EXHIBIT 10.1

FORM OF
INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (this "AGREEMENT") is made effective as of this ____ day of _________, _____ by and between National Coal Corp, a Florida corporation (the "COMPANY"), and ______________, an individual (the "INDEMNITEE").

RECITALS

A. The Company and Indemnitee recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees and agents to expensive litigation risk at the same time that the availability and coverage of liability insurance has been severely limited.

B. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and other directors, officers, employees and agents of the Company may not be willing to continue to serve as directors, officers, employees and agents without additional protection.

C. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as directors, officers, employees and agents of the Company and to indemnify its directors, officers, employees and agents so as to provide them with the maximum protection permitted by law.

AGREEMENT

The Company and Indemnitee hereby agree as follows:

1. INDEMNIFICATION.

1.1 THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, whether formal or informal (a "PROCEEDING") (other than an action by or in the right of the Company) by reason in whole or in part of: (i) the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company,
(ii) any action or inaction on the part of Indemnitee while a director, officer, employee or agent of the Company, or any subsidiary of the Company, or (iii) the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (subsections (i), (ii) and (iii) together, the Indemnitee's "CORPORATE STATUS"), against all expenses (including, without limitation, attorneys' fees, disbursements and retainers, accounting and witness fees, court costs, expenses of investigation, transcript costs, fees of experts, travel and deposition costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating or being or preparing to be a witness in a Proceeding (collectively, "EXPENSES")), judgments, penalties, fines and amounts paid in settlement (if such settlement is approved in advance by the Company which approval

shall not be unreasonably withheld) and other amounts actually and reasonably incurred by Indemnitee, in connection with such Proceeding, to the fullest extent permissible under Florida Law as currently in effect and as may be expanded in the future if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal proceeding, had no reasonable cause to believe the conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that indemnification is unavailable under this Agreement.

1.2 PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any Proceeding by or in the right of the Company or any subsidiary of the Company arising in whole or in part out of Indemnitee's Corporate Status against Expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expense of litigating the proceeding to conclusion, in each case to the extent actually and reasonably incurred by Indemnitee in connection with such Proceeding, including any appeal thereof, to the fullest extent permissible under Florida Law as currently in effect and as may be expanded in the future if Indemnitee acted in good faith and in a manner he or she reasonable belied to be in, or not opposed to the best interests of the Company, except that, notwithstanding anything herein to the contrary, no indemnification under this Section 1.2 shall be made in respect of any claim, issue or matter, as to which such Indemnitee shall have been adjudged to be liable unless, and only to the extent that, the court in which such proceeding was brought, or any other court of competent jurisdiction, shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

1.3 MANDATORY PAYMENT OF EXPENSES. Notwithstanding any limitations or conditions upon the Company's indemnification obligations set forth in SECTIONS 1.1 and 1.2 above, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in SECTIONS 1.1 and 1.2 or in defense of any claim, issue or matter therein, Indemnitee shall be indemnified against Expenses actually and reasonably incurred by Indemnitee in connection therewith.

1.4 INDEMNIFICATION FOR SERVING AS A WITNESS. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of Indemnitee's Corporate Status, a witness in any Proceeding, Indemnitee shall be indemnified against Expenses actually and reasonably incurred by Indemnitee in connection therewith.

2. EXPENSES; INDEMNIFICATION PROCEDURE.

2.1 ADVANCEMENT OF EXPENSES. The Company shall advance all Expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any Proceeding referenced in SECTIONS 1.1 or 1.2 hereof. The advances to be made hereunder shall be paid by the Company to Indemnitee within 30 days following delivery of a written request therefor by Indemnitee to the Company. Such written request shall reasonably evidence the Expenses incurred by Indemnitee. Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not

entitled to be indemnified by the Company as authorized hereby. Indemnitee shall have 30 days following such determination to reimburse the Company of any advances Indemnitee is not entitled to be indemnified by the Company.

2.2 NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to his right to be indemnified under this Agreement, give the Company prompt notice, in accordance with SECTION 13 hereof, of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement; provided, however, that a delay by Indemnitee in sending such notice shall not relieve the Company of its obligations hereunder except to the extent that the Company is actually materially prejudiced by such delay. Notice to the Company shall be directed to the Chief Financial Officer of the Company at the principal executive offices of the Company. In addition, Indemnitee shall give the Company, at the Company's expense, such information and cooperation as it may reasonably require and as shall be within Indemnitee's power.

2.3 PROCEDURE. Any indemnification and advances provided for in
SECTION 1 and this SECTION 2 shall be made no later than 30 days after receipt of the written request of Indemnitee. If a claim under this Agreement is not paid in full by the Company within 30 days after a written request for payment therefor has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to SECTION 12 of this Agreement, Indemnitee shall also be entitled to be paid for the Expenses for bringing such an action. It shall be a defense to any such action (other than an action brought to enforce a claim for Expenses incurred in connection with any Proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of Expenses pursuant to SECTION 2.1 unless and until such defense is finally adjudicated by court order or judgment from which no further right of appeal exists. It is the intention of the parties that if the Company contests Indemnitee's right to indemnification under this Agreement or applicable law, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its officers, its Board, any committee or subgroup of its Board, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by this Agreement or by applicable law, nor an actual determination by the Company (including its officers, its Board, any committee or subgroup of its Board, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has not met the applicable standard of conduct.

2.4 NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to SECTION 2.2 hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of receipt of a claim or the commencement of a Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

2.5 SELECTION OF COUNSEL. In the event the Company shall be obligated under SECTION 2.1 hereof to pay the Expenses of any Proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such Proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do, provided, however, that
(i) the Company shall have no right to assume the defense of any Proceeding which seeks, in whole or in part, any remedy other than monetary damages (e.g., injunction, specific performance, criminal sanctions) or which could, if Indemnitee were not to prevail therein, materially damage Indemnitee's personal or business reputation, and (ii) the Company shall have no right to assume the defense of any Proceeding unless the Company first agrees fully and unconditionally, in writing, that the Company is obligated to indemnify Indemnitee in full with respect thereto, and waives any and all defenses, counterclaims or set-offs which might otherwise be asserted in limitation or mitigation of such indemnification obligation. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Proceeding, provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such Proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company.

2.6 SETTLEMENT, COMPROMISE OR JUDGMENT. The Company shall not, without the written consent of Indemnitee, effect the settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action or claim in respect of which indemnification may be sought hereunder (whether or not Indemnitee is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (a) includes an unconditional release of Indemnitee from all liability arising out of such action or claim and (b) does not include a statement as to or admission of fault, culpability or failure to a act, by or on behalf of Indemnitee.

2.7 TAX GROSS-UP. If Indemnitee is required by law to pay any tax on account of receipt of any amount under this Agreement, the Company shall increase the amount payable to Indemnitee such that the amount receivable by Indemnitee, after deduction of all applicable taxes, is equal to the amount Indemnitee would have received under Agreement had such tax not been payable, provided that Indemnitee takes all reasonable steps to minimize the amount of such tax and provides the Company with evidence reasonably satisfactory to the Company that such steps have been taken.

3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.

3.1 SCOPE. Notwithstanding any other provision of this Agreement, in the event of any change in any applicable law, statute or rule which narrows the right of the Company to indemnify Indemnitee, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder. No amendment, alteration or repeal of this Agreement

or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal.

3.2 NONEXCLUSIVITY. The indemnification rights provided to Indemnitee by this Agreement shall be in addition to, and not in lieu of, any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested directors, applicable law or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee with respect to (i) any action taken or not taken while serving in an indemnified capacity and (ii) any Proceeding arising out of or relating to the period prior to the date upon which Indemnitee ceased to serve in an indemnified capacity, even though he may have ceased to serve in such capacity at the time of any covered Proceeding.

4. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines or penalties actually and reasonably incurred by him in the investigation, defense, appeal or settlement of any Proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled.

5. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, federal or state law or regulation may prohibit the Company from indemnifying Indemnitee under this Agreement or otherwise. The Company agrees to assert vigorously, in any such action pertaining to the Company's right to indemnify Indemnitee, the position that the Company has the full and unfettered right to so indemnify Indemnitee, and further agrees that Indemnitee may, at any time and in Indemnitee's sole discretion, assume control of the Company's defense of such right (including without limitation selection of counsel and determination of strategy), with such defense nonetheless being conducted at the Company's expense.

6. LIABILITY INSURANCE. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the directors, officers, employees and agents of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all such policies of liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's employees, if Indemnitee is not a director or officer but is an employee; or of the Company's agents, if Indemnitee is not a director, officer or employee but is an agent. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the

amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Company.

7. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to law, regulation or court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this SECTION 7. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this entire Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.

8. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

8.1 CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance Expenses to Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to Proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or otherwise but such indemnification or advancement of Expenses may be provided by the Company in specific cases if the Board has approved the initiation or bringing of such suit;

8.2 FRIVOLOUS PROCEEDINGS. To indemnify Indemnitee for any Expenses incurred by Indemnitee with respect to any Proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such Proceeding were frivolous;

8.3 INSURED CLAIMS. To make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise received payment (under any insurance policy, the Certificate of Incorporation or Bylaws of the Company, contract or otherwise) of the amounts otherwise indemnifiable hereunder. If the Company makes any indemnification payment to Indemnitee in connection with any particular Expense indemnified hereunder and Indemnitee has already received or thereafter receives, and is entitled to retain, duplicate payments in reimbursement of the same particular expense, then Indemnitee shall reimburse the Company in an amount equal to the lesser of (i) the amount of such duplicate payment and (ii) the full amount of such indemnification payment made by the Company;

8.4 UNLAWFUL CLAIMS. To indemnify Indemnitee in any manner which a court of competent jurisdiction has finally determined to be unlawful;

8.5 FAILURE TO SETTLE PROCEEDING. In the event that Indemnitee Fails to Pursue a Recommended Settlement of a Qualifying Claim, to indemnify Indemnitee (i) for amounts paid or payable in settlement of such Qualifying Claim in excess of the amount of such Recommended Settlement thereof, or (ii) for any cost and/or expenses directly related to such Qualifying Claim incurred by Indemnitee following the date upon which Indemnitee Fails To

Pursue such Recommended Settlement. For purposes of this clause, "QUALIFYING CLAIM" shall mean any claim the defense of which has been properly assumed by the Company under SECTION 2.5 above, "RECOMMENDED SETTLEMENT" shall mean a reasonable written settlement proposal, in full and final executable form in all material respects, and "FAILS TO PURSUE" shall mean Indemnitee's failure to agree to any Recommended Settlement that has been accepted by all adverse parties in the subject matter within 30 days after receipt thereof, provided the Company has (A) irrevocably deposited all funds necessary to satisfy all of Indemnitee's obligations under such Recommended Settlement in an account subject to Indemnitee's or a third party's control and (B) irrevocably taken all actions and given all instructions necessary or appropriate to permit such funds to be applied in satisfaction of such obligations of Indemnitee.

9. CONSTRUCTION OF CERTAIN PHRASES.

9.1 For purposes of this Agreement, references to the "COMPANY" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees and/or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

9.2 For purposes of this Agreement, references to "OTHER ENTERPRISES" shall include employee benefit plans; references to "FINES" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "SERVING AT THE REQUEST OF THE COMPANY" shall include any service as a director, officer, employee or agent of the Company or any subsidiary of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries.

10. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.

12. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-

claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were frivolous.

13. NOTICE. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked if addressed as provided for on the signature page of this Agreement, unless sooner received, or as subsequently modified by written notice.

14. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of California, or in federal courts located in such State.

15. CHOICE OF LAW. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of [Florida], without regard to conflicts of law principles of such state.

16. SUBROGATION. In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of contribution or recovery of Indemnitee against other persons, and Indemnitee shall take, at the request of the Company, all reasonable action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

17. ENFORCEMENT.

17.1 The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer or director of the Company.

17.2 This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

18. MODIFICATION AND WAIVER. No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

19. HEADINGS. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

COMPANY:

NATIONAL COAL CORP.

Title:

Notice Address:

AGREED TO AND ACCEPTED:

INDEMNITEE:

[NAME]

Notice Address:

EXHIBIT 10.3

ASSET PURCHASE AGREEMENT

BY AND BETWEEN

ROBERT CLEAR COAL CORPORATION, SELLER

AND

NATIONAL COAL CORPORATION, BUYER

DATED: OCTOBER 26, 2004

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

ARTICLE 1   SALE AND PURCHASE..................................................1

    Section 1.1     Purchase and Sale of Certain Assets........................1

    Section 1.2     Closing....................................................2

    Section 1.3     Purchase Price.............................................3

    Section 1.4     Delivery of Possession.....................................3

ARTICLE 2   COVENANTS AND AGREEMENTS...........................................3

    Section 2.1     Cooperation and Good Faith.................................3

    Section 2.2     Existing Mine Operations...................................4

    Section 2.3     Removal of Seller's Property...............................4

    Section 2.4     Permit 3116 and Replacement of Reclamation Bonds...........4

    Section 2.5     Assumed Obligations and Post-Closing Compliance
                       with Laws...............................................7

    Section 2.6     Cooperation................................................7

    Section 2.7     Performance of Leases......................................8

ARTICLE 3   REPRESENTATIONS AND WARRANTIES OF SELLER...........................8

    Section 3.1     Corporate Organization.....................................8

    Section 3.2     Authorization, Execution and Delivery......................8

    Section 3.3     Validity of Contemplated Transactions and Approvals........9

    Section 3.4     Consents and Approvals of Governmental Authorities.........9

    Section 3.5     Property Interests.........................................9

    Section 3.6     Mining and Geological Information.........................11

    Section 3.7     Labor and Employee Relations..............................11

    Section 3.8     Compliance with Law.......................................11

    Section 3.9     Permits and Licenses......................................12

    Section 3.10    Equipment.................................................13

    Section 3.11    Environmental Matters.....................................13

    Section 3.12    Brokers...................................................14

    Section 3.13    Representations and Warranties As of The Closing
                       Date...................................................14

ARTICLE 4   REPRESENTATIONS AND WARRANTIES OF BUYER...........................14

    Section 4.1     Corporate Organization....................................14

    Section 4.2     Authorization, Execution and Delivery.....................15

    Section 4.3     Validity of Contemplated Transactions.....................15

    Section 4.4     Brokers...................................................15

    Section 4.5     Representations and Warranties As of The Closing
                       Date...................................................16

ARTICLE 5   Conditions to buyer's obligations.................................16

    Section 5.1     Representations and Warranties............................16

    Section 5.2     Performance...............................................16

    Section 5.3     No Material Adverse Change................................16

    Section 5.4     Consents..................................................16

    Section 5.5     Non-Foreign Status Affidavit..............................17

    Section 5.6     No Actions, Suits or Proceedings..........................17

    Section 5.7     Closing Documents.........................................18

    Section 5.8     Purchase of Other Assets..................................18

Section 6.1     Representations and Warranties............................18

Section 6.2     Performance...............................................18

Section 6.3     No Actions, Suits or Proceedings..........................18

Section 6.4     Closing Documents.........................................19

Section 6.5     Buyer's Purchase of Other Assets..........................19

Section 7.1     Deliveries by Seller......................................19

Section 7.2     Deliveries by Buyer.......................................21

Section 7.3     Release from Escrow.......................................22

Section 7.4     Post-Closing Assistance...................................23

Section 8.1     Survival..................................................23

Section 8.2     Indemnification by Seller.................................23

Section 8.3     Notice to Seller, Etc.....................................24

Section 8.4     Indemnification by Buyer..................................24

Section 8.5     Notice to Buyer, Etc......................................25

Section 8.6     Survival of Indemnification...............................25

                                TABLE OF CONTENTS
                                   (continued)
                                                                            PAGE
                                                                            ----

ARTICLE 9   MISCELLANEOUS.....................................................26

    Section 9.1     Knowledge of Seller.......................................26

    Section 9.2     "Material" Defined........................................26

    Section 9.3     Notices...................................................26

    Section 9.4     Entire Agreement..........................................27

    Section 9.5     Modifications and Amendments..............................27

    Section 9.6     Assignment................................................28

    Section 9.7     Parties in Interest.......................................28

    Section 9.8     Governing Law.............................................28

    Section 9.9     Severability..............................................28

    Section 9.10    Headings and Captions.....................................29

    Section 9.11    Expenses..................................................29

    Section 9.12    Counterparts..............................................29

    Section 9.13    Interpretation............................................29

    Section 9.14    Schedules.................................................29

    Section 9.15    Time of the Essence.......................................29

    Section 9.16    Facsimile Signature.......................................30

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT ("Agreement") is entered into this 26th day of October, 2004, by and among ROBERT CLEAR COAL CORPORATION, a Tennessee corporation, whose address is 2980 General Carl W. Stiner Highway, LaFollette, Tennessee 37766, ("Seller") and NATIONAL COAL CORPORATION, a Tennessee corporation, whose address is 319 Ebenezer Road, Knoxville, Tennessee 37923 ("Buyer").
W I T N E S S E T H:

WHEREAS, Seller is the owner of certain assets which include, among other things, leases, permits, contracts, and mining equipment, and

WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from Seller, only such assets as specifically described herein, all of which shall be upon the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the strict performance and observance of the terms, conditions, promises, covenants, stipulations, and agreements hereinafter set forth to be performed and observed by the parties, and the further consideration set forth herein, the sufficiency of which is hereby acknowledged by the parties, the parties agree as follows:

ARTICLE 1

SALE AND PURCHASE

SECTION 1.1 PURCHASE AND SALE OF CERTAIN ASSETS. Upon the terms and subject to all the conditions in this Agreement, Buyer agrees to purchase from Seller and Seller agrees to sell and deliver to Buyer, on the Closing Date (as defined in Section 1.2), all of the hereinafter described property which shall be collectively referred to as the "Assets," as follows:

(a) All right, title and interest of Seller in those certain leases identified on Schedule 1.1(a) (the "Leases"), including any pre-payments or recoupments to which Seller may be entitled, as set forth on Schedule 1.1(a). The Leases and the property demised thereunder are sometimes hereinafter referred to as the "Real Property."

(b) All right, title and interest in the machinery and equipment as shown on the Schedule of Equipment attached hereto and made a part hereof as Schedule 1.1(b) (the "Equipment").

(c) All right, title and interest in all pending and/or issued Permits and licenses (the "Permits") held by Seller in relation to Seller's mining operations on the Real Property, as set forth on the Schedule of Permits attached hereto and made a part hereof as Schedule 1.1(c).

(d) All of Seller's right, title and interest in all geological data, reserve data, mine maps, core hole logs, coal measurements, coal samples, lithologic data, mine plans, mining feasibility studies or analyses, reserve reports, exploration data, mining permit applications and supporting data, engineering studies, title reports and opinions in the possession of or in the control of Seller relating to or affecting the coal reserves, mining conditions, mines and mining plans of Seller in or upon the Real Property and pertaining in any way to the ownership, condition or operation of the Assets (the" Records" ) .

SECTION 1.2 CLOSING. The consummation of the transactions contemplated herein (the "Closing") shall be held within two (2) business days after receipt by Seller and/or Buyer of the OSM Notice from the Department of Interior, Office of Surface Mining, including TDEC, (collectively, "OSM") that it is prepared to transfer Permit 3116 and the related TDEC Permit to

Buyer, as provided in Section 2.4(a) herein (the "Closing Date"), but in no event later than November 30, 2004, at a mutually agreeable location in Knoxville, Tennessee. Provided, however: (i) notwithstanding anything herein to the contrary, the Closing shall be held prior to the date of actual transfer of Permit 3116 to Buyer by OSM, and (ii) in the event the TDEC Permit is transferred by TDEC and the Closing Documents are not released to Buyer under the Escrow Agreement referenced in Section 7.3, Buyer shall sign and deliver all forms and applications necessary to transfer the TDEC Permit back to Seller.

SECTION 1.3 PURCHASE PRICE. In consideration of the sale, transfer and delivery of the Assets, Buyer shall pay to Seller the Purchase Price of Two Million Two Hundred Forty-One Thousand One Hundred Twenty-Nine and 50/100 Dollars ($2,241,129.50) payable at Closing in immediately available funds. The Purchase Price shall be allocated to the Assets as shown on Schedule 1.3.

SECTION 1.4 DELIVERY OF POSSESSION. Simultaneously with the Closing, Seller will take all such steps that may be required to place Buyer in actual possession of the Real Property, Equipment and Records.

ARTICLE 2

COVENANTS AND AGREEMENTS

SECTION 2.1 COOPERATION AND GOOD FAITH. Each of the parties hereto shall use its best efforts in good faith to perform and fulfill all conditions and obligations to be fulfilled or performed by it hereunder to the end that the transactions contemplated hereby will be fully and timely consummated and enforced. From time to time after the Closing, the parties will execute

and deliver such other instruments and take such other action as may be reasonably required to consummate the transactions under this Agreement.

SECTION 2.2 EXISTING MINE OPERATIONS. As of the release from escrow of the closing documents to Buyer after Closing as provided in Section 7.3, Buyer will assume responsibility for Seller's existing permitted mining operations located on the Leases (the "Mine") including but not limited to all reclamation obligations under Permit 3116 (as identified on Schedule 1.1(c)). Seller may conduct mining operations through the Closing Date but shall keep reclamation obligations at the Mine reasonably current and consistent with conditions now existing and with the existing mining and reclamation plan of Seller. Seller shall not conduct active mining operations on the Leases after the Closing Date and prior to the release from escrow as provided in Section 7.3. Buyer has inspected and approved the status of the Real Property and existing reclamation and accepts same in its condition "AS IS, WHERE IS" as of the date hereof. Buyer shall inspect and approve the status of the Real Property and reclamation prior to the Closing, and by closing accepts same in its then condition "AS IS, WHERE IS" as of the Closing.

SECTION 2.3 REMOVAL OF SELLER'S PROPERTY. Seller shall have the right to remove all coal inventory and other property of Seller, exclusive of the Assets, from the Real Property within thirty (30) days after the Closing Date. Any such other Seller property and coal inventory thereafter on the Real Property shall belong to Buyer.

SECTION 2.4 PERMIT 3116 AND REPLACEMENT OF RECLAMATION BONDS.

(a) As soon as reasonably practicable but not later than ten
(10) days after date hereof, Buyer and Seller shall file any and all necessary applications with OSM for

transfer of Permit 3116 and with TDEC for the transfer of the related Permit (collectively, the "Successor Permittee Application") to Buyer. Buyer shall prepare the Successor Permittee Application and applications for transfer of the other Permits (collectively the "Applications"). Prior to the time of transfer to Buyer of Permit 3116 by the regulatory agency, and not later than the date of the closing, Buyer shall post all bonds (with appropriate collateral of a type satisfactory to the appropriate regulatory authority) necessary to substitute Buyer's bonds for Seller's bonds identified in Schedule 2.4(a) ("Bonds") so that the regulatory agency shall transfer Permit 3116 and as soon as reasonably practicable thereafter release Seller's Bonds and all collateral for the Bonds. Any and all necessary filing fees for the Applications, the cost of advertising the filing of the Applications, any and all costs payable to any governmental authority in connection with the Applications, and the cost of pursuing transfer of Permit 3116, shall be borne by Buyer; otherwise, each party will bear its own costs and expenses in connection with such transfer of Permit 3116. Each party hereto shall bear all its bond fees and other costs with respect to the bonds and other security it has posted or may post in connection with the foregoing.

(b) Buyer will file at such time as expressly provided by
Section 2.4(a) above, bonds with appropriate collateral of a type satisfactory to the appropriate regulatory authority as surety for the performance of all obligations under Permit 3116, including but not limited to reclamation of the boundaries affected by Permit 3116, including all areas therein previously affected by the Seller, with good and sufficient surety or collateral satisfactory to the regulatory agency. The parties shall take all reasonable steps necessary to ensure that promptly (considering the normal time frame for regulatory action) upon the transfer of Permit 3116 or reissuance of Permit 3116 to Buyer by the appropriate regulatory agency or agencies, Seller shall

be released and absolved from all liability and obligation under Permit 3116 and all Bonds and all deposits, letters of credit or collateral posted by Seller as security for such Bonds and any cash bonds or letters of credit posted by the Seller directly with the regulatory agency in connection therewith shall be refunded in full and/or returned to Seller.

(c) Buyer and Seller agree to diligently prosecute at Buyer's cost the Application process contemplated hereby for the transfer of Permit 3116 until: (i) such time as the Permit 3116 is transferred, or (ii) such transfer is denied by the regulatory agency, whichever is earlier. Buyer and Seller may submit additional information and documentation as may be requested by the regulatory agency to allow Permit 3116 to be transferred, but if the transfer is denied, the Successor Permittee Application shall not be re-submitted. Provided, however, if the OSM Notice Date has not occurred on or before November 30, 2004, Buyer, Seller, or either of them may in their sole discretion withdraw the Successor Permittee Application and neither party shall have any further obligations of performance under this Agreement.

(d) Buyer understands that certain non-compliances and violations exist under Permit 3116 (as identified on Schedule 3.8) as of date hereof and as of the Closing which Buyer agrees to timely remediate (as required in said non-compliances and notices of violations) after the Closing but prior to the issuance of any cessation order by governmental agencies. Seller shall use its best reasonable efforts to conduct its mining operations after date hereof and up to the Closing, in compliance with Permit 3116 so that no new notices of violation or non-compliance are issued to Seller prior to the Closing. Seller shall use its best reasonable efforts to cause any new violations or non-compliances to be abated or remediated prior to Closing. Seller may, prior to the expiration of the time allowed for abatement of the violation, obtain extensions of time from the regulatory agency. In the event new notices of violation or

non-compliance are issued by the regulatory agency after date hereof which have not been abated or remediated prior to Closing, the parties shall proceed to close hereunder, except if any such violation or non-compliance has a material adverse effect, Buyer shall have the right to terminate this Agreement.

(e) Buyer shall at all times after release from escrow of the closing documents to Buyer as provided in Section 7.3 indemnify and hold harmless each member of Seller's Group for all losses, costs, fines, penalties, claims, obligations, expenses (including but not limited to attorneys fees) (collectively the "Losses") incurred by each member of Seller's Group in connection with any and all: (i) pre-Closing and post-Closing notices of violations and any and all actions or failure to act of Buyer relating to the Assets, the Permits (including bonds and other security therefor), the Real Property, the Leases, and Seller's mining operations prior to Closing, and (ii) all other obligations of Buyer under this Agreement, which Losses shall constitute Assumed Obligations of Buyer. As used in this Agreement, Seller's Group shall include Seller and its officers, directors, employees, agents, contractors and affiliates.

SECTION 2.5 ASSUMED OBLIGATIONS AND POST-CLOSING COMPLIANCE WITH LAWS. From and after the release from escrow of the closing documents to Buyer as provided in Section 7.3, Buyer shall timely perform, pay and discharge all Assumed Obligations and comply with all environmental laws, mining laws and all other laws, regulations and orders and shall release, indemnify and hold harmless each member of Seller's Group from any and all Losses related to such Assumed Obligations.

SECTION 2.6 COOPERATION. Both until and after the Closing, at the cost of Buyer, Seller at all times will reasonably cooperate in seeking to obtain all governmental consents, Permit, and

licenses deemed desirable by Buyer for the consummation of the transactions contemplated by this Agreement.

SECTION 2.7 PERFORMANCE OF LEASES. Buyer agrees and covenants that as Assignee of the Leases after release from escrow as provided in Section 7.3 it will assume performance thereof and that it will, from and after the release from escrow of the closing documents to Buyer as provided in Section 7.3, hold Seller harmless from and against any liability arising out of the breach of the terms and covenants of the Leases arising after the Closing.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to, and covenants with, Buyer that:

SECTION 3.1 CORPORATE ORGANIZATION. Seller is a Tennessee corporation duly organized, validly existing and in good standing under the laws of the State of Tennessee and has all the requisite corporate power and authority to conduct its business as now conducted and to own the Assets.

SECTION 3.2 AUTHORIZATION, EXECUTION AND DELIVERY.

(a) Excepting only the matters set forth on Schedule 3.2: (i) Seller is the record and beneficial owner of the Assets free and clear of any security interest, mortgage, pledge, lien, agreement, encumbrance or adverse claim against Seller's rights in the Assets; (ii) Seller has the complete and unrestricted right, power and authority to execute and deliver this Agreement; and (iii) Seller has the complete and unrestricted right, power and authority to sell, assign, transfer, convey and deliver the Assets to Buyer and to otherwise perform each of the obligations hereunder, and the Seller's Board of Directors has approved same.

(b) This Agreement and the documents executed pursuant thereto have been duly executed and delivered by Seller and constitute the valid and binding obligation of Seller enforceable against Seller in accordance with the terms of each, except as may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditors' rights in general, and are effective to convey the interests of Seller as set forth herein, except as shown on Schedule 4.2.

SECTION 3.3 VALIDITY OF CONTEMPLATED TRANSACTIONS AND APPROVALS. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) contravene, violate or result in the violation of any statute, law, ordinance, rule or regulation to which Seller is subject; (ii) contravene, violate or result in the violation of any judgment, order, injunction, writ or decree of any court or any government department, agency, instrumentality or authority which is applicable to Seller; (iii) violate or conflict with any provision of any certificate of incorporation or by-law of Seller; and (iv) except as set forth in Schedule 4.3, require the consent of any other party, or permit any other party (including the other parties under the Leases and Contracts) to terminate or materially impair the rights of Seller or Buyer in any of the Assets, including but not limited to the Leases and the Permit.

SECTION 3.4 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. Except with respect to the transfer of the Permits, no consent, approval or authorization of, or declaration, registration or filing with, or any notification to any governmental or regulatory authority is required to be made or obtained by Seller in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

SECTION 3.5 PROPERTY INTERESTS.

(a) Other than the Leases, Seller has no legal or equitable title or interest in any other coal rights, mineral estates, coal leases, coal subleases, surface mining leases, mining rights, spoilage or overburden disposal rights, surface disturbance consents, easements, licenses, rights of way, wheelage agreements, access rights and other rights or interests in real property and improvements thereon relating to the mining of coal, or the coal therein and thereunder, or access thereto of the right to mine, remove and/or transport same, located within fifteen (15) miles of the Leases. Seller has delivered or made available to Buyer true and complete copies of all deeds, leases, subleases, documents of title, title opinions, title insurance policies, abstracts, surveys, plats and maps, in its possession or in its control relating to the title to the Real Property.

(b) Other than liens for current ad valorem taxes not yet due and payable, Seller has good and marketable title to the Assets, free and clear of any mortgage, security interest, lien, encumbrance, option or agreement.

(c) To Seller's best knowledge, the lessors under the Leases have good and marketable title to the Real Property free and clear of any mortgage, security interest, lien, encumbrance, option or agreement except the Leases.

(d) Except as set forth in Schedule 3.5(d), there are no pending or to the knowledge of Seller threatened, claims, actions, suits or proceedings, including any relating to condemnation, eminent domain or other public taking or use, against or affecting Seller's interests in the Assets, or any portion thereof or any interest therein, or relating to or arising out of the interest of Seller in the Assets, or any portion thereof, in any court or before or by any

federal, state, county or municipal department, commission, board, bureau, agency or other governmental instrumentality.

(e) Seller enjoys quiet and peaceable possession under the Leases. The Leases are now, and at the Closing Date will be, in full force and effect, enforceable in accordance with the terms of each against the respective lessor thereunder. To Seller's knowledge, no event will have occurred which (whether with or without notice, lapse of time or the occurrence of any other event) would constitute a default by any other party under the Leases, which default would permit the non-defaulting party to terminate the Leases or materially impair the rights of the non-defaulting party.

SECTION 3.6 MINING AND GEOLOGICAL INFORMATION. Seller has provided to Buyer copies of or access to the Records. SELLER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE CORRECTNESS OF THE RECORDS AND/OR THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED THEREIN.

SECTION 3.7 LABOR AND EMPLOYEE RELATIONS. No union is certified, or claiming to have been or seeking to be certified or recognized, as collective bargaining agent to represent any employee of Seller. The Real Property is not subject to any successorship obligations under any National Bituminous Coal Wage Agreement to which Seller or any predecessor in title or interest was a party.

SECTION 3.8 COMPLIANCE WITH LAW. To Seller's knowledge, except as shown on Schedule 3.8, Seller is in material compliance with all laws, ordinances, legal requirements, rules, regulations and orders applicable to it, its operations, properties, assets, products and

services, including, without limitation, the (i) federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the federal Clean Air Act, the federal Water Pollution Control Act of 1972, the federal Clean Water Act, the federal Surface Mining Control and Reclamation Act ("SMCRA"), the federal Mine Safety and Health Act of 1977, as amended, the federal Occupational Safety and Health Act of 1970, the federal Solid Waste Disposal Act, the federal Insecticide, Fungicide and Rodenticide Act, and the Toxic Substances Control Act, each as amended and as now or hereinafter in effect, together with the state counterpart of each, including the Tennessee Department of Environment and Conservation ("TDEC").

SECTION 3.9 PERMITS AND LICENSES. Schedule 1.1(c) contains a correct and complete list of all licenses, Permits and other authorizations held by Seller relating to mining operations on the Real Property. To Seller's knowledge, except as set forth in Schedule 1.1(c), each of said Permits, licenses and other authorizations is in full force and effect; Seller is in compliance in all material respects with the terms, provisions and conditions thereof; there are and have been no violations, penalties, notices of noncompliance, agreements, judgments, consent decrees, agreed orders or administrative action(s) or proceeding(s) of a material nature (including but not limited to any notice that same constitute a pattern of violations under SMCRA or its state counterpart) affecting any of said Permits, licenses and other authorizations; Permit 3116 set forth on Schedule 1.1(c) is in compliance in all material respects with and satisfies all requirements of the SMCRA; and to Seller's knowledge, Seller has performed and is current in all material respects with all reclamation activities, water treatment, discharge requirements, air pollution abatement, health and safety requirements and environmental responsibilities required to be performed

pursuant to, in connection with or as a condition of the validity of said Permits, licenses and other authorizations or required pursuant to any federal, state or local statute, regulation or law.

SECTION 3.10 EQUIPMENT. SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT, ITS CONDITION, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR USE, AND SELLER WILL CONVEY THE EQUIPMENT "AS IS, WHERE IS" IN ITS EXISTING CONDITION AS OF THE CLOSING. Seller shall service the equipment in accordance with customary practice after date hereof and prior to the Closing, but shall not be required to make major repairs or replacements of major components; provided, however, the Buyer may elect to service the equipment as it determines is in its best interest.

SECTION 3.11 ENVIRONMENTAL MATTERS. To Seller's knowledge, Seller and all Assets are in compliance in all material respects with all applicable laws, rules, regulations, orders, ordinances, judgments and decrees of all governmental authorities with respect to all environmental statutes, rules and regulations. Seller has not received notice of, nor does Seller have knowledge of, any past or present events, conditions, circumstances, activities, practices, incidents or actions of Seller or Seller's predecessors, either collectively, individually or severally, which may form the basis of any claim, action, suit, proceeding, hearing, or investigation, based on or related to the disposal, storage, handling, manufacture, processing, distribution, use, treatment or transport, or the emission, discharge, release or threatened release into the environment, of any Substance. As used in this Section 3.11, the term "Substance" or "Substances" shall mean any pollutant, hazardous substance, hazardous material, hazardous waste or toxic waste, as defined in any federal, state or local statute or any regulation that has been promulgated pursuant thereto. No part of any of the Assets have been listed or proposed for

listing on the National Priorities List established by the United States Environmental Protection Agency, or any other such list by any federal, state or local authorities.

SECTION 3.12 BROKERS. Seller represents and warrants that all negotiations on behalf of Seller relative to this Agreement and the transactions contemplated hereby have been carried on without the intervention of any broker acting on its behalf, Seller hereby indemnifies Buyer and agrees to hold it harmless against and in respect of any claim from anyone acting on Seller's behalf for brokerage or other commissions relative to this Agreement and the transactions contemplated hereby.

SECTION 3.13 REPRESENTATIONS AND WARRANTIES AS OF THE CLOSING DATE. All of the representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects at the Closing Date as if made on the Closing Date. In the event of any change or event after date hereof which would cause any representation or warranty to be untrue as of the Closing, Seller shall supplement the Schedules to this Agreement prior to Closing. In the event any such supplement to the Schedules involves a material adverse impact on the Assets or the conduct of the business operations of Seller, Buyer may at its option elect not to close and the parties shall have no further obligations under this Agreement.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF BUYER

SECTION 4.1 CORPORATE ORGANIZATION. Buyer is a corporation duly organized, validly existing and in good standing as a domestic corporation under the laws of the State of Tennessee and has all the requisite corporate power and authority to perform its obligations under this

Agreement and the other documents delivered pursuant hereto and to carryon its business as now conducted.

SECTION 4.2 AUTHORIZATION, EXECUTION AND DELIVERY. The execution and delivery of this Agreement by Buyer and the performance by it of the transactions herein contemplated, have been, or will have been on the date this Agreement is executed on behalf of Buyer, duly authorized and approved by the Board of Directors of Buyer. No further corporate authorization with respect to Buyer is or will be required.

SECTION 4.3 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the execution or delivery by Buyer of this Agreement nor the consummation of the transactions contemplated hereby will in any material respect (i) contravene, violate or result in the violation of any statute, law, ordinance, rule or regulation to which Buyer is subject; (ii) contravene, violate or result in the violation of any judgment, order, injunction, writ or decree of any court or any government department, agency, instrumentality or authority which is applicable to Buyer; and (iii) violate or conflict with any provision of any certificate of incorporation or by-law of Buyer.

SECTION 4.4 BROKERS. Buyer represents and warrants that all negotiations on behalf of Buyer relative to this Agreement and the transactions contemplated hereby have been carried on without the intervention of any broker acting on its behalf, Buyer hereby indemnifies Seller and agrees to hold it harmless against and in respect of any claim from anyone acting on Buyer's behalf for brokerage or other commissions relative to this Agreement and the transactions contemplated hereby.

SECTION 4.5 REPRESENTATIONS AND WARRANTIES AS OF THE CLOSING DATE. All of the representations and warranties of Buyer set forth on this Agreement shall be true and correct in all material respects at the Closing Date as if made on the Closing Date.

ARTICLE 5

CONDITIONS TO BUYER'S OBLIGATIONS

The obligation of Buyer to consummate the transactions contemplated hereby is subject to the satisfaction, on or before the Closing Date, of the following conditions, unless waived in writing by Buyer in its sole discretion:

SECTION 5.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects on the Closing Date.

SECTION 5.2 PERFORMANCE. Seller in all material respects shall have performed and observed its obligations and covenants as set forth in this Agreement prior to or on the Closing Date.

SECTION 5.3 NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date, there shall be no material adverse change in the Assets or to Seller's operations on the Real Property, whether as a result of any revocation of any Permit or rights to do business, fire, explosion, accident, casualty, labor trouble, flood, drought, riot, storm, condemnation or act of God or other public force or otherwise.

SECTION 5.4 CONSENTS. All consents of third parties required to be received to prevent any Asset from terminating prior to its scheduled termination, as a result of the consummation of the transactions contemplated hereby, including, without limitation, all consents of the lessors

under the Leases, shall have been obtained by Buyer using its reasonable efforts. Buyer shall use its reasonable efforts to obtain estoppel certificates from the lessors under the Leases that there is no existing default by Seller under any of the Leases, and no event has occurred which (whether with or without notice, lapse of time or the occurrence of any other event) would constitute a default by Seller under the Leases.

SECTION 5.5 NON-FOREIGN STATUS AFFIDAVIT. Buyer shall have received or waived the affidavit of Seller certifying as to its non-foreign status in accordance with section 1445(b)(2) of the Internal Revenue Code in form and substance satisfactory to Buyer.

SECTION 5.6 NO ACTIONS, SUITS OR PROCEEDINGS. Except as shown on Schedule 3.5(d), as of the Closing Date, no action, suit, investigation or proceeding brought by any person, corporation, governmental agency or other entity shall be pending or, to the best knowledge of Seller, threatened, before any court or governmental body (i) to restrain, prohibit, restrict or delay, or to obtain damages in respect of this Agreement or the consummation of the transactions contemplated hereby, or (ii) which has had or may have a materially adverse effect on the condition, financial or otherwise, or prospects of Seller. No order, decree or judgment of any court or governmental body shall have been issued restraining, prohibiting, restricting or delaying, the consummation of the transactions contemplated by this Agreement. No insolvency proceeding of any character including without limitation, bankruptcy, receivership, reorganization, dissolution or arrangement with creditors, voluntary or involuntary, affecting Seller shall be pending, and Seller shall not have taken any action in contemplation of, or which would constitute the basis for, the institution of any such proceedings.

SECTION 5.7 CLOSING DOCUMENTS. Seller shall have delivered at the Closing all of the resolutions, certificates, documents and instruments required by this Agreement.

SECTION 5.8 PURCHASE OF OTHER ASSETS. Buyer shall have entered into an agreement with B&B Hauling and Sevenstar for the purchase of and closing on the assets listed in Exhibit A and Exhibit B hereto, which closing shall be prior to the Closing hereunder.

ARTICLE 6

CONDITIONS TO SELLER'S OBLIGATIONS

The obligation of Seller to consummate the transactions contemplated hereby is subject to the satisfaction, on or before the Closing Date, of the following conditions, unless waived in writing by Seller in its sole discretion:

SECTION 6.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material respects on the Closing Date.

SECTION 6.2 PERFORMANCE. Buyer in all material respects shall have performed and observed its obligations and covenants as set forth in this Agreement prior to or on the Closing Date.

SECTION 6.3 NO ACTIONS, SUITS OR PROCEEDINGS. As of the Closing Date, no action, suit, investigation or proceeding brought by any person, corporation, governmental agency or other entity shall be pending or, to the best knowledge of Buyer, threatened, before any court or governmental body to restrain, prohibit, restrict or delay, or to obtain damages or a discovery order in respect of this Agreement or the consummation of the transactions contemplated hereby. No order, decree or judgment of any court or governmental body shall have been issued

restraining, prohibiting, restricting or delaying, the consummation of the transactions contemplated by this Agreement. No insolvency proceeding of any character including without limitation, bankruptcy, receivership, reorganization, dissolution or arrangement with creditors, voluntary or involuntary, affecting Buyer shall be pending, and Buyer shall not have taken any action in contemplation of, or which would constitute the basis for, the institution of any such proceedings.

SECTION 6.4 CLOSING DOCUMENTS. Buyer shall have delivered at Closing the Purchase Price and all of the resolutions, certificates, documents and instruments required by this Agreement.

SECTION 6.5 BUYER'S PURCHASE OF OTHER ASSETS. Buyer shall have closed with B&B Hauling and Sevenstar the purchase of the assets listed in Exhibit A and Exhibit B hereto, which closing shall be prior to the Closing hereunder.

ARTICLE 7

CLOSING DELIVERIES

SECTION 7.1 DELIVERIES BY SELLER. At the Closing, Seller will deliver the following:

(a) The Records (Buyer will be placed in possession as of the release from escrow as provided in Section 7.3);

(b) The Escrow Agreement in the form attached hereto as Exhibit C (the "Escrow Agreement");

(c) The affidavit of Seller certifying as to its non-foreign status required by Section 5.5 above.

(d) A resolution of the shareholders of Seller approving this Agreement and the consummation of the transactions hereunder;

(e) The following documents to be delivered to the Escrow Agent under the Escrow Agreement:

(i) Bill of Sale (for equipment) - 1 original

(ii) Assignment and Assumption of Coal Lease Agreement (Ketchen) - 4 originals

(iii) Assignment and Assumption of Coal Lease and Wheelage Agreement (Vanguard) - 3 originals

(iv) Assignment and Assumption of Wheelage Agreement (Baird) - 3 originals

(v) Memorandum of Assignment of Coal Lease Agreement (Ketchen) - 3 originals

(vi) Memorandum of Assignment of Coal Lease and Wheelage Agreement (Vanguard) - 3 originals

(vii) Memorandum of Assignment of Wheelage Agreement (Baird) - 3 originals

(f) All other documents, instruments and writings required to be delivered by Seller at or prior to the Closing Date pursuant to this Agreement or otherwise required in connection herewith.

SECTION 7.2 DELIVERIES BY BUYER. At the Closing, Buyer will deliver the following:

(a) The Purchase Price less any deposit paid prior to Closing shall be delivered to the Escrow Agent;

(b) The Escrow Agreement signed and entered into by Buyer and Escrow Agent;

(c) The following documents shall be delivered to the Escrow Agent:

(i) Bill of Sale (for equipment) - 1 original

(ii) Assignment and Assumption of Coal Lease Agreement (Ketchen) - 4 originals

(iii) Assignment and Assumption of Coal Lease and Wheelage Agreement (Vanguard) - 3 originals

(iv) Assignment and Assumption of Wheelage Agreement (Baird) - 3 originals

(v) Memorandum of Assignment of Coal Lease Agreement (Ketchen) - 3 originals

(vi) Memorandum of Assignment of Coal Lease and Wheelage Agreement (Vanguard) - 3 originals

(vii) Memorandum of Assignment of Wheelage Agreement (Baird) - 3 originals

(viii) Assumption and Modification Agreement (Ketchen) - 3 originals

(ix) Acknowledgment, Subordination, Non-Disturbance and Attornment Agreement (the "Acknowledgment and SNDA") - 3 originals

(d) All other documents, instruments and writings required to be delivered by Buyer at or prior to the Closing Date pursuant to this Agreement or otherwise required in connection herewith.

SECTION 7.3 RELEASE FROM ESCROW. The parties will at Closing deliver the documents and funds necessary to consummate the Closing to the Escrow Agent under the Escrow Agreement. In the event Permit 3116 and the related TDEC Permit are not transferred to Buyer by the regulatory agency within fourteen (14) days after the Closing, the Escrow Agent shall upon written demand from Seller or Buyer after said date but prior to the transfer of Permit 3116 by the regulatory agency, return all documents and/or funds to the party which delivered the respective documents and/or funds as follows: the documents identified in Sections 7.1(e)(i) - (vii) shall be returned to Seller, and the documents and funds identified in Section 7.2(a) and 7.2(c)(iv) and (v) shall be returned to Buyer and this Agreement shall be null and void and neither party shall have any further obligation to the other. Upon delivery of such notice to the Escrow Agent, Seller and Buyer shall immediately cause a withdrawal of the pending Successor Permittee Application. Notwithstanding anything herein or in the Escrow Agreement to the contrary, in the event Seller does not, through no fault of Seller, consummate a sale of its other equipment to Stowers Machinery Corporation under a Bill of Sale in the form of Exhibit D attached hereto prior to or simultaneous with the release from escrow, Buyer agrees to purchase

such equipment on the same terms and conditions as Exhibit D, prior to or simultaneous with the release from escrow, payment for which shall be in immediately available funds.

SECTION 7.4 POST-CLOSING ASSISTANCE. From and after the Closing, upon the request of either party, the other party hereto shall do, execute, acknowledge and deliver all such further acts, assurances, deeds, assignments, transfers, conveyances and other instruments and papers as may be reasonably required or appropriate to carry out the transactions contemplated by this Agreement. Seller shall be permitted to store Excluded Assets at the properties of the Buyer at no cost to Seller for a period not to exceed thirty (30) days following Closing, and Buyer will reasonably cooperate with Seller in the relocation and/or sale of such Excluded Assets by Seller during the thirty (30) day period following the Closing. After the Closing, at Seller's request and expense, Buyer shall employ its best efforts to assist the Seller in obtaining the full benefit of any and all Tax credits, Tax refunds and Tax benefits related to all Taxes paid and all other matters related to Seller's business prior to the Closing.

ARTICLE 8

SURVIVAL AND INDEMNIFICATION

SECTION 8.1 SURVIVAL. The representations, warranties and covenants in this Agreement shall survive the purchase of the Assets contemplated hereby.

SECTION 8.2 INDEMNIFICATION BY SELLER. Seller shall indemnify, defend, and hold Buyer, its officers, directors, employees, agents and contractors, successors and assigns (the "Seller's Indemnitees"), harmless from, against and with respect to any claim, liability, obligation, loss, damage, assessment, judgment, cost and expense of any kind or character,

including but not limited to reasonable attorneys fees (the "Damages"), arising out of or in any manner incident, relating or attributable to:

(a) Any inaccuracy in any representation or breach of any warranty of Seller contained in this Agreement; and

(b) Any failure by Seller to perform or observe, or to have performed or observed, in full, any covenant, agreement or condition to be performed or observed by it under this Agreement or any of the documents delivered in connection with this transaction.

SECTION 8.3 NOTICE TO SELLER, ETC. If any of the matters as to which Seller's Indemnitees are entitled to receive indemnification under Section 8.2 may entail litigation with parties other than Seller, Seller shall be given prompt notice thereof and shall have the right, at its expense, to appoint legal counsel to consult with and remain advised by Buyer in any contest of a claim with such other parties. To the extent requested by Buyer, Seller, at its expense, shall cooperate with and assist Buyer, in any such contest. Buyer shall have final authority to determine all matters in connection with any such litigation or prospective litigation; provided, however, that Buyer shall not settle any litigation involving a third party claim (and thereafter seek indemnification from Seller) without the consent of Seller, which shall not be unreasonably denied or delayed.

SECTION 8.4 INDEMNIFICATION BY BUYER. Buyer shall indemnify, defend, and hold Seller, its officers, directors, employees, agents, contractors, successors and assigns (the "Buyer's Indemnitees"), harmless from, against and with respect to any claim, liability, obligation, loss, damage, assessment, judgment, cost, fine, penalty, obligation and expense of any kind or character, including but not limited to reasonable attorneys fees (the "Damages"),

irrespective of whether Permit 3116 is ever transferred or issued to Buyer, arising out of or in any manner incident, relating or attributable to:

(a) Any inaccuracy in any representation or breach of warranty of Buyer contained in this Agreement; and

(b) Any failure by Buyer to perform or observe, or to have performed or observed, in full, any covenant, agreement or condition to be performed or observed by it under this Agreement or any of the documents delivered in connection with this transaction, including but not limited to the Assumed Obligations.

SECTION 8.5 NOTICE TO BUYER, ETC. If any of the matters as to which Buyer's Indemnitees are entitled to receive indemnification under Section 8.4 may entail litigation with parties other than Buyer, Buyer shall be given prompt notice thereof and shall have the right, at its expense, to appoint legal counsel to consult with and remain advised by Seller in any contest of a claim with such other parties. To the extent requested by Seller, Buyer, at its expense, shall cooperate with and assist Seller, in any such contest. Seller shall have final authority to determine all matters in connection with any such litigation or prospective litigation; provided, however, that Seller shall not settle any litigation involving a third party claim (and thereafter seek indemnification from Buyer) without the consent of Buyer, which consent shall not be unreasonably denied or delayed.

SECTION 8.6 SURVIVAL OF INDEMNIFICATION. The obligations to indemnify and hold harmless pursuant to this ARTICLE 8 shall survive the Closing.

ARTICLE 9

MISCELLANEOUS

SECTION 9.1 KNOWLEDGE OF SELLER. Any representation or warranty contained in this Agreement expressly qualified by reference to the best knowledge of Seller, shall be construed to mean matters within the actual knowledge of Robert Clear and/or Rebecca Clear.

SECTION 9.2 "MATERIAL" DEFINED. For purposes of this Agreement, an event or circumstance shall be deemed to constitute or have a material adverse change, material result or material effect if such event or circumstance would result in a material adverse change, or have a material result or material effect on the Assets or results of operations or the Real Property taken as a whole.

SECTION 9.3 NOTICES. All notices, requests, consents and other communications hereunder shall be in writing, shall be addressed to the receiving party's address set forth below or to such other address as a party may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) made by telex, telecopy or facsimile transmission, (iii) sent by recognized overnight courier, or (iv) sent by registered or certified mail, return receipt requested, postage prepaid.

If to Buyer:

National Coal Corporation
319 Ebenezer Road
Knoxville, Tennessee 37923

Attention: Jon E. Nix

with a copy to:

Charles W. Kite
319 Ebenezer Road
Knoxville, Tennessee 37923

If to Seller:

Robert Clear Coal Corporation

P. O. Box 352
LaFollette, Tennessee 37766 ATTN: Rebecca Clear

with a copy to:

Robert Clear and Rebecca Clear

P. O. Box 385
LaFollette, Tennessee 37766

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

SECTION 9.4 ENTIRE AGREEMENT. This Agreement, and the documents referred herein or attached hereto embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty; covenant or agreement of any kind not expressly set forth herein shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement.

SECTION 9.5 MODIFICATIONS AND AMENDMENTS. The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the parties hereto.

SECTION 9.6 .ASSIGNMENT. Neither this Agreement, nor any right hereunder, may be assigned by either of the parties hereto without the prior written consent of the other party. Provided, however, Buyer shall have the right to assign this Agreement to any entity which is a corporate subsidiary or corporate affiliate of Buyer but Buyer shall nevertheless remain liable for full performance hereunder.

SECTION 9.7 PARTIES IN INTEREST. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their permitted assigns, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in this Agreement shall be construed to create any rights or obligations except among the parties hereto, and no person or entity shall be regarded as a third-party beneficiary of this Agreement.

SECTION 9.8 GOVERNING LAW. This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the laws of the State of Tennessee.

SECTION 9.9 SEVERABILITY. In the event that any court of competent jurisdiction shall finally determine that any provision, or any portion thereof, contained in this Agreement shall be void or unenforceable in any respect, then such provision shall be deemed limited to the extent that such court determines it enforceable, and as so limited shall remain in full force and effect. In the event that such court shall determine any such provision, or portion thereof, wholly unenforceable, the remaining provisions of this Agreement shall nevertheless remain in full force and effect.

SECTION 9.10 HEADINGS AND CAPTIONS. The headings and captions of the various subdivisions of this Agreement are for convenience of reference only and shall in no way modify, or affect, or be considered in construing or interpreting the meaning or construction of any of the terms or provisions hereof.

SECTION 9.11 EXPENSES. Each of the parties hereto shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby whether or not the transactions contemplated hereby are consummated.

SECTION 9.12 COUNTERPARTS. This Agreement may be executed in one or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

SECTION 9.13 INTERPRETATION. This Agreement has been negotiated between the parties with assistance of counsel, and in the event of any conflict or ambiguity in the terms hereof, the rule of law, construction or interpretation which requires that it be interpreted or construed against the drafter or preparer shall not apply.

SECTION 9.14 SCHEDULES. All matters shown or identified on any Schedule to this Agreement are incorporated in and made a part of all Schedules as if set forth on each and all Schedules.

SECTION 9.15 TIME OF THE ESSENCE. Time is of the essence in the performance of all this Agreement.

SECTION 9.16 FACSIMILE SIGNATURE. The parties may execute this Agreement and the accompanying Letter of Intent and transmit a signed copy thereof to the other party with the original to be forwarded by express delivery service.

IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written.
SELLER:

ROBERT CLEAR COAL CORPORATION

By:    /s/ Robert Clear
       ---------------------------------

Title: President
       ---------------------------------

BUYER:

NATIONAL COAL CORPORATION

By:    /S/ CHARLES KITE
    ------------------------------------

Title:  Charles Kite, General Counsel

SCHEDULE 1.1(A)

LEASES

1. Coal Lease Agreement between RCCC and Ketchen Land Company, Inc. dated November 6, 2001.

2. Addendum to Coal Lease Agreement between RCCC and Ketchen Land Company, Inc. dated March 15, 2003.

3. Acknowledgement, Subordination, Non-Disturbance and Attornment Agreement between RCCC and Ketchen Land Company, Inc. and Bank of Sharon dated March 14, 2002.

4. Wheelage Agreement between RCCC and John Michael Baird/Esther Baird dated July 8, 2002.

5. Coal Lease/Wheelage Agreement between RCCC and Vanguard Investment Properties, Inc. dated September 1, 2002.

        EQUIPMENT                       SERIAL NUMBER              AMOUNT
--------------------------------------------------------------------------------
2003 Crusher Plant/Tipple                                        155,000.00
1999 International Truck              1HTTGAET3XJ002592
1999 International Truck              1HTTGAET2XJ001336
1999 International Truck              1HTTGAET7XJ002594          150,000.00
--------------------------------------------------------------------------------
                                            TOTAL                305,000.00

SCHEDULE 1.1(C)

PERMITS AND NONCOMPLIANCES (SEE ALSO SECTIONS 3.8 AND 3.9)

1. NPDES Permit #TN0076376 (the "TDEC Permit")

2. OSM Permit #3116

3. OSM Revisions:

a. #3/ Revise Drainage Control Plan for Dan Branch Watershed

b. #4/ Incidental Boundary Revision

c. #5/ Redesignate 43.8 Acres of Unaffected Mine Management Area and 68.7 Acres of Auger Mine Area as Surface Mine Area; Revise Topsoil Handling Plan to Promote Reforestation.

d. #6/ Change Bonding Scheme from Standard to Incremental

4. OSM Violation:

a. NO3-090-171-004 issued 12-15-03 related to Revision #3

b. CO4-090-171-001 issued 1-14-04 related to Revision #3

c. NO4-090-171-004 issued 6-3-04 related to Revision #?

5. TDEC Violation:

a. 03-22 dated 12-2-2003 related to OSM Revision #3

b. 04-03 dated 1-16-2004 relates to chemical treatment and directors order/agreed order

c. Directors Order 04-0038 dated 1-26-2004/ with Agreed Order on 7-20-2004

d. Agreed Order - Case No. 04-0038 / settled agreement 7-20-2004

e. Notice of Violation No. 04-49

SCHEDULE 1.3

ALLOCATION OF PURCHASE PRICE

           TYPE                         NUMBER          AMOUNT            DATE
           ----                         ------          ------            ----
First National Bank of LaFollette
Irrevocable Letter of Credit             581          $1,700,000         6/20/03

Collateral Bond                          N/A          $1,700,000         6/24/03

First State Bank Irrevocable
Letter of Credit                         500          $2,190,000         6/24/03

Collateral Bond                          N/A          $2,190,000         6/24/03

     SECURED PARTY                                    APPROXIMATE PAYOFF
     -------------                                    ------------------
1.   Caterpillar Financial Services Corporation         $1,528,789.98
2.   Caterpillar Financial Services Corporation           $108,455.62
3.   Caterpillar Financial Services Corporation           $273,186.53
4.   Caterpillar Financial Services Corporation           $678,092.12
5.   First National Bank                                   119,934.18

NOTE:

(i) These payoffs will be updated at time of release of funds from escrow as provided in Section 7.3.

(ii) These encumbrances will be paid in full and deducted from the sales proceeds from Stowers Machinery Corporation under the Bill of Sale Exhibit D.

SCHEDULE 3.3

CONSENTS

1. Ketchen Land Company, Inc.

2. Vanguard Investment Properties, Inc.

3. John Michael Baird and Esther Baird (Release of RCCC only - consent not required.)

SCHEDULE 3.5(D)

ACTIONS, SUITS OR PROCEEDINGS

1. Save Our Cumberland, et al. v. Norton, et al., U. S. District Court for the Eastern District of Tennessee, Case No. 3:03-CV-462.

2.

3.

SCHEDULE 3.8

VIOLATIONS OF LAWS AND ORDINANCES

1. OSM Violation:

a. NO3-090-171-004 issued 12-15-03 related to Revision #3

b. CO4-090-171-001 issued 1-14-04 related to Revision #3

c. NO4-090-171-004 issued 6-3-04 related to Revision #?

2. TDEC Violation:

a. 03-22 dated 12-2-2003 related to OSM Revision #3

b. 04-03 dated 1-16-2004 relates to chemical treatment and directors order/agreed order

c. Directors Order 04-0038 dated 1-26-2004/ with Agreed Order on 7-20-2004

d. Agreed Order - Case No. 04-0038 / settled agreement 7-20-2004

e. Notice of Violation No. 04-49

2002 Peterbilt Tractor                               New tires/1 month old
2004 Kenworth Tractor                                New tires/1 month old
1982 Mack
1985 Parts Truck
1977 Mechanic Truck w/compressor
2000 Benson Trailer
1985 Benson Trailer
1982 East Trailer
1984 East Trailer

Spare tires, rims, all stock and repair parts for Mack, Peterbilt, Kenworth and trailers.

PACKAGE PRICE $290,000.00

EXHIBIT B

SEVENSTAR
1990 Mack tractor
1988 Mack tractor
1988 Mack tractor
1985 Mack tractor
1996 East Trailer
1977 Trailmobile Trailer

15 Speed Transmission (needs rebuilt) 20 Tires
20 rims
U-joints, wheels seals, wheel studs, wheel keepers, bearings, brakes, filters - air, oil, fuel; lights, stabilizer bars, wheel spacers, air regulators, races, fan belts.

History:

Rebuilt rear end in 1988 Mack, April, 2004 Rebuilt rear end in 1988 Mack, May, 2004 New rebuilt transmission in 1990 Mack, June, 2004 New recap tires on 1988 Mack, May, 2004
New recap tires on 1990 Mack, June, 2004 New recap tires on 1996 East Trailer, May, 2004 New springs, trunion, saddles, bushings, complete suspension on 1985 Mack, February, 2004

PACKAGE PRICE $186,000.00

EXHIBIT 10.8

PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

by and among

National Coal Corp., as Issuer and Seller

and

the parties named herein, as Purchasers

with respect to Seller's

Series A Cumulative Convertible Preferred Stock

and Warrants to Purchase Common Stock

August 31, 2004

Exhibit A         Form of Articles of Amendment of the Articles of Incorportion

Exhibit B         Form of Common Stock Purchase Warrant

Exhibit C         Form of Investor Rights Agreement

Exhibit D         Form of Opinion of Seller's Counsel

Exhibit E         Form of Closing Escrow Agreement

Exhibit F         Form of Management Lock-Up Agreement

Exhibit G         Form of Subscription Notice

Exhibit H         Form of Transfer Notice

Schedule 1        Purchasers and Shares of Preferred Stock Purchased

Schedule 2        Purchasers and Restricted Stock to be Purchased

Schedule 3        Disclosure Schedules

PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the "AGREEMENT") dated as of August 31, 2004, by and among National Coal Corp., a Florida corporation (the "SELLER"), and each of the persons listed on SCHEDULE 1 hereto (each is individually referred to as a "PURCHASER" and collectively, the "PURCHASERS").

RECITALS:

WHEREAS, each of the Purchasers is willing to purchase from the Seller, and the Seller desires to sell to the Purchasers, up to an aggregate of 1,611 shares of its Series A Cumulative Convertible Preferred Stock, $15,000 liquidation preference per share, par value $0.0001 per share (the "PREFERRED STOCK") convertible into the Seller's common stock, $0.0001 par value (the "COMMON STOCK") and Common Stock Purchase Warrants (the "WARRANTS") entitling the holders thereof to purchase shares of Common Stock, in each case, as more fully set forth herein.

NOW THEREFORE, in consideration of the mutual promises and representations, warranties, covenants and agreements set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I - PURCHASE AND SALE

1.1 PURCHASE AND SALE.

(a) On the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined in Section 2.2), the Seller will sell and each of the Purchasers will purchase the Preferred Stock in the amounts set forth on SCHEDULE 1 hereto at a price of $15,000 per share of Preferred Stock. In addition, the Seller will sell and each Purchaser will purchase at the Closing Warrants to purchase the number of shares of Common Stock set forth on SCHEDULE 1 hereto.

(b) The shares of Common Stock issuable upon conversion of the Preferred Stock are referred to herein as the "CONVERSION SHARES" and the shares of Common Stock issuable upon exercise of the Warrants are referred to herein as the "WARRANT SHARES".

1.2 TERMS OF THE PREFERRED STOCK AND WARRANTS. The terms and provisions of the Preferred Stock are set forth in the form of Articles of Amendment to the Articles of Incorporation providing for the designation, powers, rights and preferences of Series A Cumulative Convertible Preferred Stock, attached hereto as EXHIBIT A (the "ARTICLES OF AMENDMENT"). The terms and provisions of the Warrants are more fully set forth in the form of Common Stock Purchase Warrant, attached hereto as EXHIBIT B.

1.3 TRANSFERS; LEGENDS.

(a) (i) Except as required by federal securities laws and the securities law of any state or other jurisdictions, the Preferred Stock, Conversion Shares, Warrants and Warrant Shares (collectively, the "Securities") may be transferred, in whole or in part, by any of the Purchasers at any time. In the case of Preferred Stock, such transfer may be effected by delivering written transfer instructions to the Seller, and the Seller shall reflect such transfer on its books and records and reissue certificates evidencing the Preferred Stock upon surrender of certificates

evidencing the Preferred Stock being transferred. Any such transfer shall be made by a Purchaser in accordance with applicable law. Any transferee shall agree to be bound by the terms of the Investor Rights Agreement and this Agreement. The Seller shall reissue certificates evidencing the Securities upon surrender of certificates evidencing the Securities being transferred in accordance with this Section 1.3(a).

(ii) In connection with any transfer of Securities other than pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or to the Seller, the Seller may require the transferor thereof to furnish to the Seller an opinion of counsel selected by the transferor, such counsel and the form and substance of which opinion shall be reasonably satisfactory to the Seller and Seller's counsel, to the effect that such transfer does not require registration under the Securities Act; PROVIDED, HOWEVER, that in the case of a transfer pursuant to Rule 144 under the Securities Act, no opinion shall be required if the transferor provides the Seller with a customary seller's representation letter, and if such sale is not pursuant to subsection (k) of Rule 144, a customary broker's representation letter and Form 144. Notwithstanding the foregoing, the Seller hereby consents to and agrees to register on the books of the Seller and with any transfer agent for the securities of the Seller, without any such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of such Purchaser, provided that the transferee certifies to the Seller that it is an "ACCREDITED INVESTOR" as defined in Rule 501(a) under the Securities Act and that it is acquiring the Securities solely for investment purposes (subject to the qualifications hereof) and not with a view to, or for, resale, distribution or fractionalization thereof in whole or in part in violation of the Securities Act.

(iii) An "AFFILIATE" means any Person (as such term is defined below) that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. A "PERSON" means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision of any thereof) or other entity of any kind.

(b) The certificates representing the Preferred Stock shall bear the following legend:

"THE SHARES REPRESENTED BY, OR ISSUABLE UPON CONVERSION OR EXERCISE OF SECURITIES EVIDENCED BY, THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED."

ARTICLE II - PURCHASE PRICE AND CLOSING

2.1 PURCHASE PRICE. The aggregate purchase price (the "PURCHASE PRICE") to be paid by the Purchasers to the Seller to acquire the Preferred Stock and the Warrants at the Closing shall be the total of the amounts payable by each Purchaser, respectively, set forth beside the

name of each Purchaser on SCHEDULE 1 hereto. The Purchase Price paid by each Purchaser shall be placed in escrow pending the Closing as provided in Article 6.1(b) hereof. The portion of the Purchase Price payable by certain Purchasers shall be payable by the surrender and cancellation of the promissory notes representing $4.725 million of secured debt of the Seller and described next to such Purchaser's name in SCHEDULE 1 hereto (the "PROMISSORY NOTES"), with the value of such secured debt toward such Purchaser's portion of the Purchase Price also described in SCHEDULE 1 hereto. Each Purchaser surrendering Promissory Notes for cancellation in payment of any portion of the Purchase Price payable by such Purchaser hereunder hereby agrees that the applicable portion of such Promissory Note shall be cancelled as of the Closing Date (as defined below).

2.2 THE CLOSING. The closing of the transactions contemplated under this Agreement (the "CLOSING") will take place as promptly as practicable, but no later than five (5) business days following satisfaction or waiver of the conditions set forth in Article 6.1(a) and (b) and 6.2(a) (other than those conditions which by their terms are not to be satisfied or waived until the Closing), at the offices of Wiggin and Dana LLP, 400 Atlantic Street, Stamford, Connecticut 06901. The date on which the Closing occurs is the "CLOSING DATE."

ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SELLER

The Seller represents and warrants to the Purchasers as follows:

3.1 CORPORATE EXISTENCE AND POWER; SUBSIDIARIES. The Seller and its Subsidiaries are corporations duly incorporated, validly existing and in good standing under the laws of the state in which they are incorporated, and have all corporate powers required to carry on their business as now conducted. The Seller and its Subsidiaries are duly qualified to do business as a foreign corporation and are in good standing in each jurisdiction where the character of the property owned or leased by them or the nature of their activities makes such qualification necessary, except for those jurisdictions where the failure to be so qualified would not have a Material Adverse Effect on the Seller or any of its Subsidiaries. For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT" means, with respect to any person or entity, a material adverse effect on its and its Subsidiaries' condition (financial or otherwise), business, properties, assets, liabilities (including contingent liabilities), results of operations or current prospects, taken as a whole. True and complete copies of the Seller's Articles of Incorporation, as amended (the "ARTICLES"), and Bylaws, as amended (the "BYLAWS"), as currently in effect and as will be in effect on the Closing Date (collectively, the "ARTICLES AND BYLAWS"), have previously been provided to the Purchasers. For purposes of this Agreement, the term "SUBSIDIARY" or "Subsidiaries" means, with respect to any entity, any corporation or other organization of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are directly or indirectly owned by such entity or of which such entity is a partner or is, directly or indirectly, the beneficial owner of 50% or more of any class of equity securities or equivalent profit participation interests. The Seller has no Subsidiaries other than National Coal Corporation, a Tennessee corporation which is wholly-owned by the Seller.

3.2 CORPORATE AUTHORIZATION. The execution, delivery and performance by the Seller of this Agreement, the Escrow Agreement (as defined below), the Articles of Amendment, the

Investor Rights Agreement, and each of the other documents executed pursuant to and in connection with this Agreement (collectively, the "RELATED DOCUMENTS"), and the consummation of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the Preferred Stock and Warrants, and the subsequent issuance of the Conversion Shares upon conversion of the Preferred Stock and the Warrant Shares upon exercise of the Warrants) have been duly authorized, and no additional corporate or stockholder action is required for the approval thereof. The Conversion Shares and the Warrant Shares have been duly reserved for issuance by the Seller. This Agreement and the Related Documents have been or, to the extent contemplated hereby or by the Related Documents, will be duly executed and delivered and constitute the legal, valid and binding agreement of the Seller, enforceable against the Seller in accordance with their terms, except as may be limited by bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors, and except as enforceability of its obligations hereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

3.3 CHARTER, BYLAWS AND CORPORATE RECORDS. The minute books of the Seller and its Subsidiaries contain complete and accurate records of all meetings and other corporate actions of the board of directors, committees of the board of directors, incorporators and stockholders of the Seller and its Subsidiaries to the date hereof. All material corporate decisions and actions have been validly made or taken. All corporate books, including without limitation the share transfer register, comply with applicable laws and regulations and have been regularly updated. Such books fully and correctly reflect all the decisions of the stockholders.

3.4 GOVERNMENTAL AUTHORIZATION. Except as otherwise specifically contemplated in this Agreement and the Related Documents, and except for: (i) the filings referenced in Section 5.11; (ii) the filing of the Articles of Amendment; (iii) the filing of a Form D with respect to the Preferred Stock and Warrants under Regulation D under the Securities Act; (iv) the filing of the Registration Statement with the Commission; (v) the application(s) to each trading market for the listing of the Conversion Shares and the Warrant Shares for trading thereon; and (vi) any filings required under state securities laws that are permitted to be made after the date hereof, the execution, delivery and performance by the Seller of this Agreement and the Related Documents, and the consummation of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the Preferred Stock and Warrants and the subsequent issuance of the Conversion Shares and Warrant Shares upon conversion of the Preferred Stock or otherwise or exercise of the Warrants, as applicable) by the Seller require no action (including, without limitation, stockholder approval) by or in respect of, or filing with, any governmental or regulatory body, agency, official or authority (including, without limitation, Nasdaq).

3.5 NON-CONTRAVENTION. The execution, delivery and performance by the Seller of this Agreement and the Related Documents, and the consummation by the Seller of the transactions contemplated hereby and thereby (including the issuance of the Conversion Shares and Warrant Shares) do not and will not (a) contravene or conflict with the Articles (as amended by the Articles of Amendment) and Bylaws of the Seller and its Subsidiaries or any material agreement to which the Seller is a party or by which it is bound; (b) contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to the Seller or its Subsidiaries; (c) constitute a default (or

would constitute a default with notice or lapse of time or both) under or give rise to a right of termination, cancellation or acceleration or loss of any benefit under any material agreement, contract or other instrument binding upon the Seller or its Subsidiaries or under any material license, franchise, permit or other similar authorization held by the Seller or its Subsidiaries; or (d) result in the creation or imposition of any Lien (as defined below) on any asset of the Seller or its Subsidiaries. For purposes of this Agreement, the term "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, claim or encumbrance of any kind in respect of such asset.

3.6 SEC DOCUMENTS. The Seller is obligated under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") to file reports pursuant to Sections 13 or 15(d) thereof (all such reports filed or required to be filed by the Seller, including all exhibits thereto or incorporated therein by reference, and all documents filed by the Seller under the Securities Act hereinafter called the "SEC DOCUMENTS"). The Seller has filed all reports or other documents required to be filed under the Exchange Act. All SEC Documents filed by the Seller (i) were prepared in all material respects in accordance with the requirements of the Exchange Act and (ii) did not at the time they were filed (or, if amended or superseded by a filing prior to the date hereof, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Seller has previously delivered to the Purchaser a correct and complete copy of each report which the Seller filed with the Securities and Exchange Commission (the "SEC" or the "COMMISSION") under the Exchange Act for any period ending on or after December 31, 2003 (the "Recent REPORTS"). None of the information about the Seller or any of its Subsidiaries which has been disclosed to the Purchasers herein or in the course of discussions and negotiations with respect hereto which is not disclosed in the Recent Reports is or was required to be so disclosed, and no material non-public information has been disclosed to the Purchasers.

3.7 FINANCIAL STATEMENTS. Each of the Seller's (i) audited consolidated balance sheet as of December 31, 2003, and the related consolidated statements of operations, cash flows and changes in stockholders' deficiency (including the related notes) for the period from its inception (January 30,2003) to December 31, 2003 and (ii) the Seller's unaudited consolidated balance sheet and related consolidated statements of operations and cash flows as of and for the three months ended March 31, 2004, as contained in the Recent Reports (both of (i) and (ii), collectively, the "SELLER'S FINANCIAL STATEMENTS" or the "FINANCIAL STATEMENTS") (x) present fairly in all material respects the financial position of the Seller and its Subsidiaries on a consolidated basis as of the dates thereof and the results of operations, cash flows and stockholders' deficiency as of and for each of the periods then ended, except that the unaudited financial statements are subject to normal year-end adjustments, and
(y) were prepared in accordance with United States generally accepted accounting principals ("GAAP") applied on a consistent basis throughout the periods involved, in each case, except as otherwise indicated in the notes thereto.

3.8 COMPLIANCE WITH LAW. The Seller and its Subsidiaries are in compliance and have conducted their business so as to comply with all laws, rules and regulations, judgments, decrees or orders of any court, administrative agency, commission, regulatory authority or other governmental authority or instrumentality, domestic or foreign, applicable to their operations, the violation of which would cause a Material Adverse Affect. There are no judgments or orders,

injunctions, decrees, stipulations or awards (whether rendered by a court or administrative agency or by arbitration), including any such actions relating to affirmative action claims or claims of discrimination, against the Seller or its Subsidiaries or against any of their properties or businesses.

3.9 NO DEFAULTS. The Seller and its Subsidiaries are not, nor have they received notice that they would be with the passage of time, giving of notice, or both, (i) in violation of any provision of their Articles and Bylaws or (ii) in default or violation of any term, condition or provision of (A) any judgment, decree, order, injunction or stipulation applicable to the Seller or its Subsidiaries or (B) any material agreement, note, mortgage, indenture, contract, lease or instrument, permit, concession, franchise or license to which the Seller or its Subsidiaries are a party or by which the Seller or its Subsidiaries or their properties or assets may be bound, and no circumstances exist which would entitle any party to any material agreement, note, mortgage, indenture, contract, lease or instrument to which such Seller or its Subsidiaries are a party, to terminate such as a result of such Seller or its Subsidiaries, having failed to meet any material provision thereof including, but not limited to, meeting any applicable milestone under any material agreement or contract; except in the case of clause (ii) as would not have a Material Adverse Effect on the Seller or any of its Subsidiaries or any material adverse effect on the transactions contemplated by this Agreement or by any of the Related Documents.

3.10 LITIGATION. Except as disclosed in the Recent Reports or on SCHEDULE 3.10, there is no action, suit, proceeding, judgment, claim or investigation pending or, to the best knowledge of the Seller, threatened against the Seller and its Subsidiaries which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Seller or its Subsidiaries or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated hereby, and there is no basis for the assertion of any of the foregoing.

3.11 ABSENCE OF CERTAIN CHANGES. Since December 31, 2003, the Seller has conducted its business only in the ordinary course and there has not occurred, except as set forth in the Recent Reports or any exhibit thereto or incorporated by reference therein:

(a) Any event that could reasonably be expected to have a Material Adverse Effect on the Seller or any of its Subsidiaries;

(b) Any amendments or changes in the Articles or Bylaws of the Seller and its Subsidiaries, other than on account of the filing of the Articles of Amendment;

(c) Any damage, destruction or loss, whether or not covered by insurance, that would, individually or in the aggregate, have or would be reasonably likely to have, a Material Adverse Effect on the Seller and its Subsidiaries;

(d) Except as set forth on SCHEDULE 3.11(D), any

(i) incurrence, assumption or guarantee by the Seller or its Subsidiaries of any debt for borrowed money other than for equipment leases;

(ii) issuance or sale of any securities convertible into or exchangeable for

securities of the Seller other than to directors, employees and consultants pursuant to existing equity compensation or stock purchase plans of the Seller;

(iii) issuance or sale of options or other rights to acquire from the Seller or its Subsidiaries, directly or indirectly, securities of the Seller or any securities convertible into or exchangeable for any such securities, other than options issued to directors, employees and consultants in the ordinary course of business in accordance with past practice;

(iv) issuance or sale of any stock, bond or other corporate security;

(v) discharge or satisfaction of any material Lien, other than current liabilities incurred since December 31, 2003 in the ordinary course of business;

(vi) declaration or making any payment or distribution to stockholders or purchase or redemption of any share of its capital stock or other security;

(vii) sale, assignment or transfer of any of its intangible assets except in the ordinary course of business, or cancellation of any debt or claim except in the ordinary course of business;

(viii) waiver of any right of substantial value whether or not in the ordinary course of business;

(ix) material change in officer compensation except in the ordinary course of business and consistent with past practices; or

(x) other commitment (contingent or otherwise) to do any of the foregoing.

(e) Except as set forth on Schedule 3.11(e), any creation, sufferance or assumption by the Seller or any of its Subsidiaries of any Lien on any asset (other than Liens in connection with equipment leases) or any making of any loan, advance or capital contribution to or investment in any Person in an aggregate amount which exceeds $25,000 outstanding at any time;

(f) Any entry into, amendment of, relinquishment, termination or non-renewal by the Seller or its Subsidiaries of any material contract, license, lease, transaction, commitment or other right or obligation, other than in the ordinary course of business; or

(g) Any transfer or grant of a right with respect to the trademarks, trade names, service marks, trade secrets, copyrights or other intellectual property rights owned or licensed by the Seller or its Subsidiaries, except as among the Seller and its Subsidiaries.

3.12 NO UNDISCLOSED LIABILITIES. Except as set forth in the Recent Reports, and except for liabilities and obligations incurred in the ordinary course of business since December 31, 2003, as of the date hereof, (i) the Seller and its Subsidiaries do not have any material liabilities or obligations (absolute, accrued, contingent or otherwise) which, and (ii) there has not been any aspect of the prior or current conduct of the business of the Seller or its Subsidiaries which may form the basis for any material claim by any third party which if asserted could result in any such

material liabilities or obligations which, are not fully reflected, reserved against or disclosed in the balance sheet of the Seller as at December 31, 2003.

3.13 TAXES. All tax returns and tax reports required to be filed with respect to the income, operations, business or assets of the Seller and its Subsidiaries have been timely filed (or appropriate extensions have been obtained) with the appropriate governmental agencies in all jurisdictions in which such returns and reports are required to be filed, and all of the foregoing as filed are correct and complete and, in all material respects, reflect accurately all liability for taxes of the Seller and its Subsidiaries for the periods to which such returns relate, and all amounts shown as owing thereon have been paid. All income, profits, franchise, sales, use, value added, occupancy, property, excise, payroll, withholding, FICA, FUTA and other taxes (including interest and penalties), if any, collectible or payable by the Seller and its Subsidiaries or relating to or chargeable against any of its material assets, revenues or income or relating to any employee, independent contractor, creditor, stockholder or other third party through the Closing Date, were fully collected and paid by such date if due by such date or provided for by adequate reserves in the Financial Statements as of and for the periods ended December 31, 2003 (other than taxes accruing after such date) and all similar items due through the Closing Date will have been fully paid by that date or provided for by adequate reserves, whether or not any such taxes were reported or reflected in any tax returns or filings. No taxation authority has sought to audit the records of the Seller or any of its Subsidiaries for the purpose of verifying or disputing any tax returns, reports or related information and disclosures provided to such taxation authority, or for the Seller's or any of its Subsidiaries' alleged failure to provide any such tax returns, reports or related information and disclosure. No material claims or deficiencies have been asserted against or inquiries raised with the Seller or any of its Subsidiaries with respect to any taxes or other governmental charges or levies which have not been paid or otherwise satisfied, including claims that, or inquiries whether, the Seller or any of its Subsidiaries has not filed a tax return that it was required to file, and, to the best of the Seller's knowledge, there exists no reasonable basis for the making of any such claims or inquiries. Neither the Seller nor any of its Subsidiaries has waived any restrictions on assessment or collection of taxes or consented to the extension of any statute of limitations relating to taxation.

3.14 INTERESTS OF OFFICERS, DIRECTORS AND OTHER AFFILIATES. The description of any interest held, directly or indirectly, by any officer, director or other Affiliate of the Seller or its Subsidiaries (other than the interests of the Seller and its Subsidiaries in such assets) in any property, real or personal, tangible or intangible, used in or pertaining to Seller's business, including any interest in the Intellectual Property (as defined in
Section 3.15 hereof), as set forth in the Recent Reports, is true and complete, and no officer, director or other Affiliate of the Seller or its Subsidiaries has any interest in any property, real or personal, tangible or intangible, used in or pertaining to the Seller's business, including the Seller's Intellectual Property, other than as set forth in the Recent Reports.

3.15 INTELLECTUAL PROPERTY. Other than as set forth in the Recent Reports:

(a) the Seller or a Subsidiary thereof has the right to use or is the sole and exclusive owner of all right, title and interest in and to all foreign and domestic patents, patent rights, trademarks, service marks, trade names, brands and copyrights (whether or not registered and, if applicable, including pending applications for registration) owned, used or controlled by the

Seller and its Subsidiaries (collectively, the "RIGHTS") and in and to each material invention, software, trade secret, technology, product, composition, formula, method of process used by the Seller or its Subsidiaries (the Rights and such other items, the "INTELLECTUAL PROPERTY"), and, to the Seller's knowledge, has the right to use the same, free and clear of any claim or conflict with the rights of others;

(b) no royalties or fees (license or otherwise) are payable by the Seller or its Subsidiaries to any Person by reason of the ownership or use of any of the Intellectual Property except as set forth on SCHEDULE 3.15;

(c) there have been no claims made against the Seller or its Subsidiaries asserting the invalidity, abuse, misuse, or unenforceability of any of the Intellectual Property, and, to its knowledge, there are no reasonable grounds for any such claims;

(d) neither the Seller nor its Subsidiaries have made any claim of any violation or infringement by others of its rights in the Intellectual Property, and to the best of the Seller's knowledge, no reasonable grounds for such claims exist; and

(e) neither the Seller nor its Subsidiaries have received notice that it is in conflict with or infringing upon the asserted rights of others in connection with the Intellectual Property.

3.16 RESTRICTIONS ON BUSINESS ACTIVITIES. Other than as set forth in the Recent Reports, there is no agreement, judgment, injunction, order or decree binding upon the Seller or its Subsidiaries which has or could reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Seller or its Subsidiaries, any acquisition of property by the Seller or its Subsidiaries or the conduct of business by the Seller or its Subsidiaries as currently conducted or as currently proposed to be conducted by the Seller.

3.17 PREEMPTIVE RIGHTS. Except as set forth in SCHEDULE 3.17, none of the stockholders of the Seller possess any preemptive rights in respect of the Preferred Stock or the Conversion Shares or Warrant Shares to be issued to the Purchasers upon conversion of the Preferred Stock or exercise of the Warrants, as applicable.

3.18 INSURANCE. The insurance policies providing insurance coverage to the Seller or its Subsidiaries are adequate for the business conducted by the Seller and its Subsidiaries and are sufficient for compliance by the Seller and its Subsidiaries with all requirements of law and all material agreements to which the Seller or its Subsidiaries are a party or by which any of their assets are bound. All of such policies are in full force and effect and are valid and enforceable in accordance with their terms, and the Seller and its Subsidiaries have complied with all material terms and conditions of such policies, including premium payments. None of the insurance carriers has indicated to the Seller or its Subsidiaries an intention to cancel any such policy.

3.19 SUBSIDIARIES AND INVESTMENTS. Except as set forth in the Recent Reports or on SCHEDULE 3.19, the Seller has no Subsidiaries or Investments. For purposes of this Agreement, the term "INVESTMENTS" shall mean, with respect to any Person, all advances, loans or extensions of credit to any other Person, all purchases or commitments to purchase any stock, bonds, notes, debentures or other securities of any other Person, and any other investment in any other Person, including partnerships or joint ventures (whether by capital contribution or otherwise) or other

similar arrangement (whether written or oral) with any Person, including but not limited to arrangements in which (i) the Person shares profits and losses, (ii) any such other Person has the right to obligate or bind the Person to any third party, or (iii) the Person may be wholly or partially liable for the debts or obligations of such partnership, joint venture or other arrangement.

3.20 CAPITALIZATION. (a) The authorized capital stock of the Seller consists of 80,000,000 shares of common stock, $0.0001 par value per share, of which 44,290,216 shares are issued and outstanding as of the date hereof, and 10,000,000 shares of preferred stock, $0.0001 par value per share, issuable in one or more classes or series, with such relative rights and preferences as the Board of Directors may determine, none of which has been authorized for issuance other than 1611 shares that have been designated Series A Cumulative Convertible Preferred Stock, of which no shares are outstanding immediately prior to the execution of this Agreement.

(b) All shares of the Seller's issued and outstanding capital stock have been duly authorized, are validly issued and outstanding, and are fully paid and nonassessable. No securities issued by the Seller from the date of its incorporation to the date hereof were issued in violation of any statutory or common law preemptive rights. There are no dividends which have accrued or been declared but are unpaid on the capital stock of the Seller. All taxes required to be paid by Seller in connection with the issuance and any transfers of the Seller's capital stock have been paid. All permits or authorizations required to be obtained from or registrations required to be effected with any Person in connection with any and all issuances of securities of the Seller from the date of the Seller's incorporation to the date hereof have been obtained or effected, and all securities of the Seller have been issued and are held in accordance with the provisions of all applicable securities or other laws.

3.21 OPTIONS, WARRANTS, RIGHTS. Except as set forth on SCHEDULE 3.21, there are no outstanding (a) securities, notes or instruments convertible into or exercisable for any of the capital stock or other equity interests of the Seller or its Subsidiaries; (b) options, warrants, subscriptions or other rights to acquire capital stock or other equity interests of the Seller or its Subsidiaries; or (c) commitments, agreements or understandings of any kind, including employee benefit arrangements, relating to the issuance or repurchase by the Seller or its Subsidiaries of any capital stock or other equity interests of the Seller or its Subsidiaries, any such securities or instruments convertible or exercisable for securities or any such options, warrants or rights. Other than the rights of the Purchasers under the Preferred Stock and the Warrants, and except as set forth on SCHEDULE 3.21, neither the Seller nor the Subsidiaries have granted anti-dilution rights to any person or entity in connection with any outstanding option, warrant, subscription or any other instrument convertible or exercisable for the securities of the Seller or any of its Subsidiaries. Other than the rights granted to the Purchasers under the Investor Rights Agreement, there are no outstanding rights which permit the holder thereof to cause the Seller or the Subsidiaries to file a registration statement under the Securities Act or which permit the holder thereof to include securities of the Seller or any of its Subsidiaries in a registration statement filed by the Seller or any of its Subsidiaries under the Securities Act, and there are no outstanding agreements or other commitments which otherwise relate to the registration of any securities of the Seller or any of its Subsidiaries for sale or distribution in any jurisdiction, except as set forth on SCHEDULE 3.21.

3.22 EMPLOYEES, EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS. Except as set forth in the Recent Reports or on SCHEDULE 3.22, there are no employment, consulting, severance or indemnification arrangements, agreements, or understandings between the Seller and any officer, director, consultant or employee of the Seller or its Subsidiaries (the "EMPLOYMENT AGREEMENTS"). No Employment Agreement provides for the acceleration or change in the award, grant, vesting or determination of options, warrants, rights, severance payments, or other contingent obligations of any nature whatsoever of the Seller or its Subsidiaries in favor of any such parties in connection with the transactions contemplated by this Agreement. Except as disclosed in the Recent Reports or on SCHEDULE 3.22, the terms of employment or engagement of all directors, officers, employees, agents, consultants and professional advisors of the Seller and its Subsidiaries are such that their employment or engagement may be terminated upon not more than two weeks' notice given at any time without liability for payment of compensation or damages and the Seller and its Subsidiaries have not entered into any agreement or arrangement for the management of their business or any part thereof other than with their directors or employees.

3.23 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Seller, nor any Affiliate of the Seller, nor to the knowledge of the Seller, any agent or employee of the Seller, any other Person acting on behalf of or associated with the Seller, or any individual related to any of the foregoing Persons, acting alone or together, has: (a) received, directly or indirectly, any rebates, payments, commissions, promotional allowances or any other economic benefits, regardless of their nature or type, from any customer, supplier, trading company, shipping company, governmental employee or other Person with whom the Seller has done business directly or indirectly; or (b) directly or indirectly, given or agreed to give any gift or similar benefit to any customer, supplier, trading company, shipping company, governmental employee or other Person who is or may be in a position to help or hinder the business of the Seller (or assist the Seller in connection with any actual or proposed transaction) which (i) may subject the Seller to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, may have had an adverse effect on the Seller or (iii) if not continued in the future, may adversely affect the assets, business, operations or prospects of the Seller or subject the Seller to suit or penalty in any private or governmental litigation or proceeding.

3.24 ENVIRONMENTAL MATTERS. Except as described in the Recent Reports or on Schedule 3.24, none of the premises or any properties owned, occupied or leased by the Seller or its Subsidiaries (the "PREMISES") has been used by the Seller or the Subsidiaries or, to the Seller's knowledge, by any other Person, to manufacture, treat, store, or dispose of any substance that has been designated to be a "HAZARDOUS SUBSTANCE" under applicable Environmental Laws (hereinafter defined) ("HAZARDOUS SUBSTANCES") in violation of any applicable Environmental Laws. To its knowledge, the Seller and its Subsidiaries have not disposed of, discharged, emitted or released any Hazardous Substances which would require, under applicable Environmental Laws, remediation, investigation or similar response activity. No Hazardous Substances are present as a result of the actions of the Seller or its Subsidiaries or, to the Seller's knowledge, any other Person, in, on or under the Premises which would give rise to any liability or clean-up obligations of the Seller or its Subsidiaries under applicable Environmental Laws. The Seller and, to the Seller's knowledge, any other Person for whose conduct it may be responsible pursuant to an agreement or by operation of law, are in compliance with all laws, regulations and other federal, state or local governmental requirements, and all applicable judgments, orders,

writs, notices, decrees, permits, licenses, approvals, consents or injunctions in effect on the date of this Agreement relating to the generation, management, handling, transportation, treatment, disposal, storage, delivery, discharge, release or emission of any Hazardous Substance (the "ENVIRONMENTAL LAWS"). Neither the Seller nor, to the Seller's knowledge, any other Person for whose conduct it may be responsible pursuant to an agreement or by operation of law has received any written complaint, notice, order, or citation of any actual, threatened or alleged noncompliance with any of the Environmental Laws, and there is no proceeding, suit or investigation pending or, to the Seller's knowledge, threatened against the Seller or, to the Seller's knowledge, any such Person with respect to any violation or alleged violation of the Environmental Laws, and, to the knowledge of the Seller, there is no basis for the institution of any such proceeding, suit or investigation.

3.25 LICENSES; COMPLIANCE WITH REGULATORY REQUIREMENTS. Except as disclosed in the Recent Reports, the Seller holds all material authorizations, consents, approvals, franchises, licenses and permits required under applicable law or regulation for the operation of the business of the Seller and its Subsidiaries as presently operated (the "GOVERNMENTAL AUTHORIZATIONS"). All the Governmental Authorizations have been duly issued or obtained and are in full force and effect, and the Seller and its Subsidiaries are in material compliance with the terms of all the Governmental Authorizations. The Seller and its Subsidiaries have not engaged in any activity that, to their knowledge, would cause revocation or suspension of any such Governmental Authorizations. The Seller has no knowledge of any facts which would cause the Seller to believe that the Governmental Authorizations will not be renewed by the appropriate governmental authorities in the ordinary course. Neither the execution, delivery nor performance of this Agreement shall adversely affect the status of any of the Governmental Authorizations.

3.26 BROKERS. Except as set forth on SCHEDULE 3.26, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement, based upon any arrangement made by or on behalf of the Seller, which would make any Purchaser liable for any fees or commissions.

3.27 SECURITIES LAWS. Neither the Seller nor its Subsidiaries nor any agent acting on behalf of the Seller or its Subsidiaries has taken or will take any action which might cause this Agreement or the Preferred Stock to violate the Securities Act or the Exchange Act or any rules or regulations promulgated thereunder, as in effect on the Closing Date. Assuming that all of the representations and warranties of the Purchasers set forth in Article IV are true, all offers and sales of capital stock, securities and notes of the Seller were conducted and completed in compliance with the Securities Act. All shares of capital stock and other securities issued by the Seller and its Subsidiaries prior to the date hereof have been issued in transactions that were either registered offerings or were exempt from the registration requirements under the Securities Act and all applicable state securities or "BLUE SKY" laws and in compliance with all applicable corporate laws.

3.28 DISCLOSURE. No representation or warranty made by the Seller in this Agreement, nor in any document, written information, financial statement, certificate, schedule or exhibit prepared and furnished by the Seller or the representatives of the Seller pursuant hereto or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits to state a material fact necessary to make the statements or

facts contained herein or therein not misleading in light of the circumstances under which they were furnished.

3.29 POISON PILL. The Seller 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 Seller's Articles of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Seller fulfilling their obligations or exercising their rights under this Agreement and the Related Documents, including without limitation the Seller's issuance of the Securities and the Purchasers' ownership of the Securities.

ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

Each Purchaser, for itself only, hereby severally and not jointly, represents and warrants to the Seller as follows:

4.1 EXISTENCE AND POWER. The Purchaser, if not a natural person, is duly organized, validly existing and in good standing under the laws of the jurisdiction of such Purchaser's organization. Such Purchaser has all powers required to bind it to the representations, warranties and covenants set forth herein.

4.2 AUTHORIZATION. The execution, delivery and performance by the Purchaser of this Agreement, the Related Documents to which such Purchaser is a party, and the consummation by the Purchaser of the transactions contemplated hereby and thereby have been duly authorized, and no additional action is required for the approval of this Agreement or the Related Documents. This Agreement and the Related Documents to which the Purchaser is a party have been or, to the extent contemplated hereby, will be duly executed and delivered and constitute valid and binding agreements of the Purchaser, enforceable against such Purchaser in accordance with their terms, except as may be limited by bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors and except that enforceability of their obligations thereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

4.3 INVESTMENT. The Purchaser is acquiring the securities described herein for its own account and not with a view to, or for sale in connection with, any distribution thereof, nor with the intention of distributing or reselling the same, provided, however, that by making the representation herein, the Purchaser 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 Securities Act. The Purchaser is aware that none of the securities has been registered under the Securities Act or under applicable state securities or blue sky laws. The Purchaser is an "ACCREDITED INVESTOR" as such term is defined in Rule 501 of Regulation D, as promulgated under the Securities Act. The Purchaser is not, and is not required to be, registered as a broker-dealer under Section 15 of the Exchange Act.

4.4 RELIANCE ON EXEMPTIONS. The Purchaser understands that the Preferred Stock and Warrants are being offered and sold to such Purchaser in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Seller is relying upon the truth and accuracy of, and such Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the securities.

4.5 EXPERIENCE OF THE PURCHASER. The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in the securities and, at the present time, is able to afford a complete loss of such investment.

4.6 GENERAL SOLICITATION. The Purchaser 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.

ARTICLE V - COVENANTS OF THE SELLER AND PURCHASERS

5.1 INSURANCE. The Seller and its Subsidiaries shall, from time to time upon the written request of the Purchasers, promptly furnish or cause to be furnished to the Purchasers evidence, in form and substance reasonably satisfactory to the Purchasers, of the maintenance of all insurance maintained by it for loss or damage by fire and other hazards, damage or injury to persons and property and under workmen's compensation laws.

5.2 REPORTING OBLIGATIONS. So long as any of the Preferred Stock is outstanding, and so long as any Warrant has not been exercised and has not expired by its terms, the Seller shall furnish to the Purchasers, or any other persons who hold any of the Preferred Stock or Warrants (provided that such subsequent holders give notice to the Seller that they hold Preferred Stock or Warrants and furnish their addresses) promptly upon their becoming available one copy of (A) each report, notice or proxy statement sent by the Seller to its stockholders generally, and of each regular or periodic report (pursuant to the Exchange Act) and (B) any registration statement, prospectus or written communication pursuant to the Securities Act relating to the issuance or registration of Conversion Shares and the Warrant Shares and filed by the Seller with the Commission or any securities market or exchange on which shares of Common Stock are listed; provided, however, that the Seller shall have no obligation to deliver periodic reports (pursuant to the Exchange Act) under this
Section 5.2 to the extent such reports are publicly available.

The Purchasers are hereby authorized to deliver a copy of any financial statement or any other information relating to the business, operations or financial condition of the Seller which may have been furnished to the Purchasers hereunder, to any regulatory body or agency having jurisdiction over the Purchasers or to any Person which shall, or shall have right or obligation to succeed to all or any part of the Purchasers' interest in the Seller or this Agreement.

5.3 INVESTIGATION. The representations, warranties, covenants and agreements set forth in this Agreement shall not be affected or diminished in any way by any investigation (or failure to investigate) at any time by or on behalf of the party for whose benefit such representations, warranties, covenants and agreements were made. Without limiting the generality of the foregoing, the inability or failure of the Purchasers to discover any breach, default or misrepresentation by the Seller under this Agreement or the Related Documents (including under any certificate furnished pursuant to this Agreement), notwithstanding the exercise by the Purchasers or other holders of the Preferred Stock of their rights hereunder to conduct an investigation shall not in any way diminish any liability hereunder.

5.4 FURTHER ASSURANCES. (a) The Seller shall, at its cost and expense, upon written request of the Purchasers, duly execute and deliver, or cause to be duly executed and delivered, to the Purchasers such further instruments and do and cause to be done such further acts as may be necessary, advisable or proper, in the absolute discretion of the Purchasers, to carry out more effectually the provisions and purposes of this Agreement. The parties shall use their best efforts to timely satisfy each of the conditions described in Article VI of this Agreement.

(b) Each Purchaser surrendering Promissory Notes for cancellation in payment of any portion of the Purchase Price payable by such Purchaser hereby covenants to deliver such Promissory Notes to Seller as soon as practicable following to the Closing Date.

5.5 USE OF PROCEEDS. The Seller covenants and agrees that the proceeds of the Purchase Price shall be used by the Seller for (i) the immediate repayment of $2.775 million principal amount plus accrued interest of outstanding senior secured promissory notes due in April 2005 and May 2005, (ii) the immediate repayment of up to an additional $500,000 of indebtedness (exclusive of trade debt), and (iii) the balance for working capital and general corporate purposes; under no circumstances shall any portion of the proceeds be applied to:

(i) accelerated repayment of debt existing on the date hereof (except as provided above);

(ii) the payment of dividends or other distributions on any capital stock of the Seller other than the Preferred Stock;

(iii) increased executive compensation or loans to officers, employees, stockholders or directors, unless approved by a disinterested majority of the Board of Directors;

(iv) the purchase of debt or equity securities of any person, including the Seller and its Subsidiaries, except in connection with investment of excess cash in high quality (A1/P1 or better) money market instruments having maturities of one year or less; or

(v) any expenditure not directly related to the business of the Seller.

5.6 CORPORATE EXISTENCE. So long as a Purchaser owns Preferred Stock, Warrants, Conversion Shares or Warrant Shares, the Seller shall preserve and maintain and cause its Subsidiaries to preserve and maintain their corporate existence and good standing in the jurisdiction of their incorporation and the rights, privileges and franchises of the Seller and its

Subsidiaries (except, in each case, in the event of a merger or consolidation in which the Seller or its Subsidiaries, as applicable, is not the surviving entity) in each case where failure to so preserve or maintain could have a Material Adverse Effect on the financial condition, business or operations of the Seller and its Subsidiaries taken as a whole.

5.7 LICENSES. So long as a Purchaser owns Preferred Stock, Warrants, Conversion Shares or Warrant Shares, the Seller shall, and shall cause its Subsidiaries to, maintain at all times all material licenses or permits necessary to the conduct of its business and as required by any governmental agency or instrumentality thereof.

5.8 LIKE TREATMENT OF PURCHASERS AND HOLDERS. Neither the Seller nor any of its affiliates shall, directly or indirectly, pay or cause to be paid any consideration (immediate or contingent), whether by way of interest, fee, payment for redemption, conversion or exercise of the Preferred Stock or Warrants, or otherwise, to any Purchaser or holder of Preferred Stock or Warrants, for or as an inducement to, or in connection with the solicitation of, any consent, waiver or amendment to any terms or provisions of this Agreement or the Related Documents, unless such consideration is required to be paid to all Purchasers or holders of Preferred Stock or Warrants bound by such consent, waiver or amendment. The Seller shall not, directly or indirectly, redeem any Preferred Stock or Warrants unless such offer of redemption is made pro rata to all Purchasers or holders of Preferred Stock or Warrants, as the case may be, on identical terms.

5.9 TAXES AND CLAIMS. The Seller and its Subsidiaries shall duly pay and discharge (a) all material taxes, assessments and governmental charges upon or against the Seller or its properties or assets prior to the date on which penalties attach thereto, unless and to the extent that such taxes are being diligently contested in good faith and by appropriate proceedings, and appropriate reserves therefor have been established, and (b) all material lawful claims, whether for labor, materials, supplies, services or anything else which might or could, if unpaid, become a lien or charge upon the properties or assets of the Seller or its Subsidiaries unless and to the extent only that the same are being diligently contested in good faith and by appropriate proceedings and appropriate reserves therefor have been established.

5.10 PERFORM COVENANTS. The Seller shall (a) make full and timely payment of any and all payments on the Preferred Stock, and all other obligations of the Seller to the Purchasers in connection therewith, whether now existing or hereafter arising, and (b) duly comply with all the terms and covenants contained herein and in each of the instruments and documents given to the Purchasers in connection with or pursuant to this Agreement, all at the times and places and in the manner set forth herein or therein.

5.11 ADDITIONAL COVENANTS.

(a) Except for transactions approved by a majority of the disinterested directors of the Board of Directors, neither the Seller nor any of its Subsidiaries shall enter into any transaction with any director, officer, employee or holder of more than 5% of the outstanding capital stock of any class or series of capital stock of the Seller or any of its Subsidiaries, member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or member of the family of any such person, is a director, officer, trustee, partner or

holder of more than 5% of the outstanding capital stock thereof, with the exception of transactions which are consummated upon terms that are no less favorable than would be available if such transaction had been effected at arms-length, in the reasonable judgment of the Board of Directors.

(b) The Seller shall timely prepare and file with the Securities and Exchange Commission the form of notice of the sale of securities pursuant to the requirements of Regulation D regarding the sale of the Preferred Stock and Warrants under this Agreement.

(c) The Seller shall timely prepare and file such applications, consents to service of process (but not including a general consent to service of process) and similar documents and take such other steps and perform such further acts as shall be required by the state securities law requirements of each jurisdiction where a Purchaser resides as indicated on SCHEDULE 1 with respect to the sale of the Preferred Stock and Warrants under this Agreement.

(d) State Securities Law Compliance --Resale. Beginning no later than 60 days following the date of this Agreement and continuing until either
(i) the purchasers have sold all of their Registrable Securities under a registration statement pursuant to the Investor Rights Agreement or (ii) the Common Stock becomes a "covered security" under Section 18(b)(1)(A) of the Securities Act, the Seller shall maintain within either Moody's Industrial Manual or Standard and Poor's Standard Corporation Descriptions (or any successors to these manuals which are similarly qualified as "recognized securities manuals" under state Blue Sky laws) an updated listing containing (i) the names of the officers and directors of the Seller, (ii) a balance sheet of the Seller as of a date that is at no time older than eighteen months and (iii) a profit and loss statement of the Seller for either the preceding fiscal year or the most recent year of operations.

5.12 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Seller shall (i) on or promptly after the Closing Date, issue a press release acceptable to North Sound Capital LLC. disclosing the transactions contemplated hereby, and (ii) after the Closing Date, file with the Commission a Report on Form 8-K disclosing the transactions contemplated hereby. Except as provided in the preceding sentence, neither the Seller nor the Purchasers shall make any press release or other publicity about the terms of this Agreement or the transactions contemplated hereby without the prior approval of the other unless otherwise required by law or the rules of the Commission or Nasdaq.

5.13 PRODUCTION PURCHASE COMMITMENTS. Beginning no later than October 1, 2004, and as long as any Preferred Stock, Notes or Note Conversion Shares remain outstanding, the Seller shall maintain long term purchase commitments of three years or longer from third parties for at least 70% of the Seller's monthly tonnage. Within 45 days following the commencement of coal extraction from any New Mine and as long as at least 25% of the shares of Preferred Stock originally issued pursuant to this Agreement remain outstanding, the Seller shall have secured, and thereafter shall maintain, long term purchase commitments of three years or longer from third parties for at least 75% of the monthly tonnage for such Permitted Mine. "New Mine" shall mean any surface mine or deep mine at which the Seller first commences coal extraction following the Closing Date. The terms "NOTE CONVERSION SHARES" and "NOTES" shall have the meaning assigned in the Note Purchase Agreement (as defined below).

5.14 BOOKED PURCHASE COMMITMENTS. No later than March 31, 2005, and as long as at least 25% of (x) the Note Conversion Shares (or Note Conversion Shares issuable upon conversion of Notes then outstanding) plus (y) the total amount of Preferred Stock issued pursuant to this Agreement remain outstanding, the Seller shall have secured purchase commitments from third parties either (a) for the purchase of no less than 2 million tons of coal or (b) for the purchase of an amount of coal with a total purchase price not less than $100 million, in either case, such purchases committed to be completed (delivery made and paid in full) no later than March 31, 2008.

5.15 CORPORATE GOVERNANCE. No later than the 90th day following the Closing Date, the Seller shall be in full compliance with the corporate governance requirements applicable to companies listed on either the Nasdaq Small Cap Market, the Nasdaq National Market or the American Stock Exchange (each, a "QUALIFIED Exchange"), including, without limitation, the requirements that the Board of Directors have at least three independent members (the "INDEPENDENT DIRECTORS"), a compliant audit committee and a compliant compensation committee.

5.16 LISTING OF COMMON STOCK. The Seller shall use its best efforts to list its Common Stock on a Qualified Exchange within one year of the Closing Date.

5.17 REPAYMENT OF BRIDGE DEBT. Immediately following the Closing, the Seller shall pay in full $2.775 million principal amount and accrued interest on its outstanding senior secured promissory notes due in April 2005 and May 2005 and shall as soon as practicable thereafter deliver to the Escrow Agent for further delivery to the Purchasers written confirmation from the lenders that such principal and interest has been repaid in full.

5.18 OPTION EXERCISE. In connection with (a) the exercise by the Purchasers of the Options (as defined below) and (b) the transfer pursuant to the Options of the shares of Common Stock to the Purchasers and issuance of certificates representing such shares to the Purchasers, and to the extent required by the Seller's transfer agent for the Common Stock (the "Transfer Agent"), the Seller shall use its best efforts, at the Seller's cost and expense, to cause a written opinion of counsel to be delivered to the Transfer Agent, which opinion and counsel shall be reasonably acceptable to the Transfer Agent to the effect that such transfer may be made without registration under the Securities Act and covering such other matters as the Transfer Agent may require. In addition, the Seller shall, at the Seller's cost and expense, upon written request of the Purchasers, duly execute and deliver, or cause to be duly executed and delivered, to the Purchasers or the Transfer Agent such further instruments and do and cause to be done such further acts as may be necessary, advisable or proper, in the sole discretion of the Purchasers, to effect the transfer of the shares of Common Stock to the Purchasers upon exercise of the Options and to ensure that such transfer complies with all applicable state and federal securities laws.

ARTICLE VI - CONDITIONS TO CLOSING

6.1 CONDITIONS TO OBLIGATIONS OF PURCHASERS TO EFFECT THE CLOSING. The obligations of a Purchaser to effect the Closing and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing, of each of the following conditions, any of which may be waived, in writing, by a Purchaser:

(a) The Seller shall deliver or cause to be delivered to the Escrow Agent, for further delivery to each of the Purchasers at the Closing pursuant to the terms of the Escrow Agreement, the following:

1. (i) One or more certificates evidencing the aggregate number of shares of the Preferred Stock, duly authorized, issued, fully paid and non-assessable, as is indicated on SCHEDULE 1 to be purchased at the Closing by such Purchaser, registered in the name of such Purchaser, in such denominations as is indicated on SCHEDULE 1 for such Purchaser; and

(ii) One or more certificates evidencing the Warrants, registered in the name of such Purchaser, in such denominations as is indicated on SCHEDULE 1 for such Purchaser, pursuant to which such Purchaser shall be initially entitled to purchase that number of shares of Common Stock as is indicated on SCHEDULE 1.

2. The Investor Rights Agreement, in the form attached hereto as EXHIBIT C (the "INVESTOR RIGHTS AGREEMENT"), duly executed by the Seller.

3. A legal opinion of Stubbs Alderton & Markiles, LLP ("SELLER'S COUNSEL"), counsel to the Seller, in the form attached hereto as EXHIBIT D.

4. A certificate of the Secretary of the Seller (the "SECRETARY'S CERTIFICATE"), in form and substance satisfactory to the Purchasers, certifying as follows:

(i) that the Articles of Amendment authorizing the Preferred Stock has been duly filed in the office of the Secretary of State of the State of Florida, and that attached to the Secretary's Certificate is true and complete copy of the Articles of Incorporation of the Seller, as amended, and the Articles of Amendment;

(ii) that a true copy of the Bylaws of the Seller, as amended to the Closing Date, is attached to the Secretary's Certificate;

(iii) that attached thereto are true and complete copies of the resolutions of the Board of Directors of the Seller authorizing the execution, delivery and performance of this Agreement and the Related Documents, instruments and certificates required to be executed by it in connection herewith and approving the consummation of the transactions in the manner contemplated hereby including, but not limited to, the authorization and issuance of the Preferred Stock and Warrants;

(iv) the names and true signatures of the officers of the Seller signing this Agreement and all other documents to be delivered in connection with this Agreement;

(v) such other matters as required by this Agreement; and

(vi) such other matters as the Purchasers may reasonably request.

5. A wire transfer representing the Purchasers' reasonable legal fees and other expenses as described in Section 9.2 hereof; such fee may, at the election of the Purchasers, be paid out of the funds due from the Purchasers at the Closing.

6. Proof of due filing with the Secretary of State of the State of Florida of the Articles of Amendment authorizing the Preferred Stock.

7. Such other documents as the Purchasers shall reasonably request.

(b) The Seller shall have entered into a Closing Escrow Agreement with Wiggin and Dana LLP (the "ESCROW AGENT") in the form attached hereto as EXHIBIT E (the "ESCROW AGREEMENT").

(c) Jon Nix and Robert Chmiel shall have each entered into a nine month Management Lock-Up Agreement in the form attached hereto as EXHIBIT F, and copies thereof shall have been delivered to the Escrow Agent for further delivery to each of the Purchasers at the Closing pursuant to the terms of the Escrow Agreement.

(d) Seller shall have applied to each U.S. securities exchange, interdealer quotation system and other trading market where its Common Stock is currently listed or qualified for trading or quotation for the listing or qualification of the Conversion Shares and the Warrant Shares for trading or quotation thereon in the time and manner required thereby.

(e) Each of the Purchasers listed on SCHEDULE 2 shall have been assigned, pursuant to an assignment dated as of the Closing Date (the "ASSIGNMENT"), the right to purchase, at a purchase price of $0.65 per share (the "OPTIONS"), the number of shares (5,000,000 shares in the aggregate) of restricted Common Stock pursuant to that certain Stock Option Agreement, dated as of June 30, 2004, by and between Farrald Belote and Arlene Belote, as optionors, and Jon Nix, as optionee, as amended, (the "STOCK OPTION AGREEMENT") as is indicated next to such Purchaser's name on SCHEDULE 2 hereto. A duly executed copy of the Assignment shall have been delivered to the Escrow Agent for further delivery to such Purchasers and for further delivery to the escrow agent for the Stock Option Agreement (the "OPTION ESCROW AGENT"). Each such Purchaser shall have delivered to the Escrow Agent, for further delivery to the Option Escrow Agent, a duly executed exercise notice (the "EXERCISE NOTICE") exercising all of the Options assigned to such Purchaser pursuant to the Assignment along with a wire transfer, in immediately available funds, of the exercise price for such Options.

(f) The issuance of up to $3 million of 8% Convertible Promissory Notes of the Seller pursuant to that certain Note Purchase Agreement, dated as of the date hereof, among the Seller and each of the persons described therein (the "Note Purchase Agreement") shall have been consummated.

(g) Each of the persons that are purchasing the notes pursuant to the Note Purchase Agreement shall have been assigned, pursuant to an assignment dated as of the Closing Date, the right to purchase at a purchase price of $0.55 per share, the number of shares (300,000 shares in the aggregate) of restricted Common Stock pursuant to that certain Stock Option Agreement, dated as of June 30, 2004, by and between Farrald Belote and Arlene Belote, as optionors, and Jon Nix, as optionee, as is indicated next to such person's name on SCHEDULE 1 to the Note

Purchase Agreement. The Escrow Agent shall have received copies of such documentation of the assignment along with a wire transfer for the exercise of the rights so assigned, in each case, as is required by the Note Purchase Agreement.

6.2 CONDITIONS TO OBLIGATIONS OF THE SELLER TO EFFECT THE CLOSING. The obligations of the Seller to effect the Closing and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, by the Seller:

(a) Each of the Purchasers shall deliver or cause to be delivered to the Escrow Agent, for further delivery to the Seller at the Closing pursuant to the terms of the escrow Agreement, (i) payment of the portion of the Purchase Price set forth opposite each Purchaser's name on SCHEDULE 1, in cash by either
(x) wire transfer of immediately available funds to an account designated in writing by the Escrow Agent prior to the date hereof, or (y) in the case of Purchasers paying their portion of the Purchase Price by the cancellation of a portion of the Promissory Notes held by them, by the cancellation of such portion of Promissory Notes pursuant to Section 2.1 hereof (as evidenced by the execution of this Agreement by such Purchaser); (ii) an executed copy of this Agreement; (iii) an executed copy of the Investor Rights Agreement; and (iv) such other documents as the Seller shall reasonably request. The Purchaser shall deliver the original Promissory Notes to be cancelled in whole or part to the Seller following the Closing pursuant to Section 5.4(b) or, prior to the Closing, to the Escrow Agent for further delivery to the Seller.

ARTICLE VII - INDEMNIFICATION, TERMINATION AND DAMAGES

7.1 SURVIVAL OF REPRESENTATIONS. Except as otherwise provided herein, the representations and warranties of the Seller and the Purchasers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing Date and shall continue in full force and effect for a period of three (3) years from the Closing Date; provided, however, that the Seller's warranties and representations under Sections 3.13 (Taxes), 3.19 (Subsidiaries and Investments), 3.20 (Capitalization), and 3.21 (Options, Warrants, Rights), shall survive the Closing Date and continue in full force and effect until the expiration of all applicable statutes of limitation; and further provided that the Seller's warranties and representations under
Section 3.24 (Environmental Matters) shall survive the Closing Date and continue in full force and effect for a period of six (6) years from the Closing Date. The Seller's and the Purchasers' warranties and representations shall in no way be affected or diminished in any way by any investigation of the subject matter thereof made by or on behalf of the Seller or the Purchasers.

7.2 INDEMNIFICATION.

(a) The Seller agrees to indemnify and hold harmless the Purchasers, their Affiliates, each of their officers, directors, partners, employees and agents and their respective successors and assigns, from and against any losses, damages, or expenses which are caused by or arise out of (i) any breach or default in the performance by the Seller of any covenant or agreement made by the Seller in this Agreement or in any of the Related Documents; (ii) any breach of warranty or representation made by the Seller in this Agreement or in any of the Related Documents; or

(iii) any and all third party actions, suits, proceedings, claims, demands, judgments, costs and expenses (including reasonable legal fees and expenses) incident to any of the foregoing.

(b) The Purchasers, severally and not jointly, agree to indemnify and hold harmless the Seller, its Affiliates, each of their officers, directors, partners, employees and agents and their respective successors and assigns, from and against any losses, damages, or expenses which are caused by or arise out of
(i) any breach or default in the performance by the Purchasers of any covenant or agreement made by the Purchasers in this Agreement or in any of the Related Documents; (ii) any breach of warranty or representation made by the Purchasers in this Agreement or in any of the Related Documents; and (iii) any and all third party actions, suits, proceedings, claims, demands, judgments, costs and expenses (including reasonable legal fees and expenses) incident to any of the foregoing; provided, however, that a Purchaser's liability under this Section 7.2(b) shall not exceed the Purchase Price paid by such Purchaser hereunder.

7.3 INDEMNITY PROCEDURE. A party or parties hereto agreeing to be responsible for or to indemnify against any matter pursuant to this Agreement is referred to herein as the "INDEMNIFYING PARTY" and the other party or parties claiming indemnity is referred to as the "INDEMNIFIED PARTY". An Indemnified Party under this Agreement shall, with respect to claims asserted against such party by any third party, give written notice to the Indemnifying Party of any liability which might give rise to a claim for indemnity under this Agreement within sixty (60) business days of the receipt of any written claim from any such third party, but not later than twenty (20) days prior to the date any answer or responsive pleading is due, and with respect to other matters for which the Indemnified Party may seek indemnification, give prompt written notice to the Indemnifying Party of any liability which might give rise to a claim for indemnity; provided, however, that any failure to give such notice will not waive any rights of the Indemnified Party except to the extent the rights of the Indemnifying Party are materially prejudiced.

The Indemnifying Party shall have the right, at its election, to take over the defense or settlement of such claim by giving written notice to the Indemnified Party at least fifteen (15) days prior to the time when an answer or other responsive pleading or notice with respect thereto is required. If the Indemnifying Party makes such election, it may conduct the defense of such claim through counsel of its choosing (subject to the Indemnified Party's approval of such counsel, which approval shall not be unreasonably withheld), shall be solely responsible for the expenses of such defense and shall be bound by the results of its defense or settlement of the claim. The Indemnifying Party shall not settle any such claim without prior notice to and consultation with the Indemnified Party, and no such settlement involving any equitable relief or which might have an adverse effect on the Indemnified Party may be agreed to without the written consent of the Indemnified Party (which consent shall not be unreasonably withheld). So long as the Indemnifying Party is diligently contesting any such claim in good faith, the Indemnified Party may pay or settle such claim only at its own expense and the Indemnifying Party will not be responsible for the fees of separate legal counsel to the Indemnified Party, unless the named parties to any proceeding include both parties or representation of both parties by the same counsel would be inappropriate due to conflicts of interest or otherwise. If the Indemnifying Party does not make such election, or having made such election does not, in the reasonable opinion of the Indemnified Party proceed diligently to defend such claim, then the Indemnified Party may (after written notice to the Indemnifying Party), at the expense of the

Indemnifying Party, elect to take over the defense of and proceed to handle such claim in its discretion and the Indemnifying Party shall be bound by any defense or settlement that the Indemnified Party may make in good faith with respect to such claim. In connection therewith, the Indemnifying Party will fully cooperate with the Indemnified Party should the Indemnified Party elect to take over the defense of any such claim. The parties agree to cooperate in defending such third party claims and the Indemnified Party shall provide such cooperation and such access to its books, records and properties as the Indemnifying Party shall reasonably request with respect to any matter for which indemnification is sought hereunder; and the parties hereto agree to cooperate with each other in order to ensure the proper and adequate defense thereof.

With regard to claims of third parties for which indemnification is payable hereunder, such indemnification shall be paid by the Indemnifying Party upon the earlier to occur of: (i) the entry of a judgment against the Indemnified Party and the expiration of any applicable appeal period, or if earlier, five (5) days prior to the date that the judgment creditor has the right to execute the judgment; (ii) the entry of an unappealable judgment or final appellate decision against the Indemnified Party; or (iii) a settlement of the claim. Notwithstanding the foregoing, the reasonable expenses of counsel to the Indemnified Party shall be reimbursed on a current basis by the Indemnifying Party. With regard to other claims for which indemnification is payable hereunder, such indemnification shall be paid promptly by the Indemnifying Party upon demand by the Indemnified Party.

ARTICLE VIII - ADDITIONAL PURCHASE RIGHT

8.1 ADDITIONAL PURCHASE RIGHT. Each Purchaser or its assigns shall have the right (the "ADDITIONAL PURCHASE RIGHT"), during the Additional Purchase Period (as defined below), to purchase from the Seller, up to the number of shares of additional Preferred Stock as indicated next to such Purchaser's name on SCHEDULE 1 hereto under the heading "Number of Shares of Preferred Stock Subject to Additional Purchase Right", in whole or in part, at a purchase price of $15,000 per share, all on and subject to the terms and conditions set forth in this Article VIII. Upon the purchase of any shares of Preferred Stock pursuant to the Additional Purchase Right, the Purchaser or its assigns shall receive additional Warrants to purchase that number of shares of Common Stock as is equal to 20% of the number of shares of Common Stock into which such additional shares of Preferred Stock are convertible.

8.2 EXERCISE OF ADDITIONAL PURCHASE RIGHT.

(a) From and after the Closing Date, and until 5:00 P.M., New York time, on the date that is 90 days after the Effective Date, as such term is defined in the Investor Rights Agreement (the "EXPIRATION DATE" and such period, the "ADDITIONAL PURCHASE PERIOD"), the Purchaser or its assigns may elect to purchase all or any part of the number of additional shares of Preferred Stock as indicated next to such Purchaser's name on SCHEDULE 1 hereto under the heading "Number of Shares of Preferred Stock Subject to Additional Purchase Right" (together with the applicable number of Warrants).

(b) In order to exercise the Additional Purchase Right, in whole or in part, the Purchaser shall deliver to the Seller at the address indicated in Section 9.3, (i) a written notice of the Purchaser's election to exercise its Additional Purchase Right, which notice shall specify the number of additional shares of Preferred Stock to be purchased and (ii) payment of the purchase price. Such notice shall be substantially in the form of the subscription form attached as EXHIBIT G hereto, duly executed by the Purchaser or its agent or attorney. Upon receipt thereof, the Seller shall, as promptly as practicable, and in any event within three Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Purchaser a certificate or certificates representing the aggregate number of shares of additional Preferred Stock purchased pursuant to the Additional Purchase Right along with a certificate or certificates representing the Warrants to be received together with such Preferred Stock. The stock and Warrant certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Purchaser shall request in the notice and shall be registered in the name of the Purchaser or such other name as shall be designated in the notice. The Additional Purchase Right shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Purchaser or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares and Warrants for all purposes, as of the date when the notice, together with the payment of the purchase price, is received by the Seller as described above. If the Additional Purchase Right shall have been exercised in part, the Purchaser shall retain the right to purchase that number of shares of additional Preferred Stock as indicated next to such Purchaser's name on SCHEDULE 1 hereto under the heading "Number of Shares of Preferred Stock Subject to Additional Purchase Right" less the number of shares of additional Preferred Stock previously purchased pursuant to this Article VIII (together with the applicable number of Warrants).

(c) If the Seller intentionally and willfully fails to deliver to the holder such certificate or certificates pursuant to this Section 8.2 in accordance herewith, prior to the seventh trading day after the receipt by the Seller of (i) a written notice of Purchaser's election to exercise its Additional Purchase Right pursuant to Section 8.2(b) (such date of receipt, the "DATE OF RECEIPT"), the Seller shall pay to such Purchaser, in cash, on a per diem basis, an amount equal to 2% of the purchase price of the undelivered Preferred Stock and Warrants per month (or portion thereof) until such delivery takes place.

(d) Payment of the purchase price for the additional Preferred Stock may be made at the option of the Purchaser by: (i) certified or official bank check payable to the order of the Seller or (ii) wire transfer to the account of the Seller. All shares of Preferred Stock and all Warrants issuable upon the exercise of the Additional Purchase Right pursuant to the terms hereof shall be validly issued and, upon payment of the purchase price therefor, shall be fully paid and nonassessable and not subject to any preemptive rights, and any purchaser of shares of Preferred Stock and Warrants pursuant to this Article VIII shall have all of the rights of a Purchaser and holder of Preferred Stock and Warrants under this Agreement, the Investor Rights Agreement and the Articles of Incorporation as amended by the Articles of Amendment, in each case, with respect to such additional shares of Preferred Stock and such additional Warrants.

8.3 ADJUSTMENTS. For avoidance of doubt, any and all adjustments to the Conversion Value (as defined in the Articles of Incorporation as Amended by the Articles of Amendment) of the Preferred Stock or the Current Warrant Price (as defined in the Warrant) or number of Warrant Shares issuable upon exercise of the Warrants, in each case, originally issued pursuant to this Agreement that may have been made prior to the issuance of additional shares of Preferred Stock and Warrants issued pursuant to this Article VIII shall be deemed to apply to any such additional shares of Preferred Stock and Warrants. In addition, the amounts set forth in this Article VIII shall be subject to adjustment for any stock splits, dividends, distributions and the like.

8.4 TRANSFER. The Additional Purchase Right pursuant to this Article VIII shall be freely transferable, subject to compliance with all applicable laws, including, but not limited to the Securities Act. The Seller may require, as a condition of allowing such transfer (i) that the Purchaser or transferee of the Additional Purchase Right as the case may be, furnish to the Seller a written opinion of counsel that is reasonably acceptable to the Seller to the effect that such transfer may be made without registration under the Securities Act, (ii) that the Purchaser or transferee execute and deliver to the Seller a customary investor representation letter, (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act and (iv) that the Purchaser deliver to the Seller a written assignment of the Additional Purchase Right substantially in the form of EXHIBIT H hereto duly executed by the Purchaser or its agent or attorney. Notwithstanding the foregoing, without the prior written consent of the Seller, no transfer of Additional Purchase Rights shall be made where the number of shares of Preferred Stock purchasable pursuant to such Additional Purchase Rights is less than 5% of the total number of shares of Preferred Stock purchasable by all Purchasers pursuant to their Additional Purchase Rights as of the Closing Date unless the amount of Additional Purchase Rights proposed to be transferred are all of the Additional Purchase Rights then owned by the transferring Purchaser.

ARTICLE IX - MISCELLANEOUS

9.1 FURTHER ASSURANCES. Each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by any other party to better evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement, and further agrees to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things necessary, proper or advisable under applicable law to consummate and make effective the transactions contemplated hereby, to obtain all necessary waivers, consents and approvals, to effect all necessary registrations and filings, and to remove any injunctions or other impediments or delays, legal or otherwise, in order to consummate and make effective the transactions contemplated by this Agreement for the purpose of securing to the parties hereto the benefits contemplated by this Agreement.

9.2 FEES AND EXPENSES. The Seller shall be responsible for the payment of up to an aggregate of $45,000 of the reasonable legal fees and other third-party expenses of North Sound Capital Group LLC relating to the preparation and negotiation of this Agreement and the Related Documents and the consummation of the transactions contemplated herein and therein, unless otherwise agreed by the Seller in writing. This Section 9.2 shall not apply to registration expenses

under the Investor Rights Agreement, which shall be payable as provided therein.

9.3 NOTICES. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:00 p.m. (New York City time) on a business day, (b) the next business day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a business day or later than 5:00 p.m. (New York City time) on any business day, or (c) the business day following the date of mailing, if sent by U.S. nationally recognized overnight courier service such as Federal Express. The address for such notices and communications shall be as follows:

If to the Purchasers at each Purchaser's address set forth under its name on SCHEDULE 1 attached hereto, or with respect to the Seller, addressed to:

National Coal Corp.

319 Ebenezer Road
Knoxville, Tennessee 37923
Attention: Chief Executive Officer
Facsimile No.: (865) 769-3759

or to such other address or addresses or facsimile number or numbers as any such party may most recently have designated in writing to the other parties hereto by such notice. Copies of notices to the Seller shall be sent to Stubbs Alderton & Markiles, LLP, 15821 Ventura Boulevard, Suite 525, Encino, California 91436, Facsimile No. (818) 444-4520. Copies of notices to any Purchaser shall be sent to the addresses, if any, listed on SCHEDULE 1 attached hereto.

Unless otherwise stated above, such communications shall be effective when they are received by the addressee thereof in conformity with this Section. Any party may change its address for such communications by giving notice thereof to the other parties in conformity with this Section.

9.4 GOVERNING LAW. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and enforced in accordance with the laws of the State of New York without reference to the conflicts of laws principles thereof.

9.5 JURISDICTION AND VENUE. This Agreement shall be subject to the exclusive jurisdiction of the Federal District Court, Southern District of New York and if such court does not have proper jurisdiction, the State Courts of New York County, New York. The parties to this Agreement agree that any breach of any term or condition of this Agreement shall be deemed to be a breach occurring in the State of New York by virtue of a failure to perform an act required to be performed in the State of New York and irrevocably and expressly agree to submit to the jurisdiction of the Federal District Court, Southern District of New York and if such court does not have proper jurisdiction, the State Courts of New York County, New York for the purpose of resolving any disputes among the parties relating to this Agreement or the

transactions contemplated hereby. The parties irrevocably waive, to the fullest extent permitted by law, any objection which they may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement, or any judgment entered by any court in respect hereof brought in New York County, New York, and further irrevocably waive any claim that any suit, action or proceeding brought in Federal District Court, Southern District of New York and if such court does not have proper jurisdiction, the State Courts of New York County, New York has been brought in an inconvenient forum. Each of the parties hereto consents to process being served in any such suit, action or proceeding, by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 9.5 shall affect or limit any right to serve process in any other manner permitted by law.

9.6 SUCCESSORS AND ASSIGNS. This Agreement is personal to each of the parties and may not be assigned without the written consent of the other parties; provided, however, that any of the Purchasers shall be permitted to assign this Agreement to any Person to whom it assigns or transfers securities or rights issued or issuable pursuant to this Agreement. Any assignee must be an "ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated under the Securities Act.

9.7 SEVERABILITY. If any provision of this Agreement, or the application thereof, shall for any reason or to any extent be invalid or unenforceable, the remainder of this Agreement and application of such provision to other persons or circumstances shall continue in full force and effect and in no way be affected, impaired or invalidated.

9.8 ENTIRE AGREEMENT. This Agreement and the other agreements and instruments referenced herein constitute the entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings.

9.9 OTHER REMEDIES. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party shall be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law, or in equity on such party, and the exercise of any one remedy shall not preclude the exercise of any other.

9.10 AMENDMENT AND WAIVERS. Any term or provision of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a writing signed by the Seller and the holders of at least a majority of the Preferred Stock then outstanding, and such waiver or amendment, as the case may be, shall be binding upon all Purchasers. The waiver by a party of any breach hereof or default in the performance hereof shall not be deemed to constitute a waiver of any other default or any succeeding breach or default. This Agreement may not be amended or supplemented by any party hereto except pursuant to a written amendment executed by the Seller and the holders of at least a majority of the Preferred Stock then outstanding. No amendment shall be effected to impact a holder of Preferred Stock in a disproportionately adverse fashion without the consent of such individual holder of Preferred Stock. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of this Agreement or any of the Related Documents unless the same consideration is also offered to all of the parties to this Agreement or the Related

Documents.

9.11 NO WAIVER. The failure of any party to enforce any of the provisions hereof shall not be construed to be a waiver of the right of such party thereafter to enforce such provisions.

9.12 CONSTRUCTION OF AGREEMENT; KNOWLEDGE. For purposes of this Agreement, the term "KNOWLEDGE," when used in reference to a corporation means the knowledge of the directors and executive officers of such corporation (including, if applicable, any person designated as a chief scientific, medical or technical officer) assuming such persons shall have made inquiry that is customary and appropriate under the circumstances to which reference is made, and when used in reference to an individual means the knowledge of such individual assuming the individual shall have made inquiry that is customary and appropriate under the circumstances to which reference is made.

9.13 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original as against any party whose signature appears thereon and all of which together shall constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as signatories. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

9.14 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the parties hereto and their respective heirs, personal representatives, legal representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement.

9.15 WAIVER OF TRIAL BY JURY. THE PARTIES HERETO IRREVOCABLY WAIVE TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

9.16 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The obligations of each Purchaser under this Agreement or any Related Documents are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any such agreement. Nothing contained herein or in any Related Documents, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by such agreement. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Related Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser represents that it has been represented by its own separate legal counsel in its review and negotiation of this Agreement and the Related Documents. For reasons of administrative convenience only, the Purchasers acknowledge and agree that they and their respective counsel have chosen to communicate with

the Seller through Wiggin and Dana LLP, but Wiggin and Dana LLP does not represent any of the Purchasers in this transaction other than North Sound Capital LLC.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

SELLER:

NATIONAL COAL CORP.

By:      /S/ JON E. NIX
   -----------------------------------------
Name:  Jon E. Nix
Title: Chief Executive Officer

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     ASSET MANAGERS INTERNATIONAL LMTD



By:             JAFAR OMID /S/
                ---------------------------------------------
Name:           JAFAR OMID
                ---------------------------------------------
Title:          INVESTMENT MANAGER
                ---------------------------------------------

Address:        88 BAKER STREET
                ---------------------------------------------
                LONDON
                ---------------------------------------------
                W1U 6T2
                ---------------------------------------------
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     GIL AVIDAR
                ---------------------------------------------



By:             GIL AVIDAR /S/
                ---------------------------------------------
Name:           GIL AVIDAR
                ---------------------------------------------
Title:
                ---------------------------------------------

Address:        650 LYONS STREET
                ---------------------------------------------
                MORTON GROVE, IL 60053

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     BIG BEND XII INVESTMENTS, LP



By:             JANICE HUDSON /S/
                ---------------------------------------------
Name:           JANICE HUDSON
                ---------------------------------------------
Title:          SECRETARY: 2M COMPANIES INC.
                ---------------------------------------------
                General Partner

Address:        3401 ARMSTRONG AVENUE
                ---------------------------------------------
                DALLAS, TEXAS 75205

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     BLACKPOOL PARTNERS, LLC



By:             J. DOUGLAS RALSTON /S/
                ---------------------------------------------
Name:           J. DOUGLAS RALSTON
                ---------------------------------------------
Title:          MANAGING MEMBER
                ---------------------------------------------

Address:        701 HARGER ROAD, SUITE 190
                ---------------------------------------------
                OAK BROOKE, IL  60523

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     JOEL CHESTLER
                ---------------------------------------------



By:             JOEL CHESTLER /S/
                ---------------------------------------------
Name:           JOEL CHESTLER
                ---------------------------------------------
Title:
                ---------------------------------------------

Address:        681 VALLEY RD.
                ---------------------------------------------
                GLENCOE, IL  60022

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     CRESTVIEW CAPITAL MASTER, LLC



By:             STEWART R. FLINK /S/
                ---------------------------------------------
Name:           STEWARD R. FLINK
                ---------------------------------------------
Title:          MANAGER
                ---------------------------------------------

Address:        96 REVERE DRIVE, SUITE A
                ---------------------------------------------
                NORTHBROOK, IL  60062

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     CRESTVIEW CAPITAL MASTER, LLC



By:             STEWART R. FLINK /S/
                ---------------------------------------------
Name:           STEWARD R. FLINK
                ---------------------------------------------
Title:          MANAGER
                ---------------------------------------------

Address:        95 REVERE DRIVE, SUITE A
                ---------------------------------------------
                NORTHBROOK, IL  60062

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     DARA FIELDMAN
                ---------------------------------------------



By:             DARA FIELDMAN /S/
                ---------------------------------------------
Name:           DARA FIELDMAN
                ---------------------------------------------
Title:
                ---------------------------------------------

Address:        844 KIMBALWOOD LANE
                ---------------------------------------------
                HIGHLAND PARK, IL  60035

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     STEWART & JENNIFER FLINK



By:             STEWART R. FLINK /S/
                ---------------------------------------------
Name:           STEWART R. FLINK
                ---------------------------------------------
Title:
                ---------------------------------------------

Address:        170 CRESTVIEW
                ---------------------------------------------
                DEERFIELD, IL  60015

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     SCOTT P. GEORGE
                ---------------------------------------------



By:             SCOTT P. GEORGE /S/
                ---------------------------------------------
Name:           SCOTT P. GEORGE
                ---------------------------------------------
Title:
                ---------------------------------------------

Address:        470 TURICUM ROAD
                ---------------------------------------------
                LAKE FOREST, IL  60045

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     GLL SINGLE STRATEGY, L.P.



By:             W. STEPHEN GILBOY /S/
                ---------------------------------------------
Name:           W. STEPHEN GILBOY
                ---------------------------------------------
Title:          PRESIDENT
                ---------------------------------------------

Address:        GLL INVESTORS, INC.
                ---------------------------------------------
                425 WEST SURF STREET
                CHICAGO, IL  60657
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     STEVEN J. HALPERN
                ---------------------------------------------



By:             STEVEN J. HALPERN /S/
                ---------------------------------------------
Name:           STEVEN J. HALPERN
                ---------------------------------------------
Title:
                ---------------------------------------------

Address:        95 REVERE DRIVE, SUITE A
                ---------------------------------------------
                NORTHBROOK, IL  60062

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     JACOB CAPITAL, LLC
                ---------------------------------------------



By:             RICHARD LEVY /S/
                ---------------------------------------------
Name:           RICHARD LEVY
                ---------------------------------------------
Title:          MANAGER
                ---------------------------------------------

Address:        95 REVERE DRIVE, SUITE A
                ---------------------------------------------
                NORTHBROOK, IL  60062

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     RICHARD P. KIPHART
                ---------------------------------------------



By:             RICHARD P. KIPHART /S/
                ---------------------------------------------
Name:           RICHARD P. KIPHART
                ---------------------------------------------
Title:
                ---------------------------------------------

Address:        C/O WILLIAM BLAIR & CO.
                ---------------------------------------------
                222 W. ADAMS STREET
                ---------------------------------------------
                CHICAGO, IL  60606
                ---------------------------------------------
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     LACHMAN FAMILY LIMITED PARTNERSHIP



By:             MARY ANN LACHMAN /S/
                ---------------------------------------------
Name:           MARY ANN LACHMAN
                ---------------------------------------------
Title:
                ---------------------------------------------

Address:        3140 WHISPERWOODS COURT
                ---------------------------------------------
                NORTHBROOK, IL  60062

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

By:             JOSEPH LEVY JR. /S/
                ---------------------------------------------
Name:           JOSEPH LEVY JR.
                ---------------------------------------------
Title:          TRUSTEE
                ---------------------------------------------

Address:        3340 W. MAIN STREET
                ---------------------------------------------
                SKOKIE, IL  60076

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     NANCY HOYT REVOCABLE TRUST



By:             NANCY HOYT /S/
                ---------------------------------------------
Name:           NANCY HOYT
                ---------------------------------------------
Title:          TRUSTEE
                ---------------------------------------------

Address:        1953 N. HOWE STREET
                ---------------------------------------------
                CHICAGO, IL  60614

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     NATHAN A. LOW ROTH IRA
                ---------------------------------------------



By:             NATHAN LOW /S/
                ---------------------------------------------
Name:           NATHAN A. LOW ROTH IRA
                ---------------------------------------------
Title:
                ---------------------------------------------

Address:        641 LEXINGTON AVE.
                ---------------------------------------------
                25TH FL.
                ---------------------------------------------
                N.Y. NY 10022
                ---------------------------------------------
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     NORTH SOUND LEGACY FUND LLC



By:             THOMAS MCAULEY /S/
                ---------------------------------------------
Name:           THOMAS MCAULEY
                ---------------------------------------------
Title:          CHIEF INVESTMENT OFFICER
                ---------------------------------------------

Address:        C/O NORTH SOUND CAPITAL LLC
                53 FOREST AVENUE, SUITE 202
                OLD GREENWICH, CT  06870
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     NORTH SOUND LEGACY INSTITUTIONAL FUND LLC



By:             THOMAS MCAULEY /S/
                ---------------------------------------------
Name:           THOMAS MCAULEY
                ---------------------------------------------
Title:          CHIEF INVESTMENT OFFICER
                ---------------------------------------------

Address:        C/O NORTH SOUND CAPITAL LLC
                53 FOREST AVENUE, SUITE 202
                OLD GREENWICH, CT  06870
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

By:             THOMAS MCAULEY /S/
                ---------------------------------------------
Name:           THOMAS MCAULEY
                ---------------------------------------------
Title:          CHIEF INVESTMENT OFFICER
                ---------------------------------------------

Address:        C/O NORTH SOUND CAPITAL LLC
                53 FOREST AVENUE, SUITE 202
                OLD GREENWICH, CT  06870
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

Print Name:     RHP MASTER FUND, LTD.
                ---------------------------------------------



By:             ROCK HILL INVESTMENT MANAGEMENT, L.P.
                ---------------------------------------------
By:             RHP  GENERAL  PARTNER,  LLC
                ---------------------------------------------
By:             KEITH MARLOWE /S/
                ---------------------------------------------
Name:           KEITH  MARLOWE
                ---------------------------------------------
Title:          DIRECTOR
                ---------------------------------------------

Address:        C/O ROCK HILL INVESTMENT
                MANAGEMENT, L.P.
                3 BALA PLAZA EAST, SUITE 585
                BALA CYNWYD, PA  19004
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     GENE RINTELS
                ---------------------------------------------



By:             GENE RINTELS /S/
                ---------------------------------------------
Name:
                ---------------------------------------------
Title:
                ---------------------------------------------

Address:
                ---------------------------------------------

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     BYRON H. RUBIN
                ---------------------------------------------



By:             BYRON H. RUBIN /S/
                ---------------------------------------------
Name:
                ---------------------------------------------
Title:
                ---------------------------------------------

Address:        5310 HARVEST HILL ROAD
                ---------------------------------------------
                SUITE 169
                DALLAS, TEXAS  75230
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     GERALD J. RUBIN
                ---------------------------------------------



By:             GERALD J. RUBIN /S/
                ---------------------------------------------
Name:
                ---------------------------------------------
Title:
                ---------------------------------------------

Address:        1 HELEN OF TROY PLZ.
                ---------------------------------------------
                EL PASO, TEXAS  79912

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     STONESTREET L.P.
                ---------------------------------------------



By:             M. FINKELSTEIN /S/
                ---------------------------------------------
Name:           MICHAEL FINKELSTEIN
                ---------------------------------------------
Title:          PRESIDENT
                ---------------------------------------------

Address:        260 TOWN CENTRE BLVD.
                ---------------------------------------------
                SUITE 201
                MARTHAM, ONTARIO L3488H8
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     TIBERIUS INVESTMENT & CAPITAL



By:             N. DADLANI /S/
                ---------------------------------------------
Name:           NORMAN DADLANI
                ---------------------------------------------
Title:          DIRECTOR
                ---------------------------------------------

Address:        108 ALDERSGATE STREET
                ---------------------------------------------
                LONDON
                ---------------------------------------------
                EC1 A430
                ---------------------------------------------
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

TRUST DTD 1-22-97

By:             J.A. CORYDON /S/
                ---------------------------------------------
Name:           JAMES A. CORYDON
                ---------------------------------------------
Title:          TRUSTEE
                ---------------------------------------------

Address:        6650 N. TOWER CIRCLE DRIVE
                ---------------------------------------------
                LINCOLNWOOD, IL  60712

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     TREELINE INVESTMENT PARTNERS, L.P.

By:             TREELINE MANAGEMENT, LLC
                ---------------------------------------------
By:             JOSEPH GIL /S/
                ---------------------------------------------
Name:           JOSEPH GIL
                ---------------------------------------------
Title:          MANAGING MEMBER
                ---------------------------------------------

Address:        61 SPINDRIFT PASSAGE
                ---------------------------------------------
                CORTE MADERA, CA  94925

Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     DAVID VALENTINE
                ---------------------------------------------



By:             DAVID VALENTINE /S/
                ---------------------------------------------
Name:           DAVID VALENTINE
                ---------------------------------------------
Title:
                ---------------------------------------------

Address:        95 REVERE DRIVE
                ---------------------------------------------
                SUITE A
                NORTHBROOK, IL  60043
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     WHALEHAVEN CAPITAL LP
                ---------------------------------------------



By:             EVAN SCHEMENAUER /S/
                ---------------------------------------------
Name:           EVAN SCHEMANAUER
                ---------------------------------------------
Title:          AUTHORIZED SIGNATORY
                ---------------------------------------------

Address:        3RD FLOOR, 14 PAR-LA-VILLE ROAD
                ---------------------------------------------
                P.O. BOX HM 1027
                ---------------------------------------------
                HAMILTON HM08 BERMUDA
                ---------------------------------------------
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO
NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     WHALEHAVEN FUND LIMITED



By:             EVAN SCHEMENAUER /S/
                ---------------------------------------------
Name:           EVAN SCHEMANAUER
                ---------------------------------------------
Title:          DIRECTOR
                ---------------------------------------------

Address:        3RD FLOOR, 14 PAR-LA-VILLE ROAD
                ---------------------------------------------
                P.O. BOX HM 2257
                ---------------------------------------------
                HAMILTON HMO8 BERMUDA
                ---------------------------------------------
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

OMNIBUS SIGNATURE PAGE TO

NATIONAL COAL CORP.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

The undersigned hereby executes and delivers the Preferred Stock and Warrant Purchase Agreement to which this signature page is attached, which, together with all counterparts of the Agreement and signature pages of the other parties named in said Agreement, shall constitute one and the same document in accordance with the terms of the Agreement.

Print Name:     WOODLAND FINANCIAL GROUP, LLC



By:             S M SCHUSTER /S/
                ---------------------------------------------
Name:           STEPHEN M. SCHUSTER
                ---------------------------------------------
Title:          MANAGING DIRECTOR
                ---------------------------------------------

Address:        701 HARGER-VILLE ROAD
                ---------------------------------------------
                SUITE 190
                OAK BROOK, IL  60523
Telephone:
                ---------------------------------------------
Facsimile:
                ---------------------------------------------
E-Mail:
                ---------------------------------------------
SOC/EIN#:
                ---------------------------------------------

                               National Coal Corp.
                       Preferred Stock Purchase Agreement
                    Purchasers and Shares of Preferred Stock

                                                                               NUMBER OF SHARES
                                     NUMBER OF SHARES      COMMON STOCK       OF PREFERRED STOCK
NAME, ADDRESS AND FAX NUMBER OF       OF PREFERRED      UNDERLYING WARRANTS      SUBJECT TO         PURCHASE PRICE AND DESCRIPTION
PURCHASER                            STOCK PURCHASED        PURCHASED AT         ADDITIONAL            OF PROMISSORY NOTES TO BE
                                       AT CLOSING             CLOSING           PURCHASE RIGHT          CANCELLED AS APPLICABLE
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Asset Managers International Lmtd           8                  16,000                  2.67                    $120,000
c/o
Vision Capital Advisors
Attn: Jordan Fraser
954 3rd Avenue, Suite 402
New York, NY 10022
London, England
Tel: 917-723-3557
Fax: 646-638-3332
Jordan@visicap.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Gil Avidar
6500 Lyons Street
Morton Grove, IL 60053
Tel: 312-474-4375 Daytime                   4                   8,000                    0            $60,000 by cancellation of
     847-966-6129 Evening                                                                                Promissory Notes
Fax: 312-356-7020
avidar@mindspring.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Big Bend XII Investments, LP
Attn: Janice Hudson
3401 Armstrong Avenue
Dallas, Texas 75205                       133.33              266,667                  44.44                  $2,000,000
Tel: 214-443-1903
Fax: 214-443-1980
Katherine.belew@2m.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------

                                                                               NUMBER OF SHARES
                                     NUMBER OF SHARES      COMMON STOCK       OF PREFERRED STOCK
NAME, ADDRESS AND FAX NUMBER OF       OF PREFERRED      UNDERLYING WARRANTS      SUBJECT TO         PURCHASE PRICE AND DESCRIPTION
PURCHASER                            STOCK PURCHASED        PURCHASED AT         ADDITIONAL            OF PROMISSORY NOTES TO BE
                                       AT CLOSING             CLOSING           PURCHASE RIGHT          CANCELLED AS APPLICABLE
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Blackpool Partners, LLC
c/o
J. Douglas Ralston
701 Harger Road, Suite 190
Oak Brook, IL 60523
Tel: 630-575-2460                                                                                     $60,000 by cancellation of
Fax: 630-571-0959                            4                 8,000                    0                 Promissory Notes
jralston@cone.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Joel Chestler
681 Valley Rd.
Glencoe, IL 60022                                                                                     $60,000 by cancellation of
Tel: 847-835-5588                            4                 8,000                    0                 Promissory Notes
Fax: N/A
joelchestler@aol.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Crestview Capital Master LLC
Attn: Stewart R. Flink
95 Revere Drive, Suite A
Northbrook, Illinois 60062                   84               168,000                  28                    $1,260,000
Tel: 847-418-8302
Fax: 847-559-5807
stewart@crestviewcap.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Crestview Capital Master LLC
Attn: Stewart R. Flink
95 Revere Drive, Suite A
Northbrook, Illinois 60062                 66.67              133,333                   0             $1,000,000 by cancellation of
Tel: 847-559-0060                                                                                           Promissory Notes
Fax: 847-559-5807
stewart@crestviewcap.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Dara Fieldman
844 Kimbalwood Lane
Highland Park, IL 60035                                                                               $30,000 by cancellation of
Tel: 847-432-4628                            2                 4,000                    0                   Promissory Notes
Fax: 847-557-0060
Richard@crestviewcap.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Stewart & Jennifer Flink
c/o
Stewart Flink
170 Crestview
Deerfield, IL 60015                         8.33              16,667                    0             $125,000 by cancellation of
Tel: 847-945-0785                                                                                            Promissory Notes
Fax: 847-945-0878
stewart@crestview.com
---------------------------------    ----------------   -------------------   ------------------    -------------------------------

                                                                               NUMBER OF SHARES
                                     NUMBER OF SHARES      COMMON STOCK       OF PREFERRED STOCK
NAME, ADDRESS AND FAX NUMBER OF       OF PREFERRED      UNDERLYING WARRANTS      SUBJECT TO         PURCHASE PRICE AND DESCRIPTION
PURCHASER                            STOCK PURCHASED        PURCHASED AT         ADDITIONAL            OF PROMISSORY NOTES TO BE
                                       AT CLOSING             CLOSING           PURCHASE RIGHT          CANCELLED AS APPLICABLE
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Scott P. George
470 Turicum Road
Lake Forest, IL 60045                                                                                 $30,000 by cancellation of
Tel: 847-615-8450                           2                   4,000                  0                    Promissory Notes
Fax: 847-615-8411
sgeorge470@aol.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
GLL Single Strategy, L.P.
c/o
W. Stephen Gilboy
GLL Investors Inc.                                                                                    $300,000 by cancellation of
425 West Surf Street                       20                  40,000                  0                    Promissory Notes
Chicago, IL 60657
Tel: 773-525-3038
Fax: 773-525-3019
stevegilboy@gllinvestors.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Steven J. Halpern
95 Revere Drive, Suite A
Northbrook, IL 60062                                                                                  $850,000 by cancellation of
Tel: 847-418-8307                          56.67              113,333                  0                    Promissory Notes
Fax: 847-559-5807
steven@crestviewcap.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Jacob Capital, LLC
c/o
Richard Levy
95 Revere Drive, Suite A                    6.67               13,333                  0              $100,000 by cancellation of
Northbrook, IL 60062                                                                                        Promissory Notes
Tel: 847-559-0060
Fax: 847-559-5807
Richard@crestviewcap.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Richard P. Kiphart
c/o
William Blair & Co.
222 W. Adams Street                                                                                   $300,000 by cancellation of
Chicago, IL 60606                          20                  40,000                  0                    Promissory Notes
Tel: 213-364-8420
Fax: 312-368-9418
rkiphart@williamblair.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------

                                                                               NUMBER OF SHARES
                                     NUMBER OF SHARES      COMMON STOCK       OF PREFERRED STOCK
NAME, ADDRESS AND FAX NUMBER OF       OF PREFERRED      UNDERLYING WARRANTS      SUBJECT TO         PURCHASE PRICE AND DESCRIPTION
PURCHASER                            STOCK PURCHASED        PURCHASED AT         ADDITIONAL            OF PROMISSORY NOTES TO BE
                                       AT CLOSING             CLOSING           PURCHASE RIGHT          CANCELLED AS APPLICABLE
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Lachman Family Limited Partnership
Attn: Mary Lachman
3140 Whisperwoods Court
Northbrook, IL 60062                       20                 40,000                   0              $300,000 by cancellation of
Tel: 847-564-4462                                                                                          Promissory Notes
Fax: 847-564-4460
marl@lachman.org
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Joseph Levy Jr. Declaration of
Trust, UAD May 1, 1986
3340 W. Main Street                                                                                   $60,000 by cancellation of
Skokie, Il 60076                            4                  8,000                   0                   Promissory Notes
Tel: 847-933-1197
Fax: 847-933-0379
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Nancy Hoyt Revocable Trust
15 N. Howe Street                          35                 70,000                   0              $525,000 by cancellation of
Chicago, IL 60614                                                                                          Promissory Notes
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Bear Stearns as custodian for
Nathan A. Low Roth IRA
c/o
Sunrise Securities Corp.
Attn: Nathan Low
25th Floor                                 13.33              26,667                   4.44                $200,000
641 Lexington Avenue
New York, N.Y. 10022
Tel: 212-421-1616
Fax: 212-750-7277
Nathan@sunrisecorp.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------

                                                                               NUMBER OF SHARES
                                     NUMBER OF SHARES      COMMON STOCK       OF PREFERRED STOCK
NAME, ADDRESS AND FAX NUMBER OF       OF PREFERRED      UNDERLYING WARRANTS      SUBJECT TO         PURCHASE PRICE AND DESCRIPTION
PURCHASER                            STOCK PURCHASED        PURCHASED AT         ADDITIONAL            OF PROMISSORY NOTES TO BE
                                       AT CLOSING             CLOSING           PURCHASE RIGHT          CANCELLED AS APPLICABLE
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
North Sound Legacy Fund LLC
c/o
North Sound Capital LLC
Attn: Thomas McAuley
53 Forest Avenue, Suite 202
Old Greenwich, CT 06870
Tel: 203-967-5700
Fax: 203-967-5701
Kevin@northsound.com
                                             8                 16,000                   2.67                   $120,000
with a copy to:

Wiggin and Dana LLP
400 Atlantic Street
Stamford, CT 06901
Telephone: (203) 363-7630
Facsimile:  (203) 363-7676
Attn: Michael Grundei, Esq.
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
North Sound Legacy Institutional
Fund LLC
c/o
North Sound Capital
Attn: Thomas McAuley
53 Forest Avenue, Suite 202
Old Greenwich, CT 06870
Tel: 203-967-5700
Fax: 203-967-5701
Kevin@northsound.com                       124                248,000                  41.33                 $1,860,000

with a copy to:

Wiggin and Dana LLP
400 Atlantic Street
Stamford, CT 06901
Telephone: (203) 363-7630
Facsimile:  (203) 363-7676
Attn: Michael Grundei, Esq.
---------------------------------    ----------------   -------------------   ------------------    ------------------------------

                                                                               NUMBER OF SHARES
                                     NUMBER OF SHARES      COMMON STOCK       OF PREFERRED STOCK
NAME, ADDRESS AND FAX NUMBER OF       OF PREFERRED      UNDERLYING WARRANTS      SUBJECT TO         PURCHASE PRICE AND DESCRIPTION
PURCHASER                            STOCK PURCHASED        PURCHASED AT         ADDITIONAL            OF PROMISSORY NOTES TO BE
                                       AT CLOSING             CLOSING           PURCHASE RIGHT          CANCELLED AS APPLICABLE
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
North Sound Legacy International Ltd
c/o
North Sound Capital
Attn: Thomas McAuley
53 Forest Avenue, Suite 202
Old Greenwich, CT 06870
Tel: 203-967-5700
Fax: 203-967-5701
Kevin@northsound.com                       268                536,000                  89.33                 $4,020,000

with a copy to:

Wiggin and Dana LLP
400 Atlantic Street
Stamford, CT 06901
Telephone: (203) 363-7630
Facsimile:  (203) 363-7676
Attn: Michael Grundei, Esq.
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
RHP Master Fund Ltd
c/o
Rock Hill Investment Management, L.P
3 Bala Plaza East, Suite 585
Bala Cynwyd, PA 19004                       13.33              26,667                   4.44                  $200,000
Tel: 610-949-9700
Fax: 610-949-9600
kmaalowe@rockhillfunds.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Eugene V. Rintels
560 Ridge Road
Winnetka, Il 60093
Tel: 847-920-1363                           16.67              33,333                   0             $250,000 by cancellation of
Fax: 847-920-1685                                                                                          Promissory Notes
grintals@hotmail.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Byron Rubin
5210 Harvest Hill Road
Suite 169
Dallas, Texas 75230                          7                 14,000                   2.33                  $105,000
Tel: 972-991-1161
Fax: 972- 991-8890
brubin@danielsandrubin.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------

                                                                               NUMBER OF SHARES
                                     NUMBER OF SHARES      COMMON STOCK       OF PREFERRED STOCK
NAME, ADDRESS AND FAX NUMBER OF       OF PREFERRED      UNDERLYING WARRANTS      SUBJECT TO         PURCHASE PRICE AND DESCRIPTION
PURCHASER                            STOCK PURCHASED        PURCHASED AT         ADDITIONAL            OF PROMISSORY NOTES TO BE
                                       AT CLOSING             CLOSING           PURCHASE RIGHT          CANCELLED AS APPLICABLE
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Gerald J. Rubin
1 Helen of Troy Plz.
El Paso, Texas 79912
Tel: 915-225-8088                          33                 66,000                   11                       $495,000
Fax: 915-225-8001
jrubin@hotus.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Stonestreet L.P.
Attn: Michael Finkelstein
260 Town Centre Blvd.
Suite 201
Martham, Ontario L348H8                    27                 54,000                    9                       $405,000
Tel: 416-867-6089
Fax: 416-956-8989
tricia_webb@canaccord.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Tiberius Investments & Capital
c/o
Vision Capital Advisors
Attn: Jordan Fraser
954 3rd Avenue, Suite 402
New York, NY 10022                         13.33              26,667                    4.44                    $200,000
London, England
Tel: 917-723-3557
Fax: 646-638-3332
Jordan@visicap.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Thomas J. Ginley Life Insurance
Trust U/A Dtd. 1-22-97
c/o
James A. Corydon
6650 N. Tower Circle Dr.,
Lincolnwood, IL 60712                       1.67               3,333                    0             $25,000 by cancellation of
Tel: 847-679-4374                                                                                           Promissory Notes
Fax: 847-559-5807
jim@crestviewcap.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Treeline Investment Partners, L.P
Attn: Joseph Gil
61 Spindrift Passage
Corte Madera, CA 94925                      6.67              13,333                    2.22                    $100,000
Tel: 415-927-2653
Fax: 415-927-2890
jgil@treelinecapital.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------

                                                                               NUMBER OF SHARES
                                     NUMBER OF SHARES      COMMON STOCK       OF PREFERRED STOCK
NAME, ADDRESS AND FAX NUMBER OF       OF PREFERRED      UNDERLYING WARRANTS      SUBJECT TO         PURCHASE PRICE AND DESCRIPTION
PURCHASER                            STOCK PURCHASED        PURCHASED AT         ADDITIONAL            OF PROMISSORY NOTES TO BE
                                       AT CLOSING             CLOSING           PURCHASE RIGHT          CANCELLED AS APPLICABLE
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
David Valentine
95 Revere Drive, Suite A
Northbrook, IL 60043                       10                  20,000                  0              $150,000 by cancellation of
Tel: 847-418-8313                                                                                         Promissory Notes
Fax: 847-559-5807
dv@kugpartners.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Whalehaven Capital LP
Attn: Evan Schemenauer
3rd Floor
14 Par-La-Ville Road
P.O. Box HM 102                             7                  14,000                  2.33                     $105,000
Hamilton, Bermuda HM08
Tel: 441-295-8313
Fax: 441-292-1373
eschemenaueur@consolidated.bm
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Whalehaven Fund Limited
Attn: Evan Schemenauer
3rd Floor
14 Par-La-Ville Road
P.O. Box HM 1027                            7                  14,000                  2.33                     $105,000
Hamilton, Bermuda HM08
Tel: 441-295-8313
Fax: 441-292-1373
eschemenaueur@consolidated.bm
---------------------------------    ----------------   -------------------   ------------------    ------------------------------
Woodland Financial Group, LLC
Attn: Steven M. Schuster
701 Harger Road
Suite 190                                                                                             $150,000 by cancellation of
Oak Brook, IL 60523                        10                  20,000                  0                    Promissory Notes
Tel: 630-575-2342
Fax: 630-571-0959
sschuster@dpholdings.com
---------------------------------    ----------------   -------------------   ------------------    ------------------------------

TOTALS:                                  1044.67            2,089,333                203.86                  $15,670,000
---------------------------------    ----------------   -------------------   ------------------    ------------------------------

                                        NUMBER OF SHARES OF RESTRICTED COMMON
         NAME OF PURCHASER            STOCK TO BE PURCHASED AT A PRICE OF $0.65
                                               PER SHARE PRIOR TO CLOSING
----------------------------------    -----------------------------------------

Asset Managers International Lmtd                       38,031
----------------------------------    -----------------------------------------

Gil Avidar                                              19,015
----------------------------------    -----------------------------------------

Big Bend XII Investments, LP                           633,846
----------------------------------    -----------------------------------------

Blackpool Partners, LLC                                 19,015
----------------------------------    -----------------------------------------

Joel Chestler                                           19,015
----------------------------------    -----------------------------------------

Crestview Capital Master LLC                           716,246
----------------------------------    -----------------------------------------

Dara Fieldman                                            9,508
----------------------------------    -----------------------------------------

Stewart & Jennifer Flink                                39,615
----------------------------------    -----------------------------------------

Scott P. George                                          9,508
----------------------------------    -----------------------------------------

GLL Single Strategy, L.P.                               95,077
----------------------------------    -----------------------------------------

Steven J. Halpern                                      269,385
----------------------------------    -----------------------------------------

Jacob Capital, LLC                                      31,692
----------------------------------    -----------------------------------------

Richard P. Kiphart                                      95,077
----------------------------------    -----------------------------------------

Lachman Family Ltd. Partnership                         95,077
----------------------------------    -----------------------------------------

                                        NUMBER OF SHARES OF RESTRICTED COMMON
         NAME OF PURCHASER            STOCK TO BE PURCHASED AT A PRICE OF $0.65
                                               PER SHARE PRIOR TO CLOSING
----------------------------------    -----------------------------------------

Joseph Levy Jr.                                         19,015
----------------------------------    -----------------------------------------

Nancy Hoyt Revocable Trust                             166,385
----------------------------------    -----------------------------------------

Bear Stearns as custodian for
Nathan A. Low Roth IRA                                  63,385
----------------------------------    -----------------------------------------

North Sound Legacy Fund LLC                             38,031
----------------------------------    -----------------------------------------

North Sound Legacy Institutional
Fund LLC                                               589,477
----------------------------------    -----------------------------------------

North Sound Legacy International
Ltd                                                  1,274,031
----------------------------------    -----------------------------------------

RHP Master Fund Ltd                                     63,385
----------------------------------    -----------------------------------------

Eugene V. Rintels                                       79,231
----------------------------------    -----------------------------------------

Byron Rubin                                             33,277
----------------------------------    -----------------------------------------

Gerald J. Rubin                                        156,877
----------------------------------    -----------------------------------------

Stonestreet L.P.                                       128,354
----------------------------------    -----------------------------------------

Thomas J. Ginley Life Insurance
Trust U/A Dtd 1-22-97                                    7,923
----------------------------------    -----------------------------------------

Tiberius Investments & Capital                          63,385
----------------------------------    -----------------------------------------

Treeline Investment Partners, L.P.                      31,692
----------------------------------    -----------------------------------------

David Valentine                                         47,538
----------------------------------    -----------------------------------------

Whalehaven Capital LP                                   33,277
----------------------------------    -----------------------------------------

                                        NUMBER OF SHARES OF RESTRICTED COMMON
         NAME OF PURCHASER            STOCK TO BE PURCHASED AT A PRICE OF $0.65
                                               PER SHARE PRIOR TO CLOSING
----------------------------------    -----------------------------------------

Whalehaven Fund Limited                                 33,227
----------------------------------    -----------------------------------------

Woodland Financial Group, LLC                           47,538
----------------------------------    -----------------------------------------

TOTAL:                                                4,966,185
----------------------------------    -----------------------------------------

EXHIBIT B

FORM OF COMMON STOCK PURCHASE WARRANT

THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, ASSIGNED OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SAID ACT IS NOT REQUIRED.

Warrant No. W-__

COMMON STOCK PURCHASE WARRANT

To Purchase ____________ [20% COVERAGE] Shares of Common Stock of
NATIONAL COAL CORP.

THIS IS TO CERTIFY THAT _______________, or registered assigns (the "Holder"), is entitled, during the Exercise Period (as hereinafter defined), to purchase from National Coal Corp., a Florida corporation (the "Company"), the Warrant Stock (as hereinafter defined and subject to adjustment as provided herein), in whole or in part, at a purchase price of $2.10 per share, all on and subject to the terms and conditions hereinafter set forth.

1. DEFINITIONS. As used in this Warrant, the following terms have the respective meanings set forth below:

"ADDITIONAL SHARES OF COMMON STOCK" means any shares of Common Stock issued by the Company after the Closing Date other than: (i) Warrant Stock; (ii) shares issued or issuable pursuant to anti-dilution provisions of the Preferred Stock; (iii) shares issued or issuable upon the conversion of the Preferred Stock; (iv) shares issued or issuable upon the exercise of any warrants or options outstanding as of the Closing Date; (v) shares of Common Stock or Common Stock Equivalents issued in connection with a bona-fide strategic transaction;
(vii) shares of Common Stock or Common Stock Equivalents issued in connection with any stock-based compensation plans of the Company approved by the Board of Directors of the Company including all (which shall be at least three) Independent Directors (as defined in the Purchase Agreement), the number of such shares of Common Stock (or, in the case of Common Stock Equivalents, the number of shares of Common Stock acquirable pursuant thereto) not to exceed 5 million (as adjusted for stock splits, stock dividends and the like) and the value assigned upon grant not to be less than 85% of the Current Market Price or
(viii) shares issuable upon the exercise of any warrants that are issuable pursuant to the terms of the Purchase Agreement or upon conversion of the Notes (as defined in the Note Purchase Agreement).

"AFFILIATE" means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Holder of Warrants, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder will be deemed to be an Affiliate of such Holder.

"APPRAISED VALUE" means, in respect of any share of Common Stock on any date herein specified, the fair saleable value of such share of Common Stock (determined without giving effect to the discount for (i) a minority interest or
(ii) any lack of liquidity of the Common Stock or to the fact that the Company may have no class of equity registered under the Exchange Act) as of the last day of the most recent fiscal month ending prior to such date specified, based on the value of the Company on a fully-diluted basis, as determined by a nationally recognized investment banking firm selected by the Company's Board of

Directors and having no prior relationship with the Company.

"BUSINESS DAY" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in Tennessee generally are authorized or required by law or other government actions to close.

"CHANGE OF CONTROL" means the (i) acquisition by an individual or legal entity or group (as set forth in Section 13(d) of the Exchange Act) of more than one-half of the voting rights or equity interests in the Company; or (ii) sale, conveyance, or other disposition of all or substantially all of the assets, property or business of the Company or the merger into or consolidation with any other corporation (other than a wholly owned subsidiary corporation) or effectuation of any transaction or series of related transactions where holders of the Company's voting securities prior to such transaction or series of transactions fail to continue to hold at least 50% of the voting power of the Company.

"CLOSING DATE" means August 31, 2004.

"COMMISSION" means the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws.

"COMMON STOCK" means (except where the context otherwise indicates) the Common Stock, $0.0001 par value per share, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed or converted, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets on liquidation over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.7.

"COMMON STOCK EQUIVALENTS" has the meaning set forth in Section 4.4.

"CURRENT MARKET PRICE" means, in respect of any share of Common Stock on any date herein specified,

(1) if there shall not then be a public market for the Common Stock, the higher of

(a) the book value per share of Common Stock at such date, and

(b) the Appraised Value per share of Common Stock at such date,

or

(2) if there shall then be a public market for the Common Stock, the higher of (x) the book value per share of Common Stock at such date, and (y) the average of the daily market prices for the 5 consecutive trading days immediately before such date. The daily market price for each such trading day shall be (i) the closing price on such day on the principal stock exchange (including Nasdaq) on which such Common Stock is then listed or admitted to trading, or quoted, as applicable, (ii) if no sale takes place on such day on any such exchange, the last reported closing price on such day as officially quoted on any such exchange (including Nasdaq), (iii) if the Common Stock is not then listed or admitted to trading on any stock exchange, the last reported closing bid price on such day in the over-the-counter market, as furnished by the National Association of Securities Dealers Automatic Quotation System or the National Quotation Bureau, Inc., (iv) if neither such corporation at the time is engaged in the business of reporting

such prices, as furnished by any similar firm then engaged in such business, or
(v) if there is no such firm, as furnished by any member of the National Association of Securities Dealers, Inc. (the "NASD") selected mutually by the holder of this Warrant and the Company or, if they cannot agree upon such selection, as selected by two such members of the NASD, one of which shall be selected by holder of this Warrant and one of which shall be selected by the Company.

"CURRENT WARRANT PRICE" means, in respect of a share of Common Stock at any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. Until the Current Warrant Price is adjusted pursuant to the terms herein, the initial Current Warrant Price shall be $2.10 per share of Common Stock.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time.

"EXERCISE PERIOD" means the period during which this Warrant is exercisable pursuant to Section 2.1.

"EXPIRATION DATE" means August 31, 2006.

"GAAP" means generally accepted accounting principles in the United States of America as from time to time in effect.

"NASD" means the National Association of Securities Dealers, Inc., or any successor corporation thereto.

"OTHER PROPERTY" has the meaning set forth in Section 4.7.

"PERSON" means any individual, sole proprietorship, partnership, joint venture, trust, incorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof).

"PREFERRED STOCK" shall mean the Company's Series A Cumulative Convertible Preferred Stock, par value $0.0001 per share.

"PURCHASE AGREEMENT" means, as applicable, (i) that certain Preferred Stock and Warrant Purchase Agreement (the "PREFERRED STOCK PURCHASE AGREEMENT") dated as of August 31, 2004 among the Company and the other parties named therein, if this Warrant was issued pursuant thereto or (ii) that certain Note Purchase Agreement (the "NOTE PURCHASE AGREEMENT") dated as of August 31, 2004 among the Company and the other parties named therein, if this Warrant was issued upon conversion of the Notes (as Defined in the Note Purchase Agreement) issued pursuant thereto.

"RESTRICTED COMMON STOCK" means shares of Common Stock which are, or which upon their issuance upon the exercise of any Warrant would be required to be, evidenced by a certificate bearing the restrictive legend set forth in
Section 3.2.

"SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

"TRADING DAY" means any day on which the primary market on which shares of Common Stock are listed is open for trading.

"TRANSFER" means any disposition of any Warrant or Warrant Stock or of any interest in either thereof, which would constitute a sale thereof within the meaning of the Securities Act.

"WARRANTS" means this Warrant and all warrants issued upon transfer, division or combination of, or in substitution for, any thereof. All Warrants shall at all times be identical as to terms and conditions and date, except as to the number of shares of Common Stock for which they may be exercised.

"WARRANT PRICE" means an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price.

"WARRANT STOCK" means the ____________ [20% COVERAGE] shares of Common Stock to be purchased upon the exercise hereof, subject to adjustment as provided herein.

2. EXERCISE OF WARRANT.

2.1. MANNER OF EXERCISE. From and after the Closing Date, and until 5:00 P.M., New York time, on the Expiration Date (the "Exercise Period"), the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Warrant Stock purchasable hereunder.

In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its principal office or at the office or agency designated by the Company pursuant to Section 12, (i) a written notice of Holder's election to exercise this Warrant, which notice shall specify the number of shares of Warrant Stock to be purchased, (ii) payment of the Warrant Price as provided herein, and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as EXHIBIT A, duly executed by the Holder or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within three Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Warrant Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request in the notice and shall be registered in the name of the Holder or such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a Holder of record of such shares for all purposes, as of the date when the notice, together with the payment of the Warrant Price and this Warrant, is received by the Company as described above. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Stock, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder.

If the Company intentionally and willfully fails to deliver to the holder such certificate or certificates pursuant to this Section 2.1 (free of any restrictions on transfer or legends, if such shares have been registered) in accordance herewith, prior to the seventh trading day after the receipt by the Company of (i) a written notice of Holder's election to exercise this Warrant, which notice shall specify the number of shares of Warrant Stock to be purchased, (ii) payment of the Warrant Price as provided herein, and (iii) this Warrant (the "Date of Receipt"), the Company shall pay to such Holder, in cash, on a per diem basis, an amount equal to 2% of the value of the undelivered Warrant Stock (based on the Current Market Price of the Common Stock on the Date of Receipt) per month until such delivery takes place.

Payment of the Warrant Price may be made at the option of the Holder by: (i) certified or official bank check payable to the order of the Company,
(ii) wire transfer to the account of the Company or (iii) at any time after January 28, 2005 if, at any time and from time to time, the Warrant Stock is not registered for resale pursuant to an effective registration statement pursuant to which sales may be made, the surrender and cancellation of a portion of shares of Common Stock then held by the Holder or issuable upon such exercise of this Warrant, which shall be valued and credited toward the total Warrant Price due the Company for the exercise of the Warrant based upon the Current Market Price of the Common Stock. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued and, upon payment of the Warrant Price, shall be fully paid and nonassessable and not subject to any preemptive rights.

2.2. FRACTIONAL SHARES. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay an amount in cash equal to the Current Market Price per share of Common Stock on the date of exercise multiplied by such fraction.

2.3. CONTINUED VALIDITY. A Holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a Holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as the Holder under Sections 10 and 13 of this Warrant.

2.4. RESTRICTIONS ON EXERCISE AMOUNT.

(i) Unless a Holder delivers to the Company irrevocable written notice
(x) prior to the date of issuance hereof or sixty-one days prior to the effective date of such notice that this Section 2.4(i) shall not apply to such Holder or (y) prior to a Change of Control the terms of which require the conversion of the Preferred Stock into Common Stock, the Holder may not acquire a number of shares of Warrant Stock to the extent that, upon such exercise, the number of shares of Common Stock then beneficially owned by such holder and its Affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act (including shares held by any "group" of which the holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein), exceeds 9.99% if the holder is a Crestview Investor or any of their successors or assigns, or 4.99% if the Holder is any other person, in each case, of the total number of shares of Common Stock of the Company then issued and outstanding. For purposes hereof, "group" has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities and Exchange Commission, and the percentage held by the holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. Each delivery of a notice of exercise by a Holder will constitute a representation by such Holder that it has evaluated the limitation set forth in this paragraph and determined, based on the most recent public filings by the Company with the Commission, that the issuance of the full number of shares of Warrant Stock requested in such notice of exercise is permitted under this paragraph. "Crestview Investor" shall mean a Holder designated as a Crestview Investor on SCHEDULE 1 to the Purchase Agreement.

(ii) In the event the Company is prohibited from issuing shares of Warrant Stock as a result of any restrictions or prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization, the Company shall as soon as possible seek the approval of its stockholders and take such other action to authorize the issuance of the full number of shares of Common Stock issuable upon exercise of this Warrant.

3. TRANSFER, DIVISION AND COMBINATION.

3.1. TRANSFER. The Warrants and the Warrant Stock shall be freely transferable, subject to compliance with all applicable laws, including, but not limited to the Securities Act. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant or the resale of the Warrant Stock, this Warrant or the Warrant Stock, as applicable, shall not be registered under the Securities Act, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant or the Warrant Stock as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such transfer may be made without registration under the Securities Act, (ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and substantially in the form attached as EXHIBIT C hereto and (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act. Transfer of this Warrant and all rights hereunder, in whole or in part, in accordance with the foregoing provisions, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.1 or the office or agency designated by the Company pursuant to Section 12, together with a written assignment of this Warrant substantially in the form of EXHIBIT B hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Following a transfer that complies with the requirements of this Section 3.1, the Warrant may be exercised by a new Holder for the purchase of shares of Common Stock regardless of whether the Company issued or registered a new Warrant on the books of the Company.

3.2. RESTRICTIVE LEGEND. Each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, AND MAY NOT BE OFFERED, SOLD, ASSIGNED OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SAID ACT IS NOT REQUIRED."

3.3. DIVISION AND COMBINATION; EXPENSES; BOOKS. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with
Section 3.1 as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. The Company shall prepare, issue and deliver at its own expense the new Warrant or Warrants under this Section 3. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants.

4. ADJUSTMENTS. The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 in accordance with Sections 5.1 and 5.2.

4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time while this Warrant is outstanding the Company shall:

(i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock,

(ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or

(iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then:

(1) the number of shares of Common Stock acquirable upon exercise of this Warrant immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock that would have been acquirable under this Warrant immediately prior to the record date for such dividend or distribution or the effective date of such subdivision or combination would own or be entitled to receive after such record date or the effective date of such subdivision or combination, as applicable, and

(2) the Current Warrant Price shall be adjusted to equal:

(A) the Current Warrant Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision or combination, multiplied by the number of shares of Common Stock into which this Warrant is exercisable immediately prior to the adjustment, divided by

(B) the number of shares of Common Stock into which this Warrant is exercisable immediately after such adjustment.

Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clauses (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time while this Warrant is outstanding the Company shall cause the holders of its Common Stock to be entitled to receive any dividend or other distribution of:

(i) cash,

(ii) any evidences of its indebtedness, any shares of stock of any class or any other securities or property or assets of any nature whatsoever (other than cash or additional shares of Common Stock as provided in Section 4.1 hereof), or

(iii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property or assets of any nature whatsoever, then:

(1) the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to equal the product of the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to the record date for such dividend or distribution, multiplied by a fraction (x) the numerator of which shall be the Current Warrant Price per share of Common Stock at the date of taking such record and (y) the denominator of which shall be such Current Warrant Price minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined in good faith by the Board of Directors of the Company) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable; and

(2) the Current Warrant Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution shall be adjusted to equal (x) the Current Warrant Price multiplied by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to the adjustment, divided by (y) the number of shares of Common Stock acquirable upon exercise of this Warrant immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1.

4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.

(i) If at any time while this Warrant is outstanding the Company shall issue or sell any Additional Shares of Common Stock in exchange for consideration in an amount per Additional Share of Common Stock less than $1.50 (as adjusted for stock splits, stock dividends and the like) at the time the additional shares of Common Stock are issued or sold, then:

(A) the Current Warrant Price immediately prior to such issue or sale shall be reduced to a price determined by dividing

(1) an amount equal to the sum of (a) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Current Warrant Price, plus (b) the consideration, if any, received by the Company upon such issue or sale, by

(2) the total number of shares of Common Stock outstanding immediately after such issue or sale; and

(B) the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to equal the amount obtained by

(1) multiplying the Current Warrant Price in effect immediately prior to such issue or sale by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such issue or sale and

(2) dividing the product thereof by the Current Warrant Price resulting from the adjustment made pursuant to clause (A).

(ii) The provisions of paragraph 4.3(i) shall not apply to any issuance of additional shares of Common Stock for which an adjustment is provided under Section 4.1 or 4.2. No adjustment of the number of shares of Common Stock acquirable upon exercise of this Warrant shall be made under paragraph 4.3(i) upon the issuance of any additional shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such convertible securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4.

4.4. ISSUANCE OF COMMON STOCK EQUIVALENTS. If at any time while this Warrant is outstanding the Company shall issue or sell any warrants or other rights to subscribe for or purchase any additional shares of Common Stock or any securities convertible into shares of Common Stock (other than the Additional Shares of Common Stock) (collectively, "Common Stock Equivalents"), whether or not the rights to exchange or convert thereunder are immediately exercisable, and the effective price per share for which Common Stock is issuable upon the exercise, exchange or conversion of such Common Stock Equivalents shall be less than the Current Warrant Price in effect immediately prior to the time of such issue or sale, then the number of shares of Warrant Stock acquirable upon the exercise of this Warrant and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of additional shares of Common Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of the actual issuance of such Common Stock Equivalents. No further adjustments to the current Warrant Price shall be made under this
Section 4.4 upon the actual issue of such Common Stock upon the exercise, conversion or exchange of such Common Stock Equivalents.

4.5. SUPERSEDING ADJUSTMENT.

(i) If, at any time after any adjustment of the number of shares of Common Stock into which this Warrant is exercisable and the Current Warrant Price shall have been made pursuant to Section 4.4 as the result of any issuance of Common Stock Equivalents, (x) the right to exercise, convert or exchange all or a portion of such Common Stock Equivalents shall expire unexercised, or (y) the conversion rate or consideration per share for which shares of Common Stock are issuable pursuant to such Common Stock Equivalents shall be increased solely by virtue of provisions therein contained for an automatic increase in such conversion rate or consideration per share upon the occurrence of a specified date or event, then any such previous adjustments to the Current Warrant Price and the number of shares of Common Stock for which this Warrant is exercisable shall be rescinded and annulled and the additional shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation.

(ii) Upon the occurrence of an event set forth in Section 4.5(i) above there shall be a recomputation made of the effect of such Common Stock Equivalents on the basis of: (i) treating the number of additional shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise, conversion or exchange of such Common Stock Equivalents, as having been issued on the date or dates of any such exercise, conversion or exchange and for the consideration actually received and receivable therefor, and (ii) treating any such Common Stock Equivalents which then remain outstanding as having been granted or issued immediately after the time of such increase of the conversion rate or consideration per share for which shares of Common Stock or other property are issuable under such Common Stock Equivalents; whereupon a new adjustment to the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled.

4.6. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock into which this Warrant is exercisable and the Current Warrant Price provided for in Section 4:

(a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by
Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock into which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.

(b) FRACTIONAL INTERESTS. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/100th of a share.

(c) WHEN ADJUSTMENT NOT REQUIRED. If the Company undertakes a transaction contemplated under this Section 4 and as a result takes a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights or other benefits contemplated under this Section 4 and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights or other benefits contemplated under this Section 4, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled.

(d) ESCROW OF STOCK. If after any property becomes distributable pursuant to Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, a holder of this Warrant exercises the Warrant during such time, then such holder shall continue to be entitled to receive any shares of Common Stock issuable upon exercise hereunder by reason of such adjustment and such shares or other property shall be held in escrow for the holder of this Warrant by the Company to be issued to holder of this Warrant upon and to the extent that the event actually takes place. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be canceled by the Company and escrowed property returned to the Company.

4.7. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS.

(a) If there shall occur a Change of Control and if pursuant to the terms of such Change of Control, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder of this Warrant shall have the right thereafter to receive, upon the exercise of the Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and the Other Property receivable upon or as a result of such Change of Control by a holder of the number of shares of Common Stock into which this Warrant is exercisable immediately prior to such event.

(b) In case of any such Change of Control described above, the successor or acquiring corporation (if other than the Company) and, if an entity different from the successor or surviving entity, the entity whose capital stock or assets the holders of Common Stock of the Company are entitled to receive as a result of such transaction, shall expressly assume the due and punctual observance and performance of each and every covenant and condition of contained in this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock into which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in Section 4. For purposes of
Section 4, common stock of the successor or acquiring corporation shall include stock of such corporation of any class which is not preferred as to dividends or assets on liquidation over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4 shall similarly apply to successive Change of Control transactions.

4.8. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to time the Company shall take any action in respect of its Common Stock, other than the payment of dividends permitted by Section 4 or any other action described in Section 4, then, unless such action will not have a materially adverse effect upon the rights of the holder of this Warrant, the number of shares of Common Stock or other stock into which this Warrant is exercisable and/or the purchase price thereof shall be adjusted in such manner as may be equitable in the circumstances.

4.9. CERTAIN LIMITATIONS. Notwithstanding anything herein to the contrary, the Company agrees not to enter into any transaction which, by reason of any adjustment hereunder, would cause the Current Warrant Price to be less than the par value per share of Common Stock.

4.10. STOCK TRANSFER TAXES. The issue of stock certificates upon exercise of this Warrant shall be made without charge to the holder for any tax in respect of such issue. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares in any name other than that of the holder of this Warrant, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

5. NOTICES TO WARRANT HOLDERS.

5.1. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Current Warrant Price, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to the Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of the Holder of this Warrant, furnish or cause to be furnished to such Holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Current Warrant Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, or other property which at the time would be received upon the exercise of Warrants owned by such Holder.

5.2. NOTICE OF CORPORATE ACTION. If at any time:

(a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend (other than a cash dividend payable out of earnings or earned surplus legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company) or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or

(b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation, or

(c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to the Holder (i) at least 20 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to the Holder at the last address of the Holder appearing on the books of the Company and delivered in accordance with Section 16.2.

5.3. NO RIGHTS AS STOCKHOLDER. This Warrant does not entitle the Holder to any voting or other rights as a stockholder of the Company prior to exercise and payment for the Warrant Price in accordance with the terms hereof.

6. NO IMPAIRMENT. The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action 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 (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder.

7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH APPROVAL OF ANY GOVERNMENTAL AUTHORITY. From and after the Closing Date, the Company shall at all times reserve and keep available for issue upon the exercise of Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants (without regard to any ownership limitations provided in Section 2.4(i)). All shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable, and not subject to preemptive rights. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law before such shares may be so issued (other than as a result of a prior or contemplated distribution by the Holder of this Warrant), the Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered.

8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant.

9. REGISTRATION RIGHTS. The resale of the Warrant Stock shall be registered in accordance with the terms and conditions contained in that certain Investor Rights Agreement dated of even date hereof, among the Holder, the Company and the other parties named therein (the "Investor Rights Agreement"). The Holder acknowledges that pursuant to the Investor Rights Agreement, the Company has the right to request that the Holder furnish information regarding such Holder and the distribution of the Warrant Stock as is required by law or the Commission to be disclosed in the Registration Statement (as such term is defined in the Investor Rights Agreement), and the Company may exclude from such registration the shares of Warrant Stock acquirable hereunder if Holder fails to furnish such information within a reasonable time prior to the filing of each Registration Statement, supplemented prospectus included therein and/or amended Registration Statement.

10. SUPPLYING INFORMATION. Upon any default by the Company of its obligations hereunder or under the Investor Rights Agreement, the Company shall cooperate with the Holder in supplying such information as may be reasonably necessary for such Holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Warrant or Restricted Common Stock.

11. LOSS OR MUTILATION. Upon receipt by the Company from the Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and indemnity or security reasonably satisfactory to it and reimbursement to the Company of all reasonable expenses incidental thereto and in case of mutilation upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor to the Holder; provided, however, that in

the case of mutilation, no indemnity shall be required if this Warrant in identifiable form is surrendered to the Company for cancellation.

12. OFFICE OF THE COMPANY. As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant.

13. FINANCIAL AND BUSINESS INFORMATION.

13.1. QUARTERLY INFORMATION. The Company will deliver to the Holder, as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, one copy of an unaudited consolidated balance sheet of the Company and its subsidiaries as at the end of such quarter, and the related unaudited consolidated statements of income, retained earnings and cash flow of the Company and its subsidiaries for such quarter and, in the case of the second and third quarters, for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year. Such financial statements shall be prepared by the Company in accordance with GAAP and accompanied by the certification of the Company's chief executive officer or chief financial officer that such financial statements present fairly the consolidated financial position, results of operations and cash flow of the Company and its subsidiaries as at the end of such quarter and for such year-to-date period, as the case may be; provided, however, that the Company shall have no obligation to deliver such quarterly information under this Section 13.1 to the extent it is publicly available; and provided further, that if such information contains material non-public information, the Company shall so notify the Holder prior to delivery thereof and the Holder shall have the right to refuse delivery of such information.

13.2. ANNUAL INFORMATION. The Company will deliver to the Holder as soon as available and in any event within 90 days after the end of each fiscal year of the Company, one copy of an audited consolidated balance sheet of the Company and its subsidiaries as at the end of such year, and audited consolidated statements of income, retained earnings and cash flow of the Company and its subsidiaries for such year; setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year; all prepared in accordance with GAAP, and which audited financial statements shall be accompanied by an opinion thereon of the independent certified public accountants regularly retained by the Company, or any other firm of independent certified public accountants of recognized national standing selected by the Company; provided, however, that the Company shall have no obligation to deliver such annual information under this Section 13.2 to the extent it is publicly available; and provided further, that if such information contains material non-public information, the Company shall so notify the Holder prior to delivery thereof and the Holder shall have the right to refuse delivery of such information.

13.3. FILINGS. The Company will file on or before the required date all regular or periodic reports (pursuant to the Exchange Act) with the Commission and will deliver to Holder promptly upon their becoming available one copy of each report, notice or proxy statement sent by the Company to its stockholders generally.

14. LIMITATION OF LIABILITY. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of the Holder for the purchase price of any Common Stock, whether such liability is asserted by the Company or by creditors of the Company.

15. REDEMPTION AT COMPANY'S ELECTION.

15.1. The Company may at the option of the Board of Directors of the Company redeem this Warrant, in whole or in part, at any time after March 1, 2006 provided that (i) the Current Market Price (as determined by paragraph (2) of such definition) is greater than $4.20 (as adjusted for stock splits, reverse splits, stock dividends and the like) for ten consecutive trading days and (ii) all of the Warrant Stock underlying the Warrants to be redeemed (x) is then registered under an effective registration statement in accordance with the terms and conditions of the Investor Rights Agreement and the Company is in compliance in all material respects with the Investor Rights Agreement or (y) may be sold without restriction pursuant to Rule 144(k) promulgated by the Commission under the Securities Act. The amount payable in redemption of the rights to purchase the Warrant Stock pursuant to this Section 15.1 shall be cash equal to $0.01 multiplied by the number of Warrant Shares that would be issuable upon exercise of the Warrants being redeemed (the "Redemption Price").

15.2. The Company shall effect a redemption as follows:

(i) The number of warrants subject to redemption (including the Warrants) shall be allocated pro rata among the holders of all of the warrants to purchase Common Stock issued by the Company pursuant to the Purchase Agreement together with those issued upon conversion of the Notes (as defined in the Note Purchase Agreement) (collectively, the "Redemption Warrants"), based upon the number of Redemption Warrants then outstanding that are held by each such holder.

(ii) The Company shall pay the Redemption Price in cash for the Redemption Warrants to be redeemed.

(iii) At least 15 but no more than 60 days prior to the date fixed for any redemption of any Redemption Warrants (the "Redemption Date"), written notice shall be given to each holder of record of Redemption Warrants to be redeemed, notifying such holder of the redemption to be effected, specifying the Redemption Date, the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the Company, in the manner and at the place designated, its certificate or certificates representing the Redemption Warrants to be redeemed (the "Redemption Notice"). On or after the Redemption Date, each holder of Redemption Warrants to be redeemed shall surrender to the Company the certificate or certificates representing such warrants, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price therefor shall be paid to the person whose name appears on such certificate or certificates as the owner thereof, and upon such payment, each surrendered certificate shall be canceled. In the event less than all the warrants represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed warrants. For avoidance of doubt, the holder may exercise the Warrant at any time prior to the redemption of the Warrant pursuant to this Section 15.

16. MISCELLANEOUS.

16.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any other provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any third party costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

16.2. NOTICE GENERALLY. All notices, requests, demands or other communications provided for herein shall be in writing and shall be given in the manner and to the addresses set forth in the Purchase Agreement.

16.3. SUCCESSORS AND ASSIGNS. Subject to compliance with the provisions of Section 3.1, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of the Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder.

16.4. AMENDMENT. This Warrant may be modified or amended or the provisions of this Warrant waived with the written consent of both the Company and the Holder.

16.5. SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be modified to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant.

16.6. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

16.7. GOVERNING LAW. This Warrant and the transactions contemplated hereby shall be deemed to be consummated in the State of New York and shall be governed by and interpreted in accordance with the local laws of the State of New York without regard to the provisions thereof relating to conflicts of laws. The Company hereby irrevocably consents to the exclusive jurisdiction of the State and Federal courts located in New York City, New York in connection with any action or proceeding arising out of or relating to this Warrant. In any such litigation the Company agrees that the service thereof may be made by certified or registered mail directed to the Company pursuant to Section 16.2.

IN WITNESS WHEREOF, National Coal Corp. has caused this Warrant to be executed by its duly authorized officer and attested by its Secretary.

Dated: August 31, 2004

NATIONAL COAL CORP.

By: ______________________________
Name:
Title:

Attest:

By:______________________________
Name:
Title: Secretary

EXHIBIT A

SUBSCRIPTION FORM

[To be executed only upon exercise of Warrant]

1. The undersigned hereby elects to purchase shares of the Common Stock of National Coal Corp. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full.

2. The undersigned hereby elects to convert the attached Warrant into Common Stock of National Coal Corp. through "cashless exercise" in the manner specified in the Warrant. This conversion is exercised with respect to _____________________ of the Shares covered by the Warrant.

3. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below:

[and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned.]

NOTICE: The signature on this subscription must correspond with the name as written upon the face of the Warrant in every particular, without alteration or enlargement or any change whatsoever.

EXHIBIT B

ASSIGNMENT FORM

FOR VALUE RECEIVED the undersigned registered owner of this Warrant for the purchase of shares of common stock of National Coal Corp. hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of common stock set forth below:

and does hereby irrevocably constitute and appoint ____________ attorney-in-fact to register such transfer on the books of the Company, maintained for the purpose, with full power of substitution in the premises.

Dated:_________________________________

NOTICE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or enlargement or any change whatsoever.

EXHIBIT C

FORM OF INVESTMENT REPRESENTATION LETTER

In connection with the acquisition of [warrants (the "Warrants") to purchase ____ shares of common stock of National Coal Corp. (the "Company"), par value $0.0001 per share (the "Common Stock")][___shares of common stock of National Coal Corp. (the "Company"), par value $0.0001 per share (the "Common Stock") upon the exercise of warrants by ________], by _______________ (the "Holder") from _____________, the Holder hereby represents and warrants to the Company as follows:

The Holder (i) is an "Accredited Investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the "Act"); and (ii) has the ability to bear the economic risks of such Holder's prospective investment, including a complete loss of Holder's investment in the Warrants and the shares of Common Stock issuable upon the exercise thereof (collectively, the "Securities").

The Holder, by acceptance of the Warrants, represents and warrants to the Company that the Warrants and all securities acquired upon any and all exercises of the Warrants are purchased for the Holder's own account, and not with view to distribution of either the Warrants or any securities purchasable upon exercise thereof in violation of applicable securities laws.

The Holder acknowledges that (i) the Securities have not been registered under the Act, (ii) the Securities are "restricted securities" and the certificate(s) representing the Securities shall bear the following legend, or a similar legend to the same effect, until (i) in the case of the shares of Common Stock underlying the Warrants, such shares shall have been registered for resale by the Holder under the Act and effectively been disposed of in accordance with a registration statement that has been declared effective; or (ii) in the opinion of counsel for the Company such Securities may be sold without registration under the Act:

"[NEITHER] THE SECURITIES REPRESENTED BY THIS CERTIFICATE [NOR THE SECURITIES INTO WHICH THEY ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ALL SUCH SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS CERTIFICATE. [NEITHER] THE SECURITIES REPRESENTED HEREBY [NOR THE SECURITIES INTO WHICH THEY ARE EXERCISABLE] MAY [NOT] BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT REGISTRATION UNDER THE ACT."

IN WITNESS WHEREOF, the Holder has caused this Investment Representation Letter to be executed in its corporate name by its duly authorized officer this __ day of __________ 200_.

[Name]

By:______________________________
Name:
Title:

EXHIBIT G

SUBSCRIPTION FORM

[To be executed only upon exercise Additional Purchase Right]

1. The undersigned hereby elects to purchase shares of the Series A Cumulative Convertible Preferred Stock of National Coal Corp. (the "Company") along with the appropriate number of Warrants, in each case, pursuant to the terms of the Preferred Stock and Warrant Purchase Agreement, dated as of August 31, 2004 among the Company and the Purchasers listed in Schedule 1 thereto (the "Purchase Agreement"), and tenders herewith payment of the purchase price of such shares in full.

2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below. The undersigned hereby makes for the benefit of the Company, as of the date hereof and with respect to the shares of Series A Cumulative Convertible Stock being acquired hereunder, the representations and warranties set forth in Section 4.3 through 4.6 of the Purchase Agreement.

NOTICE: The signature on this subscription must correspond with the name Purchaser in the Purchase Agreement in every particular, without alteration or enlargement or any change whatsoever.

EXHIBIT H

ASSIGNMENT FORM

FOR ADDITIONAL PURCHASE RIGHT

FOR VALUE RECEIVED the undersigned Purchaser pursuant to the Preferred Stock and Warrant Purchase Agreement, dated as of August 31, 2004 among the Company and the Purchasers listed in Schedule 1 thereto (the "Purchase Agreement") hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under Article VIII of the Purchase Agreement, with respect to the number of shares of Preferred Stock and Warrant Shares set forth below:

Dated:________________________________

NOTICE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or enlargement or any change whatsoever.

EXHIBIT 10.9

INVESTOR RIGHTS AGREEMENT

This Investor Rights Agreement (this "AGREEMENT") is made and entered into as of August 31, 2004 among National Coal Corp., a Florida corporation (the "COMPANY"), and each of the purchasers executing this Agreement and listed on SCHEDULE 1 attached hereto (collectively, the "PURCHASERS").

This Agreement is being entered into pursuant to the Preferred Stock and Warrant Purchase Agreement, dated as of the date hereof, by and among the Company and the Purchasers (the "PURCHASE AGREEMENT").

The Company and the Purchasers hereby agree as follows:

1. DEFINITIONS.

Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

"ADDITIONAL PURCHASE RIGHT" shall have the meaning set forth in Article VIII of the Purchase Agreement.

"ADVICE" shall have the meaning set forth in Section 3(m).

"AFFILIATE" means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing.

"ARTICLES OF INCORPORATION" means the Articles of Incorporation of the Company, as amended.

"BLACKOUT PERIOD" shall have the meaning set forth in Section 3(n).

"BOARD" shall have the meaning set forth in Section 3(n).

"BUSINESS DAY" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of Tennessee generally are authorized or required by law or other government actions to close.

"COMMISSION" means the Securities and Exchange Commission.

"COMMON STOCK" means the Company's Common Stock, par value $0.0001 per share.

"EFFECTIVE DATE" means the date on which the Registration Statement is first declared effective with respect to all Registrable Securities.

"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2.

"EVENT" shall have the meaning set forth in Section 7(e).

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

"FILING DATE" means the 60th day following the Closing Date.

"HOLDER" or "HOLDERS" means the holder or holders, as the case may be, from time to time of Registrable Securities, including without limitation the Purchasers and their assignees.

"INDEMNIFIED PARTY" shall have the meaning set forth in Section 5(c).

"INDEMNIFYING PARTY" shall have the meaning set forth in Section 5(c).

"LOSSES" shall have the meaning set forth in Section 5(a).

"PERSON" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.

"PLACEMENT AGENT WARRANTS" means the warrants to purchase shares of Common Stock issued to Burnham Hill Partners (a division of Pali Capital Inc.) and/or its designees as compensation for services rendered in connection with the transactions set forth in the Purchase Agreement.

"PROCEEDING" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

"PROSPECTUS" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference in such Prospectus.

"REGISTRABLE SECURITIES" means (a) the Conversion Shares and the Warrant Shares (without regard to any limitations on beneficial ownership contained in the Articles of Incorporation or Warrants) or other securities issued or issuable to each Purchaser or its transferee or designee (i) upon conversion of the Preferred Stock and/or upon exercise of the Warrants, or (ii) upon any dividend or distribution with respect to, any exchange for or any

replacement of such Preferred Stock or Warrants (for avoidance of doubt, Registrable Securities includes shares of Common Stock issued upon conversion of Preferred Stock and/or upon exercise of the Warrants, in each case, issued pursuant to Article VIII of the Purchase Agreement) or (iii) upon any conversion, exercise or exchange of any securities issued in connection with any such distribution, exchange or replacement; (b) the shares of Common Stock purchased by the Purchasers from Farrald Belote and Arlene Belote upon exercise of that certain Stock Option Agreement, dated as of June 30, 2004, by and between Farrald Belote and Arlene Belote and Jon Nix, as provided for in the Purchase Agreement, as indicated next to such Purchaser's name on SCHEDULE 2 thereto; (c) securities issued or issuable upon any stock split, stock dividend, recapitalization or similar event with respect to any of the foregoing; and (d) any other security issued as a dividend or other distribution with respect to, in exchange for, in replacement or redemption of, or in reduction of the liquidation value of, any of the securities referred to in the preceding clauses; provided, however, that such securities shall cease to be Registrable Securities when such securities have been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction or when such securities may be sold without any restriction pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter, addressed to the Company's transfer agent to such effect as described in
Section 2 of this Agreement.

"REGISTRATION STATEMENT" means the registration statements and any additional registration statements contemplated by Section 2, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference in such registration statement.

"RULE 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

"RULE 158" means Rule 158 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

"RULE 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

"SECURITIES ACT" means the Securities Act of 1933, as amended.

"SPECIAL COUNSEL" means Wiggin and Dana LLP.

"WARRANTS" shall have the meaning assigned in the Purchase Agreement and, for purposes of this Agreement, shall include without limitation the Placement Agent Warrants.

"WARRANT SHARES" means the shares of Common Stock issuable upon the exercise of the warrants issued or to be issued to the Purchasers or their assignees or designees in connection with the offering consummated under the Purchase Agreement (including Warrants issued pursuant to Article VIII of the Purchase Agreement) and the shares of Common Stock issuable upon the exercise of the Placement Agent Warrants.

2. REGISTRATION. As soon as possible following the Closing Date (but not later than the Filing Date), the Company shall prepare and file with the Commission a "shelf" Registration Statement covering all Registrable Securities for a secondary or resale offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 (or if such form is not available to the Company on Form SB-2 or another form appropriate for such registration in accordance herewith). The Company shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act not later than one hundred and twenty (120) days after the Closing Date (including filing with the Commission a request for acceleration of effectiveness in accordance with Rule 461 promulgated under the Securities Act within five (5) Business Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or not be subject to further review) and to keep such Registration Statement continuously effective under the Securities Act until such date as is the earlier of (x) the date when all Registrable Securities covered by such Registration Statement have been sold or
(y) the date on which the Registrable Securities may be sold without any restriction pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter, addressed to the Company's transfer agent to such effect (the "EFFECTIVENESS PERIOD"). Upon the initial filing thereof, the Registration Statement shall cover at least 100% of the shares of Common Stock for issuance upon the conversion of the Preferred Stock, 100% of the shares of Common Stock for issuance upon the exercise of the Warrants and 100% of the other Registrable Securities. If the Commission informs the Company that it will not allow the Registration Statement to cover any of the Registrable Securities, then the Registration Statement shall cover the highest percentage of such Registrable Securities that the Commission will allow. Such Registration Statement also shall cover, to the extent allowable under the Securities Act and the Rules promulgated thereunder (including Securities Act Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities.

3. REGISTRATION PROCEDURES.

In connection with the Company's registration obligations hereunder, the Company shall:

(a) Prepare and file with the Commission on or prior to the Filing Date, a Registration Statement on Form S-3 (or if such form is not available to the Company on Form SB-2 or another form appropriate for such registration in accordance herewith) (which shall include a Plan of Distribution substantially in the form of EXHIBIT A attached hereto), and cause the Registration Statement to become effective and remain effective as provided herein; provided, however, that not less than three (3) Business Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto,

the Company shall (i) furnish to the Special Counsel, copies of all such documents proposed to be filed, which documents (other than those incorporated by reference) will be subject to the review of such Special Counsel, and (ii) at the request of any Holder cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of counsel to such Holders, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities or the Special Counsel shall reasonably object in writing within three (3) Business Days after their receipt thereof.

(b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and to the extent any Registrable Securities are not included in such Registration Statement for reasons other than the failure of the Holder to comply with Section 3(m) hereof, shall prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond as promptly as possible to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented. In addition, the Company shall promptly prepare and file such amendments, including post-effective amendments, to the Registration Statement and the related prospectus and take all other actions as may be necessary to register the sale of Registrable Securities by any Holder to whom the rights under this Agreement have been assigned pursuant to Section 7(j).

(c) Notify the Holders of Registrable Securities to be sold and the Special Counsel as promptly as possible (A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement or additional Registration Statement is proposed to be filed (but in no event in the case of this subparagraph (A), less than three (3) Business Days prior to date of such filing); (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement; and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective, and after the effectiveness thereof: (i) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that

purpose; (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (iv) if the financial statements included in the Registration Statement become ineligible for inclusion therein or of the occurrence of any event that makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limitation to any remedies to which the Holders may be entitled under this Agreement, if any of the events described in Sections 3(c)(C)(i), 3(c)(C)(ii), 3(c)(C)(iii), or 3(c)(C)(iv) occur, the Company shall use its best efforts to respond to and correct the event.

(d) Use its best efforts to avoid the issuance of, or, if issued, use best efforts to obtain the withdrawal of, (i) any order suspending the effectiveness of the Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(e) If requested by any Holder of Registrable Securities, (i) promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Company reasonably agrees should be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided, however, that the Company shall not be required to take any action pursuant to this Section 3(e) that would, in the written opinion of counsel for the Company (addressed to the Special Counsel), violate applicable law.

(f) Furnish to each Holder and the Special Counsel, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

(g) Promptly deliver to each Holder and the Special Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

(h) Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders and the Special Counsel in

connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any jurisdiction where it is not then so subject or subject the Company to any material tax in any such jurisdiction where it is not then so subject.

(i) Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by applicable law and the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any Holder may request at least two (2) Business Days prior to any sale of Registrable Securities. In connection therewith, the Company shall promptly after the effectiveness of the Registration Statement cause an opinion of counsel to be delivered to and maintained with its transfer agent, together with any other authorizations, certificates and directions required by the transfer agent, which authorize and direct the transfer agent to issue such Registrable Securities without legend upon sale by the Holder of such shares of Registrable Securities under the Registration Statement.

(j) Upon the occurrence of any event contemplated by Section
3(c)(C)(iv), as promptly as possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an 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, in the light of the circumstances under which they were made, not misleading.

(k) Cause all Registrable Securities relating to such Registration Statement to be listed on any United States securities exchange, quotation system, market or over-the-counter bulletin board, if any, on which similar securities issued by the Company are then listed.

(l) Comply in all material respects with all applicable rules and regulations of the Commission and make generally available to its security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 not later than 45 days after the end of any 3-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company after the effective date of the Registration Statement, which statement shall conform to the requirements of Rule 158.

(m) Request each selling Holder to furnish to the Company information regarding such Holder and the distribution of such Registrable Securities as is required by law or the Commission to be disclosed in the Registration Statement, and the Company may exclude from such registration the Registrable Securities of any such Holder who fails to furnish such information within a reasonable time prior to the filing of each Registration Statement, supplemented Prospectus and/or amended Registration Statement.

If the Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (if such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force) the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required.

Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c)(C)(i), 3(c)(C)(ii), 3(c)(C)(iii), 3(c)(C)(iv) or 3(n), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 3(j), or until it is advised in writing (the "ADVICE") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.

(n) If (i) there is material non-public information regarding the Company which the Company's Board of Directors (the "BOARD") reasonably determines not to be in the Company's best interest to disclose and which the Company is not otherwise required to disclose, (ii) there is a significant business opportunity (including, but not limited to, the acquisition or disposition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or other similar transaction) available to the Company which the Board reasonably determines not to be in the Company's best interest to disclose and which the Company would be required to disclose under the Registration Statement or (iii) with respect to a registration statement on a form other than Form S-3, if the Company reasonably determines that, based on the advice of counsel, a post-effective amendment to the registration statement must be filed with the Commission in order to update the audited financial statements in the registration statement, or the Company elects, in its discretion, to file a post-effective amendment to such registration statement for the purpose of converting it to a Form S-3 after such form becomes available for use by the Company, and, in either case, such post-effective amendment is reviewed by the Commission, then (A) in the case of an event described in Section 3(n)(i) or 3(n)(ii), the Company may postpone or suspend filing or effectiveness of a registration statement for a period not to exceed 30 consecutive days, provided that the Company may not postpone or suspend its obligation under Section 3(n)(i) or 3(n)(ii) for more than 45 days in the aggregate during any 12 month period, and (B) in the case of an event described in Section 3(n)(iii), provided the Company uses best efforts to promptly cause such post-effective amendment to be declared effective by the Commission, the Company may suspend effectiveness of a registration statement for a

period not to exceed 75 consecutive days, provided that the Company may not suspend its obligation under Section 3(n)(iii) for more than 90 days in the aggregate during any 12 month period (each, a "BLACKOUT PERIOD").

4. REGISTRATION EXPENSES.

All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not the Registration Statement is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to the 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 securities exchange, quotation system, market or over-the-counter bulletin board on which Registrable Securities are required hereunder to be listed, (B) with respect to filings required to be made with the Commission, and (C) in compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of Special Counsel in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the Holders of a majority of Registrable Securities may designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing or photocopying prospectuses), (iii) messenger, telephone and delivery expenses, (iv) Securities Act liability insurance, if the Company so desires such insurance, (v) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, the Company's independent public accountants (including, in the case of an underwritten offering, the expenses of any comfort letters or costs associated with the delivery by independent public accountants of a comfort letter or comfort letters) and legal counsel, and (vi) fees and expenses of the Special Counsel in connection with any Registration Statement hereunder, not to exceed $7,500. 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 Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.

5. INDEMNIFICATION.

(a) INDEMNIFICATION BY THE COMPANY. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, partners, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, costs of preparation and reasonable attorneys' fees) and expenses (collectively, "LOSSES"), as

incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained or incorporated by reference in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or amendment or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, which information was reasonably relied on by the Company for use therein or to the extent that such information relates to (x) such Holder and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of prospectus or in any amendment or supplement thereto or (y) such Holder's proposed method of distribution of Registrable Securities as set forth in Exhibit A (or as such Holder otherwise informs the Company in writing); or (ii) in the case of an occurrence of an event of the type described in Section 3(c)(C)(ii), 3(c)(C)(iii), 3(c)(C)(iv) or 3(n), the use by a Holder of an outdated or defective Prospectus after the delivery to the Holder of written notice from the Company that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 3(m). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of an Indemnified Party (as defined in Section 5(c) to this Agreement) and shall survive the transfer of the Registrable Securities by the Holders.

(b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents and employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising solely out of or based solely upon any untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that (i) such untrue statement or omission is contained in or omitted from any information so furnished in writing by such Holder to the Company specifically for inclusion in the Registration Statement or such Prospectus and that such information was reasonably relied upon by the Company for use in the Registration Statement, such Prospectus, or in any amendment or supplement thereto, or to the extent that such information relates to (x) such Holder and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus, or such form of prospectus or in any amendment or supplement thereto or (y) such Holder's proposed method of distribution of Registrable Securities as set forth in Exhibit A (or as such Holder otherwise informs the Company in writing) or (ii) in the case of an occurrence

of an event of the type described in Section 3(c)(C)(ii), 3(c)(C)(iii), 3(c)(C)(iv) or 3(n), the use by a Holder of an outdated or defective Prospectus after the delivery to the Holder of written notice from the Company that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 3(m); provided, however, that the indemnity agreement contained in this Section 5(b) shall not apply to amounts paid in settlement of any Losses if such settlement is effected without the prior written consent of the Holder, which consent shall not be unreasonably withheld. Notwithstanding anything to the contrary contained herein, the Holder shall be liable under this Section 5(b) for only that amount as does not exceed the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement.

(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify the Person from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all reasonable fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel in writing (with a copy to the Indemnifying Party) that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the reasonable expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding and does not impose any monetary or other obligation or restriction on the Indemnified Party.

All reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend

such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten (10) Business Days of written notice thereof to the Indemnifying Party, which notice shall be delivered no more frequently than on a monthly basis (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).

(d) CONTRIBUTION. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or refusal of a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying, Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. Notwithstanding anything to the contrary contained herein, the Holder shall be required to contribute under this Section 5(d) for only that amount as does not exceed the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. The indemnity and contribution agreements herein are in addition to and not in diminution or limitation of any indemnification provisions under the Purchase Agreement.

6. RULE 144.

As long as any Holder owns Preferred Stock, Warrants or Registrable Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. As long as any Holder owns Preferred Stock, Warrants or Registrable Securities, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Person to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including compliance with the provisions of the Purchase Agreement relating to the transfer of the Registrable Securities. Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements. The definition of "Registrable Securities" for purposes of this Section 6 shall be interpreted as if it did not include the proviso at the end of such definition.

7. MISCELLANEOUS.

(a) REMEDIES. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b) NO INCONSISTENT AGREEMENTS. Except as otherwise disclosed in the Purchase Agreement, neither the Company nor any of its subsidiaries is a party to an agreement currently in effect, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Without limiting the generality of the foregoing, without the written consent of the Holders of a majority of the then outstanding Registrable Securities, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act unless the rights so granted are subject in all respects to the prior rights in full of the Holders set forth herein, and are not otherwise in conflict with the provisions of this Agreement.

(c) NOTICE OF EFFECTIVENESS. Within two (2) Business Days after any Registration Statement which includes the Registrable Securities is ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Holders whose Registrable Securities are included in such Registration Statement) confirmation that the Registration Statement has been declared effective by the Commission in the form attached hereto as EXHIBIT B.

(d) PIGGY-BACK REGISTRATIONS. If at any time when there is not an effective Registration Statement covering all of the Registrable Securities, 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 its then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, the Company shall send to each Holder of Registrable Securities written notice of such determination and, if within seven (7) Business Days after receipt of such notice, any such Holder shall so request in writing (which request shall specify the Registrable Securities intended to be disposed of by the Holder), the Company will cause the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holder, to the extent required to permit the disposition of the Registrable Securities so to be registered, provided that 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 in connection with such registration (but not from its obligation to pay expenses in accordance with Section 4 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 7(d) for the same period as the delay in registering such other securities. The Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered; provided, however, that the Company shall not be required to register any Registrable Securities pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten public offering, if the managing underwriter(s) or underwriter(s) should reasonably object to the inclusion of the Registrable Securities in such registration statement, then if the Company after consultation with the managing underwriter should reasonably determine that the inclusion of such Registrable Securities, would materially adversely affect the offering contemplated in such registration statement, and based on such determination recommends inclusion in such registration statement of fewer or none of the Registrable Securities of the Holders, then (x) the number of Registrable Securities of the Holders included in such registration statement shall be reduced pro-rata among such Holders (based upon the number of Registrable Securities requested to be included in the registration), if the Company after consultation with the underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y) none of the Registrable Securities of the Holders shall be included in such

registration statement, if the Company after consultation with the underwriter(s) recommends the inclusion of none of such Registrable Securities; provided, however, that if securities are being offered for the account of other persons or entities as well as the Company, such reduction shall not represent a greater fraction of the number of Registrable Securities intended to be offered by the Holders than the fraction of similar reductions imposed on such other persons or entities (other than the Company).

(e) FAILURE TO FILE REGISTRATION STATEMENT AND OTHER EVENTS. The Company and the Holders agree that the Holders will suffer damages if the Registration Statement is not filed on or prior to the sixtieth (60th) day following the Closing Date and maintained in the manner contemplated herein during the Effectiveness Period. The Company and the Holders further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if (i) the Registration Statement is not filed on or prior to the sixtieth (60th) day following the Closing Date, or (ii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act within five (5) Business Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or not subject to further review, or (iii) the Registration Statement is filed with and declared effective by the Commission but thereafter ceases to be effective as to all Registrable Securities at any time prior to the expiration of the Effectiveness Period, without being succeeded immediately by a subsequent Registration Statement filed with the Commission, except as otherwise permitted by this Agreement, including pursuant to Section 3(n), or (iv) trading in the Common Stock shall be suspended (other than a suspension affecting trading in securities generally) or if the Common Stock is delisted from any securities exchange, quotation system, market or over-the-counter bulletin board on which Registrable Securities are required hereunder to be listed (each an "EXCHANGE"), without immediately being listed on any other Exchange, for any reason for more than three (3) Business Days, other than pursuant to Section 3(n), or (v) the conversion rights of the Holders are suspended for any reason without the consent of the particular Holder other than as set forth in Article III.A.5 of the Articles of Incorporation, or (vi) the Company has breached Section 3(n) of this Agreement (any such failure or breach being referred to as an "EVENT"), the Company shall pay in cash as liquidated damages for such failure and not as a penalty to each Holder an amount equal to two percent (2%) of such Holder's pro rata share of the purchase price paid by all Holders for Preferred Stock and other Registrable Securities purchased and then outstanding pursuant to the Purchase Agreement for the initial thirty (30) day period until the applicable Event has been cured, which shall be pro rated for such periods less than thirty
(30) days and one and one-half percent (1.5%) of such Holder's pro rata share of the purchase price paid by all Holders for Preferred Stock and other Registrable Securities purchased and then outstanding pursuant to the Purchase Agreement for each subsequent thirty (30) day period until the applicable Event has been cured which shall be pro rated for such periods less than thirty days (the "PERIODIC AMOUNT"). Payments to be made pursuant to this Section 7(e) shall be due and payable immediately upon demand in immediately available cash funds. The parties agree that the Periodic Amount represents a reasonable estimate on the part of the parties, as of the date of this Agreement, of the amount of damages that may be incurred by the Holders if the Registration Statement is not filed on or prior to the sixtieth (60th) day following the Closing Date and maintained in the manner contemplated herein during the Effectiveness Period or if any other Event as described

herein has occurred. Notwithstanding the foregoing, the Company shall remain obligated to cure the breach or correct the condition that caused the Event, and the Holder shall have the right to take any action necessary or desirable to enforce such obligation.

(f) FAILURE OF REGISTRATION STATEMENT TO BECOME EFFECTIVE. The Company and the Holders agree that the Holders will suffer damages if the Registration Statement is not declared effective on or prior to the one hundred and twentieth (120th) day following the Closing Date. The Company and the Holders further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if the Registration Statement is not declared effective within one-hundred and fifty (150) days after the Closing Date, the Company shall pay in cash as liquidated damages for such failure and not as a penalty to each Holder an amount equal to (i) two percent (2%) of such Holder's pro rata share of the purchase price paid by all Holders for Preferred Stock and other Registrable Securities purchased and then outstanding pursuant to the Purchase Agreement and (ii) one and one-half percent (1.5%) of such Holder's pro rata share of the purchase price paid by all Holders for Preferred Stock and other Registrable Securities purchased and then outstanding pursuant to the Purchase Agreement for each subsequent thirty (30) day period (which shall be pro rated for such periods less than thirty (30) days) until the Registration Statement is declared effective. Payments to be made pursuant to this Section 7(f) shall be due and payable immediately upon demand in immediately available cash funds. The parties agree that the amounts set forth in this Section 7(f) represent a reasonable estimate on the part of the parties, as of the date of this Agreement, of the amount of damages that may be incurred by the Holders if the Registration Statement is not declared effective on or prior to the one hundred and twentieth (120th) day following the Closing Date. Notwithstanding the foregoing, the Company shall remain obligated to cause the Registration Statement to become effective, and the Holder shall have the right to take any action necessary or desirable to enforce such obligation.

(g) SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.

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

(ii) Each of the Company and the Holders (i) hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts located in New York City, New York for the purposes of any suit, action or proceeding arising out of or relating to this Agreement and (ii) hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Each of the Company and the Holders consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under

this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this
Section 7(g) shall affect or limit any right to serve process in any other manner permitted by law.

(h) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of at least a majority of the Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

(i) NOTICES. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earlier of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice prior to 5:00 p.m., New York City time, on a Business Day, (ii) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Business Day or later than 5:00 p.m., New York City time, on any date and earlier than 11:59
p.m., New York City time, on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service such as Federal Express or (iv) actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be with respect to each Holder at its address set forth under its name on SCHEDULE 1 attached hereto, or with respect to the Company, addressed to:

National Coal Corp.

319 Ebenezer Road
Knoxville, Tennessee 37923
Attention: Chief Executive Officer
Facsimile No.: (865) 769-3759

or to such other address or addresses or facsimile number or numbers as any such party may most recently have designated in writing to the other parties hereto by such notice. Copies of notices to the Company shall be sent to Stubbs Alderton & Markiles, LLP, 15821 Ventura Boulevard, Suite 525, Encino, California 91436, Facsimile No. (818) 444-4520. Copies of notices to any Holder shall be sent to the addresses, if any, listed on SCHEDULE 1 attached hereto.

(j) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns and shall inure to the benefit of each Holder and its successors and assigns; provided, that the Company may not assign this Agreement or any of its rights or obligations hereunder without the prior written consent of each Holder; and provided, further, that each Holder may assign its rights

hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

(k) ASSIGNMENT OF REGISTRATION RIGHTS. The rights of each Holder hereunder, including the right to have the Company register for resale Registrable Securities in accordance with the terms of this Agreement, shall be automatically assignable by each Holder to any transferee of such Holder of all or a portion of the Preferred Stock, Warrants, Additional Purchase Rights or the Registrable Securities if: (i) the Holder 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) following such transfer or assignment the further disposition of such securities by the transferee or assignees is restricted under the Securities Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this Section 7(k), the transferee or assignee agrees in writing with the Company to be bound by all of the provisions of this Agreement, and (v) such transfer shall have been made in accordance with the applicable requirements of the Purchase Agreement. The rights to assignment shall apply to the Holders (and to subsequent) successors and assigns.

The Company may require, as a condition of allowing such assignment in connection with a transfer of Preferred Stock, Warrants, Additional Purchase Rights or Registrable Securities (i) that the Holder or transferee of all or a portion of the Preferred Stock, the Warrants, the Additional Purchase Rights or the Registrable Securities as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such transfer may be made without registration under the Securities Act,
(ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act and (iv) that the transfer of such Preferred Stock, Warrants, Additional Purchase Rights and/or Registrable Securities be (A) a transfer of an amount of such Preferred Stock, Warrants and/or Registrable Securities equal to, convertible into and/or exercisable for not less than 5% of the total number of Conversion Shares that would have been issuable upon the full conversion of all Preferred Stock on the Closing Date (as defined in the Purchase Agreement), (B) a transfer of Additional Purchase Rights pursuant to the terms of Article VIII of the Purchase Agreement or (C) a transfer of all of the Preferred Stock, Warrants, Additional Purchase Rights and Registrable Securities then owned by the Holder.

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

(m) GOVERNING LAW. This Agreement shall be governed by and construed in

accordance with the laws of the State of New York, without regard to principles of conflicts of law thereof.

(n) CUMULATIVE REMEDIES. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

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

(p) HEADINGS; INTERPRETATION. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. Any form of the word "include" as used in this Agreement shall be deemed to be followed by the phrase "without limitation".

(q) REGISTRABLE SECURITIES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its Affiliates (other than any Holder or transferees or successors or assigns thereof if such Holder is deemed to be an Affiliate solely by reason of its holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

(r) OBLIGATIONS OF PURCHASERS. The Company acknowledges that the obligations of each Purchaser under this Agreement, are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under this Agreement. The decision of each Purchaser to enter into to this Agreement has been made by such Purchaser independently of any other Purchaser. The Company further acknowledges that nothing contained in this Agreement, and no action taken by any Purchaser pursuant hereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated hereby. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.

Each Purchaser acknowledges and agrees that it has been represented by its own separate legal counsel in their review and negotiation of this Agreement and with respect to the transactions contemplated hereby. For reasons of administrative convenience only, this

Agreement has been prepared by Special Counsel (counsel for North Sound Capital LLC ("North Sound")) and the Special Counsel will perform certain duties under this Agreement. Such counsel does not represent all of the Purchasers but only North Sound. The Company has elected to provide all Purchasers with the same terms and Agreement for the convenience of the Company and not because it was required or requested to do so by the Purchasers. The Company acknowledges that such procedure with respect to this Agreement in no way creates a presumption that the Purchasers are in any way acting in concert or as a group with respect to this Agreement or the transactions contemplated hereby or thereby.

[signature page follows]

IN WITNESS WHEREOF, the parties hereto have caused this Investor Rights Agreement to be duly executed by their respective authorized persons as of the date first indicated above.

COMPANY:

NATIONAL COAL CORP.

By:    /S/  JON E. NIX
   ----------------------------
Name:  Jon E. Nix
Title: Chief Executive Officer

PURCHASER:

By:      JAFAR OMID /S/
         ------------------------------------------
Name:    Jafar Omid
Title:   Investment Manager
         (on behalf of ______ Capital Management)

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      GIL AVIDAR /S/
         ------------------------------------------
Name:
Title:

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      JANICE HUDSON /S/
         ------------------------------------------
Name:    Janice Hudson
Title:   Secretary of 2M Companies, Inc.
         General Partner

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      J. DOUGLAS RALSTON /S/
         ------------------------------------------
Name:    J. Douglas Ralston
Title:   Managing Member

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      JOEL CHESTLER /S/
         ------------------------------------------
Name:    Joel Chestler
Title:

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      STEWART R. FLINK /S/
         ------------------------------------------
Name:    Stewart R. Flink
Title:   Manager

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      STEWART R. FLINK /S/
         ------------------------------------------
Name:    Stewart R. Flink
Title:   Manager

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      DARA FIELDMAN/S/
         ------------------------------------------
Name:    Dara Fieldman
Title:

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      STEWART R. FLINK /S/
         ------------------------------------------
Name:    Stewart R. Flink
Title:

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      SCOTT P. GEORGE /S/
         ------------------------------------------
Name:
Title:

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      W. STEPHEN GILBOY /S/
         ------------------------------------------
Name:    W. Stephen Gilboy, President
Title:   GLL Investors, Inc., The General Partner

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      STEVEN J. HALPERN /S/
         ------------------------------------------
Name:
Title:

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      RICHARD LEVY /S/
         ------------------------------------------
Name:    Richard Levy
Title:   Manager

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      RICHARD P. KIPHART /S/
         ------------------------------------------
Name:
Title:

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      MARY ANN LACHMAN /S/
         -------------------------------------------
Name:    Mary Ann Lachman
Title:

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      JOSEPH LEVY /S/
         ------------------------------------------
Name:    Joseph Levy, Jr.
Title:   Trustee

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

Print Exact Name: NANCY HOYT REVOCABLE TRUST

By:      NANCY HOYT /S/
         ------------------------------------------
Name:    Nancy Hoyt
Title:   Trustee

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      NATHAN LOW /S/
         ------------------------------------------
Name:    Nathan Low
Title:

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      THOMAS MCAULEY /S/
         ------------------------------------------
Name:    Thomas McAuley
Title:   Chief Investment Officer

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      THOMAS MCAULEY /S/
         ------------------------------------------
Name:    Thomas McAuley
Title:   Chief Investment Officer

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      THOMAS MCAULEY /S/
         ------------------------------------------
Name:    Thomas McAuley
Title:   Chief Investment Officer

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By: Rock Hill Investment Management, L.P.

By: RHP General Partner, LLC

By:      KEITH MARLOWE /S/
         -----------------------------------
Name:    Keith Marlowe
Title:   Director

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      GENE RINTELS /S/
         ------------------------------------------
Name:
Title:

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      BYRON H. RUBIN /S/
         ------------------------------------------
Name:
Title:

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      GERALD J. RUBIN /S/
         ------------------------------------------
Name:
Title:

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      M. FINKELSTEIN /S/
         ------------------------------------------
Name:    Michael Finkelstein
Title:   President

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      N. DADLANI /S/
         ------------------------------------------
Name:    Norman Dadlani
Title:   Director

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      JAMES A. CORYDON TTEE /S/
         ------------------------------------------
Name:    James A. Corydon
Title:   Trustee

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

Print Exact Name: TREELINE INVESTMENT PARTNERS, L.P.

By:      JOSEPH GIL /S/
         ------------------------------------------
Name:    Joseph Gil
Title:   Managing Member

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      DAVID W. VALENTINE /S/
         ------------------------------------------
Name:    David W. Valentine
Title:

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      EVAN SCHEMENAUER /S/
         -----------------------------------
Name:    Evan Schemenauer
Title:   Authoritzed Signatory

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      EVAN SCHEMENAUER /S/
         ------------------------------------------
Name:    Evan Schemenauer
Title:   Director

[Omnibus Investor Rights Agreement Signature Page]

PURCHASER:

By:      S M SCHUSTER /S/
         ------------------------------------------
Name:    Stephen M. Schuster
Title:   Managing Director

[Omnibus Investor Rights Agreement Signature Page]

SCHEDULE 1
PURCHASERS

with a copy to:

Wiggin and Dana LLP
400 Atlantic Street
Stamford, CT 06901
Telephone: (203) 363-7630
Facsimile: (203) 363-7676
Attn: Michael Grundei, Esq.

with a copy to:

with a copy to:

EXHIBIT A

PLAN OF DISTRIBUTION

We are registering the shares of common stock on behalf of the selling security holders. Sales of shares may be made by selling security holders, including their respective donees, transferees, pledgees or other successors-in-interest directly to purchasers or to or through underwriters, broker-dealers or through agents. Sales may be made from time to time on the OTC Bulletin Board or any exchange upon which our shares may trade in the future, in the over-the-counter market or otherwise, at market prices prevailing at the time of sale, at prices related to market prices, or at negotiated or fixed prices. The shares may be sold by one or more of, or a combination of, the following:

- a block trade in which the broker-dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction (including crosses in which the same broker acts as agent for both sides of the transaction);

- purchases by a broker-dealer as principal and resale by such broker-dealer, including resales for its account, pursuant to this prospectus;

- ordinary brokerage transactions and transactions in which the broker solicits purchases;

- through options, swaps or derivatives;

- in privately negotiated transactions;

- in making short sales or in transactions to cover short sales; and

- put or call option transactions relating to the shares.

The selling security holders may effect these transactions by selling shares directly to purchasers or to or through broker-dealers, which may act as agents or principals. These broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling security holders and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principals, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The selling security holders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their securities.

The selling security holders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with those transactions, the broker-dealers or other financial institutions may engage in short sales of the shares or of securities convertible into or exchangeable for the shares in the course of hedging positions they assume with the selling security holders. The selling security holders may also enter into options or other

transactions with broker-dealers or other financial institutions which require the delivery of shares offered by this prospectus to those broker-dealers or other financial institutions. The broker-dealer or other financial institution may then resell the shares pursuant to this prospectus (as amended or supplemented, if required by applicable law, to reflect those transactions).

The selling security holders and any broker-dealers that act in connection with the sale of shares may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act of 1933, and any commissions received by broker-dealers or any profit on the resale of the shares sold by them while acting as principals may be deemed to be underwriting discounts or commissions under the Securities Act. The selling security holders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares against liabilities, including liabilities arising under the Securities Act. We have agreed to indemnify each of the selling security holders and each selling security holder has agreed, severally and not jointly, to indemnify us against some liabilities in connection with the offering of the shares, including liabilities arising under the Securities Act.

The selling security holders will be subject to the prospectus delivery requirements of the Securities Act. We have informed the selling security holders that the anti-manipulative provisions of Regulation M promulgated under the Securities Exchange Act of 1934 may apply to their sales in the market.

Selling security holders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided they meet the criteria and conform to the requirements of Rule 144.

Upon being notified by a selling security holder that a material arrangement has been entered into with a broker-dealer for the sale of shares through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, we will file a supplement to this prospectus, if required pursuant to Rule 424(b) under the Securities Act, disclosing:

- the name of each such selling security holder and of the participating broker-dealer(s);

- the number of shares involved;

- the initial price at which the shares were sold;

- the commissions paid or discounts or concessions allowed to the broker-dealer(s), where applicable;

- that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus; and

- other facts material to the transactions.

In addition, if required under applicable law or the rules or regulations of the Commission, we will file a supplement to this prospectus when a selling security holder notifies us that a donee or pledgee intends to sell more than 500 shares of common stock.

We are paying all expenses and fees in connection with the registration of the shares. The selling security holders will bear all brokerage or underwriting discounts or commissions paid to broker-dealers in connection with the sale of the shares.

EXHIBIT B

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

[Name and Address of Transfer Agent]

Re: National Coal Corp.

Dear [______]:

We are counsel to National Coal Corp., a Florida corporation (the "Company"), and have represented the Company in connection with that certain Preferred Stock and Warrant Purchase Agreement (the "Purchase Agreement") dated as of August 31, 2004 by and among the Company and the buyers named therein (collectively, the "Holders") pursuant to which the Company issued to the Holders its Series A Cumulative Convertible Preferred Stock, par value $0.0001 per share, (the "Preferred Stock") convertible into shares of the Company's common stock, par value $0.0001 per share (the "Common Stock") and warrants to purchase shares of the Common Stock (the "Warrants"). Pursuant to the Purchase Agreement, the Company has also entered into an Investor Rights Agreement with the Holders (the "Investor Rights Agreement") pursuant to which the Company agreed, among other things, to register the shares of Common Stock issuable upon conversion of the Preferred Stock and exercise of the Warrants and certain other shares of Common Stock, under the Securities Act of 1933, as amended (the "1933 Act"). In connection with the Company's obligations under the Investor Rights Agreement, on ____________ ___, 2004, the Company filed a Registration Statement on Form SB-2 (File No. 333______________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names each of the Holders as a selling securityholder thereunder.

In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.

Very truly yours,

By:__________________________________
cc: [LIST NAMES OF HOLDERS]

EXHIBIT 10.10

PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT

by and between

National Coal Corp., as Issuer and Seller

and

CD Investment Partners, Ltd., as Purchaser

with respect to Seller's

Series A Cumulative Convertible Preferred Stock

and Warrant to Purchase Common Stock
August 31, 2004

Exhibit A         Form of Articles of Amendment of the Articles of Incorporation

Exhibit B         Form of Common Stock Purchase Warrant

Exhibit C         Form of Investor Rights Agreement

Exhibit D         Form of Opinion of Seller's Counsel

Exhibit E         Form of Management Lock-Up Agreement

Exhibit F         Form of Subscription Notice

Exhibit G         Form of Transfer Notice

Schedule 1        Disclosure Schedules

PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the "AGREEMENT") dated as of August 31, 2004, by and between National Coal Corp., a Florida corporation (the "SELLER"), and CD Investment Partners, Ltd. the "Purchaser".

RECITALS:

WHEREAS, the Purchaser is willing to purchase from the Seller, and the Seller desires to sell to the Purchaser, 24 shares of its Series A Cumulative Convertible Preferred Stock, $15,000 liquidation preference per share, par value $0.0001 per share (the "PREFERRED STOCK") convertible into the Seller's common stock, $0.0001 par value (the "COMMON STOCK") and a Common Stock Purchase Warrant (the "WARRANT") entitling the holder thereof to purchase shares of Common Stock, in each case, as more fully set forth herein.

NOW THEREFORE, in consideration of the mutual promises and representations, warranties, covenants and agreements set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I - PURCHASE AND SALE

1.1 PURCHASE AND SALE.

(a) On the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined in Section 2.2), the Seller will sell, and Purchaser will purchase, 24 shares of Preferred Stock at a price of $15,000 per share of Preferred Stock. In addition, the Seller will sell, and the Purchaser will purchase, at the Closing the Warrant to purchase 48,000 shares of Common Stock.

(b) The shares of Common Stock issuable upon conversion of the Preferred Stock are referred to herein as the "CONVERSION SHARES" and the shares of Common Stock issuable upon exercise of the Warrant are referred to herein as the "WARRANT SHARES".

1.2 TERMS OF THE PREFERRED STOCK AND WARRANT. The terms and provisions of the Preferred Stock are set forth in the form of Articles of Amendment to the Articles of Incorporation providing for the designation, powers, rights and preferences of Series A Cumulative Convertible Preferred Stock, attached hereto as EXHIBIT A (the "ARTICLES OF AMENDMENT"). The terms and provisions of the Warrant are more fully set forth in the form of Common Stock Purchase Warrant, attached hereto as EXHIBIT B.

1.3 TRANSFERS; LEGENDS.

(a) (i) Except as required by federal securities laws and the securities law of any state or other jurisdictions, the Preferred Stock, Conversion Shares, Warrant and Warrant Shares (collectively, the "Securities") may be transferred, in whole or in part, by the Purchaser at any time. In the case of Preferred Stock, such transfer may be effected by delivering written transfer instructions to the Seller, and the Seller shall reflect such transfer on its books and records and reissue certificates evidencing the Preferred Stock upon surrender of certificates evidencing the Preferred Stock being transferred. Any such transfer shall be made by the Purchaser in accordance with applicable law. Any transferee shall agree to be bound by the terms of the

Investor Rights Agreement and this Agreement. The Seller shall reissue certificates evidencing the Securities upon surrender of certificates evidencing the Securities being transferred in accordance with this Section 1.3(a).

(ii) In connection with any transfer of Securities other than pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or to the Seller, the Seller may require the transferor thereof to furnish to the Seller an opinion of counsel selected by the transferor, such counsel and the form and substance of which opinion shall be reasonably satisfactory to the Seller and Seller's counsel, to the effect that such transfer does not require registration under the Securities Act; PROVIDED, HOWEVER, that in the case of a transfer pursuant to Rule 144 under the Securities Act, no opinion shall be required if the transferor provides the Seller with a customary seller's representation letter, and if such sale is not pursuant to subsection (k) of Rule 144, a customary broker's representation letter and Form 144. Notwithstanding the foregoing, the Seller hereby consents to and agrees to register on the books of the Seller and with any transfer agent for the securities of the Seller, without any such legal opinion, any transfer of Securities by the Purchaser to an Affiliate of the Purchaser, provided that the transferee certifies to the Seller that it is an "ACCREDITED INVESTOR" as defined in Rule 501(a) under the Securities Act and that it is acquiring the Securities solely for investment purposes (subject to the qualifications hereof) and not with a view to, or for, resale, distribution or fractionalization thereof in whole or in part in violation of the Securities Act.

(iii) An "AFFILIATE" means any Person (as such term is defined below) that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to the Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as the Purchaser will be deemed to be an Affiliate of the Purchaser. A "PERSON" means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision of any thereof) or other entity of any kind.

(b) The certificates representing the Preferred Stock shall bear the following legend:

"THE SHARES REPRESENTED BY, OR ISSUABLE UPON CONVERSION OR EXERCISE OF SECURITIES EVIDENCED BY, THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED."

ARTICLE II - PURCHASE PRICE AND CLOSING

2.1 PURCHASE PRICE. The aggregate purchase price (the "PURCHASE PRICE") to be paid by the Purchaser to the Seller to acquire the Preferred Stock and the Warrant at the Closing shall be $360,000. A portion of the Purchase Price shall be payable by the surrender and cancellation of the promissory note representing $350,000 of secured debt of the Seller (the "PROMISSORY NOTE").

2.2 THE CLOSING. The closing of the transactions contemplated under this Agreement (the "CLOSING") will take place as promptly as practicable, but no later than five (5) business days following satisfaction or waiver of the conditions set forth in Article 6.1(a) and (b) and 6.2(a) (other than those conditions which by their terms are not to be satisfied or waived until the Closing), at the offices of the Seller, as set forth in Section 9.3. The date on which the Closing occurs is the "CLOSING DATE."

ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SELLER

The Seller represents and warrants to the Purchaser as follows:

3.1 CORPORATE EXISTENCE AND POWER; SUBSIDIARIES. The Seller and its Subsidiaries are corporations duly incorporated, validly existing and in good standing under the laws of the state in which they are incorporated, and have all corporate powers required to carry on their business as now conducted. The Seller and its Subsidiaries are duly qualified to do business as a foreign corporation and are in good standing in each jurisdiction where the character of the property owned or leased by them or the nature of their activities makes such qualification necessary, except for those jurisdictions where the failure to be so qualified would not have a Material Adverse Effect on the Seller or any of its Subsidiaries. For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT" means, with respect to any person or entity, a material adverse effect on its and its Subsidiaries' condition (financial or otherwise), business, properties, assets, liabilities (including contingent liabilities), results of operations or current prospects, taken as a whole. True and complete copies of the Seller's Articles of Incorporation, as amended (the "ARTICLES"), and Bylaws, as amended (the "BYLAWS"), as currently in effect and as will be in effect on the Closing Date (collectively, the "ARTICLES AND BYLAWS"), have previously been provided to the Purchaser. For purposes of this Agreement, the term "SUBSIDIARY" or "Subsidiaries" means, with respect to any entity, any corporation or other organization of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are directly or indirectly owned by such entity or of which such entity is a partner or is, directly or indirectly, the beneficial owner of 50% or more of any class of equity securities or equivalent profit participation interests. The Seller has no Subsidiaries other than National Coal Corporation, a Tennessee corporation which is wholly-owned by the Seller.

3.2 CORPORATE AUTHORIZATION. The execution, delivery and performance by the Seller of this Agreement, the Articles of Amendment, the Investor Rights Agreement, and each of the other documents executed pursuant to and in connection with this Agreement (collectively, the "RELATED DOCUMENTS"), and the consummation of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the Preferred Stock and Warrant, and the subsequent issuance of the Conversion Shares upon conversion of the Preferred Stock and the Warrant Shares upon exercise of the Warrant) have been duly authorized, and no additional corporate or stockholder action is required for the approval thereof. The Conversion Shares and the Warrant Shares have been duly reserved for issuance by the Seller. This Agreement and the Related Documents have been or, to the extent contemplated hereby or by the

Related Documents, will be duly executed and delivered and constitute the legal, valid and binding agreement of the Seller, enforceable against the Seller in accordance with their terms, except as may be limited by bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors, and except as enforceability of its obligations hereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

3.3 CHARTER, BYLAWS AND CORPORATE RECORDS. The minute books of the Seller and its Subsidiaries contain complete and accurate records of all meetings and other corporate actions of the board of directors, committees of the board of directors, incorporators and stockholders of the Seller and its Subsidiaries to the date hereof. All material corporate decisions and actions have been validly made or taken. All corporate books, including without limitation the share transfer register, comply with applicable laws and regulations and have been regularly updated. Such books fully and correctly reflect all the decisions of the stockholders.

3.4 GOVERNMENTAL AUTHORIZATION. Except as otherwise specifically contemplated in this Agreement and the Related Documents, and except for: (i) the filings referenced in Section 5.11; (ii) the filing of the Articles of Amendment; (iii) the filing of a Form D with respect to the Preferred Stock and the Warrant under Regulation D under the Securities Act; (iv) the filing of the Registration Statement with the Commission; (v) the application(s) to each trading market for the listing of the Conversion Shares and the Warrant Shares for trading thereon; and (vi) any filings required under state securities laws that are permitted to be made after the date hereof, the execution, delivery and performance by the Seller of this Agreement and the Related Documents, and the consummation of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the Preferred Stock and Warrant and the subsequent issuance of the Conversion Shares and Warrant Shares upon conversion of the Preferred Stock or otherwise or exercise of the Warrant, as applicable) by the Seller require no action (including, without limitation, stockholder approval) by or in respect of, or filing with, any governmental or regulatory body, agency, official or authority (including, without limitation, Nasdaq).

3.5 NON-CONTRAVENTION. The execution, delivery and performance by the Seller of this Agreement and the Related Documents, and the consummation by the Seller of the transactions contemplated hereby and thereby (including the issuance of the Conversion Shares and Warrant Shares) do not and will not (a) contravene or conflict with the Articles (as amended by the Articles of Amendment) and Bylaws of the Seller and its Subsidiaries or any material agreement to which the Seller is a party or by which it is bound; (b) contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to the Seller or its Subsidiaries; (c) constitute a default (or would constitute a default with notice or lapse of time or both) under or give rise to a right of termination, cancellation or acceleration or loss of any benefit under any material agreement, contract or other instrument binding upon the Seller or its Subsidiaries or under any material license, franchise, permit or other similar authorization held by the Seller or its Subsidiaries; or (d) result in the creation or imposition of any Lien (as defined below) on any asset of the Seller or its Subsidiaries. For purposes of this Agreement, the term "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, claim or encumbrance of any kind in respect of such asset.

3.6 SEC DOCUMENTS. The Seller is obligated under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") to file reports pursuant to Sections 13 or 15(d) thereof (all such reports filed or required to be filed by the Seller, including all exhibits thereto or

incorporated therein by reference, and all documents filed by the Seller under the Securities Act hereinafter called the "SEC DOCUMENTS"). The Seller has filed all reports or other documents required to be filed under the Exchange Act. All SEC Documents filed by the Seller (i) were prepared in all material respects in accordance with the requirements of the Exchange Act and (ii) did not at the time they were filed (or, if amended or superseded by a filing prior to the date hereof, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Seller has previously delivered to the Purchaser a correct and complete copy of each report which the Seller filed with the Securities and Exchange Commission (the "SEC" or the "COMMISSION") under the Exchange Act for any period ending on or after December 31, 2003 (the "Recent REPORTS"). None of the information about the Seller or any of its Subsidiaries which has been disclosed to the Purchaser herein or in the course of discussions and negotiations with respect hereto which is not disclosed in the Recent Reports is or was required to be so disclosed, and no material non-public information has been disclosed to the Purchaser.

3.7 FINANCIAL STATEMENTS. Each of the Seller's (i) audited consolidated balance sheet as of December 31, 2003, and the related consolidated statements of operations, cash flows and changes in stockholders' deficiency (including the related notes) for the period from its inception (January 30,2003) to December 31, 2003 and (ii) the Seller's unaudited consolidated balance sheet and related consolidated statements of operations and cash flows as of and for the three months ended March 31, 2004, as contained in the Recent Reports (both of (i) and (ii), collectively, the "SELLER'S FINANCIAL STATEMENTS" or the "FINANCIAL STATEMENTS") (x) present fairly in all material respects the financial position of the Seller and its Subsidiaries on a consolidated basis as of the dates thereof and the results of operations, cash flows and stockholders' deficiency as of and for each of the periods then ended, except that the unaudited financial statements are subject to normal year-end adjustments, and
(y) were prepared in accordance with United States generally accepted accounting principals ("GAAP") applied on a consistent basis throughout the periods involved, in each case, except as otherwise indicated in the notes thereto.

3.8 COMPLIANCE WITH LAW. The Seller and its Subsidiaries are in compliance and have conducted their business so as to comply with all laws, rules and regulations, judgments, decrees or orders of any court, administrative agency, commission, regulatory authority or other governmental authority or instrumentality, domestic or foreign, applicable to their operations, the violation of which would cause a Material Adverse Affect. There are no judgments or orders, injunctions, decrees, stipulations or awards (whether rendered by a court or administrative agency or by arbitration), including any such actions relating to affirmative action claims or claims of discrimination, against the Seller or its Subsidiaries or against any of their properties or businesses.

3.9 NO DEFAULTS. The Seller and its Subsidiaries are not, nor have they received notice that they would be with the passage of time, giving of notice, or both, (i) in violation of any provision of their Articles and Bylaws or (ii) in default or violation of any term, condition or provision of (A) any judgment, decree, order, injunction or stipulation applicable to the Seller or its Subsidiaries or (B) any material agreement, note, mortgage, indenture, contract, lease or instrument, permit, concession, franchise or license to which the Seller or its Subsidiaries are a party or by which the Seller or its Subsidiaries or their properties or assets may be bound, and no

circumstances exist which would entitle any party to any material agreement, note, mortgage, indenture, contract, lease or instrument to which such Seller or its Subsidiaries are a party, to terminate such as a result of such Seller or its Subsidiaries, having failed to meet any material provision thereof including, but not limited to, meeting any applicable milestone under any material agreement or contract; except in the case of clause (ii) as would not have a Material Adverse Effect on the Seller or any of its Subsidiaries or any material adverse effect on the transactions contemplated by this Agreement or by any of the Related Documents.

3.10 LITIGATION. Except as disclosed in the Recent Reports or on SCHEDULE 3.10, there is no action, suit, proceeding, judgment, claim or investigation pending or, to the best knowledge of the Seller, threatened against the Seller and its Subsidiaries which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Seller or its Subsidiaries or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated hereby, and there is no basis for the assertion of any of the foregoing.

3.11 ABSENCE OF CERTAIN CHANGES. Since December 31, 2003, the Seller has conducted its business only in the ordinary course and there has not occurred, except as set forth in the Recent Reports or any exhibit thereto or incorporated by reference therein:

(a) Any event that could reasonably be expected to have a Material Adverse Effect on the Seller or any of its Subsidiaries;

(b) Any amendments or changes in the Articles or Bylaws of the Seller and its Subsidiaries, other than on account of the filing of the Articles of Amendment;

(c) Any damage, destruction or loss, whether or not covered by insurance, that would, individually or in the aggregate, have or would be reasonably likely to have, a Material Adverse Effect on the Seller and its Subsidiaries;

(d) Except as set forth on SCHEDULE 3.11(D), any

(i) incurrence, assumption or guarantee by the Seller or its Subsidiaries of any debt for borrowed money other than for equipment leases;

(ii) issuance or sale of any securities convertible into or exchangeable for securities of the Seller other than to directors, employees and consultants pursuant to existing equity compensation or stock purchase plans of the Seller;

(iii) issuance or sale of options or other rights to acquire from the Seller or its Subsidiaries, directly or indirectly, securities of the Seller or any securities convertible into or exchangeable for any such securities, other than options issued to directors, employees and consultants in the ordinary course of business in accordance with past practice;

(iv) issuance or sale of any stock, bond or other corporate security;

(v) discharge or satisfaction of any material Lien, other than current liabilities incurred since December 31, 2003 in the ordinary course of business;

(vi) declaration or making any payment or distribution to stockholders or purchase or redemption of any share of its capital stock or other security;

(vii) sale, assignment or transfer of any of its intangible assets except in the ordinary course of business, or cancellation of any debt or claim except in the ordinary course of business;

(viii) waiver of any right of substantial value whether or not in the ordinary course of business;

(ix) material change in officer compensation except in the ordinary course of business and consistent with past practices; or

(x) other commitment (contingent or otherwise) to do any of the foregoing.

(e) Except as set forth on Schedule 3.11(e), any creation, sufferance or assumption by the Seller or any of its Subsidiaries of any Lien on any asset (other than Liens in connection with equipment leases) or any making of any loan, advance or capital contribution to or investment in any Person in an aggregate amount which exceeds $25,000 outstanding at any time;

(f) Any entry into, amendment of, relinquishment, termination or non-renewal by the Seller or its Subsidiaries of any material contract, license, lease, transaction, commitment or other right or obligation, other than in the ordinary course of business; or

(g) Any transfer or grant of a right with respect to the trademarks, trade names, service marks, trade secrets, copyrights or other intellectual property rights owned or licensed by the Seller or its Subsidiaries, except as among the Seller and its Subsidiaries.

3.12 NO UNDISCLOSED LIABILITIES. Except as set forth in the Recent Reports, and except for liabilities and obligations incurred in the ordinary course of business since December 31, 2003, as of the date hereof, (i) the Seller and its Subsidiaries do not have any material liabilities or obligations (absolute, accrued, contingent or otherwise) which, and (ii) there has not been any aspect of the prior or current conduct of the business of the Seller or its Subsidiaries which may form the basis for any material claim by any third party which if asserted could result in any such material liabilities or obligations which, are not fully reflected, reserved against or disclosed in the balance sheet of the Seller as at December 31, 2003.

3.13 TAXES. All tax returns and tax reports required to be filed with respect to the income, operations, business or assets of the Seller and its Subsidiaries have been timely filed (or appropriate extensions have been obtained) with the appropriate governmental agencies in all jurisdictions in which such returns and reports are required to be filed, and all of the foregoing as filed are correct and complete and, in all material respects, reflect accurately all liability for taxes of the Seller and its Subsidiaries for the periods to which such returns relate, and all amounts shown as owing thereon have been paid. All income, profits, franchise, sales, use, value added, occupancy, property, excise, payroll, withholding, FICA, FUTA and other taxes

(including interest and penalties), if any, collectible or payable by the Seller and its Subsidiaries or relating to or chargeable against any of its material assets, revenues or income or relating to any employee, independent contractor, creditor, stockholder or other third party through the Closing Date, were fully collected and paid by such date if due by such date or provided for by adequate reserves in the Financial Statements as of and for the periods ended December 31, 2003 (other than taxes accruing after such date) and all similar items due through the Closing Date will have been fully paid by that date or provided for by adequate reserves, whether or not any such taxes were reported or reflected in any tax returns or filings. No taxation authority has sought to audit the records of the Seller or any of its Subsidiaries for the purpose of verifying or disputing any tax returns, reports or related information and disclosures provided to such taxation authority, or for the Seller's or any of its Subsidiaries' alleged failure to provide any such tax returns, reports or related information and disclosure. No material claims or deficiencies have been asserted against or inquiries raised with the Seller or any of its Subsidiaries with respect to any taxes or other governmental charges or levies which have not been paid or otherwise satisfied, including claims that, or inquiries whether, the Seller or any of its Subsidiaries has not filed a tax return that it was required to file, and, to the best of the Seller's knowledge, there exists no reasonable basis for the making of any such claims or inquiries. Neither the Seller nor any of its Subsidiaries has waived any restrictions on assessment or collection of taxes or consented to the extension of any statute of limitations relating to taxation.

3.14 INTERESTS OF OFFICERS, DIRECTORS AND OTHER AFFILIATES. The description of any interest held, directly or indirectly, by any officer, director or other Affiliate of the Seller or its Subsidiaries (other than the interests of the Seller and its Subsidiaries in such assets) in any property, real or personal, tangible or intangible, used in or pertaining to Seller's business, including any interest in the Intellectual Property (as defined in
Section 3.15 hereof), as set forth in the Recent Reports, is true and complete, and no officer, director or other Affiliate of the Seller or its Subsidiaries has any interest in any property, real or personal, tangible or intangible, used in or pertaining to the Seller's business, including the Seller's Intellectual Property, other than as set forth in the Recent Reports.

3.15 INTELLECTUAL PROPERTY. Other than as set forth in the Recent Reports:

(a) the Seller or a Subsidiary thereof has the right to use or is the sole and exclusive owner of all right, title and interest in and to all foreign and domestic patents, patent rights, trademarks, service marks, trade names, brands and copyrights (whether or not registered and, if applicable, including pending applications for registration) owned, used or controlled by the Seller and its Subsidiaries (collectively, the "RIGHTS") and in and to each material invention, software, trade secret, technology, product, composition, formula, method of process used by the Seller or its Subsidiaries (the Rights and such other items, the "INTELLECTUAL PROPERTY"), and, to the Seller's knowledge, has the right to use the same, free and clear of any claim or conflict with the rights of others;

(b) no royalties or fees (license or otherwise) are payable by the Seller or its Subsidiaries to any Person by reason of the ownership or use of any of the Intellectual Property except as set forth on SCHEDULE 3.15;

(c) there have been no claims made against the Seller or its Subsidiaries asserting the invalidity, abuse, misuse, or unenforceability of any of the Intellectual Property, and, to its knowledge, there are no reasonable grounds for any such claims;

(d) neither the Seller nor its Subsidiaries have made any claim of any violation or infringement by others of its rights in the Intellectual Property, and to the best of the Seller's knowledge, no reasonable grounds for such claims exist; and

(e) neither the Seller nor its Subsidiaries have received notice that it is in conflict with or infringing upon the asserted rights of others in connection with the Intellectual Property.

3.16 RESTRICTIONS ON BUSINESS ACTIVITIES. Other than as set forth in the Recent Reports, there is no agreement, judgment, injunction, order or decree binding upon the Seller or its Subsidiaries which has or could reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Seller or its Subsidiaries, any acquisition of property by the Seller or its Subsidiaries or the conduct of business by the Seller or its Subsidiaries as currently conducted or as currently proposed to be conducted by the Seller.

3.17 PREEMPTIVE RIGHTS. Except as set forth in SCHEDULE 3.17, none of the stockholders of the Seller possess any preemptive rights in respect of the Preferred Stock or the Conversion Shares or Warrant Shares to be issued to the Purchaser upon conversion of the Preferred Stock or exercise of the Warrant, as applicable.

3.18 INSURANCE. The insurance policies providing insurance coverage to the Seller or its Subsidiaries are adequate for the business conducted by the Seller and its Subsidiaries and are sufficient for compliance by the Seller and its Subsidiaries with all requirements of law and all material agreements to which the Seller or its Subsidiaries are a party or by which any of their assets are bound. All of such policies are in full force and effect and are valid and enforceable in accordance with their terms, and the Seller and its Subsidiaries have complied with all material terms and conditions of such policies, including premium payments. None of the insurance carriers has indicated to the Seller or its Subsidiaries an intention to cancel any such policy.

3.19 SUBSIDIARIES AND INVESTMENTS. Except as set forth in the Recent Reports or on SCHEDULE 3.19, the Seller has no Subsidiaries or Investments. For purposes of this Agreement, the term "INVESTMENTS" shall mean, with respect to any Person, all advances, loans or extensions of credit to any other Person, all purchases or commitments to purchase any stock, bonds, notes, debentures or other securities of any other Person, and any other investment in any other Person, including partnerships or joint ventures (whether by capital contribution or otherwise) or other similar arrangement (whether written or oral) with any Person, including but not limited to arrangements in which (i) the Person shares profits and losses, (ii) any such other Person has the right to obligate or bind the Person to any third party, or (iii) the Person may be wholly or partially liable for the debts or obligations of such partnership, joint venture or other arrangement.

3.20 CAPITALIZATION. (a) The authorized capital stock of the Seller consists of 80,000,000 shares of common stock, $0.0001 par value per share, of which 44,290,216 shares are issued and outstanding as of the date hereof, and 10,000,000 shares of preferred stock,

$0.0001 par value per share, issuable in one or more classes or series, with such relative rights and preferences as the Board of Directors may determine, none of which has been authorized for issuance other than 1,611 shares that have been designated Series A Cumulative Convertible Preferred Stock, of which no shares are outstanding immediately prior to the execution of this Agreement.

(b) All shares of the Seller's issued and outstanding capital stock have been duly authorized, are validly issued and outstanding, and are fully paid and nonassessable. No securities issued by the Seller from the date of its incorporation to the date hereof were issued in violation of any statutory or common law preemptive rights. There are no dividends which have accrued or been declared but are unpaid on the capital stock of the Seller. All taxes required to be paid by Seller in connection with the issuance and any transfers of the Seller's capital stock have been paid. All permits or authorizations required to be obtained from or registrations required to be effected with any Person in connection with any and all issuances of securities of the Seller from the date of the Seller's incorporation to the date hereof have been obtained or effected, and all securities of the Seller have been issued and are held in accordance with the provisions of all applicable securities or other laws.

3.21 OPTIONS, WARRANTS, RIGHTS. Except as set forth on SCHEDULE 3.21, there are no outstanding (a) securities, notes or instruments convertible into or exercisable for any of the capital stock or other equity interests of the Seller or its Subsidiaries; (b) options, warrants, subscriptions or other rights to acquire capital stock or other equity interests of the Seller or its Subsidiaries; or (c) commitments, agreements or understandings of any kind, including employee benefit arrangements, relating to the issuance or repurchase by the Seller or its Subsidiaries of any capital stock or other equity interests of the Seller or its Subsidiaries, any such securities or instruments convertible or exercisable for securities or any such options, warrants or rights. Other than the rights of the Purchaser under the Preferred Stock and the Warrant, and except as set forth on SCHEDULE 3.21, neither the Seller nor the Subsidiaries have granted anti-dilution rights to any person or entity in connection with any outstanding option, warrant, subscription or any other instrument convertible or exercisable for the securities of the Seller or any of its Subsidiaries. Other than the rights granted to the Purchaser under the Investor Rights Agreement, there are no outstanding rights which permit the holder thereof to cause the Seller or the Subsidiaries to file a registration statement under the Securities Act or which permit the holder thereof to include securities of the Seller or any of its Subsidiaries in a registration statement filed by the Seller or any of its Subsidiaries under the Securities Act, and there are no outstanding agreements or other commitments which otherwise relate to the registration of any securities of the Seller or any of its Subsidiaries for sale or distribution in any jurisdiction, except as set forth on SCHEDULE 3.21.

3.22 EMPLOYEES, EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS. Except as set forth in the Recent Reports or on SCHEDULE 3.22, there are no employment, consulting, severance or indemnification arrangements, agreements, or understandings between the Seller and any officer, director, consultant or employee of the Seller or its Subsidiaries (the "EMPLOYMENT AGREEMENTS"). No Employment Agreement provides for the acceleration or change in the award, grant, vesting or determination of options, warrants, rights, severance payments, or other contingent obligations of any nature whatsoever of the Seller or its Subsidiaries in favor of any such parties in connection with the transactions contemplated by this Agreement. Except as

disclosed in the Recent Reports or on SCHEDULE 3.22, the terms of employment or engagement of all directors, officers, employees, agents, consultants and professional advisors of the Seller and its Subsidiaries are such that their employment or engagement may be terminated upon not more than two weeks' notice given at any time without liability for payment of compensation or damages and the Seller and its Subsidiaries have not entered into any agreement or arrangement for the management of their business or any part thereof other than with their directors or employees.

3.23 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Seller, nor any Affiliate of the Seller, nor to the knowledge of the Seller, any agent or employee of the Seller, any other Person acting on behalf of or associated with the Seller, or any individual related to any of the foregoing Persons, acting alone or together, has: (a) received, directly or indirectly, any rebates, payments, commissions, promotional allowances or any other economic benefits, regardless of their nature or type, from any customer, supplier, trading company, shipping company, governmental employee or other Person with whom the Seller has done business directly or indirectly; or (b) directly or indirectly, given or agreed to give any gift or similar benefit to any customer, supplier, trading company, shipping company, governmental employee or other Person who is or may be in a position to help or hinder the business of the Seller (or assist the Seller in connection with any actual or proposed transaction) which (i) may subject the Seller to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, may have had an adverse effect on the Seller or (iii) if not continued in the future, may adversely affect the assets, business, operations or prospects of the Seller or subject the Seller to suit or penalty in any private or governmental litigation or proceeding.

3.24 ENVIRONMENTAL MATTERS. Except as described in the Recent Reports or on Schedule 3.24, none of the premises or any properties owned, occupied or leased by the Seller or its Subsidiaries (the "PREMISES") has been used by the Seller or the Subsidiaries or, to the Seller's knowledge, by any other Person, to manufacture, treat, store, or dispose of any substance that has been designated to be a "HAZARDOUS SUBSTANCE" under applicable Environmental Laws (hereinafter defined) ("HAZARDOUS SUBSTANCES") in violation of any applicable Environmental Laws. To its knowledge, the Seller and its Subsidiaries have not disposed of, discharged, emitted or released any Hazardous Substances which would require, under applicable Environmental Laws, remediation, investigation or similar response activity. No Hazardous Substances are present as a result of the actions of the Seller or its Subsidiaries or, to the Seller's knowledge, any other Person, in, on or under the Premises which would give rise to any liability or clean-up obligations of the Seller or its Subsidiaries under applicable Environmental Laws. The Seller and, to the Seller's knowledge, any other Person for whose conduct it may be responsible pursuant to an agreement or by operation of law, are in compliance with all laws, regulations and other federal, state or local governmental requirements, and all applicable judgments, orders, writs, notices, decrees, permits, licenses, approvals, consents or injunctions in effect on the date of this Agreement relating to the generation, management, handling, transportation, treatment, disposal, storage, delivery, discharge, release or emission of any Hazardous Substance (the "ENVIRONMENTAL LAWS"). Neither the Seller nor, to the Seller's knowledge, any other Person for whose conduct it may be responsible pursuant to an agreement or by operation of law has received any written complaint, notice, order, or citation of any actual, threatened or alleged noncompliance with any of the Environmental Laws, and there is no proceeding, suit or investigation pending or, to the Seller's knowledge, threatened against the Seller or, to the

Seller's knowledge, any such Person with respect to any violation or alleged violation of the Environmental Laws, and, to the knowledge of the Seller, there is no basis for the institution of any such proceeding, suit or investigation.

3.25 LICENSES; COMPLIANCE WITH REGULATORY REQUIREMENTS. Except as disclosed in the Recent Reports, the Seller holds all material authorizations, consents, approvals, franchises, licenses and permits required under applicable law or regulation for the operation of the business of the Seller and its Subsidiaries as presently operated (the "GOVERNMENTAL AUTHORIZATIONS"). All the Governmental Authorizations have been duly issued or obtained and are in full force and effect, and the Seller and its Subsidiaries are in material compliance with the terms of all the Governmental Authorizations. The Seller and its Subsidiaries have not engaged in any activity that, to their knowledge, would cause revocation or suspension of any such Governmental Authorizations. The Seller has no knowledge of any facts which would cause the Seller to believe that the Governmental Authorizations will not be renewed by the appropriate governmental authorities in the ordinary course. Neither the execution, delivery nor performance of this Agreement shall adversely affect the status of any of the Governmental Authorizations.

3.26 BROKERS. Except as set forth on SCHEDULE 3.26, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement, based upon any arrangement made by or on behalf of the Seller, which would make any Purchaser liable for any fees or commissions.

3.27 SECURITIES LAWS. Neither the Seller nor its Subsidiaries nor any agent acting on behalf of the Seller or its Subsidiaries has taken or will take any action which might cause this Agreement or the Preferred Stock to violate the Securities Act or the Exchange Act or any rules or regulations promulgated thereunder, as in effect on the Closing Date. Assuming that all of the representations and warranties of the Purchaser set forth in Article IV are true, all offers and sales of capital stock, securities and notes of the Seller were conducted and completed in compliance with the Securities Act. All shares of capital stock and other securities issued by the Seller and its Subsidiaries prior to the date hereof have been issued in transactions that were either registered offerings or were exempt from the registration requirements under the Securities Act and all applicable state securities or "BLUE SKY" laws and in compliance with all applicable corporate laws.

3.28 DISCLOSURE. No representation or warranty made by the Seller in this Agreement, nor in any document, written information, financial statement, certificate, schedule or exhibit prepared and furnished by the Seller or the representatives of the Seller pursuant hereto or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits to state a material fact necessary to make the statements or facts contained herein or therein not misleading in light of the circumstances under which they were furnished.

3.29 POISON PILL. The Seller 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 Seller's Articles of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchaser as a result of the Purchaser

and the Seller fulfilling their obligations or exercising their rights under this Agreement and the Related Documents, including without limitation the Seller's issuance of the Securities and the Purchaser's ownership of the Securities.

3.30 INDEPENDENT NATURE OF THE PURCHASER. The Seller acknowledges that the obligations of the Purchaser under this Agreement and the Related Documents are several and not joint with the obligations of any other third party purchasers of the Seller's securities, and the Purchaser shall not be responsible in any way for the performance of the obligations of any other third party purchasers of the Seller's securities. Each of the Purchaser and the Seller agree and acknowledge that (i) the decision of the Purchaser to purchaser the Preferred Stock and the Warrant pursuant to this Agreement has been made (and the decision of the Purchaser to purchase the Warrant Shares pursuant to the terms of the Warrant will be made) by the Purchaser independently of any third party purchasers of the Seller's securities and (ii) no other third party purchasers of the Seller's securities have acted as agent for the Purchaser in connection with the Purchaser making its investment hereunder and that no such other third party purchasers will be acting as agent of the Purchaser in connection with monitoring its investment hereunder. Nothing contained herein or in any other Related Document or any agreement of any such third party purchaser, and no action taken by the Purchaser pursuant hereto or any third party purchaser pursuant thereto, shall be deemed to constitute the Purchaser or any such third party purchasers as a partnership, association, joint venture or any other kind of entity, or create a presumption that the Purchaser or any such third party purchasers are in any way acting in concert or as a group with respect to any matters. The Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of any of the other Related Documents, and its shall not be necessary for any such third party purchasers to be joined as an additional party in any proceeding for such purpose. To the extent that any such third party purchasers purchase the same or similar securities as the Purchaser hereunder or on the same or similar terms and conditions or pursuant to the same or similar documents, all such matters are solely in the control of the Seller, not the action or decision of the Purchaser and are not done with the knowledge of the Purchaser hereunder, and would be solely for the convenience of the Seller and not because it was required or requested by the Purchaser or any such other third party purchaser.

ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

The Purchaser hereby represents and warrants to the Seller as follows:

4.1 EXISTENCE AND POWER. The Purchaser is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. The Purchaser has all powers required to bind it to the representations, warranties and covenants set forth herein.

4.2 AUTHORIZATION. The execution, delivery and performance by the Purchaser of this Agreement, the Related Documents to which it is a party, and the consummation by the Purchaser of the transactions contemplated hereby and thereby have been duly authorized, and no additional action is required for the approval of this Agreement or the Related Documents. This Agreement and the Related Documents to which the Purchaser is a party have been or, to the extent contemplated hereby, will be duly executed and delivered and constitute valid and binding agreements of the Purchaser, enforceable against it in accordance with their terms,

except as may be limited by bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors and except that enforceability of their obligations thereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

4.3 INVESTMENT. The Purchaser is acquiring the securities described herein for its own account and not with a view to, or for sale in connection with, any distribution thereof, nor with the intention of distributing or reselling the same, provided, however, that by making the representation herein, the Purchaser 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 Securities Act. The Purchaser is aware that none of the securities has been registered under the Securities Act or under applicable state securities or blue sky laws. The Purchaser is an "ACCREDITED INVESTOR" as such term is defined in Rule 501 of Regulation D, as promulgated under the Securities Act. The Purchaser is not, and is not required to be, registered as a broker-dealer under Section 15 of the Exchange Act.

4.4 RELIANCE ON EXEMPTIONS. The Purchaser understands that the Preferred Stock and the Warrant are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Seller is relying upon the truth and accuracy of, and its compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the securities.

4.5 EXPERIENCE OF THE PURCHASER. The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in the securities and, at the present time, is able to afford a complete loss of such investment.

4.6 GENERAL SOLICITATION. The Purchaser 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.

4.7 INDEPENDENT INVESTMENT. The Purchaser has acted alone in acquiring the Securities purchased hereunder for purposes of Section 13(d) under the Exchange Act, and the Purchaser is acting independently with respect to its investment of the Securities.

ARTICLE V - COVENANTS OF THE SELLER AND PURCHASER

5.1 INSURANCE. The Seller and its Subsidiaries shall, from time to time upon the written request of the Purchaser, promptly furnish or cause to be furnished to the Purchaser evidence, in form and substance reasonably satisfactory to the Purchaser, of the maintenance of

all insurance maintained by
it for loss or damage by fire and other hazards, damage or injury to persons and property and under workmen's compensation laws.

5.2 REPORTING OBLIGATIONS. So long as any of the Preferred Stock is outstanding, and so long as the Warrant has not been exercised and has not expired by its terms, the Seller shall furnish to the Purchaser, or any other persons who hold any of the Preferred Stock or the Warrant (provided that such subsequent holders give notice to the Seller that they hold Preferred Stock or the Warrant and furnish their addresses) promptly upon their becoming available one copy of (A) each report, notice or proxy statement sent by the Seller to its stockholders generally, and of each regular or periodic report (pursuant to the Exchange Act) and (B) any registration statement, prospectus or written communication pursuant to the Securities Act relating to the issuance or registration of Conversion Shares and the Warrant Shares and filed by the Seller with the Commission or any securities market or exchange on which shares of Common Stock are listed; provided, however, that the Seller shall have no obligation to deliver periodic reports (pursuant to the Exchange Act) under this
Section 5.2 to the extent such reports are publicly available.

The Purchaser is hereby authorized to deliver a copy of any financial statement or any other information relating to the business, operations or financial condition of the Seller which may have been furnished to the Purchaser hereunder, to any regulatory body or agency having jurisdiction over the Purchaser or to any Person which shall, or shall have right or obligation to succeed to all or any part of the Purchaser's interest in the Seller or this Agreement.

5.3 INVESTIGATION. The representations, warranties, covenants and agreements set forth in this Agreement shall not be affected or diminished in any way by any investigation (or failure to investigate) at any time by or on behalf of the party for whose benefit such representations, warranties, covenants and agreements were made. Without limiting the generality of the foregoing, the inability or failure of the Purchaser to discover any breach, default or misrepresentation by the Seller under this Agreement or the Related Documents (including under any certificate furnished pursuant to this Agreement), notwithstanding the exercise by the Purchaser or other holders of the Preferred Stock issued pursuant to this Agreement or the Related Documents of their rights hereunder to conduct an investigation shall not in any way diminish any liability hereunder.

5.4 FURTHER ASSURANCES. (a) The Seller shall, at its cost and expense, upon written request of the Purchaser, duly execute and deliver, or cause to be duly executed and delivered, to the Purchaser such further instruments and do and cause to be done such further acts as may be necessary, advisable or proper, in the absolute discretion of the Purchaser, to carry out more effectually the provisions and purposes of this Agreement. The parties shall use their best efforts to timely satisfy each of the conditions described in Article VI of this Agreement.

(b) The Purchaser hereby covenants to deliver the Promissory Note to Seller as soon as practicable following the Closing Date.

5.5 USE OF PROCEEDS. The Seller covenants and agrees that the proceeds of the Purchase Price shall be used by the Seller for working capital and general corporate purposes.

5.6 CORPORATE EXISTENCE. So long as the Purchaser owns Preferred Stock, the Warrant, Conversion Shares or Warrant Shares, the Seller shall preserve and maintain and cause its Subsidiaries to preserve and maintain their corporate existence and good standing in the jurisdiction of their incorporation and the rights, privileges and franchises of the Seller and its Subsidiaries (except, in each case, in the event of a merger or consolidation in which the Seller or its Subsidiaries, as applicable, is not the surviving entity) in each case where failure to so preserve or maintain could have a Material Adverse Effect on the financial condition, business or operations of the Seller and its Subsidiaries taken as a whole.

5.7 LICENSES. So long as the Purchaser owns Preferred Stock, the Warrant, Conversion Shares or Warrant Shares, the Seller shall, and shall cause its Subsidiaries to, maintain at all times all material licenses or permits necessary to the conduct of its business and as required by any governmental agency or instrumentality thereof.

5.8 TAXES AND CLAIMS. The Seller and its Subsidiaries shall duly pay and discharge (a) all material taxes, assessments and governmental charges upon or against the Seller or its properties or assets prior to the date on which penalties attach thereto, unless and to the extent that such taxes are being diligently contested in good faith and by appropriate proceedings, and appropriate reserves therefor have been established, and (b) all material lawful claims, whether for labor, materials, supplies, services or anything else which might or could, if unpaid, become a lien or charge upon the properties or assets of the Seller or its Subsidiaries unless and to the extent only that the same are being diligently contested in good faith and by appropriate proceedings and appropriate reserves therefor have been established.

5.9 PERFORM COVENANTS. The Seller shall (a) make full and timely payment of any and all payments on the Preferred Stock, and all other obligations of the Seller to the Purchaser in connection therewith, whether now existing or hereafter arising, and (b) duly comply with all the terms and covenants contained herein and in each of the instruments and documents given to the Purchaser in connection with or pursuant to this Agreement, all at the times and places and in the manner set forth herein or therein.

5.10 ADDITIONAL COVENANTS.

(a) Except for transactions approved by a majority of the disinterested directors of the Board of Directors, neither the Seller nor any of its Subsidiaries shall enter into any transaction with any director, officer, employee or holder of more than 5% of the outstanding capital stock of any class or series of capital stock of the Seller or any of its Subsidiaries, member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or member of the family of any such person, is a director, officer, trustee, partner or holder of more than 5% of the outstanding capital stock thereof, with the exception of transactions which are consummated upon terms that are no less favorable than would be available if such transaction had been effected at arms-length, in the reasonable judgment of the Board of Directors.

(b) The Seller shall timely prepare and file with the Securities and Exchange Commission the form of notice of the sale of securities pursuant to the requirements of Regulation D regarding the sale of the Preferred Stock and the Warrant under this Agreement.

(c) The Seller shall timely prepare and file such applications, consents to service of process (but not including a general consent to service of process) and similar documents and take such other steps and perform such further acts as shall be required by the state securities law requirements of the jurisdiction where the Purchaser resides with respect to the sale of the Preferred Stock and the Warrant under this Agreement.

(d) State Securities Law Compliance --Resale. Beginning no later than 60 days following the date of this Agreement and continuing until either
(i) the Purchaser has sold all of its Registrable Securities under a registration statement pursuant to the Investor Rights Agreement or (ii) the Common Stock becomes a "covered security" under Section 18(b)(1)(A) of the Securities Act, the Seller shall maintain within either Moody's Industrial Manual or Standard and Poor's Standard Corporation Descriptions (or any successors to these manuals which are similarly qualified as "recognized securities manuals" under state Blue Sky laws) an updated listing containing (i) the names of the officers and directors of the Seller, (ii) a balance sheet of the Seller as of a date that is at no time older than eighteen months and (iii) a profit and loss statement of the Seller for either the preceding fiscal year or the most recent year of operations.

5.11 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Seller shall (i) on or promptly after the Closing Date, issue a press release disclosing the transactions contemplated hereby, and (ii) after the Closing Date, file with the Commission a Report on Form 8-K disclosing the transactions contemplated hereby. Except as provided in the preceding sentence, the Purchaser shall not make any press release or other publicity about the terms of this Agreement or the transactions contemplated hereby without the prior approval of the other unless otherwise required by law or the rules of the Commission or Nasdaq.

5.12 CORPORATE GOVERNANCE. No later than the 90th day following the Closing Date, the Seller shall be in full compliance with the corporate governance requirements applicable to companies listed on either the Nasdaq Small Cap Market, the Nasdaq National Market or the American Stock Exchange (each, a "QUALIFIED Exchange"), including, without limitation, the requirements that the Board of Directors have at least three independent members (the "INDEPENDENT DIRECTORS"), a compliant audit committee and a compliant compensation committee.

5.13 LISTING OF COMMON STOCK. The Seller shall use its best efforts to list its Common Stock on a Qualified Exchange within one year of the Closing Date.

5.14 REPAYMENT OF BRIDGE DEBT. Immediately following the Closing, the Seller shall pay $2,775,000 principal amount and accrued interest on its outstanding senior secured promissory notes due in April 2005 and May 2005 and shall as soon as practicable thereafter deliver to the Purchaser written confirmation from the lenders that such principal and interest has been repaid.

5.15 OPTION EXERCISE. In connection with (a) the exercise by the Purchaser of the Options (as defined below) and (b) the transfer pursuant to the Options of Common Stock to the Purchaser and issuance of certificates representing such shares to the Purchaser, and to the extent required by the Seller's transfer agent for the Common Stock (the "TRANSFER AGENT"), the Seller shall use its best efforts, at the Seller's cost and expense, to cause a written opinion of counsel to

be delivered to the Transfer Agent, which opinion of counsel shall be reasonably acceptable to the Transfer Agent to the effect that such transfer may be made without registration under the Securities Act and covering such other matters as the Transfer Agent may require. In addition, the Seller shall, at the Seller's cost and expense, upon written request of the Purchaser, duly execute and deliver, or cause to be duly executed and delivered, to the Purchaser or the Transfer Agent such further instruments and do and cause to be done such further acts as may be necessary, advisable or proper, in the sole discretion of the Purchaser, to effect the transfer of the shares of Common Stock to the Purchaser upon exercise of the Options and to ensure that such transfer complies with all applicable state and federal securities laws.

ARTICLE VI - CONDITIONS TO CLOSING

6.1 CONDITIONS TO OBLIGATIONS OF THE PURCHASER TO EFFECT THE CLOSING. The obligations of the Purchaser to effect the Closing and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing, of each of the following conditions, any of which may be waived, in writing, by the Purchaser:

(a) The Seller shall deliver the following:

1. (i) One or more certificates evidencing 24 shares of the Preferred Stock, duly authorized, issued, fully paid and non-assessable, to be purchased at the Closing by the Purchaser, registered in the name of the Purchaser; and

(ii) One or more certificates evidencing the Warrant, registered in the name of the Purchaser, pursuant to which the Purchaser shall be initially entitled to purchase 48,000 shares of Common Stock.

2. The Investor Rights Agreement, in the form attached hereto as EXHIBIT C (the "INVESTOR RIGHTS AGREEMENT"), duly executed by the Seller.

3. A legal opinion of Stubbs Alderton & Markiles, LLP ("SELLER'S COUNSEL"), counsel to the Seller, in the form attached hereto as EXHIBIT D.

4. A certificate of the Secretary of the Seller (the "SECRETARY'S CERTIFICATE"), in form and substance satisfactory to the Purchaser, certifying as follows:

(i) that the Articles of Amendment authorizing the Preferred Stock has been duly filed in the office of the Secretary of State of the State of Florida, and that attached to the Secretary's Certificate is true and complete copy of the Articles of Incorporation of the Seller, as amended, and the Articles of Amendment;

(ii) that a true copy of the Bylaws of the Seller, as amended to the Closing Date, is attached to the Secretary's Certificate;

(iii) that attached thereto are true and complete copies of the resolutions of the Board of Directors of the Seller authorizing the execution, delivery and performance of this Agreement and the Related Documents, instruments and

certificates required to be executed by it in connection herewith and approving the consummation of the transactions in the manner contemplated hereby including, but not limited to, the authorization and issuance of the Preferred Stock and the Warrant;

(iv) the names and true signatures of the officers of the Seller signing this Agreement and all other documents to be delivered in connection with this Agreement;

(v) such other matters as required by this Agreement; and

(vi) such other matters as the Purchaser may reasonably request.

5. Proof of due filing with the Secretary of State of the State of Florida of the Articles of Amendment authorizing the Preferred Stock.

6. Such other documents as the Purchaser shall reasonably request.

(b) Jon Nix and Robert Chmiel shall have each entered into a nine month Management Lock-Up Agreement in the form attached hereto as EXHIBIT E, and copies thereof shall have been delivered to the Purchaser at the Closing.

(c) Seller shall have applied to each U.S. securities exchange, interdealer quotation system and other trading market where its Common Stock is currently listed or qualified for trading or quotation for the listing or qualification of the Conversion Shares and the Warrant Shares for trding or quotation thereon in the time and manner required thereby.

(d) The Purchaser shall have been assigned, pursuant to an assignment dated as of the Closing Date (the "ASSIGNMENT"), the right to purchase, at a purchase price of $0.65 per share (the "OPTIONS"), 114,092 shares of restricted Common Stock pursuant to that certain Stock Option Agreement, dated as of June 30, 2004, by and between Farrald Belote and Arlene Belote, as optionors, and Jon Nix, as optionee, as amended, (the "STOCK OPTION AGREEMENT").

(e) Simultaneously with or prior to the Closing, the Seller shall have sold (the "CONTEMPORANEOUS OFFERING") securities to third party purchasers, who are not acting in concert with the Purchaser, for an aggregate of a minimum of fifteen million six hundred seventy thousand dollars ($15,670,000) or a maximum of nineteen million four hundred and thirty four thousand five hundred and fifty dollars ($19,434,550). The securities sold to any such third party purchasers shall be on, and have such terms and conditions as the Seller shall determine in its sole discretion.

(f) Seller shall have delivered to Purchaser by wire transfer of immediately available funds to an account specified in writing by Purchaser an amount equal to $17,260.27, which represents the accrued interest due to Purchaser on the Promissory Note as of the date hereof.

6.2 CONDITIONS TO OBLIGATIONS OF THE SELLER TO EFFECT THE CLOSING. The obligations of the Seller to effect the Closing and the transactions contemplated by this Agreement shall be

subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, by the Seller:

(a) The Purchaser shall deliver (i) payment of $10,000 in cash by wire transfer and $350,000 by the cancellation of the Promissory Note, pursuant to Section 2.1 hereof (as evidenced by the execution of this Agreement by the Purchaser); (ii) an executed copy of this Agreement; (iii) an executed copy of the Investor Rights Agreement; and (iv) such other documents as the Seller shall reasonably request. The Purchaser shall deliver the original Promissory Note to be cancelled to the Seller following the Closing pursuant to Section 5.4(b).

(b) Simultaneously with or prior to the Closing, the Seller shall have consummated the Contemporaneous Offering. The securities sold to any such third party purchasers pursuant to the Contemporaneous Offering shall be on, and have such terms and conditions as the Seller shall determine in its sole discretion.

ARTICLE VII - INDEMNIFICATION, TERMINATION AND DAMAGES

7.1 SURVIVAL OF REPRESENTATIONS. Except as otherwise provided herein, the representations and warranties of the Seller and the Purchaser contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing Date and shall continue in full force and effect for a period of three (3) years from the Closing Date; provided, however, that the Seller's warranties and representations under Sections 3.13 (Taxes), 3.19 (Subsidiaries and Investments), 3.20 (Capitalization), and 3.21 (Options, Warrants, Rights), shall survive the Closing Date and continue in full force and effect until the expiration of all applicable statutes of limitation; and further provided that the Seller's warranties and representations under
Section 3.24 (Environmental Matters) shall survive the Closing Date and continue in full force and effect for a period of six (6) years from the Closing Date. The Seller's and the Purchaser's warranties and representations shall in no way be affected or diminished in any way by any investigation of the subject matter thereof made by or on behalf of the Seller or the Purchaser.

7.2 INDEMNIFICATION.

(a) The Seller agrees to indemnify and hold harmless the Purchaser, its Affiliates, each of their officers, directors, partners, employees and agents and their respective successors and assigns, from and against any losses, damages, or expenses which are caused by or arise out of (i) any breach or default in the performance by the Seller of any covenant or agreement made by the Seller in this Agreement or in any of the Related Documents; (ii) any breach of warranty or representation made by the Seller in this Agreement or in any of the Related Documents; or (iii) any and all third party actions, suits, proceedings, claims, demands, judgments, costs and expenses (including reasonable legal fees and expenses) incident to any of the foregoing.

(b) The Purchaser agrees to indemnify and hold harmless the Seller, its Affiliates, each of their officers, directors, partners, employees and agents and their respective successors and assigns, from and against any losses, damages, or expenses which are caused by or arise out of (i) any breach or default in the performance by the Purchaser of any covenant or agreement made by the Purchaser in this Agreement or in any of the Related Documents; (ii) any breach of

warranty or representation made by the Purchaser in this Agreement or in any of the Related Documents; and (iii) any and all third party actions, suits, proceedings, claims, demands, judgments, costs and expenses (including reasonable legal fees and expenses) incident to any of the foregoing; provided, however, that the Purchaser's liability under this Section 7.2(b) shall not exceed the Purchase Price.

7.3 INDEMNITY PROCEDURE. A party or parties hereto agreeing to be responsible for or to indemnify against any matter pursuant to this Agreement is referred to herein as the "INDEMNIFYING PARTY" and the other party or parties claiming indemnity is referred to as the "INDEMNIFIED PARTY." An Indemnified Party under this Agreement shall, with respect to claims asserted against such party by any third party, give written notice to the Indemnifying Party of any liability which might give rise to a claim for indemnity under this Agreement within sixty (60) business days of the receipt of any written claim from any such third party, but not later than twenty (20) days prior to the date any answer or responsive pleading is due, and with respect to other matters for which the Indemnified Party may seek indemnification, give prompt written notice to the Indemnifying Party of any liability which might give rise to a claim for indemnity; provided, however, that any failure to give such notice will not waive any rights of the Indemnified Party except to the extent the rights of the Indemnifying Party are materially prejudiced.

The Indemnifying Party shall have the right, at its election, to take over the defense or settlement of such claim by giving written notice to the Indemnified Party at least fifteen (15) days prior to the time when an answer or other responsive pleading or notice with respect thereto is required. If the Indemnifying Party makes such election, it may conduct the defense of such claim through counsel of its choosing (subject to the Indemnified Party's approval of such counsel, which approval shall not be unreasonably withheld), shall be solely responsible for the expenses of such defense and shall be bound by the results of its defense or settlement of the claim. The Indemnifying Party shall not settle any such claim without prior notice to and consultation with the Indemnified Party, and no such settlement involving any equitable relief or which might have an adverse effect on the Indemnified Party may be agreed to without the written consent of the Indemnified Party (which consent shall not be unreasonably withheld). So long as the Indemnifying Party is diligently contesting any such claim in good faith, the Indemnified Party may pay or settle such claim only at its own expense and the Indemnifying Party will not be responsible for the fees of separate legal counsel to the Indemnified Party, unless the named parties to any proceeding include both parties or representation of both parties by the same counsel would be inappropriate due to conflicts of interest or otherwise. If the Indemnifying Party does not make such election, or having made such election does not, in the reasonable opinion of the Indemnified Party proceed diligently to defend such claim, then the Indemnified Party may (after written notice to the Indemnifying Party), at the expense of the Indemnifying Party, elect to take over the defense of and proceed to handle such claim in its discretion and the Indemnifying Party shall be bound by any defense or settlement that the Indemnified Party may make in good faith with respect to such claim. In connection therewith, the Indemnifying Party will fully cooperate with the Indemnified Party should the Indemnified Party elect to take over the defense of any such claim. The parties agree to cooperate in defending such third party claims and the Indemnified Party shall provide such cooperation and such access to its books, records and properties as the Indemnifying Party shall reasonably request with respect to any matter for which indemnification is sought hereunder; and the parties hereto agree to cooperate with each other in order to ensure the proper and adequate defense thereof.

With regard to claims of third parties for which indemnification is payable hereunder, such indemnification shall be paid by the Indemnifying Party upon the earlier to occur of: (i) the entry of a judgment against the Indemnified Party and the expiration of any applicable appeal period, or if earlier, five (5) days prior to the date that the judgment creditor has the right to execute the judgment; (ii) the entry of an unappealable judgment or final appellate decision against the Indemnified Party; or (iii) a settlement of the claim. Notwithstanding the foregoing, the reasonable expenses of counsel to the Indemnified Party shall be reimbursed on a current basis by the Indemnifying Party. With regard to other claims for which indemnification is payable hereunder, such indemnification shall be paid promptly by the Indemnifying Party upon demand by the Indemnified Party.

ARTICLE VIII - MISCELLANEOUS

8.1 FURTHER ASSURANCES. Each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by any other party to better evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement, and further agrees to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things necessary, proper or advisable under applicable law to consummate and make effective the transactions contemplated hereby, to obtain all necessary waivers, consents and approvals, to effect all necessary registrations and filings, and to remove any injunctions or other impediments or delays, legal or otherwise, in order to consummate and make effective the transactions contemplated by this Agreement for the purpose of securing to the parties hereto the benefits contemplated by this Agreement.

8.2 FEES AND EXPENSES. Each party shall pay the fees and expenses of its advisor, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, deliver and performance of this Agreement.

8.3 NOTICES. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:00 p.m. (New York City time) on a business day, (b) the next business day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a business day or later than 5:00 p.m. (New York City time) on any business day, or (c) the business day following the date of mailing, if sent by U.S. nationally recognized overnight courier service such as Federal Express. The address for such notices and communications shall be as follows:

If to the Purchaser, addressed to:

CD Investment Partners, Ltd.

c/o CD Capital Management LLC
Two North Riverside Plaza, Suite 600
Chicago, Illinois 60606
Attention: John Ziegelman
Facsimile No.: (312) 559-1288

If to the Seller, addressed to:

National Coal Corp.
319 Ebenezer Road
Knoxville, Tennessee 37923
Attention: Chief Executive Officer
Facsimile No.: (865) 769-3759

or to such other address or addresses or facsimile number or numbers as any such party may most recently have designated in writing to the other parties hereto by such notice. Copies of notices to the Seller shall be sent to Stubbs Alderton & Markiles, LLP, 15821 Ventura Boulevard, Suite 525, Encino, California 91436, Facsimile No. (818) 444-4520. Copies of notices to any Purchaser shall be sent to Greenberg Traurig, LLP, 77 W. Wacker Dr., Suite 2500, Chicago, Illinois 60601, Attention: Peter H. Lieberman, Esq. and Todd A. Mazur, Esq., Facsimile No. (312) 456-8435.

Unless otherwise stated above, such communications shall be effective when they are received by the addressee thereof in conformity with this Section. Any party may change its address for such communications by giving notice thereof to the other parties in conformity with this Section.

8.4 GOVERNING LAW. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and enforced in accordance with the laws of the State of New York without reference to the conflicts of laws principles thereof.

8.5 JURISDICTION AND VENUE. This Agreement shall be subject to the exclusive jurisdiction of the Federal District Court, Southern District of New York and if such court does not have proper jurisdiction, the State Courts of New York County, New York. The parties to this Agreement agree that any breach of any term or condition of this Agreement shall be deemed to be a breach occurring in the State of New York by virtue of a failure to perform an act required to be performed in the State of New York and irrevocably and expressly agree to submit to the jurisdiction of the Federal District Court, Southern District of New York and if such court does not have proper jurisdiction, the State Courts of New York County, New York for the purpose of resolving any disputes among the parties relating to this Agreement or the transactions contemplated hereby. The parties irrevocably waive, to the fullest extent permitted by law, any objection which they may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement, or any judgment entered by any court in respect hereof brought in New York County, New York, and further irrevocably waive any claim that any suit, action or proceeding brought in Federal District Court, Southern District of New York and if such court does not have proper jurisdiction, the State Courts of New York County, New York has been brought in an inconvenient forum. Each of the parties hereto consents to process being served in any such suit, action or proceeding, by mailing a copy

thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 9.5 shall affect or limit any right to serve process in any other manner permitted by law.

8.6 SUCCESSORS AND ASSIGNS. This Agreement is personal to each of the parties and may not be assigned without the written consent of the other parties; provided, however, that the Purchaser shall be permitted to assign this Agreement to any Person to whom it assigns or transfers securities or rights issued or issuable pursuant to this Agreement. Any assignee must be an "ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated under the Securities Act.

8.7 SEVERABILITY. If any provision of this Agreement, or the application thereof, shall for any reason or to any extent be invalid or unenforceable, the remainder of this Agreement and application of such provision to other persons or circumstances shall continue in full force and effect and in no way be affected, impaired or invalidated.

8.8 ENTIRE AGREEMENT. This Agreement and the other agreements and instruments referenced herein constitute the entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings.

8.9 OTHER REMEDIES. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party shall be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law, or in equity on such party, and the exercise of any one remedy shall not preclude the exercise of any other.

8.10 AMENDMENT AND WAIVERS. Any term or provision of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a writing signed by the Seller and the Purchaser, and such waiver or amendment, as the case may be, shall be binding upon the Purchaser. The waiver by a party of any breach hereof or default in the performance hereof shall not be deemed to constitute a waiver of any other default or any succeeding breach or default. This Agreement may not be amended or supplemented by any party hereto except pursuant to a written amendment executed by the Seller and the Purchaser.

8.11 NO WAIVER. The failure of any party to enforce any of the provisions hereof shall not be construed to be a waiver of the right of such party thereafter to enforce such provisions.

8.12 CONSTRUCTION OF AGREEMENT; KNOWLEDGE. For purposes of this Agreement, the term "KNOWLEDGE," when used in reference to a corporation means the knowledge of the directors and executive officers of such corporation (including, if applicable, any person designated as a chief scientific, medical or technical officer) assuming such persons shall have made inquiry that is customary and appropriate under the circumstances to which reference is made, and when used in reference to an individual means the knowledge of such individual assuming the individual shall have made inquiry that is customary and appropriate under the circumstances to which reference is made.

8.13 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original as against the party whose signature appears thereon and all of

which together shall constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of both parties. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

8.14 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the parties hereto and their respective heirs, personal representatives, legal representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement.

8.15 WAIVER OF TRIAL BY JURY. THE PARTIES HERETO IRREVOCABLY WAIVE TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

8.16 INDEPENDENT NATURE OF PURCHASER'S OBLIGATIONS AND RIGHTS. The obligations of the Purchaser under this Agreement or any Related Documents are several and not joint with the obligations of any third party purchaser of the Seller's securities, and the Purchaser shall not be responsible in any way for the performance of the obligations of any third party purchaser. Each of the Purchaser and the Seller agrees and acknowledges that (1) the decision of the Purchaser to purchase the Preferred Stock and the Warrant pursuant to this Agreement has been made (and the decision of the Purchaser to purchase the Warrant Shares pursuant to the terms of the Warrant will be made) by the Purchaser independently of any other third party purchasers of the Seller's securities and (ii) no other third party purchasers of the Seller's securities have acted as agent for the Purchaser in connection with the Purchaser making its investment hereunder and that no such other third party purchasers will be acting as agent of the Purchaser in connection with monitoring its investment hereunder. Nothing contained herein or in any Related Documents or any other agreements with any third party purchaser, and no action taken by the Purchaser pursuant hereto or any third party purchaser pursuant thereto, shall be deemed to constitute the Purchaser or any third party purchaser as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchaser and any third party purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by such agreement. The Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Related Documents, and it shall not be necessary for any third party purchaser to be joined as an additional party in any proceeding for such purpose. To the extent that any such third party purchasers purchase the same or similar securities as the Purchaser hereunder or on the same or similar terms and conditions or pursuant to the same or similar documents, all such matters are solely in the control of the Seller, not the action or decision of the Purchaser and are not done with the knowledge of the Purchaser hereunder, and would be solely for the convenience of the Seller and not because it was required or requested to do so by the Purchaser or any such other third party purchaser. The Purchaser represents that it has been represented by legal counsel in its review and negotiation of this Agreement and the Related Documents.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

SELLER:

NATIONAL COAL CORP.

By:      /S/ JON E. NIX
   -----------------------------
Name:    Jon E. Nix
Title:   Chief Executive Officer

PURCHASER:

CD INVESTMENT PARTNERS, LTD.

By: CD Capital Management LLC

Its:    Investment Manager


By:      /S/ JOHN ZIEGELMAN
--------------------------------
Name:    John Ziegelman
Title:   President

EXHIBIT G

SUBSCRIPTION FORM

[To be executed only upon exercise Additional Purchase Right]

1. The undersigned hereby elects to purchase shares of the Series A Cumulative Convertible Preferred Stock of National Coal Corp. (the "Company") along with the appropriate number of Warrants, in each case, pursuant to the terms of the Preferred Stock and Warrant Purchase Agreement, dated as of August ___, 2004 among the Company and CD Investment Partners, Ltd. (the "Purchase Agreement"), and tenders herewith payment of the purchase price of such shares in full.

2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below. The undersigned hereby makes for the benefit of the Company, as of the date hereof and with respect to the shares of Series A Cumulative Convertible Stock being acquired hereunder, the representations and warranties set forth in
Section 4.3 through 4.6 of the Purchase Agreement.

NOTICE: The signature on this subscription must correspond with the name Purchaser in the Purchase Agreement in every particular, without alteration or enlargement or any change whatsoever.

EXHIBIT H

ASSIGNMENT FORM

FOR ADDITIONAL PURCHASE RIGHT

FOR VALUE RECEIVED the undersigned Purchaser pursuant to the Preferred Stock and Warrant Purchase Agreement, dated as of August ___, 2004 among the Company and CD Investments Partners, Ltd. (the "Purchase Agreement") hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under Article VIII of the Purchase Agreement, with respect to the number of shares of Preferred Stock and Warrant Shares set forth below:

Dated:---------------------------------

NOTICE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or enlargement or any change whatsoever.

EXHIBIT 10.11

THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, ASSIGNED OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SAID ACT IS NOT REQUIRED.

Warrant No. WA-34

COMMON STOCK PURCHASE WARRANT

To Purchase 48,000 Shares of Common Stock of
NATIONAL COAL CORP.

THIS IS TO CERTIFY THAT CD Investments Partners, Ltd., or registered assigns (the "Holder"), is entitled, during the Exercise Period (as hereinafter defined), to purchase from National Coal Corp., a Florida corporation (the "Company"), the Warrant Stock (as hereinafter defined and subject to adjustment as provided herein), in whole or in part, at a purchase price of $2.10 per share, all on and subject to the terms and conditions hereinafter set forth.

1. DEFINITIONS. As used in this Warrant, the following terms have the respective meanings set forth below:

"ADDITIONAL SHARES OF COMMON STOCK" means any shares of Common Stock issued by the Company after the Closing Date other than: (i) Warrant Stock; (ii) shares issued or issuable pursuant to anti-dilution provisions of the Preferred Stock; (iii) shares issued or issuable upon the conversion of the Preferred Stock; (iv) shares issued or issuable upon the exercise of any warrants or options outstanding as of the Closing Date; (v) shares of Common Stock or Common Stock Equivalents issued in connection with a bona-fide strategic transaction;
(vii) shares of Common Stock or Common Stock Equivalents issued in connection with any stock-based compensation plans of the Company approved by the Board of Directors of the Company including all (which shall be at least three) Independent Directors (as defined in the Purchase Agreement), the number of such shares of Common Stock (or, in the case of Common Stock Equivalents, the number of shares of Common Stock acquirable pursuant thereto) not to exceed 5 million (as adjusted for stock splits, stock dividends, and the like) and the value assigned upon grant not to be less than 85% of the Current Market Price; (viii) shares issuable upon the exercise of any warrants that are issuable pursuant to the terms of the Purchase Agreement; or (ix) shares issuable upon the exercise of any warrants that are issued in connection with the Contemporaneous Offering (as defined in the Purchase Agreement).

"AFFILIATE" means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Holder of Warrants, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder will be deemed to be an Affiliate of such Holder.

"APPRAISED VALUE" means, in respect of any share of Common Stock on any date herein specified, the fair saleable value of such share of Common Stock (determined without giving effect to the discount for (i) a minority interest or
(ii) any lack of liquidity of the Common Stock or to the fact that the Company may have no class of equity registered under the Exchange Act) as of the last day of the most recent fiscal month ending prior to such date specified, based on the value of the Company on a fully-diluted basis, as determined by a nationally recognized investment banking firm selected by the Company's Board of Directors and having no prior relationship with the Company.

"BUSINESS DAY" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in Tennessee generally are authorized or required by law or other government actions to close.

"CHANGE OF CONTROL" means the (i) acquisition by an individual or legal entity or group (as set forth in Section 13(d) of the Exchange Act) of more than one-half of the voting rights or equity interests in the Company; or (ii) sale, conveyance, or other disposition of all or substantially all of the assets, property or business of the Company or its subsidiaries (whether in a single transaction or series of related transactions) or the merger into or consolidation with any other corporation (other than a wholly owned subsidiary corporation) or effectuation of any transaction or series of related transactions where holders of the Company's voting securities prior to such transaction or series of transactions fail to continue to hold at least 50% of the voting power of the Company.

"CLOSING DATE" means August 31, 2004.

"COMMISSION" means the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws.

"COMMON STOCK" means (except where the context otherwise indicates) the common stock, $0.0001 par value per share, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed or converted, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets on liquidation over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.7.

"COMMON STOCK EQUIVALENTS" has the meaning set forth in Section 4.4.

"CURRENT MARKET PRICE" means, in respect of any share of Common Stock on any date herein specified,

(1) if there shall not then be a public market for the Common Stock, the higher of

(a) the book value per share of Common Stock at such date, and

(b) the Appraised Value per share of Common Stock at such date,

or

(2) if there shall then be a public market for the Common Stock, the higher of (x) the book value per share of Common Stock at such date, and (y) the average of the daily market prices for the 5 consecutive trading days immediately before such date. The daily market price for each such trading day shall be (i) the closing price on such day on the principal stock exchange (including Nasdaq) on which such Common Stock is then listed or admitted to trading, or quoted, as applicable, (ii) if no sale takes place on such day on any such exchange, the last reported closing price on such day as officially quoted on any such exchange (including Nasdaq), (iii) if the Common Stock is not then listed or admitted to trading on any stock exchange, the last reported closing bid price on such day in the over-the-counter market, as furnished by the National Association of Securities Dealers Automatic Quotation System or the National Quotation Bureau, Inc., (iv) if neither such corporation at the time is engaged in the business of reporting such prices, as furnished by any similar firm then engaged in such business, or (v) if there is no such firm, as furnished by any member of the National Association of Securities Dealers, Inc. (the "NASD") selected mutually by the holder of this Warrant and the Company or, if they cannot agree upon such selection, as selected by two such members of the NASD, one of which shall be selected by holder of this Warrant and one of which shall be selected by the Company.

"CURRENT WARRANT PRICE" means, in respect of a share of Common Stock at any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. Until the Current Warrant Price is adjusted pursuant to the terms herein, the initial Current Warrant Price shall be $2.10 per share of Common Stock.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time.

"EXERCISE PERIOD" means the period during which this Warrant is exercisable pursuant to Section 2.1.

"EXPIRATION DATE" means August 31, 2006.

"GAAP" means generally accepted accounting principles in the United States of America as from time to time in effect.

"NASD" means the National Association of Securities Dealers, Inc., or any successor corporation thereto. ----
"OTHER PROPERTY" has the meaning set forth in Section 4.7.

"PERSON" means any individual, sole proprietorship, partnership, joint venture, trust, incorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof).

"PREFERRED STOCK" shall mean the Company's Series A Cumulative Convertible Preferred Stock, par value $0.0001 per share.

"PURCHASE AGREEMENT" means that certain Preferred Stock and Warrant Purchase Agreement dated as of August 31, 2004 between the Company and CD Investment Partners, Ltd., pursuant to which this Warrant was originally issued.

"RESTRICTED COMMON STOCK" means shares of Common Stock which are, or which upon their issuance upon the exercise of any Warrant would be required to be, evidenced by a certificate bearing the restrictive legend set forth in
Section 3.2.

"SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

"TRADING DAY" means any day on which the primary market on which shares of Common Stock are listed is open for trading.

"TRANSFER" means any disposition of any Warrant or Warrant Stock or of any interest in either thereof, which would constitute a sale thereof within the meaning of the Securities Act.

"WARRANTS" means this Warrant and all warrants issued upon transfer, division or combination of, or in substitution for, any thereof. All Warrants shall at all times be identical as to terms and conditions and date, except as to the number of shares of Common Stock for which they may be exercised.

"WARRANT PRICE" means an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price.

"WARRANT STOCK" means the 48,000 shares of Common Stock to be purchased upon the exercise hereof, subject to adjustment as provided herein.

2. EXERCISE OF WARRANT.

2.1. MANNER OF EXERCISE. From and after the Closing Date, and until 5:00 P.M., New York time, on the Expiration Date (the "Exercise Period"), the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Warrant Stock purchasable hereunder.

In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its principal office or at the office or agency designated by the Company pursuant to Section 12, (i) a written notice of Holder's election to exercise this Warrant, which notice shall specify the number of shares of Warrant Stock to be purchased, (ii) payment of the Warrant Price as provided herein, and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as EXHIBIT A, duly executed by the Holder

or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within three Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Warrant Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request in the notice and shall be registered in the name of the Holder or such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a Holder of record of such shares for all purposes, as of the date when the notice, together with the payment of the Warrant Price and this Warrant, is received by the Company as described above. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Stock, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder.

If the Company intentionally and willfully fails to deliver to the holder such certificate or certificates pursuant to this Section 2.1 (free of any restrictions on transfer or legends, if such shares have been registered) in accordance herewith, prior to the seventh trading day after the receipt by the Company of (i) a written notice of the Holder's election to exercise this Warrant, which notice shall specify the number of shares of Warrant Stock to be purchased, (ii) payment of the Warrant Price as provided herein, and (iii) this Warrant (the "Date of Receipt"), the Company shall pay to such Holder, in cash, on a per diem basis, an amount equal to 2% of the value of the undelivered Warrant Stock (based on the Current Market Price of the Common Stock on the Date of Receipt) per month until such delivery takes place.

Payment of the Warrant Price may be made at the option of the Holder by: (i) certified or official bank check payable to the order of the Company,
(ii) wire transfer to the account of the Company or (iii) at any time after January 28, 2005 if, at any time and from time to time, the Warrant Stock is not registered for resale pursuant to an effective registration statement pursuant to which sales may be made, the surrender and cancellation of a portion of shares of Common Stock then held by the Holder or issuable upon such exercise of this Warrant, which shall be valued and credited toward the total Warrant Price due the Company for the exercise of the Warrant based upon the Current Market Price of the Common Stock. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued and, upon payment of the Warrant Price, shall be fully paid and nonassessable and not subject to any preemptive rights.

2.2. FRACTIONAL SHARES. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay an amount in cash equal to the Current Market Price per share of Common Stock on the date of exercise multiplied by such fraction.

2.3. CONTINUED VALIDITY. A Holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a Holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as the Holder under Sections 10 and 13 of this Warrant.

2.4. RESTRICTIONS ON EXERCISE AMOUNT.

(i) The Holder may not acquire a number of shares of Warrant Stock, and the Company shall not effect any exercise of this Warrant, to the extent that, upon such exercise, the number of shares of Common Stock then beneficially owned by the Holder and its Affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act (including shares held by any "group" of which the holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein), exceeds 4.99% of the total number of shares of Common Stock of the Company then issued and outstanding. For purposes hereof, "group" has the meaning set forth in Section 13(d) of the Exchange Act and applicable rules and regulations of the Securities and Exchange Commission, and the percentage held by the holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act and applicable rules and regulations of the SEC. Each delivery of a notice of exercise by a Holder will constitute a representation by such Holder that it has evaluated the limitation set forth in this paragraph and determined, based on the most recent public filings by the Company with the Commission, that the issuance of the full number of shares of Warrant Stock requested in such notice of exercise is permitted under this paragraph. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this Section 2.4(i) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended 4.99% beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such 4.99% limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant. The holders of Common Stock of the Company shall be third party beneficiaries of this Section 2.4(i) and the Company may not waive this Section 2.4(i) without the consent of holders of a majority of its Common Stock.

(ii) In the event the Company is prohibited from issuing shares of Warrant Stock as a result of any restrictions or prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization, the Company shall as soon as possible seek the approval of its stockholders and take such other action to authorize the issuance of the full number of shares of Common Stock issuable upon exercise of this Warrant.

3. TRANSFER, DIVISION AND COMBINATION.

3.1. TRANSFER. The Warrants and the Warrant Stock shall be freely transferable, subject to compliance with all applicable laws, including, but not limited to the Securities Act. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant or the resale

of the Warrant Stock, this Warrant or the Warrant Stock, as applicable, shall not be registered under the Securities Act, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant or the Warrant Stock as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such transfer may be made without registration under the Securities Act, (ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and substantially in the form attached as EXHIBIT C hereto and (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act. Transfer of this Warrant and all rights hereunder, in whole or in part, in accordance with the foregoing provisions, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in
Section 2.1 or the office or agency designated by the Company pursuant to
Section 12, together with a written assignment of this Warrant substantially in the form of EXHIBIT B hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Following a transfer that complies with the requirements of this Section 3.1, the Warrant may be exercised by a new Holder for the purchase of shares of Common Stock regardless of whether the Company issued or registered a new Warrant on the books of the Company.

3.2. RESTRICTIVE LEGEND. Each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, AND MAY NOT BE OFFERED, SOLD, ASSIGNED OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SAID ACT IS NOT REQUIRED."

3.3. DIVISION AND COMBINATION; EXPENSES; BOOKS. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with
Section 3.1 as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. The Company shall prepare, issue and deliver at its own expense the new Warrant or Warrants under this Section 3. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants.

4. ADJUSTMENTS. The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 in accordance with Sections 5.1 and 5.2.

4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time while this Warrant is outstanding the Company shall:

(i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock,

(ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or

(iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then:

(1) the number of shares of Common Stock acquirable upon exercise of this Warrant immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock that would have been acquirable under this Warrant immediately prior to the record date for such dividend or distribution or the effective date of such subdivision or combination would own or be entitled to receive after such record date or the effective date of such subdivision or combination, as applicable, and

(2) the Current Warrant Price shall be adjusted to equal:

(A) the Current Warrant Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision or combination, multiplied by the number of shares of Common Stock into which this Warrant is exercisable immediately prior to the adjustment, divided by

(B) the number of shares of Common Stock into which this Warrant is exercisable immediately after such adjustment.

Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clauses (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time while this Warrant is outstanding the Company shall cause the holders of its Common Stock to be entitled to receive any dividend or other distribution of:

(i) cash,

(ii) any evidences of its indebtedness, any shares of stock of any class or any

other securities or property or assets of any nature whatsoever (other than cash or additional shares of Common Stock as provided in Section 4.1 hereof), or

(iii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property or assets of any nature whatsoever, then:

(1) the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to equal the product of the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to the record date for such dividend or distribution, multiplied by a fraction (x) the numerator of which shall be the Current Warrant Price per share of Common Stock at the date of taking such record and (y) the denominator of which shall be such Current Warrant Price minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined in good faith by the Board of Directors of the Company) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable; and

(2) the Current Warrant Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution shall be adjusted to equal (x) the Current Warrant Price multiplied by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to the adjustment, divided by (y) the number of shares of Common Stock acquirable upon exercise of this Warrant immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1.

4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.

(i) If at any time while this Warrant is outstanding the Company shall issue or sell any Additional Shares of Common Stock in exchange for consideration in an amount per Additional Share of Common Stock less than $1.50 (as adjusted for stock splits, stock dividends and the like) at the time the additional shares of Common Stock are issued or sold, then:

(A) the Current Warrant Price immediately prior to such issue or sale shall be reduced to a price determined by dividing

(1) an amount equal to the sum of (a) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Current Warrant Price, plus (b) the consideration, if any, received by the Company upon such issue or sale, by

(2) the total number of shares of Common Stock outstanding immediately after such issue or sale; and

(B) the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to equal the amount obtained by

(1) multiplying the Current Warrant Price in effect immediately prior to such issue or sale by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such issue or sale and

(2) dividing the product thereof by the Current Warrant Price resulting from the adjustment made pursuant to clause (A).

(ii) The provisions of paragraph 4.3(i) shall not apply to any issuance of additional shares of Common Stock for which an adjustment is provided under Section 4.1 or 4.2. No adjustment of the number of shares of Common Stock acquirable upon exercise of this Warrant shall be made under paragraph 4.3(i) upon the issuance of any additional shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such convertible securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4.

4.4. ISSUANCE OF COMMON STOCK EQUIVALENTS. If at any time while this Warrant is outstanding the Company shall issue or sell any warrants or other rights to subscribe for or purchase any additional shares of Common Stock or any securities convertible into shares of Common Stock (other than the Additional Shares of Common Stock) (collectively, "Common Stock Equivalents"), whether or not the rights to exchange or convert thereunder are immediately exercisable, and the effective price per share for which Common Stock is issuable upon the exercise, exchange or conversion of such Common Stock Equivalents shall be less than the Current Warrant Price in effect immediately prior to the time of such issue or sale, then the number of shares of Warrant Stock acquirable upon the exercise of this Warrant and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of additional shares of Common Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of the actual issuance of such Common Stock Equivalents. No further adjustments to the current Warrant Price shall be made under this
Section 4.4 upon the actual issue of such Common Stock upon the exercise, conversion or exchange of such Common Stock Equivalents.

4.5. SUPERSEDING ADJUSTMENT.

(i) If, at any time after any adjustment of the number of shares of Common Stock into which this Warrant is exercisable and the Current Warrant Price shall have been made pursuant to Section 4.4 as the result of any issuance of Common Stock Equivalents, (x) the right to exercise, convert or exchange all or a portion of such Common Stock Equivalents shall expire unexercised, or (y) the conversion rate or consideration per share for which shares of Common

Stock are issuable pursuant to such Common Stock Equivalents shall be increased solely by virtue of provisions therein contained for an automatic increase in such conversion rate or consideration per share upon the occurrence of a specified date or event, then any such previous adjustments to the Current Warrant Price and the number of shares of Common Stock for which this Warrant is exercisable shall be rescinded and annulled and the additional shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation.

(ii) Upon the occurrence of an event set forth in Section 4.5(i) above there shall be a recomputation made of the effect of such Common Stock Equivalents on the basis of: (i) treating the number of additional shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise, conversion or exchange of such Common Stock Equivalents, as having been issued on the date or dates of any such exercise, conversion or exchange and for the consideration actually received and receivable therefor, and (ii) treating any such Common Stock Equivalents which then remain outstanding as having been granted or issued immediately after the time of such increase of the conversion rate or consideration per share for which shares of Common Stock or other property are issuable under such Common Stock Equivalents; whereupon a new adjustment to the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled.

4.6. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock into which this Warrant is exercisable and the Current Warrant Price provided for in Section 4:

(a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond, the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock into which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.

(b) FRACTIONAL INTERESTS. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/100th of a share.

(c) WHEN ADJUSTMENT NOT REQUIRED. If the Company undertakes a transaction contemplated under this Section 4 and as a result takes a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights or other benefits contemplated under this Section 4 and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such

dividend, distribution, subscription or purchase rights or other benefits contemplated under this Section 4, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled.

(d) ESCROW OF STOCK. If after any property becomes distributable pursuant to Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, the Holder of this Warrant exercises the Warrant during such time, then the Holder shall continue to be entitled to receive any shares of Common Stock issuable upon exercise hereunder by reason of such adjustment and such shares or other property shall be held in escrow for the Holder of this Warrant by the Company to be issued to the Holder of this Warrant upon and to the extent that the event actually takes place. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be canceled by the Company and escrowed property returned to the Company.

4.7. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS.

(a) If there shall occur a Change of Control and if pursuant to the terms of such Change of Control, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder of this Warrant shall have the right thereafter to receive, upon the exercise of the Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and the Other Property receivable upon or as a result of such Change of Control by a holder of the number of shares of Common Stock into which this Warrant is exercisable immediately prior to such event.

(b) In case of any such Change of Control described above, the successor or acquiring corporation (if other than the Company) and, if an entity different from the successor or surviving entity, the entity whose capital stock or assets the holders of Common Stock of the Company are entitled to receive as a result of such transaction, shall expressly assume the due and punctual observance and performance of each and every covenant and condition contained in this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock into which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in Section 4. For purposes of
Section 4, common stock of the successor or acquiring corporation shall include stock of such corporation of any class which is not preferred as to dividends or assets on liquidation over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4 shall similarly apply to successive Change of Control transactions.

4.8. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to time the Company shall take any action in respect of its Common Stock, other than the payment of dividends permitted by Section 4 or any other action described in Section 4, then, unless such action will not have an adverse effect upon the rights of the holder of this Warrant, the number of shares of Common Stock or other stock into which this Warrant is exercisable and/or the purchase price thereof shall be adjusted in such manner as may be equitable in the circumstances.

4.9. CERTAIN LIMITATIONS. Notwithstanding anything herein to the contrary, the Company agrees not to enter into any transaction which, by reason of any adjustment hereunder, would cause the Current Warrant Price to be less than the par value per share of Common Stock.

4.10. STOCK TRANSFER TAXES. The issue of stock certificates upon exercise of this Warrant shall be made without charge to the Holder for any tax in respect of such issue. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares in any name other than that of the Holder of this Warrant, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

5. NOTICES TO WARRANT HOLDERS.

5.1. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Current Warrant Price, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to the Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of the Holder of this Warrant, furnish or cause to be furnished to the Holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Current Warrant Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, or other property which at the time would be received upon the exercise of Warrants owned by the Holder.

5.2. NOTICE OF CORPORATE ACTION. If at any time:

(a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend (other than a cash dividend payable out of earnings or earned surplus legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company) or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or

(b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation, or

(c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to the Holder (i) at least 20 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to the Holder at the last address of the Holder appearing on the books of the Company and delivered in accordance with Section 16.2.

5.3. NO RIGHTS AS STOCKHOLDER. This Warrant does not entitle the Holder to any voting or other rights as a stockholder of the Company prior to exercise and payment of the Warrant Price in accordance with the terms hereof.

6. NO IMPAIRMENT. The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action 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 (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder.

7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH APPROVAL OF ANY GOVERNMENTAL AUTHORITY. From and after the Closing Date, the Company shall at all times reserve and keep available for issue upon the exercise of Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all

outstanding Warrants (without regard to any ownership limitations provided in
Section 2.4(i)). All shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable, and not subject to preemptive rights. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law before such shares may be so issued (other than as a result of a prior or contemplated distribution by the Holder of this Warrant), the Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered.

8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant.

9. REGISTRATION RIGHTS. The resale of the Warrant Stock shall be registered in accordance with the terms and conditions contained in that certain Investor Rights Agreement dated of even date hereof, between CD Investment Partners, Ltd. and the Company (the "Investor Rights Agreement"). The Holder acknowledges that pursuant to the Investor Rights Agreement, the Company has the right to request that the Holder furnish information regarding such Holder and the distribution of the Warrant Stock as is required by law or the Commission to be disclosed in the Registration Statement (as such term is defined in the Investor Rights Agreement), and the Company may exclude from such registration the shares of Warrant Stock acquirable hereunder if the Holder fails to furnish such information within a reasonable time prior to the filing of each Registration Statement, supplemented prospectus included therein and/or amended Registration Statement.

10. SUPPLYING INFORMATION. Upon any default by the Company of its obligations hereunder or under the Investor Rights Agreement, the Company shall cooperate with the Holder in supplying such information as may be reasonably necessary for the Holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Warrant or Restricted Common Stock.

11. LOSS OR MUTILATION. Upon receipt by the Company from the Holder of evidence

reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and indemnity or security reasonably satisfactory to it and reimbursement to the Company of all reasonable expenses incidental thereto and in case of mutilation upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor to the Holder; provided, however, that in the case of mutilation, no indemnity shall be required if this Warrant in identifiable form is surrendered to the Company for cancellation.

12. OFFICE OF THE COMPANY. As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant.

13. FINANCIAL AND BUSINESS INFORMATION.

13.1. QUARTERLY INFORMATION. The Company will deliver to the Holder, as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, one copy of an unaudited consolidated balance sheet of the Company and its subsidiaries as at the end of such quarter, and the related unaudited consolidated statements of income, retained earnings and cash flow of the Company and its subsidiaries for such quarter and, in the case of the second and third quarters, for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year. Such financial statements shall be prepared by the Company in accordance with GAAP and accompanied by the certification of the Company's chief executive officer or chief financial officer that such financial statements present fairly the consolidated financial position, results of operations and cash flow of the Company and its subsidiaries as at the end of such quarter and for such year-to-date period, as the case may be; provided, however, that the Company shall have no obligation to deliver such quarterly information under this Section 13.1 to the extent it is publicly available; and provided further, that if such information contains material non-public information, the Company shall so notify the Holder prior to delivery thereof and the Holder shall have the right to refuse delivery of such information.

13.2. ANNUAL INFORMATION. The Company will deliver to the Holder as soon as available and in any event within 90 days after the end of each fiscal year of the Company, one copy of an audited consolidated balance sheet of the Company and its subsidiaries as at the end of such year, and audited consolidated statements of income, retained earnings and cash flow of the Company and its subsidiaries for such year; setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year; all prepared in accordance with GAAP, and which audited financial statements shall be accompanied by an opinion thereon of the independent certified public accountants regularly retained by the Company, or any other firm of independent certified public accountants of recognized national standing selected by the Company; provided, however, that the Company shall have no obligation to deliver such annual information under this Section 13.2 to the extent it is publicly available; and provided further, that if such information contains material non-public information, the Company shall so notify the Holder prior to delivery thereof and the Holder shall have the right to refuse delivery of such information.

13.3. FILINGS. The Company will file on or before the required date all regular or periodic reports (pursuant to the Exchange Act) with the Commission and will deliver to the Holder promptly upon their becoming available one copy of each report, notice or proxy statement sent by the Company to its stockholders generally.

14. LIMITATION OF LIABILITY. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of the Holder for the purchase price of any Common Stock, whether such liability is asserted by the Company or by creditors of the Company.

15. REDEMPTION AT COMPANY'S ELECTION.

15.1. The Company may at the option of the Board of Directors of the Company redeem this Warrant, in whole or in part, at any time after March 1, 2006 provided that (i) the Current Market Price (as determined by paragraph (2) of such definition) is greater than $4.20 (as adjusted for stock splits, reverse splits, stock dividends and the like) for ten consecutive trading days and (ii) all of the Warrant Stock underlying the Warrants to be redeemed (x) is then registered under an effective registration statement in accordance with the terms and conditions of the Investor Rights Agreement and the Company is in compliance in all material respects with the Investor Rights Agreement or (y) may be sold without restriction pursuant to Rule 144(k) promulgated by the Commission under the Securities Act. The amount payable in redemption of the rights to purchase the Warrant Stock pursuant to this Section 15.1 shall be cash equal to $0.01 multiplied by the number of Warrant Shares that would be issuable upon exercise of the Warrants being redeemed (the "Redemption Price").

15.2. The Company shall effect a redemption as follows:

(i) The number of warrants subject to redemption (including the Warrants) shall be allocated pro rata among the holders of all of the Warrants (collectively, the "Redemption Warrants"), based upon the number of Redemption Warrants then outstanding that are held by each such holder.

(ii) The Company shall pay the Redemption Price in cash for the Redemption Warrants to be redeemed.

(iii) At least 15 but no more than 60 days prior to the date fixed for any redemption of any Redemption Warrants (the "Redemption Date"), written notice shall be given to each holder of record of Redemption Warrants to be redeemed, notifying such holder of the redemption to be effected, specifying the Redemption Date, the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the Company, in the manner and at the place designated, its certificate or certificates representing the Redemption Warrants to be redeemed (the "Redemption Notice"). On or after the Redemption Date, each holder of Redemption Warrants to be redeemed shall surrender to the Company the certificate or certificates representing such warrants, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price therefor shall be paid to the person whose name appears on such certificate or certificates as the owner thereof, and upon such

payment, each surrendered certificate shall be canceled. In the event less than all the warrants represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed warrants. For avoidance of doubt, the Holder may exercise the Warrant at any time prior to the redemption of the Warrant pursuant to this Section 15.

16. MISCELLANEOUS.

16.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice the Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any other provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any third party costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

16.2. NOTICE GENERALLY. All notices, requests, demands or other communications provided for herein shall be in writing and shall be given in the manner and to the addresses set forth in the Purchase Agreement.

16.3. SUCCESSORS AND ASSIGNS. Subject to compliance with the provisions of Section 3.1, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of the Holder. The provisions of this Warrant are intended to be for the benefit of all holders from time to time of this Warrant, and shall be enforceable by any such holder.

16.4. AMENDMENT. This Warrant may be modified or amended or the provisions of this Warrant waived with the written consent of both the Company and the Holder.

16.5. SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be modified to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant.

16.6. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

16.7. GOVERNING LAW. This Warrant and the transactions contemplated hereby shall be deemed to be consummated in the State of New York and shall be governed by and interpreted in accordance with the local laws of the State of New York without regard to the provisions thereof relating to conflicts of laws. The Company hereby irrevocably consents to the exclusive jurisdiction of the State and Federal courts located in New York City, New York in connection with any action or proceeding arising out of or relating to this Warrant. In any such litigation the Company agrees that the service thereof may be made by certified or registered mail directed to the Company pursuant to Section 16.2.

[Signature Page Follows]

IN WITNESS WHEREOF, National Coal Corp. has caused this Warrant to be executed by its duly authorized officer and attested by its Secretary.

Dated: August 31, 2004

NATIONAL COAL CORP.

                               By:      /S/ JON E. NIX
                                  -----------------------------
                               Name:    Jon E. Nix
                               Title:   Chief Executive Officer

Attest:

By:     /S/ JEANNE BOWEN NIX
   ----------------------------
Name:  Jeanne Bowen Nix
Title: Secretary

EXHIBIT A

SUBSCRIPTION FORM

[To be executed only upon exercise of Warrant]

1. The undersigned hereby elects to purchase shares of the Common Stock of National Coal Corp. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full.

2. The undersigned hereby elects to convert the attached Warrant into Common Stock of National Coal Corp. through "cashless exercise" in the manner specified in the Warrant. This conversion is exercised with respect to _____________________ of the shares covered by the Warrant.

3. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below:

[and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned.]

NOTICE: The signature on this subscription must correspond with the name as written upon the face of the Warrant in every particular, without alteration or enlargement or any change whatsoever.

EXHIBIT B

ASSIGNMENT FORM

FOR VALUE RECEIVED the undersigned registered owner of this Warrant for the purchase of shares of common stock of National Coal Corp. hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of common stock set forth below:

and does hereby irrevocably constitute and appoint ____________ attorney-in-fact to register such transfer on the books of the Company, maintained for the purpose, with full power of substitution in the premises.

Dated:________________________________

NOTICE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or enlargement or any change whatsoever.

EXHIBIT C

FORM OF INVESTMENT REPRESENTATION LETTER

In connection with the acquisition of [warrants (the "Warrants") to purchase ____ shares of common stock of National Coal Corp. (the "Company"), par value $0.0001 per share (the "Common Stock")][___ shares of common stock of National Coal Corp. (the "Company"), par value $0.0001 per share (the "Common Stock") upon the exercise of warrants by ________], by _______________ (the "Holder") from -------------, the Holder hereby represents and warrants to the Company as follows:

The Holder (i) is an "Accredited Investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the "Act"); and (ii) has the ability to bear the economic risks of such Holder's prospective investment, including a complete loss of Holder's investment in the Warrants and the shares of Common Stock issuable upon the exercise thereof (collectively, the "Securities").

The Holder, by acceptance of the Warrants, represents and warrants to the Company that the Warrants and all securities acquired upon any and all exercises of the Warrants are purchased for the Holder's own account, and not with view to distribution of either the Warrants or any securities purchasable upon exercise thereof in violation of applicable securities laws.

The Holder acknowledges that (i) the Securities have not been registered under the Act, (ii) the Securities are "restricted securities" and the certificate(s) representing the Securities shall bear the following legend, or a similar legend to the same effect, until (i) in the case of the shares of Common Stock underlying the Warrants, such shares shall have been registered for resale by the Holder under the Act and effectively been disposed of in accordance with a registration statement that has been declared effective; or (ii) in the opinion of counsel for the Company such Securities may be sold without registration under the Act:

"[NEITHER] THE SECURITIES REPRESENTED BY THIS CERTIFICATE [NOR THE SECURITIES INTO WHICH THEY ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ALL SUCH SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS CERTIFICATE. [NEITHER] THE SECURITIES REPRESENTED HEREBY [NOR THE SECURITIES INTO WHICH THEY ARE EXERCISABLE] MAY [NOT] BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT REGISTRATION UNDER THE ACT."

IN WITNESS WHEREOF, the Holder has caused this Investment Representation Letter to be executed in its corporate name by its duly authorized officer this __ day of __________ 200_.

[Name]

By:______________________________
Name:
Title:

EXHIBIT 10.12

INVESTOR RIGHTS AGREEMENT

This Investor Rights Agreement (this "AGREEMENT") is made and entered into as of August 31, 2004 between National Coal Corp., a Florida corporation (the "COMPANY"), and CD Investment Partners, Ltd. (the "PURCHASER").

This Agreement is being entered into pursuant to the Preferred Stock and Warrant Purchase Agreement, dated as of the date hereof, by and between the Company and the Purchaser (the "PURCHASE AGREEMENT").

The Company and the Purchaser hereby agree as follows:

1. DEFINITIONS.

Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

"ADVICE" shall have the meaning set forth in Section 3(m).

"AFFILIATE" means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing.

"ARTICLES OF INCORPORATION" means the Articles of Incorporation of the Company, as amended.

"BLACKOUT PERIOD" shall have the meaning set forth in Section 3(n).

"BOARD" shall have the meaning set forth in Section 3(n).

"BUSINESS DAY" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of Tennessee generally are authorized or required by law or other government actions to close.

"COMMISSION" means the Securities and Exchange Commission.

"COMMON STOCK" means the Company's Common Stock, par value $0.0001 per share.

"EFFECTIVE DATE" means the date on which the Registration Statement is first declared effective with respect to all Registrable Securities.

"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2.

"EVENT" shall have the meaning set forth in Section 7(e).

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

"FILING DATE" means the 60th day following the Closing Date.

"HOLDER" or "HOLDERS" means the holder or holders, as the case may be, from time to time of Registrable Securities, including without limitation the Purchaser and its assignees.

"INDEMNIFIED PARTY" shall have the meaning set forth in Section 5(c).

"INDEMNIFYING PARTY" shall have the meaning set forth in Section 5(c).

"LOSSES" shall have the meaning set forth in Section 5(a).

"PERSON" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.

"PROCEEDING" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

"PROSPECTUS" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference in such Prospectus.

"REGISTRABLE SECURITIES" means (a) the Conversion Shares and the Warrant Shares (without regard to any limitations on beneficial ownership contained in the Articles of Incorporation or Warrants) or other securities issued or issuable to the Purchaser or its transferee or designee (i) upon conversion of the Preferred Stock and/or upon exercise of the Warrants, or (ii) upon any dividend or distribution with respect to, any exchange for or any replacement of such Preferred Stock or Warrants or (iii) upon any conversion, exercise or exchange of any securities issued in connection with any such distribution, exchange or replacement; (b) the shares of Common Stock purchased by the Purchaser from Farrald Belote and Arlene Belote upon exercise of that certain Stock Option Agreement, dated as of June 30, 2004, by and between Farrald Belote and Arlene Belote and Jon Nix; (c) securities issued or issuable upon any stock split, stock dividend, recapitalization or similar event with respect to any of the foregoing; and (d) any other security issued as a dividend or other distribution with respect to, in exchange for, in replacement or redemption of, or in reduction of the liquidation value of, any of the securities referred to in the preceding clauses; provided, however, that such securities shall cease to be Registrable Securities when such securities have been sold to or through a broker or dealer or underwriter in a public

distribution or a public securities transaction or when such securities may be sold without any restriction pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter, addressed to the Company's transfer agent to such effect as described in Section 2 of this Agreement. The parties acknowledge that the Company may choose to include the Registrable Securities hereunder on a registration statement with other similar securities, but only if to do so would not materially adversely affect the Holder.

"REGISTRATION STATEMENT" means the registration statements and any additional registration statements contemplated by Section 2, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference in any such registration statements.

"RULE 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

"RULE 158" means Rule 158 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

"RULE 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

"SECURITIES ACT" means the Securities Act of 1933, as amended.

"SPECIAL COUNSEL" means Greenberg Traurig, LLP, special counsel to the Holders.

"WARRANTS" shall have the meaning assigned in the Purchase Agreement.

"WARRANT SHARES" means the shares of Common Stock issuable upon the exercise of the warrants issued or to be issued to the Purchaser or its assignees or designees in connection with the offering consummated under the Purchase Agreement (including Warrants issued pursuant to Article VIII of the Purchase Agreement).

2. REGISTRATION. As soon as possible following the Closing Date (but not later than the Filing Date), the Company shall prepare and file with the Commission a "shelf" Registration Statement covering all Registrable Securities for a secondary or resale offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 (or if such form is not available to the Company on Form SB-2 or another form appropriate for such registration in accordance herewith). The Company shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act not later than one hundred and twenty (120) days after the Closing Date (including filing with the Commission a request for acceleration of effectiveness in accordance with Rule 461

promulgated under the Securities Act within five (5) Business Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or not be subject to further review) and to keep such Registration Statement continuously effective under the Securities Act until the earlier of (x) the date when all Registrable Securities covered by such Registration Statement have been sold or
(y) the date on which the Registrable Securities may be sold without any restriction pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter, addressed to the Company's transfer agent to such effect (the "EFFECTIVENESS PERIOD"). Upon the initial filing thereof, the Registration Statement shall cover at least 100% of the shares of Common Stock for issuance upon the conversion of the Preferred Stock, 100% of the shares of Common Stock for issuance upon the exercise of the Warrants and 100% of the other Registrable Securities. If the Commission informs the Company that it will not allow the Registration Statement to cover any of the Registrable Securities, then the Registration Statement shall cover the highest percentage of such Registrable Securities that the Commission will allow. Such Registration Statement also shall cover, to the extent allowable under the Securities Act and the Rules promulgated thereunder (including Securities Act Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities.

3. REGISTRATION PROCEDURES.

In connection with the Company's registration obligations hereunder, the Company shall:

(a) Prepare and file with the Commission on or prior to the Filing Date, a Registration Statement on Form S-3 (or if such form is not available to the Company on Form SB-2 or another form appropriate for such registration in accordance herewith) (which shall include a Plan of Distribution substantially in the form of EXHIBIT A attached hereto), and cause the Registration Statement to become effective and remain effective as provided herein; provided, however, that not less than three (3) Business Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall (i) furnish to the Special Counsel, copies of all such documents proposed to be filed, which documents (other than those incorporated by reference) will be subject to the review of such Special Counsel, and (ii) at the request of any Holder cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of counsel to such Holders, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of the Registrable Securities or the Special Counsel shall reasonably object in writing within three (3) Business Days after their receipt thereof.

(b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the Registrable Securities for the Effectiveness Period and to the extent any Registrable Securities are not included in such

Registration Statement for reasons other than the failure of the Holder to comply with Section 3(m) hereof, shall prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond as promptly as possible to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented. In addition, the Company shall promptly prepare and file such amendments, including post-effective amendments, to the Registration Statement and the related Prospectus and take all other actions as may be necessary to register the sale of Registrable Securities by any Holder to whom the rights under this Agreement have been assigned pursuant to Section 7(j).

(c) Notify the Holders of Registrable Securities to be sold and the Special Counsel as promptly as possible (A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement or additional Registration Statement is proposed to be filed (but in no event in the case of this subparagraph (A), less than three (3) Business Days prior to date of such filing); (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement; and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective, and after the effectiveness thereof: (i) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose;
(iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (iv) if the financial statements included in the Registration Statement become ineligible for inclusion therein or of the occurrence of any event that makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limitation to any remedies to which the Holders may be entitled under this Agreement, if any of the events described in Sections 3(c)(C)(i), 3(c)(C)(ii), 3(c)(C)(iii), or 3(c)(C)(iv) occur, the Company shall use its best efforts to respond to and correct the event.

(d) Use its best efforts to avoid the issuance of, or, if issued, use best efforts to obtain the withdrawal of, (i) any order suspending the effectiveness of the Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(e) If requested by any Holder of Registrable Securities, (i) promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Company reasonably agrees should be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided, however, that the Company shall not be required to take any action pursuant to this Section 3(e) that would, in the written opinion of counsel for the Company (addressed to the Special Counsel), violate applicable law.

(f) Furnish to each Holder and the Special Counsel, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

(g) Promptly deliver to each Holder and the Special Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

(h) Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders and the Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as any Holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any jurisdiction where it is not then so subject or subject the Company to any material tax in any such jurisdiction where it is not then so subject.

(i) Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to

be sold pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by applicable law and the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any Holder may request at least two (2) Business Days prior to any sale of Registrable Securities. In connection therewith, the Company shall promptly after the Effective Date cause an opinion of counsel to be delivered to and maintained with its transfer agent, together with any other authorizations, certificates and directions required by the transfer agent, which authorize and direct the transfer agent to issue such Registrable Securities without legend upon sale by the Holder of such shares of Registrable Securities under the Registration Statement.

(j) Upon the occurrence of any event contemplated by Section
3(c)(C)(iv), as promptly as possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an 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, in the light of the circumstances under which they were made, not misleading.

(k) Cause all Registrable Securities relating to such Registration Statement to be listed on any United States securities exchange, quotation system, market or over-the-counter bulletin board, if any, on which similar securities issued by the Company are then listed.

(l) Comply in all material respects with all applicable rules and regulations of the Commission and make generally available to its security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 not later than 45 days after the end of any 3-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company after the Effective Date, which statement shall conform to the requirements of Rule 158.

(m) Request each selling Holder to furnish to the Company information regarding such Holder and the distribution of such Registrable Securities as is required by law or the Commission to be disclosed in the Registration Statement, and the Company may exclude from such registration the Registrable Securities of any such Holder who fails to furnish such information within a reasonable time prior to the filing of each Registration Statement, supplemented Prospectus and/or amended Registration Statement.

If the Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (if such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force) the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required.

Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c)(C)(i), 3(c)(C)(ii), 3(c)(C)(iii), 3(c)(C)(iv) or 3(n), such Holder will forthwith

discontinue disposition of such Registrable Securities under the Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 3(j), or until it is advised in writing (the "ADVICE") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.

(n) If (i) there is material non-public information regarding the Company which the Company's Board of Directors (the "BOARD") reasonably determines not to be in the Company's best interest to disclose and which the Company is not otherwise required to disclose, (ii) there is a significant business opportunity (including, but not limited to, the acquisition or disposition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or other similar transaction) available to the Company which the Board reasonably determines not to be in the Company's best interest to disclose and which the Company would be required to disclose under the Registration Statement or (iii) with respect to a registration statement on a form other than Form S-3, if the Company reasonably determines that, based on the advice of counsel, a post-effective amendment to the registration statement must be filed with the Commission in order to update the audited financial statements in such registration statement, or the Company elects, in its discretion, to file a post-effective amendment to such registration statement for the purpose of converting it to a Form S-3 after such form becomes available for use by the Company, and, in either case, such post-effective amendment is reviewed by the Commission, then (A) in the case of an event described in Section 3(n)(i) or 3(n)(ii), the Company may postpone or suspend filing or effectiveness of a registration statement for a period not to exceed 30 consecutive days, provided that the Company may not postpone or suspend its obligation under Section 3(n)(i) or 3(n)(ii) for more than 45 days in the aggregate during any 12 month period, and (B) in the case of an event described in Section 3(n)(iii), provided the Company uses its best efforts to promptly cause such post-effective amendment to be declared effective by the Commission, the Company may suspend effectiveness of a registration statement for a period not to exceed 75 consecutive days, provided that the Company may not suspend its obligation under Section 3(n)(iii) for more than 90 days in the aggregate during any 12 month period (each, a "BLACKOUT PERIOD").

4. REGISTRATION EXPENSES.

All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not the Registration Statement is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to the 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 securities exchange, quotation system, market or over-the-counter bulletin board on which Registrable Securities are required hereunder to be listed, (B) with respect to filings required to be made with the Commission, and (C) in compliance with state securities or blue sky laws (including, without limitation, fees and disbursements of Special Counsel in connection with blue sky qualifications of the Registrable Securities and determination of

the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the Holders of Registrable Securities may designate)),
(ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing or photocopying prospectuses), (iii) messenger, telephone and delivery expenses, (iv) Securities Act liability insurance, if the Company so desires such insurance, and (v) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, the Company's independent public accountants (including, in the case of an underwritten offering, the expenses of any comfort letters or costs associated with the delivery by independent public accountants of a comfort letter or comfort letters) and legal counsel. 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 Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.

5. INDEMNIFICATION.

(a) INDEMNIFICATION BY THE COMPANY. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, partners, members, managers, stockholders, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, members, managers, stockholders, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, costs of preparation and reasonable attorneys' fees) and expenses (collectively, "LOSSES"), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained or incorporated by reference in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or amendment or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, which information was reasonably relied on by the Company for use therein or to the extent that such information relates to (x) such Holder and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of prospectus or in any amendment or supplement thereto or (y) such Holder's proposed method of distribution of Registrable Securities as set forth in Exhibit A (or as such Holder otherwise informs the Company in writing); or (ii) in the case of an occurrence of an event of the type described in Section 3(c)(C)(ii), 3(c)(C)(iii), 3(c)(C)(iv) or 3(n), the use by a Holder of an outdated or defective Prospectus after the delivery to the Holder of

written notice from the Company that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 3(m). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of an Indemnified Party (as defined in Section 5(c) to this Agreement) and shall survive the transfer of the Registrable Securities by the Holders.

(b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents and employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising solely out of or based solely upon any untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that (i) such untrue statement is contained in any information so furnished in writing (or such omission was omitted from information required to be provided in writing) by such Holder to the Company specifically for inclusion in the Registration Statement or such Prospectus and that such information was reasonably relied upon by the Company for use in the Registration Statement, such Prospectus, or in any amendment or supplement thereto, or to the extent that such information relates to (x) such Holder and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus, or such form of prospectus or in any amendment or supplement thereto or (y) such Holder's proposed method of distribution of Registrable Securities as set forth in Exhibit A (or as such Holder otherwise informs the Company in writing) or (ii) in the case of an occurrence of an event of the type described in Section 3(c)(C)(ii),
3(c)(C)(iii), 3(c)(C)(iv) or 3(n), the use by a Holder of an outdated or defective Prospectus after the delivery to the Holder of written notice from the Company that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 3(m); provided, however, that the indemnity agreement contained in this Section 5(b) shall not apply to amounts paid in settlement of any Losses if such settlement is effected without the prior written consent of the Holder, which consent shall not be unreasonably withheld. Notwithstanding anything to the contrary contained herein, a Holder shall be liable under this Section 5(b) for only that amount as does not exceed the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement.

(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify the Person from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all reasonable fees and expenses incurred in connection with

defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel in writing (with a copy to the Indemnifying Party) that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the reasonable expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding and does not impose any monetary or other obligation or restriction on or attributes any fault or liability to any Indemnified Party.

All reasonable fees and expenses of an Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to such Indemnified Party, as incurred, within ten (10) Business Days of written notice thereof to the Indemnifying Party, which notice shall be delivered no more frequently than on a monthly basis (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).

(d) CONTRIBUTION. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or refusal of a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and such Indemnified Party in connection with the actions,

statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and such Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or such Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. Notwithstanding anything to the contrary contained herein, a Holder shall be required to contribute under this Section 5(d) for only that amount as does not exceed the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties. The indemnity and contribution agreements herein are in addition to and not in diminution or limitation of any indemnification provisions under the Purchase Agreement.

6. RULE 144.

As long as any Holder owns Preferred Stock, Warrants or Registrable Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. As long as any Holder owns Preferred Stock, Warrants or Registrable Securities, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Person to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including

compliance with the provisions of the Purchase Agreement relating to the transfer of the Registrable Securities. Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements. The definition of "Registrable Securities" for purposes of this Section 6 shall be interpreted as if it did not include the proviso at the end of such definition.

7. MISCELLANEOUS.

(a) REMEDIES. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b) NO INCONSISTENT AGREEMENTS. Except as otherwise disclosed in the Purchase Agreement, neither the Company nor any of its subsidiaries is a party to an agreement currently in effect, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Without limiting the generality of the foregoing, without the written consent of the Holders of the then outstanding Registrable Securities, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act unless the rights so granted are subject in all respects to the prior rights in full of the Holders set forth herein, and are not otherwise in conflict with the provisions of this Agreement.

(c) NOTICE OF EFFECTIVENESS. Within two (2) Business Days after any Registration Statement which includes the Registrable Securities is ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Holders whose Registrable Securities are included in such Registration Statement) confirmation that the Registration Statement has been declared effective by the Commission in the form attached hereto as EXHIBIT B.

(d) PIGGY-BACK REGISTRATIONS. If at any time when there is not an effective Registration Statement covering all of the Registrable Securities 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 its then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to each Holder of Registrable Securities written notice of such determination and, if within

seven (7) Business Days after receipt of such notice, any such Holder shall so request in writing (which request shall specify the Registrable Securities intended to be disposed of by the Holder), the Company will cause the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holder, to the extent required to permit the disposition of the Registrable Securities so to be registered, provided that 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 in connection with such registration (but not from its obligation to pay expenses in accordance with Section 4 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 7(d) for the same period as the delay in registering such other securities. The Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered; provided, however, that the Company shall not be required to register any Registrable Securities pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten public offering, if the managing underwriter(s) or underwriter(s) should reasonably object to the inclusion of the Registrable Securities in such registration statement, then if the Company after consultation with the managing underwriter should reasonably determine that the inclusion of such Registrable Securities, would materially adversely affect the offering contemplated in such registration statement, and based on such determination recommends inclusion in such registration statement of fewer or none of the Registrable Securities of the Holders, then (x) the number of Registrable Securities of the Holders included in such registration statement shall be reduced pro-rata among such Holders (based upon the number of Registrable Securities requested to be included in the registration), if the Company after consultation with the underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y) none of the Registrable Securities of the Holders shall be included in such registration statement, if the Company after consultation with the underwriter(s) recommends the inclusion of none of such Registrable Securities; provided, however, that if securities are being offered for the account of other persons or entities as well as the Company, such reduction shall not represent a greater fraction of the number of Registrable Securities intended to be offered by the Holders than the fraction of similar reductions imposed on such other persons or entities (other than the Company).

(e) FAILURE TO FILE REGISTRATION STATEMENT AND OTHER EVENTS. The Company and the Holders agree that the Holders will suffer damages if the Registration Statement is not filed on or prior to the Filing Date and maintained in the manner contemplated herein during the Effectiveness Period. The Company and the Holders further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if (i) the Registration Statement is not filed on or prior to the Filing Date, or (ii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act within five (5) Business Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or not subject to further review, or (iii) the

Registration Statement is filed with and declared effective by the Commission but thereafter ceases to be effective as to all Registrable Securities at any time prior to the expiration of the Effectiveness Period, without being succeeded immediately by a subsequent Registration Statement filed with the Commission, except as otherwise permitted by this Agreement, including pursuant to Section 3(n), or (iv) trading in the Common Stock shall be suspended (other than a suspension affecting trading in securities generally) or if the Common Stock is delisted from any securities exchange, quotation system, market or over-the-counter bulletin board on which Registrable Securities are required hereunder to be listed (each an "EXCHANGE"), without immediately being listed on any other Exchange, for any reason for more than three (3) Business Days, other than pursuant to Section 3(n), or (v) the conversion rights of the Holders are suspended for any reason without the consent of the particular Holder other than as set forth in Article III.A.5 of the Articles of Incorporation, or (vi) the Company has breached Section 3(n) of this Agreement (any such failure or breach being referred to as an "EVENT"), the Company shall pay in cash as liquidated damages for such failure and not as a penalty to each Holder an amount equal to two percent (2%) of such Holder's pro rata share of the purchase price paid by all Holders for Preferred Stock and other Registrable Securities purchased and then outstanding pursuant to the Purchase Agreement for the initial thirty (30) day period until the applicable Event has been cured, which shall be pro rated for such periods less than thirty (30) days and one and one-half percent (1.5%) of such Holder's pro rata share of the purchase price paid by all Holders for Preferred Stock and other Registrable Securities purchased and then outstanding pursuant to the Purchase Agreement for each subsequent thirty (30) day period until the applicable Event has been cured which shall be pro rated for such periods less than thirty days (the "PERIODIC AMOUNT"). Payments to be made pursuant to this Section 7(e) shall be due and payable immediately upon demand in immediately available cash funds. The parties agree that the Periodic Amount represents a reasonable estimate on the part of the parties, as of the date of this Agreement, of the amount of damages that may be incurred by the Holders if the Registration Statement is not filed on or prior to the Filing Date and maintained in the manner contemplated herein during the Effectiveness Period or if any other Event as described herein has occurred. Notwithstanding the foregoing, the Company shall remain obligated to cure the breach or correct the condition that caused the Event, and the Holder shall have the right to take any action necessary or desirable to enforce such obligation.

(f) FAILURE OF REGISTRATION STATEMENT TO BECOME EFFECTIVE. The Company and the Holders agree that the Holders will suffer damages if the Registration Statement is not declared effective on or prior to the one hundred and twentieth (120th) day following the Closing Date. The Company and the Holders further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if the Registration Statement is not declared effective within one-hundred and fifty (150) days after the Closing Date, the Company shall pay in cash as liquidated damages for such failure and not as a penalty to each Holder an amount equal to (i) two percent (2%) of such Holder's pro rata share of the purchase price paid by all Holders for Preferred Stock and other Registrable Securities purchased and then outstanding pursuant to the Purchase Agreement and (ii) one and one-half percent (1.5%) of such Holder's pro rata share of the purchase price paid by all Holders for Preferred Stock and other Registrable Securities purchased and then outstanding pursuant to the Purchase Agreement for each subsequent thirty (30) day period (which shall be pro rated for such periods less than thirty (30) days) until the Registration Statement is

declared effective. Payments to be made pursuant to this Section 7(f) shall be due and payable immediately upon demand in immediately available cash funds. The parties agree that the amounts set forth in this Section 7(f) represent a reasonable estimate on the part of the parties, as of the date of this Agreement, of the amount of damages that may be incurred by the Holders if the Registration Statement is not declared effective on or prior to the one hundred and twentieth (120th) day following the Closing Date. Notwithstanding the foregoing, the Company shall remain obligated to cause the Registration Statement to become effective, and the Holder shall have the right to take any action necessary or desirable to enforce such obligation.

(g) SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.

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

(ii) Each of the Company and the Holders (i) hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts located in New York City, New York for the purposes of any suit, action or proceeding arising out of or relating to this Agreement and (ii) hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Each of the Company and the Holders consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 7(g) shall affect or limit any right to serve process in any other manner permitted by law.

(h) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of the Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

(i) NOTICES. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earlier of (i) the date of transmission, if such notice or communication is

delivered via facsimile at the facsimile telephone number specified for notice prior to 5:00 p.m., New York City time, on a Business Day, (ii) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Business Day or later than 5:00 p.m., New York City time, on any date and earlier than 11:59 p.m., New York City time, on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service such as Federal Express or (iv) actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be with respect to each Holder at its address set forth on the signature page hereto, or with respect to the Company, addressed to:

National Coal Corp.

319 Ebenezer Road
Knoxville, Tennessee 37923
Attention: Chief Executive Officer
Facsimile No.: (865) 769-3759

or to such other address or addresses or facsimile number or numbers as any such party may most recently have designated in writing to the other parties hereto by such notice. Copies of notices to the Company shall be sent to Stubbs Alderton & Markiles, LLP, 15821 Ventura Boulevard, Suite 525, Encino, California 91436, Facsimile No. (818) 444-4520. Copies of notices to any Holder shall be sent to the addresses, if any, listed on the signature page hereto.

(j) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns and shall inure to the benefit of each Holder and its successors and assigns; provided, that the Company may not assign this Agreement or any of its rights or obligations hereunder without the prior written consent of each Holder; and provided, further, that each Holder may assign its rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

(k) ASSIGNMENT OF REGISTRATION RIGHTS. The rights of each Holder hereunder, including the right to have the Company register for resale Registrable Securities in accordance with the terms of this Agreement, shall be automatically assignable by each Holder to any transferee of such Holder of all or a portion of the Preferred Stock, Warrants or the Registrable Securities if:
(i) the Holder 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) following such transfer or assignment the further disposition of such securities by the transferee or assignees is restricted under the Securities Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this Section 7(k), the transferee or assignee agrees in writing with the Company to be bound by all of the provisions of this Agreement, and (v) such transfer shall have been made in accordance with the applicable requirements of the Purchase Agreement. The rights to assignment shall apply to the Holders (and to subsequent) successors and assigns.

The Company may require, as a condition of allowing such assignment in connection with a transfer of Preferred Stock, Warrants or Registrable Securities (i) that the Holder or transferee of all or a portion of the Preferred Stock, the Warrants or the Registrable Securities as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such transfer may be made without registration under the Securities Act, (ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act and (iv) that the transfer of such Preferred Stock, Warrants and/or Registrable Securities be (A) a transfer of an amount of such Preferred Stock, Warrants and/or Registrable Securities equal to, convertible into and/or exercisable for not less than 5% of the total number of Conversion Shares that would have been issuable upon the full conversion of all Preferred Stock on the Closing Date (as defined in the Purchase Agreement) or (B) a transfer of all of the Preferred Stock, Warrants and Registrable Securities then owned by the Holder.

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

(m) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of law thereof.

(n) CUMULATIVE REMEDIES. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

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

(p) HEADINGS; INTERPRETATION. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. Any form of the word "include" as used in this Agreement shall be deemed to be followed by the phrase "without limitation".

(q) [Intentionally Omitted]

(r) OBLIGATIONS OF PURCHASERS. The Company acknowledges that the obligations of each Holder under this Agreement are several and not joint with the obligations of any other Holder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder under this Agreement. The decision of each Holder to enter into to this Agreement has been made by such Holder independently of any other Holder. The Company further acknowledges that nothing contained in this Agreement, and no action taken by any Holder pursuant hereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated hereby. Each Holder shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. The Purchaser represents that it has been represented by legal counsel in its review and negotiation of this Agreement.

[signature page follows]

IN WITNESS WHEREOF, the parties hereto have caused this Investor Rights Agreement to be duly executed by their respective authorized persons as of the date first indicated above.

COMPANY:

NATIONAL COAL CORP.

By:      /S/ JON E. NIX
--------------------------------
Name:    Jon E. Nix
Title:   Chief Executive Officer

PURCHASER:

CD INVESTMENT PARTNERS, LTD.

By: CD Capital Management LLC
Its: Investment Manager

By:      /S/ JOHN ZIEGELMAN
--------------------------------
Name:    John Ziegelman
Title:   President

Address for all Notices:

Two North Riverside Plaza
Suite 600
Chicago, Illinois 60606

with a copy to (which shall not constitute notice):

Greenberg Traurig, LLP
77 West Wacker Drive
Suite 2500
Chicago, Illinois 60601
Attn: Peter H. Lieberman, Esq. and Todd A. Mazur, Esq. Fax: (312) 456-8435

EXHIBIT A

PLAN OF DISTRIBUTION

We are registering the shares of common stock on behalf of the selling security holders. Sales of shares may be made by selling security holders, including their respective donees, transferees, pledgees or other successors-in-interest directly to purchasers or to or through underwriters, broker-dealers or through agents. Sales may be made from time to time on the OTC Bulletin Board or any exchange upon which our shares may trade in the future, in the over-the-counter market or otherwise, at market prices prevailing at the time of sale, at prices related to market prices, or at negotiated or fixed prices. The shares may be sold by one or more of, or a combination of, the following:

- a block trade in which the broker-dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction (including crosses in which the same broker acts as agent for both sides of the transaction);

- purchases by a broker-dealer as principal and resale by such broker-dealer, including resales for its account, pursuant to this prospectus;

- ordinary brokerage transactions and transactions in which the broker solicits purchases;

- through options, swaps or derivatives;

- in privately negotiated transactions;

- in making short sales or in transactions to cover short sales;

- put or call option transactions relating to the shares; or

- any other method permitted by applicable law.

The selling security holders may effect these transactions by selling shares directly to purchasers or to or through broker-dealers, which may act as agents or principals. These broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling security holders and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principals, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). Each of the selling security holders has advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their securities.

Each selling security holder will act independently of us in making decisions regarding the time, manner and size of each sale of shares of common stock covered by this registration statement.

The selling security holders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with those transactions, the broker-dealers or other financial institutions may engage in short sales of the shares or of securities convertible into or exchangeable for the shares in the course of hedging positions they assume with the selling security holders. Each of the selling security holders may also enter into options or other transactions with broker-dealers or other financial institutions which require the delivery of shares offered by this prospectus to those broker-dealers or other financial institutions. The broker-dealer or other financial institution may then resell the shares pursuant to this prospectus (as amended or supplemented, if required by applicable law, to reflect those transactions).

Each of the selling security holders and any broker-dealers that act in connection with the sale of shares may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act of 1933, as amended (the "Securities Act"), and any commissions received by broker-dealers or any profit on the resale of the shares sold by them while acting as principals may be deemed to be underwriting discounts or commissions under the Securities Act. Each of the selling security holders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares against liabilities, including liabilities arising under the Securities Act. We have agreed to indemnify each of the selling security holders and each selling security holder has agreed, severally and not jointly, to indemnify us against some liabilities in connection with the offering of the shares, including liabilities arising under the Securities Act.

The selling security holders will be subject to the prospectus delivery requirements of the Securities Act. We have informed the selling security holders that the anti-manipulative provisions of Regulation M promulgated under the Securities Exchange Act of 1934, as amended, may apply to their sales in the market.

Selling security holders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided they meet the criteria and conform to the requirements of Rule 144.

Upon being notified by a selling security holder that a material arrangement has been entered into with a broker-dealer for the sale of shares through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, we will file a supplement to this prospectus, if required pursuant to Rule 424(b) under the Securities Act, disclosing:

- the name of each such selling security holder and of the participating broker-dealer(s);

- the number of shares involved;

- the initial price at which the shares were sold;

- the commissions paid or discounts or concessions allowed to the broker-dealer(s), where applicable;

- that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus; and

- other facts material to the transactions.

In addition, if required under applicable law or the rules or regulations of the Commission, we will file a supplement to this prospectus when a selling security holder notifies us that a donee or pledgee intends to sell more than 500 shares of common stock.

We are paying all expenses and fees in connection with the registration of the shares. Each of the selling security holders will bear all brokerage or underwriting discounts or commissions paid to broker-dealers in connection with the sale of the shares.

EXHIBIT B

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

[Name and Address of Transfer Agent]

Re: National Coal Corp.

Dear [______]:

We are counsel to National Coal Corp., a Florida corporation (the "Company"), and have represented the Company in connection with that certain Preferred Stock and Warrant Purchase Agreement (the "Purchase Agreement") dated as of __________________, 2004 by and among the Company and the buyers named therein (collectively, the "Holders") pursuant to which the Company issued to the Holders its Series A Cumulative Convertible Preferred Stock, par value $0.0001 per share, (the "Preferred Stock") convertible into shares of the Company's common stock, par value $0.0001 per share (the "Common Stock") and warrants to purchase shares of the Common Stock (the "Warrants"). Pursuant to the Purchase Agreement, the Company has also entered into an Investor Rights Agreement with the Holders (the "Investor Rights Agreement") pursuant to which the Company agreed, among other things, to register the shares of Common Stock issuable upon conversion of the Preferred Stock and exercise of the Warrants and certain other shares of Common Stock, under the Securities Act of 1933, as amended (the "1933 Act"). In connection with the Company's obligations under the Investor Rights Agreement, on ____________ ___, 2004, the Company filed a Registration Statement on Form SB-2 (File No. 333-_____________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names each of the Holders as a selling securityholder thereunder.

In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.

Very truly yours,

By:__________________________________
cc: [LIST NAMES OF HOLDERS]

EXHIBIT 10.13

NOTE PURCHASE AGREEMENT

by and among

National Coal Corp., as Issuer and Seller

and

the parties named herein, as Purchasers

with respect to Seller's

8% Convertible Promissory Notes

August 31, 2004

Exhibit A         Form of 8% Convertible Promissory Note

Exhibit B         Form of Articles of Amendment of the Articles of Incorporation

Exhibit C         Form of Common Stock Purchase Warrant

Exhibit D         Form of Note Investor Rights Agreement

Exhibit E         Form of Opinion of Seller's Counsel

Exhibit F         Form of Note Closing Escrow Agreement

Exhibit G         Form of Management Lock-Up Agreement

Exhibit H         Form of Subscription Notice

Exhibit I         Form of Transfer Notice

Schedule 1        Purchasers and Principal Amount of Notes

Schedule 3        Disclosure Schedules

NOTE PURCHASE AGREEMENT (the "AGREEMENT") dated as of August 31, 2004, by and among National Coal Corp., a Florida corporation (the "SELLER"), and each of the persons listed on SCHEDULE 1 hereto (each is individually referred to as a "PURCHASER" and collectively, the "PURCHASERS").

RECITALS:

WHEREAS, each of the Purchasers is willing to purchase from the Seller, and the Seller desires to sell to the Purchasers, up to an aggregate of $3 million in principal amount of its 8% Convertible Promissory Notes (the "NOTES"), convertible into shares of its Series A Cumulative Convertible Preferred Stock, $15,000 liquidation preference per share, par value $0.0001 per share (the "PREFERRED STOCK") and Common Stock Purchase Warrants (the "WARRANTS") entitling the holders thereof to purchase shares of the Seller's common stock, $0.0001 par value (the "COMMON STOCK"), as more fully set forth herein.

NOW THEREFORE, in consideration of the mutual promises and representations, warranties, covenants and agreements set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I - PURCHASE AND SALE

1.1 PURCHASE AND SALE.

(a) On the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined in Section 2.2), the Seller will sell and each of the Purchasers will purchase the Notes in the principal amounts set forth on SCHEDULE 1.

(b) The shares of Preferred Stock issuable upon conversion of the Notes are referred to herein as the "NOTE CONVERSION SHARES", the Warrants issuable upon conversion of the Notes are referred to herein as the "NOTE CONVERSION WARRANTS", the shares of Common Stock issuable upon conversion of the Preferred Stock are referred to herein as the "CONVERSION SHARES" and the shares of Common Stock issuable upon exercise of the Warrants are referred to herein as the "WARRANT SHARES".

1.2 TERMS OF THE NOTES, PREFERRED STOCK AND WARRANTS. The terms and provisions of the Notes are set forth in the Form of 8% Convertible Promissory Note attached hereto as EXHIBIT A. The terms and provisions of the Preferred Stock are set forth in the form of Articles of Amendment to the Articles of Incorporation providing for the designation, powers, rights and preferences of Series A Cumulative Convertible Preferred Stock, attached hereto as EXHIBIT B (the "ARTICLES OF AMENDMENT"). The terms and provisions of the Warrants are more fully set forth in the form of Common Stock Purchase Warrant, attached hereto as EXHIBIT C.

1.3 TRANSFERS; LEGENDS.

(a) (i) Except as required by federal securities laws and the securities law of any state or other jurisdictions, the Notes, the Note Conversion Shares, the Note Conversion Warrants, Conversion Shares, and Warrant Shares (collectively, the "SECURITIES") may be transferred, in whole or in part, by any of the Purchasers at any time. In the case of Notes or Preferred Stock,

such transfer may be effected by delivering written transfer instructions to the Seller, and the Seller shall reflect such transfer on its books and records and reissue certificates evidencing the Notes or Preferred Stock upon surrender of certificates evidencing the Notes or Preferred Stock being transferred. Any such transfer shall be made by a Purchaser in accordance with applicable law. Any transferee shall agree to be bound by the terms of the Note Investor Rights Agreement and this Agreement. The Seller shall reissue certificates evidencing the Securities upon surrender of certificates evidencing the Securities being transferred in accordance with this Section 1.3(a).

(ii) In connection with any transfer of Securities other than pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or to the Seller, the Seller may require the transferor thereof to furnish to the Seller an opinion of counsel selected by the transferor, such counsel and the form and substance of which opinion shall be reasonably satisfactory to the Seller and Seller's counsel, to the effect that such transfer does not require registration under the Securities Act; PROVIDED, HOWEVER, that in the case of a transfer pursuant to Rule 144 under the Securities Act, no opinion shall be required if the transferor provides the Seller with a customary seller's representation letter, and if such sale is not pursuant to subsection (k) of Rule 144, a customary broker's representation letter and Form 144. Notwithstanding the foregoing, the Seller hereby consents to and agrees to register on the books of the Seller and with any transfer agent for the securities of the Seller, without any such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of such Purchaser, provided that the transferee certifies to the Seller that it is an "ACCREDITED INVESTOR" as defined in Rule 501(a) under the Securities Act and that it is acquiring the Securities solely for investment purposes (subject to the qualifications hereof) and not with a view to, or for, resale, distribution or fractionalization thereof in whole or in part in violation of the Securities Act.

(iii) An "AFFILIATE" means any Person (as such term is defined below) that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. A "PERSON" means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision of any thereof) or other entity of any kind.

(b) The certificates representing the Notes, Note Conversion Shares or Warrants shall bear the following legend:

"THE SHARES REPRESENTED BY, OR ISSUABLE UPON CONVERSION OR EXERCISE OF SECURITIES EVIDENCED BY, THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED."

ARTICLE II - PURCHASE PRICE AND CLOSING

2.1 PURCHASE PRICE. The aggregate purchase price (the "PURCHASE PRICE") to be paid by the Purchasers to the Seller to acquire the Notes at the Closing shall be the total of the amounts payable by each Purchaser, respectively, set forth beside the name of each Purchaser on SCHEDULE 1 hereto. The Purchase Price paid by each Purchaser shall be placed in escrow pending the Closing as provided in Article 6.1(b) hereof.

2.2 THE CLOSING. The closing of the transactions contemplated under this Agreement (the "CLOSING") will take place as promptly as practicable, but no later than five (5) business days following satisfaction or waiver of the conditions set forth in Article 6.1(a) and (b) and 6.2(a) (other than those conditions which by their terms are not to be satisfied or waived until the Closing), at the offices of Wiggin and Dana LLP, 400 Atlantic Street, Stamford, Connecticut 06901. The date on which the Closing occurs is the "CLOSING DATE."

ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE SELLER

The Seller represents and warrants to the Purchasers as follows:

3.1 CORPORATE EXISTENCE AND POWER; SUBSIDIARIES. The Seller and its Subsidiaries are corporations duly incorporated, validly existing and in good standing under the laws of the state in which they are incorporated, and have all corporate powers required to carry on their business as now conducted. The Seller and its Subsidiaries are duly qualified to do business as a foreign corporation and are in good standing in each jurisdiction where the character of the property owned or leased by them or the nature of their activities makes such qualification necessary, except for those jurisdictions where the failure to be so qualified would not have a Material Adverse Effect on the Seller or any of its Subsidiaries. For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT" means, with respect to any person or entity, a material adverse effect on its and its Subsidiaries' condition (financial or otherwise), business, properties, assets, liabilities (including contingent liabilities), results of operations or current prospects, taken as a whole. True and complete copies of the Seller's Articles of Incorporation, as amended (the "ARTICLES"), and Bylaws, as amended (the "BYLAWS"), as currently in effect and as will be in effect on the Closing Date (collectively, the "ARTICLES AND BYLAWS"), have previously been provided to the Purchasers. For purposes of this Agreement, the term "SUBSIDIARY" or "Subsidiaries" means, with respect to any entity, any corporation or other organization of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are directly or indirectly owned by such entity or of which such entity is a partner or is, directly or indirectly, the beneficial owner of 50% or more of any class of equity securities or equivalent profit participation interests. The Seller has no Subsidiaries other than National Coal Corporation, a Tennessee corporation which is wholly-owned by the Seller.

3.2 CORPORATE AUTHORIZATION. The execution, delivery and performance by the Seller of this Agreement, the Notes, the Note Escrow Agreement (as defined below), the Articles of Amendment, the Note Investor Rights Agreement, and each of the other documents executed pursuant to and in connection with this Agreement (collectively, the "RELATED DOCUMENTS"), and the consummation of the transactions contemplated hereby and thereby (including, but not

limited to, the sale and delivery of the Notes, the subsequent issuance of the Note Conversion Shares and Note Conversion Warrants upon conversion of the Notes, and the subsequent issuance of the Conversion Shares upon conversion of the Preferred Stock and the Warrant Shares upon exercise of the Warrants) have been duly authorized, and no additional corporate or stockholder action is required for the approval thereof. The Note Conversion Shares, the Conversion Shares and the Warrant Shares have been duly reserved for issuance by the Seller. This Agreement and the Related Documents have been or, to the extent contemplated hereby or by the Related Documents, will be duly executed and delivered and constitute the legal, valid and binding agreement of the Seller, enforceable against the Seller in accordance with their terms, except as may be limited by bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors, and except as enforceability of its obligations hereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

3.3 CHARTER, BYLAWS AND CORPORATE RECORDS. The minute books of the Seller and its Subsidiaries contain complete and accurate records of all meetings and other corporate actions of the board of directors, committees of the board of directors, incorporators and stockholders of the Seller and its Subsidiaries to the date hereof. All material corporate decisions and actions have been validly made or taken. All corporate books, including without limitation the share transfer register, comply with applicable laws and regulations and have been regularly updated. Such books fully and correctly reflect all the decisions of the stockholders.

3.4 GOVERNMENTAL AUTHORIZATION. Except as otherwise specifically contemplated in this Agreement and the Related Documents, and except for: (i) the filings referenced in Section 5.11; (ii) the filing of the Articles of Amendment; (iii) the filing of a Form D with respect to the Notes, Preferred Stock and Warrants under Regulation D under the Securities Act; (iv) the filing of the Registration Statement with the Commission; (v) the application(s) to each trading market for the listing of the Conversion Shares and the Warrant Shares for trading thereon; and (vi) any filings required under state securities laws that are permitted to be made after the date hereof, the execution, delivery and performance by the Seller of this Agreement and the Related Documents, and the consummation of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the Notes and the subsequent issuances of the Preferred Stock and Warrants upon conversion of the Notes and the subsequent issuance of the Conversion Shares and Warrant Shares upon conversion of the Preferred Stock or otherwise or exercise of the Warrants, as applicable) by the Seller require no action (including, without limitation, stockholder approval) by or in respect of, or filing with, any governmental or regulatory body, agency, official or authority (including, without limitation, Nasdaq).

3.5 NON-CONTRAVENTION. The execution, delivery and performance by the Seller of this Agreement and the Related Documents, and the consummation by the Seller of the transactions contemplated hereby and thereby (including the issuance of the Note Conversion Shares, the Note Conversion Warrants, the Conversion Shares and Warrant Shares) do not and will not (a) contravene or conflict with the Articles (as amended by the Articles of Amendment) and Bylaws of the Seller and its Subsidiaries or any material agreement to which the Seller is a party or by which it is bound; (b) contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or

applicable to the Seller or its Subsidiaries; (c) constitute a default (or would constitute a default with notice or lapse of time or both) under or give rise to a right of termination, cancellation or acceleration or loss of any benefit under any material agreement, contract or other instrument binding upon the Seller or its Subsidiaries or under any material license, franchise, permit or other similar authorization held by the Seller or its Subsidiaries; or (d) result in the creation or imposition of any Lien (as defined below) on any asset of the Seller or its Subsidiaries. For purposes of this Agreement, the term "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, claim or encumbrance of any kind in respect of such asset.

3.6 SEC DOCUMENTS. The Seller is obligated under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") to file reports pursuant to Sections 13 or 15(d) thereof (all such reports filed or required to be filed by the Seller, including all exhibits thereto or incorporated therein by reference, and all documents filed by the Seller under the Securities Act hereinafter called the "SEC DOCUMENTS"). The Seller has filed all reports or other documents required to be filed under the Exchange Act. All SEC Documents filed by the Seller (i) were prepared in all material respects in accordance with the requirements of the Exchange Act and (ii) did not at the time they were filed (or, if amended or superseded by a filing prior to the date hereof, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Seller has previously delivered to the Purchaser a correct and complete copy of each report which the Seller filed with the Securities and Exchange Commission (the "SEC" or the "COMMISSION") under the Exchange Act for any period ending on or after December 31, 2003 (the "Recent REPORTS"). None of the information about the Seller or any of its Subsidiaries which has been disclosed to the Purchasers herein or in the course of discussions and negotiations with respect hereto which is not disclosed in the Recent Reports is or was required to be so disclosed, and no material non-public information has been disclosed to the Purchasers.

3.7 FINANCIAL STATEMENTS. Each of the Seller's (i) audited consolidated balance sheet as of December 31, 2003, and the related consolidated statements of operations, cash flows and changes in stockholders' deficiency (including the related notes) for the period from its inception (January 30,2003) to December 31, 2003 and (ii) the Seller's unaudited consolidated balance sheet and related consolidated statements of operations and cash flows as of and for the three months ended March 31, 2004, as contained in the Recent Reports (both of (i) and (ii), collectively, the "SELLER'S FINANCIAL STATEMENTS" or the "FINANCIAL STATEMENTS") (x) present fairly in all material respects the financial position of the Seller and its Subsidiaries on a consolidated basis as of the dates thereof and the results of operations, cash flows and stockholders' deficiency as of and for each of the periods then ended, except that the unaudited financial statements are subject to normal year-end adjustments, and
(y) were prepared in accordance with United States generally accepted accounting principals ("GAAP") applied on a consistent basis throughout the periods involved, in each case, except as otherwise indicated in the notes thereto.

3.8 COMPLIANCE WITH LAW. The Seller and its Subsidiaries are in compliance and have conducted their business so as to comply with all laws, rules and regulations, judgments, decrees or orders of any court, administrative agency, commission, regulatory authority or other governmental authority or instrumentality, domestic or foreign, applicable to their operations, the violation of which would cause a Material Adverse Affect. There are no judgments or orders,

injunctions, decrees, stipulations or awards (whether rendered by a court or administrative agency or by arbitration), including any such actions relating to affirmative action claims or claims of discrimination, against the Seller or its Subsidiaries or against any of their properties or businesses.

3.9 NO DEFAULTS. The Seller and its Subsidiaries are not, nor have they received notice that they would be with the passage of time, giving of notice, or both, (i) in violation of any provision of their Articles and Bylaws or (ii) in default or violation of any term, condition or provision of (A) any judgment, decree, order, injunction or stipulation applicable to the Seller or its Subsidiaries or (B) any material agreement, note, mortgage, indenture, contract, lease or instrument, permit, concession, franchise or license to which the Seller or its Subsidiaries are a party or by which the Seller or its Subsidiaries or their properties or assets may be bound, and no circumstances exist which would entitle any party to any material agreement, note, mortgage, indenture, contract, lease or instrument to which such Seller or its Subsidiaries are a party, to terminate such as a result of such Seller or its Subsidiaries, having failed to meet any material provision thereof including, but not limited to, meeting any applicable milestone under any material agreement or contract; except in the case of clause (ii) as would not have a Material Adverse Effect on the Seller or any of its Subsidiaries or any material adverse effect on the transactions contemplated by this Agreement or by any of the Related Documents.

3.10 LITIGATION. Except as disclosed in the Recent Reports or on SCHEDULE 3.10, there is no action, suit, proceeding, judgment, claim or investigation pending or, to the best knowledge of the Seller, threatened against the Seller and its Subsidiaries which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Seller or its Subsidiaries or which in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated hereby, and there is no basis for the assertion of any of the foregoing.

3.11 ABSENCE OF CERTAIN CHANGES. Since December 31, 2003, the Seller has conducted its business only in the ordinary course and there has not occurred, except as set forth in the Recent Reports or any exhibit thereto or incorporated by reference therein:

(a) Any event that could reasonably be expected to have a Material Adverse Effect on the Seller or any of its Subsidiaries;

(b) Any amendments or changes in the Articles or Bylaws of the Seller and its Subsidiaries, other than on account of the filing of the Articles of Amendment;

(c) Any damage, destruction or loss, whether or not covered by insurance, that would, individually or in the aggregate, have or would be reasonably likely to have, a Material Adverse Effect on the Seller and its Subsidiaries;

(d) Except as set forth on SCHEDULE 3.11(D), any

(i) incurrence, assumption or guarantee by the Seller or its Subsidiaries of any debt for borrowed money other than for equipment leases;

(ii) issuance or sale of any securities convertible into or exchangeable for

securities of the Seller other than to directors, employees and consultants pursuant to existing equity compensation or stock purchase plans of the Seller;

(iii) issuance or sale of options or other rights to acquire from the Seller or its Subsidiaries, directly or indirectly, securities of the Seller or any securities convertible into or exchangeable for any such securities, other than options issued to directors, employees and consultants in the ordinary course of business in accordance with past practice;

(iv) issuance or sale of any stock, bond or other corporate security;

(v) discharge or satisfaction of any material Lien, other than current liabilities incurred since December 31, 2003 in the ordinary course of business;

(vi) declaration or making any payment or distribution to stockholders or purchase or redemption of any share of its capital stock or other security;

(vii) sale, assignment or transfer of any of its intangible assets except in the ordinary course of business, or cancellation of any debt or claim except in the ordinary course of business;

(viii) waiver of any right of substantial value whether or not in the ordinary course of business;

(ix) material change in officer compensation except in the ordinary course of business and consistent with past practices; or

(x) other commitment (contingent or otherwise) to do any of the foregoing.

(e) Except as set forth on Schedule 3.11(e), any creation, sufferance or assumption by the Seller or any of its Subsidiaries of any Lien on any asset (other than Liens in connection with equipment leases) or any making of any loan, advance or capital contribution to or investment in any Person in an aggregate amount which exceeds $25,000 outstanding at any time;

(f) Any entry into, amendment of, relinquishment, termination or non-renewal by the Seller or its Subsidiaries of any material contract, license, lease, transaction, commitment or other right or obligation, other than in the ordinary course of business; or

(g) Any transfer or grant of a right with respect to the trademarks, trade names, service marks, trade secrets, copyrights or other intellectual property rights owned or licensed by the Seller or its Subsidiaries, except as among the Seller and its Subsidiaries.

3.12 NO UNDISCLOSED LIABILITIES. Except as set forth in the Recent Reports, and except for liabilities and obligations incurred in the ordinary course of business since December 31, 2003, as of the date hereof, (i) the Seller and its Subsidiaries do not have any material liabilities or obligations (absolute, accrued, contingent or otherwise) which, and (ii) there has not been any aspect of the prior or current conduct of the business of the Seller or its Subsidiaries which may form the basis for any material claim by any third party which if asserted could result in any such

material liabilities or obligations which, are not fully reflected, reserved against or disclosed in the balance sheet of the Seller as at December 31, 2003.

3.13 TAXES. All tax returns and tax reports required to be filed with respect to the income, operations, business or assets of the Seller and its Subsidiaries have been timely filed (or appropriate extensions have been obtained) with the appropriate governmental agencies in all jurisdictions in which such returns and reports are required to be filed, and all of the foregoing as filed are correct and complete and, in all material respects, reflect accurately all liability for taxes of the Seller and its Subsidiaries for the periods to which such returns relate, and all amounts shown as owing thereon have been paid. All income, profits, franchise, sales, use, value added, occupancy, property, excise, payroll, withholding, FICA, FUTA and other taxes (including interest and penalties), if any, collectible or payable by the Seller and its Subsidiaries or relating to or chargeable against any of its material assets, revenues or income or relating to any employee, independent contractor, creditor, stockholder or other third party through the Closing Date, were fully collected and paid by such date if due by such date or provided for by adequate reserves in the Financial Statements as of and for the periods ended December 31, 2003 (other than taxes accruing after such date) and all similar items due through the Closing Date will have been fully paid by that date or provided for by adequate reserves, whether or not any such taxes were reported or reflected in any tax returns or filings. No taxation authority has sought to audit the records of the Seller or any of its Subsidiaries for the purpose of verifying or disputing any tax returns, reports or related information and disclosures provided to such taxation authority, or for the Seller's or any of its Subsidiaries' alleged failure to provide any such tax returns, reports or related information and disclosure. No material claims or deficiencies have been asserted against or inquiries raised with the Seller or any of its Subsidiaries with respect to any taxes or other governmental charges or levies which have not been paid or otherwise satisfied, including claims that, or inquiries whether, the Seller or any of its Subsidiaries has not filed a tax return that it was required to file, and, to the best of the Seller's knowledge, there exists no reasonable basis for the making of any such claims or inquiries. Neither the Seller nor any of its Subsidiaries has waived any restrictions on assessment or collection of taxes or consented to the extension of any statute of limitations relating to taxation.

3.14 INTERESTS OF OFFICERS, DIRECTORS AND OTHER AFFILIATES. The description of any interest held, directly or indirectly, by any officer, director or other Affiliate of the Seller or its Subsidiaries (other than the interests of the Seller and its Subsidiaries in such assets) in any property, real or personal, tangible or intangible, used in or pertaining to Seller's business, including any interest in the Intellectual Property (as defined in
Section 3.15 hereof), as set forth in the Recent Reports, is true and complete, and no officer, director or other Affiliate of the Seller or its Subsidiaries has any interest in any property, real or personal, tangible or intangible, used in or pertaining to the Seller's business, including the Seller's Intellectual Property, other than as set forth in the Recent Reports.

3.15 INTELLECTUAL PROPERTY. Other than as set forth in the Recent Reports:

(a) the Seller or a Subsidiary thereof has the right to use or is the sole and exclusive owner of all right, title and interest in and to all foreign and domestic patents, patent rights, trademarks, service marks, trade names, brands and copyrights (whether or not registered and, if applicable, including pending applications for registration) owned, used or controlled by the

Seller and its Subsidiaries (collectively, the "RIGHTS") and in and to each material invention, software, trade secret, technology, product, composition, formula, method of process used by the Seller or its Subsidiaries (the Rights and such other items, the "INTELLECTUAL PROPERTY"), and, to the Seller's knowledge, has the right to use the same, free and clear of any claim or conflict with the rights of others;

(b) no royalties or fees (license or otherwise) are payable by the Seller or its Subsidiaries to any Person by reason of the ownership or use of any of the Intellectual Property except as set forth on SCHEDULE 3.15;

(c) there have been no claims made against the Seller or its Subsidiaries asserting the invalidity, abuse, misuse, or unenforceability of any of the Intellectual Property, and, to its knowledge, there are no reasonable grounds for any such claims;

(d) neither the Seller nor its Subsidiaries have made any claim of any violation or infringement by others of its rights in the Intellectual Property, and to the best of the Seller's knowledge, no reasonable grounds for such claims exist; and

(e) neither the Seller nor its Subsidiaries have received notice that it is in conflict with or infringing upon the asserted rights of others in connection with the Intellectual Property.

3.16 RESTRICTIONS ON BUSINESS ACTIVITIES. Other than as set forth in the Recent Reports, there is no agreement, judgment, injunction, order or decree binding upon the Seller or its Subsidiaries which has or could reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Seller or its Subsidiaries, any acquisition of property by the Seller or its Subsidiaries or the conduct of business by the Seller or its Subsidiaries as currently conducted or as currently proposed to be conducted by the Seller.

3.17 PREEMPTIVE RIGHTS. Except as set forth in SCHEDULE 3.17, none of the stockholders of the Seller possess any preemptive rights in respect of the Notes, the Note Conversion Shares, the Note Conversion Warrants or the Conversion Shares or Warrant Shares to be issued to the Purchasers upon conversion of the Preferred Stock or exercise of the Warrants, as applicable.

3.18 INSURANCE. The insurance policies providing insurance coverage to the Seller or its Subsidiaries are adequate for the business conducted by the Seller and its Subsidiaries and are sufficient for compliance by the Seller and its Subsidiaries with all requirements of law and all material agreements to which the Seller or its Subsidiaries are a party or by which any of their assets are bound. All of such policies are in full force and effect and are valid and enforceable in accordance with their terms, and the Seller and its Subsidiaries have complied with all material terms and conditions of such policies, including premium payments. None of the insurance carriers has indicated to the Seller or its Subsidiaries an intention to cancel any such policy.

3.19 SUBSIDIARIES AND INVESTMENTS. Except as set forth in the Recent Reports or on SCHEDULE 3.19, the Seller has no Subsidiaries or Investments. For purposes of this Agreement, the term "INVESTMENTS" shall mean, with respect to any Person, all advances, loans or extensions of credit to any other Person, all purchases or commitments to purchase any stock, bonds, notes, debentures or other securities of any other Person, and any other investment in any other Person,

including partnerships or joint ventures (whether by capital contribution or otherwise) or other similar arrangement (whether written or oral) with any Person, including but not limited to arrangements in which (i) the Person shares profits and losses, (ii) any such other Person has the right to obligate or bind the Person to any third party, or (iii) the Person may be wholly or partially liable for the debts or obligations of such partnership, joint venture or other arrangement.

3.20 CAPITALIZATION. (a) The authorized capital stock of the Seller consists of 80,000,000 shares of common stock, $0.0001 par value per share, of which 44,290,216 shares are issued and outstanding as of the date hereof, and 10,000,000 shares of preferred stock, $0.0001 par value per share, issuable in one or more classes or series, with such relative rights and preferences as the Board of Directors may determine, none of which has been authorized for issuance other than 1611 shares that have been designated Series A Cumulative Convertible Preferred Stock, of which no shares are outstanding immediately prior to the execution of this Agreement and the consummation of the transactions contemplated by that certain Preferred Stock and Warrant Purchase Agreement, dated as of the date hereof, among the Seller and each of the persons described therein (the "PREFERRED STOCK PURCHASE AGREEMENT").

(b) All shares of the Seller's issued and outstanding capital stock have been duly authorized, are validly issued and outstanding, and are fully paid and nonassessable. No securities issued by the Seller from the date of its incorporation to the date hereof were issued in violation of any statutory or common law preemptive rights. There are no dividends which have accrued or been declared but are unpaid on the capital stock of the Seller. All taxes required to be paid by Seller in connection with the issuance and any transfers of the Seller's capital stock have been paid. All permits or authorizations required to be obtained from or registrations required to be effected with any Person in connection with any and all issuances of securities of the Seller from the date of the Seller's incorporation to the date hereof have been obtained or effected, and all securities of the Seller have been issued and are held in accordance with the provisions of all applicable securities or other laws.

3.21 OPTIONS, WARRANTS, RIGHTS. Except as set forth on SCHEDULE 3.21, there are no outstanding (a) securities, notes or instruments convertible into or exercisable for any of the capital stock or other equity interests of the Seller or its Subsidiaries; (b) options, warrants, subscriptions or other rights to acquire capital stock or other equity interests of the Seller or its Subsidiaries; or (c) commitments, agreements or understandings of any kind, including employee benefit arrangements, relating to the issuance or repurchase by the Seller or its Subsidiaries of any capital stock or other equity interests of the Seller or its Subsidiaries, any such securities or instruments convertible or exercisable for securities or any such options, warrants or rights. Other than the rights of the Purchasers under the Preferred Stock and the Warrants, and except as set forth on SCHEDULE 3.21, neither the Seller nor the Subsidiaries have granted anti-dilution rights to any person or entity in connection with any outstanding option, warrant, subscription or any other instrument convertible or exercisable for the securities of the Seller or any of its Subsidiaries. Other than the rights granted to the Purchasers under the Note Investor Rights Agreement and other than the Investor Rights Agreement (as defined in the Preferred Stock Purchase Agreement), there are no outstanding rights which permit the holder thereof to cause the Seller or the Subsidiaries to file a registration statement under the Securities Act or which permit the holder thereof to include securities of the Seller or any of its Subsidiaries in a

registration statement filed by the Seller or any of its Subsidiaries under the Securities Act, and there are no outstanding agreements or other commitments which otherwise relate to the registration of any securities of the Seller or any of its Subsidiaries for sale or distribution in any jurisdiction, except as set forth on SCHEDULE 3.21.

3.22 EMPLOYEES, EMPLOYMENT AGREEMENTS AND EMPLOYEE BENEFIT PLANS. Except as set forth in the Recent Reports or on SCHEDULE 3.22, there are no employment, consulting, severance or indemnification arrangements, agreements, or understandings between the Seller and any officer, director, consultant or employee of the Seller or its Subsidiaries (the "EMPLOYMENT AGREEMENTS"). No Employment Agreement provides for the acceleration or change in the award, grant, vesting or determination of options, warrants, rights, severance payments, or other contingent obligations of any nature whatsoever of the Seller or its Subsidiaries in favor of any such parties in connection with the transactions contemplated by this Agreement. Except as disclosed in the Recent Reports or on SCHEDULE 3.22, the terms of employment or engagement of all directors, officers, employees, agents, consultants and professional advisors of the Seller and its Subsidiaries are such that their employment or engagement may be terminated upon not more than two weeks' notice given at any time without liability for payment of compensation or damages and the Seller and its Subsidiaries have not entered into any agreement or arrangement for the management of their business or any part thereof other than with their directors or employees.

3.23 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Seller, nor any Affiliate of the Seller, nor to the knowledge of the Seller, any agent or employee of the Seller, any other Person acting on behalf of or associated with the Seller, or any individual related to any of the foregoing Persons, acting alone or together, has: (a) received, directly or indirectly, any rebates, payments, commissions, promotional allowances or any other economic benefits, regardless of their nature or type, from any customer, supplier, trading company, shipping company, governmental employee or other Person with whom the Seller has done business directly or indirectly; or (b) directly or indirectly, given or agreed to give any gift or similar benefit to any customer, supplier, trading company, shipping company, governmental employee or other Person who is or may be in a position to help or hinder the business of the Seller (or assist the Seller in connection with any actual or proposed transaction) which (i) may subject the Seller to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, may have had an adverse effect on the Seller or (iii) if not continued in the future, may adversely affect the assets, business, operations or prospects of the Seller or subject the Seller to suit or penalty in any private or governmental litigation or proceeding.

3.24 ENVIRONMENTAL MATTERS. Except as described in the Recent Reports or on Schedule 3.24, none of the premises or any properties owned, occupied or leased by the Seller or its Subsidiaries (the "PREMISES") has been used by the Seller or the Subsidiaries or, to the Seller's knowledge, by any other Person, to manufacture, treat, store, or dispose of any substance that has been designated to be a "HAZARDOUS SUBSTANCE" under applicable Environmental Laws (hereinafter defined) ("HAZARDOUS SUBSTANCES") in violation of any applicable Environmental Laws. To its knowledge, the Seller and its Subsidiaries have not disposed of, discharged, emitted or released any Hazardous Substances which would require, under applicable Environmental Laws, remediation, investigation or similar response activity. No Hazardous Substances are present as a result of the actions of the Seller or its Subsidiaries or, to the Seller's knowledge,

any other Person, in, on or under the Premises which would give rise to any liability or clean-up obligations of the Seller or its Subsidiaries under applicable Environmental Laws. The Seller and, to the Seller's knowledge, any other Person for whose conduct it may be responsible pursuant to an agreement or by operation of law, are in compliance with all laws, regulations and other federal, state or local governmental requirements, and all applicable judgments, orders, writs, notices, decrees, permits, licenses, approvals, consents or injunctions in effect on the date of this Agreement relating to the generation, management, handling, transportation, treatment, disposal, storage, delivery, discharge, release or emission of any Hazardous Substance (the "ENVIRONMENTAL LAWS"). Neither the Seller nor, to the Seller's knowledge, any other Person for whose conduct it may be responsible pursuant to an agreement or by operation of law has received any written complaint, notice, order, or citation of any actual, threatened or alleged noncompliance with any of the Environmental Laws, and there is no proceeding, suit or investigation pending or, to the Seller's knowledge, threatened against the Seller or, to the Seller's knowledge, any such Person with respect to any violation or alleged violation of the Environmental Laws, and, to the knowledge of the Seller, there is no basis for the institution of any such proceeding, suit or investigation.

3.25 LICENSES; COMPLIANCE WITH REGULATORY REQUIREMENTS. Except as disclosed in the Recent Reports, the Seller holds all material authorizations, consents, approvals, franchises, licenses and permits required under applicable law or regulation for the operation of the business of the Seller and its Subsidiaries as presently operated (the "GOVERNMENTAL AUTHORIZATIONS"). All the Governmental Authorizations have been duly issued or obtained and are in full force and effect, and the Seller and its Subsidiaries are in material compliance with the terms of all the Governmental Authorizations. The Seller and its Subsidiaries have not engaged in any activity that, to their knowledge, would cause revocation or suspension of any such Governmental Authorizations. The Seller has no knowledge of any facts which would cause the Seller to believe that the Governmental Authorizations will not be renewed by the appropriate governmental authorities in the ordinary course. Neither the execution, delivery nor performance of this Agreement shall adversely affect the status of any of the Governmental Authorizations.

3.26 BROKERS. Except as set forth on SCHEDULE 3.26, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement, based upon any arrangement made by or on behalf of the Seller, which would make any Purchaser liable for any fees or commissions.

3.27 SECURITIES LAWS. Neither the Seller nor its Subsidiaries nor any agent acting on behalf of the Seller or its Subsidiaries has taken or will take any action which might cause this Agreement or the Notes to violate the Securities Act or the Exchange Act or any rules or regulations promulgated thereunder, as in effect on the Closing Date. Assuming that all of the representations and warranties of the Purchasers set forth in Article IV are true, all offers and sales of capital stock, securities and notes of the Seller were conducted and completed in compliance with the Securities Act. All shares of capital stock and other securities issued by the Seller and its Subsidiaries prior to the date hereof have been issued in transactions that were either registered offerings or were exempt from the registration requirements under the Securities Act and all applicable state securities or "BLUE SKY" laws and in compliance with all applicable corporate laws.

3.28 DISCLOSURE. No representation or warranty made by the Seller in this Agreement, nor in any document, written information, financial statement, certificate, schedule or exhibit prepared and furnished by the Seller or the representatives of the Seller pursuant hereto or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits to state a material fact necessary to make the statements or facts contained herein or therein not misleading in light of the circumstances under which they were furnished.

3.29 POISON PILL. The Seller 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 Seller's Articles of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Seller fulfilling their obligations or exercising their rights under this Agreement and the Related Documents, including without limitation the Seller's issuance of the Securities and the Purchasers' ownership of the Securities.

ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

Each Purchaser, for itself only, hereby severally and not jointly, represents and warrants to the Seller as follows:

4.1 EXISTENCE AND POWER. The Purchaser, if not a natural person, is duly organized, validly existing and in good standing under the laws of the jurisdiction of such Purchaser's organization. Such Purchaser has all powers required to bind it to the representations, warranties and covenants set forth herein.

4.2 AUTHORIZATION. The execution, delivery and performance by the Purchaser of this Agreement, the Related Documents to which such Purchaser is a party, and the consummation by the Purchaser of the transactions contemplated hereby and thereby have been duly authorized, and no additional action is required for the approval of this Agreement or the Related Documents. This Agreement and the Related Documents to which the Purchaser is a party have been or, to the extent contemplated hereby, will be duly executed and delivered and constitute valid and binding agreements of the Purchaser, enforceable against such Purchaser in accordance with their terms, except as may be limited by bankruptcy, reorganization, insolvency, moratorium and similar laws of general application relating to or affecting the enforcement of rights of creditors and except that enforceability of their obligations thereunder are subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

4.3 INVESTMENT. The Purchaser is acquiring the securities described herein for its own account and not with a view to, or for sale in connection with, any distribution thereof, nor with the intention of distributing or reselling the same, provided, however, that by making the representation herein, the Purchaser 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 Securities Act. The Purchaser is aware that none of the securities has been registered under the Securities Act or

under applicable state securities or blue sky laws. The Purchaser is an "ACCREDITED INVESTOR" as such term is defined in Rule 501 of Regulation D, as promulgated under the Securities Act. The Purchaser is not, and is not required to be, registered as a broker-dealer under Section 15 of the Exchange Act.

4.4 RELIANCE ON EXEMPTIONS. The Purchaser understands that the Notes are being offered and sold to such Purchaser in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Seller is relying upon the truth and accuracy of, and such Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the securities.

4.5 EXPERIENCE OF THE PURCHASER. The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in the securities and, at the present time, is able to afford a complete loss of such investment.

4.6 GENERAL SOLICITATION. The Purchaser 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.

ARTICLE V - COVENANTS OF THE SELLER AND PURCHASERS

5.1 INSURANCE. The Seller and its Subsidiaries shall, from time to time upon the written request of the Purchasers, promptly furnish or cause to be furnished to the Purchasers evidence, in form and substance reasonably satisfactory to the Purchasers, of the maintenance of all insurance maintained by it for loss or damage by fire and other hazards, damage or injury to persons and property and under workmen's compensation laws.

5.2 REPORTING OBLIGATIONS. So long as any of the Notes, Note Conversion Shares or Note Conversion Warrants are outstanding, and, with respect to the Note Conversion Warrants so long as any Note Conversion Warrant has not been exercised and has not expired by its terms, the Seller shall furnish to the Purchasers, or any other persons who hold any of the Notes, Note Conversion Shares or Note Conversion Warrants (provided that such subsequent holders give notice to the Seller that they hold Notes, Note Conversion Shares or Note Conversion Warrants and furnish their addresses) promptly upon their becoming available one copy of (A) each report, notice or proxy statement sent by the Seller to its stockholders generally, and of each regular or periodic report (pursuant to the Exchange Act) and (B) any registration statement, prospectus or written communication pursuant to the Securities Act relating to the issuance or registration of Conversion Shares and the Warrant Shares and filed by the Seller with the Commission or any securities market or exchange on which shares of Common Stock are listed; provided, however, that the Seller shall have no obligation to deliver periodic reports (pursuant to the Exchange Act) under this
Section 5.2 to the extent such reports are publicly available.

The Purchasers are hereby authorized to deliver a copy of any financial statement or any other information relating to the business, operations or financial condition of the Seller which may have been furnished to the Purchasers hereunder, to any regulatory body or agency having jurisdiction over the Purchasers or to any Person which shall, or shall have right or obligation to succeed to all or any part of the Purchasers' interest in the Seller or this Agreement.

5.3 INVESTIGATION. The representations, warranties, covenants and agreements set forth in this Agreement shall not be affected or diminished in any way by any investigation (or failure to investigate) at any time by or on behalf of the party for whose benefit such representations, warranties, covenants and agreements were made. Without limiting the generality of the foregoing, the inability or failure of the Purchasers to discover any breach, default or misrepresentation by the Seller under this Agreement or the Related Documents (including under any certificate furnished pursuant to this Agreement), notwithstanding the exercise by the Purchasers or other holders of the Notes, Note Conversion Shares or Note Conversion Warrants of their rights hereunder to conduct an investigation shall not in any way diminish any liability hereunder.

5.4 FURTHER ASSURANCES. The Seller shall, at its cost and expense, upon written request of the Purchasers, duly execute and deliver, or cause to be duly executed and delivered, to the Purchasers such further instruments and do and cause to be done such further acts as may be necessary, advisable or proper, in the absolute discretion of the Purchasers, to carry out more effectually the provisions and purposes of this Agreement. The parties shall use their best efforts to timely satisfy each of the conditions described in Article VI of this Agreement.

5.5 USE OF PROCEEDS. The Seller covenants and agrees that the proceeds of the Purchase Price may only be used by the Seller for (i) the immediate repayment of $2.775 million principal amount plus accrued interest of outstanding senior secured promissory notes due in April 2005 and May 2005, (ii) the immediate repayment of up to an additional $500,000 of indebtedness (exclusive of trade debt), and (iii) for working capital and general corporate purposes; under no circumstances shall any portion of the proceeds be applied to:

(i) accelerated repayment of debt existing on the date hereof (except as provided above);

(ii) the payment of dividends or other distributions on any capital stock of the Seller other than the Preferred Stock;

(iii) increased executive compensation or loans to officers, employees, stockholders or directors, unless approved by a disinterested majority of the Board of Directors;

(iv) the purchase of debt or equity securities of any person, including the Seller and its Subsidiaries, except in connection with investment of excess cash in high quality (A1/P1 or better) money market instruments having maturities of one year or less; or

(v) any expenditure not directly related to the business of the Seller.

5.6 CORPORATE EXISTENCE. So long as a Purchaser owns Notes, Note Conversion

Shares, Note Conversion Warrants, Conversion Shares or Warrant Shares, the Seller shall preserve and maintain and cause its Subsidiaries to preserve and maintain their corporate existence and good standing in the jurisdiction of their incorporation and the rights, privileges and franchises of the Seller and its Subsidiaries (except, in each case, in the event of a merger or consolidation in which the Seller or its Subsidiaries, as applicable, is not the surviving entity) in each case where failure to so preserve or maintain could have a Material Adverse Effect on the financial condition, business or operations of the Seller and its Subsidiaries taken as a whole.

5.7 LICENSES. So long as a Purchaser owns Notes, Note Conversions Shares, Note Conversion Warrants, Conversion Shares or Warrant Shares, the Seller shall, and shall cause its Subsidiaries to, maintain at all times all material licenses or permits necessary to the conduct of its business and as required by any governmental agency or instrumentality thereof.

5.8 LIKE TREATMENT OF PURCHASERS AND HOLDERS. Neither the Seller nor any of its affiliates shall, directly or indirectly, pay or cause to be paid any consideration (immediate or contingent), whether by way of interest, fee, payment for redemption, conversion or exercise of the Notes, Note Conversion Shares or Note Conversion Warrants, or otherwise, to any Purchaser or holder of Notes, Note Conversion Shares or Note Conversion Warrants, for or as an inducement to, or in connection with the solicitation of, any consent, waiver or amendment to any terms or provisions of this Agreement or the Related Documents, unless such consideration is required to be paid to all Purchasers or holders of Notes, Note Conversion Shares or Note Conversion Warrants bound by such consent, waiver or amendment. The Seller shall not, directly or indirectly, redeem any Notes, Note Conversion Shares or Note Conversion Warrants unless such offer of redemption is made pro rata to all Purchasers or holders of Notes, Note Conversion Shares, and Note Conversion Warrants, as the case may be, on identical terms.

5.9 TAXES AND CLAIMS. The Seller and its Subsidiaries shall duly pay and discharge (a) all material taxes, assessments and governmental charges upon or against the Seller or its properties or assets prior to the date on which penalties attach thereto, unless and to the extent that such taxes are being diligently contested in good faith and by appropriate proceedings, and appropriate reserves therefor have been established, and (b) all material lawful claims, whether for labor, materials, supplies, services or anything else which might or could, if unpaid, become a lien or charge upon the properties or assets of the Seller or its Subsidiaries unless and to the extent only that the same are being diligently contested in good faith and by appropriate proceedings and appropriate reserves therefor have been established.

5.10 PERFORM COVENANTS. The Seller shall (a) make full and timely payment of any and all payments on the Notes and Note Conversion Shares, and all other obligations of the Seller to the Purchasers in connection therewith, whether now existing or hereafter arising, and (b) duly comply with all the terms and covenants contained herein and in each of the instruments and documents given to the Purchasers in connection with or pursuant to this Agreement, all at the times and places and in the manner set forth herein or therein.

5.11 ADDITIONAL COVENANTS.

(a) Except for transactions approved by a majority of the disinterested directors of the Board of Directors, neither the Seller nor any of its Subsidiaries shall enter into any transaction

with any director, officer, employee or holder of more than 5% of the outstanding capital stock of any class or series of capital stock of the Seller or any of its Subsidiaries, member of the family of any such person, or any corporation, partnership, trust or other entity in which any such person, or member of the family of any such person, is a director, officer, trustee, partner or holder of more than 5% of the outstanding capital stock thereof, with the exception of transactions which are consummated upon terms that are no less favorable than would be available if such transaction had been effected at arms-length, in the reasonable judgment of the Board of Directors.

(b) The Seller shall timely prepare and file with the Securities and Exchange Commission the form of notice of the sale of securities pursuant to the requirements of Regulation D regarding the sale of the Notes under this Agreement.

(c) The Seller shall timely prepare and file such applications, consents to service of process (but not including a general consent to service of process) and similar documents and take such other steps and perform such further acts as shall be required by the state securities law requirements of each jurisdiction where a Purchaser resides as indicated on SCHEDULE 1 with respect to the sale of the Notes under this Agreement.

(d) State Securities Law Compliance --Resale. Beginning no later than 60 days following the date of this Agreement and continuing until either (i) the purchasers have sold all of their Registrable Securities under a registration statement pursuant to the Note Investor Rights Agreement or (ii) the Common Stock becomes a "covered security" under Section 18(b)(1)(A) of the Securities Act, the Seller shall maintain within either Moody's Industrial Manual or Standard and Poor's Standard Corporation Descriptions (or any successors to these manuals which are similarly qualified as "recognized securities manuals" under state Blue Sky laws) an updated listing containing (i) the names of the officers and directors of the Seller, (ii) a balance sheet of the Seller as of a date that is at no time older than eighteen months and (iii) a profit and loss statement of the Seller for either the preceding fiscal year or the most recent year of operations.

5.12 SECURITIES LAWS DISCLOSURE; PUBLICITY. The Seller shall (i) on or promptly after the Closing Date, issue a press release acceptable to SDS Capital Partners SPC, Ltd. disclosing the transactions contemplated hereby, and
(ii) after the Closing Date, file with the Commission a Report on Form 8-K disclosing the transactions contemplated hereby. Except as provided in the preceding sentence, neither the Seller nor the Purchasers shall make any press release or other publicity about the terms of this Agreement or the transactions contemplated hereby without the prior approval of the other unless otherwise required by law or the rules of the Commission or Nasdaq.

5.13 PRODUCTION PURCHASE COMMITMENTS. Beginning no later than October 1, 2004, and as long as any Preferred Stock, Notes or Note Conversion Shares remain outstanding, the Seller shall maintain long term purchase commitments of three years or longer from third parties for at least 70% of the Seller's monthly tonnage. Within 45 days following the commencement of coal extraction from any New Mine and as long as at least 25% of the shares of Preferred Stock originally issued pursuant to this Agreement remain outstanding, the Seller shall have secured, and thereafter shall maintain, long term purchase commitments of three years or longer from third parties for at least 75% of the monthly tonnage for such Permitted Mine. "New Mine"

shall mean any surface mine or deep mine at which the Seller first commences coal extraction following the Closing Date.

5.14 BOOKED PURCHASE COMMITMENTS. No later than March 31, 2005, and as long as at least 25% of (x) the Note Conversion Shares (or Note Conversion Shares issuable upon conversion of Notes then outstanding) plus (y) the total amount of Preferred Stock issued pursuant to the Preferred Stock Purchase Agreement remain outstanding, the Seller shall have secured purchase commitments from third parties either (a) for the purchase of no less than 2 million tons of coal or (b) for the purchase of an amount of coal with a total purchase price not less than $100 million, in either case, such purchases committed to be completed (delivery made and paid in full) no later than March 31, 2008.

5.15 CORPORATE GOVERNANCE. No later than the 90th day following the Closing Date, the Seller shall be in full compliance with the corporate governance requirements applicable to companies listed on either the Nasdaq Small Cap Market, the Nasdaq National Market or the American Stock Exchange (each, a "QUALIFIED Exchange"), including, without limitation, the requirements that the Board of Directors have at least three independent members (the "INDEPENDENT DIRECTORS"), a compliant audit committee and a compliant compensation committee.

5.16 LISTING OF COMMON STOCK. The Seller shall use its best efforts to list its Common Stock on a Qualified Exchange within one year of the Closing Date.

5.17 REPAYMENT OF BRIDGE DEBT. Immediately following the Closing, the Seller shall pay in full $2.775 million principal amount and accrued interest on its outstanding senior secured promissory notes due in April 2005 and May 2005 and shall as soon as practicable thereafter deliver to the Escrow Agent for further delivery to the Purchasers written confirmation from the lenders that such principal and interest has been repaid in full.

5.18 OPTION EXERCISE. In connection with (a) the exercise by the Purchasers of the Options (as defined below) and (b) the transfer pursuant to the Options of the shares of Common Stock to the Purchasers and issuance of certificates representing such shares to the Purchasers, and to the extent required by the Seller's transfer agent for the Common Stock (the "Transfer Agent"), the Seller shall use its best efforts, at the Seller's cost and expense, to cause a written opinion of counsel to be delivered to the Transfer Agent, which opinion and counsel shall be reasonably acceptable to the Transfer Agent to the effect that such transfer may be made without registration under the Securities Act and covering such other matters as the Transfer Agent may require. In addition, the Seller shall, at the Seller's cost and expense, upon written request of the Purchasers, duly execute and deliver, or cause to be duly executed and delivered, to the Purchasers or the Transfer Agent such further instruments and do and cause to be done such further acts as may be necessary, advisable or proper, in the sole discretion of the Purchasers, to effect the transfer of the shares of Common Stock to the Purchasers upon exercise of the Options and to ensure that such transfer complies with all applicable state and federal securities laws.

ARTICLE VI - CONDITIONS TO CLOSING

6.1 CONDITIONS TO OBLIGATIONS OF PURCHASERS TO EFFECT THE CLOSING. The obligations of a Purchaser to effect the Closing and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing, of each of the following conditions, any of which may be waived, in writing, by a Purchaser:

(a) The Seller shall deliver or cause to be delivered to the Escrow Agent, for further delivery to each of the Purchasers at the Closing pursuant to the terms of the Note Escrow Agreement, the following:

1. One or more certificates evidencing the Notes, registered in the name of such Purchaser, in such denominations as is indicated on SCHEDULE 1 for such Purchaser.

2. The Note Investor Rights Agreement, in the form attached hereto as EXHIBIT D (the "NOTE INVESTOR RIGHTS AGREEMENT"), duly executed by the Seller.

3. A legal opinion of Stubbs Alderton & Markiles, LLP ("SELLER'S COUNSEL"), counsel to the Seller, in the form attached hereto as EXHIBIT E.

4. A certificate of the Secretary of the Seller (the "SECRETARY'S CERTIFICATE"), in form and substance satisfactory to the Purchasers, certifying as follows:

(i) that the Articles of Amendment authorizing the Preferred Stock has been duly filed in the office of the Secretary of State of the State of Florida, and that attached to the Secretary's Certificate is true and complete copy of the Articles of Incorporation of the Seller, as amended, and the Articles of Amendment;

(ii) that a true copy of the Bylaws of the Seller, as amended to the Closing Date, is attached to the Secretary's Certificate;

(iii) that attached thereto are true and complete copies of the resolutions of the Board of Directors of the Seller authorizing the execution, delivery and performance of this Agreement and the Related Documents, instruments and certificates required to be executed by it in connection herewith and approving the consummation of the transactions in the manner contemplated hereby including, but not limited to, the authorization and issuance of the Notes, the Note Conversion Shares and the Note Conversion Warrants;

(iv) the names and true signatures of the officers of the Seller signing this Agreement and all other documents to be delivered in connection with this Agreement;

(v) such other matters as required by this Agreement; and

(vi) such other matters as the Purchasers may reasonably request.

5. A wire transfer representing the Purchasers' reasonable legal fees and other expenses as described in Section 9.2 hereof; such fee may, at the election of the Purchasers, be paid out of the funds due from the Purchasers at the Closing.

6. Proof of due filing with the Secretary of State of the State of Florida of the Articles of Amendment authorizing the Preferred Stock.

7. Such other documents as the Purchasers shall reasonably request.

(b) The Seller shall have entered into a Note Closing Escrow Agreement with Wiggin and Dana LLP (the "ESCROW AGENT") in the form attached hereto as EXHIBIT F (the "NOTE ESCROW AGREEMENT").

(c) Jon Nix and Robert Chmiel shall have each entered into a nine month Management Lock-Up Agreement in the form attached hereto as EXHIBIT G, and copies thereof shall have been delivered to the Escrow Agent for further delivery to each of the Purchasers at the Closing pursuant to the terms of the Note Escrow Agreement.

(d) Seller shall have applied to each U.S. securities exchange, interdealer quotation system and other trading market where its Common Stock is currently listed or qualified for trading or quotation for the listing or qualification of the Conversion Shares and the Warrant Shares for trading or quotation thereon in the time and manner required thereby.

(e) Each of the Purchasers shall have been assigned, pursuant to an assignment dated as of the Closing Date (the "ASSIGNMENT"), the right to purchase, at a purchase price of $0.55 per share (the "OPTIONS"), the number of shares (300,000 shares in the aggregate) of restricted Common Stock pursuant to that certain Stock Option Agreement, dated as of June 30, 2004, by and between Farrald Belote and Arlene Belote, as optionors, and Jon Nix, as optionee, as amended, (the "STOCK OPTION AGREEMENT") as is indicated next to such Purchaser's name in the Assignment. A duly executed copy of the Assignment shall have been delivered to the Escrow Agent for further delivery to such Purchasers and for further delivery to the escrow agent for the Stock Option Agreement (the "OPTION ESCROW AGENT"). Each such Purchaser shall have delivered to the Escrow Agent, for further delivery to the Option Escrow Agent, a duly executed exercise notice (the "EXERCISE NOTICE") exercising all of the Options assigned to such Purchaser pursuant to the Assignment along with a wire transfer, in immediately available funds, of the exercise price for such Options.

(f) The closing of the transactions contemplated by the Preferred Stock Purchase Agreement shall have been consummated.

6.2 CONDITIONS TO OBLIGATIONS OF THE SELLER TO EFFECT THE CLOSING. The obligations of the Seller to effect the Closing and the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions, any of which may be waived, in writing, by the Seller:

(a) Each of the Purchasers shall deliver or cause to be delivered to the Escrow Agent, for further delivery to the Seller at the Closing pursuant to the terms of the Note Escrow Agreement, (i) payment of the portion of the Purchase Price set forth opposite each Purchaser's

name on SCHEDULE 1, in cash by wire transfer of immediately available funds to an account designated in writing by the Escrow Agent prior to the date hereof;
(ii) an executed copy of this Agreement; (iii) an executed copy of the Note Investor Rights Agreement; and (iv) such other documents as the Seller shall reasonably request.

ARTICLE VII - INDEMNIFICATION, TERMINATION AND DAMAGES

7.1 SURVIVAL OF REPRESENTATIONS. Except as otherwise provided herein, the representations and warranties of the Seller and the Purchasers contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing Date and shall continue in full force and effect for a period of three (3) years from the Closing Date; provided, however, that the Seller's warranties and representations under Sections 3.13 (Taxes), 3.19 (Subsidiaries and Investments), 3.20 (Capitalization), and 3.21 (Options, Warrants, Rights), shall survive the Closing Date and continue in full force and effect until the expiration of all applicable statutes of limitation; and further provided that the Seller's warranties and representations under
Section 3.24 (Environmental Matters) shall survive the Closing Date and continue in full force and effect for a period of six (6) years from the Closing Date. The Seller's and the Purchasers' warranties and representations shall in no way be affected or diminished in any way by any investigation of the subject matter thereof made by or on behalf of the Seller or the Purchasers.

7.2 INDEMNIFICATION.

(a) The Seller agrees to indemnify and hold harmless the Purchasers, their Affiliates, each of their officers, directors, partners, employees and agents and their respective successors and assigns, from and against any losses, damages, or expenses which are caused by or arise out of (i) any breach or default in the performance by the Seller of any covenant or agreement made by the Seller in this Agreement or in any of the Related Documents; (ii) any breach of warranty or representation made by the Seller in this Agreement or in any of the Related Documents; or (iii) any and all third party actions, suits, proceedings, claims, demands, judgments, costs and expenses (including reasonable legal fees and expenses) incident to any of the foregoing.

(b) The Purchasers, severally and not jointly, agree to indemnify and hold harmless the Seller, its Affiliates, each of their officers, directors, partners, employees and agents and their respective successors and assigns, from and against any losses, damages, or expenses which are caused by or arise out of
(i) any breach or default in the performance by the Purchasers of any covenant or agreement made by the Purchasers in this Agreement or in any of the Related Documents; (ii) any breach of warranty or representation made by the Purchasers in this Agreement or in any of the Related Documents; and (iii) any and all third party actions, suits, proceedings, claims, demands, judgments, costs and expenses (including reasonable legal fees and expenses) incident to any of the foregoing; provided, however, that a Purchaser's liability under this Section 7.2(b) shall not exceed the Purchase Price paid by such Purchaser hereunder.

7.3 INDEMNITY PROCEDURE. A party or parties hereto agreeing to be responsible for or to indemnify against any matter pursuant to this Agreement is referred to herein as the "INDEMNIFYING PARTY" and the other party or parties claiming indemnity is referred to as the "INDEMNIFIED PARTY". An Indemnified Party under this Agreement shall, with respect to claims

asserted against such party by any third party, give written notice to the Indemnifying Party of any liability which might give rise to a claim for indemnity under this Agreement within sixty (60) business days of the receipt of any written claim from any such third party, but not later than twenty (20) days prior to the date any answer or responsive pleading is due, and with respect to other matters for which the Indemnified Party may seek indemnification, give prompt written notice to the Indemnifying Party of any liability which might give rise to a claim for indemnity; provided, however, that any failure to give such notice will not waive any rights of the Indemnified Party except to the extent the rights of the Indemnifying Party are materially prejudiced.

The Indemnifying Party shall have the right, at its election, to take over the defense or settlement of such claim by giving written notice to the Indemnified Party at least fifteen (15) days prior to the time when an answer or other responsive pleading or notice with respect thereto is required. If the Indemnifying Party makes such election, it may conduct the defense of such claim through counsel of its choosing (subject to the Indemnified Party's approval of such counsel, which approval shall not be unreasonably withheld), shall be solely responsible for the expenses of such defense and shall be bound by the results of its defense or settlement of the claim. The Indemnifying Party shall not settle any such claim without prior notice to and consultation with the Indemnified Party, and no such settlement involving any equitable relief or which might have an adverse effect on the Indemnified Party may be agreed to without the written consent of the Indemnified Party (which consent shall not be unreasonably withheld). So long as the Indemnifying Party is diligently contesting any such claim in good faith, the Indemnified Party may pay or settle such claim only at its own expense and the Indemnifying Party will not be responsible for the fees of separate legal counsel to the Indemnified Party, unless the named parties to any proceeding include both parties or representation of both parties by the same counsel would be inappropriate due to conflicts of interest or otherwise. If the Indemnifying Party does not make such election, or having made such election does not, in the reasonable opinion of the Indemnified Party proceed diligently to defend such claim, then the Indemnified Party may (after written notice to the Indemnifying Party), at the expense of the Indemnifying Party, elect to take over the defense of and proceed to handle such claim in its discretion and the Indemnifying Party shall be bound by any defense or settlement that the Indemnified Party may make in good faith with respect to such claim. In connection therewith, the Indemnifying Party will fully cooperate with the Indemnified Party should the Indemnified Party elect to take over the defense of any such claim. The parties agree to cooperate in defending such third party claims and the Indemnified Party shall provide such cooperation and such access to its books, records and properties as the Indemnifying Party shall reasonably request with respect to any matter for which indemnification is sought hereunder; and the parties hereto agree to cooperate with each other in order to ensure the proper and adequate defense thereof.

With regard to claims of third parties for which indemnification is payable hereunder, such indemnification shall be paid by the Indemnifying Party upon the earlier to occur of: (i) the entry of a judgment against the Indemnified Party and the expiration of any applicable appeal period, or if earlier, five (5) days prior to the date that the judgment creditor has the right to execute the judgment; (ii) the entry of an unappealable judgment or final appellate decision against the Indemnified Party; or (iii) a settlement of the claim. Notwithstanding the foregoing, the reasonable expenses of counsel to the Indemnified Party shall be reimbursed on a current

basis by the Indemnifying Party. With regard to other claims for which indemnification is payable hereunder, such indemnification shall be paid promptly by the Indemnifying Party upon demand by the Indemnified Party.

ARTICLE VIII - ADDITIONAL PURCHASE RIGHT

8.1 ADDITIONAL PURCHASE RIGHT. Each Purchaser or its assigns shall have the right (the "ADDITIONAL PURCHASE RIGHT"), during the Additional Purchase Period (as defined below), to purchase from the Seller, up to the number of shares of additional Preferred Stock as indicated next to such Purchaser's name on SCHEDULE 1 hereto under the heading "Number of Shares of Preferred Stock Subject to Additional Purchase Right", in whole or in part, at a purchase price of $15,000 per share, all on and subject to the terms and conditions set forth in this Article VIII. Upon the purchase of any shares of Preferred Stock pursuant to the Additional Purchase Right, the Purchaser or its assigns shall receive additional Warrants to purchase that number of shares of Common Stock as is equal to 20% of the number of shares of Common Stock into which such additional shares of Preferred Stock are convertible.

8.2 EXERCISE OF ADDITIONAL PURCHASE RIGHT.

(a) From and after the Closing Date, provided that the Purchaser has converted all of its Notes into Conversion Shares, and until 5:00 P.M., New York time, on the date that is 90 days after the Effective Date, as such term is defined in the Note Investor Rights Agreement (the "EXPIRATION DATE" and such period, the "ADDITIONAL PURCHASE PERIOD"), the Purchaser or its assigns may elect to purchase all or any part of the number of additional shares of Preferred Stock as indicated next to such Purchaser's name on SCHEDULE 1 hereto under the heading "Number of Shares of Preferred Stock Subject to Additional Purchase Right" (together with the applicable number of Warrants).

(b) In order to exercise the Additional Purchase Right, in whole or in part, the Purchaser shall deliver to the Seller at the address indicated in Section 9.3, (i) a written notice of the Purchaser's election to exercise its Additional Purchase Right, which notice shall specify the number of additional shares of Preferred Stock to be purchased and (ii) payment of the purchase price. Such notice shall be substantially in the form of the subscription form attached as EXHIBIT H hereto, duly executed by the Purchaser or its agent or attorney. Upon receipt thereof, the Seller shall, as promptly as practicable, and in any event within three Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Purchaser a certificate or certificates representing the aggregate number of shares of additional Preferred Stock purchased pursuant to the Additional Purchase Right along with a certificate or certificates representing the Warrants to be received together with such Preferred Stock. The stock and Warrant certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Purchaser shall request in the notice and shall be registered in the name of the Purchaser or such other name as shall be designated in the notice. The Additional Purchase Right shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Purchaser or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares and Warrants for all purposes, as of the date when the notice,

together with the payment of the purchase price, is received by the Seller as described above. If the Additional Purchase Right shall have been exercised in part, the Purchaser shall retain the right to purchase that number of shares of additional Preferred Stock as indicated next to such Purchaser's name on SCHEDULE 1 hereto under the heading "Number of Shares of Preferred Stock Subject to Additional Purchase Right" less the number of shares of additional Preferred Stock previously purchased pursuant to this Article VIII (together with the applicable number of Warrants).

(c) If the Seller intentionally and willfully fails to deliver to the holder such certificate or certificates pursuant to this Section 8.2 in accordance herewith, prior to the seventh trading day after the receipt by the Seller of (i) a written notice of Purchaser's election to exercise its Additional Purchase Right pursuant to Section 8.2(b) (such date of receipt, the "DATE OF RECEIPT"), the Seller shall pay to such Purchaser, in cash, on a per diem basis, an amount equal to 2% of the purchase price of the undelivered Preferred Stock and Warrants per month (or portion thereof) until such delivery takes place.

(d) Payment of the purchase price for the additional Preferred Stock may be made at the option of the Purchaser by: (i) certified or official bank check payable to the order of the Seller or (ii) wire transfer to the account of the Seller. All shares of Preferred Stock and all Warrants issuable upon the exercise of the Additional Purchase Right pursuant to the terms hereof shall be validly issued and, upon payment of the purchase price therefor, shall be fully paid and nonassessable and not subject to any preemptive rights, and any purchaser of shares of Preferred Stock and Warrants pursuant to this Article VIII shall have all of the rights of a Purchaser and holder of Note Conversion Shares and Note Conversion Warrants under this Agreement, the Note Investor Rights Agreement and the Articles of Incorporation as amended by the Articles of Amendment, in each case, with respect to such additional shares of Preferred Stock and such additional Warrants.

8.3 ADJUSTMENTS. For avoidance of doubt, any and all adjustments to the Conversion Value (as defined in the Articles of Incorporation as Amended by the Articles of Amendment) of the Preferred Stock or the Current Warrant Price (as defined in the Warrant) or number of Warrant Shares issuable upon exercise of the Warrants, in each case, originally issued pursuant to the Preferred Stock Purchase Agreement that may have been made prior to the issuance of additional shares of Preferred Stock and Warrants issued pursuant to this Article VIII shall be deemed to apply to any such additional shares of Preferred Stock and Warrants. In addition, the amounts set forth in this Article VIII shall be subject to adjustment for any stock splits, dividends, distributions and the like.

8.4 TRANSFER. The Additional Purchase Right pursuant to this Article VIII shall be freely transferable, subject to compliance with all applicable laws, including, but not limited to the Securities Act. The Seller may require, as a condition of allowing such transfer (i) that the Purchaser or transferee of the Additional Purchase Right as the case may be, furnish to the Seller a written opinion of counsel that is reasonably acceptable to the Seller to the effect that such transfer may be made without registration under the Securities Act, (ii) that the Purchaser or transferee execute and deliver to the Seller a customary investor representation letter, (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the

Securities Act and (iv) that the Purchaser deliver to the Seller a written assignment of the Additional Purchase Right substantially in the form of EXHIBIT I hereto duly executed by the Purchaser or its agent or attorney. Notwithstanding the foregoing, without the prior written consent of the Seller, no transfer of Additional Purchase Rights shall be made where the number of shares of Preferred Stock purchasable pursuant to such Additional Purchase Rights is less than 5% of the total number of shares of Preferred Stock purchasable by all Purchasers pursuant to their Additional Purchase Rights as of the Closing Date unless the amount of Additional Purchase Rights proposed to be transferred are all of the Additional Purchase Rights then owned by the transferring Purchaser.

ARTICLE IX - MISCELLANEOUS

9.1 FURTHER ASSURANCES. Each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by any other party to better evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement, and further agrees to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things necessary, proper or advisable under applicable law to consummate and make effective the transactions contemplated hereby, to obtain all necessary waivers, consents and approvals, to effect all necessary registrations and filings, and to remove any injunctions or other impediments or delays, legal or otherwise, in order to consummate and make effective the transactions contemplated by this Agreement for the purpose of securing to the parties hereto the benefits contemplated by this Agreement.

9.2 FEES AND EXPENSES. The Seller shall be responsible for the payment of up to an aggregate of $45,000 of the reasonable legal fees and other third-party expenses of SDS Capital Partners SPC, Ltd. relating to the preparation and negotiation of this Agreement and the Related Documents and the consummation of the transactions contemplated herein and therein, unless otherwise agreed by the Seller in writing. This Section 9.2 shall not apply to registration expenses under the Note Investor Rights Agreement, which shall be payable as provided therein.

9.3 NOTICES. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:00 p.m. (New York City time) on a business day, (b) the next business day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a business day or later than 5:00 p.m. (New York City time) on any business day, or (c) the business day following the date of mailing, if sent by U.S. nationally recognized overnight courier service such as Federal Express. The address for such notices and communications shall be as follows:

If to the Purchasers at each Purchaser's address set forth under its name on SCHEDULE 1 attached hereto, or with respect to the Seller, addressed to:

National Coal Corp.

319 Ebenezer Road
Knoxville, Tennessee 37923
Attention: Chief Executive Officer
Facsimile No.: (865) 769-3759

or to such other address or addresses or facsimile number or numbers as any such party may most recently have designated in writing to the other parties hereto by such notice. Copies of notices to the Seller shall be sent to Stubbs Alderton & Markiles, LLP, 15821 Ventura Boulevard, Suite 525, Encino, California 91436, Facsimile No. (818) 444-4520. Copies of notices to any Purchaser shall be sent to the addresses, if any, listed on SCHEDULE 1 attached hereto.

Unless otherwise stated above, such communications shall be effective when they are received by the addressee thereof in conformity with this Section. Any party may change its address for such communications by giving notice thereof to the other parties in conformity with this Section.

9.4 GOVERNING LAW. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and enforced in accordance with the laws of the State of New York without reference to the conflicts of laws principles thereof.

9.5 JURISDICTION AND VENUE. This Agreement shall be subject to the exclusive jurisdiction of the Federal District Court, Southern District of New York and if such court does not have proper jurisdiction, the State Courts of New York County, New York. The parties to this Agreement agree that any breach of any term or condition of this Agreement shall be deemed to be a breach occurring in the State of New York by virtue of a failure to perform an act required to be performed in the State of New York and irrevocably and expressly agree to submit to the jurisdiction of the Federal District Court, Southern District of New York and if such court does not have proper jurisdiction, the State Courts of New York County, New York for the purpose of resolving any disputes among the parties relating to this Agreement or the transactions contemplated hereby. The parties irrevocably waive, to the fullest extent permitted by law, any objection which they may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement, or any judgment entered by any court in respect hereof brought in New York County, New York, and further irrevocably waive any claim that any suit, action or proceeding brought in Federal District Court, Southern District of New York and if such court does not have proper jurisdiction, the State Courts of New York County, New York has been brought in an inconvenient forum. Each of the parties hereto consents to process being served in any such suit, action or proceeding, by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 9.5 shall affect or limit any right to serve process in any other manner permitted by law.

9.6 SUCCESSORS AND ASSIGNS. This Agreement is personal to each of the parties and may not be assigned without the written consent of the other parties; provided, however, that any of the Purchasers shall be permitted to assign this Agreement to any Person to whom it assigns or transfers securities or rights issued or issuable pursuant to this Agreement. Any assignee must be an "ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated under the Securities Act.

9.7 SEVERABILITY. If any provision of this Agreement, or the application thereof, shall for any reason or to any extent be invalid or unenforceable, the remainder of this Agreement and application of such provision to other persons or circumstances shall continue in full force and effect and in no way be affected, impaired or invalidated.

9.8 ENTIRE AGREEMENT. This Agreement and the other agreements and instruments referenced herein constitute the entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings.

9.9 OTHER REMEDIES. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party shall be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law, or in equity on such party, and the exercise of any one remedy shall not preclude the exercise of any other.

9.10 AMENDMENT AND WAIVERS. Any term or provision of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a writing signed by the Seller and the holders of greater than 50% of (a) the principal amount of the Notes then outstanding plus (b) the liquidation preference of Note Conversion Shares then outstanding (a "PURCHASER MAJORITY"), and such waiver or amendment, as the case may be, shall be binding upon all Purchasers. The waiver by a party of any breach hereof or default in the performance hereof shall not be deemed to constitute a waiver of any other default or any succeeding breach or default. This Agreement may not be amended or supplemented by any party hereto except pursuant to a written amendment executed by the Seller and the holders of a Purchaser Majority. No amendment shall be effected to impact a holder of Notes or Note Conversion Shares in a disproportionately adverse fashion without the consent of such individual holder of Notes or Note Conversion Shares. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of this Agreement or any of the Related Documents unless the same consideration is also offered to all of the parties to this Agreement or the Related Documents.

9.11 NO WAIVER. The failure of any party to enforce any of the provisions hereof shall not be construed to be a waiver of the right of such party thereafter to enforce such provisions.

9.12 CONSTRUCTION OF AGREEMENT; KNOWLEDGE. For purposes of this Agreement, the term "KNOWLEDGE," when used in reference to a corporation means the knowledge of the directors and executive officers of such corporation (including, if applicable, any person designated as a chief scientific, medical or technical officer) assuming such persons shall have made inquiry that is customary and appropriate under the circumstances to which reference is made, and when used in reference to an individual means the knowledge of such individual assuming the individual shall have made inquiry that is customary and appropriate under the circumstances to which

reference is made.

9.13 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original as against any party whose signature appears thereon and all of which together shall constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as signatories. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

9.14 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the parties hereto and their respective heirs, personal representatives, legal representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement.

9.15 WAIVER OF TRIAL BY JURY. THE PARTIES HERETO IRREVOCABLY WAIVE TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

9.16 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The obligations of each Purchaser under this Agreement or any Related Documents are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any such agreement. Nothing contained herein or in any Related Documents, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by such agreement. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Related Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser represents that it has been represented by its own separate legal counsel in its review and negotiation of this Agreement and the Related Documents. For reasons of administrative convenience only, the Purchasers acknowledge and agree that they and their respective counsel have chosen to communicate with the Seller through Wiggin and Dana LLP, but Wiggin and Dana LLP does not represent any of the Purchasers in this transaction other than SDS Capital Partners SPC, Ltd.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

SELLER:

NATIONAL COAL CORP.

Print Name:      CRESTVIEW CAPITAL MASTER, LLC





By:                /S/ STEWART R. FLICK
                ---------------------------------------------

Name:              STEWART R. FLICK
                ---------------------------------------------

Title:             MANAGER
                ---------------------------------------------


Address:           95 REVERE DRIVE, SUITE A
                ---------------------------------------------

                   NORTHBROOK, IL, 60062

Print Name:      SDS CAPITAL CROUP SPC, LTD.





By:                /S/ SCOTT E. DERBY
                ---------------------------------------------

Name:              SCOTT E. DERBY
                ---------------------------------------------

Title:             GENERAL COUNSEL
                ---------------------------------------------


Address:           C/O SDS MANAGEMENT, LLC
                ---------------------------------------------

                   53 FOREST AVENUE, 2ND FLOOR

                   OLD GREENWICH, CT 06870

Telephone:
                ---------------------------------------------

Facsimile:
                ---------------------------------------------

E-Mail:
                ---------------------------------------------

SOC/EIN#:
                ---------------------------------------------

                               National Coal Corp.
                             Note Purchase Agreement
                    Purchasers and Principal Amount of Notes

-----------------------------   -------------------    ----------------    --------------------------   --------------------------
                                                                              NUMBER OF SHARES OF       NUMBER OF SHARES OF COMMON
NAME, ADDRESS AND FAX NUMBER    PRINCIPAL AMOUNT OF     PURCHASE PRICE     PREFERRED STOCK SUBJECT TO     STOCK TO BE PURCHASED
         OF PURCHASER            NOTES PURCHASED AT    OF NOTES PAYABLE     ADDITIONAL PURCHASE RIGHT     PURSUANT TO THE STOCK
                                     CLOSING              AT CLOSING                                           OPTION AGREEMENT
-----------------------------   -------------------    ----------------    --------------------------   --------------------------
Crestview Capital Master LLC*        $500,000              $500,000                  11.11                        50,000

Attn: Stewart Flink
95 Revere Drive, Suite A
Northbrook, IL 60062
Tel: 847-559-0060
Fax: 847-559-5807
stewart@crestview.com
-----------------------------   -------------------    ----------------    --------------------------   --------------------------

SDS Capital Group SPC, Ltd.
Attn: Scott Derby
53 Forest Avenue, 2nd Floor
Old Greenwich, CT 06870
Tel: 203-967-5850
Fax: 203-967-5851
steve@sdscapital.com
scott@sdscapital.com
                                   $2,500,000            $2,500,000                  55.56                       250,000
with a copy to:

Wiggin and Dana LLP
400 Atlantic Street
Stamford, CT 06901
Telephone: (203) 363-7630
Facsimile:  (203) 363-7676
Attn: Michael Grundei, Esq.
-----------------------------   ------------------     ----------------    --------------------------   --------------------------
Totals:                            $3,000,000            $3,000,000                  66.67                       300,000
-----------------------------   -------------------    ----------------    --------------------------   --------------------------

----------
* This investor is a "Crestview Investor."

Exhibit A

Form of 8% Convertible Promissory Note

THIS PROMISSORY NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, ASSIGNED OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SAID ACT IS NOT REQUIRED.

NATIONAL COAL CORP.

CONVERTIBLE PROMISSORY NOTE

August 31, 2004 $[____________]

NATIONAL COAL CORP., a Florida corporation (together with its successors and assigns, "ISSUER"), for value received, hereby promises to pay on the Maturity Date (as defined below) to [_______________] ("Noteholder") and its successors, transferees and assigns, by wire transfer of immediately available funds to an account designated by Noteholder by written notice to Issuer the principal sum of [_______________________] ($[____________]) or, if less, the aggregate unpaid principal amount outstanding on the Maturity Date, together with interest as provided below in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts.

This Note (the "NOTE") is one of a duly authorized issue of Convertible Promissory Notes of Issuer, in aggregate principal amount of up to Three Million Dollars ($3,000,000) (the "PROMISSORY NOTES"). The Promissory Notes rank equally and ratably without priority over one another. No payment, including any prepayment, shall be made hereunder unless payment, including any prepayment, is made with respect to the other Promissory Notes in an amount which bears the same ratio to the then unpaid principal amount of such Promissory Notes as the payment made hereon bears to the then unpaid principal amount under this Note.

This Note is transferable or assignable by the Noteholder or any transferee of the Noteholder; PROVIDED that such transfer or assignment is made in compliance with the Securities Act of 1933, as amended, and any applicable state and foreign securities laws. Issuer agrees to issue to Noteholder or any transferee of Noteholder from time to time a replacement note or notes in the form hereof and in such denominations as such Person may request to facilitate such transfers and assignments. In addition, after delivery of an indemnification agreement in form and substance satisfactory to Issuer, Issuer also agrees to issue a replacement note if this Note has been lost, stolen, or destroyed.

Issuer shall keep at its principal office a register (the "REGISTER") in which shall be entered the name and address of the registered holder of this Note and of all transfers of this Note. References to the "HOLDER" shall mean the Person listed in the Register as the payee of the Note. The ownership of this Note shall be proven by the Register. For the purpose of paying principal and any interest on this Note, Issuer shall be entitled to rely on the name and address in the Register and notwithstanding anything to the contrary contained in this Note, no Event of Default shall occur under Section 3(a) or 3(b) if payment of principal and any interest is made in accordance with the name and address contained in the Register.

1. CERTAIN DEFINITIONS. The following terms (except as otherwise expressly provided) for all purposes of this Note shall have the respective meanings specified below. The terms defined in this Section 1 include the plural as well as the singular. Capitalized terms used, but not otherwise defined herein shall have the meanings assigned in the Note Purchase Agreement.

"AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with, such Person. For the purposes of this definition, "control" when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors.

"BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in the State of Tennessee are authorized by law to close.

"CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.

"DEBT" means at any date, without duplication, an amount equal to or greater than one million dollars ($1,000,000.00) of: (i) all obligations of the Issuer for borrowed money, (ii) all obligations of the Issuer evidenced by bonds, debentures, notes, or other similar instruments, (iii) all obligations of the Issuer in respect of letters of credit or other similar instruments (or reimbursement obligations with respect thereto), except letters of credit or other similar instruments issued to secure payment of Trade Payables, (iv) all obligations of the Issuer to pay the deferred purchase price of property or services, except Trade Payables, (v) all obligations of the Issuer as lessee under capitalized leases, (vi) all Debt of others secured by a Lien on any asset of the Issuer, whether or not such Debt is assumed by such Person and (vii) all Debt of others Guaranteed by the Issuer.

"DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

"FINANCING" means the equity financing by the Issuer consummated on the date hereof pursuant to the Purchase Agreement.

"GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation of such other Person (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation for the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); PROVIDED that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "GUARANTEE" used as a verb has a corresponding meaning.

"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Note, Issuer shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capitalized lease or other title retention agreement relating to such asset.

"MATURITY DATE" means May 31, 2005, subject to acceleration as provided in Section 3 hereof or the conversion of this Note as set forth in
Section 6 hereof.

"NOTE PURCHASE AGREEMENT" means that certain Note Purchase Agreement, dated as of the date hereof, among the Issuer and each of the Purchasers described therein.

"PERSON" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity (or any department, agency or political subdivision thereof).

"PREFERRED STOCK" means the Series A Cumulative Convertible Preferred Stock, par value $0.0001, of the Issuer.

"PURCHASE AGREEMENT" means that certain Preferred Stock and Warrant Purchase Agreement, dated as of August 31, 2004, among the Issuer and each of the Purchasers described therein.

"RESTRICTED PAYMENT" means (i) the declaration or payment of any dividend or other distribution (whether in cash, stock or other property) with respect to the capital stock of the Issuer or any subsidiary, other than a dividend or other distribution pursuant to the terms of the Preferred Stock or
(ii) any payment on account of the redemption, purchase or other acquisition, directly or indirectly, of any shares of capital stock of the Issuer or any of its subsidiaries or any option, warrant or other right to purchase or acquire any such shares, or any other security, other than (A) the (x) redemption of Preferred Stock pursuant to the terms thereof or (y) redemption of the Warrants pursuant to the terms thereof, (B) the repayment or prepayment of (x) any indebtedness outstanding as of the date hereof, (y) any trade debt, in each case, in the ordinary course of business or (z) the Promissory Notes pursuant to the terms thereof, (C) upon the "cashless" or "net issue" exercise by a holder of any option, warrant or other right to purchase or acquire any such shares, in each case, outstanding as of the Date of Original Issue or (D) the repayment of the Permitted Debt in accordance with the terms thereof.

"SALE TRANSACTION" means the consummation of (i) the acquisition of a controlling interest (more than 50% of the voting power) in the Issuer (through merger, sale of stock or other transaction or series of related transactions) by any Person or Persons who do not control the Issuer as of the date hereof, or (ii) the sale or transfer of all or substantially all of the Issuer's assets or business to any Person or Persons who do not control the Issuer as of the date hereof.

"TRADE PAYABLES" means accounts payable or any other indebtedness or monetary obligations to trade creditors created or assumed by Issuer in the ordinary course of business in connection with the obtaining of materials or services.

"WARRANTS" means the warrants to purchase Common Stock of the Issuer issued in connection with the Preferred Stock and shall be equivalent in all respects to the Warrants issued pursuant to the Purchase Agreement.

2. PRINCIPAL AND INTEREST.

(a) INTEREST. The aggregate outstanding principal balance of this Note shall bear interest accruing from the date made to the date this Note shall have been converted or repaid in full at the rate of eight percent (8%) per annum, subject to adjustment as set forth in Section 3 hereof. All computations of interest payable hereunder shall be on the basis of a 360-day year and actual days elapsed in the period for which such interest is payable. Interest shall be due and payable on the Maturity Date or such earlier date that this Note is converted or repaid in full.

(b) PAYMENT OBLIGATION. No provision of this Note shall alter or impair the obligations of Issuer, which are absolute and unconditional, to pay the principal of and interest on this Note at the place, times and rate, and in the currency herein prescribed, subject to the conversion provisions of this Note as provided herein.

(c) PREPAYMENT. The principal hereunder and all interest accrued thereon may be prepaid at any time by the Issuer in whole or in part (a "PREPAYMENT"), provided that (i) the Issuer gives not less than five (5) Business Days prior written notice to the Noteholder that it intends to make such a Prepayment specifying the amount of such Noteholder's Note that the Issuer will Prepay and the date on which such Prepayment will be made and (ii) the Issuer makes such Prepayment with respect to all outstanding Promissory Notes. For avoidance of doubt, at any time following receipt of the notice of Prepayment until the Prepayment, the Noteholder shall have the right to convert the Note as provided in Section 6.

3. EVENTS OF DEFAULT AND REMEDIES. In case one or more of the following events (each, an "EVENT OF DEFAULT") (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall have occurred and be continuing:

(a) default in the payment of all or any part of the principal of any of this Note as and when the same shall become due and payable, at maturity, by declaration or otherwise; or

(b) default in the payment of all or any part of the interest on any of this Note as and when same shall become due and payable; or

(c) failure on the part of Issuer duly to observe or perform any other of the covenants or agreements on the part of Issuer contained in this Note (other than those covered by clauses (a) and (b) above) for a period of ten
(10) Business Days after the date on which written notice specifying such failure, stating that such notice is a "Notice of Default" hereunder and demanding that Issuer remedy the same, shall have been given by registered or certified mail, return receipt requested, to Issuer; or

(d) any event or condition shall occur which results in the acceleration of the maturity of any Debt or enables or, with the giving of notice or lapse of time or both, would enable the holder of such Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; or

(e) Issuer pursuant to or within the meaning of any Bankruptcy Law:

(i) commences a voluntary case or proceeding,

(ii) consents to the entry of an order for relief against it in an involuntary case or proceeding,

(iii) consents to the appointment of a Custodian of it or for all or substantially all of its property,

(iv) makes a general assignment for the benefit of its creditors, or

(v) admits in writing its inability to pay its debts as the same become due; or

(f) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

(i) is for relief against Issuer in an involuntary case,

(ii) appoints a Custodian of Issuer or for all or substantially all of the property of Issuer, or

(iii) orders the liquidation of Issuer,

and such order or decree remains unstayed and in effect for 30 days;

then, in each case where an Event of Default occurs, the holders (the "MAJORITY HOLDERS") of a majority in principal amount of the Promissory Notes, by notice in writing to Issuer (the "ACCELERATION NOTICE"), may, at their option, declare the outstanding principal hereunder and under all of the other Promissory Notes and all accrued and unpaid interest hereon and thereon to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable; PROVIDED that if an Event of Default specified in Section 3(e) or 3(f) occurs, the principal hereunder and under all of the other Promissory Notes and all accrued and unpaid interest hereon and thereon shall become and be immediately due and payable without any declaration or other act on the part of the Noteholder or the Majority Holders. Upon the first occurrence of, and during the continuance of, an Event of Default, the interest rate shall automatically increase to ten percent (10%) per annum.

The Issuer shall reimburse the Noteholder, on demand, for any and all costs and expenses, including (but not limited to) reasonable attorney fees and court costs, incurred by the Noteholder in collecting or otherwise enforcing this Note or in attempting to do any of the foregoing.

Notwithstanding anything contained herein to the contrary, upon the first of occur of (i) the Maturity Date or (ii) a Sale Transaction, the Noteholder, by notice in writing to Issuer, may, at its option, declare the outstanding principal hereunder and all accrued and unpaid interest hereon to become due and payable immediately.

4. POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER OF DEFAULT. No right or remedy herein conferred upon or reserved to the Noteholder is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

No delay or omission of the Noteholder to exercise any right or power accruing upon any Default or Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such Default or Event of Default or an acquiescence therein; and every power and remedy given by this Note or by law may be exercised from time to time, and as often as shall be deemed expedient, by the Noteholder.

5. WAIVER OF PAST DEFAULTS. The Noteholder may waive in writing any past Default or Event of Default hereunder and its consequences. In the case of any such waiver, Issuer and the Noteholder shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.

Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Default or Event of Default arising therefrom shall be deemed to have been cured, and not to have occurred for every purpose of this Note, and the interest rate hereon shall not be deemed to have increased; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon.

6. CONVERSION.

(a) OPTIONAL CONVERSION. The outstanding principal hereunder PLUS all interest accrued thereon may, at the Noteholder's option, be converted at any time, in whole or in part, on or prior to the Maturity Date, into shares of Preferred Stock, at a conversion rate of $15,000 per share (subject to adjustment stock, splits, stock dividends and the like), all on and subject to the terms and conditions set forth in this Section 6. Upon the conversion of this Note into shares of Preferred Stock pursuant to this Section 6, the Purchaser or its assigns shall receive Warrants to purchase that number of shares of Common Stock as is equal to 20% of the number of shares of Common Stock into which such shares of Preferred Stock are convertible.

(b) MECHANICS OF CONVERSION.

(i) Such right of conversion shall be exercised by the Noteholder by delivering to the Issuer a conversion notice in the form attached hereto as EXHIBIT A (the "CONVERSION NOTICE"), appropriately completed and duly signed, and by surrender not later than two (2) business days thereafter of this Note. The Conversion Notice shall also contain a statement of the name or names (with addresses and tax identification or social security numbers) in which the certificate or certificates for Preferred Stock and Warrants shall be issued, if other than the name in which this Note are registered. Promptly after the receipt of the Conversion Notice, the Issuer shall issue and deliver, or cause to be delivered, to the Noteholder or such Noteholder's nominee, a certificate or certificates for the number of shares of Preferred Stock and Warrants issuable upon the such conversion. Such conversion shall be deemed to have been effected as of the close of business on the date of receipt by the Issuer of the Conversion Notice (the "CONVERSION DATE"), and the person or persons entitled to receive the shares of Preferred Stock and Warrants issuable upon conversion shall be treated for all purposes as the holder or holders of record of such shares of Preferred Stock and Warrants as of the close of business on the Conversion Date. If the Noteholder has not converted the entire amount of the Note pursuant to the Conversion Notice, then the Company shall execute and deliver to the Noteholder a new Note instrument identical in terms to this Note, but with a principal amount reflecting the unconverted portion of this Note. The new Note instrument shall be delivered subject to the same timing terms as the certificates for the Preferred Stock and Warrants.

(ii) The Issuer shall effect such issuance of Preferred Stock and Warrants within three (3) trading days of the Conversion Date and shall transmit the certificates by messenger or reputable overnight delivery service to reach the address designated by such holder within three (3) trading days after the receipt by the Issuer of such Conversion Notice. If certificates evidencing the Preferred Stock and Warrants are not received by the holder within five (5) Business Days of the Conversion Notice, then the holder will be entitled to revoke and withdraw its Conversion Notice, in whole or in part, at any time prior to its receipt of those certificates. The person or persons entitled to receive the Preferred Stock and Warrants issuable upon such conversion shall be treated for all purposes as the record holder or holders of

such Preferred Stock and Warrants at the close of business on the Conversion Date. If the conversion has not been rescinded in accordance with this paragraph and the Issuer fails to deliver to the holder such certificate or certificates pursuant to this Section 6 in accordance herewith, prior to the seventh (7th) Business Day after the Conversion Date (assuming timely surrender of the Note), the Issuer shall pay to such Noteholder, in cash, on a per diem basis, an amount equal to 2% of the principal amount and all interest accrued thereon of the Note until such delivery takes place and interest shall continue to accrue as provided in Section 2 as if no Conversion Notice had been delivered.

The Issuer's obligation to issue Preferred Stock and Warrants upon conversion of Note shall be absolute, is independent of any covenant of any Noteholder, and shall not be subject to: (i) any offset or defense; or (ii) any claims against the holders of the Promissory Notes whether pursuant to this Note, the Articles of Incorporation, the Note Purchase Agreement, the Purchase Agreement, the Investor Rights Agreement, the Warrants or otherwise.

(c) ADJUSTMENTS. For avoidance of doubt, any and all adjustments to the Conversion Value (as defined in the Articles of Incorporation as amended by the Articles of Amendment) of the Preferred Stock or the Current Warrant Price (as defined in the Warrant) or number of Warrant Shares issuable upon exercise of the Warrants, in each case, originally issued pursuant to this Agreement that may have been made prior to the issuance of shares of Preferred Stock and Warrants issued pursuant to this Section 6 shall be deemed to apply to any such shares of Preferred Stock and Warrants. In addition, the amounts set forth in this Section 6 shall be subject to adjustment for any stock splits, dividends, distributions and the like.

(d) RIGHTS OF HOLDERS. Upon the conversion of this Note, the Holder shall have all of the rights with respect to the Preferred Stock and Warrants issued pursuant to this Section 6 that such Holder would have had if such Preferred Stock and Warrants were purchased pursuant to the Purchase Agreement, including, without limitation, the rights of a Purchaser and Holder under the Purchase Agreement, Investor Rights Agreement and Certificate of Amendment.

(e) FRACTIONAL SHARES. Upon the conversion of this Note pursuant to this Section 6, fractional shares of Preferred Stock shall be issued as appropriate.

7. LIQUIDATION RIGHTS; NO RESTRICTED PAYMENTS.

(a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Issuer, this Note shall be entitled to a claim in liquidation before participation by the holders of any debt subordinate hereto or of any capital stock of the Issuer. The amount of the claim in liquidation shall equal the amount to which the Noteholder would be entitled in the case of payment. If upon such liquidation, dissolution, or winding up, the assets available for distribution among the holders of the Promissory Notes shall be insufficient to permit the payment of the full amounts of their claims in liquidation, then the entire assets of the Issuer to be distributed to the holders of the Promissory Notes shall be distributed pro-rata among the holders of the Promissory Notes based upon the amounts of their respective claims in liquidation.

(b) Issuer shall not declare or make any Restricted Payments prior to conversion or payment in full of this Note.

8. MODIFICATION OF NOTE. This Note may be modified with the written consent of the Issuer and the Majority Holders.

9. MISCELLANEOUS.

(a) This Note shall be governed by and be construed in accordance with the laws of the State of New York without regard to the conflicts of law rules of such state. Each of the Issuer and Noteholder hereby irrevocably and unconditionally submits, for itself and its property, to the jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court for the Southern District of New York, and any appellate court from any thereof, in respect of actions brought against it as a defendant, in any action, suit or proceeding arising out of or relating to this Note, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action, suit or proceeding may be heard and determined in such courts. Each of the parties hereto agrees that a final judgment in any such action, suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Issuer and Noteholder hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any action, suit or proceeding arising out of or relating to this Note, or in any court referred to above. Each of the parties hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action, suit proceeding in any such court and waives any other right to which it may be entitled on account of its place of residence or domicile.

(b) Issuer hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note, except as specifically provided herein, and assent to extensions of the time of payment, or forbearance or other indulgence without notice.

(c) The Section headings herein are for convenience only and shall not affect the construction hereof. This Note and the Note Purchase Agreement constitute the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and shall supersede any prior agreements and understandings between the parties hereto with respect to such subject matter. The parties agree that this Note shall be deemed to have been jointly and equally drafting by them, and that the provisions of this Note therefore should not be construed against a party or parties on the grounds that such party or parties drafted or was more responsible for the drafting of any such provision(s).

[signature page follows]

IN WITNESS WHEREOF, Issuer has caused this Convertible Promissory Note to be duly executed as of the date first set forth above.

NATIONAL COAL CORP.

By: ________________________________________
Name:
Title:

EXHIBIT A

FORM OF CONVERSION NOTICE

(To be executed by the registered Holder in order to convert the Note)

The undersigned hereby irrevocably elects to convert the Convertible Promissory Note (the "Note") of National Coal Corp., a Florida corporation (the "Corporation"), due May 31, 2005 held by the undersigned into shares of Preferred Stock and Warrants, according to the terms and conditions of the Note and the conditions hereof, as of the date written below. The undersigned hereby requests that certificates for the shares of Preferred Stock and Warrants to be issued to the undersigned pursuant to this Conversion Notice be issued in the name of, and delivered to, the undersigned or its designee as indicated below. If the shares of Preferred Stock and Warrants are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. A copy of the Note being converted is attached hereto (and the original Note shall be transmitted to the Corporation pursuant to the terms thereof). All capitalized terms used in this Conversion Notice, but not otherwise defined herein shall have the meanings assigned in the Note.

Conversion Information:[NAME OF HOLDER]

Address of Holder:

Issue Preferred Stock and Warrants to (if different than above):

Name:_______________________________

Address:____________________________

Tax ID #:_____________________

By:_____________________________________________ Name:
Title:

EXHIBIT C

FORM OF COMMON STOCK PURCHASE WARRANT

THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, ASSIGNED OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SAID ACT IS NOT REQUIRED.

Warrant No. W-__

COMMON STOCK PURCHASE WARRANT

To Purchase ____________ Shares of Common Stock of
NATIONAL COAL CORP.

THIS IS TO CERTIFY THAT _______________, or registered assigns (the "Holder"), is entitled, during the Exercise Period (as hereinafter defined), to purchase from National Coal Corp., a Florida corporation (the "Company"), the Warrant Stock (as hereinafter defined and subject to adjustment as provided herein), in whole or in part, at a purchase price of $2.10 per share, all on and subject to the terms and conditions hereinafter set forth.

1. DEFINITIONS. As used in this Warrant, the following terms have the respective meanings set forth below:

"ADDITIONAL SHARES OF COMMON STOCK" means any shares of Common Stock issued by the Company after the Closing Date other than: (i) Warrant Stock; (ii) shares issued or issuable pursuant to anti-dilution provisions of the Preferred Stock; (iii) shares issued or issuable upon the conversion of the Preferred Stock; (iv) shares issued or issuable upon the exercise of any warrants or options outstanding as of the Closing Date; (v) shares of Common Stock or Common Stock Equivalents issued in connection with a bona-fide strategic transaction;
(vii) shares of Common Stock or Common Stock Equivalents issued in connection with any stock-based compensation plans of the Company approved by the Board of Directors of the Company including all (which shall be at least three) Independent Directors (as defined in the Purchase Agreement), the number of such shares of Common Stock (or, in the case of Common Stock Equivalents, the number of shares of Common Stock acquirable pursuant thereto) not to exceed 5 million (as adjusted for stock splits, stock dividends and the like) and the value assigned upon grant not to be less than 85% of the Current Market Price or
(viii) shares issuable upon the exercise of any warrants that are issuable pursuant to the terms of the Purchase Agreement or upon conversion of the Notes (as defined in the Note Purchase Agreement).

"AFFILIATE" means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Holder of Warrants, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder will be deemed to be an Affiliate of such Holder.

"APPRAISED VALUE" means, in respect of any share of Common Stock on any date herein specified, the fair saleable value of such share of Common Stock (determined without giving effect to the discount for (i) a minority interest or
(ii) any lack of liquidity of the Common Stock or to the fact that the Company may have no class of equity registered under the Exchange Act) as of the last day of the most recent fiscal month ending prior to such date specified, based on the value of the Company on a fully-diluted basis, as determined by a nationally recognized investment banking firm selected by the Company's

Board of Directors and having no prior relationship with the Company.

"BUSINESS DAY" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in Tennessee generally are authorized or required by law or other government actions to close.

"CHANGE OF CONTROL" means the (i) acquisition by an individual or legal entity or group (as set forth in Section 13(d) of the Exchange Act) of more than one-half of the voting rights or equity interests in the Company; or (ii) sale, conveyance, or other disposition of all or substantially all of the assets, property or business of the Company or the merger into or consolidation with any other corporation (other than a wholly owned subsidiary corporation) or effectuation of any transaction or series of related transactions where holders of the Company's voting securities prior to such transaction or series of transactions fail to continue to hold at least 50% of the voting power of the Company.

"CLOSING DATE" means August 31, 2004.

"COMMISSION" means the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws.

"COMMON STOCK" means (except where the context otherwise indicates) the Common Stock, $0.0001 par value per share, of the Company as constituted on the Closing Date, and any capital stock into which such Common Stock may thereafter be changed or converted, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of Common Stock upon any reclassification thereof which is also not preferred as to dividends or assets on liquidation over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring corporation received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.7.

"COMMON STOCK EQUIVALENTS" has the meaning set forth in Section 4.4.

"CURRENT MARKET PRICE" means, in respect of any share of Common Stock on any date herein specified,

(1) if there shall not then be a public market for the Common Stock, the higher of

(a) the book value per share of Common Stock at such date, and

(b) the Appraised Value per share of Common Stock at such date,

or

(2) if there shall then be a public market for the Common Stock, the higher of (x) the book value per share of Common Stock at such date, and (y) the average of the daily market prices for the 5 consecutive trading days immediately before such date. The daily market price for each such trading day shall be (i) the closing price on such day on the principal stock exchange (including Nasdaq) on which such Common Stock is then listed or admitted to trading, or quoted, as applicable, (ii) if no sale takes place on such day on any such exchange, the last reported closing price on such day as officially quoted on any such exchange (including Nasdaq), (iii) if the Common Stock is not then listed or admitted to trading on any stock exchange, the last reported closing bid price on such day in the over-the-counter market, as furnished by the National Association of Securities Dealers Automatic Quotation System or the National Quotation Bureau, Inc., (iv) if neither such corporation at the time is engaged in the business of reporting

such prices, as furnished by any similar firm then engaged in such business, or
(v) if there is no such firm, as furnished by any member of the National Association of Securities Dealers, Inc. (the "NASD") selected mutually by the holder of this Warrant and the Company or, if they cannot agree upon such selection, as selected by two such members of the NASD, one of which shall be selected by holder of this Warrant and one of which shall be selected by the Company.

"CURRENT WARRANT PRICE" means, in respect of a share of Common Stock at any date herein specified, the price at which a share of Common Stock may be purchased pursuant to this Warrant on such date. Until the Current Warrant Price is adjusted pursuant to the terms herein, the initial Current Warrant Price shall be $2.10 per share of Common Stock.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time.

"EXERCISE PERIOD" means the period during which this Warrant is exercisable pursuant to Section 2.1.

"EXPIRATION DATE" means August 31, 2006.

"GAAP" means generally accepted accounting principles in the United States of America as from time to time in effect.

"NASD" means the National Association of Securities Dealers, Inc., or any successor corporation thereto.

"OTHER PROPERTY" has the meaning set forth in Section 4.7.

"PERSON" means any individual, sole proprietorship, partnership, joint venture, trust, incorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof).

"PREFERRED STOCK" shall mean the Company's Series A Cumulative Convertible Preferred Stock, par value $0.0001 per share.

"PURCHASE AGREEMENT" means, as applicable, (i) that certain Preferred Stock and Warrant Purchase Agreement (the "PREFERRED STOCK PURCHASE AGREEMENT") dated as of August 31, 2004 among the Company and the other parties named therein, if this Warrant was issued pursuant thereto or (ii) that certain Note Purchase Agreement (the "NOTE PURCHASE AGREEMENT") dated as of August 31, 2004 among the Company and the other parties named therein, if this Warrant was issued upon conversion of the Notes (as Defined in the Note Purchase Agreement) issued pursuant thereto.

"RESTRICTED COMMON STOCK" means shares of Common Stock which are, or which upon their issuance upon the exercise of any Warrant would be required to be, evidenced by a certificate bearing the restrictive legend set forth in
Section 3.2.

"SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

"TRADING DAY" means any day on which the primary market on which shares of Common Stock are

listed is open for trading.

"TRANSFER" means any disposition of any Warrant or Warrant Stock or of any interest in either thereof, which would constitute a sale thereof within the meaning of the Securities Act.

"WARRANTS" means this Warrant and all warrants issued upon transfer, division or combination of, or in substitution for, any thereof. All Warrants shall at all times be identical as to terms and conditions and date, except as to the number of shares of Common Stock for which they may be exercised.

"WARRANT PRICE" means an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price.

"WARRANT STOCK" means the ____________ [20% COVERAGE] shares of Common Stock to be purchased upon the exercise hereof, subject to adjustment as provided herein.

2. EXERCISE OF WARRANT.

2.1. MANNER OF EXERCISE. From and after the Closing Date, and until 5:00 P.M., New York time, on the Expiration Date (the "Exercise Period"), the Holder may exercise this Warrant, on any Business Day, for all or any part of the number of shares of Warrant Stock purchasable hereunder.

In order to exercise this Warrant, in whole or in part, the Holder shall deliver to the Company at its principal office or at the office or agency designated by the Company pursuant to Section 12, (i) a written notice of Holder's election to exercise this Warrant, which notice shall specify the number of shares of Warrant Stock to be purchased, (ii) payment of the Warrant Price as provided herein, and (iii) this Warrant. Such notice shall be substantially in the form of the subscription form appearing at the end of this Warrant as EXHIBIT A, duly executed by the Holder or its agent or attorney. Upon receipt thereof, the Company shall, as promptly as practicable, and in any event within three Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a certificate or certificates representing the aggregate number of full shares of Warrant Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereinafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the Holder shall request in the notice and shall be registered in the name of the Holder or such other name as shall be designated in the notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a Holder of record of such shares for all purposes, as of the date when the notice, together with the payment of the Warrant Price and this Warrant, is received by the Company as described above. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Stock, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder.

If the Company intentionally and willfully fails to deliver to the holder such certificate or certificates pursuant to this Section 2.1 (free of any restrictions on transfer or legends, if such shares have been registered) in accordance herewith, prior to the seventh trading day after the receipt by the Company of (i) a written notice of Holder's election to exercise this Warrant, which notice shall specify the number of shares of Warrant Stock to be purchased, (ii) payment of the Warrant Price as provided herein, and (iii) this Warrant (the "Date of Receipt"), the Company shall pay to such Holder, in cash, on a per diem basis, an amount equal to 2% of the value of the undelivered Warrant Stock (based on the Current Market Price

of the Common Stock on the Date of Receipt) per month until such delivery takes place.

Payment of the Warrant Price may be made at the option of the Holder by: (i) certified or official bank check payable to the order of the Company,
(ii) wire transfer to the account of the Company or (iii) at any time after January 28, 2005 if, at any time and from time to time, the Warrant Stock is not registered for resale pursuant to an effective registration statement pursuant to which sales may be made, the surrender and cancellation of a portion of shares of Common Stock then held by the Holder or issuable upon such exercise of this Warrant, which shall be valued and credited toward the total Warrant Price due the Company for the exercise of the Warrant based upon the Current Market Price of the Common Stock. All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued and, upon payment of the Warrant Price, shall be fully paid and nonassessable and not subject to any preemptive rights.

2.2. FRACTIONAL SHARES. The Company shall not be required to issue a fractional share of Common Stock upon exercise of any Warrant. As to any fraction of a share which the Holder of one or more Warrants, the rights under which are exercised in the same transaction, would otherwise be entitled to purchase upon such exercise, the Company shall pay an amount in cash equal to the Current Market Price per share of Common Stock on the date of exercise multiplied by such fraction.

2.3. CONTINUED VALIDITY. A Holder of shares of Common Stock issued upon the exercise of this Warrant, in whole or in part (other than a Holder who acquires such shares after the same have been publicly sold pursuant to a Registration Statement under the Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be entitled with respect to such shares to all rights to which it would have been entitled as the Holder under Sections 10 and 13 of this Warrant.

2.4. RESTRICTIONS ON EXERCISE AMOUNT.

(i) Unless a Holder delivers to the Company irrevocable written notice
(x) prior to the date of issuance hereof or sixty-one days prior to the effective date of such notice that this Section 2.4(i) shall not apply to such Holder or (y) prior to a Change of Control the terms of which require the conversion of the Preferred Stock into Common Stock, the Holder may not acquire a number of shares of Warrant Stock to the extent that, upon such exercise, the number of shares of Common Stock then beneficially owned by such holder and its Affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act (including shares held by any "group" of which the holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein), exceeds 9.99% if the holder is a Crestview Investor or any of their successors or assigns, or 4.99% if the Holder is any other person, in each case, of the total number of shares of Common Stock of the Company then issued and outstanding. For purposes hereof, "group" has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities and Exchange Commission, and the percentage held by the holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. Each delivery of a notice of exercise by a Holder will constitute a representation by such Holder that it has evaluated the limitation set forth in this paragraph and determined, based on the most recent public filings by the Company with the Commission, that the issuance of the full number of shares of Warrant Stock requested in such notice of exercise is permitted under this paragraph. "Crestview Investor" shall mean a Holder designated as a Crestview Investor on SCHEDULE 1 to the Purchase Agreement.

(ii) In the event the Company is prohibited from issuing shares of Warrant Stock as a result of any restrictions or prohibitions under applicable law or the rules or regulations of any stock exchange,

interdealer quotation system or other self-regulatory organization, the Company shall as soon as possible seek the approval of its stockholders and take such other action to authorize the issuance of the full number of shares of Common Stock issuable upon exercise of this Warrant.

3. TRANSFER, DIVISION AND COMBINATION.

3.1. TRANSFER. The Warrants and the Warrant Stock shall be freely transferable, subject to compliance with all applicable laws, including, but not limited to the Securities Act. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant or the resale of the Warrant Stock, this Warrant or the Warrant Stock, as applicable, shall not be registered under the Securities Act, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant or the Warrant Stock as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such transfer may be made without registration under the Securities Act, (ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and substantially in the form attached as EXHIBIT C hereto and (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act. Transfer of this Warrant and all rights hereunder, in whole or in part, in accordance with the foregoing provisions, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company referred to in Section 2.1 or the office or agency designated by the Company pursuant to Section 12, together with a written assignment of this Warrant substantially in the form of EXHIBIT B hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Following a transfer that complies with the requirements of this Section 3.1, the Warrant may be exercised by a new Holder for the purchase of shares of Common Stock regardless of whether the Company issued or registered a new Warrant on the books of the Company.

3.2. RESTRICTIVE LEGEND. Each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, AND MAY NOT BE OFFERED, SOLD, ASSIGNED OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SAID ACT IS NOT REQUIRED."

3.3. DIVISION AND COMBINATION; EXPENSES; BOOKS. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office or agency of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with
Section 3.1 as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. The Company shall prepare, issue and deliver at its own expense the new Warrant or Warrants under this Section 3. The Company agrees to maintain, at its aforesaid office or agency, books for the registration and the registration of transfer of the Warrants.

4. ADJUSTMENTS. The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Company shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 in accordance with Sections 5.1 and 5.2.

4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time while this Warrant is outstanding the Company shall:

(i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock,

(ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or

(iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then:

(1) the number of shares of Common Stock acquirable upon exercise of this Warrant immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock that would have been acquirable under this Warrant immediately prior to the record date for such dividend or distribution or the effective date of such subdivision or combination would own or be entitled to receive after such record date or the effective date of such subdivision or combination, as applicable, and

(2) the Current Warrant Price shall be adjusted to equal:

(A) the Current Warrant Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision or combination, multiplied by the number of shares of Common Stock into which this Warrant is exercisable immediately prior to the adjustment, divided by

(B) the number of shares of Common Stock into which this Warrant is exercisable immediately after such adjustment.

Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clauses (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.

4.2. CERTAIN OTHER DISTRIBUTIONS. If at any time while this Warrant is outstanding the Company shall cause the holders of its Common Stock to be entitled to receive any dividend or other distribution of:

(i) cash,

(ii) any evidences of its indebtedness, any shares of stock of any class or any other securities or property or assets of any nature whatsoever (other than cash or additional shares of Common Stock as provided in
Section 4.1 hereof), or

(iii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property or assets of any nature

whatsoever, then:

(1) the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to equal the product of the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to the record date for such dividend or distribution, multiplied by a fraction (x) the numerator of which shall be the Current Warrant Price per share of Common Stock at the date of taking such record and (y) the denominator of which shall be such Current Warrant Price minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined in good faith by the Board of Directors of the Company) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable; and

(2) the Current Warrant Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution shall be adjusted to equal (x) the Current Warrant Price multiplied by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to the adjustment, divided by (y) the number of shares of Common Stock acquirable upon exercise of this Warrant immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4.2 and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4.1.

4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.

(i) If at any time while this Warrant is outstanding the Company shall issue or sell any Additional Shares of Common Stock in exchange for consideration in an amount per Additional Share of Common Stock less than $1.50 (as adjusted for stock splits, stock dividends and the like) at the time the additional shares of Common Stock are issued or sold, then:

(A) the Current Warrant Price immediately prior to such issue or sale shall be reduced to a price determined by dividing

(1) an amount equal to the sum of (a) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Current Warrant Price, plus (b) the consideration, if any, received by the Company upon such issue or sale, by

(2) the total number of shares of Common Stock outstanding immediately after such issue or sale; and

(B) the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to equal the amount obtained by

(1) multiplying the Current Warrant Price in effect immediately prior to such issue or sale by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such issue or sale and

(2) dividing the product thereof by the Current Warrant Price resulting from the adjustment made pursuant to clause (A).

(ii) The provisions of paragraph 4.3(i) shall not apply to any issuance of additional shares of Common Stock for which an adjustment is provided under Section 4.1 or 4.2. No adjustment of the number of shares of Common Stock acquirable upon exercise of this Warrant shall be made under paragraph 4.3(i) upon the issuance of any additional shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such convertible securities (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4.4.

4.4. ISSUANCE OF COMMON STOCK EQUIVALENTS. If at any time while this Warrant is outstanding the Company shall issue or sell any warrants or other rights to subscribe for or purchase any additional shares of Common Stock or any securities convertible into shares of Common Stock (other than the Additional Shares of Common Stock) (collectively, "Common Stock Equivalents"), whether or not the rights to exchange or convert thereunder are immediately exercisable, and the effective price per share for which Common Stock is issuable upon the exercise, exchange or conversion of such Common Stock Equivalents shall be less than the Current Warrant Price in effect immediately prior to the time of such issue or sale, then the number of shares of Warrant Stock acquirable upon the exercise of this Warrant and the Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis that the maximum number of additional shares of Common Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to have been issued and outstanding and the Company shall have received all of the consideration payable therefor, if any, as of the date of the actual issuance of such Common Stock Equivalents. No further adjustments to the current Warrant Price shall be made under this
Section 4.4 upon the actual issue of such Common Stock upon the exercise, conversion or exchange of such Common Stock Equivalents.

4.5. SUPERSEDING ADJUSTMENT.

(i) If, at any time after any adjustment of the number of shares of Common Stock into which this Warrant is exercisable and the Current Warrant Price shall have been made pursuant to Section 4.4 as the result of any issuance of Common Stock Equivalents, (x) the right to exercise, convert or exchange all or a portion of such Common Stock Equivalents shall expire unexercised, or (y) the conversion rate or consideration per share for which shares of Common Stock are issuable pursuant to such Common Stock Equivalents shall be increased solely by virtue of provisions therein contained for an automatic increase in such conversion rate or consideration per share upon the occurrence of a specified date or event, then any such previous adjustments to the Current Warrant Price and the number of shares of Common Stock for which this Warrant is exercisable shall be rescinded and annulled and the additional shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation.

(ii) Upon the occurrence of an event set forth in Section 4.5(i) above there shall be a recomputation made of the effect of such Common Stock Equivalents on the basis of: (i) treating the number of additional shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise, conversion or exchange of such Common Stock Equivalents, as having been issued on the date or dates of any such exercise, conversion or exchange and for the consideration actually received and receivable therefor, and (ii) treating any such Common Stock Equivalents which then remain outstanding as having been granted or issued immediately after the time of such increase of the conversion rate or consideration per share for which shares of Common Stock or other property are issuable under such Common Stock Equivalents; whereupon a new adjustment to the number of shares of Common Stock for which this Warrant is exercisable and the Current Warrant Price shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled.

4.6. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock into which this Warrant is exercisable and the Current Warrant Price provided for in Section 4:

(a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by
Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4.1) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than 1% of the shares of Common Stock into which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.

(b) FRACTIONAL INTERESTS. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to the nearest 1/100th of a share.

(c) WHEN ADJUSTMENT NOT REQUIRED. If the Company undertakes a transaction contemplated under this Section 4 and as a result takes a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights or other benefits contemplated under this Section 4 and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights or other benefits contemplated under this Section 4, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled.

(d) ESCROW OF STOCK. If after any property becomes distributable pursuant to Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, a holder of this Warrant exercises the Warrant during such time, then such holder shall continue to be entitled to receive any shares of Common Stock issuable upon exercise hereunder by reason of such adjustment and such shares or other property shall be held in escrow for the holder of this Warrant by the Company to be issued to holder of this Warrant upon and to the extent that the event actually takes place. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be canceled by the Company and escrowed property returned to the Company.

4.7. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS.

(a) If there shall occur a Change of Control and if pursuant to the terms of such Change of Control, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder of this Warrant shall have the right thereafter to receive, upon the exercise of the Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and the Other Property receivable upon or as a result of such Change of Control by a holder of the number of shares of Common Stock into which this Warrant is exercisable immediately prior to such event.

(b) In case of any such Change of Control described above, the successor or acquiring corporation (if other than the Company) and, if an entity different from the successor or surviving entity, the entity whose capital stock or assets the holders of Common Stock of the Company are entitled to receive as a result of such transaction, shall expressly assume the due and punctual observance and performance of each and every covenant and condition of contained in this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of the Common Stock into which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in Section 4. For purposes of
Section 4, common stock of the successor or acquiring corporation shall include stock of such corporation of any class which is not preferred as to dividends or assets on liquidation over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4 shall similarly apply to successive Change of Control transactions.

4.8. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to time the Company shall take any action in respect of its Common Stock, other than the payment of dividends permitted by Section 4 or any other action described in Section 4, then, unless such action will not have a materially adverse effect upon the rights of the holder of this Warrant, the number of shares of Common Stock or other stock into which this Warrant is exercisable and/or the purchase price thereof shall be adjusted in such manner as may be equitable in the circumstances.

4.9. CERTAIN LIMITATIONS. Notwithstanding anything herein to the contrary, the Company agrees not to enter into any transaction which, by reason of any adjustment hereunder, would cause the Current Warrant Price to be less than the par value per share of Common Stock.

4.10. STOCK TRANSFER TAXES. The issue of stock certificates upon exercise of this Warrant shall be made without charge to the holder for any tax in respect of such issue. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares in any name other than that of the holder of this Warrant, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

5. NOTICES TO WARRANT HOLDERS.

5.1. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Current Warrant Price, the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to the Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of the Holder of this Warrant, furnish or cause to be furnished to such Holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Current Warrant Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, or other property which at the time would be received upon the exercise of Warrants owned by such Holder.

5.2. NOTICE OF CORPORATE ACTION. If at any time:

(a) the Company shall take a record of the holders of its Common Stock for the purpose

of entitling them to receive a dividend (other than a cash dividend payable out of earnings or earned surplus legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Company) or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or

(b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation, or

(c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to the Holder (i) at least 20 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to the Holder at the last address of the Holder appearing on the books of the Company and delivered in accordance with Section 16.2.

5.3. NO RIGHTS AS STOCKHOLDER. This Warrant does not entitle the Holder to any voting or other rights as a stockholder of the Company prior to exercise and payment for the Warrant Price in accordance with the terms hereof.

6. NO IMPAIRMENT. The Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action 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 (c) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder.

7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH APPROVAL OF ANY GOVERNMENTAL AUTHORITY. From and after the Closing Date, the Company shall at all times reserve and keep available for issue upon the exercise of Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants (without regard to any ownership limitations provided in Section 2.4(i)). All shares of Common Stock which shall be so issuable, when issued upon exercise of any Warrant and payment therefor in accordance with the terms of such Warrant, shall be duly and validly issued and fully paid and nonassessable, and not subject to preemptive rights. Before taking any action which would cause an adjustment reducing the Current Warrant Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of such Common Stock at such adjusted Current Warrant Price. Before taking any action which would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Current Warrant Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law before such shares may be so issued (other than as a result of a prior or contemplated distribution by the Holder of this Warrant), the Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered.

8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant.

9. REGISTRATION RIGHTS. The resale of the Warrant Stock shall be registered in accordance with the terms and conditions contained in that certain Investor Rights Agreement dated of even date hereof, among the Holder, the Company and the other parties named therein (the "Investor Rights Agreement"). The Holder acknowledges that pursuant to the Investor Rights Agreement, the Company has the right to request that the Holder furnish information regarding such Holder and the distribution of the Warrant Stock as is required by law or the Commission to be disclosed in the Registration Statement (as such term is defined in the Investor Rights Agreement), and the Company may exclude from such registration the shares of Warrant Stock acquirable hereunder if Holder fails to furnish such information within a reasonable time prior to the filing of each Registration Statement, supplemented prospectus included therein and/or amended Registration Statement.

10. SUPPLYING INFORMATION. Upon any default by the Company of its obligations hereunder or under the Investor Rights Agreement, the Company shall cooperate with the Holder in supplying such information as may be reasonably necessary for such Holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Warrant or Restricted Common Stock.

11. LOSS OR MUTILATION. Upon receipt by the Company from the Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and indemnity or security reasonably satisfactory to it and reimbursement to the Company of all reasonable expenses incidental thereto and in case of mutilation upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor to the Holder; provided, however, that in

the case of mutilation, no indemnity shall be required if this Warrant in identifiable form is surrendered to the Company for cancellation.

12. OFFICE OF THE COMPANY. As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency (which may be the principal executive offices of the Company) where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant.

13. FINANCIAL AND BUSINESS INFORMATION.

13.1. QUARTERLY INFORMATION. The Company will deliver to the Holder, as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, one copy of an unaudited consolidated balance sheet of the Company and its subsidiaries as at the end of such quarter, and the related unaudited consolidated statements of income, retained earnings and cash flow of the Company and its subsidiaries for such quarter and, in the case of the second and third quarters, for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year. Such financial statements shall be prepared by the Company in accordance with GAAP and accompanied by the certification of the Company's chief executive officer or chief financial officer that such financial statements present fairly the consolidated financial position, results of operations and cash flow of the Company and its subsidiaries as at the end of such quarter and for such year-to-date period, as the case may be; provided, however, that the Company shall have no obligation to deliver such quarterly information under this Section 13.1 to the extent it is publicly available; and provided further, that if such information contains material non-public information, the Company shall so notify the Holder prior to delivery thereof and the Holder shall have the right to refuse delivery of such information.

13.2. ANNUAL INFORMATION. The Company will deliver to the Holder as soon as available and in any event within 90 days after the end of each fiscal year of the Company, one copy of an audited consolidated balance sheet of the Company and its subsidiaries as at the end of such year, and audited consolidated statements of income, retained earnings and cash flow of the Company and its subsidiaries for such year; setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year; all prepared in accordance with GAAP, and which audited financial statements shall be accompanied by an opinion thereon of the independent certified public accountants regularly retained by the Company, or any other firm of independent certified public accountants of recognized national standing selected by the Company; provided, however, that the Company shall have no obligation to deliver such annual information under this Section 13.2 to the extent it is publicly available; and provided further, that if such information contains material non-public information, the Company shall so notify the Holder prior to delivery thereof and the Holder shall have the right to refuse delivery of such information.

13.3. FILINGS. The Company will file on or before the required date all regular or periodic reports (pursuant to the Exchange Act) with the Commission and will deliver to Holder promptly upon their becoming available one copy of each report, notice or proxy statement sent by the Company to its stockholders generally.

14. LIMITATION OF LIABILITY. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of the Holder for the purchase price of any Common Stock, whether such liability is asserted by the Company or by creditors of the Company.

15. REDEMPTION AT COMPANY'S ELECTION.

15.1. The Company may at the option of the Board of Directors of the Company redeem this Warrant, in whole or in part, at any time after March 1, 2006 provided that (i) the Current Market Price (as determined by paragraph (2) of such definition) is greater than $4.20 (as adjusted for stock splits, reverse splits, stock dividends and the like) for ten consecutive trading days and (ii) all of the Warrant Stock underlying the Warrants to be redeemed (x) is then registered under an effective registration statement in accordance with the terms and conditions of the Investor Rights Agreement and the Company is in compliance in all material respects with the Investor Rights Agreement or (y) may be sold without restriction pursuant to Rule 144(k) promulgated by the Commission under the Securities Act. The amount payable in redemption of the rights to purchase the Warrant Stock pursuant to this Section 15.1 shall be cash equal to $0.01 multiplied by the number of Warrant Shares that would be issuable upon exercise of the Warrants being redeemed (the "Redemption Price").

15.2. The Company shall effect a redemption as follows:

(i) The number of warrants subject to redemption (including the Warrants) shall be allocated pro rata among the holders of all of the warrants to purchase Common Stock issued by the Company pursuant to the Purchase Agreement together with those issued upon conversion of the Notes (as defined in the Note Purchase Agreement) (collectively, the "Redemption Warrants"), based upon the number of Redemption Warrants then outstanding that are held by each such holder.

(ii) The Company shall pay the Redemption Price in cash for the Redemption Warrants to be redeemed.

(iii) At least 15 but no more than 60 days prior to the date fixed for any redemption of any Redemption Warrants (the "Redemption Date"), written notice shall be given to each holder of record of Redemption Warrants to be redeemed, notifying such holder of the redemption to be effected, specifying the Redemption Date, the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the Company, in the manner and at the place designated, its certificate or certificates representing the Redemption Warrants to be redeemed (the "Redemption Notice"). On or after the Redemption Date, each holder of Redemption Warrants to be redeemed shall surrender to the Company the certificate or certificates representing such warrants, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price therefor shall be paid to the person whose name appears on such certificate or certificates as the owner thereof, and upon such payment, each surrendered certificate shall be canceled. In the event less than all the warrants represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed warrants. For avoidance of doubt, the holder may exercise the Warrant at any time prior to the redemption of the Warrant pursuant to this Section 15.

16. MISCELLANEOUS.

16.1. NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of the Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies. If the Company fails to make, when due, any payments provided for hereunder, or fails to comply with any other provision of this Warrant, the Company shall pay to the Holder such amounts as shall be sufficient to cover any third party costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

16.2. NOTICE GENERALLY. All notices, requests, demands or other communications provided for herein shall be in writing and shall be given in the manner and to the addresses set forth in the Purchase Agreement.

16.3. SUCCESSORS AND ASSIGNS. Subject to compliance with the provisions of Section 3.1, this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of the Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder.

16.4. AMENDMENT. This Warrant may be modified or amended or the provisions of this Warrant waived with the written consent of both the Company and the Holder.

16.5. SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be modified to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant.

16.6. HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

16.7. GOVERNING LAW. This Warrant and the transactions contemplated hereby shall be deemed to be consummated in the State of New York and shall be governed by and interpreted in accordance with the local laws of the State of New York without regard to the provisions thereof relating to conflicts of laws. The Company hereby irrevocably consents to the exclusive jurisdiction of the State and Federal courts located in New York City, New York in connection with any action or proceeding arising out of or relating to this Warrant. In any such litigation the Company agrees that the service thereof may be made by certified or registered mail directed to the Company pursuant to Section 16.2.

IN WITNESS WHEREOF, National Coal Corp. has caused this Warrant to be executed by its duly authorized officer and attested by its Secretary.

Dated: August 31, 2004

NATIONAL COAL CORP.

By: ______________________________
Name:
Title:

Attest:

By:______________________________
Name:
Title: Secretary

EXHIBIT A

SUBSCRIPTION FORM

[To be executed only upon exercise of Warrant]

1. The undersigned hereby elects to purchase shares of the Common Stock of National Coal Corp. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full.

2. The undersigned hereby elects to convert the attached Warrant into Common Stock of National Coal Corp. through "cashless exercise" in the manner specified in the Warrant. This conversion is exercised with respect to _____________________ of the Shares covered by the Warrant.

3. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below:

[and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned.]

NOTICE: The signature on this subscription must correspond with the name as written upon the face of the Warrant in every particular, without alteration or enlargement or any change whatsoever.

EXHIBIT B

ASSIGNMENT FORM

FOR VALUE RECEIVED the undersigned registered owner of this Warrant for the purchase of shares of common stock of National Coal Corp. hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of common stock set forth below:

and does hereby irrevocably constitute and appoint ____________ attorney-in-fact to register such transfer on the books of the Company, maintained for the purpose, with full power of substitution in the premises.

Dated:________________________________

NOTICE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or enlargement or any change whatsoever.

EXHIBIT C

FORM OF INVESTMENT REPRESENTATION LETTER

In connection with the acquisition of [warrants (the "Warrants") to purchase ____ shares of common stock of National Coal Corp. (the "Company"), par value $0.0001 per share (the "Common Stock")][___shares of common stock of National Coal Corp. (the "Company"), par value $0.0001 per share (the "Common Stock") upon the exercise of warrants by ________], by _______________ (the "Holder") from _____________, the Holder hereby represents and warrants to the Company as follows:

The Holder (i) is an "Accredited Investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the "Act"); and (ii) has the ability to bear the economic risks of such Holder's prospective investment, including a complete loss of Holder's investment in the Warrants and the shares of Common Stock issuable upon the exercise thereof (collectively, the "Securities").

The Holder, by acceptance of the Warrants, represents and warrants to the Company that the Warrants and all securities acquired upon any and all exercises of the Warrants are purchased for the Holder's own account, and not with view to distribution of either the Warrants or any securities purchasable upon exercise thereof in violation of applicable securities laws.

The Holder acknowledges that (i) the Securities have not been registered under the Act, (ii) the Securities are "restricted securities" and the certificate(s) representing the Securities shall bear the following legend, or a similar legend to the same effect, until (i) in the case of the shares of Common Stock underlying the Warrants, such shares shall have been registered for resale by the Holder under the Act and effectively been disposed of in accordance with a registration statement that has been declared effective; or (ii) in the opinion of counsel for the Company such Securities may be sold without registration under the Act:

"[NEITHER] THE SECURITIES REPRESENTED BY THIS CERTIFICATE [NOR THE SECURITIES INTO WHICH THEY ARE EXERCISABLE] HAVE [NOT] BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ALL SUCH SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS CERTIFICATE. [NEITHER] THE SECURITIES REPRESENTED HEREBY [NOR THE SECURITIES INTO WHICH THEY ARE EXERCISABLE] MAY [NOT] BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT REGISTRATION UNDER THE ACT."

IN WITNESS WHEREOF, the Holder has caused this Investment Representation Letter to be executed in its corporate name by its duly authorized officer this __ day of __________ 200_.

[Name]

By:______________________________
Name:
Title:

EXHIBIT H

SUBSCRIPTION FORM

[To be executed only upon exercise Additional Purchase Right]

1. The undersigned hereby elects to purchase shares of the Series A Cumulative Convertible Preferred Stock of National Coal Corp. (the "Company") along with the appropriate number of Warrants, in each case, pursuant to the terms of the Note Purchase Agreement, dated as of August 31, 2004 among the Company and the Purchasers listed in Schedule 1 thereto (the "Purchase Agreement"), and tenders herewith payment of the purchase price of such shares in full.

2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below. The undersigned hereby makes for the benefit of the Company, as of the date hereof and with respect to the shares of Series A Cumulative Convertible Stock being acquired hereunder, the representations and warranties set forth in Section 4.3 through 4.6 of the Purchase Agreement.

NOTICE: The signature on this subscription must correspond with the name Purchaser in the Purchase Agreement in every particular, without alteration or enlargement or any change whatsoever.

EXHIBIT I

ASSIGNMENT FORM

FOR ADDITIONAL PURCHASE RIGHT

FOR VALUE RECEIVED the undersigned Purchaser pursuant to the Note Purchase Agreement, dated as of August 31, 2004 among the Company and the Purchasers listed in Schedule 1 thereto (the "Purchase Agreement") hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under Article VIII of the Purchase Agreement, with respect to the number of shares of Preferred Stock and Warrant Shares set forth below:

Dated:_________________________________

NOTICE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or enlargement or any change whatsoever.

EXHIBIT 10.14

NOTE INVESTOR RIGHTS AGREEMENT

This Note Investor Rights Agreement (this "AGREEMENT") is made and entered into as of August 31, 2004 among National Coal Corp., a Florida corporation (the "COMPANY"), and each of the purchasers executing this Agreement and listed on SCHEDULE 1 attached hereto (collectively, the "PURCHASERS").

This Agreement is being entered into pursuant to the Note Purchase Agreement, dated as of the date hereof, by and among the Company and the Purchasers (the "PURCHASE AGREEMENT").

The Company and the Purchasers hereby agree as follows:

1. DEFINITIONS.

Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

"ADDITIONAL PURCHASE RIGHT" shall have the meaning set forth in Article VIII of the Purchase Agreement.

"ADVICE" shall have the meaning set forth in Section 3(m).

"AFFILIATE" means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing.

"ARTICLES OF INCORPORATION" means the Articles of Incorporation of the Company, as amended.

"BLACKOUT PERIOD" shall have the meaning set forth in Section 3(n).

"BOARD" shall have the meaning set forth in Section 3(n).

"BUSINESS DAY" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of Tennessee generally are authorized or required by law or other government actions to close.

"COMMISSION" means the Securities and Exchange Commission.

"COMMON STOCK" means the Company's Common Stock, par value $0.0001 per

share.

"EFFECTIVE DATE" means the date on which the Registration Statement is first declared effective with respect to all Registrable Securities.

"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2.

"EVENT" shall have the meaning set forth in Section 7(e).

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

"FILING DATE" means the 60th day following the Closing Date.

"HOLDER" or "HOLDERS" means the holder or holders, as the case may be, from time to time of Registrable Securities, including without limitation the Purchasers and their assignees.

"INDEMNIFIED PARTY" shall have the meaning set forth in Section 5(c).

"INDEMNIFYING PARTY" shall have the meaning set forth in Section 5(c).

"LOSSES" shall have the meaning set forth in Section 5(a).

"NOTES" shall mean the 8% Convertible Promissory Notes of the Company issued or issuable pursuant to the Purchase Agreement.

"PERSON" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.

"PLACEMENT AGENT WARRANTS" means the warrants to purchase shares of Common Stock issued to Burnham Hill Partners (a division of Pali Capital Inc.) and/or its designees as compensation for services rendered in connection with the transactions set forth in the Purchase Agreement.

"PROCEEDING" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

"PROSPECTUS" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference in such Prospectus.

"REGISTRABLE SECURITIES" means (a) the Conversion Shares and the Warrant Shares (without regard to any limitations on beneficial ownership contained in the Articles of Incorporation or Warrants) or other securities issued or issuable to each Purchaser or its transferee or designee (i) upon conversion of the Notes or the Note Conversion Shares and/or upon exercise of the Note Conversion Warrants, or (ii) upon any dividend or distribution with respect to, any exchange for or any replacement of such Notes, Note Conversion Shares or Note Conversion Warrants (for avoidance of doubt, Registrable Securities includes shares of Common Stock issued upon conversion of Preferred Stock and/or upon exercise of the Warrants, in each case, issued pursuant to Article VIII of the Purchase Agreement) or (iii) upon any conversion, exercise or exchange of any securities issued in connection with any such distribution, exchange or replacement; (b) the shares of Common Stock purchased by the Purchasers from Farrald Belote and Arlene Belote upon exercise of that certain Stock Option Agreement, dated as of June 30, 2004, by and between Farrald Belote and Arlene Belote and Jon Nix, as indicated therein; (c) securities issued or issuable upon any stock split, stock dividend, recapitalization or similar event with respect to any of the foregoing; and (d) any other security issued as a dividend or other distribution with respect to, in exchange for, in replacement or redemption of, or in reduction of the liquidation value of, any of the securities referred to in the preceding clauses; provided, however, that such securities shall cease to be Registrable Securities when such securities have been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction or when such securities may be sold without any restriction pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter, addressed to the Company's transfer agent to such effect as described in Section 2 of this Agreement.

"REGISTRATION STATEMENT" means the registration statements and any additional registration statements contemplated by Section 2, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference in such registration statement.

"RULE 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

"RULE 158" means Rule 158 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

"RULE 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

"SECURITIES ACT" means the Securities Act of 1933, as amended.

"SPECIAL COUNSEL" means Wiggin and Dana LLP.

"WARRANTS" shall have the meaning assigned in the Purchase Agreement and, for purposes of this Agreement, shall include without limitation the Placement Agent Warrants.

"WARRANT SHARES" means the shares of Common Stock issuable upon the exercise of the Note Conversion Warrants and the shares of Common Stock issuable upon the exercise of the Placement Agent Warrants.

2. REGISTRATION. As soon as possible following the Closing Date (but not later than the Filing Date), the Company shall prepare and file with the Commission a "shelf" Registration Statement covering all Registrable Securities for a secondary or resale offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 (or if such form is not available to the Company on Form SB-2 or another form appropriate for such registration in accordance herewith). The Company shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act not later than one hundred and twenty (120) days after the Closing Date (including filing with the Commission a request for acceleration of effectiveness in accordance with Rule 461 promulgated under the Securities Act within five (5) Business Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or not be subject to further review) and to keep such Registration Statement continuously effective under the Securities Act until such date as is the earlier of (x) the date when all Registrable Securities covered by such Registration Statement have been sold or
(y) the date on which the Registrable Securities may be sold without any restriction pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter, addressed to the Company's transfer agent to such effect (the "EFFECTIVENESS PERIOD"). Upon the initial filing thereof, the Registration Statement shall cover at least 100% of the shares of Common Stock for issuance upon the conversion of the Note Conversion Shares (assuming the Notes are held to maturity and thereupon converted) and Preferred Stock issuable pursuant to Article VIII of the Purchase Agreement (assuming the conversion of all of the Notes), 100% of the shares of Common Stock for issuance upon the exercise of the Note Conversion Warrants and Warrants issuable pursuant to Article VIII of the Purchase Agreement (assuming the conversion of all of the Notes) and 100% of the other Registrable Securities. If the Commission informs the Company that it will not allow the Registration Statement to cover any of the Registrable Securities, then the Registration Statement shall cover the highest percentage of such Registrable Securities that the Commission will allow. Such Registration Statement also shall cover, to the extent allowable under the Securities Act and the Rules promulgated thereunder (including Securities Act Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities.

3. REGISTRATION PROCEDURES.

In connection with the Company's registration obligations hereunder, the Company shall:

(a) Prepare and file with the Commission on or prior to the Filing Date, a Registration Statement on Form S-3 (or if such form is not available to the Company on Form SB-2 or another form appropriate for such registration in accordance herewith) (which shall include a Plan of Distribution substantially in the form of EXHIBIT A attached hereto), and cause the Registration Statement to become effective and remain effective as provided herein; provided, however, that not less than three (3) Business Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall (i) furnish to the Special Counsel, copies of all such documents proposed to be filed, which documents (other than those incorporated by reference) will be subject to the review of such Special Counsel, and (ii) at the request of any Holder cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of counsel to such Holders, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities or the Special Counsel shall reasonably object in writing within three (3) Business Days after their receipt thereof.

(b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and to the extent any Registrable Securities are not included in such Registration Statement for reasons other than the failure of the Holder to comply with Section 3(m) hereof, shall prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond as promptly as possible to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented. In addition, the Company shall promptly prepare and file such amendments, including post-effective amendments, to the Registration Statement and the related prospectus and take all other actions as may be necessary to register the sale of Registrable Securities by any Holder to whom the rights under this Agreement have been assigned pursuant to Section 7(j).

(c) Notify the Holders of Registrable Securities to be sold and the Special Counsel as promptly as possible (A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement or additional Registration Statement is proposed to be filed (but in no event in the case of this subparagraph (A), less than three (3) Business Days prior to date of such filing); (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the

Commission comments in writing on such Registration Statement; and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective, and after the effectiveness thereof: (i) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (iv) if the financial statements included in the Registration Statement become ineligible for inclusion therein or of the occurrence of any event that makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limitation to any remedies to which the Holders may be entitled under this Agreement, if any of the events described in Sections 3(c)(C)(i), 3(c)(C)(ii), 3(c)(C)(iii), or 3(c)(C)(iv) occur, the Company shall use its best efforts to respond to and correct the event.

(d) Use its best efforts to avoid the issuance of, or, if issued, use best efforts to obtain the withdrawal of, (i) any order suspending the effectiveness of the Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(e) If requested by any Holder of Registrable Securities, (i) promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Company reasonably agrees should be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided, however, that the Company shall not be required to take any action pursuant to this Section 3(e) that would, in the written opinion of counsel for the Company (addressed to the Special Counsel), violate applicable law.

(f) Furnish to each Holder and the Special Counsel, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

(g) Promptly deliver to each Holder and the Special Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and the

Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

(h) Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders and the Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any jurisdiction where it is not then so subject or subject the Company to any material tax in any such jurisdiction where it is not then so subject.

(i) Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by applicable law and the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any Holder may request at least two (2) Business Days prior to any sale of Registrable Securities. In connection therewith, the Company shall promptly after the effectiveness of the Registration Statement cause an opinion of counsel to be delivered to and maintained with its transfer agent, together with any other authorizations, certificates and directions required by the transfer agent, which authorize and direct the transfer agent to issue such Registrable Securities without legend upon sale by the Holder of such shares of Registrable Securities under the Registration Statement.

(j) Upon the occurrence of any event contemplated by Section
3(c)(C)(iv), as promptly as possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an 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, in the light of the circumstances under which they were made, not misleading.

(k) Cause all Registrable Securities relating to such Registration Statement to be listed on any United States securities exchange, quotation system, market or over-the-counter bulletin board, if any, on which similar securities issued by the Company are then listed.

(l) Comply in all material respects with all applicable rules and regulations of the

Commission and make generally available to its security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 not later than 45 days after the end of any 3-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company after the effective date of the Registration Statement, which statement shall conform to the requirements of Rule 158.

(m) Request each selling Holder to furnish to the Company information regarding such Holder and the distribution of such Registrable Securities as is required by law or the Commission to be disclosed in the Registration Statement, and the Company may exclude from such registration the Registrable Securities of any such Holder who fails to furnish such information within a reasonable time prior to the filing of each Registration Statement, supplemented Prospectus and/or amended Registration Statement.

If the Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (if such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force) the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required.

Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c)(C)(i), 3(c)(C)(ii), 3(c)(C)(iii), 3(c)(C)(iv) or 3(n), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 3(j), or until it is advised in writing (the "ADVICE") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.

(n) If (i) there is material non-public information regarding the Company which the Company's Board of Directors (the "BOARD") reasonably determines not to be in the Company's best interest to disclose and which the Company is not otherwise required to disclose, (ii) there is a significant business opportunity (including, but not limited to, the acquisition or disposition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or other similar transaction) available to the Company which the Board reasonably determines not to be in the Company's best interest to disclose and which the Company would be required to disclose under the Registration Statement or (iii) with respect to a registration statement on a form other than Form S-3, if the Company reasonably determines that, based on the advice of counsel, a post-effective amendment to the registration statement must be filed with the Commission in order to update the audited financial statements in the registration statement, or the Company elects, in its discretion, to file a post-effective amendment to such registration statement for the purpose of converting it to a Form S-3 after such form becomes available for use by the Company, and, in either case, such post-effective amendment is reviewed by the Commission, then (A) in the case of

an event described in Section 3(n)(i) or 3(n)(ii), the Company may postpone or suspend filing or effectiveness of a registration statement for a period not to exceed 30 consecutive days, provided that the Company may not postpone or suspend its obligation under Section 3(n)(i) or 3(n)(ii) for more than 45 days in the aggregate during any 12 month period, and (B) in the case of an event described in Section 3(n)(iii), provided the Company uses best efforts to promptly cause such post-effective amendment to be declared effective by the Commission, the Company may suspend effectiveness of a registration statement for a period not to exceed 75 consecutive days, provided that the Company may not suspend its obligation under Section 3(n)(iii) for more than 90 days in the aggregate during any 12 month period (each, a "BLACKOUT PERIOD").

4. REGISTRATION EXPENSES.

All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not the Registration Statement is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to the 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 securities exchange, quotation system, market or over-the-counter bulletin board on which Registrable Securities are required hereunder to be listed, (B) with respect to filings required to be made with the Commission, and (C) in compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of Special Counsel in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the Holders of a majority of Registrable Securities may designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing or photocopying prospectuses), (iii) messenger, telephone and delivery expenses, (iv) Securities Act liability insurance, if the Company so desires such insurance, (v) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, the Company's independent public accountants (including, in the case of an underwritten offering, the expenses of any comfort letters or costs associated with the delivery by independent public accountants of a comfort letter or comfort letters) and legal counsel, and (vi) fees and expenses of the Special Counsel in connection with any Registration Statement hereunder, not to exceed $7,500. 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 Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.

5. INDEMNIFICATION.

(a) INDEMNIFICATION BY THE COMPANY. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, partners, agents, brokers (including brokers who offer and sell Registrable

Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, costs of preparation and reasonable attorneys' fees) and expenses (collectively, "LOSSES"), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained or incorporated by reference in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or amendment or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, which information was reasonably relied on by the Company for use therein or to the extent that such information relates to (x) such Holder and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of prospectus or in any amendment or supplement thereto or (y) such Holder's proposed method of distribution of Registrable Securities as set forth in Exhibit A (or as such Holder otherwise informs the Company in writing); or (ii) in the case of an occurrence of an event of the type described in Section 3(c)(C)(ii), 3(c)(C)(iii), 3(c)(C)(iv) or 3(n), the use by a Holder of an outdated or defective Prospectus after the delivery to the Holder of written notice from the Company that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 3(m). The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of an Indemnified Party (as defined in Section 5(c) to this Agreement) and shall survive the transfer of the Registrable Securities by the Holders.

(b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents and employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising solely out of or based solely upon any untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that (i) such untrue statement or omission is contained in or omitted from any information so furnished in writing by such Holder to the Company specifically for inclusion in the Registration Statement or such Prospectus and that

such information was reasonably relied upon by the Company for use in the Registration Statement, such Prospectus, or in any amendment or supplement thereto, or to the extent that such information relates to (x) such Holder and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus, or such form of prospectus or in any amendment or supplement thereto or (y) such Holder's proposed method of distribution of Registrable Securities as set forth in Exhibit A (or as such Holder otherwise informs the Company in writing) or (ii) in the case of an occurrence of an event of the type described in Section 3(c)(C)(ii),
3(c)(C)(iii), 3(c)(C)(iv) or 3(n), the use by a Holder of an outdated or defective Prospectus after the delivery to the Holder of written notice from the Company that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 3(m); provided, however, that the indemnity agreement contained in this Section 5(b) shall not apply to amounts paid in settlement of any Losses if such settlement is effected without the prior written consent of the Holder, which consent shall not be unreasonably withheld. Notwithstanding anything to the contrary contained herein, the Holder shall be liable under this Section 5(b) for only that amount as does not exceed the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement.

(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify the Person from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and the Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all reasonable fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel in writing (with a copy to the Indemnifying Party) that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the reasonable expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect

any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding and does not impose any monetary or other obligation or restriction on the Indemnified Party.

All reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten (10) Business Days of written notice thereof to the Indemnifying Party, which notice shall be delivered no more frequently than on a monthly basis (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).

(d) CONTRIBUTION. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or refusal of a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying, Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. Notwithstanding anything to the contrary contained herein, the Holder shall be required to contribute under this Section 5(d) for only that amount as does not exceed the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

The indemnity and contribution agreements contained in this Section are in addition

to any liability that the Indemnifying Parties may have to the Indemnified Parties. The indemnity and contribution agreements herein are in addition to and not in diminution or limitation of any indemnification provisions under the Purchase Agreement.

6. RULE 144.

As long as any Holder owns Notes, Note Conversion Shares, Note Conversion Warrants or Registrable Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. As long as any Holder owns Notes, Note Conversion Shares, Note Conversion Warrants or Registrable Securities, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Person to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including compliance with the provisions of the Purchase Agreement relating to the transfer of the Registrable Securities. Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements. The definition of "Registrable Securities" for purposes of this Section 6 shall be interpreted as if it did not include the proviso at the end of such definition.

7. MISCELLANEOUS.

(a) REMEDIES. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b) NO INCONSISTENT AGREEMENTS. Except as otherwise disclosed in the Purchase Agreement, neither the Company nor any of its subsidiaries is a party to an agreement currently in effect, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Without limiting the generality of the foregoing, without the written

consent of the Holders of a majority of the then outstanding Registrable Securities, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act unless the rights so granted are subject in all respects to the prior rights in full of the Holders set forth herein, and are not otherwise in conflict with the provisions of this Agreement.

(c) NOTICE OF EFFECTIVENESS. Within two (2) Business Days after any Registration Statement which includes the Registrable Securities is ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Holders whose Registrable Securities are included in such Registration Statement) confirmation that the Registration Statement has been declared effective by the Commission in the form attached hereto as EXHIBIT B.

(d) PIGGY-BACK REGISTRATIONS. If at any time when there is not an effective Registration Statement covering all of the Registrable Securities, 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 its then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, the Company shall send to each Holder of Registrable Securities written notice of such determination and, if within seven (7) Business Days after receipt of such notice, any such Holder shall so request in writing (which request shall specify the Registrable Securities intended to be disposed of by the Holder), the Company will cause the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holder, to the extent required to permit the disposition of the Registrable Securities so to be registered, provided that 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 in connection with such registration (but not from its obligation to pay expenses in accordance with Section 4 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 7(d) for the same period as the delay in registering such other securities. The Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered; provided, however, that the Company shall not be required to register any Registrable Securities pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten public offering, if the managing underwriter(s) or underwriter(s) should reasonably object to the inclusion of the Registrable Securities in such registration statement, then if the Company after consultation with the managing underwriter should reasonably determine that the inclusion of such Registrable Securities, would materially adversely affect the offering contemplated in such registration statement, and based on such determination recommends

inclusion in such registration statement of fewer or none of the Registrable Securities of the Holders, then (x) the number of Registrable Securities of the Holders included in such registration statement shall be reduced pro-rata among such Holders (based upon the number of Registrable Securities requested to be included in the registration), if the Company after consultation with the underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y) none of the Registrable Securities of the Holders shall be included in such registration statement, if the Company after consultation with the underwriter(s) recommends the inclusion of none of such Registrable Securities; provided, however, that if securities are being offered for the account of other persons or entities as well as the Company, such reduction shall not represent a greater fraction of the number of Registrable Securities intended to be offered by the Holders than the fraction of similar reductions imposed on such other persons or entities (other than the Company).

(e) FAILURE TO FILE REGISTRATION STATEMENT AND OTHER EVENTS. The Company and the Holders agree that the Holders will suffer damages if the Registration Statement is not filed on or prior to the sixtieth (60th) day following the Closing Date and maintained in the manner contemplated herein during the Effectiveness Period. The Company and the Holders further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if (i) the Registration Statement is not filed on or prior to the sixtieth (60th) day following the Closing Date, or (ii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act within five (5) Business Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or not subject to further review, or (iii) the Registration Statement is filed with and declared effective by the Commission but thereafter ceases to be effective as to all Registrable Securities at any time prior to the expiration of the Effectiveness Period, without being succeeded immediately by a subsequent Registration Statement filed with the Commission, except as otherwise permitted by this Agreement, including pursuant to Section 3(n), or (iv) trading in the Common Stock shall be suspended (other than a suspension affecting trading in securities generally) or if the Common Stock is delisted from any securities exchange, quotation system, market or over-the-counter bulletin board on which Registrable Securities are required hereunder to be listed (each an "EXCHANGE"), without immediately being listed on any other Exchange, for any reason for more than three (3) Business Days, other than pursuant to Section 3(n), or (v) the conversion rights of the Holders are suspended for any reason without the consent of the particular Holder other than as set forth in Article III.A.5 of the Articles of Incorporation, or (vi) the Company has breached Section 3(n) of this Agreement (any such failure or breach being referred to as an "EVENT"), the Company shall pay in cash as liquidated damages for such failure and not as a penalty to each Holder an amount equal to two percent (2%) of such Holder's pro rata share of the purchase price paid by all Holders for Notes and other Registrable Securities purchased and then outstanding pursuant to the Purchase Agreement for the initial thirty (30) day period until the applicable Event has been cured, which shall be pro rated for such periods less than thirty (30) days and one and one-half percent (1.5%) of such Holder's pro rata share of the purchase price paid by all Holders for Notes and other Registrable Securities purchased and then outstanding pursuant to the Purchase Agreement for each subsequent thirty (30) day period until the applicable Event has been cured which shall be pro rated for such periods less than thirty days (the "PERIODIC AMOUNT"). Payments to be

made pursuant to this Section 7(e) shall be due and payable immediately upon demand in immediately available cash funds. The parties agree that the Periodic Amount represents a reasonable estimate on the part of the parties, as of the date of this Agreement, of the amount of damages that may be incurred by the Holders if the Registration Statement is not filed on or prior to the sixtieth
(60th) day following the Closing Date and maintained in the manner contemplated herein during the Effectiveness Period or if any other Event as described herein has occurred. Notwithstanding the foregoing, the Company shall remain obligated to cure the breach or correct the condition that caused the Event, and the Holder shall have the right to take any action necessary or desirable to enforce such obligation.

(f) FAILURE OF REGISTRATION STATEMENT TO BECOME EFFECTIVE. The Company and the Holders agree that the Holders will suffer damages if the Registration Statement is not declared effective on or prior to the one hundred and twentieth
(120th) day following the Closing Date. The Company and the Holders further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if the Registration Statement is not declared effective within one-hundred and fifty (150) days after the Closing Date, the Company shall pay in cash as liquidated damages for such failure and not as a penalty to each Holder an amount equal to (i) two percent (2%) of such Holder's pro rata share of the purchase price paid by all Holders for Notes and other Registrable Securities purchased and then outstanding pursuant to the Purchase Agreement and
(ii) one and one-half percent (1.5%) of such Holder's pro rata share of the purchase price paid by all Holders for Notes and other Registrable Securities purchased and then outstanding pursuant to the Purchase Agreement for each subsequent thirty (30) day period (which shall be pro rated for such periods less than thirty (30) days) until the Registration Statement is declared effective. Payments to be made pursuant to this Section 7(f) shall be due and payable immediately upon demand in immediately available cash funds. The parties agree that the amounts set forth in this Section 7(f) represent a reasonable estimate on the part of the parties, as of the date of this Agreement, of the amount of damages that may be incurred by the Holders if the Registration Statement is not declared effective on or prior to the one hundred and twentieth
(120th) day following the Closing Date. Notwithstanding the foregoing, the Company shall remain obligated to cause the Registration Statement to become effective, and the Holder shall have the right to take any action necessary or desirable to enforce such obligation.

(g) SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.

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

(ii) Each of the Company and the Holders (i) hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts located in New York City, New York for the purposes of any suit, action or proceeding arising out of or relating to this Agreement and (ii) hereby waives, and agrees not to assert in any such suit,

action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Each of the Company and the Holders consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 7(g) shall affect or limit any right to serve process in any other manner permitted by law.

(h) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of at least a majority of the Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

(i) NOTICES. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earlier of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice prior to 5:00 p.m., New York City time, on a Business Day, (ii) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Business Day or later than 5:00
p.m., New York City time, on any date and earlier than 11:59 p.m., New York City time, on such date, (iii) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service such as Federal Express or (iv) actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be with respect to each Holder at its address set forth under its name on SCHEDULE 1 attached hereto, or with respect to the Company, addressed to:

National Coal Corp.

319 Ebenezer Road
Knoxville, Tennessee 37923
Attention: Chief Executive Officer
Facsimile No.: (865) 769-3759

or to such other address or addresses or facsimile number or numbers as any such party may most recently have designated in writing to the other parties hereto by such notice. Copies of notices to the Company shall be sent to Stubbs Alderton & Markiles, LLP, 15821 Ventura Boulevard, Suite 525, Encino, California 91436, Facsimile No. (818) 444-4520. Copies of notices to any Holder shall be sent to the addresses, if any, listed on SCHEDULE 1 attached hereto.

(j) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns and shall inure to the benefit of each Holder and its successors and assigns; provided, that the Company may not assign this Agreement or any of its rights or obligations hereunder without the prior written consent of each Holder; and provided, further, that each Holder may assign its rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

(k) ASSIGNMENT OF REGISTRATION RIGHTS. The rights of each Holder hereunder, including the right to have the Company register for resale Registrable Securities in accordance with the terms of this Agreement, shall be automatically assignable by each Holder to any transferee of such Holder of all or a portion of the Notes, Note Conversion Shares, Note Conversion Warrants, Additional Purchase Rights or the Registrable Securities if: (i) the Holder 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) following such transfer or assignment the further disposition of such securities by the transferee or assignees is restricted under the Securities Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this Section 7(k), the transferee or assignee agrees in writing with the Company to be bound by all of the provisions of this Agreement, and (v) such transfer shall have been made in accordance with the applicable requirements of the Purchase Agreement. The rights to assignment shall apply to the Holders (and to subsequent) successors and assigns.

The Company may require, as a condition of allowing such assignment in connection with a transfer of Notes, Note Conversion Shares, Note Conversion Warrants, Additional Purchase Rights or Registrable Securities (i) that the Holder or transferee of all or a portion of the Notes, the Note Conversion Shares, the Note Conversion Warrants, the Additional Purchase Rights or the Registrable Securities as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such transfer may be made without registration under the Securities Act,
(ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act and (iv) that the transfer of such Notes, Note Conversion Shares, Note Conversion Warrants, Additional Purchase Rights and/or Registrable Securities be (A) a transfer of an amount of such Notes, Note Conversion Shares, Note Conversion Warrants and/or Registrable Securities equal to, convertible into and/or exercisable for (and in the case of the Notes, convertible into Note Conversion Shares convertible into) not less than 5% of the total number of Conversion Shares that would have been issuable upon the full conversion of all Note Conversion Shares on the Closing Date (as defined in the Purchase Agreement, and as if all Notes had been converted as of the Closing Date), (B) a transfer of Additional Purchase Rights pursuant to the terms of Article VIII of the Purchase Agreement or (C) a transfer of all of the Notes, Note Conversion Shares, Note Conversion Warrants, Additional Purchase Rights and Registrable Securities then owned by the Holder.

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

(m) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of law thereof.

(n) CUMULATIVE REMEDIES. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

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

(p) HEADINGS; INTERPRETATION. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. Any form of the word "include" as used in this Agreement shall be deemed to be followed by the phrase "without limitation".

(q) REGISTRABLE SECURITIES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its Affiliates (other than any Holder or transferees or successors or assigns thereof if such Holder is deemed to be an Affiliate solely by reason of its holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.

(r) OBLIGATIONS OF PURCHASERS. The Company acknowledges that the obligations of each Purchaser under this Agreement, are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under this Agreement. The decision of each Purchaser to enter into to this Agreement has been made by such Purchaser independently of any other Purchaser. The Company further acknowledges that nothing contained in this Agreement, and no action taken by any Purchaser pursuant hereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or

create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated hereby. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.

Each Purchaser acknowledges and agrees that it has been represented by its own separate legal counsel in their review and negotiation of this Agreement and with respect to the transactions contemplated hereby. For reasons of administrative convenience only, this Agreement has been prepared by Special Counsel (counsel for SDS Capital Partners SPC, Ltd. ("SDS")) and the Special Counsel will perform certain duties under this Agreement. Such counsel does not represent all of the Purchasers but only SDS. The Company has elected to provide all Purchasers with the same terms and Agreement for the convenience of the Company and not because it was required or requested to do so by the Purchasers. The Company acknowledges that such procedure with respect to this Agreement in no way creates a presumption that the Purchasers are in any way acting in concert or as a group with respect to this Agreement or the transactions contemplated hereby or thereby.

[signature page follows]

IN WITNESS WHEREOF, the parties hereto have caused this Note Investor Rights Agreement to be duly executed by their respective authorized persons as of the date first indicated above.

COMPANY:

NATIONAL COAL CORP.

By:      /S/ JON E. NIX
   -----------------------------------------
Name:  Jon E. Nix
Title: Chief Executive Officer

PURCHASERS:

Print Exact Name: CRESTVIEW CAPITAL MASTER, LLC

By:  /S/  STEWART R. FLINK
   ---------------------------------
Name:  Stewart R. Flink
Title: Manager

[Omnibus Note Investor Rights Agreement Signature Page]

PURCHASERS:

Print Exact Name: SDS CAPITAL GROUP SPC, LTD.

By:  /S/  SCOTT E. DERBY
   ---------------------------------
Name:  Scott E. Derby
Title: General Counsel

[Omnibus Note Investor Rights Agreement Signature Page]

SCHEDULE 1
PURCHASERS

Crestview Capital Master LLC*

Attn: Stewart Flink
95 Revere Drive, Suite A
Northbrook, IL 60062
Tel: 847-559-0060
Fax: 847-559-5807
stewart@crestview.com

SDS Capital Group SPC, Ltd.
Attn: Scott Derby
53 Forest Avenue, 2nd Floor
Old Greenwich, CT 06870
Tel: 203-967-5850
Fax: 203-967-5851
steve@sdscapital.com
scott@sdscapital.com

with a copy to:

EXHIBIT A

PLAN OF DISTRIBUTION

We are registering the shares of common stock on behalf of the selling security holders. Sales of shares may be made by selling security holders, including their respective donees, transferees, pledgees or other successors-in-interest directly to purchasers or to or through underwriters, broker-dealers or through agents. Sales may be made from time to time on the OTC Bulletin Board or any exchange upon which our shares may trade in the future, in the over-the-counter market or otherwise, at market prices prevailing at the time of sale, at prices related to market prices, or at negotiated or fixed prices. The shares may be sold by one or more of, or a combination of, the following:

- a block trade in which the broker-dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction (including crosses in which the same broker acts as agent for both sides of the transaction);

- purchases by a broker-dealer as principal and resale by such broker-dealer, including resales for its account, pursuant to this prospectus;

- ordinary brokerage transactions and transactions in which the broker solicits purchases;

- through options, swaps or derivatives;

- in privately negotiated transactions;

- in making short sales or in transactions to cover short sales; and

- put or call option transactions relating to the shares.

The selling security holders may effect these transactions by selling shares directly to purchasers or to or through broker-dealers, which may act as agents or principals. These broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling security holders and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principals, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The selling security holders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their securities.

The selling security holders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with those transactions, the broker-dealers or other financial institutions may engage in short sales of the shares or of securities convertible into or exchangeable for the shares in the course of hedging positions they assume with the selling security holders. The selling security holders may also enter into options or other

transactions with broker-dealers or other financial institutions which require the delivery of shares offered by this prospectus to those broker-dealers or other financial institutions. The broker-dealer or other financial institution may then resell the shares pursuant to this prospectus (as amended or supplemented, if required by applicable law, to reflect those transactions).

The selling security holders and any broker-dealers that act in connection with the sale of shares may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act of 1933, and any commissions received by broker-dealers or any profit on the resale of the shares sold by them while acting as principals may be deemed to be underwriting discounts or commissions under the Securities Act. The selling security holders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares against liabilities, including liabilities arising under the Securities Act. We have agreed to indemnify each of the selling security holders and each selling security holder has agreed, severally and not jointly, to indemnify us against some liabilities in connection with the offering of the shares, including liabilities arising under the Securities Act.

The selling security holders will be subject to the prospectus delivery requirements of the Securities Act. We have informed the selling security holders that the anti-manipulative provisions of Regulation M promulgated under the Securities Exchange Act of 1934 may apply to their sales in the market.

Selling security holders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided they meet the criteria and conform to the requirements of Rule 144.

Upon being notified by a selling security holder that a material arrangement has been entered into with a broker-dealer for the sale of shares through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, we will file a supplement to this prospectus, if required pursuant to Rule 424(b) under the Securities Act, disclosing:

- the name of each such selling security holder and of the participating broker-dealer(s);

- the number of shares involved;

- the initial price at which the shares were sold;

- the commissions paid or discounts or concessions allowed to the broker-dealer(s), where applicable;

- that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus; and

- other facts material to the transactions.

In addition, if required under applicable law or the rules or regulations of the Commission, we will file a supplement to this prospectus when a selling security holder notifies us that a donee or pledgee intends to sell more than 500 shares of common stock.

We are paying all expenses and fees in connection with the registration of the shares. The selling security holders will bear all brokerage or underwriting discounts or commissions paid to broker-dealers in connection with the sale of the shares.

EXHIBIT B

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

[Name and Address of Transfer Agent]

Re: National Coal Corp.

Dear [______]:

We are counsel to National Coal Corp., a Florida corporation (the "Company"), and have represented the Company in connection with that certain Note Purchase Agreement (the "Purchase Agreement") dated as of August 31, 2004 by and among the Company and the buyers named therein (collectively, the "Holders") pursuant to which the Company issued to the Holders 8% Convertible Promissory Notes (the "Notes") convertible into (a) its Series A Cumulative Convertible Preferred Stock, par value $0.0001 per share, (the "Preferred Stock") convertible into shares of the Company's common stock, par value $0.0001 per share (the "Common Stock") and (b) warrants to purchase shares of the Common Stock (the "Warrants"). Pursuant to the Purchase Agreement, the Company has also entered into a Note Investor Rights Agreement with the Holders (the "Note Investor Rights Agreement") pursuant to which the Company agreed, among other things, to register the shares of Common Stock issuable upon conversion of the Preferred Stock and exercise of the Warrants and certain other shares of Common Stock, under the Securities Act of 1933, as amended (the "1933 Act"). In connection with the Company's obligations under the Note Investor Rights Agreement, on ____________ ___, 2004, the Company filed a Registration Statement on Form SB-2 (File No. 333-_____________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names each of the Holders as a selling securityholder thereunder.

In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.

Very truly yours,

By:__________________________________
cc: [LIST NAMES OF HOLDERS]

EXHIBIT 10.15

EMPLOYMENT AGREEMENT

This Employment Agreement , as amended, (hereinafter referred to as "Agreement") entered into as of July 1, 2004, by and between National Coal Corporation, a corporation organized and existing under the laws of the State of Tennessee with its principal place of business at 319 Ebenezer Road, Knoxville, Tennessee (hereinafter referred to as "Company"), National Coal Corp. Group International, Inc., a corporation organized under the laws of the State of Florida, and Jon E. Nix residing at 1308 Joe Hinton Road, Unit I, Knoxville, Tennessee 37931 (Employee).

WITNESSETH:

WHEREAS, the Company has purchased all or substantially all of National Coal Corp., a corporation organized and existing under the laws of the State of Florida (hereinafter referred to as "Acquired Company"); and

WHEREAS, Employee is presently the President and Chief Executive Officer of the Company and has served in that capacity since the inception of the corporation; and

WHEREAS, the Company desires to continue to employ Employee in such capacity and Employee desires such employment; and

WHEREAS, Employee's leadership has contributed significantly to the success of the Company since its inception; and

WHEREAS, the Acquired Company joins in the execution of this Agreement in order to evidence its consent hereto and agreement herewith.

NOW, THEREFORE, in consideration of the promises and the mutual covenants hereinafter set forth, and of other good and valuable consideration, the receipt of which is hereby acknowledged by each party to the other, the parties hereto agree as follows:

SECTION 1: EMPLOYMENT AND TERM OF AGREEMENT

1.1 EMPLOYMENT. The Company hereby employs Employee and Employee accepts employment as President and Chief Executive Officer of the Company.

1.2 DUTIES. a. During the term of his employment pursuant to this Agreement, Employee shall serve the Company faithfully and to the best of his ability and shall devote his business and professional time, energy, and diligence to the performance of the duties of such office and he shall perform such services and duties in connection with the business and affairs of the Company (i) as are customarily incident to such office and (ii) subject to
Section 1.2(b) hereof, as may reasonably be assigned or delegated to him from time to time by the Board of Directors of the Company. Employee shall also serve as a director of the Company and each of its subsidiaries and affiliates.

b. Notwithstanding the foregoing, Employee shall be principally responsible for, and shall have full power and authority to direct, the management and operation of the business of the Company, including, but not limited to (i) preparing and implementing an operating budget in coordination with the Company's sales and marketing team; (ii) planning and budgeting for the production of inventory such that orders for the Company's products can be met on a reasonably timely basis; (iii) planning and budgeting for the organization and development of the Company's production and office facilities; (iv) research and development activities relating to new products of the Company and improvements to the Company's existing products; (v) all technical, operational, and other aspects of manufacturing the Company's products; (vi) all distribution, marketing, and sales activities relating to the Company's products; and (vii) compliance with all applicable requirements of any applicable federal, state, or local government agency or entity and any applicable law or regulation concerning the Company's products, facilities, and business. To the extent permitted by law, and as long as no event described in
Section 3.1(b) or (c) has occurred and is continuing, the Board of Directors of the Company shall take no action to restrict or interfere with the powers and responsibilities assigned and delegated to Employee pursuant to this Agreement.

c. Notwithstanding the foregoing, it is understood that Employee shall continue to provide services to Jenco Capital Corporation, Kyten Energy Corporation, Strata Coal, LLC, Perdase Holdings, Inc., and other individuals or entities with regard to investment banking, and that the performance of such services shall not be used as a basis for termination under Section 3.1 and shall not constitute a breach of Employee's representations or obligations under
Section 6.9.

1.3 TERM OF EMPLOYMENT. Unless earlier terminated pursuant to the provisions hereof, the initial term of Employee's employment under this Agreement shall be for the period of two (2) years commencing with the date of this Agreement. Said term shall be automatically renewed thereafter for successive two-year terms unless the Board of Directors of the Company or any successor entity provides Employee with written notice that the Agreement will not be renewed (Notice of Non-Renewal) no later than 120 days prior to the expiration of the then-current term. Notwithstanding the foregoing, in the event a Change in Control (as defined below) occurs during the then-current term, the term of this Agreement shall not end prior to the first anniversary of such Change in Control.

SECTION 2: COMPENSATION, BENEFITS AND OTHER ENTITLEMENTS

2.1 BASE SALARY. a. As compensation for his services hereunder and as consideration for his covenant not to compete provided for in Section 4 hereof, Employee shall be paid a base annual salary at the rate of THREE HUNDRED THOUSAND AND 00/00 DOLLARS ($300,000.00) PER YEAR, which rate of compensation shall be in effect from the Effective Date until the end of the initial term set forth in Section 1.3 hereof. Thereafter, the base annual salary shall be at the rate determined in good faith by the Company's Board of Directors at the Board's regularly scheduled

meeting next following the end of each fiscal year or upon any special meeting, based upon the Company's review of Employee's performance during the preceding fiscal year or lesser period, but shall not be reduced below the base annual salary in effect at the end of the immediately preceding fiscal year. The base annual salary shall be payable at such periodic intervals, not less than weekly, as from time to time are applicable with respect to salaried executive personnel of the Company, and shall be inclusive of all applicable income taxes, Social Security, and other taxes and charges that are required by law to be withheld by the Company or that are requested to be withheld by Employee.

b. If Employee's base annual salary is hereafter increased by the Board of Directors, it shall not thereafter be reduced below a figure equal to the amount of base annual salary in effect immediately prior to such increase, together with an amount equal to the product of (x) the amount of base annual salary in effect immediately prior to such increase, multiplied by (y) the percentage increase in the consumer price index in Nashville, Tennessee to the last day of the fiscal year preceding any such reduction.

2.2 BONUS. For each full fiscal year during which Employee is employed as the Company's President and/or Chief Executive Officer pursuant to this Agreement, commencing with the fiscal year ending on December 31, 2003, Employee shall be paid an annual cash bonus in an amount to be determined in good faith by the Board of Directors but not more than an amount equal to fifty percent (50%) of the base amount of Employee's salary, which bonus shall be payable in a lump sum on or before December 30 of each year.

2.3 INSURANCE. The Company shall provide to Employee the standard package of family insurance benefits which are from time to time provided to other executive employees, including medical and major medical insurance coverage. The Company shall also provide to Employee long term care and disability income insurance coverage (at Employee's option), in an amount equal to not less than eighty percent (80%) of his base annual salary with benefits commencing upon termination of all disability payments by the Company under
Section 3.3 hereof, and with disability for purposes of such coverage being defined as the inability to perform the usual and customary activities as President and Chief Executive Officer of the Company. The Company shall also provide to Employee a policy of life insurance, at Employee's option, in the amount of his base annual salary issued on a basis of being paid up at age 65, which shall be transferred to Employee with its cash value intact upon the termination of his employment hereunder for any reason. The disability insurance, the long-term care insurance, and the life insurance policies shall be issued on a basis that would permit Employee to continue coverage under such policies upon termination of his employment with the Company at his own expense or, in circumstances where the Company is obligated to pay for continued coverage under paragraph 3.3 below, at the Company's expense.

2.4 OTHER BENEFITS. The Company shall provide Employee the following additional benefits:

a. A Company owned and maintained automobile suitable to Employee's position and appropriate for the performance of his duties, such automobile to be replaced at appropriate intervals.

b. Reimbursement of all reasonable expenses incurred for Company business, provided the same are of a type which are allowable for deductions under applicable federal tax law.

c. Reimbursement for accounting, tax, legal, and financial services to be performed by accountants, lawyers, or other professionals of his choice to assist Employee in financial, estate and tax planning, and tax reporting, provided that the Company shall not be obligated to reimburse Employee more than Ten Thousand and 00/00 Dollars ($10,000.00) per year for such expenses.

d. Paid vacation of four (4) weeks per year, or such greater amount as may be permitted from time to time by the Company's vacation policy, to be taken at such time as selected by Employee. If Employee does not use at least two (2) weeks' vacation in any fiscal year of the Company, Employee shall be entitled, at his option by notice to the Company no later than (10) days after the end of such fiscal year, to add any and all unused vacation days to the paid vacation permitted under this Agreement for the following fiscal year.

e. Employee shall be entitled to short-term medical leave benefits for up to three months for time out of work due to a psychological or physical illness, injury, or condition. Such benefits shall include full pay to Employee for any leave which is due to medical or psychological conditions as supported by appropriate written verification from Employee's treating medical or psychological/psychiatric professional.

f. In addition to the benefits bestowed upon Employee in this Agreement, Employee shall be entitled to participate in and enjoy benefits as are generally extended to employees serving in an executive capacity, including any capacity similar to that of Employee, in accordance with the Company's customary practices and policies.

g. In addition to the other benefits provided to the employee in this Agreement, the company agrees that the company paid "key man life insurance" shall upon the employees death be distributable fifty percent (50%) to the company and fifty percent (50%) to the employee's heirs as he may direct in his will.

SECTION 3: TERMINATION OF EMPLOYMENT

3.1 TERMINATION BY COMPANY. The Company shall have the right to terminate Employee's employment at any time upon the occurrence of any one of the following events:

a. Employee's death or the inability of Employee to adequately perform his duties as President and/or Chief Executive Officer, as determined in good faith by the Company's Board

of Directors, for more than 90 consecutive days as a result of the mental or physical illness or condition of Employee; or

b. Conduct of Employee in connection with his employment hereunder involving any of the following, other than by reason of mental or physical illness or condition and as determined by a majority vote of the Board of Directors after notice to Employee (as described below) and advice of independent legal counsel:

i. Habitual and continued unavailability to act or respond on behalf of the Company;

ii. Willful misconduct or fraud;

iii. Conviction, by a court of competent jurisdiction, of a felony (whether or not committed during the term hereof or in the course of employment hereunder);

iv. Willful, continued, and material failure to observe or perform the duties of his employment hereunder;

v. Willfully acting in a manner materially adverse to the best interests of the Company; and

vi. Habitual neglect of the faithful performance of the duties of his employment hereunder.

c. With regard to Section 3.1(b), Company shall first provide Employee with 45 days written notice of such alleged misconduct, including a specific description of such breach, failure, or neglect of duty or obligation sufficient to allow Employee an opportunity to correct such noted problems. Employee shall not be terminated under paragraph 3.1(b) unless, after the notice period expires, Employee continues to fail to satisfactorily perform his duties. Prior to any vote regarding misconduct, Employee will be given the opportunity to appear before the Board, with his legal counsel, to present any relevant information he believes the Board should consider in making such a decision.

d. In the event of a Change in Control, which shall, for purposes of this Agreement, be defined as set forth in the attached Exhibit A, which is incorporated herein by reference; provided, however, that in the case of termination pursuant to this Section 3.1(d), the Board of Directors of the Company shall make a determination either to terminate Employee's employment hereunder or continue such employment within six (6) months after the effective date of the Change in Control and shall give Employee ninety (90) days' notice of any such determination to terminate Employee's employment hereunder, and the failure to make such determination within such six-month period will be deemed an election by the Company to continue Employee's employment hereunder.

3.2 TERMINATION BY EMPLOYEE.

a. If substantial differences of opinion between Employee and the Board and/or the ownership of the Company should develop, or other circumstances should arise such that Employee, in good faith, no longer feels that he can function effectively as President and/or Chief Executive Officer of the Company, then Employee may elect to resign from his employment hereunder by giving 30 days' written notice to the Company.

b. Employee may elect to resign from employment with the Company, upon 30 days written notice, if, in Employee's reasonable judgment, one or more of the following events has occurred:

i. A material change in Employee's duties, responsibilities, authority, or status with the Company, without Employee's consent;

ii. A significant increase in the amount of travel required for Employee to perform his job, without Employee's consent; or

iii. Any other matter or circumstance requested by the Board of Directors of the Company if either (a) made with the intent of hindering Employee in the performance of his duties hereunder or creating an incentive for Employee to exercise his rights under Section 3.2 hereof or (b) the effect of such request could reasonably be expected to hinder Employee in the performance of his duties hereunder or create an incentive for Employee to exercise his rights under Section 3.2 hereof.

c. Employee may resign with 30 days' written notice if the Company issues a notice of non-renewal of this Agreement.

3.3 PAYMENT OF SEVERANCE BENEFITS UPON TERMINATION.

(a) In the event of termination of Employee's employment pursuant to Section 3.1 or 3.2 above (other than pursuant to Section 3.1 (b) above), Employee will be entitled to the following severance benefits (collectively "Severance") upon execution of a Release of Claims in a form substantially similar to that attached hereto as Exhibit B, which is incorporated herein by reference, within 21 days of his separation:

i. Continuation of Employee's base annual salary for the Severance Period (as defined below) at the rate in effect at the time of such termination and payable at the time and in the manner such payments would have been made to Employee if such termination had not occurred;

ii. A prorated annual cash bonus payment calculated by multiplying the target amount (50% of base salary) by a fraction, the numerator of which is the number of calendar months (full or partial) during which Employee was employed by the Company in the fiscal year of his separation from employment and the denominator of which is 12, said prorated bonus to be payable as soon as practicable following Employee's separation from employment;

iii. Continued insurance coverage, as described in Section 2.3 and to include medical and major medical coverage for Employee and his eligible dependents, at the Company's expense for the Severance Period; provided, however, that Employee will be responsible for any co-payments, deductibles, or other out-of-pocket expenses associated with use of any health coverage;

iv. Continued use, during the Severance Period, of a company-owned and maintained automobile suitable to Employee's prior position as President and/or Chief Executive Officer; and

v. Reimbursement for accounting, tax, legal and financial services, as described in Section 2.4(c), up to $10,000.00 in each fiscal year during the Severance Period.

For purposes of this Agreement, the Severance Period shall be twenty-four (24) months if Employee's separation from employment does not occur within twelve (12) months of a Change in Control, but, in the event that Employee's separation from employment does occur within twelve (12) months of a Change in Control, the Severance Period shall be thirty-six (36) months. The full amount of the total salary continuation payments provided for above shall be payable in full within thirty (30) days after the effective date of Employee's severance-qualifying termination to an escrow agent mutually satisfactory to the Company and Employee under irrevocable written instructions to make payments of the Severance to Employee (or in the event of Employee's death, to his estate), at the time and in the manner that such payments would have been made to Employee if such termination had not taken place.

(b) In the event of termination pursuant to Section 3.1 (b), all salary and benefits (other than vested benefits under any pension, profit sharing or other compensation or benefit plan) shall cease at the time of termination.

(c) In the event of a Change in Control, the Company, at its sole expense, shall cause its independent auditors promptly to review all payments, distributions, and benefits that have been made to or provided to, and are to be made to or provided to, Employee under this Agreement, and any other agreement and plan benefiting Employee, to determine the applicability of Section 4999 of the United States Internal Revenue Code of 1986, as amended (the "Code"). If the Company's independent auditors determine that any such payments, distributions, or benefits are subject to excise taxes as provided under Section 4999 of the Code (the "Excise Tax"), then such payment, distributions, or benefits (the "Original Payments") shall be increased by an amount (the "Gross-Up Amount") such that, after the Company withholds all taxes due, including any excise and employment taxes imposed on the Gross-Up Amount, Employee will retain a net amount equal to the Original Payments less income and employment taxes on that amount. Employee agrees to cooperate with the Company's independent auditors by providing necessary information to perform this analysis/calculation, and the Company agrees that Employee shall be entitled to copies of the calculations. The intent of the parties is that the Company shall be solely responsible for, and shall pay, any Excise Tax on the Original Payments and Gross-Up Amount and any income and employment taxes (including, without limitation, penalties and interest)

imposed on the Gross-Up Amount. If no determination by the Company's independent auditors is made prior to the time Employee is required to file a tax return reflecting any portion of the Original Payments, Employee will be entitled to receive a Gross-Up Amount calculated on the basis of the Original Payments Employee reported in such tax return within 30 days of the filing of such tax return. If any tax authority finally determines that a greater Excise Tax should be imposed upon the Original Payments than is determined by the Company's independent auditors or reflected on Employee's tax returns, Employee shall be entitled to receive the full Gross-Up Amount calculated on the basis of such additional amount of Excise Tax determined to be payable by such tax authority (including related penalties and interest) from the Company within 30 days of such determination as long as Employee has taken all reasonable actions to minimize any such amounts. If any tax authority finally determines the Excise Tax to be less than the amount taken into account hereunder in calculating the Gross-Up Amount, Employee shall repay to the Company, within 30 days of his receipt of a refund resulting from that determination, the portion of the Gross-Up Amount attributable to such reduction (plus the refunded portion of the Gross-Up Amount attributable to the Excise Tax and federal, state, and local income and employment taxes imposed on the portion of the Gross-Up Amount being repaid, less any additional income tax resulting from such refund).

SECTION 4: NONCOMPETITION

The parties recognize that in the course of Employee's employment with the Company, Employee has had and will continue to have access to a substantial amount of confidential and proprietary information and trade secrets relating to the business of the Company, and that it would be detrimental to the business of the Company, and have a substantial detrimental effect on the value to the Company of Employee's employment if Employee were to compete with the Company upon termination of his employment. Employee therefore agrees, in consideration of the Company entering this Agreement and establishing the base annual compensation and other compensation and benefits at the level herein provided for, that during the period of the term of his employment with the Company, whether pursuant to this Agreement or otherwise, and, if and only if Employee's employment is terminated pursuant to Section 3.1(b) above, for a period of one
(1) year thereafter, he shall not, without the prior written consent of the Company, directly as principal, partner, director, or stockholder or through any corporation, partnership, or other entity (including, without limitation, a sole proprietorship), engage or participate in, or assist in any manner or in any capacity, or have any interest in or make any loan to, or otherwise be related with, any person, firm, corporation, association, or other entity located anywhere within fifty (50) miles of any of the Company's business locations and engaged in any business competing in any material way with the business of the Company or any subsidiary of the Company as such business exists as of the date of termination of employment; provided, however, that the foregoing shall not prevent Employee from owning up to five percent (5%) of the outstanding securities of, or being employed by, a publicly held corporation that may compete with the Company. For purposes hereof, a business shall not be deemed to be competing with the Company in a material way unless it manufactures, sells, distributes, or otherwise deals in one or more products manufactured, sold, distributed or otherwise dealt in by the Company and which

product or products account for at least five percent (5%) of the Company's gross sales volume at the time in question.

The parties believe, in light of the facts known as of the date hereof, and after considering the nature and extent of the Company's business, the amount of compensation and other benefits provided herein, and the damage that could be done to the Company's business by Employee's competing with the Company, that the foregoing covenant not to compete is reasonable in time, scope, and geographical limitation. However, if any court should construe the time, scope, or geographical limitation of the covenant not to compete to be too broad or extensive, it is the intention of the parties that the contract be automatically reformed, and as so reformed, enforced, to the maximum limits which may be found to be reasonable by such court.

SECTION 5 CONFIDENTIAL INFORMATION.

5.1 COMPANY INFORMATION. Employee agrees at all times during the term hereof and thereafter, to hold in strictest confidence, and not to use or disclose, except for the benefit of the Company or as authorized by the Company, the Confidential Information of Company. Employee understands that "Confidential Information" means any Company proprietary information, trade secrets and other information not generally known to the public, such as technical and non- technical data, know-how, research, product plans, marketing plans, products, business forecasts, services, customer lists and customers (including, but not limited to, customers of Company on whom Employee may call or with whom Employee becomes more acquainted during the term of this Agreement or has become acquainted with during any prior period in which he performed services for the Company), information regarding employees of the Company, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, financial or other business information disclosed to Employee by the Company, either directly or indirectly in writing, electronically, orally or by drawings or observation of parts or equipment prior to or after the commencement of this Agreement.

In light of the highly competitive nature of the industry in which Company conducts its business, Employee agrees that all Confidential Information heretofore or in the future obtained by the Employee as a result of the Employee's association with Company, shall be considered confidential. In recognition of this fact, Employee agrees that he will not, except in the performance of his duties under this Agreement or except as otherwise provided herein, during and after the execution of this Agreement (for so long as such information otherwise remains confidential), disclose any of such Confidential Information to any person or entity for any reason or purpose whatsoever, and he will not make use of any Confidential Information for his own purposes or for the benefit of any person or entity (except Company) under any circumstances not authorized by the Company. The provisions contained in this paragraph shall also apply to information obtained by Employee with respect to any subsidiary of or company otherwise affiliated with Company.

In the event that Employee is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand, any informal or formal investigation by any government or governmental agency or authority or otherwise) to disclose any of the Confidential Information, Employee will notify Company promptly in writing so that Company may seek a protective order or other appropriate remedy or, in Company's sole discretion, waive compliance with the terms of this Agreement. Employee agrees not to oppose any action by Company to obtain a protective order or other appropriate remedy. In the event that no such protective order or other remedy is obtained, or that Company waives compliance with the terms of this Agreement, Employee will furnish only that portion of the Confidential Information which Employee is advised in writing by his own independent counsel that he is legally required to furnish and will exercise his reasonable best efforts, at Company's expense, to obtain reliable assurance that confidential treatment will be accorded to the Confidential Information. To the extent that Employee retains counsel to assist him in any situation covered by this paragraph, he shall be entitled to reimbursement for reasonable fees incurred in obtaining advice and representation.

5.2 THIRD PARTY INFORMATION. Employee recognizes that Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. Employee agrees to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out Employee work for Company consistent with Company' agreement with such third party. Employee agrees to comply with Company's policies and procedures, as applicable from time to time with respect to such information.

SECTION 6: MISCELLANEOUS PROVISIONS

6.1 OUTPLACEMENT SERVICE. In the event of termination of Employee's employment by the Company, the Company shall, upon the request of Employee (a) pay for outplacement service for Employee for a period of twelve
(12) months, such payment to be made to an agency selected by Employee, based upon the customary fees charged by nationally rated firms engaged in providing such services for executives of similar level, qualifications, and experience, and (b) provide to Employee, for a reasonable time following termination of employment, not to exceed twelve (12) months, office space and secretarial support to assist Employee in searching for and obtaining a new position, such office space to be provided in a location reasonably determined by the Company.

6.2 INDEMNITY. The Company shall indemnify Employee and hold him harmless for all acts or decisions made by him in good faith while performing services for the Company to the full extent permitted by applicable law.

6.3 NON-DISPARAGEMENT. Except as compelled to do so by law, the Company and its past and present affiliated companies and their officers, directors, and employees shall refrain from

making any remark or taking any action which disparages, defames, or places Employee in a negative light, and Employee shall refrain from making any remark or taking any action which disparages, defames, or places the Company or any of its parent, subsidiary, or affiliated companies or their past or present officers, directors, or employees in a negative light.

6.4 EMPLOYEE BENEFITS. This Agreement shall not be construed to be in lieu or to the exclusion of any other rights, benefits, and privileges to which Employee may be entitled as an employee of the Company under any retirement, pension, profit-sharing, insurance, hospital, or other plans or benefits that may now be in effect or that may hereafter be adopted.

6.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee, and jurisdiction shall lie in the courts of competent jurisdiction in Knox County.

6.6 ENTIRE AGREEMENT. This Agreement constitutes the entire understanding of the Company and Employee with respect to its subject matter, supersedes any prior agreement or arrangement relative to Employee's employment by the Company, and no modification, supplement, or amendment of any provision hereof shall be valid unless made in writing and signed by the parties.

6.7 SUCCESSORS AND ASSIGNS; PERMITTED ASSIGNMENT. This Agreement shall inure to the benefit of and be binding upon the Company and Employee and their respective successors, executors. administrators, heirs and/or permitted assigns; provided, however, that neither Employee nor the Company may make any assignment of this Agreement or any interest therein, by operation of law or otherwise, without the prior written consent of the other parties hereto, except that, without such consent, the Company may assign this Agreement to any successor to all or substantially all of its assets and business by means of dissolution, merger, consolidation, transfer of assets, or otherwise, provided that such successor assumes in writing all of the obligations of the Company under this Agreement, subject, however, to Employee's right of termination as provided in Section 3.2 hereof.

6.8 CAPTIONS. The captions set forth in this Agreement are for convenience only and shall not be considered as part of this Agreement or as in any way limiting or amplifying the terms and conditions hereof.

6.9 NO CONFLICTING OBLIGATIONS. Employee represents and warrants to the Company that he is not under, or bound to be under in the future, any obligation to any person, firm, or corporation that is or would be inconsistent or in conflict with this Agreement or would prevent, limit, or impair in any way the performance by him of his obligations hereunder.

6.10 WAIVERS. The failure of any party to require the performance or satisfaction of any term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement, shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

6.11 NOTICES. Any notice given hereunder shall be in writing and delivered or mailed by registered or certified mail, return receipt requested:

(a) if to the Company: 319 Ebenezer Road Knoxville, TN 37923

(b) if to the Employee: 1308 Joe Hinton Road, Unit I Knoxville, TN 37931

6.12 SEVERABILITY. In the event that any court having jurisdiction shall determine that any restrictive covenant or other provision contained in this Agreement shall be unreasonable or unenforceable in any respect, then such covenant or other provision shall be deemed limited to the extent that such other court deems it reasonable or enforceable, and as so limited shall remain in full force and effect. In the event that such court shall deem any such covenant or other provision wholly unenforceable, the remaining covenants and other provisions of this Agreement shall nevertheless remain in full force and effect.

6.13 COUNTERPARTS. More than one counterpart of this Agreement may be executed by the parties hereto, and each fully executed counterpart shall be deemed an original.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed under seal and delivered as of the date first above written.

NATIONAL COAL CORPORATION

By: /s/ JON E. NIX
----------------------------------
Jon E. Nix, President

EMPLOYEE:

/s/ JON E. NIX
----------------------------------
Jon E. Nix

AGREED TO AND ACKNOWLEDGED:

National Coal Corp.

By: /s/ JON E. NIX
---------------------------
Jon E. Nix, President

EXHIBIT A

DEFINITION OF CHANGE IN CONTROL

The occurrence of any of the following events shall constitute a Change in Control for purposes of this Agreement: (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than National Coal Company, any trustee or other fiduciary holding securities under any employee benefit plan of National Coal Company, or any company owned, directly or indirectly, by the stockholders of National Coal Company in substantially the same proportions as their ownership of National Coal Company is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of National Coal Company representing 30% or more of the combined voting power of National Coal Company's then-outstanding securities; (b) during any period of two consecutive years (not including any period prior to the effective date of this Agreement), individuals who, at the beginning of such period, constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with National Coal Company to effect a transaction described in clause (a), (c), or (d) of this Exhibit A) whose election by the Board or nomination for election by National Coal Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board;
(c) the consummation of a merger or consolidation of National Coal Company with any other corporation, other than a merger or consolidation which would result in the voting securities of National Coal Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of National Coal Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of National Coal Corporation (or similar transaction) in which no person acquires no more than 30% of the combined voting power of National Coal Company's then-outstanding securities shall not constitute a Change in Control of National Coal Company; or (d) the stockholders of National Coal Company approve a plan of complete liquidation of National Coal Company or an agreement for the sale or disposition by National Coal Company of all or substantially all of National Coal Company's assets.

EXHIBIT B

I acknowledge that I have had twenty-one days to decide whether to execute this Release of Claims ("Release") and that I have been advised to consult an attorney before executing this Release. I acknowledge that I have seven days from the date I execute this Release to revoke my signature. I understand that if I choose to revoke this Release I must deliver my written revocation to National Coal Company before the end of the seven-day period.

I, for myself, my heirs, successors, and assigns, do hereby settle, waive, and release National Coal Company (the "Company") and any of its past and present officers, owners, stockholders, partners, directors, agents, employees, successors, predecessors, assigns, representatives, attorneys, divisions, subsidiaries, or affiliates from any and all claims, charges, complaints, rights, demands, actions, and causes of actions of any kind or character, in contract, tort, or otherwise, based on actions or omissions occurring in the past and/or present, and regardless of whether known or unknown to me at this time, including those not specifically mentioned in this Release. Among the rights, claims, and causes of action which I give up under this Release are those arising in connection with my employment and the termination of that employment, including, without limitation, rights or claims under federal, state, and local fair employment practice or discrimination laws (including the various Civil Rights Acts, the Age Discrimination in Employment Act, the Equal Pay Act, and the Tennessee Commission on Human Rights Act), laws pertaining to breach of employment contract, wrongful termination or other wrongful treatment, and any other laws or rights relating to my employment with the Company and the termination of that employment. I acknowledge that I am aware of my rights under the Age Discrimination in Employment Act, and that I am knowingly and voluntarily waiving and releasing any claim of age discrimination which I may have under that statute as part of this Release. This agreement does not waive or release any rights, claims, or causes of action that may arise from acts or omissions occurring after the date I execute this Release, nor does this agreement waive or release any rights, claims or causes of action relating to
(a) indemnification from the Company and its affiliates with respect to my activities on behalf of the Company and its affiliates prior to my termination of employment, (b) compensation or benefits to which I am entitled under any compensation or benefits plan of the Company or its affiliates, (c) amounts to which I am entitled pursuant to the agreement to which a form of this Release of Claims was attached as Exhibit B, (d) my right to file a charge with, or participate in any investigation conducted by, any federal, state, or local agency charged with enforcing laws prohibiting employment discrimination, (e) my right to challenge the voluntary and knowing nature of this release in court or before any federal, state, or local agency charged with enforcing employment laws, or (f) any right, claim, or cause of action arising after the effective date of this Release.

EXHIBIT 10.16

EMPLOYMENT AGREEMENT

This Employment Agreement (hereinafter referred to as "Agreement") entered into as of July 1, 2004,(hereinafter the "Effective Date") by and between National Coal Corporation, a corporation organized and existing under the laws of the State of Tennessee with its principal place of business at 319 Ebenezer Road, Knoxville, Tennessee (hereinafter referred to as "Company"), and Robert Chmiel residing at 2306 Heatherbank Court, Thousand Oaks, CA 91361 (Employee).

WITNESSETH:

WHEREAS, the Company desires to hire the Employee to fill the position of Chief Financial Officer; and

WHEREAS, the Employee desires to fill the position in the Company as Chief Financial Officer; and

WHEREAS, the parties have determined it to be in their respective best interests to enter into this Employment Agreement.

NOW, THEREFORE, in consideration of the promises and the mutual covenants hereinafter set forth, and of other good and valuable consideration, the receipt of which is hereby acknowledged by each party to the other, the parties hereto agree as follows:

SECTION 1: POSITION, TERM, AND DUTIES

1.1 EMPLOYMENT. The Company hereby employs Employee and Employee accepts employment as Chief Financial Officer of the Company.

1.2 TERM. Unless earlier terminated pursuant to the provisions hereof, the initial term of Employee's employment under this Agreement shall be for the period of tow (2) years commencing with the Effective Date of this Agreement. Said thrm shall be automatically renewed thereafter for successive two-year terms unless the Board of Directors of the Company or any successor entity provides Employee with written notice that the Agreement will not be renewed (Notice of Non-Renewal) no later than 120 days prior to the expiration of the then-current term. Notwithstanding the foregoing, in the event a Change in Control (as defined below) occurs during the then-current term , the term of this Agreement shall not end prior to the first anniversary of such Change in Control.

1.3 DUTIES. a. During the term of his employment pursuant to this Agreement, Employee shall serve the Company faithfully and to the best of his ability and shall devote his business and professional time, energy, and diligence to the performance of the duties of such position and he shall perform such services and duties in connection with the business and affairs of the Company (i) as are customarily incident to such position and (ii) subject to
Section 1.2(b) hereof,

as may reasonably be assigned or delegated to him from time to time by the Board of Directors or President of the Company.

b. Notwithstanding the foregoing, Employee shall be principally responsible for and shall have full power and authority to perform all duties incidental to all financial aspects of the Company as are customarily performed by chief financial officers.

SECTION 2: COMPENSATION. BENEFITS AND OTHER ENTITLEMENTS

2.1 BASE SALARY. a. As compensation for his services hereunder and as consideration for his covenant not to compete provided for in Section 4 hereof, Employee shall be paid a base annual salary at the rate of One Hundred Ninety-Two Thousand and 00/00 Dollars ($192,000.00) per year, which rate of compensation shall be in effect from the Effective Date until one year after the Effective Date of this Agreement. Thereafter, the base annual salary shall be at the rate determined in good faith by the Company's Board of Directors at the Board's regularly scheduled meeting next following the end of each fiscal year or upon any special meeting, based upon the Company's review of Employee's performance during the preceding fiscal year or lesser period, but shall not be reduced below the base annual salary in effect at the end of the immediately preceding fiscal year. The base annual salary shall be payable at such periodic intervals, not less than semi-monthly, as from time to time are applicable with respect to salaried executive personnel of the Company, and shall be inclusive of all applicable income taxes, Social Security, and other taxes and charges that are required by law to be withheld by the Company or that are requested to be withheld by Employee.

b. If Employee's base annual salary is hereafter increased by the Board of Directors, it shall not thereafter be reduced below a figure equal to the amount of base annual salary in effect immediately prior to such increase, together with an amount equal to the product of (x) the amount of base annual salary in effect immediately prior to such increase, multiplied by (y) the percentage increase in the consumer price index in Nashville, Tennessee to the last day of the fiscal year preceding any such reduction.

2.2 BONUS. For each full fiscal year during which Employee is employed as the Company's Chief Financial Officer pursuant to this Agreement, commencing with the fiscal year ending on December 31, 2004, Employee shall be paid a cash bonus in an amount to be determined in good faith by the Board of Directors but not more than an amount equal to fifty percent (50%) of the base amount of Employee's salary, which bonus shall be payable in a lump sum on or before December 31 of each year or at quarterly intervals as approved by the Board of Directors of the Company .

2.3 INSURANCE. The Company shall provide to Employee the standard package of family insurance benefits which are from time to time provided to other executive employees, including medical, dental and major medical insurance coverage.

2.4 OTHER BENEFITS. The Company shall provide Employee the following additional benefits:

         a.       Reimbursement of all reasonable  expenses incurred for Company
                  business,  provided the same are of a type which are allowable
                  for deductions under applicable federal tax law.

         b.       Paid  vacation  of four (4) weeks per  year,  or such  greater
                  amount as may be permitted  from time to time by the Company's
                  vacation  policy,  to be taken  at such  time as  selected  by
                  Employee.  If  Employee  does not use at least two (2)  weeks'
                  vacation in any fiscal year of the Company,  Employee shall be
                  entitled, at her option by notice to the Company no later than
                  (10) days after the end of such  fiscal  year,  to add any and
                  all unused vacation days to the paid vacation  permitted under
                  this Agreement for the following fiscal year.

         c.       Employee  shall  be  entitled  to  short-term   medical  leave
                  benefits  for up to three months for time out of work due to a
                  psychological or physical illness, injury, or condition.  Such
                  benefits  shall  include  full pay to  Employee  for any leave
                  which  is  due  to  medical  or  psychological  conditions  as
                  supported by appropriate written  verification from Employee's
                  treating medical or psychological/psychiatric professional.

         d.       A  Company  owned  and  maintained   automobile   suitable  to
                  Employee's position and appropriate for the performance of his
                  duties,   such   automobile  to  be  replaced  at  appropriate
                  intervals.

         e        The use of a Company  owned  cellular  phone,  which  cellular
                  phone shall  remain the  personal  property of the Company and
                  shall be returned to the Company by the Employee promptly upon
                  his leaving employment with the Company or upon his employment
                  being  terminated  by the  Company  as  herein  provided.  The
                  Company  reserves  the right to  discontinue  this benefit for
                  excessive  misuse of the cellular  phone in the  Company's own
                  discretion, and the Employee shall have the same obligation to
                  promptly return said cellular phone into the possession of the
                  Company.

         f.       In addition to the  benefits  bestowed  upon  Employee in this
                  Agreement,  Employee  shall be entitled to  participate in and
                  enjoy benefits as are generally  extended to employees serving
                  in an executive  capacity,  including any capacity  similar to
                  that of Employee,  in accordance with the Company's  customary
                  practices and policies.

         g.       In addition to the other benefits  provided to the Employee in
                  this Agreement,  the Company agrees that the Company paid "key
                  man  life  insurance"  shall  upon  the  Employee's  death  be
                  distributable  fifty  percent  (50%) to the  Company and fifty
                  percent (50%) to the Employee's  heirs as he may direct in his
                  will.  Such  "key man life  insurance"  shall not be less than
                  three million dollars ($3,000,000).

SECTION 3: TERMINATION OF EMPLOYMENT

3.1      DEATH.  Employee's  employment  hereunder  shall be terminated upon his
death.

3.2 DISABILITY. If due to physical or mental disability, Employee is not able to perform his