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