notes, and (ii) upon exercise of the Warrants then outstanding (without taking into account any limitations on the conversion of the Notes or exercise of the Warrants set forth in the Notes and Warrants, respectively). (o) CONDUCT OF BUSINESS. The business of the Company and its Subsidiaries shall not be conducted in violation of any law, ordinance or regulation of any governmental entity, except where such violations would not result, either individually or in the aggregate, in a Material Adverse Effect. (p) ADDITIONAL ISSUANCES OF SECURITIES. (i) For purposes of this Section 4(p), the following definitions shall apply. (1) "CONVERTIBLE SECURITIES" means any stock or securities (other than Options) convertible into or exercisable or exchangeable for shares of Common Stock. -20- (2) "OPTIONS" means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities. (3) "COMMON STOCK EQUIVALENTS" means, collectively, Options and Convertible Securities. (4) "SUBSEQUENT PLACEMENT" means, the offer, sale, grant any option to purchase, or otherwise dispose of (or announcement of any offer, sale, grant or any option to purchase or other disposition of) any of the Company's or its Subsidiaries' debt, equity or equity equivalent securities, including without limitation any debt, preferred stock or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for shares of Common Stock or Common Stock Equivalents. (ii) From the date hereof until the later of (i) the second anniversary of the Closing Date; or (ii) the end of the period during which at least twenty (20%) percent of the Notes remain outstanding, the Company will not, directly or indirectly, effect any Subsequent Placement unless the Company shall have first complied with this Section 4(p)(ii). (1) The Company shall deliver to each Buyer an irrevocable written notice (the "OFFER NOTICE") of any proposed or intended issuance or sale or exchange (the "OFFER") of the securities being offered (the "OFFERED SECURITIES") in a Subsequent Placement, which Offer Notice shall (w) identify and describe the Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (y) identify the persons or entities (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with such Buyers all of the Offered Securities, allocated among such Buyers at identical terms and prices as provided in the Offer Notice (a) based on such Buyer's pro rata portion of the aggregate principal amount of Notes purchased hereunder (the "BASIC AMOUNT"), and (b) with respect to each Buyer that elects to purchase its Basic Amount, any additional portion of the Offered Securities attributable to the Basic Amounts of other Buyers as such Buyer shall indicate it will purchase or acquire should the other Buyers subscribe for less than their Basic Amounts (the "UNDERSUBSCRIPTION AMOUNT"), or with a statement from the Buyers that it will waive any rights to subscribe for any portion of the Undersubscription Amount, which process shall be repeated until the Buyers shall have an opportunity to subscribe for or waive the right to receive any remaining Undersubscription Amount. (2) To accept an Offer, in whole or in part, such Buyer must deliver a written notice to the Company prior to the end of the tenth (10th) Business Day after such Buyer's receipt of the Offer Notice (the "OFFER PERIOD"), setting forth the portion of such Buyer's Basic Amount that such Buyer elects to purchase and, if such Buyer shall elect to purchase all of its Basic Amount, the Undersubscription Amount, if any, that such Buyer elects to purchase (in either case, the "NOTICE OF ACCEPTANCE"). If the Basic Amounts subscribed for by all Buyers are less than the total of all of the Basic Amounts, then each Buyer who has set forth an Undersubscription Amount in its Notice -21- of Acceptance shall be entitled to purchase, in addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for; provided, however, that if the Undersubscription Amounts subscribed for exceed the difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the "AVAILABLE UNDERSUBSCRIPTION AMOUNT"), each Buyer who has subscribed for any Undersubscription Amount shall be entitled to purchase only that portion of the Available Undersubscription Amount as the Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers that have subscribed for Undersubscription Amounts, subject to rounding by the Company to the extent its deems reasonably necessary. Notwithstanding anything to the contrary contained herein, if the Company desires to modify or amend the terms and conditions of the Offer prior to the expiration of the Offer Period, the Company may deliver to the Buyers a new Offer Notice (which period shall be deemed to have replaced and restated the prior Offer Notice) and the Offer Period shall expire on the tenth (10th) Business Day after such Buyer's receipt of such new Offer Notice. (3) The Company shall have five (5) Business Days from the later of: (i) the expiration of the Offer Period above; or (ii) upon the written consent of the Buyer, such longer period for which the Offered Securities are being offered to third parties as part of the Subsequent Placement, to offer, issue, sell or exchange all or any part of such Offered Securities as to which a Notice of Acceptance has not been given by the Buyers (the "REFUSED SECURITIES"), but only to the offerees described in the Offer Notice (if so described therein) and only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable to the acquiring person or persons or less favorable to the Company than those set forth in the Offer Notice and, if the Company's Securities are traded on a Principal Market, to publicly announce (a) the execution of such Subsequent Placement Agreement, and (b) either (x) the consummation of the transactions contemplated by such Subsequent Placement Agreement or (y) the termination of such Subsequent Placement Agreement, which shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent Placement Agreement and any documents contemplated therein filed as exhibits thereto. (4) In the event the Company shall propose to sell less than all the Refused Securities (any such sale to be in the manner and on the terms specified in Section 4(p)(ii)(3) above), then each Buyer may, at its sole option and in its sole discretion, reduce the number or amount of the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less than the number or amount of the Offered Securities that such Buyer elected to purchase pursuant to Section 4(p)(ii)(2) above multiplied by a fraction, (i) the numerator of which shall be the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange (including Offered Securities to be issued or sold to Buyers pursuant to Section 4(p)(ii)(3) above prior to such reduction) and (ii) the denominator of which shall be the original amount of the Offered Securities. In the event that any Buyer so elects to reduce the number or amount of Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced number or amount of the Offered Securities unless and until such securities have again been offered to the Buyers in accordance with Section 4(p)(ii)(1) above. -22- (5) Upon the closing of the issuance, sale or exchange of all or less than all of the Refused Securities, the Buyers shall acquire from the Company, and the Company shall issue to the Buyers, the number or amount of Offered Securities specified in the Notices of Acceptance, as reduced pursuant to Section 4(p)(ii)(3) above if the Buyers have so elected, upon the terms and conditions specified in the Offer. The purchase by the Buyers of any Offered Securities is subject in all cases to the preparation, execution and delivery by the Company and the Buyers of a purchase agreement relating to such Offered Securities reasonably satisfactory in form and substance to the Buyers and their respective counsel. (6) Any Offered Securities not acquired by the Buyers or other persons in accordance with Section 4(p)(ii)(3) above may not be issued, sold or exchanged until they are again offered to the Buyers under the procedures specified in this Agreement. (7) The Company and the Buyers agree that if any Buyer elects to participate in the Offer, neither the agreement regarding the Subsequent Placement (the "SUBSEQUENT PLACEMENT AGREEMENT") with respect to such Offer nor any other transaction documents related thereto (collectively, the "SUBSEQUENT PLACEMENT DOCUMENTS") shall include any term or provisions whereby any Buyer shall be required to agree to any restrictions in trading as to any securities of the Company owned by such Buyer prior to such Subsequent Placement. (8) Notwithstanding anything to the contrary in this Section 4(p) and unless otherwise agreed to by the Buyers, the Company shall either confirm in writing to the Buyers that the transaction with respect to the Subsequent Placement has been abandoned or shall publicly disclose on or before the closing thereof its intention to issue the Offered Securities, in either case in such a manner such that the Buyers will not be in possession of material non-public information, by the fifteenth (15th) Business Day following delivery of the Offer Notice. If by the fifteenth (15th) Business Day following delivery of the Offer Notice no public disclosure regarding a transaction with respect to the Offered Securities has been made, and no notice regarding the abandonment of such transaction has been received by the Buyers, such transaction shall be deemed to have been abandoned and the Buyers shall not be deemed to be in possession of any material, non-public information with respect to the Company. Should the Company decide to pursue such transaction with respect to the Offered Securities, the Company shall provide each Buyer with another Offer Notice and each Buyer will again have the right of participation set forth in this Section 4(p)(ii). The Company shall not be permitted to deliver more than one such Offer Notice to the Buyers in any 60 day period. (iii) The restrictions contained in subsection (ii) of this Section 4(p) shall not apply in connection with the issuance of any Excluded Securities (as defined in the Notes). -23- (q) PIGGY-BACK REGISTRATIONS. (i) If at any time the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities (other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee or director benefit plans), then the Company shall send to each Buyer written notice of such determination and, if within twenty days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement 130% of the number of shares of Common Stock that constitute the "Registrable Securities" (as hereafter defined) as such holder requests to be registered, subject to customary underwriter cutbacks applicable to all holders of registration rights on a pro rata basis (along with other holders of piggyback registration rights with respect to the Company); PROVIDED, that (A) the Company shall not be required to register any Registrable Securities pursuant to this Section 4(q) that are (I) eligible for resale under Rule 144 without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144, or (II) that are the subject of a then effective registration statement and (B) if at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to such Holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities pursuant to this Section 4(q) in connection with such registration (but not from its obligation to pay expenses in accordance with Section 4(q) hereof), and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities being registered pursuant to this Section 4(q) for the same period as the delay in registering such other securities. For the purposes of this Section 4(q), the term "REGISTRABLE SECURITIES" shall mean (i) all shares of Common Stock issued or issuable upon conversion of the Notes; and (ii) all shares of Common Stock issued or issuable upon exercise of the Warrants; including any shares of Common Stock that may be issued or issuable as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitations on conversion and/or redemption of the Notes or exercise of the Warrants.. (ii) REGISTRATION EXPENSES. All fees and expenses incident to the Company's performance of or compliance with its obligations under this Agreement (excluding any underwriting discounts and selling commissions, but including all legal fees and expenses of legal counsel for any Buyer) shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, (B) in compliance with applicable state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders) and -24- (C) with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with the Corporate Financing Department of Financial Industry Regulatory Authority, Inc. ("FINRA") pursuant to FINRA Rule 2710(b)(10)(A)(i), so long as the broker is receiving no more than a customary brokerage commission in connection with such sale, (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the Holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and the Buyer, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Section. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Section (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any Holder. (iii) REGISTRATION PROCEDURES. Whenever it is obligated to register any Registrable Securities pursuant to this Agreement, the Company shall: (A) prepare and file with the Commission a Registration Statement with respect to the Registrable Securities in the manner set forth in Section 4(q) hereof and use its reasonable best efforts to cause such Registration Statement to become effective as promptly as possible and to remain effective until the earlier of (i) the sale of all shares of Registrable Securities covered thereby, (ii) the availability under Rule 144(c)(1) for each Buyer to immediately, freely resell without restriction all Registrable Securities covered thereby, or (iii) two (2) years from the date of this Agreement; (B) permit one legal counsel designated by Buyers to review and comment upon a Registration Statement at least five (5) Business Days prior to its filing with the Commission, and all amendments and supplements to all Registration Statements, and reimburse the Buyers for the cost of such legal counsel. The Company shall not submit a request for acceleration of the effectiveness of a Registration Statement or any amendment or supplement thereto without the prior approval of such legal counsel, which consent shall not be unreasonably withheld. The Company shall furnish to such legal counsel, without charge, (i) copies of any correspondence from the Commission or the staff of the Commission to the Company or its representatives relating to any Registration Statement, (ii) promptly after the same is prepared and filed with the Commission, one copy of any Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, if requested; (C) prepare and file with the Commission such amendments (including post-effective amendments) and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the period specified in Section 4(q)(iii)(A) above and to comply with -25- the provisions of the 1933 Act with respect to the disposition of all Registrable Securities covered by such Registration Statement in accordance with the intended method of disposition set forth in such Registration Statement for such period; (D) furnish to each Buyer such number of copies of the Registration Statement and the prospectus included therein (including each preliminary prospectus) as such person may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities covered by such Registration Statement; (E) use its reasonable best efforts to register or qualify the Registrable Securities covered by such Registration Statement under the state securities laws of such jurisdictions as any Buyer shall reasonably request; provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (F) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering; (G) immediately notify each Buyer at any time when a prospectus relating thereto is required to be delivered under the 1933 Act, of the happening of any event as a result of which the prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required or necessary to be stated therein in order to make the statements contained therein not misleading in light of the circumstances under which they were made. The Company will use reasonable efforts to amend or supplement such prospectus in order to cause such prospectus not to include any untrue statement of a material fact or omit 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 under which they were made; (H) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statements as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by such Registration Statement; (I) use its reasonable best efforts to list the Registrable Securities covered by such Registration Statement on each exchange or automated quotation system on which similar securities issued by the Company are then listed (with the listing application being made at the time of the filing of such Registration Statement or as soon thereafter as is reasonably practicable); (J) notify each Buyer of any threat by the Commission or state securities commission to undertake a stop order with respect to sales under the Registration Statement; and -26- (K) cooperate in the timely removal of any restrictive legends from the shares of Registrable Securities in connection with the resale of such shares covered by an effective Registration Statement. (iv) INDEMNIFICATION. (A) The Company agrees to indemnify, to the extent permitted by law, each Buyer, such Buyer's respective partners, officers, directors, underwriters and each Person who controls any Buyer (within the meaning of the 1933 Act) against all actual losses, claims, damages, liabilities and expenses (but not lost profits) caused by (i) any untrue statement of or alleged untrue statement of material fact contained in the Registration Statement, prospectus or preliminary prospectus or any amendment or supplement thereto, (ii) any omission of or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the 1933 Act, the 1934 Act or any state securities law in connection with the offering covered by such registration statement ("VIOLATIONS"); provided, however, that the indemnity agreement contained in this Section 4(q)(iv) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with information furnished to the Company by such Buyer, partner, officer, director, underwriter or controlling person of such Buyer. (B) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any Person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party), and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (C) If the indemnification provided for in this Section 4(q)(iv) is held by a court of competent jurisdiction to be unavailable to the Buyer with respect to any losses, claims, damages or liabilities referred to herein, the Company, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying -27- party on the one hand and of the indemnified party on the other in connection with the violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law 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; provided, that in no event shall the Buyer be responsible for any amounts hereunder, with the exception of a possible set-off against amounts otherwise due the Buyer as an indemnification or contribution claim; and in that event, the Buyer's entitlement to contribution shall not be subject to set-off in any amount to exceed the net proceeds from the offering received by such Buyer. (D) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall survive the transfer of securities. The Company also agrees to make such provisions as are reasonably requested by any indemnified party for contribution to such party in the event the Company's indemnification is unavailable for any reason. (v) PENALTY PROVISIONS. If the Company breaches or otherwise fails to perform any of its obligations under Section 4(q) above (a "Registration Breach"), then as partial relief for the damages to any Buyer by reason of any such Registration Breach (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each holder of Registrable Securities an amount in cash equal to two percent (2.0%) of the aggregate Purchase Price of such Buyer's Registrable Securities as of the date of such Registration Breach and thereafter an additional amount in cash equal to two percent (2.0%) of the aggregate Purchase Price of such Buyer's Registrable Securities for each period of thirty days after the day of a Registration Breach (pro rated for periods totaling less than thirty days) until such Registration Breach is cured. (vi) ASSIGNMENT OF REGISTRATION RIGHTS; ASSUMPTION OF REGISTRATION RIGHTS. (A) The registration rights under Section 4(q) of this Agreement shall be automatically assignable by the Buyer to any transferee of all or any portion of such Buyer's Registrable Securities if: (i) the Buyer agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act or applicable state securities laws; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; and (v) such transfer shall have been made in accordance with the applicable requirements of this Agreement, if any. -28- (B) In conjunction with, and as a condition precedent to the consummation of any "Fundamental Transaction" (as such term is defined in the Note), the registration obligations of the Company as identified in this Agreement, shall be assumed by the acquiring company or the Person that assumes control of the Company, in manner, form and substance acceptable to the Buyer. (r) PUBLIC INFORMATION. (i) If the Common Stock is listed on an Eligible Market other than the Principal Market (the "NEW PRINCIPAL MARKET") and the issuance of the Conversion Shares or Warrant Shares as contemplated under the Transaction Documents would exceed that number of shares of Common Stock which the Company may issue without breaching the Company's obligations under the rules or regulations of the New Principal Market, then the Company shall obtain the approval of its stockholders as required by the applicable rules of the New Principal Market for issuances of the Conversion Shares and Warrant Shares in excess of such amount. At such time, the Company shall provide each stockholder entitled to vote at a special or annual meeting of stockholders of the Company (the "STOCKHOLDER MEETING"), which shall be promptly called and held not later than 75 days after the earlier of (i) the New Principal Market indication of and (ii) the Company becoming aware of, any limitation imposed by the New Principal Market on the issuance of Conversion Shares, Warrant Shares or Common Shares (the "STOCKHOLDER MEETING DEADLINE"), a proxy statement, substantially in the form which has been previously prepared by counsel to the Company and reviewed by the Buyers and counsel to the Buyers, at the expense of the Company, soliciting each such stockholder's affirmative vote at the Stockholder Meeting for approval of resolutions providing for the Company's issuance of all of the Securities as described in the Transaction Documents in accordance with applicable law and the rules and regulations of the New Principal Market and such affirmative approval being referred to herein as the "STOCKHOLDER APPROVAL"), and the Company shall use its reasonable best efforts to (i) solicit its stockholders' approval of such resolutions and to (ii) cause the Board of Directors of the Company to recommend to the stockholders that they approve such resolutions. The Company shall be obligated to use its reasonable best efforts to obtain the Stockholder Approval by the Stockholder Meeting Deadline. If, despite the Company's reasonable best efforts the Stockholder Approval is not obtained on or prior to the Stockholder Meeting Deadline, the Company shall cause an additional Stockholder Meeting to be held every six (6) months thereafter until such Stockholder Approval is obtained or the Notes and the Warrants are no longer outstanding. (s) CLOSING DOCUMENTS. On or prior to fourteen (14) calendar days after the Closing Date, the Company agrees to deliver, or cause to be delivered, to each Buyer and Fox Rothschild LLP executed copies of the Transaction Documents, Securities and any other document required to be delivered to any party pursuant to Section 7 hereof. (t) INTEGRATION. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities to the Buyer in a manner that would require the registration under the 1933 Act of the sale of the Securities to the Buyer or that would be integrated with the offer or sale of the Securities to the Buyers for purposes of the rules and regulations of any Eligible Market on which any of the securities of the Company are listed -29- or designated such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction. (u) INVESTORS' RIGHTS. At the Closing, the Company shall appoint to its Board of Directors two (2) individuals nominated by the Buyer(s). At the Closing, the Company shall deliver to the Buyer(s) any and all documents and instruments, effective as of the Closing, which may be necessary to effect the provisions of this Section 4(u) including, without limitation, amended and restated Articles of Incorporation and/or By Laws of the Company consistent with the foregoing. (v) STATE QUALIFICATIONS. Within no more that ten (10) Business Days after Closing, the Company shall deliver to such Buyer a certificate evidencing the Company's qualification as a foreign corporation and good standing issued by the Secretary of State (or comparable office) of each jurisdiction in which the Company conducts business. 5. REGISTER; TRANSFER AGENT INSTRUCTIONS. (a) REGISTER. The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to each holder of Securities), a register for the Notes and the Warrants in which the Company shall record the name and address of the Person in whose name the Notes and the Warrants have been issued (including the name and address of each transferee), the principal amount of Notes held by such Person, the number of Conversion Shares issuable upon conversion of the Notes and Warrant Shares issuable upon exercise of the Warrants held by such Person. The Company shall keep the register open and available at all times during business hours for inspection of any Buyer or its legal representatives. (b) TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable instructions to its then current transfer agent, and any subsequent transfer agent, to issue certificates or credit shares to the applicable balance accounts at The Depository Trust Company ("DTC"), provided that the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program and the Common Stock issuable upon conversion of the Note and/or exercise of the Warrants, whichever is applicable, is eligible for public resale under the 1933 Act, registered in the name of each Buyer or its respective nominee(s), for the Conversion Shares and the Warrant Shares in such amounts as specified from time to time by each Buyer to the Company upon conversion of the Notes or exercise of the Warrants in the form of EXHIBIT C attached hereto (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5(b), and stop transfer instructions to give effect to Section 2(g) hereof, will be given by the Company to its transfer agent with respect to the Securities, and that the Securities shall otherwise be freely transferable on the books and records of the Company, as applicable, and to the extent provided in this Agreement and the other Transaction Documents. If a Buyer effects a sale, assignment or transfer of the Securities in accordance with Section 2(f), the Company shall permit the transfer and shall promptly instruct its transfer agent to issue one or more certificates or credit shares to the applicable balance accounts at DTC in such name and in such denominations as specified by such Buyer to effect such sale, transfer or assignment. In the event that such sale, assignment or -30- transfer involves Conversion Shares or Warrant Shares sold, assigned or transferred pursuant to an effective registration statement or pursuant to Rule 144, the transfer agent shall issue such Securities to the Buyer, assignee or transferee, as the case may be, without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to a Buyer. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5(b), that a Buyer shall be entitled, in addition to all other available remedies, to seek an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue and sell the Notes and the related Warrants to each Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof: (i) Such Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to the Company. (ii) Such Buyer and each other Buyer shall have delivered to the Company the Purchase Price for the Notes and the related WARRANTS being purchased by such Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company. (iii) The representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the Closing Date. 7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of each Buyer hereunder to purchase the Notes and the related Warrants at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Buyer's sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof: (i) The Company shall have executed and delivered to such Buyer (A) each of the Transaction Documents and (B) the Notes (in such denominations as such Buyer shall have requested prior to the Closing) and the related Warrants (in such denominations as such Buyer shall have requested prior to the Closing) being purchased by such Buyer at the Closing pursuant to this Agreement; -31- (ii) Such Buyer shall have received the opinion of Hodgson Russ LLP, the Company's outside counsel, dated as of the Closing Date, in substantially the form of EXHIBIT D attached hereto; (iii) [INTENTIONALLY OMITTED]; (iv) The Company and the Fourth Third, LLC shall have entered into an amendment to the Fourth Third Credit Agreement with the Company, to establish, maintain and administer the Reserve Amount in a manner reasonably acceptable to Buyer, and in the form attached hereto as Exhibit H; (v) The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent Instructions, in the form of EXHIBIT C attached hereto, which instructions shall have been delivered to and acknowledged in writing by the Company's transfer agent. (vi) The Company shall have delivered to such Buyer a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date within five days of the Closing Date. (vii) The Common Stock (I) shall be designated for quotation or listed on the Principal Market and (II) shall not have been suspended, as of the Closing Date, by the SEC or the Principal Market from trading on the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, as of the Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by falling below the minimum listing maintenance requirements of the Principal Market, if applicable; (viii) The Company shall have delivered to such Buyer a certificate evidencing the formation and good standing of the Company and each of its Subsidiaries in such entity's jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a date within ten days of the Closing Date; (ix) Intentionally Omitted.; (x) The Company shall have delivered to such Buyer a certified copy of the Articles of Incorporation as certified by the Secretary of State of the State of Nevada reasonably proximate to the Closing Date; (xi) The Company shall have delivered to such Buyer a certificate, executed by the Secretary of the Company and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted by the Company's Board of Directors in a form reasonably acceptable to such Buyer, (ii) the Articles of Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the form attached hereto as EXHIBIT E; (xii) The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and -32- conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Such Buyer shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form attached hereto as EXHIBIT F; (xiii) The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Securities; (xiv) The Buyers shall have completed a satisfactory due diligence review, in their sole and complete discretion, of among others, the Company's assets, financial condition, results of operations, management, operations, finances and prospects; (xv) Within six (6) Business Days prior to the Closing, the Company shall have delivered or caused to be delivered to each Buyer (A) certified copies of UCC search results, listing all effective financing statements which name as debtor the Company or any of its Subsidiaries filed in the prior five years and the results of searches for any tax lien and judgment lien filed against such Person or its property, which results, except as otherwise agreed to in writing by the Buyers shall not show any such Liens except Permitted Liens; (xvi) The Company shall have appointed to its Board of Directors upon the Closing two individuals nominated by the Buyer(s); and (xvii) The Company shall have delivered to such Buyer such other documents relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request. 8. TERMINATION. In the event that the Closing shall not have occurred with respect to a Buyer on or before five (5) business days from the date hereof due to the Company's or such Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above (and the non-breaching party's failure to waive such unsatisfied condition(s)), the non-breaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party; PROVIDED, HOWEVER, this if this Agreement is terminated pursuant to this Section 8, the Company shall remain obligated to reimburse the non-breaching Buyers for the expenses described in Section 4(g) above. 9. MISCELLANEOUS. (a) GOVERNING LAW; JURISDICTION; JURY TRIAL. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, County of New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, -33- action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. (b) COUNTERPARTS. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. (c) HEADINGS. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. (d) SEVERABILITY. If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s). (e) ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other Transaction Documents supersede all other prior oral or written agreements between the Buyers, the Company, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement, the other Transaction Documents and the instruments referenced herein and therein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the holders of at least a majority of the aggregate number of Registrable Securities issued and issuable hereunder, and any amendment to this Agreement made in conformity with the provisions of this Section 9(e) shall be binding on -34- all Buyers and holders of Securities, as applicable. No provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. No such amendment shall be effective to the extent that it applies to less than all of the holders of the applicable Securities then outstanding. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents, holders of Notes or holders of the Warrants, as the case may be. The Company has not, directly or indirectly, made any agreements with any Buyers relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. Without limiting the foregoing, the Company confirms that, except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other obligation to provide any financing to the Company or otherwise. (f) NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Business Day after deposit with an overnight courier service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company, PNG Ventures, Inc. 3001 Knox Street; Suite 403 Dallas, Texas 75205 Telephone: (760) 804-8844 Attention: Kevin Markey, CEO With a copy (for informational purposes only) to: Hodgson Russ LLP 1540 Broadway, 24th floor New York, New York 10036 Telephone: (212) 751-4300 Facsimile: (212) 751-0928 Attention: Ron Levy, Esq. If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies to such Buyer's representatives as set forth on the Schedule of Buyers, ith a copy (for informational purposes only) to: Fox Rothschild LLP 100 Park Avenue, suite 1500 New York, NY 10017 -35- Telephone: (215) 299-2744 Facsimile: (215) 299-2150 Attention: Stephen M. Cohen or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively. (g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Notes or the Warrants. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the holders of at least a majority of the aggregate number of Registrable Securities issued and issuable hereunder, including by way of a Fundamental Transaction (unless the Company is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Notes and the Warrants). A Buyer may assign some or all of its rights hereunder in connection with transfer of any of its Securities without the consent of the Company, in which event such assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights. (h) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person. (i) SURVIVAL. Unless this Agreement is terminated under Section 8, the representations and warranties of the Company and the Buyers contained in Sections 2 and 3 and the agreements and covenants set forth in Sections 4, 5 and 9 shall survive the Closing. Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder. (j) FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (k) INDEMNIFICATION. In consideration of each Buyer's execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company's other obligations under the Transaction Documents, including the indemnification provisions under Section 4(q), the Company shall defend, protect, indemnify and hold harmless each Buyer and each other holder of the Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons' agents or other representatives (including, without limitation, those retained in -36- connection with the transactions contemplated by this Agreement) (collectively, the "INDEMNITEES") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, (iii) any disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of such Buyer or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The indemnification provided in this section 9(k) shall be in addition to, and not in lieu of, the indemnification provided for in Section 4(q) of this Agreement. (l) NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. (m) REMEDIES. Each Buyer and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, the Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law may prove to be inadequate relief to the Buyers. The Company therefore agrees that the Buyers shall be entitled to seek temporary and permanent injunctive relief in any such case without the necessity of proving actual damages and without posting a bond or other security. (n) PAYMENT SET ASIDE. To the extent that the Company makes a payment or payments to the Buyers hereunder or pursuant to any of the other Transaction Documents or the Buyers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other -37- Person under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. (o) INDIVIDUAL BUYER. Notwithstanding anything in this agreement to the contrary, or any references to "Buyers" herein, the Buyer whose name appears on the signature page hereof acknowledges and the Company confirms that such Buyer is the only Buyer party to the transactions contemplated by this Agreement. [SIGNATURE PAGE FOLLOWS] -38- EXECUTION PAGE - SPA IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above. COMPANY: PNG VENTURES, INC. By: /s/ Kevin Markey ------------------------------ Name: Kevin Markey Title: Chief Executive Officer EXECUTION PAGE - SPA IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above. BUYER: CASTLERIGG PNG INVESTMENTS LLC BY: CASTLERIGG MASTER INVESTMENTS LTD., ITS SOLE MEMBER BY: SANDELL ASSET MANAGEMENT CORP., ITS INVESTMENT MANAGER By: /s/ Patrick Burke ------------------------------ Name: Patrick Burke Title: Senior Managing Director
SCHEDULE OF BUYERS (1) (2) (3) (4) (5) AGGREGATE PRINCIPAL AGGREGATE NUMBER LEGAL REPRESENTATIVE'S ADDRESS AND FACSIMILE AMOUNT OF ADDRESS AND FACSIMILE NUMBER BUYER NUMBER OF NOTES WARRANTS ------------------------------------------------------------------------------------------------------------------------- CASTLERIGG PNG c/o Sandell Asset INVESTMENTS LLC Management $3,188,235 797,059 Fox Rothschild LLP 40 West 57th St 100 Park Avenue, Suite 1500 26th Floor New York, New York 10017 New York, NY 10019 Attention: Stephen Cohen Fax: (212) 603-5710 Facsimile: (215) 299-2744 Telephone: (212) 603-5775 Telephone: (215( 299-2150 Attn: Matthew Pliskin/Cem Hacioglu -------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------- Total principal Total Warrants to be amount of issued: 797,059 Notes: $3,188,235
EXHIBITS Exhibit A Form of Notes Exhibit B Form of Warrants Exhibit C Irrevocable Transfer Agent Instructions Exhibit D Form of Company Opinion of Counsel Exhibit E Form of Secretary's Certificate Exhibit F Form of Officer's Certificate Exhibit G Intentionally Omitted Exhibit H Amendment to Fourth Third Credit Agreement SCHEDULES Schedule 3(a) Subsidiaries Schedule 3(d) No Conflicts Schedule 3(e) Consents Schedule 3(g) No General Solicitation; Placement Agent's Fees Schedule 3(k) SEC Documents; Financial Statements Schedule 3(l) Absence of Certain Changes Schedule 3(m) No Undisclosed Events Schedule 3(n) Conduct of Business; Regulatory Permits Schedule 3(q) Transactions with Affiliates Schedule 3(r) Equity Capitalization Schedule 3(s) Indebtedness and Other Contracts Schedule 3(t) Absence of Litigation Schedule 3(x) Intellectual Property Rights Schedule 3(z) Subsidiary Rights Schedule 3(ee) Ranking of Notes EX-99 3 p08-1310exh99_2.txt EXHIBIT 99.2 FINAL EXECUTION SUBORDINATED CONVERTIBLE NOTE NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(C)(III) AND 17(A) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(C)(III) OF THIS NOTE. PNG VENTURES, INC. SUBORDINATED CONVERTIBLE NOTE Issuance Date: August 19, 2008 Original Principal Amount: U.S. $3,188,235 FOR VALUE RECEIVED, PNG VENTURES, INC., a Nevada corporation (the "COMPANY"), hereby promises to pay to the order of CASTLERIGG PNG INVESTMENTS LLC or registered assigns ("HOLDER") the amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof, pursuant to redemption, conversion or otherwise, the "PRINCIPAL") when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest ("INTEREST") on any outstanding Principal as may be required by Section 2, until the same becomes due and payable, whether upon the Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This Subordinated Convertible Note (including Subordinated Convertible Notes issued in exchange, transfer or replacement hereof, this "NOTE") is a singular Note or is one of an issue of Subordinated Convertible Notes issued pursuant to the Securities Purchase Agreement on the Closing Date (collectively, the "NOTES" and such other Subordinated Convertible Notes, the "OTHER NOTES"). Certain capitalized terms used herein are defined in Section 27. (1) PAYMENTS OF PRINCIPAL. On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges, if any, on such Principal and Interest. The "MATURITY DATE" shall be August 19, 2010, but may be extended at the option of the Holder (i) in the event that, and for so long as, an Event of Default (as defined in Section 4(a)) shall have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) or any event shall have occurred and be continuing on the Maturity Date (as may be extended pursuant to this Section 1) that with the passage of time and the failure to cure would result in an Event of Default, (ii) through the date that is ten (10) Business Days after the consummation of a Change of Control in the event that a Change of Control is publicly announced or a Change of Control Notice (as defined in Section 5(b)) is delivered prior to the Maturity Date, and (iii) subject to clause (ii), for any period of time in the discretion of Holder through August 19, 2012. Other than as specifically permitted by this Note, the Company may not prepay any portion of the outstanding Principal, accrued and unpaid Interest or accrued and unpaid Late Charges on Principal and Interest, if any. (2) INTEREST; INTEREST RATE. (a) Interest on this Note ("INTEREST") shall accrue at a rate of fifteen percent (15.00%) per annum (the "INTEREST RATE"), shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months and shall be payable in arrears for each Calendar Quarter on the first day of the succeeding Calendar Quarter (each, an "INTEREST DATE"); however, Interest on the Note in the cash amount of $478,235.25, representing Interest otherwise due and payable through August 19, 2009, shall be prepaid by the Company on the date hereof as the first Interest Date (the "Prepaid Interest"), with the next Interest Date thereafter being October 1, 2009, provided the Note has not been satisfied on or before that date. Interest shall be payable on each Interest Date, to the record holder of this Note on the applicable Interest Date, in cash; (b) Prior to the payment of Interest on an Interest Date, Interest on this Note shall accrue at the Interest Rate. From and during the continuance of an Event of Default, the Interest Rate shall be increased to eighteen percent (18.0%) per annum. In the event that such Event of Default is subsequently cured, the increased interest rate referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the Interest as calculated and unpaid at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of cure of such Event of Default. (3) CONVERSION OF NOTES. This Note shall be convertible into shares of the Company's common stock, par value $0.001 per share (the "COMMON STOCK"), on the terms and conditions set forth in this Section 3. (a) CONVERSION RIGHT. Subject to the provisions of Section 3(d), at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common Stock in accordance with Section 3(c), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest - 2 - whole share. The Company shall pay any and all transfer, stamp and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount. (b) CONVERSION RATE. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the "CONVERSION RATE"). (i) "CONVERSION AMOUNT" means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise with respect to which this determination is being made, (B) accrued and unpaid Interest with respect to such Principal and (C) accrued and unpaid Late Charges with respect to such Principal and Interest. (ii) "CONVERSION PRICE" means, as of any Conversion Date (as defined below) or other date of determination, $10.00, subject to adjustment as provided herein. (c) MECHANICS OF CONVERSION. (i) OPTIONAL CONVERSION. To convert any Conversion Amount into shares of Common Stock on any date (a "CONVERSION DATE"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York Time, on such date, a copy of an executed notice of conversion in the form attached hereto as EXHIBIT I (the "CONVERSION NOTICE") to the Company and (B) if required by Section 3(c)(iii), surrender this Note to a common carrier for delivery to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction). On or before the (2nd) second Business Day following the date of receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation (the "CONVERSION CONFIRMATION") of receipt of such Conversion Notice to the Holder and the Company's Transfer Agent. On or before the (3rd) third Business Day following the date of receipt of a Conversion Notice (the "SHARE DELIVERY DATE"), the Company shall (X) provided that the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. If this Note is physically surrendered for conversion as required by Section 3(c)(iii) and the outstanding Principal of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the holder a new Note (in accordance with Section 17(d)) representing the outstanding Principal not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. - 3 - (ii) COMPANY'S FAILURE TO TIMELY CONVERT. If the Company shall fail to issue a certificate to the Holder or credit the Holder's balance account with DTC, as applicable, for the number of shares of Common Stock to which the Holder is entitled upon conversion of any Conversion Amount on or prior to the date which is three (3) Business Days after the Conversion Date (a "CONVERSION FAILURE"), then (A) the Company shall pay damages to the Holder for each Trading Day of such Conversion Failure in an amount equal to 1.5% of the product of (I) the sum of the number of shares of Common Stock not issued to the Holder on or prior to the Share Delivery Date and to which the Holder is entitled, multiplied by (II) the Closing Sale Price of the Common Stock on the Share Delivery Date and (B) the Holder, upon written notice to the Company, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any portion of this Note that has not been converted pursuant to such Conversion Notice; PROVIDED that the voiding of a Conversion Notice shall not affect the Company's obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 3(c)(ii) or otherwise. In addition to the foregoing, if within three (3) Business Days after the Company's receipt of the facsimile copy of a Conversion Notice the Company shall fail to issue and deliver a certificate to the Holder or credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder's conversion of any Conversion Amount, and if on or after the Share Delivery Date the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of Common Stock issuable upon such conversion that the Holder anticipated receiving from the Company (a "BUY-IN"), then the Company shall, within three (3) Business Days after the Holder's request and in the Holder's discretion, either (A) pay cash to the Holder in an amount equal to the Holder's total purchase price (including brokerage commissions and other out of pocket expenses, if any) for the shares of Common Stock so purchased (the "BUY-IN PRICE"), at which point the Company's obligation to issue and deliver such certificate or to credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder's conversion of any Conversion Amount shall terminate, or (B) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (1) such number of shares of Common Stock, times (2) the Closing Bid Price on the Conversion Date. (iii) REGISTRATION; BOOK-ENTRY. The Company shall maintain a register (the "REGISTER") for the recordation of the names and addresses of the holders of each Note and the principal amount of the Notes held by such holders (the "REGISTERED NOTES"). The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Company and the holders of the Notes shall treat each Person whose name is recorded in the Register as the owner of a Note for all purposes, including, without limitation, the right to receive payments of Principal and Interest hereunder, notwithstanding notice to the contrary. A Registered Note may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register. Upon its receipt of a request to assign or sell all or part of any Registered Note by a Holder, the Company shall record the information contained therein in the Register and issue one or more new Registered Notes in the same aggregate principal amount as the principal amount of the surrendered Registered Note to the designated assignee or transferee pursuant to Section 17. Notwithstanding anything to the contrary set forth in this Note, upon conversion of any portion of this Note in accordance with the terms hereof, the - 4 - Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note. The Holder and the Company shall maintain records showing the Principal, Interest and Late Charges, if any, converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion. (iv) PRO RATA CONVERSION; DISPUTES. In the event that the Company receives a Conversion Notice from more than one holder of Notes for the same Conversion Date and the Company can convert some, but not all, of such portions of the Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from each holder of Notes electing to have Notes converted on such date a pro rata amount of such holder's portion of its Notes submitted for conversion based on the principal amount of Notes submitted for conversion on such date by such holder relative to the aggregate principal amount of all Notes submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 22. (d) LIMITATIONS ON CONVERSIONS. (i) BENEFICIAL OWNERSHIP. The Company shall not effect any conversion of this Note, and the Holder of this Note shall not have the right to convert any portion of this Note pursuant to Section 3(a), to the extent that after giving effect to such conversion, the Holder (together with the Holder's affiliates) would beneficially own in excess of 9.99% (the "Maximum Percentage") of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any Other Notes or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d)(i), beneficial ownership shall be calculated in accordance with Section 13(d) of the 1934 Act. For purposes of this Section 3(d)(i), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) if the Company is required to file reports pursuant to the 1934 Act, the Company's most recent Form 10-K, Form 10-Q, Form 8-K or other public filing with the Securities Exchange Commission, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in - 5 - writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, the Holder may increase or decrease the Maximum Percentage to any other percentage; provided that (i) any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder and not to any other holder of Notes. (4) RIGHTS UPON EVENT OF DEFAULT. (a) EVENT OF DEFAULT. Each of the following events shall constitute an "EVENT OF DEFAULT": (i) the suspension from trading or failure of the Common Stock to be listed on an Eligible Market for a period of five (5) consecutive Trading Days or for more than an aggregate of ten (10) Trading Days in any 365-day period; (ii) the Company's (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within ten (10) Business Days after the applicable Conversion Date or (B) notice, written or oral, to any holder of the Notes, including by way of public announcement or through any of its agents, at any time, of its intention not to comply for any reason whatsoever, with a request for conversion of any Notes into shares of Common Stock that is tendered in accordance with the provisions of the Notes, other than pursuant to Section 3(d); (iii) the Holder's Authorized Share Allocation is less than the number of shares of Common Stock that the Holder would be entitled to receive upon a conversion of the full Conversion Amount of this Note (without regard to any limitations on conversion set forth in Section 3(d) or otherwise) for ten (10) consecutive Business Days; (iv) the Company's failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as due under this Note (including, without limitation, the Company's failure to pay any redemption payments or amounts hereunder) or any other Transaction Document (as defined in the Securities Purchase Agreement) or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby to which the Holder is a party, except, in the case of a failure to pay Interest and Late Charges when and as due, in which case only if such failure continues for a period of at least five (5) Business Days; (v) any default under any Indebtedness of the Company or any of its Subsidiaries (as defined in Section 3(a) of the Securities Purchase Agreement) involving an amount in excess of $250,000; (vi) the Company's or any of its Subsidiaries', (A) commencement of a voluntary case pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal, foreign or state law for the relief of debtors (collectively, "BANKRUPTCY - 6 - LAW"), (B) consent to the entry of an order for relief against it in an involuntary case under any Bankruptcy Law, (C) consent to the appointment of a receiver, trustee, assignee, liquidator or similar official (a "CUSTODIAN") under any Bankruptcy Law, (D) making of a general assignment for the benefit of its creditors or (E) admitting in writing that it is generally unable to pay its debts as they become due; (vii) a proceeding or case shall be commenced in respect of the Company, without its application or consent, in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, moratorium, dissolution, winding up, or composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its assets in connection with the liquidation or dissolution of the Company or (iii) similar relief in respect of it under any law providing for the relief of debtors, and such proceeding or case described in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in effect, for a period of thirty (30) days or any order for relief shall be entered in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic) against the Company or action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing shall be taken with respect to the Company and shall continue undismissed, or unstayed and in effect for a period of sixty (60) days; or (viii) a final judgment or judgments for the payment of money aggregating in excess of $250,000 are rendered against the Company or any of its Subsidiaries , and which judgments are not, within sixty (60) days after the entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; provided, however, that any judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the amounts set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an indemnity and the Company will receive the proceeds of such insurance or indemnity within thirty (30) days of the issuance of such judgment; (ix) the Company's breach of any representation, warranty, covenant or other term or condition of any Transaction Document, except, in the case of a breach of a covenant or other term or condition of any Transaction Document which is curable, only if such breach continues for a period of at least ten (10) consecutive Business Days following notice to the Company; (x) the Company's breach of any of the terms, conditions or covenants of this Note (not otherwise covered by Section 4(a)(iv) above, provided such breach is not otherwise cured within ten (10) consecutive Business Days following notice to the Company (only if it is capable of cure); or (xi) any Event of Default (as defined in the Other Notes) occurs with respect to any Other Notes involving an amount in excess of $250,000. (b) REDEMPTION RIGHT. Upon the occurrence of an Event of Default, the Company shall within one (1) Business Day deliver written notice thereof via facsimile and - 7 - overnight courier (an "EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the Holder's receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem. Each portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be redeemed by the Company at a price equal to the greater of (i) the product of (A) the Conversion Amount and (B) the Redemption Premium and (ii) the product of (A) the Conversion Rate with respect to such Conversion Amount in effect at such time as the Holder delivers an Event of Default Redemption Notice and (B) the product of (1) the Equity Value Redemption Premium and (2) the greatest Closing Sale Price of the Common Stock beginning on the date immediately preceding such Event of Default and ending on the date the Holder delivers the Event of Default Redemption Notice (the "EVENT OF DEFAULT REDEMPTION PRICE"). Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 9. To the extent redemptions required by this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company; such redemptions shall be deemed to be voluntary prepayments. The parties hereto agree that in the event of the Company's redemption of any portion of the Note under this Section 4(b), the Holder's damages would be uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. Accordingly, any Redemption Premium due under this Section 4(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder's actual loss of its investment opportunity and not as a penalty. The Holder's right of conversion shall remain unaffected following an Event of Default Redemption Notice. (5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL. (a) ASSUMPTION. For so long as this Note remains outstanding, the Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 5(a) pursuant to written agreements in form and substance reasonably satisfactory to the Required Holders and approved by the Required Holders prior to such Fundamental Transaction, including agreements to deliver to each holder of Notes in exchange for such Notes a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the interest rates of the Notes then outstanding held by such holder, having similar conversion rights and having similar ranking to the Notes, and satisfactory to the Required Holders and (ii) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market (a "PUBLIC SUCCESSOR ENTITY"). Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Fundamental Transaction, the Successor - 8 - Entity shall deliver to the Holder confirmation that there shall be issued upon conversion or redemption of this Note at any time after the consummation of the Fundamental Transaction, in lieu of the shares of the Company's Common Stock (or other securities, cash, assets or other property) issuable upon the conversion or redemption of the Notes prior to such Fundamental Transaction, such shares of the publicly traded common stock (or their equivalent) of the Successor Entity (including its Parent Entity), as adjusted in accordance with the provisions of this Note. The provisions of this Section shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion or redemption of this Note. (b) REDEMPTION RIGHT. No sooner than fifteen (15) Trading Days nor later than ten (10) Trading Days prior to the consummation of a Change of Control, but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a "CHANGE OF CONTROL NOTICE"). At any time during the period beginning after the Holder's receipt of a Change of Control Notice and ending sixty (60) Trading Days after the date of the consummation of such Change of Control, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL REDEMPTION NOTICE") to the Company, which Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to redeem. The portion of this Note subject to redemption pursuant to this Section 5 shall be redeemed by the Company in cash at a price equal to the greater of (i) the product of (A) the Redemption Premium and (B) the Conversion Amount being redeemed and (ii) the product of (A) the Equity Value Redemption Premium and (B) the product of (1) the Conversion Amount being redeemed multiplied by (2) the quotient determined by dividing (x) the aggregate cash consideration and the aggregate cash value of any non-cash consideration per Common Share to be paid to the holders of the Common Shares, or the Company, if applicable, upon consummation of the Change of Control (any such non-cash consideration consisting of marketable securities to be valued at the higher of the Closing Sale Price of such securities as of the Trading Day immediately prior to, the Closing Sale Price as of the Trading Day immediately following the public announcement of such proposed Change of Control and the Closing Sale Price of the Common Stock immediately prior to the public announcement of such proposed Change of Control) by (y) the Conversion Price, (the "CHANGE OF CONTROL REDEMPTION PRICE"). Redemptions required by this Section 5 shall be made in accordance with the provisions of SECTION 9 and shall have priority to payments to stockholders in connection with a Change of Control. To the extent redemptions required by this Section 5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company, such redemptions shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, but subject to Section 3(d), until the Change of Control Redemption Price (together with any interest thereon) is paid in full, the Conversion Amount submitted for redemption under this Section 5(b) (together with any interest thereon) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3. The parties hereto agree that in the event of the Company's redemption of any portion of the Note under this Section 5(b), the Holder's damages would be uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. Accordingly, any Change of Control redemption premium due under this Section 5(b) is intended by the parties to be, and shall be - 9 - deemed, a reasonable estimate of the Holder's actual loss of its investment opportunity and not as a penalty. The Holder's right of conversion shall remain unaffected following an Change of Control Redemption Notice. (6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS. (a) PURCHASE RIGHTS. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (b) OTHER CORPORATE EVENTS. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note, at the Holder's option, (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of this Note) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the Required Holders. The provisions of this Section shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or redemption of this Note. (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES. (a) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON STOCK. If and whenever on or after the Subscription Date, and subject to the terms of Section 7(b) hereafter, the Company issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued or sold by the Company in connection with any Excluded Securities) for a consideration per share (the "NEW ISSUANCE PRICE") less than a price - 10 - (the "APPLICABLE PRICE") equal to the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale (the foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance Price. For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable: (i) ISSUANCE OF OPTIONS. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7(a)(i), the "lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion or exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange or exercise of such Convertible Securities. (ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the "lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange or exercise" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange or exercise of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock upon conversion or exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price had been or are to be made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason of such issue or sale. (iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable or - 11 - exercisable for Common Stock increases or decreases at any time, the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Subscription Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect. (iv) CALCULATION OF CONSIDERATION RECEIVED. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such securities on the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Required Holders. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "VALUATION EVENT"), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Required Holders. The determination of such appraiser shall be deemed binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company. (v) RECORD DATE. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making - 12 - of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (vi) VOLUNTARY ADJUSTMENT BY COMPANY. The Company may at any time during the term of this Note reduce the then current Conversion Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. (b) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON STOCK AFTER A QUALIFIED OFFERING. Once the Company completes a financing transaction that results in it having achieved a "Qualified Offering" (as that term is defined hereafter), the anti-dilution provisions of Section 7(a) of this Agreement shall be deemed amended and restated and replaced by the anti-dilution provisions contained within any one or more of the financing transactions that constituted the Qualified Offering, with the selection of such replacement anti-dilution provisions to be made by and at the discretion of the Holder. Thereafter, if and whenever the Company issues or sells, or in accordance with Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued or sold by the Company in connection with any Excluded Securities) for a NEW ISSUANCE PRICE less than the then applicable Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale (the foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance the Conversion Price then in effect shall be adjusted (reduced but not increased) in accordance with the then applicable anti-dilution provisions in effect as selected above by the Holder. For the purposes of clarity, the existing anti-dilution provisions in effect under Section 7(a) shall remain in effect with respect to the financing transaction that resulted in the Company having achieved a Qualified Offering. (c) ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. (d) OTHER EVENTS. If any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder under this Note; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 8. - 13 - (8) OPTIONAL RIGHT OF REDEMPTION. (a) At any time within ninety (90) days after the completion of a Qualified Offering, the Company or the Holder shall each have the right to deliver written notice thereof via facsimile and overnight courier (an "OPTIONAL REDEMPTION NOTICE") to the other Party pursuant to which the Company shall have the right to redeem, and the Holder shall have the right to cause the Company to redeem, all or less than all of the Note. The Optional Redemption Notice shall specify the amount of the Note to be redeemed. Each portion of this Note subject to redemption pursuant to this Section 8 shall be redeemed by the Company at a price equal to the Conversion Amount (the "OPTIONAL REDEMPTION PRICE"). Redemptions required by this Section 8 shall be made in accordance with the provisions of Section 9. To the extent redemptions required by this Section 8 are deemed or determined by a court of competent jurisdiction to be prepayments of the Note by the Company; such redemptions shall be deemed to be voluntary prepayments. The Holder's right of conversion shall remain unaffected following an Optional Redemption Notice received by the Holder from the Company. (9) REDEMPTION EVENTS. (a) MECHANICS. The Company shall deliver the applicable Event of Default Redemption Price to the Holder within five (5) Business Days after the Company's receipt of the Holder's Event of Default Redemption Notice. If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(b), the Company shall deliver the applicable Change of Control Redemption Price to the Holder concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five (5) Business Days after the Company's receipt of such notice otherwise. The Company shall deliver the Optional Redemption Price to the Holder within five (5) Business Days after receipt of the Optional Redemption Notice by either Party. In the event of a redemption of less than all of the Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 17(d)) representing the outstanding Principal which has not been redeemed. In the event that the Company does not pay the applicable Redemption Price to the Holder within the time period required, at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require the Company to promptly return to the Holder all or any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid. Upon the Company's receipt of such notice, (x) the applicable Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately return or reinstate this Note, or issue a new Note (in accordance with Section 17(d)) to the Holder representing the sum of such Conversion Amount to be redeemed together with accrued and unpaid Interest with respect to such Conversion Amount and accrued and unpaid Late Charges with respect to such Conversion Amount and Interest and (z) the Conversion Price of this Note or such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided and (B) the lowest Closing Bid Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Company and ending on and including the date on which the applicable Redemption Notice is voided. The Holder's delivery of a notice voiding a Redemption Notice - 14 - and exercise of its rights following such notice shall not affect the Company's obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Conversion Amount subject to such notice. (b) REDEMPTION BY OTHER HOLDERS. Upon the Company's receipt of notice from any of the holders of the Other Notes for redemption or repayment as a result of an event or occurrence substantially similar to the events or occurrences described in Section 4(b), 5(b), or Section 8 (each, an "OTHER REDEMPTION NOTICE"), the Company shall immediately, but no later than one (1) Business Day of its receipt thereof, forward to the Holder by facsimile a copy of such notice. If the Company receives a Redemption Notice and one or more Other Redemption Notices, during the seven (7) Business Day period beginning on and including the date which is three (3) Business Days prior to the Company's receipt of the Holder's Redemption Notice and ending on and including the date which is three (3) Business Days after the Company's receipt of the Holder's Redemption Notice and the Company is unable to redeem all principal, interest and other amounts designated in such Redemption Notice and such Other Redemption Notices received during such seven (7) Business Day period, then the Company shall redeem a pro rata amount from each holder of the Notes (including the Holder) based on the principal amount of the Notes submitted for redemption pursuant to such Redemption Notice and such Other Redemption Notices received by the Company during such seven Business Day period. (10) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note. (11) RESERVATION OF AUTHORIZED SHARES. (a) RESERVATION. The Company shall initially reserve out of its authorized and unissued Common Stock a number of shares of Common Stock for each of the Notes equal to 130% of the Conversion Rate with respect to the Conversion Amount of each such Note as of the Issuance Date. So long as any of the Notes are outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Notes, 130% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Notes then outstanding; provided that at no time shall the number of shares of Common Stock so reserved be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The initial number of shares of Common Stock reserved for conversions of the Notes and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Notes based on the principal amount of the Notes held by each holder at the Closing (as defined in the Securities Purchase Agreement) or increase in the number of reserved shares, as the case may be (the "AUTHORIZED SHARE ALLOCATION"). In the event that a holder shall sell or otherwise transfer any of such holder's Notes, each transferee shall be - 15 - allocated a pro rata portion of such holder's Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Notes shall be allocated to the remaining holders of Notes, pro rata based on the principal amount of the Notes then held by such holders. (b) INSUFFICIENT AUTHORIZED SHARES. If at any time while any of the Notes remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Notes at least a number of shares of Common Stock equal to the Required Reserve Amount (an "AUTHORIZED SHARE FAILURE"), then the Company shall immediately take all action necessary to increase the Company's authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Notes then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than seventy-five (75) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders (or have a written consent of shareholders executed by the requisite number of shareholders required to approve the action) for the approval of an increase in the number of authorized shares of Common Stock and the Noteholders shall vote any and all shares of Common Stock owned by them in favor of such action. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders' approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal. (12) VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except (a) as required by law, including, but not limited to, the NEVADA REVISED STATUTES, and (b) as expressly provided in this Note. (13) COVENANTS. So long as this Note is outstanding: (a) RANK. All payments due under this Note (a) shall rank PARI PASSU with all Other Notes, (b) shall rank junior to the amounts due under: (i) the Company's Amended and Restated Credit Agreement with Fourth Third, LLC, (ii) the Indebtedness owed by the Company to Greenfield Commercial Credit, LLC; and (iii) the 12% Subordinated Secured Convertible Promissory Note from the Company to Black Forest International, LLC (collectively, the "SENIOR DEBT") and (c) shall be senior to all other Indebtedness of the Company and its Subsidiaries, other than the Senior Debt. (b) INCURRENCE OF INDEBTEDNESS. The Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness, other than the Indebtedness evidenced by this Note and the Other Notes and other Permitted Indebtedness. (c) EXISTENCE OF LIENS. The Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or - 16 - assets (including accounts and contract rights) owned by the Company or any of its Subsidiaries (collectively, "LIENS") other than Permitted Liens. (d) RESTRICTED PAYMENTS. The Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Permitted Indebtedness (other than the Notes and the Senior Debt), whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness if at the time such payment is due or is otherwise made or, after giving effect to such payment, an event constituting, or that with the passage of time and without being cured would constitute, an Event of Default has occurred and is continuing. (e) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until all of the Notes have been converted, redeemed or otherwise satisfied in accordance with their terms, the Company shall not, directly or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution on its capital stock without the prior express written consent of the Required Holders, except as otherwise permitted within Section 4(j) of the Securities Purchase Agreement. (f) USE OF PROCEEDS. The Company will use the proceeds from the sale of the Notes substantially as set forth in Section 4(d) of the Securities Purchase Agreement. (14) PARTICIPATION. The Holder, as the holder of this Note, shall be entitled to receive such dividends paid and distributions made to the holders of Common Stock to the same extent as if the Holder had converted this Note into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. (15) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting of the Required Holders shall be required for any change or amendment to this Note or the Other Notes, and any such change agreed to shall be binding on all Noteholders and the Company may rely conclusively on evidence of such action having been taken. (16) TRANSFER. This Note and any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company, subject only to the provisions of Section 2(f) of the Securities Purchase Agreement. (17) REISSUANCE OF THIS NOTE. (a) TRANSFER. If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 19(d)), registered as the - 17 - Holder may request, representing the outstanding Principal being transferred by the Holder and, if less then the entire outstanding Principal is being transferred, a new Note (in accordance with Section 19(d)) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note. (b) LOST, STOLEN OR MUTILATED NOTE. Upon receipt by the Company of an affidavit and agreement of indemnity from a record Noteholder in a form reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 17(d)) representing the outstanding Principal. (c) NOTE EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 17(d) representing in the aggregate the outstanding Principal of this Note, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surrender. (d) ISSUANCE OF NEW NOTES. Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 19(a) or Section 19(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest and Late Charges, if any, on the Principal and Interest of this Note, from the Issuance Date. (18) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief) unless otherwise specified, and nothing herein shall limit the Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available - 18 - remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (19) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors' rights and involving a claim under this Note, then the Company shall pay the reasonable and actual costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, but not limited to, attorneys' fees and disbursements. (20) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by the Company and all the Purchasers and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note. (21) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. (22) DISPUTE RESOLUTION. In the case of a dispute as to the determination of (a) the Closing Bid Price, the Closing Sale Price or the Weighted Average Price or (b) the arithmetic calculation of the Conversion Rate or any Redemption Price, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within three (3) Business Day of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation within three (3) Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one (1) Business Day submit via facsimile (a) the disputed determination of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Rate or any Redemption Price to the Company's independent, outside accountant. The Company, at the Company's expense, shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five (5) Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. (23) NOTICES; PAYMENTS. (a) NOTICES. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 10(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written - 19 - notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty (20) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder. (b) PAYMENTS. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money of the United States of America by a check drawn on the account of the Company and sent via overnight courier service to such Person at such address as previously provided to the Company in writing (which address, in the case of each of the Purchasers, shall initially be as set forth on the Schedule of Buyers attached to the Securities Purchase Agreement); provided that the Holder may elect to receive a payment of cash via wire transfer of immediately available funds by providing the Company with prior written notice setting out such request and the Holder's wire transfer instructions. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day and, in the case of any Interest Date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of Interest due on such date. Any amount of Principal or other amounts due under the Transaction Documents, other than Interest, which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of eighteen percent (18%) per annum from the date such amount was due until the same is paid in full ("LATE CHARGE"). (24) CANCELLATION. After all Principal, accrued Interest and other amounts at any time owed on this Note have been paid in full, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued. (25) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Securities Purchase Agreement. (26) GOVERNING LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, County of New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees - 20 - not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company's obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY. (27) CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings: (a) "APPROVED STOCK PLAN" means any employee benefit plan which has been approved by the Board of Directors of the Company (which shall include the affirmative approval of all independent directors, if any) , pursuant to which the Company's securities may be issued to any employee, officer or director or consultants for services provided to the Company. (b) "BLOOMBERG" means Bloomberg Financial Markets. (c) "BUSINESS DAY" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed. (d) "CALENDAR QUARTER" means each of: the period beginning on and including January 1 and ending on and including March 31; the period beginning on and including April 1 and ending on and including June 30; the period beginning on and including July 1 and ending on and including September 30; and the period beginning on and including October 1 and ending on and including December 31. (e) "CHANGE OF CONTROL" means any Fundamental Transaction other than (i) any reorganization, recapitalization or reclassification of the Common Stock in which holders of the Company's voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities, or (ii) pursuant - 21 - to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company. (f) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 22, subject to appropriate adjustment for any stock split, stock dividend, stock combination or other similar transaction that proportionately decreases or increases the Common Stock after the date hereof. (g) "CLOSING DATE" shall have the meaning set forth in the Securities Purchase Agreement which corresponds to the date this Note and the Other Notes were initially issued pursuant to the terms of the Securities Purchase Agreement. (h) "CONTINGENT OBLIGATION" means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto. (i) "CONVERTIBLE SECURITIES" means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for Common Stock. (j) "ELIGIBLE MARKET" means the Principal Market, The New York Stock Exchange, Inc., the American Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ Capital Market, OTC Bulletin Board or the Pink Sheets, or any market that is a successor to any of the foregoing. - 22 - (k) "EQUITY VALUE REDEMPTION PREMIUM" means (i) for any Event of Default Notice delivered or required to be delivered in connection with an Event of Default, 120%; or (ii) for any Change of Control Notice delivered or required to be delivered in connection with a Change of Control, 120%. (l) "EXCLUDED SECURITIES" means any Common Stock issued or issuable: (i) in connection with any Approved Stock Plan; (ii) upon conversion of the Notes or the exercise of the Warrants; (iii) upon exercise of any Options or Convertible Securities which have been issued and are outstanding on the day immediately preceding the Subscription Date, provided that the terms of such Options or Convertible Securities are not amended, modified or changed on or after the Subscription Date; (iv) securities issued pursuant to acquisitions or strategic acquisition related transactions that are approved by a majority of the disinterested directors of the Company, and provided any such issuance be to a Person which is, itself, or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities; (v) in connection with the issuance of securities disclosed in the Company's Form 8-K dated June 30, 2008, as filed with the SEC on July 7, 2008, and as amended on August 6, 2008; and (vi) the 7,000,000 shares of the Company's Common Stock issued in the name of Earth Biofuels, Inc.. (m) "FUNDAMENTAL TRANSACTION" means that the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person or Persons, or (ii) sell, assign, transfer, convey or otherwise dispose of or exclusively license or lease all or substantially all of the properties or assets of the Company to another Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock (not including: (a) any shares of Voting Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer; and (b) the 7,000,000 shares of Common Stock issued in the name of Earth Biofuels, Inc.), or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the outstanding shares of Voting Stock (not including any shares of Voting Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), or (v) reorganize, recapitalize or reclassify its Common Stock or (vi) any "person" or "group" (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock of the Company. (n) "GAAP" means United States generally accepted accounting principles, consistently applied. (o) "INDEBTEDNESS" of any Person means, without duplication (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including (without limitation) "capital leases" in - 23 - accordance with GAAP (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in connection with GAAP, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (viii) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above. (p) "OPTIONS" means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities. (q) "PARENT ENTITY" of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction. (r) "PERMITTED INDEBTEDNESS" means (i) Indebtedness evidenced by this Note and the Other Notes; (ii) Indebtedness described on Schedule 3(s) to the Securities Purchase Agreement; (iii) Indebtedness incurred solely for the purpose of financing the acquisition or lease of any Equipment (as defined in the Security Agreement) by the Company or any of its Subsidiaries, including Capital Lease Obligations with no recourse other than to such Equipment; (iv) the Senior Debt; and (v) renewals, extensions and refinancing of any Indebtedness described in clauses (i) or (iii) of this subsection. (s) "PERMITTED LIENS" means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen's liens, mechanics' liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property - 24 - so acquired and improvements thereon, and the proceeds of such equipment, (v) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (i) and (iv) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase, (vi) leases or subleases and licenses and sublicenses granted to others in the ordinary course of the Company's business, not interfering in any material respect with the business of the Company and its Subsidiaries taken as a whole, (vii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods, (viii) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 4(a), and (ix) Liens securing the Company's obligations under the Permitted Indebtedness, including the Senior Debt. (t) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof. (u) "PRINCIPAL MARKET" means the principal market, exchange or automated quotation system upon which the shares of the Company's Common Stock trade, including the OTC Bulletin Board or the Pink Sheets. (v) "QUALIFIED OFFERING" means, the combination of any one or more transactions in which the Company sells, grants, issues or disposes of any of the Company's debt, equity or equity equivalent securities, including without limitation any debt, preferred stock or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for shares of Common Stock or Common Stock equivalents, which, commencing after the Closing Date, generate aggregate gross proceeds of $15,000,000 or more. (w) "REDEMPTION NOTICES" means, collectively, any Event of Default Redemption Notices, any Change of Control Redemption Notices, or any Optional Redemption Notices (each of the foregoing, individually, a Redemption Notice.) (x) "REDEMPTION PREMIUM" means (i) in the case of the Events of Default described in Section 4(a)(i) - (v) and (viii) - (xi), 125%; (ii) in the case of the Events of Default described in Section 4(a)(vi) - (vii), 100%; or (iii) in the case of a Redemption under Section 5(b) of this Agreement, 120%. (y) "REDEMPTION PRICES" means, collectively, the Event of Default Redemption Price, the Change of Control Redemption Price, the Company Optional Redemption Price and the Holder Optional Redemption Price, each of the foregoing, individually, a Redemption Price. (z) "REQUIRED HOLDERS" mean the holders of Notes representing at least a majority of the aggregate principal amount of the Notes then outstanding. - 25 - (aa) "SEC" means the United States Securities and Exchange Commission. (bb) "SECURITIES PURCHASE AGREEMENT" means that certain securities purchase agreement dated as of the Subscription Date by and among the Company and the initial holders of the Notes pursuant to which the Company issued the Notes and Warrants. (cc) "SUBSCRIPTION DATE" means August 19, 2008. (dd) "SUCCESSOR ENTITY" means the Person, which may be the Company, formed by, resulting from or surviving any Fundamental Transaction or the Person with which such Fundamental Transaction shall have been made, provided that if such Person is not a publicly traded entity whose common stock or equivalent equity security is quoted or listed for trading on an Eligible Market, Successor Entity shall mean such Person's Parent Entity. (ee) "TRADING DAY" means any day on which the Common Stock is traded or eligible for trading on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then eligible for trading; provided that except for purposes of Section 4(a)(i) "Trading Day" shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York Time). (ff) "TRANSACTION DOCUMENTS" mean the "Transaction Documents" as defined in the Securities Purchase Agreement. (gg) "VOTING STOCK" of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). (hh) "WARRANTS" has the meaning ascribed to such term in the Securities Purchase Agreement, and shall include all warrants issued in exchange therefor or replacement thereof. (ii) "WEIGHTED AVERAGE PRICE" means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg through its "Volume at Price" functions, or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York Time (or such other time as such market publicly announces is the official open of - 26 - trading), and ending at 4:00:00 p.m., New York Time (or such other time as such market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 22, subject to appropriate adjustment for any stock split, stock dividend, stock combination or other similar transaction that proportionately decreases or increases the Common Stock during the applicable calculation period. (28) DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, nonpublic information relating to the Company or its Subsidiaries, the Company so shall indicate to such Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries. [Signature Page Follows] - 27 - EXECUTION PAGE - NOTE IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out above. PNG VENTURES, INC. By:/s/ Kevin Markey ---------------- Name: Kevin Markey Title: Chief Executive Officer EXHIBIT I PNG VENTURES, INC. CONVERSION NOTICE Reference is made to the Subordinated Convertible Note (the "NOTE") issued to the undersigned by PNG Ventures, Inc. (the "COMPANY"). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock par value $0.001 per share (the "COMMON STOCK") of the Company, as of the date specified below. Date of Conversion: ------------------------------------------------------- Aggregate Conversion Amount to be converted: ------------------------------ Please confirm the following information: Conversion Price: --------------------------------------------------------- Number of shares of Common Stock to be issued: -------------------------------------- Please issue the Common Stock into which the Note is being converted in the following name and to the following address: Issue to: ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- Facsimile Number: --------------------------------------------------------- Authorization: ------------------------------------------------------------ By: -------------------------------------------------------------- Title: ------------------------------------------------------- Dated: ------------------------------------------------------------------------- Account Number: --------------------------------------------------------- (if electronic book entry transfer) Transaction Code Number: ------------------------------------------------ (if electronic book entry transfer) ACKNOWLEDGMENT The Company hereby acknowledges this Conversion Notice and hereby directs Action Stock Transfer Corporation to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated August 19, 2008 from the Company and acknowledged and agreed to by Action Stock Transfer Corporation. PNG VENTURES, INC. By: ------------------------------- Name: Kevin Markey Title: Chief Executive Officer EX-99 4 p08-1310exh99_3.txt EXHIBIT 99.3 FINAL EXECUTION NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. PNG VENTURES, INC. WARRANT TO PURCHASE COMMON STOCK Number of Shares of Common Stock: TOTAL--797,059 Date of Issuance: August 19, 2008 ("ISSUANCE DATE") PNG VENTURES, Inc., a Nevada corporation, (the "COMPANY"), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, CASTLERIGG PNG INVESTMENTS LLC, the registered holder hereof or its permitted assigns (the "HOLDER"), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon surrender of this Warrant to Purchase Common Stock (including any Warrants to purchase Common Stock issued in exchange, transfer or replacement hereof, the "WARRANT"), at any time or times on or after the date hereof, but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), seven hundred and ninety seven thousand and fifty nine (797,059) fully paid nonassessable shares of Common Stock (as defined below) (the "WARRANT SHARES"). Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 16. This Warrant is one of the Warrants to purchase Common Stock (the "SPA WARRANTS") issued pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of August 19, 2008 (the "SUBSCRIPTION DATE"), by and among the Company and the investors (the "BUYERS") referred to therein (the "SECURITIES PURCHASE AGREEMENT"), and to the extent applicable, is subject to the terms of the Securities Purchase Agreement. 1. EXERCISE OF WARRANT. (a) MECHANICS OF EXERCISE. Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder on any day on or after the date hereof in whole or in part, by (i) delivery of a written notice, in the form attached hereto as EXHIBIT A (the "EXERCISE NOTICE"), of the Holder's election to exercise this Warrant and (ii) (A) payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the "AGGREGATE EXERCISE PRICE") in cash or wire transfer of immediately available funds or (B) by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. On or before the first Business Day following the date on which the Company has received each of the Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless Exercise) (the "EXERCISE DELIVERY DOCUMENTS"), the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the Exercise Delivery Documents to the Holder and the Company's transfer agent (the "TRANSFER AGENT"). On or before the third Trading Day following the date on which the Company has received all of the Exercise Delivery Documents (the "SHARE DELIVERY DATE"), the Company shall (X) provided that: (i) the Company's Transfer Agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, and (ii) the public resale of the Warrant Shares is permissible under the Act, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, or if the Warrant Shares are not eligible for public resale under the Act, deliver to be received no later than the Share Delivery Date, to the address as specified in the Exercise Notice, a certificate, registered in the Company's share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in clause (ii)(A) above or notification to the Company of a Cashless Exercise referred to in Section 1(d), the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three Business Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number. The Company shall pay any and all taxes which may be - 2 - payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant. (b) EXERCISE PRICE. For purposes of this Warrant, "EXERCISE PRICE" means $10.00 per share, as subject to adjustment herein. (c) COMPANY'S FAILURE TO TIMELY DELIVER SECURITIES. If the Company shall fail for any reason or for no reason to issue to the Holder within three (3) Trading Days of receipt of the Exercise Delivery Documents, a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Company's share register or to credit the Holder's balance account with DTC for such number of shares of Common Stock to which the Holder is entitled upon the Holder's exercise of this Warrant, then, in addition to all other remedies available to the Holder, the Company shall pay in cash to the Holder on each day after such third Trading Day that the issuance of such shares of Common Stock is not timely effected an amount equal to 1.5% of the product of (A) the sum of the number of shares of Common Stock not issued to the Holder on a timely basis and to which the Holder is entitled and (B) the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding the last possible date which the Company could have issued such shares of Common Stock to the Holder without violating Section 1(a). In addition, if within three (3) Trading Days after the Company's receipt of the facsimile copy of a Exercise Notice the Company shall fail to issue and deliver a certificate to the Holder and register such shares of Common Stock on the Company's share register or credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder's exercise hereunder, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a "BUY-IN"), then the Company shall, within three Business Days after the Holder's request and in the Holder's discretion, either (i) pay cash to the Holder in an amount equal to the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the "BUY-IN PRICE"), at which point the Company's obligation to deliver such certificate (and to issue such shares of Common Stock) or credit such Holder's balance account with DTC shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit such Holder's balance account with DTC and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on the date of exercise. (d) CASHLESS EXERCISE. Notwithstanding anything contained herein to the contrary, if a registration statement covering the resale of the Warrant Shares that are the subject of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES") is not available for the resale of such Unavailable Warrant Shares, the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the "Net Number" of shares of Common Stock determined according to the following formula (a "CASHLESS EXERCISE"): Net Number = (A X B) - (A X C) ----------------- - 3 - B For purposes of the foregoing formula: A= the total number of shares with respect to which this Warrant is then being exercised. B= the Average Market Price of the shares of Common Stock (as reported by Bloomberg) on the date immediately preceding the date of the Exercise Notice. C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise. (e) DISPUTES. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 12. (f) LIMITATIONS ON EXERCISES. (i) BENEFICIAL OWNERSHIP. The Company shall not effect the exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that after giving effect to such exercise, such Person (together with such Person's affiliates) would beneficially own in excess of 9.99% (the "MAXIMUM PERCENTAGE") of the shares of Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Person and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Person and its affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person and its affiliates (including, without limitation, any c onvertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) (in the event the Company files reports under the Exchange Act), the Company's most recent Form 10-K, 10-KSB, Form 10-Q, 10-QSB, Current Report on Form 8-K or other public filing with the Securities and - 4 - Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including the SPA Securities and the SPA Warrants, by the Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, the Holder may increase or decrease the Maximum Percentage to any other percentage specified in such notice; provided that (i) any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder and not to any other holder of SPA Warrants. 2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows: (a) ADJUSTMENT UPON ISSUANCE OF SHARES OF COMMON STOCK. If and whenever on or after the Subscription Date, and subject to the terms of Section 2(b) hereafter, the Company issues or sells, or in accordance with this Section 2 is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued by the Company in connection with any Excluded Securities) for a consideration per share (the "NEW ISSUANCE PRICE") less than the Exercise Price (the "APPLICABLE PRICE") in effect immediately prior to such issue or sale or deemed issuance or sale (the foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the New Issuance Price. No adjustments shall be made, however, under 2(a) upon the issuance of Excluded Securities. Upon each such adjustment of the Exercise Price hereunder, the number of Warrant Shares shall be adjusted to the number of shares of Common Stock determined by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. For purposes of determining the adjusted Exercise Price under this Section 2(a), the following shall be applicable: (i) ISSUANCE OF OPTIONS. If the Company in any manner grants any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or - 5 - sale of such Option for such price per share. For purposes of this Section 2(a)(i), the "lowest price per share for which one share of Common Stock is issuable upon exercise of such Options or upon conversion, exercise or exchange of such Convertible Securities issuable upon exercise of any such Options" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Exercise Price or number of Warrant Shares shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities. (ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 2(a)(ii), the "lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security. No further adjustment of the Exercise Price or number of Warrant Shares shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this Warrant has been or is to be made pursuant to other provisions of this Section 2(a), no further adjustment of the Exercise Price or number of Warrant Shares shall be made by reason of such issue or sale. Notwithstanding the above, the issuance of Common Stock upon the conversion of the Company's Series C Preferred Stock, shall be deemed to be an issuance of shares under Section 2(a) above, and the consideration received shall be the conversion price then in effect. (iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time, the Exercise Price and the - 6 - number of Warrant Shares in effect at the time of such increase or decrease shall be adjusted to the Exercise Price and the number of Warrant Shares which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 2(a)(iii), if the terms of any Option or Convertible Security that were outstanding as of the date of issuance of this Warrant are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 2(a)(iii) shall be made if such adjustment would result in an increase of the Exercise Price then in effect or a decrease in the number of Warrant Shares. (iv) CALCULATION OF CONSIDERATION RECEIVED. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $0.01. If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such security on the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Required Holders. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "VALUATION EVENT"), the fair value of such consideration will be determined within five (5) Business Days after the tenth day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Required Holders. The determination of such - 7 - appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company. (v) RECORD DATE. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (vi) VOLUNTARY ADJUSTMENT BY COMPANY. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. (b) ADJUSTMENT UPON ISSUANCE OF SHARES OF COMMON STOCK AFTER A QUALIFIED OFFERING. Once the Company completes a transaction that results in it having achieved a "Qualified Offering" (as that term is defined hereafter), the anti-dilution provisions of Section 2(a) of this Warrant shall be deemed amended and restated and replaced by the anti-dilution provisions contained within any one or more of the financing transactions that constituted the Qualified Offering, with the selection of such replacement anti-dilution provisions to be made by and at the discretion of the Holder. Thereafter, if and whenever the Company issues or sells, or in accordance with this Section 2 is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued by the Company in connection with any Excluded Securities) for a NEW ISSUANCE PRICE less than the Exercise Price in effect immediately prior to such issue or sale or deemed issuance or sale (the foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be adjusted (reduced but not increased) in accordance with the then applicable anti-dilution provisions in effect as selected above by the Holder. For the purposes of clarity, the existing anti-dilution provisions in effect under Section 2(a) shall remain in effect with respect to the transaction that resulted in the Company having achieved a Qualified Offering. (c) ADJUSTMENT UPON SUBDIVISION OR COMBINATION OF SHARES OF COMMON STOCK. If the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise - 8 - Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(b) shall become effective at the close of business on the date the subdivision or combination becomes effective. (d) OTHER EVENTS. If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Exercise Price and the number of Warrant Shares so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(d) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2. 3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each such case: (a) any Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid Price of the shares of Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's Board of Directors) applicable to one share of Common Stock, and (ii) the denominator shall be the Closing Bid Price of the shares of Common Stock on the Trading Day immediately preceding such record date; and (b) the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding paragraph (a); provided that in the event that the Distribution is of shares of common stock ("OTHER SHARES OF COMMON STOCK") of a company whose common shares are traded on a national securities exchange or a national automated quotation system, then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding - 9 - paragraph (a) and the number of Warrant Shares calculated in accordance with the first part of this paragraph (b). 4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS; PURCHASE OF WARRANT. (a) PURCHASE RIGHTS. In addition to any adjustments pursuant to Section 2 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the "PURCHASE RIGHTS"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (b) FUNDAMENTAL TRANSACTIONS. The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section (4)(b) pursuant to written agreements in form and substance satisfactory to the Required Holders and approved by the Required Holders prior to such Fundamental Transaction, including agreements to deliver to each holder of Warrants in exchange for such Warrants a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, an adjusted exercise price equal to the value for the shares of Common Stock reflected by the terms of such Fundamental Transaction, and exercisable for a corresponding number of shares of capital stock equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and satisfactory to the Required Holders and (ii) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property) purchasable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been converted immediately prior to such Fundamental Transaction, as adjusted in accordance with the provisions of this Warrant. In addition to and not in substitution for any - 10 - other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a "CORPORATE EVENT"), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant at any time after the consummation of the Fundamental Transaction but prior to the Expiration Date, in lieu of the shares of the Common Stock (or other securities, cash, assets or other property) purchasable upon the exercise of the Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had the Warrant been exercised immediately prior to such Fundamental Transaction. Provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Required Holders. The provisions of this Section shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied without regard to any limitations on the exercise of this Warrant. (c) PURCHASE OF WARRANTS. Notwithstanding the foregoing and the provisions of Section 4(b) above, in the event of a Fundamental Transaction, at the request of the Holder delivered before the 90th day after such Fundamental Transaction, the Holder shall have the right to require the Company (or the Successor Entity), to purchase this Warrant from the Holder by paying to the Holder, within five (5) Business Days after such request (or, if later, on the effective date of the Fundamental Transaction), in lieu of the warrant referred to in Section 4(b), cash in an amount equal to the Black Scholes Value of the remaining unexercised portion of this Warrant as of the Black Scholes Value Determination Date. 5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, the Holder, solely in such Person's capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of share capital of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Person's capacity as the Holder of this Warrant, any of the rights of a shareholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company shall provide the Holder with copies of the same notices and other information given to the shareholders of the Company generally, contemporaneously with the giving thereof to the shareholders. 6. NONCIRCUMVENTION AND DILUTIVE ISSUANCES. (a) NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, - 11 - issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of the SPA Warrants, 130% of the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of the SPA Warrants then outstanding (without regard to any limitations on exercise). 7. REISSUANCE OF WARRANTS. (a) TRANSFER OF WARRANT. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less then the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred. (b) LOST, STOLEN OR MUTILATED WARRANT. Upon receipt by the Company of an affidavit and agreement of indemnity in a form reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant. (c) EXCHANGEABLE FOR MULTIPLE WARRANTS. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no Warrants for fractional shares of Common Stock shall be given. (d) ISSUANCE OF NEW WARRANTS. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other - 12 - new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant. 8. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder. 9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Required Holders; provided that no such action may increase the exercise price of any SPA Warrant or decrease the number of shares or class of stock obtainable upon exercise of any SPA Warrant without the written consent of the Holder. No such amendment shall be effective to the extent that it applies to less than all of the holders of the SPA Warrants then outstanding. 10. GOVERNING LAW. This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. 11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company and all the Buyers and shall not be construed against any person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant. 12. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two Business Days of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three Business Days of such - 13 - disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two Business Days submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company's independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. 13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder right to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. 14. TRANSFER; REGISTRATION RIGHTS. This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company, except as may otherwise be required by Sections 2(h) and 2(i) of the Securities Purchase Agreement. The Company has agreed to grant registration rights associated with the registration of the re-offer of the Warrant Shares in the manner, and subject to the provisions of the Securities Purchase Agreement, and the terms of this Warrant shall at all times remain subject to such registration rights, regardless of whether this Warrant is transferred by the original Holder. 15. SEVERABILITY. If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s). 16. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings: - 14 - (a) "APPROVED STOCK PLAN" means any employee benefit plan which has been approved by the Board of Directors of the Company (which shall include the affirmative approval of all independent directors, if any) , pursuant to which the Company's securities may be issued to any employee, officer or director or consultants for services provided to the Company. (b) "AVERAGE MARKET PRICE" means, for any given date, the lesser of : (i) the arithmetic average of the lowest Weighted Average Price of the Common Stock during the fifteen (15) consecutive TRADING DAYS ending on the TRADING DAY immediately prior to such given date (the "MEASURING PERIOD") and (ii) the arithmetic average of the lowest Weighted Average Price of the Common Stock during any three (3) consecutive TRADING DAY period during the MEASURING PERIOD; provided, that all such determinations shall be subject to appropriate adjustment for any stock split, stock dividend, stock combination or other similar transaction that proportionately decreases or increases the Common Stock during such periods. (c) "BLACK SCHOLES VALUE" means the value of this Warrant based on the Black and Scholes Option Pricing Model obtained from the "OV" function on Bloomberg determined for pricing purposes, at the election of the Holder, as of either: (i) the day of closing of the applicable Fundamental Transaction; (ii) the date of this Warrant; or (iii) the date the Holder requests the purchase of this Warrant (such date referred to as the "BLACK SCHOLES VALUE DETERMINATION DATE") and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of such date of request and (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the day immediately following the BLACK SCHOLES VALUE DETERMINATION DATE. (d) "BLOOMBERG" means Bloomberg Financial Markets. (e) "BUSINESS DAY" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed. (f) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the "pink sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot - 15 - be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 12. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period. (g) "COMMON STOCK" means (i) the Company's shares of Common Stock, par value $0.001 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock. (h) "CONVERTIBLE SECURITIES" means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock. (i) "ELIGIBLE MARKET" means the Principal Market, the American Stock Exchange, The New York Stock Exchange, Inc., The NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ Capital Market. (j) "EXCLUDED SECURITIES" means any Common Stock issued or issuable: (i) in connection with any Approved Stock Plan; (ii) upon conversion of the SPA Securities or the exercise of the SPA Warrants; (iii) in connection with the payment of any Interest Shares on the SPA Securities; (iv) upon exercise of any Options or Convertible Securities which are outstanding on the day immediately preceding the Subscription Date, provided that the terms of such Options or Convertible Securities are not amended, modified or changed on or after the Subscription Date; (iv) pursuant to acquisitions or strategic acquisition related transactions that are approved by a majority of the disinterested directors of the Company, and provided any such issuance be to a Person which is, itself, or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities; (v) in connection with the issuance of securities disclosed in the Company's Form 8-K dated June 30, 2008, as filed with the SEC on July 7, 2008, as amended on August 6, 2008; and (vi) the 7,000,000 shares of the Company's Common Stock issued in the name of earth Biofuels, inc.. (k) "EXPIRATION DATE" means the date ten (10) years after the Closing Date. (l) "FUNDAMENTAL TRANSACTION" means that the Company shall directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (iii) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than the 50% of either the outstanding shares of Common Stock (not including (a) any shares of Common Stock held by the Person or Persons - 16 - making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer; and (b) the 7,000,000 shares of the Company's Common Stock issued in the name of Earth Biofuels, Inc.), or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), or (v) reorganize, recapitalize or reclassify its Common Stock, or (vi) any "person" or "group" (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act), become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock. (m) "OPTIONS" means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities. (n) "PARENT ENTITY" of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction. (o) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof. (p) "PRINCIPAL MARKET" means the principal market, exchange or automated quotation system upon which the shares of the Company's Common Stock trade or will trade, including the OTC Bulletin Board or the Pink Sheets. (q) "QUALIFIED OFFERING" means, the combination of any one or more transactions in which the Company sells, grants, issues or disposes of any of the Company's debt, equity or equity equivalent securities, including without limitation any debt, preferred stock or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for shares of Common Stock or Common Stock equivalents, which, commencing after the Closing Date, generate aggregate gross proceeds of $15,000,000 or more. (r) "REQUIRED HOLDERS" means the holders of the SPA Warrants representing at least a majority of shares of Common Stock underlying the SPA Warrants then outstanding. (s) "SPA SECURITIES" means the Notes issued pursuant to the Securities Purchase Agreement. - 17 - (t) "SUCCESSOR ENTITY" means the Person (or, if so elected by the Required Holders, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Required Holders, the Parent Entity) with which such Fundamental Transaction shall have been entered into. (u) "TRADING DAY" means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded; provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York Time). (v) "WEIGHTED AVERAGE PRICE" means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York Time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as the Principal Market publicly announces is the official close of trading) as reported by Bloomberg through its "Volume at Price" functions, or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York Time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York Time (or such other time as such market publicly announces is the official close of trading) as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the "pink sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 12. All such determinations are to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period. [SIGNATURE PAGE FOLLOWS] EXECUTION PAGE - WARRANT IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above. PNG VENTURES, INC. By: /s/ Kevin Markey ------------------------------------ Name: Kevin Markey Title: Chief Executive Officer EXHIBIT A EXERCISE NOTICE TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT TO PURCHASE COMMON STOCK PNG VENTURES, INC. The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("WARRANT SHARES") of PNG Ventures, Inc., a Nevada corporation (the "COMPANY"), evidenced by the attached Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant. 1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as: ____________ a "CASH EXERCISE" with respect to _________________ Warrant Shares; and/or ____________ a "CASHLESS EXERCISE" with respect to _______________ Warrant Shares. 2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant. 3. Delivery of Warrant Shares. The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Warrant. Date: _______________ __, ______ - --------------------------------- Name of Registered Holder By: ---------------------------- Name: Title: ACKNOWLEDGMENT The Company hereby acknowledges this Exercise Notice and hereby directs Action Stock Transfer Corporation, the Company's transfer agent, to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated August 19, 2008 from the Company and acknowledged and agreed to by Action Stock Transfer Corporation. PNG VENTURES, INC. By: ------------------------------------ Name: Kevin Markey Title: Chief Executive Officer EX-99 5 p08-1310exh99_4.txt EXHIBIT 99.4 SUBORDINATION AND INTERCREDITOR AGREEMENT THIS SUBORDINATION AND INTERCREDITOR AGREEMENT (this "AGREEMENT") is entered into as of this August 19, 2008, by and among the noteholders under the Subordinated Debt Documents (as defined herein) being limited to CASTLERIGG PNG INVESTMENTS LLC. on the date hereof (individually, a "SUBORDINATED CREDITOR" and collectively, the "SUBORDINATED CREDITORS" and, if there is only one such Subordinated Creditor, the term "Subordinated Creditors" and all variations thereof; e.g. "each Subordinated Creditor," as and when used hereinbelow, shall mean and refer to that one Subordinated Creditor); PNG VENTURES, INC., a Nevada corporation (the "COMPANY"); and FOURTH THIRD LLC, a Delaware limited liability company ("FOURTH THIRD"), as Agent for all Senior Lenders party to the Senior Credit Agreements described below and as a Senior Lender. R E C I T A L S A. The Agent, Senior Lenders (as hereinafter defined) and the Company, as "Parent" and a "Loan Party" thereunder, have entered into an Amended and Restated Credit Agreement, dated as of June 26, 2008 (as the same may be amended, supplemented or otherwise modified from time to time as permitted hereunder, the "SENIOR CREDIT AGREEMENT"), pursuant to which, among other things, Senior Lenders are making certain loans and financial accommodations to New Earth LNG, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company ("BORROWER"). All obligations of Borrower arising under the Senior Credit Agreement are guaranteed by the Company under a Guarantee and Collateral Agreement, dated as of June 26, 2008, executed by the Company (among others) in favor of the Agent (as the same may be amended, supplemented or otherwise modified from time to time as permitted hereunder, the "SENIOR GUARANTEE AND COLLATERAL AGREEMENT"). All of the obligations of the Company to Agent and Senior Lenders under the Senior Credit Agreement, the Senior Guarantee and Collateral Agreement and the other Senior Debt Documents (as hereinafter defined) are secured by the Collateral (as hereinafter defined). B. Pursuant to a Securities Purchase Agreement, dated as of August 19, 2008 (as the same may be amended, supplemented or otherwise modified from time to time as permitted hereunder, the "SECURITIES PURCHASE AGREEMENT"), effective on or about the date hereof, the Company has issued to the Subordinated Creditors its Subordinated Convertible Notes, aggregating $3,188,235 in principal amount (as the same may be renewed, extended, amended, supplemented or otherwise modified from time to time as permitted hereunder, individually and collectively, the "SUBORDINATED NOTES"). C. Fourth Third and Subordinated Creditors have agreed to enter into this Agreement for the purpose of setting forth the relative rights and priorities of the Agent, Senior Lenders and Subordinated Creditors under the Senior Debt Documents and the Subordinated Debt Documents (as hereinafter defined). NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS. The following terms shall have the following meanings in this Agreement: "AGENT" shall mean Fourth Third LLC, as Agent for the Senior Lenders, or any other Person appointed by the holders of the Senior Debt as administrative agent for purposes of the Senior Debt Documents and this Agreement. "BANKRUPTCY CODE" shall mean Chapter 11 of Title 11 of the United States Code, as amended from time to time and any successor statute and all rules and regulations promulgated thereunder. "BUSINESS DAY" shall mean "Business Day" as defined in the Senior Credit Agreements. "COLLATERAL" shall mean (i) all real and personal property of the Company in which a lien, security interest or mortgage has been or hereafter may be granted or created in favor or the Agent or any Senior Lender as collateral security for the payment or performance of any Senior Debt or any Subordinated Debt. "COLLECTION ACTION " shall mean (a) to initiate or join in any suit, action or proceeding against the Company or any Collateral to enforce payment of or make demand for all or any part of the Subordinated Debt, (b) to seek monetary damages against the Company, or (c) to take from or for the account of the Company, by set-off or in any other matter, all or any part of any moneys which may now or hereafter be owing by the Company with respect to the Subordinated Debt. "COMPANY" shall have the meaning given to such term in the preamble. "DISTRIBUTION" means, with respect to any indebtedness or obligation, (a) any payment or distribution by the Company (including the Company in its capacity as a debtor or debtor-in-possession in a Proceeding) of cash, securities or other property, by set-off or otherwise, on account of such indebtedness or obligation or (b) any redemption, purchase or other acquisition of such indebtedness or obligation by the Company. The term "DISTRIBUTION" shall expressly not include, however, any Common Stock (as defined in the Securities Purchase Agreement) (i) into which, pursuant to the Securities Purchase Agreement, the indebtedness represented by the Subordinated Note may be converted, and (ii) issued pursuant to the exercise of the Warrants (as defined in the Securities Purchase Agreement). "ENFORCEMENT ACTION" shall mean (a) to take from or for the account of the Company by set-off or in any other manner, the whole or any part of any moneys which may now or hereafter be owing by the Company with respect to the Subordinated Debt, (b) to sue for payment of, or to initiate or participate with others in any suit, action or proceeding against the Company to (i) enforce payment of or to collect the whole or any part of the Subordinated Debt or (ii) commence judicial enforcement of any of the rights and remedies under the Subordinated Debt Documents or applicable law with respect to the Subordinated Debt, (c) to notify account debtors or directly collect accounts receivable or other payment rights of the Company or (d) take any action under the provisions of any state or federal law, including, without limitation, the UCC, or under any contract or agreement, to enforce against, foreclose upon, take possession of or sell any property or assets of the Company or any Collateral; PROVIDED, HOWEVER, that the term "ENFORCEMENT ACTION" shall not include (i) an exercise of rights and remedies for specific performance or equitable relief to compel the Company to comply with any non-payment obligations under the Subordinated Debt Documents so long as it is not accompanied by (a) a Collection Action or (b) a claim for relief or any other Enforcement Action against or with respect to any Collateral, or (ii) any suit or action initiated or maintained by the Subordinated Creditors solely to prevent the running of any applicable statute of limitations or other similar restriction on claims. "FOURTH THIRD LOAN DOCUMENTS" shall mean the Senior Credit Agreement and all other agreements, documents and instruments executed from time to time in connection therewith, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof. "PERMITTED REFINANCING" shall mean any refinancing of the outstanding Senior Debt under the Fourth Third Loan Documents provided that the financing documentation entered into by the Company in connection with such Permitted Refinancing constitutes Permitted Refinancing 2 Senior Debt Documents. "PERMITTED REFINANCING SENIOR DEBT DOCUMENTS" shall mean any financing documentation which replaces the Fourth Third Loan Documents and pursuant to which the outstanding Senior Debt under the Fourth Third Loan Documents is refinanced, as such financing documentation may be amended, supplemented or otherwise modified from time to time in compliance with this Agreement, but specifically excluding any such financing documentation to the extent that it contains provisions violating Section 3.1 hereof. "PERSON" means any natural person, corporation, general or limited partnership, limited liability company, firm, trust, association, government, governmental agency or other entity, whether acting in an individual, fiduciary or other capacity. "PROCEEDING" shall mean any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution, reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any other proceeding for the liquidation, dissolution or other winding up of a Person. "REORGANIZATION SUBORDINATED SECURITIES" shall mean any debt or equity securities issued in substitution of all or any portion of the Subordinated Debt, in each case that are subordinated in right of payment, performance, liens and otherwise to the Senior Debt (or any debt and/or equity securities issued in substitution of all or any portion of the Senior Debt) to at least the same extent that the Subordinated Debt (and the liens securing the Subordinated Debt) are subordinated to the Senior Debt (and the liens securing the Senior Debt) pursuant to the terms of this Agreement. "SECURED CLAIM" shall mean a "secured claim" within the meaning of such term in Section 506(a) of the Bankruptcy Code (as presently in effect). "SENIOR DEBT" shall mean all obligations, liabilities and indebtedness of every nature of the Company under the Senior Debt Documents from time to time owed to Agent or any Senior Lender under the Senior Debt Documents, including, without limitation, the principal amount of all debts, claims and indebtedness, credit exposure and related obligations arising from any hedging agreements, accrued and unpaid interest and all fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and from time to time hereafter owing, due or payable, whether before or after the filing of a Proceeding under the Bankruptcy Code together with (a) any amendments, modifications, renewals or extensions thereof to the extent not prohibited by the terms of this Agreement and (b) any interest accruing thereon after the commencement of a Proceeding, without regard to whether or not such interest is an allowed claim; PROVIDED, HOWEVER, that in no event shall the principal amount of the Senior Debt (excluding any interest or fees added to principal) exceed the amount that is the excess of (i) $38,000,000, over (ii) the amount of any prepayments or repayments under the Senior Credit Agreement (specifically excluding, however, any such prepayments or repayments occurring solely as a result of a Permitted Refinancing) (the "SENIOR DEBT LIMIT"). The sum of (i) the amount of principal outstanding under the Senior Debt Documents that is in excess of the Senior Debt Limit (including pursuant to any refinancing other than a Permitted Refinancing), together with interest on such excess principal and fees attributable to such excess principal shall not be considered Senior Debt for purposes of this Agreement (such amount, "EXCLUDED SENIOR DEBT"). "SENIOR DEBT DOCUMENTS" shall mean the Fourth Third Loan Documents and, after the consummation of any Permitted Refinancing, the Permitted Refinancing Senior Debt Documents. 3 "SENIOR DEFAULT" shall mean any "Event of Default" under the Senior Debt Documents resulting from the failure of the Borrower to pay, on a timely basis, any principal, interest, fees or other obligations under the Senior Debt Documents, including, without limitation, any default in payment of Senior Debt after acceleration thereof. "SENIOR LENDERS" shall mean the holders of the Senior Debt. "SUBORDINATED DEBT" shall mean all of the obligations of the Company under the Subordinated Debt Documents to the Subordinated Creditors or evidenced by or incurred pursuant to the Subordinated Debt Documents. "SUBORDINATED DEBT DOCUMENTS" shall mean (i) the Securities Purchase Agreement, the Subordinated Note, the Warrants and all other documents, agreements and instruments now existing or hereinafter entered into by the Company in connection therewith, and (ii) each document, if any ("SUBORDINATED COLLATERAL DOCUMENTS") which now or hereafter may be executed and delivered by the Company that creates a lien, security interest or mortgage on any property to secure all or any portion of the obligation, indebtedness or liabilities of the Company under any of the documents referred to in clause (i) of this definition. "UCC" shall mean the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. 2. SUBORDINATION. 2.1. SUBORDINATION OF SUBORDINATED DEBT TO SENIOR DEBT. The Company covenants and agrees, and each Subordinated Creditor by its acceptance of the Subordinated Debt Documents (whether upon original issue or upon transfer or assignment) likewise covenants and agrees, notwithstanding anything to the contrary contained in any of the Subordinated Debt Documents, that the payment of any and all of the Subordinated Debt shall be subordinate and subject in right and time of payment, to the extent and in the manner hereinafter set forth, to the prior payment in full in cash (or other consideration acceptable to Agent in its sole discretion) of all Senior Debt (but not any Excluded Senior Debt). Each holder of Senior Debt, whether now outstanding or hereafter created, incurred, assumed or guaranteed, shall be deemed to have acquired Senior Debt in reliance upon the provisions contained in this Agreement. 2.2. LIQUIDATION, DISSOLUTION, BANKRUPTCY. In the event of any Proceeding involving the Company: (a) All Senior Debt shall first be paid in full in cash (or other consideration acceptable to Agent in its sole discretion) before any Distribution (other than Reorganization Subordinated Securities), whether in cash, securities or other property, shall be made to the Subordinated Creditors on account of any Subordinated Debt. (b) Any Distribution (other than Reorganization Subordinated Securities), whether in cash, securities or other property which would otherwise, but for the terms hereof, be payable or deliverable in respect of the Subordinated Debt shall be paid or delivered directly to Agent (to be held and/or applied by Agent in accordance with the terms of the Senior Debt Documents) until all Senior Debt is paid in full in cash (or other consideration acceptable to Agent in its sole discretion). Each Subordinated Creditor irrevocably authorizes, empowers and directs any debtor, debtor in possession, receiver, trustee, liquidator, custodian, conservator or other Person having authority, to pay or otherwise deliver all such Distributions to Agent. Each 4 Subordinated Creditor also irrevocably authorizes and empowers Agent and appoints Agent its attorney-in-fact, in the name of such Subordinated Creditor, to demand, sue for, collect and receive any and all such Distributions, at Company's expense. This power of attorney is coupled with an interest and is irrevocable. (c) Each Subordinated Creditor agrees not to initiate, prosecute or participate in any claim, action or other proceeding challenging the enforceability, validity, perfection or priority of the Senior Debt or any liens and security interests securing the Senior Debt. Agent agrees not to initiate, prosecute or participate in any claim, action or other proceeding challenging the enforceability, validity, perfection or priority of the Subordinated Debt or any liens and security interests securing the Subordinated Debt. (d) Each Subordinated Creditor, in its capacity as the holder of a Secured Claim, agrees that Agent and Senior Lenders may consent to the use of cash collateral or provide (or consent to any other Person providing) financing to the Company (or trustee) on such terms and conditions and in such amounts as Agent and Senior Lenders, in their sole discretion, may decide and, in connection therewith, the Company (or trustee) may grant to Agent and Senior Lenders (or such other Person providing financing) liens and security interests upon all of its property, which liens and security interests (i) shall secure payment of all Senior Debt (whether such Senior Debt arose prior to the commencement of any Proceeding or at any time thereafter) and all other financing provided by Senior Lenders (or such other Persons providing financing) during the Proceeding and (ii) shall be superior in priority to the liens and security interests, if any, in favor of such Subordinated Creditor on the property of the Company, provided, that (A) the financing (x) does not compel such Company to seek confirmation of a specific plan of reorganization for which all or substantially all of the material terms are set forth in the financing documentation or a related document or (y) that the financing documentation or cash collateral order does not expressly require the liquidation of the Collateral prior to a default under the financing documentation or cash collateral order. Each Subordinated Creditor, in its capacity as the holder of Secured Claim, agrees that it will not object to or oppose, and will consent to, a sale or other disposition of any property securing all of any part of the Senior Debt free and clear of security interests, liens or other claims of such Subordinated Creditor under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if Agent and Senior Lenders have consented to such sale or disposition, provided that such Subordinated Creditor shall have the right to object to the further use of the proceeds of such sale or other disposition unless such proceeds are applied to permanently reduce the amount of Senior Debt outstanding. Each Subordinated Creditor, in its capacity as the holder of a Secured Claim, agrees not to: (1) assert any rights, to the extent adverse, in the commercially reasonable opinion of the Agent, to the interests of the Agent and the Senior Lenders, under Sections 362, 363 or 364 of the Bankruptcy Code with respect to the Collateral, including any rights it may have to "adequate protection" of such Subordinated Creditor's interest in any Collateral in any Proceeding or objecting to or opposing any use of cash, financing, security or priority described in clauses (i) and (ii) above; PROVIDED, if the Agent or any Senior Lender is granted adequate protection in the form of additional collateral in connection with any cash collateral use or debtor-in-possession financing, then the Subordinated Creditors may seek or request adequate protection in the form of a Lien on such additional collateral, which Lien will be subordinated to the Liens securing the Senior Debt (and such cash collateral use or debtor-in-possession financing on the same basis) as the other Liens securing the Subordinated Debt are so subordinated to the Senior Debt under this Agreement; (2) oppose or object to any adequate protection sought by or granted to Agent or any Senior Lender with respect to the Collateral; (3) initiate or prosecute or join with any other Person to initiate or prosecute any claim, action or other proceeding opposing a motion by Agent to lift the automatic stay; (4) vote in favor of any chapter 11 plan that seeks confirmation under Section 5 1129(b)(2)(A) of the Bankruptcy Code, solely to the extent such vote is required to satisfy Section 1129(a)(10) of the Bankruptcy Code (i.e., each Subordinated Creditor agrees not to vote in favor of such plan if its allowed secured claim is deemed impaired and no other impaired class has accepted the plan, determined without including acceptance of the plan by any insider); (5) seek the dismissal or conversion of a Proceeding, (6) seek the appointment of a trustee, receiver or examiner in a Proceeding; or (7) seek to have the automatic stay of Section 362 of the Bankruptcy Code (or any similar stay under any other applicable law) lifted or modified with respect to the Collateral; provided, however, that each Subordinated Creditor may object to any financing under Section 364 in its capacity as the holder of a Secured Claim to the extent that the principal amount, together with the aggregate principal amount of Senior Debt outstanding immediately after giving effect to any payment thereof with the proceeds of such financing, exceeds the Senior Debt Limit. Any claim of any Subordinated Creditor arising during a Proceeding, including a claim under Section 507(b) of the Bankruptcy Code, shall constitute Subordinated Debt under this Agreement. Except for any claim based upon a breach of this Agreement, each Subordinated Creditor waives any claim it may now or hereafter have arising out of Agent's or Senior Lenders' election, in any Proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code, and/or any borrowing or grant of a security interest under Section 364 or use of cash collateral under Section 363 of the Bankruptcy Code by the Company, as debtor in possession. Notwithstanding anything in this Section 2.2(d) to the contrary but subject to the other provisions of this Agreement (including Section 2.2(c)), in any Proceeding involving the Company, a Subordinated Creditor may exercise rights and remedies generally available to holders of unsecured claims against any of the Company and otherwise in accordance with the Subordinated Debt Documents and applicable law. In furtherance of the foregoing, each Subordinated Creditor shall be entitled to file any pleadings, objections, motions or agreements which assert rights or interests available to unsecured creditors of the Company arising under either the Bankruptcy Code or applicable non-bankruptcy law, in each case if not otherwise in contravention of the express terms of this Agreement, including any right to object to the sale or use of property under Section 363 of the Bankruptcy Code and/or any financing under Section 364 of the Bankruptcy Code solely to the extent such objection could be asserted by the holder of an unsecured claim against the Company. (e) Each Subordinated Creditor agrees to execute, verify, deliver and file any proofs of claim in respect of the Subordinated Debt requested by Agent in connection with any such Proceeding and hereby irrevocably authorizes, empowers and appoints Agent its agent and attorney-in-fact to execute, verify, deliver and file such proofs of claim upon the failure of any Subordinated Creditor promptly to do so prior to 10 days before the expiration of the time to file any such proof of claim; PROVIDED, that Agent shall have no obligation to execute, verify, deliver, and/or file any such proof of claim. (f) The Senior Debt shall continue to be treated as Senior Debt and the provisions of this Agreement shall continue to govern the relative rights and priorities of Senior Lenders and the Subordinated Creditors even if all or part of the Senior Debt or the security interests securing the Senior Debt are subordinated, set aside, avoided, invalidated or disallowed in connection with any such Proceeding and this Agreement shall be reinstated if at any time any payment of any of the Senior Debt is rescinded or must otherwise be returned by any holder of Senior Debt or any representative of such holder. (g) The parties acknowledge and agree that (i) the claims and interests of Agent and the Senior Lenders under the Senior Debt Documents are substantially different from the claims and interests of the Subordinated Creditors under the Subordinated Debt Documents and (ii) such claims and interests should be treated as separate classes for purposes of Section 1122 of 6 the Bankruptcy Code. (h) It is acknowledged and agreed that this Agreement shall constitute a "subordination agreement" within the meaning of Section 510(a) of the Bankruptcy Code. 2.3. SUBORDINATED DEBT PAYMENT RESTRICTIONS. (a) Notwithstanding the terms of the Subordinated Debt Documents, but subject to the provisions of Section 2.3(c) through Section 2.3(e) below, the Company hereby agrees that it may not make, directly or indirectly, and each Subordinated Creditor hereby agrees that it will not accept, any Distribution (other than Reorganization Subordinated Securities) with respect to the Subordinated Debt until the Senior Debt is paid in full in cash (or other consideration acceptable to Agent in its sole discretion). (b) The provisions of this Section 2.3 shall not apply to a payment with respect to which Section 2.2(b) is applicable. (c) Nothing contained in this Agreement shall prevent the Company from making, or any Subordinated Creditor from receiving, at any time or from time to time, any payments of accrued interest on the Subordinated Notes and any penalty payments provided for in Section 4(q) of the Securities Purchase Agreement (but for avoidance of any doubt, no payments of principal, regardless of stated maturity or demand for payment, except as expressly permitted under SUBSECTION (D) below) as and when due and payable in accordance with the terms of the Subordinated Notes and the Securities Purchase Agreement as in effect on the date hereof (without giving effect to any provisions of the Subordinated Notes or the Securities Purchase Agreement which would have the effect of increasing the amount or frequency of payment thereof) EXCEPT: (i) during the pendency of any Proceeding or (ii) if prior to any such payment being made the Subordinated Creditors and the Company have received written notice from Agent that a Senior Default has occurred and is continuing, unless and until Subordinated Creditors and the Company have received written notice from Agent that such Senior Default has been waived (which Agent agrees to provide promptly after the Senior Lenders have waived such Senior Default). (d) Notwithstanding the foregoing provisions of subsection (a) above or any other term of this Agreement to the contrary, upon the consummation of any private investment in the public equity of the Company, or any similar transaction involving the sale or exchange of equity securities, debt or convertible debt of the Company occurring subsequent to the date hereof, PROVIDED that the Senior Lenders receive from the Company, on behalf of the Borrower, sufficient proceeds therefrom in prepayment of the Senior Debt, to cause the unpaid principal amount of the Senior Debt to be reduced to Thirty Million Dollars ($30,000,000) or less, the Company may pay to Subordinated Creditors, and the Subordinated Creditors shall be entitled to receive from the Company to the extent of any remaining proceeds, the then outstanding amount of the Subordinated Debt. (e) Nothing contained herein shall prevent Subordinated Creditor at any time in accordance with the terms of the Subordinated Notes and the Warrants from (i) exercising any right to convert the Subordinated Notes into equity as provided in the Subordinated Notes, any anti-dilution adjustment rights or rights to conversion of the Subordinated Notes, rights to receive replacement securities for or to an adjustment of the convertibility provisions and conversion ratios as set forth in the Subordinated Notes (whether upon merger, sale of the company or otherwise), or other rights to receive securities from time to time upon conversion of the 7 Subordinated Notes, so long as none of the foregoing involves the payment of money by the Company; or (ii) exercising any outstanding Warrants to acquire Common Stock. 2.4. SUBORDINATED DEBT STANDSTILL PROVISIONS. (a) Until the Senior Debt is paid in full in cash (or other consideration acceptable to Agent in its sole discretion), no Subordinated Creditor shall, without the prior written consent of Agent, take any Enforcement Action with respect to the Subordinated Debt or any Collateral, PROVIDED, HOWEVER, that the Subordinated Creditors may take any Collection Action with respect to the Subordinated Debt (but not against any Collateral or any other property or assets securing Subordinated Debt) upon the acceleration of all or any portion of the Senior Debt. (b) Notwithstanding the foregoing, each Subordinated Creditor may file proofs of claim against the Company in any Proceeding involving the Company. Any Distributions or other proceeds of any Enforcement Action obtained by any Subordinated Creditor (other than Reorganization Subordinated Securities) shall in any event be held in trust by it for the benefit of Agent and Senior Lenders and promptly be paid or delivered to Agent for the benefit of Senior Lenders in the form received until all Senior Debt is paid in full in cash (or other consideration acceptable to Agent in its sole discretion). (c) Notwithstanding anything contained herein to the contrary, if within 20 days of any acceleration of the Senior Debt by Senior Lenders such acceleration is rescinded (whether or not any existing Senior Default has been cured or waived), then all Collection Actions taken by the Subordinated Creditors in reliance on such acceleration shall likewise be rescinded. (d) Notwithstanding anything in this Agreement to the contrary, no provision herein shall prevent any Subordinated Creditor from furnishing a notice under the Subordinated Debt Documents or this Agreement to the Company or Agent to preserve or enforce its rights with respect thereto, including (without limitation) notices to the Company of the existence of a Subordinated Default. (e) Notwithstanding anything in this Agreement to the contrary, if at any time hereafter, the Company fails to pay, when due (other than because of a bona fide payment dispute then being prosecuted in good faith by the Company), any payment in respect of the Subordinated Notes otherwise then permitted to be paid pursuant to said Section 2.3(c) or Section 2.3(d) above, Subordinated Creditors may take Enforcement Action with respect to the Subordinated Debt to collect such payment(s) then due, PROVIDED that the Subordinated Creditors first shall have given Agent at least 90 days prior written notice of such payment default and their intent to take Enforcement Action pursuant hereto in respect thereof; and, PROVIDED, FURTHER, that, as to any payments then permitted to be paid under Section 2.3(c) above, subsequent thereto, either within such 90 day period or thereafter (including during the pendency of any such Enforcement Action being taken by Subordinated Creditors), the Company and the Subordinated Creditors do not receive from Agent the written notice that a Senior Default has occurred and is continuing, in which case Subordinated Creditors shall delay the commencement of, or desist in, any such Enforcement Action in respect of such payments unless and until Subordinated Creditors and the Company have received written notice from Agent that such Senior Default has been waived (which Agent agrees to provide promptly after the Senior Lenders have waived such Senior Default). 2.5. INCORRECT PAYMENTS. If any Distribution on account of the Subordinated Debt is made by the Company or accepted by any Subordinated Creditor in violation of this Agreement, such 8 Distribution shall not be commingled with any of the assets of such Subordinated Creditor, shall be held in trust by such Subordinated Creditor for the benefit of Agent and Senior Lenders and shall be promptly paid over to Agent for application (in accordance with the Senior Debt Documents) to the payment of the Senior Debt then remaining unpaid, until all of the Senior Debt is paid in full. 2.6. SUBORDINATION OF LIENS AND SECURITY INTERESTS; AGREEMENT NOT TO CONTEST; AGREEMENT TO RELEASE LIENS. Until the Senior Debt has been paid in full in cash (or other consideration acceptable to Agent in its sole discretion), all liens and security interests of the Subordinated Creditors in the Collateral shall be and hereby are subordinated for all purposes and in all respects to the liens and security interests of Agent and Senior Lenders in the Collateral, regardless of the time, manner or order of perfection of any such liens and security interests and whether such liens and security interests of Agent are set aside, avoided or unperfected. Each Subordinated Creditor agrees that it will not at any time contest the validity, perfection, priority or enforceability of the Senior Debt, the Senior Debt Documents, or the liens and security interests of Agent and Senior Lenders in the Collateral securing the Senior Debt. In the event that Agent or Senior Lenders release or agree to release any of their liens or security interests in the Collateral in connection with the sale or other disposition thereof or any of the Collateral is sold, disposed of or retained pursuant to a foreclosure or similar action, each Subordinated Creditor shall (or shall cause its agent to) promptly deliver (and execute as appropriate) to Agent such termination statements and releases as Agent shall reasonably request to effect the termination or release of the liens and security interests of such Subordinated Creditor in such Collateral so long as (A) the net proceeds of such sale, disposition, foreclosure or similar action are applied to the permanent payment of the Senior Debt, (B) any proceeds from such sale or other disposition received by the Agent in excess of the Senior Debt Limit shall be promptly delivered to the Subordinated Creditors (subject to any prior rights of third parties) and (C) such release by the Subordinated Creditors shall not extend to the proceeds from such sale or other disposition. In furtherance of the foregoing, each Subordinated Creditor hereby irrevocably appoints Agent its attorney-in-fact, with full authority in the place and stead of such Subordinated Creditor and in the name of such Subordinated Creditor or otherwise, to deliver (and execute as appropriate) any document or instrument which such Subordinated Creditor may be required to deliver pursuant to this subsection 2.6. 2.7. APPLICATION OF PROCEEDS FROM SALE OR OTHER DISPOSITION OF THE COLLATERAL. In the event of any sale, transfer or other disposition (including a casualty loss or taking through eminent domain) of the Collateral, the proceeds resulting therefrom (including insurance proceeds) shall be distributed and applied as follows: (a) FIRST, to Agent to be applied in accordance with the terms of the Senior Debt Documents until such time as the Senior Debt (other than Excluded Senior Debt) is paid in full in cash (or other consideration acceptable to Agent in its sole discretion); (b) SECOND, to the Subordinated Creditors to be applied in accordance with the Subordinated Debt Documents until the Subordinated Debt (subject to the limitation set forth in Section 3.2 below) is paid in full in cash (or other consideration acceptable to each Subordinated Creditor in its sole discretion); (c) THIRD, to Agent to be applied in accordance with the terms of the Senior Debt Documents until such time as all other Senior Debt not paid pursuant to clause (a) is paid in full in cash (or such other consideration acceptable to Agent in its sole discretion); and (d) FOURTH, to the Subordinated Creditors to be applied in accordance with the Subordinated Debt Documents until such time as all other Subordinated Debt not paid pursuant to clause (b) is paid in full in cash (or such other consideration acceptable to the Subordinated Creditors in their sole discretion). 2.8. SALE, TRANSFER OR OTHER DISPOSITION OF SUBORDINATED DEBT. (a) No Subordinated Creditor shall sell, assign, pledge, dispose of or otherwise transfer all or any portion of the Subordinated Debt or any Subordinated Debt Document: (i) unless, prior to the consummation of any such action, the transferee thereof shall execute and 9 deliver to Agent an agreement substantially identical to this Agreement, providing for the continued subordination of the Subordinated Debt and liens securing same to the Senior Debt and the liens, security interests and mortgages securing same as provided herein and for the continued effectiveness of all of the rights of Agent and Senior Lenders arising under this Agreement and (ii) unless, following the consummation of any such action, there shall be no more than ten holders of the Subordinated Debt; PROVIDED, that for purposes of this clause (ii) holders of the Subordinated Debt that are affiliates of each other shall be considered one holder. (b) Notwithstanding the failure of any transferee to execute or deliver an agreement substantially identical to this Agreement, the subordination effected hereby shall survive any sale, assignment, pledge, disposition or other transfer of all or any portion of the Subordinated Debt, and the terms of this Agreement shall be binding upon the successors and assigns of the Subordinated Creditors, as provided in Section 10 hereof. 2.9. LEGENDS. Until the termination of this Agreement in accordance with Section 16 hereof, each Subordinated Creditor will cause to be clearly, conspicuously and prominently inserted on the face of any Subordinated Debt Document, as well as any renewals or replacements thereof, the following legend: "This instrument and the rights and obligations evidenced hereby and any security interests or other liens securing such obligations are subordinate in the manner and to the extent set forth in that certain Subordination and Intercreditor Agreement (the "SUBORDINATION AGREEMENT") dated as of August 19, 2008 among Castlerigg PNGr Investments LLC., as collateral agent, PNG Ventures, Inc. (the "COMPANY"), and Fourth Third LLC ("AGENT"), to the indebtedness (including interest) owed by the Company, and the security interests and liens securing such indebtedness, pursuant to and in connection with that certain Amended and Restated Credit Agreement, dated as of June 26, 2008, among the Agent, the lenders named therein and the Company, among others (the "SENIOR CREDIT AGREEMENT"), and the Loan Documents referred to therein as such Senior Credit Agreement and Loan Documents have been and hereafter may be amended, supplemented or otherwise modified from time to time and to indebtedness refinancing the indebtedness under that agreement as contemplated by the Subordination Agreement; and each holder of this instrument, by its acceptance hereof, irrevocably agrees to be bound by the provisions of the Subordination Agreement." 3. MODIFICATIONS. 3.1. MODIFICATIONS TO SENIOR DEBT DOCUMENTS. Senior Lenders may at any time and from time to time without the consent of or notice to the Subordinated Creditors, without incurring liability to the Subordinated Creditors and without impairing or releasing the obligations of the Subordinated Creditors under this Agreement, change the manner or place of payment or extend the time of payment of or renew or alter any of the terms of the Senior Debt, or amend in any manner any agreement, note, guaranty or other instrument evidencing or securing or otherwise relating to the Senior Debt; PROVIDED that, without the prior written consent of the Required Subordinated Creditors (as hereinafter defined), the Senior Lenders shall not agree to any amendment, modification or supplement to, or waiver or departure from, the Senior Debt Documents the effect of which is to (a) increase the principal of the Senior Debt to an amount in excess of the Senior Debt Limit, (b) increase the interest rate with respect to the Senior Debt by more than 300 basis points, except in connection with the imposition of a default rate of interest of up to 2.0% in accordance with the terms of the Senior Debt Documents, (c) extend the final maturity of the Senior Debt (as set forth in the Fourth Third Loan Documents in effect on the date hereof), except that the final maturity of the Senior Debt under each Senior Credit Agreement 10 may be extended by up to two years, or (d) directly prohibit or restrict the payment of principal of, interest on, or other amounts payable with respect to, the Subordinated Debt, in a manner that is more restrictive then the prohibitions and restrictions currently contained in the Senior Credit Agreements. 3.2. MODIFICATIONS TO SUBORDINATED DEBT DOCUMENTS. (a) Until the Senior Debt has been paid in full in cash (or other consideration acceptable to Agent in its sole discretion), and notwithstanding anything to the contrary contained in the Subordinated Debt Documents, no Subordinated Creditor shall, without the prior written consent of Agent, agree to any amendment, modification or supplement to the Subordinated Debt Documents that would (i) impose or make more burdensome any event of default or covenant under the Subordinated Debt Documents, (ii) increase the principal amount of the Subordinated Debt, (iii) increase the rate of interest on the Subordinated Debt by more than 300 basis points or (iv) directly prohibit or restrict the payment of any amounts payable with respect to the Senior Debt. (b) No Subordinated Creditor shall accept or enter into any agreement or instrument pursuant to which the Company provides collateral security for the Subordinated Debt or pursuant to which Borrower or any other "Loan Party" (as defined in the Senior Credit Agreement; herein, a "LOAN PARTY") provides a security interest in any Collateral unless such agreement or instrument has been approved by the Agent in writing, such approval not to be unreasonably withheld. Any such agreement or instrument that is substantially similar to the security documents providing collateral security for the Senior Debt shall be approved by the Agent so long as such security document indicates that it is subject to this Agreement in a manner and to an extent reasonably satisfactory to the Agent. In no event shall any Subordinated Creditor accept or enter into any agreement or instrument pursuant to which the Company or any Loan Party provides a security interest in or mortgage on any property of the Company, in each case, in which the Agent does not have a first priority perfected security interest. Prior to the Company, any Loan Party or any Subordinated Creditor entering into any agreement or instrument that would create a lien, security interest or mortgage in any Collateral in favor of a collateral agent securing any Subordinated Debt, the Company, the Loan Party affected and the Subordinated Creditors shall cause such collateral agent to become a party to this Agreement and agree for this Agreement to be amended to accommodate a collateral agent, in each case, pursuant to agreements in form and substance reasonably satisfactory to the Agent. (c) In no event shall any Subordinated Creditor enter into any agreement with the Company or any Loan Party that places any restriction on the modification of the Senior Debt Documents or creates any default or event of default or right to accelerate, put or cause any Subordinated Creditor to purchase, any Subordinated Debt, that is more extensive or more restrictive than the provisions of Section 3.1. 4. WAIVER OF CERTAIN RIGHTS BY THE SUBORDINATED CREDITORS. 4.1. MARSHALING. Each Subordinated Creditor hereby waives any rights it may have under applicable law to assert the doctrine of marshaling or to otherwise require Agent or Senior Lenders to marshal any property of the Company or any other obligor on the Senior Debt for the benefit of such Subordinated Creditor. 4.2. RIGHTS RELATING TO AGENT'S ACTIONS WITH RESPECT TO THE COLLATERAL. Each Subordinated Creditor hereby waives, to the extent permitted by applicable law, any rights which it may have as the holder of a Secured Claim to enjoin or otherwise obtain a judicial or administrative order 11 preventing Agent or Senior Lenders from taking, or refraining from taking, any action with respect to all or any part of the Collateral, except to the extent such action is expressly excluded from the definition of Enforcement Action. Without limitation of the foregoing, each Subordinated Creditor hereby agrees (a) that it has no right to direct or object to the manner in which Agent and Lenders apply the proceeds of the Collateral resulting from the exercise by Agent and Senior Lenders of rights and remedies under the Senior Debt Documents to the Senior Debt and (b) that Agent has not assumed any obligation to act as the agent for the Subordinated Creditors with respect to the Collateral. The Agent shall have the exclusive right to enforce against and realize upon the Collateral until the Senior Debt is paid in full in cash (or other consideration acceptable to Agent in its sole discretion). In exercising rights and remedies with respect to the Collateral, the Agent and Senior Lenders may enforce the provisions of the Senior Debt Documents and exercise remedies thereunder, all in such order and in such manner as it or they may determine in the exercise of its or their sole business judgment. Such exercise and enforcement shall include, without limitation, the rights to sell or otherwise dispose of Collateral, to incur expenses in connection with such sale or disposition and to exercise all the rights and remedies of a secured lender under the UCC. In conducting any public or private sale under the UCC, Agent shall give the Subordinated Creditors such notice of such sale as may be required by the UCC; PROVIDED, HOWEVER, that 10 days' notice shall be deemed to be commercially reasonable notice. 5. REPRESENTATIONS AND WARRANTIES. 5.1. REPRESENTATIONS AND WARRANTIES OF THE SUBORDINATED CREDITORS. Each of the Subordinated Creditors hereby represents and warrants to Agent and Senior Lenders that as of the date hereof: (a) it is duly formed and validly existing under the laws of the jurisdiction of its formation; (b) it has the power and authority to enter into, execute, deliver and carry out the terms of this Agreement, all of which have been duly authorized by all proper and necessary action; (c) the execution of this Agreement by it will not violate or conflict with its organizational documents, any material agreement binding upon it or any law, regulation or order or require any consent or approval which has not been obtained; (d) this Agreement is its legal, valid and binding obligation of enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by equitable principles; and (e) it is the sole owner, beneficially and of record, of the Subordinated Debt Documents and the Subordinated Debt to which it is party. 5.2. REPRESENTATIONS AND WARRANTIES OF AGENT. Agent hereby represents and warrants to the Subordinated Creditors that as of the date hereof: (a) Agent is a limited liability company duly formed and validly existing under the laws of the State of Delaware; (b) Agent has the power and authority to enter into, execute, deliver and carry out the terms of this Agreement on behalf of itself and the Senior Lenders, all of which have been duly authorized by all proper and necessary action; (c) the execution of this Agreement by Agent will not violate or conflict with the organizational documents of Agent, any material agreement binding upon Agent or any law, regulation or order or require any consent or approval which has not been obtained; and (d) this Agreement is the legal, valid and binding obligation of Agent, enforceable against Agent and the Senior Lenders in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally or by equitable principles. 6. SUBROGATION. Subject to the payment in full in cash (or other consideration acceptable to Agent in its sole discretion) of all Senior Debt, the Subordinated Creditors shall be subrogated to the rights of Agent and Senior Lenders to receive Distributions with respect to the Senior Debt until the Subordinated Debt is paid in full. Each Subordinated Creditor agrees that in the event that all or any part of a payment made with respect to the Senior Debt is recovered from the holders of the Senior Debt in a Proceeding or otherwise, any Distribution (other than Reorganization Subordinated Securities) received by such 12 Subordinated Creditor with respect to the Subordinated Debt at any time after the date that it receives notice that such payment has been so recovered, whether pursuant to the right of subrogation provided for in this Agreement or otherwise, shall be deemed to have been received by such Subordinated Creditor in trust as property of the holders of the Senior Debt and such Subordinated Creditor shall forthwith deliver the same to the Agent for the benefit of the Senior Lenders for application to the Senior Debt until the Senior Debt is paid in full. A Distribution made pursuant to this Agreement to Agent or Senior Lenders which otherwise would have been made to any Subordinated Creditor is not, as between the Company and such Subordinated Creditor, a payment by the Company to or on account of the Senior Debt. 7. MODIFICATION. Any modification or waiver of any provision of this Agreement, or any consent to any departure by any party from the terms hereof, shall not be effective in any event unless the same is in writing and signed by Agent and the Subordinated Creditors holding a majority of the principal amount of the Subordinated Notes as in effect on the date hereof (the "REQUIRED SUBORDINATED CREDITORS"), and then such modification, waiver or consent shall be effective only in the specific instance and for the specific purpose given. Any notice to or demand on any party hereto in any event not specifically required hereunder shall not entitle the party receiving such notice or demand to any other or further notice or demand in the same, similar or other circumstances unless specifically required hereunder. 8. FURTHER ASSURANCES. Each party to this Agreement promptly will execute and deliver such further instruments and agreements and do such further acts and things as may be reasonably requested in writing by any other party hereto that may be necessary or desirable in order to effect fully the purposes of this Agreement. 9. NOTICES. Unless otherwise specifically provided herein, any notice delivered under this Agreement shall be in writing addressed to the respective party as set forth below and may be personally served, telecopied or sent by overnight courier service or certified or registered United States mail and shall be deemed to have been given (a) if delivered in person, when delivered; (b) if delivered by telecopy, when transmitted and a confirmation is received if transmission and confirmation occur on a Business Day before 4:00 p.m. (New York time) or, if after 4:00 p.m. (New York time), on the next succeeding Business Day after such transmission and confirmation have occurred; (c) if delivered by nationally recognized overnight courier, one Business Day after delivery to such courier properly addressed; or (d) if by United States mail, four Business Days after deposit in the United States mail, postage prepaid and properly addressed. Notices shall be addressed as follows: If to the Subordinated Creditors: Castlerigg PNG Investments LLC, as Agent c/o Sandell Asset Management Corp. 40 West 57th Street New York, New York 10019 Telephone: (212) 603-5700 Telecopy: (212) 603-5710 Attention: Cem Hacioglu (chacioglu@sandellmgmt.com) Matthew Piskin (mpiskin@sandellmgmt.com) 13 With a copy to (which shall not constitute notice): Fox Rothschild LLP 100 Park Avenue, Suite 1500 New York, New York 10017 Telecopy: (212) 299-2150 Attention: Stephen M. Cohen If to the Company: 3100 Knox Street, Suite 403 Dallas, Texas 75205 Telecopy: (214) 520-0507 Attention: Kevin Markey, CEO With a copy to (which shall not constitute notice): Hodgson Russ LLP 1540 Broadway, 24th Floor New York, New York 10036 Telecopy: (212) 751-0928 Attention: Ron Levy, Esq. If to Agent or Senior Lenders: Fourth Third Capital LLC 375 Park Avenue Suite 3304 New York, New York 10152 Attention: Brian J. Cavanaugh Chief Financial Officer Telecopy: (212) 759-0091 With a copy to (which shall not constitute notice): King & Spalding LLP 1185 Avenue of the Americas New York, New York 10036 Attention: Robert S. Finley Telecopy: (212) 556-2222 or in any case, to such other address as the party addressed shall have previously designated by written notice to the serving party, given in accordance with this Section 9. 10. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of, and shall be binding upon, the respective successors and assigns of Agent, Senior Lenders, the Subordinated Creditors and the Company. To the extent permitted under the Senior Debt Documents, Senior Lenders may, from time to time, without notice to any Subordinated Creditor, assign or transfer any or all of the Senior Debt or any interest therein to any Person and, notwithstanding any such assignment or transfer, or any subsequent assignment or transfer, the Senior Debt shall, subject to the terms hereof, be and remain Senior Debt for 14 purposes of this Agreement, and every permitted assignee or transferee of any of the Senior Debt or of any interest therein shall, to the extent of the interest of such permitted assignee or transferee in the Senior Debt, be entitled to rely upon and be the third party beneficiary of the subordination provided under this Agreement and shall be entitled to enforce the terms and provisions hereof to the same extent as if such assignee or transferee were initially a party hereto. 11. RELATIVE RIGHTS. This Agreement shall define the relative rights of Agent, Senior Lenders and the Subordinated Creditors. Nothing in this Agreement shall (a) impair, as among the Company, Agent and Senior Lenders and as between the Company and the Subordinated Creditors, the obligation of the Company with respect to the payment of the Senior Debt and the Subordinated Debt in accordance with their respective terms or (b) affect the relative rights of Agent, Senior Lenders or the Subordinated Creditors with respect to any other creditors of the Company. For purposes of clarification, the Company shall have no rights to assert any rights or benefits hereunder. 12. CONFLICT. In the event of any conflict between any term, covenant or condition of this Agreement and any term, covenant or condition of any of the Senior Debt Documents or the Subordinated Debt Documents, the provisions of this Agreement shall control and govern. 13. HEADINGS. The paragraph headings used in this Agreement are for convenience only and shall not affect the interpretation of any of the provisions hereof. 14. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 15. SEVERABILITY. In the event that any provision of this Agreement is deemed to be invalid, illegal or unenforceable by reason of the operation of any law or by reason of the interpretation placed thereon by any court or governmental authority, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby, and the affected provision shall be modified to the minimum extent permitted by law so as most fully to achieve the intention of this Agreement. 16. CONTINUATION OF SUBORDINATION; TERMINATION OF AGREEMENT. This Agreement shall remain in full force and effect until the payment in full in cash (or other consideration acceptable to Agent in its sole discretion) of the Senior Debt after which this Agreement shall terminate without further action on the part of the parties hereto. 17. APPLICABLE LAW. This Agreement shall be governed by and shall be construed and enforced in accordance with the internal laws of the State of New York, without regard to conflicts of law principles, other than section 5-1401 of the New York General Obligations Law. 18. CONSENT TO JURISDICTION. EACH SUBORDINATED CREDITOR AND THE COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. EACH SUBORDINATED CREDITOR AND EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. EACH SUBORDINATED CREDITOR AND THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL, RETURN 15 RECEIPT REQUESTED, ADDRESSED TO SUCH SUBORDINATED CREDITOR AND THE COMPANY AT THEIR RESPECTIVE ADDRESSES SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED. 19. WAIVER OF JURY TRIAL. EACH SUBORDINATED CREDITOR, THE COMPANY AND AGENT HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE SUBORDINATED DEBT DOCUMENTS OR ANY OF THE SENIOR DEBT DOCUMENTS. EACH SUBORDINATED CREDITOR, THE COMPANY AND AGENT ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THE SENIOR DEBT DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH SUBORDINATED CREDITOR, THE COMPANY AND AGENT WARRANTS AND REPRESENTS THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS. 20. PERFECTION AGENT. Agent and each Subordinated Creditor agree that solely with respect to any Collateral in which a security interest may only be perfected by title, possession or "control", such party shall serve as the contractual representative agent of the other party solely for purposes of perfecting (to the extent not otherwise perfected) the liens in favor of the Subordinated Creditors or liens in favor of Agent and Senior Lenders, as applicable, subject in all events to the relative priorities established pursuant to this Agreement and to the limitations set forth in this Agreement with respect to such party's liabilities, duties and obligations in respect of the Collateral or otherwise. Without limiting the generality of the foregoing, each party shall be deemed to be an agent of the other party solely for purposes of perfection under the UCC and shall not incur any liabilities, fiduciary duties or obligations whatsoever to the other party due to the provisions of this Section 20. Promptly following the payment in full of the Senior Debt in cash, cash equivalents or other consideration acceptable to the Agent, the Agent shall, upon the request of the Subordinated Creditors, (x) deliver the remainder of such Collateral, if any, in its possession to the designee of the Subordinated Creditors, and (y) deliver any certificates of title held by it in respect of the Collateral (such as motor vehicle titles) and assign the Lien of the Agent on any such certificates of title, without representation, warranty or recourse and otherwise on terms reasonably acceptable to the Required Subordinated Creditors, in each case except as may otherwise be required by applicable law or court order 21. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes and replaces, in its entirety, any agreement or understanding, whether written or oral, heretofore made between or among the parties relative to the subject matter thereof. (SIGNATURE PAGE FOLLOWS) 16 IN WITNESS WHEREOF, the Subordinated Creditors, the Company and Agent have caused this Agreement to be executed as of the date first above written. SUBORDINATED CREDITORS CASTLERIGG PNG INVESTMENTS LLC, By: Castlerigg Master Investments Ltd., its sole member By: Sandell Asset Management Corp., its investment manager By: /s/ Patrick Burke ------------------------------ Name: Patrick Burke Title: Senior Managing Director Signature Page to Subordination and Intercreditor Agreement "COMPANY": PNG VENTURES, INC. /s/ Kevin Markey ----------------------------------- By: Kevin Markey Its: Chief Executive Officer Signature Page to Subordination and Intercreditor Agreement AGENT: FOURTH THIRD LLC, a Delaware limited liability company, as Agent and as a Senior Lender By: Seth B. Taube ------------------------ Its: Authorized Signatory Signature Page to Subordination and Intercreditor Agreement -----END PRIVACY-ENHANCED MESSAGE-----