Securities Exchange Agreement

1.1.1

“ Affiliate ” or “ Affiliated ” means, in relation to any party, any company or other commercial entity or person which directly or indirectly controls, is controlled by or is under common control with such party or any of such party’s directors, managers, supervisors or management personnel.

1.1.2

“ Agreement ” means this agreement, the recitals hereto and all exhibits and schedules attached to this Agreement, in each case, as they may be amended or supplemented from time to time, and the expressions “hereof”, “herein”, “hereto”, “hereunder”, “hereby”, and similar expressions, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement; and unless otherwise indicated, references to sections and subsections are to sections and subsections in this Agreement.

1.1.3

“ Applicable Law ” means any domestic or foreign statute, law, ordinance, regulation, by-law or order that applies to Diatom, Solar or Planktos.

1.1.4

“ Assets ” means all of the properties, rights and assets of Planktos including, without limitation, all cash and cash equivalents, prepaid expenses, all investments, accounts receivable, Goodwill and IP, Inventory, Personal Property, and Material Contracts.

1.1.5

“ Business ” means the production and sale of certified emission reduction credits generated from the sequestration of carbon dioxide in land and marine environments for use in carbon dioxide reduction programs mandated by the Kyoto Accord.

1.1.6

“ Business Day ” means any day other than a Saturday, a Sunday or a day on which chartered banks in the United States of America are authorized or obligated by law to close.

1.1.8

“ Employees ” means all persons engaged in the Business including employees, employees on leave, contract employees, and owner-operators, if any.

1.1.9

“ Encumbrance ” means any encumbrance of any kind whatever and includes, without limitation, any adverse claim, security interest, mortgage, lien, hypothecation, pledge, assignment, charge, trust or deemed trust (whether contractual, statutory or otherwise arising), or any other right, option or claim of others affecting the Assets, and any covenant or other agreement, restriction or limitation on the transfer of the Assets.

1.1.10

“ Environmental Laws ” includes all applicable laws, statutes, regulations, by-laws, rules and Orders of any Governmental Authority where Planktos has carried on business and the common law, relating, in whole or in part, to the environment, and includes those laws relating to the storage, generation, use, handling, manufacture, processing, transportation, import, export, treatment, release or disposal of any Hazardous Substance.

1.1.11

“ Environmental Permits ” includes all certificates, approvals, consents, authorizations, registrations, and licenses issued, granted, conferred, created or required by any Governmental Authority pursuant to any Environmental Laws.

1.1.12 “ Facility ” means the main research and development facility for the Business located in Foster City, California.

1.1.14

“ Governmental Authority ” includes any domestic or foreign government whether state, federal, provincial, or municipal and any governmental agency, governmental authority, governmental tribunal or governmental commission of any kind whatsoever.

1.1.15.2

all trade marks (registered or not), trade names, designs, URL and domain names, logos, patents, patents pending, industrial design applications, and copyrights (registered or not) used in the Business, including those set forth in Schedule A;

1.1.15.5.1 all information of a scientific or technical nature whether in oral, written, graphic, machine readable, electronic or physical form; and

1.1.15.5.2 all patterns, plans, designs, research data, research plans, trade secrets and other proprietary know-how, processes, formulas, drawings, technology, blue prints, flow sheets, equipment and parts lists, instructions, manuals, records and procedures.

1.1.16

“ Hazardous Substance ” means any hazardous waste, hazardous substance, hazardous material, toxic substance, dangerous substance or dangerous good or contaminant as defined or identified in any Environmental Law.

1.1.18

“ Lands ” means the lands leased by Planktos in relation to the Business including, without limitation, the lands on which the Facility is located.

1.1.19

“ Loss ” means any and all loss, liability, damage, cost or expense actually suffered or incurred by a party resulting from the subject matter of any claim, including the costs and expenses of any action, suit, proceeding, demand, assessment, judgment, settlement or compromise relating thereto (including legal fees on a solicitor’s and his own client basis), net of any tax savings arising as a result of expensing the same, less the amount of any judgment awarded as a result of any counterclaim or set-off relating to that claim.

1.1.21

“ Order ” means any order, judgment, injunction, decree, award or writ of any court, tribunal, arbitrator, Governmental Authority, or other person who is authorized to make legally binding determinations.

1.1.22

“ Permits ” means all permits, licenses, authorizations, agreements or understandings relating to the Business and issued by any Governmental Authority, or to which any Governmental Authority is a party, including, without limitation, the Environmental Permits.

1.1.23

“ Personal Property ” means all of the equipment, vehicles, machinery, furniture, chattels and other tangible personal property used in the Business as at the Closing Date and any and all operating manuals, warranty information or other documentation relating thereto.

1.1.24

“ Pollution ” means any type of environmental damage or contamination which contravenes any Environmental Law, including, without limiting the generality of the foregoing, damage to or contamination by any substance, waste, or goods including, without limiting the generality of the foregoing, any Hazardous Substance.

1.1.27.1

state, federal, provincial, municipal and local, foreign or other income, franchise, capital, real property, personal property, withholding, payroll, employer health, transfer, sales, use, excise, goods and services, consumption, countervail and value added taxes, all other taxes of any kind relating to Solar, or the Business and imposed by any Governmental Authority, whether disputed or not; and

1.1.27.2

assessments, charges, duties, fees, imposts, levies or other governmental charges and interest, penalties or additions associated therewith.

1.1.28

“ Tax Returns ” means all reports, returns and other documents filed or required to be filed by Planktos in relation to the Business in respect of Taxes or in respect of or pursuant to any domestic or foreign federal, provincial, state, municipal, territorial or other taxing statute.

1.2

Gender and Number. The terms defined in the singular will have a comparable meaning when used in the plural and vice versa, and words importing gender include all genders.

2.1

Exchange . Upon and subject to the terms of this Agreement, Diatom hereby agrees to issue, exchange and deliver the Diatom Shares, which consist of thirty million (30,000,000) shares of common stock, to Solar, on the Closing Date, and Solar hereby agree to exchange, assign, transfer and set over the Planktos Shares, which consist of one thousand (1,000) common shares, to Diatom on the Closing Date. The Diatom Shares will be issued by Diatom pursuant to the securities transaction exemptions afforded by Section 4(2) of the Securities Act. The shares will be restricted securities each bearing a restrictive legend.

2.4

Resale Restrictions. The Diatom Shares issued and delivered to Solar will be subject to resale restrictions imposed pursuant to the Securities Act and thus restricted for a period of at least twelve (12) months from the date of issuance.

3.1.

Solar and Planktos . Solar and Planktos, jointly and severally, make the representations and warranties set out hereto to Diatom, recognizing that Diatom is relying on such representations and warranties in entering into the transactions contemplated by this Agreement. All due diligence searches, investigations or inspections by Diatom, up to the Closing, are without prejudice to Diatom’s right to rely upon the representations and warranties of Solar and Planktos in entering into the transactions contemplated by this Agreement.

3.1.1.

Incorporation and Qualification . Planktos is duly incorporated, organized and validly subsisting under the laws of the State of California. Planktos has all requisite corporate power and authority to own, lease, and operate its respective properties. Planktos is duly registered, licensed or qualified to carry on the Business in the jurisdictions in which the nature of the business as now being conducted by it or the property owned or leased by it makes such registration, licensing or qualification necessary.

3.1.2.

Authority, Filings, Consents and Approvals . Solar and Planktos have the corporate power and authority to enter into this Agreement and to perform the transactions contemplated by this Agreement. This Agreement has been duly authorized, executed and delivered by Solar and Planktos and constitutes a legal, valid and binding obligation of Solar and Planktos, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles. No other proceedings on the part of Solar or Planktos are necessary to authorize the entering into of this Agreement and the consummation of the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the agreements contemplated herein will not require Solar or Planktos, to obtain any consent, waiver, authorization or approval of, or make any filing with or give notice to, any person, except for such consents, waivers, authorizations or approvals which the failure to obtain would not be reasonably likely to have a material adverse effect on the Business.

3.1.3.

Capitalization of Planktos . The authorized capital of Planktos consists of 10,000,000 shares of no par value common stock, of which only the Planktos Shares are issued and outstanding. The Planktos Shares are duly authorized, validly issued, fully paid and non-assessable and are owned of record and beneficially by Solar, free and clear of any and all Encumbrances.

3.1.4.

Corporate Records . All transactions of Planktos have been promptly and properly recorded or filed in or with its respective books and records, and the minute books contain complete and accurate records of the meetings and proceedings of shareholders and directors thereof.

3.1.5.

Planktos’ Directors . Russ George is the sole director and officer of Planktos.

3.1.6.

The Planktos Shares . Solar has good and valid title to the Planktos Shares, free and clear of all Encumbrances. There are no outstanding options, warrants or rights to purchase or acquire, or securities convertible into or exchangeable for or which carry an obligation to purchase or otherwise acquire, any shares or securities in the capital of Planktos and there are no other contracts, commitments, agreements, understandings, arrangements or restrictions which require Planktos to issue, sell or deliver any of its respective shares or securities and there are no restrictions on the transfer of the Planktos Shares.

3.1.7.

Liabilities . Except as shown in its most recent audited financial statements (the “Planktos Financials”), attached as Exhibit B hereto, Planktos has no material liabilities of any kind whatsoever, contingent or non-contingent, other than those incurred in the ordinary course of business, including, without limitation, commercial real estate leases, utilities, telephone, and legal services.

3.1.8.

Liabilities at Closing . Except as may otherwise be set forth in Section 3.1.7 above, the value of all liabilities of Planktos, including any exposure under any guarantees, as at the Closing will be zero.

3.1.9.

Assets . Planktos has good and marketable, legal and beneficial title to all of the property comprising its assets as shown on the Planktos Financials, free and clear of all Encumbrances. Such assets constitute all of the property, rights and other assets used by Planktos, or which are necessary or desirable to conduct Planktos’ business as conducted prior to the date hereof. Without limiting the generality of the foregoing, none of the personal property or the fixed plant and equipment shown in the Planktos Financials is leased or otherwise used in Planktos’ business subject to any agreement with any third party.

3.1.10.

Corporate Records and Financial Statements . All material transactions relating to the Business have been promptly and properly recorded or filed in or with Planktos’ books and records. The Planktos Financials fairly and accurately represent the financial condition and position of the Business as at such date. Solar will furnish to Diatom copies of the Planktos Financials, including the audited balance sheets of Planktos and the audited statements of income, changes in shareholders’ equity and statements of cash flow for the periods ended December 31, 2005 and December 31, 2006, together with the notes thereon and the report of its independent certified public accountants. The audited financial statements (i) have been or will be prepared in conformity with United States generally accepted accounting principles applied on a consistent basis from year to year (except as noted otherwise therein), and (ii) assuming Planktos will continue as a going concern, are true and correct and present fairly in all material respects the financial condition of Planktos and the results of operations and changes in cash flow of Planktos for the periods to which each relates.

3.1.11.

Environmental Compliance . Except in compliance with Environmental Laws, Planktos has not caused or permitted, and Planktos and Solar have no knowledge of, any material release or disposal by any person of any Hazardous Substance on or from any premises formerly or presently used in the Business. All Hazardous Substances generated, handled, stored, treated, processed, transported or disposed of in the course of the Business have been generated, handled, stored, treated, processed, transported or disposed of in all material respects, in compliance with applicable Environmental Laws and the Environmental Permits.

3.1.12.

Intellectual Property Rights . Exhibit A sets forth a true and complete list of all patents and trademarks (“Intellectual Property Rights”), registered or unregistered, owned by or licensed to Planktos and used in the Business. The Intellectual Property Rights, and Planktos’ trade secrets and know how, constitute all of the intellectual property necessary to process, market and sell the products of the Business in the manner presently conducted by Planktos. Planktos does not use any trademarks or patents other than those listed in Exhibit A, nor does it use any other intellectual property of any third party that it is not licensed or otherwise entitled to use. All registrations with respect to Intellectual Property are valid, current and in good standing.

3.1.13.

Payment of Taxes. Planktos has paid all Taxes due and payable in relation to the Business and has paid all assessments that Planktos has received in respect of Taxes.

3.1.14.

Reassessments . No reassessments of Taxes have been issued against Planktos in relation to the Business nor is Planktos aware of any pending or threatened assessment or reassessment for Taxes. Planktos has not executed or filed with any Governmental Authority any agreement extending the period for assessment, reassessment or collection of any Taxes.

3.1.15.

Withholdings. Planktos has withheld from each payment made to any of the employees of the Business or former employees, officers and directors, and to all other persons, all amounts required by law and will continue to do so until the Closing and has remitted or will remit, such withheld amounts within the prescribed periods to the appropriate Governmental Authority. Planktos has charged and collected and have remitted or will remit on a timely basis all Taxes as required by Applicable Law on any sale, supply or delivery whatsoever, made in relation to the Business.

3.1.16.

Contracts. Planktos is not a party to, or bound by, any material contract, agreement or commitment of any kind in relation to the Business other than this Agreement and the Material Contracts. The Material Contracts are in full force and effect. There is not any pending or threatened cancellation, existing default, or event under any of the Material Contracts which, after notice or lapse of time, or both, would constitute a default under any of the Material Contracts and all of the Material Contracts are terminable on reasonable notice as required by Applicable Law if termination of any of the Material Contracts is not expressly provided for in any of the Material Contracts, or sixty (60) days’ notice or less if termination of any of the Material Contracts is expressly provided for in any of the Material Contracts.

3.1.17.

Employees . Complete and accurate particulars of the Employees pertaining to the date of hire of such employees and their annual remuneration and the names of those on long term disability, workers’ compensation or leave of absence (if any) will be provided to Diatom upon request. Planktos does not have any written employment agreements relating to any of the Employees, except that Employment Agreement with Russ George.

3.1.18.

Collective/Employment Agreements. None of the Employees is employed under a contract which cannot be terminated by Planktos, with or without notice, including those employees who are employed on indefinite hirings requiring reasonable notice of termination by Applicable Law. Planktos is not a party, either directly or by operation of law, to any collective agreement. No trade union, council of trade unions, employee bargaining agency or affiliated bargaining agent holds bargaining rights with respect to any of the employees of the Business by way of certification, interim certification, voluntary recognition, or successor rights. There are no threatened or pending union organizing activities involving the Employees and there are no threatened labor disputes or work stoppages relating to, or connected with, the Business.

3.1.19.

Occupational Health and Safety. There are no outstanding inspection orders or charges or any other Orders made against Planktos or the Business. Planktos is in compliance with all occupational health and safety rules and regulations in all material respects in relation to the Business and there are no outstanding violations of such rules and regulations.

3.1.20.

Insurance . All insurance policies relating to the Business are in full force and effect and Planktos is not in default with respect to any of the provisions contained in any such insurance policy. Planktos is not aware of any events or occurrences that could reasonably form the basis for a claim under Planktos’ policies of insurance.

3.1.21.

Permits . Planktos will own, possesses and will be in compliance with, all Permits required by any Governmental Authority and necessary to conduct the Business.

3.1.22.

Absence of Legal Conflicts . The execution and delivery of this Agreement by Solar and Planktos does not, and the performance of this Agreement by such parties and the completion by them of the transactions contemplated by this Agreement will not:

3.1.22.1.

conflict with or violate the constating documents of Planktos or Solar, or any resolution of the director or Planktos or the directors of Solar;

3.1.22.2.

conflict with or violate any Applicable Law; or

3.1.22.3.

result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of an Encumbrance on any of Assets pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Solar or Planktos is a party in relation to the Business or by which the Business or the Assets is bound or affected, which, in any such case, would prohibit or delay such Parties’ ability to perform their respective obligations under this Agreement.

3.1.2