Exhibit 10.1
 

 
LOCATION BASED TECHNOLOGIES, INC.

AND

THE PURCHASERS NAMED HEREIN

____________________________________________________________

COMMON STOCK PURCHASE AGREEMENT

____________________________________________________________

July 21, 2011
 
 
 

 
 

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LOCATION BASED TECHNOLOGIES, INC.
COMMON STOCK PURCHASE AGREEMENT

This Common Stock Purchase Agreement (this “Agreement”) is made as of July 21,
2011 by and between Location Based Technologies, Inc., a Nevada corporation with
its principal office at 49 Discovery, Suite 260, Irvine, California 92618 (the
“Company”), and those purchasers listed on the attached Exhibit A, as such
exhibit may be amended from time to time (each a “Purchaser”, and collectively,
the “Purchasers”).
 
Recitals
 
A.           The Company has authorized the sale and issuance of up to
50,000,000 shares (the “Shares”) of the common stock of the Company, $.001 par
value per share (the “Common Stock”) to certain investors in a private placement
(the “Offering”).
 
B.           Pursuant to Section 4(2) of the Securities Act of 1933 (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
sell to the Purchasers listed on the attached Exhibit A, as such exhibit may be
amended from time to time, and such Purchasers, severally and not jointly,
desire to purchase from the Company that aggregate number of shares of Common
Stock set forth opposite such Purchaser’s name on Exhibit A on the terms and
subject to the conditions set forth in this Agreement.
 
Terms and Conditions
 
Now, therefore, in consideration of the foregoing recitals and the mutual
covenants and agreements contained herein, the parties hereto, intending to be
legally bound, do hereby agree as follows:
 
1.           Purchase of the Shares.
 
1.1           Agreement to Sell and Purchase. At each Closing (as hereinafter
defined), the Company will issue and sell to each of the Purchasers, and each
Purchaser will, severally and not jointly, purchase from the Company, the number
of Shares set forth opposite such Purchaser’s name on Exhibit A for an aggregate
purchase price set forth opposite such Purchaser’s name on Exhibit A (the
“Purchase Price”).
 
1.2           Placement Agent Fee.  The Purchasers acknowledge that the Company
intends to pay to Craig-Hallum Capital Group LLC and ThinkEquity LLC, in their
capacity as the placement agents for the Offering (the “Placement Agents”), a
fee in respect of the sale of Shares to any Purchaser.  The Company shall
indemnify and hold harmless the Purchasers from and against all fees,
commissions, or other payments owing by the Company to the Placement Agents or
any other persons from or acting on behalf of the Company hereunder.
 
1.3           Closings; Closing Dates.  The initial completion of the sale and
purchase of Shares (the “Initial Closing”) shall be held at 9:00 a.m. (Central
Time) as soon as practicable following the satisfaction of the conditions set
forth in Section 4 (the “Initial Closing Date”), at the offices of Locke Lord
Bissell & Liddell LLP, 300 S. Grand Avenue, Suite 2600, Los Angeles, California
90071, or at such other time and place as the Company and Purchasers may
agree.  Each Purchaser acknowledges and agrees that the Company may issue and
sell Shares after the Initial Closing; provided, that the aggregate number of
Shares issued and sold pursuant to this Agreement will not exceed the number of
Shares set forth in the Recitals hereto.  The issuance and sale of any Shares
after the Initial Closing will be for the same price per Share as the Shares
sold in the Initial Closing and on the terms provided for herein; provided, that
all subsequent issuances and sales of Shares after the Initial Closing must be
consummated within five business days after the Initial Closing Date.  At each
closing after the Initial Closing (each closing pursuant to this Agreement being
a “Closing” and the date of each such Closing being a “Closing Date”), each
Purchaser purchasing Shares at such Closing will become a party to this
Agreement upon execution of a counterpart signature page or notice of adoption
of this Agreement by such Purchaser who will thereupon become bound by the
conditions of and entitled to the benefits of this Agreement as a “Purchaser”
and Exhibit A automatically shall be updated accordingly.
 
 
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1.4           Delivery of Shares.  At each Closing, subject to the terms and
conditions hereof, the Company will deliver to each Purchaser a stock
certificate or certificates, in such denominations and registered in such names
as such Purchaser may designate by notice to the Company, representing the
Shares, dated as of the Closing Date (each a “Certificate”), against payment of
the purchase price therefor by cash in the form of wire transfer, unless other
means of payment or delivery shall have been agreed upon by the Purchasers and
the Company.
 
2.           Representations and Warranties of the Company. The Company hereby
represents and warrants to each Purchaser:
 
2.1           Authorization.  All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement has been taken.  The Company has the
requisite corporate power to enter into this Agreement and carry out and perform
its obligations under the terms of this Agreement.  At each Closing, the Company
will have the requisite corporate power to issue and sell the Shares.  This
Agreement has been duly authorized, executed and delivered by the Company and,
upon due execution and delivery by the Purchasers, this Agreement will be a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors’ rights generally or by equitable principles or to the extent the
terms of Section 6.3 may be limited by applicable federal or state securities
laws.
 
2.2           No Conflict with Other Instruments.   The execution, delivery and
performance of this Agreement, the issuance and sale of the Shares to be sold by
the Company under this Agreement and the consummation of the actions
contemplated by this Agreement will not (A) result in any violation of, be in
conflict with, or constitute a default under, with or without the passage of
time or the giving of notice:  (i) any provision of the Company’s or its
subsidiary’s Articles of Incorporation or Bylaws (or similar governing
documents) as in effect on the date hereof or the Closing Date; (ii) any
provision of any judgment, arbitration ruling, decree or order to which either
of the Company or its subsidiary is a party or by which either of them is bound;
(iii) any bond, debenture, note or other evidence of indebtedness, or any
material lease, contract, mortgage, indenture, deed of trust, loan agreement,
joint venture or other agreement, instrument or commitment to which the Company
or its subsidiary is a party or by which either of them or their respective
properties are bound; or (iv) any statute, rule, law or governmental regulation
applicable to the Company or its subsidiary; or (B) result in the creation or
imposition of any lien, encumbrance, claim, security interest or restriction
whatsoever upon any of the properties or assets of the Company or its subsidiary
or any acceleration of indebtedness pursuant to any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or any indenture, mortgage, deed of trust or any other agreement or
instrument to which the Company or its subsidiary is a party or by which either
of them is bound or to which any of the property or assets of the Company or its
subsidiary is subject.  No consent, approval, authorization or other order of,
or registration, qualification or filing with, any regulatory body,
administrative agency, or other governmental body is required for the execution
and delivery of this Agreement by the Company and the valid issuance or sale of
the Shares by the Company pursuant to this Agreement, other than such as have
been made or obtained and that remain in full force and effect, and except for
the filing of a Form D or any filings required to be made under state securities
laws.
 
2.3           Articles of Incorporation; Bylaws.   The Company has made
available to the Purchasers true, correct and complete copies of the Articles of
Incorporation and Bylaws of the Company, as in effect on the date hereof.
 
 
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2.4           Organization, Good Standing and Qualification.  The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and has all requisite corporate power and authority to
carry on its business as now conducted.  Each of the Company and its subsidiary
has full power and authority to own, operate and occupy its properties and to
conduct its business as presently conducted and as presently proposed to be
conducted and is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure so to qualify would have a material
adverse effect on its and its subsidiary’s (taken as a whole) business,
financial condition, properties, operations, prospects or assets or its ability
to perform its obligations under this Agreement (a “Material Adverse Effect”).
 
2.5           SEC Filings.  The consolidated financial statements contained in
each report, registration statement and definitive proxy statement filed by the
Company with the Securities and Exchange Commission (the “SEC,” and all
documents filed with the SEC, the “Company SEC Documents”):  (i) complied as to
form in all material respects with the published rules and regulations of the
SEC applicable thereto; (ii) the information contained therein as of the
respective dates thereof did not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein in light of the circumstances under which they were
made not misleading; (iii) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered, except as may be indicated in the notes to such financial statements
and (in the case of unaudited statements) as permitted by Form 10-Q of the SEC,
and except that unaudited financial statements may not contain footnotes and are
subject to year-end audit adjustments; and (iv) fairly present the consolidated
financial position of the Company and its subsidiary as of the respective dates
thereof and the consolidated results of operations, cash flows and the changes
in stockholders’ equity of the Company and its subsidiary for the periods
covered thereby.  Except as set forth in the financial statements included in
the Company SEC Documents, neither the Company nor its subsidiary has any
liabilities, contingent or otherwise, other than liabilities incurred in the
ordinary course of business subsequent to May 31, 2011, and liabilities of the
type not required under generally accepted accounting principles to be reflected
in such financial statements.  Such liabilities incurred subsequent to May 31,
2011, are not, in the aggregate, material to the financial condition or
operating results of the Company and its subsidiary, taken as a whole.
 
2.6           Capitalization.  The authorized capital stock of the Company
consists of (i) 300,000,000 shares of Common Stock, of which (A) 127,461,999
shares were issued and outstanding as of the date of this Agreement, and (B)
25,580,769 shares were reserved for issuance upon the exercise or conversion, as
the case may be, of outstanding options, warrants or other convertible
securities as of the date of this Agreement; and (ii) 10,000,000 shares of
preferred stock, none of which, as of the date of this Agreement, are
outstanding or reserved for issuance upon the exercise or conversion, as the
case may be, of outstanding options, warrants or other convertible securities.
All issued and outstanding shares of Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, were not issued in violation
of any preemptive rights or similar rights to subscribe for or purchase
securities, and, except as disclosed in the Company SEC Documents, have been
issued and sold in compliance with the registration requirements of federal and
state securities laws or the applicable statutes of limitation have
expired.  Except as set forth herein, in that certain letter agreement between
the Company and the Placement Agents dated April 15, 2011 or in the Company SEC
Documents, there are no (i) outstanding rights (including, without limitation,
preemptive rights), warrants or options to acquire, or instruments convertible
into or exchangeable for, any unissued shares of capital stock or other equity
interest in the Company, or any contract, commitment, agreement, understanding
or arrangement of any kind to which the Company or its subsidiary is a party and
relating to the issuance or sale of any capital stock or convertible or
exchangeable security of the Company or its subsidiary; or (ii) obligations of
the Company to purchase redeem or otherwise acquire any of its outstanding
capital stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof.  Except as disclosed in the Company SEC
Documents, there are no anti-dilution or price adjustment provisions, co-sale
rights, registration rights, rights of first refusal or other similar rights
contained in the terms governing any outstanding security of the Company that
will be triggered by the issuance of the Shares.
 
 
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2.7           Subsidiaries. Except as set forth in the Company SEC Documents,
the Company does not presently own or control, directly or indirectly, and has
no stock or other interest as owner or principal in, any other corporation or
partnership, joint venture, association or other business venture or entity
(each a “subsidiary”).  The Company’s subsidiary is duly incorporated or
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization and has all requisite power and
authority to carry on its business as now conducted.  Such subsidiary is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties.  All of the outstanding capital stock or other
securities of such subsidiary is owned by the Company, directly or indirectly,
free and clear of any liens, claims, or encumbrances.
 
2.8           Valid Issuance of Securities.  The Shares are duly authorized and,
when issued, sold, delivered and paid for in accordance with the terms hereof,
will be duly and validly authorized and issued, fully paid and nonassessable,
free from all taxes, liens, claims, encumbrances and charges with respect to the
issue thereof; provided, however, that the Shares may be subject to restrictions
on transfer under state and/or federal securities laws or as otherwise set forth
herein.  The issuance, sale and delivery of the Shares in accordance with the
terms hereof will not be subject to preemptive rights of stockholders of the
Company.
 
2.9           Offering.  Assuming the accuracy of the representations of the
Purchasers in Section 3.3 of this Agreement on the date hereof and on the
Closing Date, the offer, issue and sale of the Shares are and will be exempt
from the registration and prospectus delivery requirements of the Securities Act
and have been or will be registered or qualified (or are or will be exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws.  Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would require registration
under the Securities Act of the issuance of the Shares to the Purchasers.  Other
than the Company SEC Documents and any (if any) information provided to a
Purchaser pursuant to a Bi-Lateral Non-Disclosure Agreement or Nondisclosure
Agreement entered into between the Company and such Purchaser, the Company has
not distributed and will not distribute prior to any Closing Date any offering
material in connection with the offering and sale of the Shares.  The Company
has not taken any action to sell, offer for sale or solicit offers to buy any
securities of the Company which would bring the offer, issuance or sale of the
Shares within the provisions of Section 5 of the Securities Act, unless such
offer, issuance or sale was or shall be within the exemptions of Section 4 of
the Securities Act.
 
2.10           Litigation.  Except as set forth in the Company SEC Documents,
there is no action, suit, proceeding nor investigation pending or, to the
Company’s knowledge, currently threatened against the Company or its subsidiary
that (a) if adversely determined would reasonably be expected to have a Material
Adverse Effect or (b) would be required to be disclosed in the Company’s Annual
Report on Form 10-K under the requirements of Item 103 of Regulation S-K.  The
foregoing includes, without limitation, any action, suit, proceeding or
investigation, pending or threatened, that questions the validity of this
Agreement or the right of the Company to enter into such Agreement and perform
its obligations hereunder.  Neither the Company nor its subsidiary is subject to
any injunction, judgment, decree or order of any court, regulatory body,
arbitral panel, administrative agency or other government body.
 
2.11           Governmental Consents.  No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for notices required or
permitted to be filed with certain state and federal securities commissions,
which notices will be filed on a timely basis.
 
 
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2.12           No Brokers. Except for any fees payable to the Placement Agents,
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 on arrangements made by the Company.
 
2.13           Compliance.  Neither the Company nor its subsidiary is in
violation of its Articles of Incorporation or Bylaws (or similar governing
documents).  Neither the Company nor its subsidiary has been advised or have
reason to believe, that it is not conducting its business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all applicable local, state
and federal environmental laws and regulations; except where failure to be so in
compliance would not have a Material Adverse Effect.  Each of the Company and
its subsidiary has all necessary franchises, licenses, certificates and other
authorizations from any foreign, federal, state or local government or
governmental agency, department or body that are currently necessary for the
operation of the business of the Company and its subsidiary as currently
conducted, except where the failure to currently possess such franchises,
licenses, certificates and other authorizations would not reasonably be expected
to have a Material Adverse Effect.
 
2.14           No Material Changes.  Except as disclosed in the Company SEC
Documents, since May 31, 2011, there has not been any change that has had a
Material Adverse Effect.  Since May 31, 2011, the Company has not declared or
paid any dividend or distribution on its capital stock.
 
2.15           Contracts.  Except for matters which are not reasonably likely to
have a Material Adverse Effect and those contracts that are substantially or
fully performed or expired by their terms, the contracts listed as exhibits to
or described in the Company SEC Documents that are material to the Company or
its subsidiary and all amendments thereto, are in full force and effect on the
date hereof, and neither the Company nor, to the Company’s knowledge, any other
party to such contracts is in breach of or default under any of such
contracts.  Neither the Company nor its subsidiary has any contracts or
agreements that would constitute a material contract as such term is defined in
Item 601(b)(10) of Regulation S-K, except for such contracts or agreements that
are filed as exhibits to or described in the Company SEC Documents.
 
2.16           Intellectual Property.
 
(a)            The Company has ownership or license or legal right to use all
patents, copyrights, trade secrets, know-how, trademarks, trade names, customer
lists, designs, manufacturing or other processes, computer software, systems,
data compilation, research results or other proprietary rights used in the
business of the Company or its subsidiary (collectively “Intellectual
Property”).  All of such patents, registered trademarks and registered
copyrights have been duly registered in, filed in or issued by the United States
Patent and Trademark Office, the United States Register of Copyrights or the
corresponding offices of other jurisdictions and have been maintained and
renewed in accordance with all applicable provisions of law and administrative
regulations in the United States and all such jurisdictions.
 
(b)            The Company believes it has taken all reasonable steps required
in accordance with sound business practice and business judgment to establish
and preserve its and its subsidiary’s ownership of all material Intellectual
Property with respect to their products and technology.  To the knowledge of the
Company, there is no infringement of the Intellectual Property by any third
party.
 
(c)            To the knowledge of the Company, the present business, activities
and products of the Company and its subsidiary do not infringe any intellectual
property of any other person.  No proceeding charging the Company or its
subsidiary with infringement of any adversely held Intellectual Property has
been filed and the Company is unaware of any facts which are reasonably likely
to form a basis for any such proceeding.
 
 
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(d)            No proceedings have been instituted or pending or, to the
knowledge of the Company, threatened, which challenge the rights of the Company
or its subsidiary to the use of the Intellectual Property.  The Intellectual
Property owned by the Company and its subsidiary, and to the knowledge of the
Company, the Intellectual Property licensed to the Company and its subsidiary,
has not been adjudged invalid or unenforceable, in whole or in part.  There is
no pending or, to the knowledge of the Company, threatened proceeding by others
challenging the validity or scope of any such Intellectual Property, and the
Company is unaware of any facts which are reasonably likely to form a basis for
any such claim.  Each of the Company and its subsidiary has the right to use,
free and clear of material claims or rights of other persons, all of its
customer lists, designs, computer software, systems, data compilations, and
other information that are required for its products or its business as
presently conducted.  Neither the Company nor its subsidiary is making
unauthorized use of any confidential information or trade secrets of any person.
 
(e)            The activities of any of the employees on behalf of the Company
or its subsidiary do not violate any agreements or arrangements between such
employees and third parties are related to confidential information or trade
secrets of third parties or that restrict any such employee’s engagement in
business activity of any nature.  Each former and current employee or consultant
of the Company or its subsidiary is a party to a written contract with the
Company or its subsidiary that assigns to the Company or its subsidiary all
rights to all inventions, improvements, discoveries and information relating to
the Company or its subsidiary, except for any failure to so do as would not
reasonably be expected to result in a Material Adverse Effect.
 
(f)            All licenses or other agreements under which (i) the Company or
its subsidiary employs rights in Intellectual Property, or (ii) the Company or
its subsidiary has granted rights to others in Intellectual Property owned or
licensed by the Company or its subsidiary are in full force and effect, and
there is no default (and there exists no condition which, with the passage of
time or otherwise, would constitute a default by the Company or such subsidiary)
by the Company or its subsidiary with respect thereto.
 
2.17           Securities Market Compliance.  The Company has taken no action
designed to, or likely to have the effect of, terminating the quotation of the
Common Stock (including the Shares) on the Over the Counter Bulletin Board (the
“Principal Market”).  The Company is and on each Closing Date will be in
compliance with all of the then-applicable requirements for continued quotation
of the Common Stock on the Principal Market.
 
2.18           Accountants.  Comiskey & Company, Professional Corporation (the
“Independent Accountant”), who expressed their opinion with respect to the
consolidated financial statements contained in the Company’s Annual Report on
Form 10-K for the year ended August 31, 2010, to be included or incorporated by
reference into the Registration Statement (as hereinafter defined) and the
prospectus which forms a part thereof (the “Prospectus”), have advised the
Company that they are, and to the knowledge of the Company they are, independent
accountants as required by the Securities Act and the rules and regulations
promulgated thereunder.
 
2.19           Taxes.  The Company and its subsidiary have filed all necessary
federal, state, local and foreign income and franchise tax returns and have paid
or accrued all taxes shown as due thereon, and the Company and its subsidiary
have no knowledge of a tax deficiency which has been or might be asserted or
threatened against it by any taxing jurisdiction, other than any deficiency
which the Company or its subsidiary is contesting in good faith and with respect
to which adequate reserves for payment have been established.
 
2.20           Insurance.  The Company and its subsidiary maintain and will
continue to maintain insurance of the types and in the amounts that the Company
reasonably believes are adequate for its and its subsidiary’s business,
including, but not limited to, insurance covering all real and personal property
owned or leased by the Company or its subsidiary against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against
by similarly situated companies, all of which insurance is in full force and
effect.
 
 
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2.21           Transfer Taxes.  On each Closing Date, all stock transfer or
other taxes (other than income taxes) that are required to be paid in connection
with the sale and transfer of the Shares hereunder will be, or will have been,
fully paid or provided for by the Company and the Company will have complied
with all laws imposing such taxes.
 
2.22           Investment Company.  The Company (including its subsidiary) is
not an “investment company” or an “affiliated person” of, or “promoter” or
“principal underwriter” for an investment company, within the meaning of the
Investment Company Act of 1940 and will not be deemed an “investment company” as
a result of the transactions contemplated by this Agreement.
 
2.23           Related Party Transactions.  To the knowledge of the Company, no
transaction has occurred between or among the Company or any of its affiliates
(including, without limitation, its subsidiary), officers or directors or any
affiliate or affiliates of any such affiliate officer or director that with the
passage of time would be required to be disclosed pursuant to Section 13, 14 or
15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) (assuming the
Company’s Common Stock was registered under the Exchange Act) other than those
transactions that have already been so disclosed.
 
2.24           Books and Records.  The books, records and accounts of the
Company and its subsidiary accurately and fairly reflect, in reasonable detail,
the transactions in, and dispositions of, the assets of, and the operations of,
the Company and its subsidiary.
 
2.25           Disclosure Controls and Internal Controls.
 
(a)           The Company and its subsidiary have established and maintain
disclosure controls and procedures (as such term is defined in Rule 13a-15 under
the Exchange Act), which (i) are designed to ensure that material information
relating to the Company or its subsidiary is made known to the Company’s
principal executive officer and its principal financial officer by others within
those entities particularly during the periods in which the periodic reports
required under the Exchange Act (assuming the Company’s Common Stock was
registered under the Exchange Act) are being prepared; and (ii) provide for the
periodic evaluation of the effectiveness of such disclosure controls and
procedures as of the end of the period covered by the Company’s most recent
annual or quarterly report filed with the SEC.
 
(b)           Except as described in the Company SEC Documents, the Company and
its subsidiary maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference.  The
Company and its subsidiary maintain disclosure controls and procedures (as such
term is defined in Rule 13a-15 under the Exchange Act) that are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files with or submits to the SEC is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms of the SEC
(assuming the Company’s Common Stock was registered under the Exchange Act),
including, without limitation, controls and procedures designed in to ensure
that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including its principal executive officer or officers and
its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure.  Except as described in the Company SEC
Documents, the Company is not aware of (i) any significant deficiency in the
design or operation of internal controls which could adversely affect the
Company’s or its subsidiary’s ability to record, process, summarize and report
financial data or any material weaknesses in internal controls; or (ii) any
fraud, whether or not material, that involves management or other employees who
have a significant role in the Company’s or its subsidiary’s internal controls.
 
 
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(c)           Since the date of the most recent evaluation of such disclosure
controls and procedures, there have been no changes that have materially
affected, or are reasonably likely to materially affect, the Company’s or its
subsidiary’s internal control over financial reporting, including any corrective
actions with regard to significant deficiencies and material weaknesses.
 
(d)           Except as described in the Company SEC Documents, there are no
material off-balance sheet arrangements (as defined in Item 303 of Regulation
S-K), or any other relationships with unconsolidated entities (in which the
Company or its control persons have an equity interest) that may have a material
current or future effect on the Company’s or its subsidiary’s financial
condition, revenues or expenses, changes in financial condition, results of
operations, liquidity, capital expenditures or capital resources.
 
(e)           To the knowledge of the Company, except as described in the
Company SEC Documents, the board of directors has not been informed, nor is any
director of the Company aware, of (1) any significant deficiencies in the design
or operation of the internal controls of the Company or its subsidiary which
could adversely affect the Company’s or its subsidiary’s ability to record,
process, summarize and report financial data or any material weakness in the
Company’s or its subsidiary’s internal controls; or (2) any fraud, whether or
not material, that involves management or other employees of the Company or its
subsidiary who have a significant role in the Company’s or its subsidiary’s
internal controls.
 
2.26           No General Solicitation.  Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged or will
engage in any form of general solicitation or general advertising (within the
meaning of Regulation D promulgated under the Securities Act) in connection with
the offer or sale of the Shares.
 
2.27           Application of Takeover Protections; Rights Agreement.  The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s Articles of
Incorporation or the laws of the jurisdiction of its formation which is or could
become applicable to any Purchaser as a result of the transactions contemplated
by this Agreement, including, without limitation, the Company’s issuance of the
Shares and any Purchaser’s ownership of the Shares, and no such action will be
amended or revoked prior to the final Closing hereunder.  The Company has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.
 
2.28           Foreign Corrupt Practices.  None of the Company, its subsidiary
or any director, officer, agent, employee or other person acting on behalf of
the Company or its subsidiary has, in the course of its actions for, or on
behalf of, the Company or its subsidiary (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or (iv) made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
 
2.29           Sarbanes-Oxley Act.  The Company is in compliance in all material
respects with any and all applicable requirements of the Sarbanes-Oxley Act of
2002 that are effective as of the date hereof, and any and all applicable rules
and regulations promulgated by the SEC thereunder that are effective as of the
date hereof.
 
 
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2.30           Employee Relations.  Neither the Company nor its subsidiary is a
party to any collective bargaining agreement or employs any member of a
union.  The Company believes that its relations with its employees are good.  No
executive officer of the Company (as defined in Rule 501(f) of Regulation D
under the Securities Act) has notified the Company that such officer intends to
leave the Company or otherwise terminate such officer’s employment with the
Company.  No executive officer of the Company, to the knowledge of the Company,
is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each such executive
officer does not subject the Company to any liability with respect to any of the
foregoing matters.
 
The Company and its subsidiary are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.
 
2.31           Environmental Laws.  Each of the Company and its subsidiary (i)
is in compliance with any and all Environmental Laws (as hereinafter defined),
(ii) has received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its business and (iii) is in compliance
with all terms and conditions of any such permit, license or approval where, in
each of the foregoing clauses (i), (ii) and (iii), the failure to so comply
could be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect.  The term “Environmental Laws” means all federal,
state, local or foreign laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
 
2.32           No Manipulation; Disclosure of Information.  None of the Company,
its subsidiary or any executive officer of the Company (as defined in Rule
501(f) of Regulation D under the Securities Act) has taken and will not take any
action designed to or that might reasonably be expected to cause or result in an
unlawful manipulation of the price of the Common Stock to facilitate the sale or
resale of the Shares.  The Company confirms that, to its knowledge, with the
exception of the proposed sale of the Shares as contemplated herein (as to which
the Company makes no representation) and any (if any) information provided to a
Purchaser pursuant to a Bi-Lateral Non-Disclosure Agreement or Nondisclosure
Agreement entered into between the Company and such Purchaser, neither it nor
any other person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or might
constitute material, non-public information.  All disclosures provided to the
Purchasers regarding the Company, its business and the transactions contemplated
hereby, including the exhibits to this Agreement and the Company SEC Documents,
furnished by the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.  No forward-looking statement (within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act) made by the Company or any of its officers or directors contained in any
Company SEC Document or made available to the public generally since January 1,
2009, has been made or reaffirmed without a reasonable basis or has been
disclosed other than in good faith.  Statistical, industry-related and
market-related data included in the Company SEC Documents are based on or
derived from sources that the Company reasonably and in good faith believes are
reliable and accurate in all material respects.
 
 
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3.           Representations and Warranties of the Purchasers.  Each Purchaser,
severally and not jointly, hereby represents and warrants to the Company, as of
each Closing Date at which such Purchaser purchases Shares, as follows:
 
3.1           Legal Power. The Purchaser has the requisite authority to enter
into this Agreement and to carry out and perform its obligations under the terms
of this Agreement.  All action on the Purchaser’s part required for the lawful
execution and delivery of this Agreement have been or will be effectively taken
prior to the applicable Closing.
 
3.2           Due Execution.  This Agreement has been duly authorized, executed
and delivered by the Purchaser, and, upon due execution and delivery by the
Company, this Agreement will be a valid and binding agreement of the Purchaser,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ rights generally
or by equitable principles or to the extent the terms of Section 6.3 may be
limited by applicable federal or state securities laws.
 
3.3           Investment Representations.  In connection with the sale and
issuance of the Shares, the Purchaser, for itself and no other Purchaser, makes
the following representations:
 
(a)           Investment for Own Account.  The Purchaser is acquiring the Shares
for its own account, not as nominee or agent, and not with a view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act; provided, however, that by making the
representations herein, the Purchaser does not agree to hold any of the Shares
for any minimum or specific term and reserves the right to dispose of the Shares
at any time in accordance with or pursuant to a registration statement or an
exemption from the registration requirements of the Securities Act.
 
(b)           Transfer Restrictions; Legends.  The Purchaser understands that
(i) the Shares have not been registered under the Securities Act; (ii) the
Shares are being offered and sold pursuant to an exemption from registration,
based in part upon the Company’s reliance upon the statements and
representations made by the Purchasers in this Agreement, and that the Shares
must be held by the Purchaser indefinitely, and that the Purchaser must,
therefore, bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration; (iii) each Certificate representing the Shares
will be endorsed with a legend substantially in the following form until the
earlier of (1) such date as the Shares have been registered for resale by the
Purchaser or (2) the date the Shares are eligible for sale under Rule 144 under
the Securities Act:
 
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF
ANY STATES.  THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.  UNLESS SOLD PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, THE ISSUER OF THESE SECURITIES
MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
 
(iv) the Company will instruct any transfer agent not to register the transfer
of the Shares (or any portion thereof) until the applicable date set forth in
clause (iii) above unless the conditions specified in the foregoing legends are
satisfied or, if the opinion of counsel referred to above is to the further
effect that such legend is not required in order to establish compliance with
any provisions of the Securities Act or this Agreement, or other satisfactory
assurances of such nature are given to the Company.
 
 
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The Company acknowledges and agrees that a Purchaser may from time to time
pledge, and/or grant a security interest in some or all of the Shares pursuant
to a bona fide margin agreement in connection with a bona fide margin account
and, if required under the terms of such agreement or account, the Purchaser may
transfer pledged or secured Shares to the pledgees or secured parties.  Such a
pledge or transfer shall not be subject to approval or consent of the Company
and no legal opinion of legal counsel to the pledgee, secured party or pledgor
shall be required in connection with the pledge, but such legal opinion may be
required in connection with a subsequent transfer following default by the
Purchaser transferee of the pledge.  No notice shall be required of such
pledge.  At the appropriate Purchaser’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of Shares
may reasonably request in connection with a pledge or transfer of the Shares
including the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
 
Certificates evidencing the Shares shall not contain any legend (including the
legend set forth in this Section): (i) following a sale of such Shares pursuant
to an effective registration statement (including the Registration Statement),
or (ii) following a sale of such Shares pursuant to Rule 144, or (iii) while
such Shares are eligible for sale under Rule 144, or (iv) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the SEC).  Following
such time as restrictive legends are not required to be placed on certificates
representing Shares, the Company will, no later than three Trading Days
following the delivery by a Purchaser to the Company or the Company’s transfer
agent of a certificate representing Shares containing a restrictive legend,
deliver or cause to be delivered to such Purchaser a certificate representing
such Shares that is free from the restrictive legend provided for in this
Section 3.3(b).  Upon the request of a Purchaser, the Company shall cause its
counsel to issue a legal opinion to the Company’s transfer agent promptly after
such time as restrictive legends are not required to be placed on certificates
representing Shares if required by the Company’s transfer agent to effect the
removal of the legend hereunder.  The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that enlarge
the restrictions on transfer set forth in this Section.  Certificates for Shares
subject to legend removal hereunder shall be transmitted by the transfer agent
of the Company to the Purchasers by crediting the account of the Purchaser’s
prime broker with the Depository Trust Company system.
 
Each Purchaser, severally and not jointly with the other Purchasers, agrees that
the removal of the restrictive legend from certificates representing Shares as
set forth in this Section 3.3(b) is predicated upon the Company’s reliance that
the Purchaser will sell any Shares pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.
 
(c)           Financial Sophistication; Due Diligence.  The Purchaser has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in connection with the
transactions contemplated in this Agreement.  Such Purchaser has, in connection
with its decision to purchase the Shares, relied only upon the representations
and warranties contained herein and the information contained in the Company SEC
Documents and any (if any) information provided to a Purchaser pursuant to a
Bi-Lateral Non-Disclosure Agreement or Nondisclosure Agreement entered into
between the Company and such Purchaser.  Further, the Purchaser has had such
opportunity to obtain additional information and to ask questions of, and
receive answers from, the Company, concerning the terms and conditions of the
investment and the business and affairs of the Company, as the Purchaser
considers necessary in order to form an investment decision.
 
 
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(d)           Accredited Investor Status.  The Purchaser is an “accredited
investor” as such term is defined in Rule 501(a) of Regulation D promulgated
under the Securities Act.
 
(e)           Residency. The Purchaser is organized under the laws of the state
set forth beneath such Purchaser’s name on the signature page attached hereto,
and its principal place of operations is in the state set forth beneath such
Purchaser’s name on the signature page attached hereto.
 
(f)           General Solicitation.The Purchaser is not purchasing the Shares as
a result of any advertisement, article, notice or other communication regarding
the Shares published in any newspaper, magazine or similar media or broadcast
over the television or radio or presented at any seminar or any other general
solicitation or general advertisement.  Prior to the time that the Purchaser was
first contacted by the Company or either of the Placement Agents such Purchaser
had a pre-existing and substantial relationship with the Company or one of the
Placement Agents.
 
3.4           No Investment, Tax or Legal Advice.  Each Purchaser understands
that nothing in the Company SEC Documents, this Agreement, or any other
materials presented to the Purchaser in connection with the purchase and sale of
the Shares constitutes legal, tax or investment advice.  Each Purchaser has
consulted such legal, tax and investment advisors as it, in its sole discretion,
has deemed necessary or appropriate in connection with its purchase of Shares.
 
3.5           Additional Acknowledgement.  Each Purchaser acknowledges that it
has independently evaluated the merits of the transactions contemplated by this
Agreement, that it has independently determined to enter into the transactions
contemplated hereby, that it is not relying on any advice from or evaluation by
any other person.  Each Purchaser acknowledges that each of the Placement Agents
has acted solely as placement agent for the Company in connection with the
Offering of the Shares by the Company, that the information and data provided to
the Purchaser in connection with the transaction contemplated hereby has not
been subjected to independent verification by either of the Placement Agents,
and that neither of the Placement Agents has made any representation or warranty
whatsoever with respect to the accuracy or completeness of such information,
data or other related disclosure material.  Each Purchaser acknowledges that it
has not taken any actions that would deem the Purchasers to be members of a
“group” for purposes of Section 13(d) of the Exchange Act.  Each Purchaser
acknowledges that, if such Purchaser is a client of Alamo Investment Advisors,
LLC or of any other investment advisor registered with the SEC, such Purchaser
has relied on such investment advisor in making its decision to purchase Shares
pursuant hereto.
 
3.6           No Short Position  As of the date hereof, and from the date hereof
through the final Closing Date, each Purchaser acknowledges and agrees that it
does not and will not (between the date hereof and the final Closing Date)
engage in any short sale of the Company’s voting stock or any other type of
hedging transaction involving the Company’s securities (including, without
limitation, depositing shares of the Company’s securities with a brokerage firm
where such securities are made available by the broker to other customers of the
firm for purposes of hedging or short selling the Company’s securities).
 
4.           Conditions to Closing.
 
4.1           Conditions to Obligations of Purchasers at Closing.  Each
Purchaser’s obligation to purchase the Shares at the each Closing is subject to
the fulfillment to that Purchaser’s reasonable satisfaction, on or prior to such
Closing, of all of the following conditions, any of which may be waived by the
Purchaser:
 
(a)           Representations and Warranties True; Performance of
Obligations.  The representations and warranties made by the Company in Section
2 shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date and
the Company shall have performed and complied with all obligations and
conditions herein required to be performed or complied with by it on or prior to
Closing and a certificate duly executed by an officer of the Company, to the
effect of the foregoing, shall be delivered to the Purchasers in the Initial
Closing.
 
 
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(b)           Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at Closing and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to counsel to the Purchaser, and counsel to the Purchaser
shall have received all such counterpart originals or certified or other copies
of such documents as they may reasonably request. The Company shall have
delivered (or caused to have been delivered) to each Purchaser, the certificates
required by this Agreement.
 
(c)            Qualifications, Legal Investment. All authorizations, approvals,
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
sale and issuance of the Shares shall have been duly obtained and shall be
effective on and as of Closing.  No stop order or other order enjoining the sale
of the Shares shall have been issued and no proceedings for such purpose shall
be pending or, to the knowledge of the Company, threatened by the SEC, or any
commissioner of corporations or similar officer of any state having jurisdiction
over this transaction.  At the time of Closing, the sale and issuance of the
Shares shall be legally permitted by all laws and regulations to which
Purchasers and the Company are subject. No litigation, statute, rule,
regulation, executive order, decree, ruling or injunction will have been
enacted, entered, promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the consummation
of any of the transactions contemplated by this Agreement.
 
(d)            Execution of Agreements.  The Company shall have executed this
Agreement and have delivered this Agreement to the Purchasers.
 
(e)            Secretary’s Certificate.  The Company shall have delivered to the
Purchasers at the Initial Closing a certificate of the Secretary of the Company
certifying as to the truth and accuracy of the resolutions of the board of
directors relating to the transaction contemplated hereby (a copy of which shall
be included with such certificate).
 
(f)            Trading.  The Common Stock shall not have been deleted from
quotation on the Principal Market.
 
(g)            Market Listing.  The Company will comply with all of the
requirements of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and
the Principal Market with respect to the issuance of the Shares and will cause
the Shares to be quoted on the Principal Market no later than the earlier of (a)
the effective date of the Registration Statement (as hereinafter defined) or (b)
120 days following the final Closing Date.
 
(h)            Blue Sky.  The Company shall have obtained all necessary “blue
sky” law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Shares.
 
(i)            Material Adverse Change.  Since the date of this Agreement, there
shall not have occurred any event which results in a Material Adverse Effect.
 
(j)            Opinion.  The Company shall have delivered to Purchasers in the
Initial Closing the opinion of Locke Lord Bissell & Liddell LLP, counsel to the
Company, dated as of the Initial Closing Date in substantially the form attached
hereto as Exhibit B.
 
4.2           Conditions to Obligations of the Company.  The Company’s
obligation to issue and sell the Shares at each Closing is subject to the
fulfillment to the Company’s reasonable satisfaction, on or prior to the Closing
of the following conditions, any of which may be waived by the Company:
 
 
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(a)           Representations and Warranties True. The representations and
warranties made by the Purchasers in Section 3 shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date.
 
(b)           Performance of Obligations.  The Purchasers shall have performed
and complied with all agreements and conditions herein required to be performed
or complied with by them on or before the Closing.  The Purchasers shall have
delivered the Purchase Price, by wire transfer, to the account designated by the
Company for such purpose.
 
(c)            Qualifications, Legal Investment.  All authorizations, approvals,
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
sale and issuance of the Shares shall have been duly obtained and shall be
effective on and as of the Closing.  No stop order or other order enjoining the
sale of the Shares shall have been issued and no proceedings for such purpose
shall be pending or, to the knowledge of the Company, threatened by the SEC, or
any commissioner of corporations or similar officer of any state having
jurisdiction over this transaction.  At the time of the Closing, the sale and
issuance of the Shares shall be legally permitted by all laws and regulations to
which the Purchasers and the Company are subject.  No litigation, statute, rule,
regulation, executive order, decree, ruling or injunction will have been
enacted, entered, promulgated or endorsed by or in any court or governmental
authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the consummation
of any of the transactions contemplated by this Agreement.
 
(d)            Execution of Agreements.  The Purchasers shall have executed this
Agreement and delivered this Agreement to the Company.
 
5.           Additional Covenants.
 
5.1           Reports.  The Company will take such actions as a Purchaser may
reasonably request to the extent required from time to time to enable such
Purchaser to sell the Shares without registration under Rule 144 under the
Securities Act or any successor rule or regulation adopted by the SEC.
 
5.2           Listing.  So long as a Purchaser owns any of the Shares, the
Company will use its reasonable efforts to maintain the quotation of its Common
Stock, including the Shares, on the Principal Market or will list the Common
Stock, including the Shares, on the New York Stock Exchange, the NASDAQ Global
Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or NYSE Amex,
and will comply in all material respects with the Company’s reporting, filing
and other obligations under such securities market or exchange, as applicable.
 
5.3           Adjustments in Share Numbers and Prices.
 
(a)           In the event of any stock split, subdivision, dividend or
distribution payable in shares of Common Stock (or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly shares of Common Stock), combination or other similar
recapitalization or event occurring after the date hereof, each reference in
this Agreement to a number of shares or price per share shall be amended
appropriately to account for such event.
 
 
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(b)           As to each Purchaser, from the Initial Closing Date until the 12
month anniversary of the Initial Closing Date, if the Company or its subsidiary
shall issue or agree to issue any (i) Common Stock or (ii) any securities of the
Company or the subsidiary that would entitle the holder thereof to acquire at
any time Common Stock, including without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time directly or
indirectly convertible into or exchangeable for, or otherwise entitles the
holder thereof to receive, Common Stock (“Common Stock Equivalents” and
collectively “Additional Shares”), entitling any person or entity to acquire
shares of Common Stock at an effective price per share less than $0.20, within
three Trading Days of the date thereof the Company shall issue to such Purchaser
that number of additional shares of Common Stock (the “Anti-Dilution Shares”)
equal to (a) the  aggregate Purchase Price paid by such Purchaser at the Closing
divided by the New Adjusted Purchase Price, less (b) the Shares previously
issued to such Purchaser pursuant to this Agreement.  For purposes of this
Agreement, New Adjusted Purchase Price = Adjusted Purchase Price x ((A + B) ¸ (A
+ C)).  For purposes of the foregoing formula, the following definitions shall
apply: (I) Adjusted Purchase Price shall initially mean $0.20, subject to
adjustment as provided herein; (II) New Adjusted Purchase Price means the
Adjusted Purchase Price in effect immediately after such issue of Additional
Shares; (III) “A” means the number of shares of Common Stock outstanding and
deemed outstanding immediately prior to such issue of Additional Shares
(treating for this purpose as outstanding all shares of Common Stock issuable
upon exercise of options and convertible securities as outstanding immediately
prior to such issue); (IV) “B” means the number of shares of Common Stock that
would have been issued if such Additional Shares had been issued at a price per
share equal to the Adjusted Purchase Price (determined by dividing the aggregate
consideration received by the Company in respect of such issue by the Adjusted
Purchase Price); and (V) “C” means the number of such Additional Shares issued
in such transaction.
 
The sale of Common Stock Equivalents shall be deemed to have occurred at the
time of the issuance of the Common Stock Equivalents and the purchase price
covered thereby shall also include the actual exercise or conversion price
thereof at the time of the issuance, with further adjustments for changes at
conversion or exercise (in addition to the consideration per share of Common
Stock underlying the Common Stock Equivalents received by the Company upon such
sale or issuance of the Common Stock Equivalents).  If shares are issued for a
consideration other than cash, the per share selling price shall be the fair
value of such consideration as determined in good faith by the board of
directors of the Company.  The Company may not refuse to issue a Purchaser
additional shares of Common Stock hereunder based on any claim that such
Purchaser or anyone associated or affiliated with such Purchaser has been
engaged in any violation of law, agreement or for any other reason, unless, an
injunction from a court, on notice, restraining and or enjoining an issuance
hereunder shall have been sought and obtained and the Company posts a surety
bond for the benefit of such Purchaser in the amount of 150% of the market value
of such Shares (based on the closing price of the Common Stock on the exchange
or quotation system on which the Common Stock is listed or traded on the date of
the event giving rise to the Company’s obligation hereunder), which is subject
to the injunction, which bond shall remain in effect until the completion of
litigation of the dispute and the proceeds of which shall be payable to the
Purchaser to the extent it obtains judgment.  Nothing herein shall limit a
Purchaser’s right to pursue actual damages for the Company’s failure to deliver
shares hereunder and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.  During the period that begins on
the Initial Closing Date and ends on the 12 month anniversary of the Initial
Closing Date, on the date of closing of any transaction pursuant to which
securities are issued for a purchase price less than the Adjusted Purchase Price
then in effect, the Company shall give the Purchasers written notice thereof.
 Notwithstanding anything to the contrary herein, this section shall not apply
to an Exempt Issuance.  “Exempt Issuance” means the issuance of (a) shares of
Common Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan duly adopted by the board of directors of
the Company, (b) securities upon the exercise of or conversion of any
convertible securities, options or warrants issued and outstanding on the date
of this Agreement, provided that such securities have not been amended since the
date of this Agreement to increase the number of such securities or to decrease
the exercise or conversion price of any such securities, (c) securities issued
pursuant to acquisitions or strategic transactions, provided any such issuance
shall only be to a person which is, itself or through its subsidiaries, an
operating company in which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the Company is
issuing securities primarily for the purpose of raising capital or to an entity
whose primary business is investing in securities, (d) securities upon the
exercise or conversion of convertible securities, options or warrants issued to
a financial institution or bank lender in connection with debt financing, and
(e) up to 1,000,000 shares of Common Stock issued to non-employee service
providers of the Company or its subsidiary in consideration of services provided
to the Company or its subsidiary.  “Trading Day” means a day on which the Common
Stock is traded on a securities market, automated quotation system or stock
exchange (including the over-the-counter bulletin board market).
 
 
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IN THE EVENT OF ANY ADJUSTMENT UNDER THIS SECTION 5.3, THE COMPANY SHALL
PROMPTLY AMEND THE REGISTRATION STATEMENT OR FILE A NEW REGISTRATION STATEMENT
PURSUANT TO THE PROVISIONS OF SECTION 6 TO REGISTER THE ANTI-DILUTION SHARES.
 
5.4           Confidential Information.  Each Purchaser covenants that it will
maintain in confidence the receipt and content of any Suspension Notice (as
defined herein) under Section 6.2 until such information (a) becomes generally
publicly available other than through a violation of this provision by the
Purchaser or its agents or (b) is required to be disclosed in legal proceedings
(such as by deposition, interrogatory, request for documents, subpoena, civil
investigation demand, filing with any governmental authority or similar
process); provided, however, that before making any disclosure in reliance on
this Section 5.4(b), the Purchaser will give the Company at least 15 days prior
written notice (or such shorter period as required by law) specifying the
circumstances giving rise thereto and the Purchaser will furnish only that
portion of the non-public information which is legally required and will
exercise its best efforts to ensure that confidential treatment will be accorded
any non-public information so furnished; provided, further, that notwithstanding
each Purchaser’s agreement to keep such information confidential, each Purchaser
makes no such acknowledgement that any such information is material, non-public
information.
 
5.5           Non-Public Information.  The Company covenants and agrees that
neither it nor any other person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information.  The Company and Purchaser agree that any (if any) Bi-Lateral
Non-Disclosure Agreement or Nondisclosure Agreement entered into between the
Company and such Purchaser will survive the execution and delivery of this
Agreement.  The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in securities
of the Company. 
 
6.           Registration Rights.
 
6.1           Registration Procedures and Expenses.
 
(a)            As promptly as reasonably practicable following the final
Closing, but in no event later than 30 days following the final Closing, the
Company shall prepare and file (i) with the SEC a registration statement on Form
S-1 (or any successor to Form S-1), covering the resale of the Registrable
Securities (as defined below) (such registration statement, together with any
registration statement for any Cut Back Shares (as defined below), the
“Registration Statement”) and (ii) to the extent required for resale of the
Registrable Securities in any state of the United States of America by a
Purchaser at the time of or after the effectiveness of the Registration
Statement, a registration statement or other applicable document (each a “Blue
Sky Registration”) allowing the Purchaser to resell the Registrable Securities
in such state in accordance with the blue sky laws of such state.  Subject to
Section 6.1(b), as soon as reasonably practicable after the initial filing of
the Registration Statement with the SEC, but in no event later than 60 days
following the initial filing of the Registration Statement with the SEC (90 days
in the event of a full review of the Registration Statement by the SEC), the
Company shall cause the Registration Statement and each Blue Sky Registration to
become effective and effect any related qualification or compliance with respect
to all Registrable Securities held by the Purchasers.  For purposes of this
Agreement, the term “Registrable Securities” shall mean (i) Shares and (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
any Shares.  Subject to Section 6.1(b), if the Registration Statement or any
Blue Sky Registration has not been declared effective by the applicable
governmental authority on or before the date that is 60 days after the initial
filing date of the Registration Statement with the SEC, or 90 days after the
initial filing of the Registration Statement with the SEC in the event of a full
review of the Registration Statement by the SEC (the “Required Effective Date”),
the Company shall, on the business day immediately following the Required
Effective Date and each 30th day thereafter, make a payment to the Purchasers as
partial liquidated damages for such delay (together, the “Late Registration
Payments”) equal to 1% of the Purchase Price paid for the Shares then owned by
the Purchasers that have not been so registered until the Registration Statement
and each Blue Sky Registration is declared effective by the applicable
governmental authority.  Late Registration Payments will be prorated on a daily
basis during each 30 day period and will be paid to the Purchasers by wire
transfer or check within five business days after the earlier of (i) the end of
each 30 day period following the Required Effective Date or (ii) the effective
date of the Registration Statement and each Blue Sky Registration.  The Company
and the Purchaser each acknowledge that the Late Registration Payments provided
for in this Section 6.1(a) bear a reasonable relationship to the anticipated
loss that would be suffered by the Purchaser for the Company’s failure to comply
with the terms of this Section 6.1(a) and the actual loss the Purchaser would
suffer for the Company’s failure to comply with the terms of this Section 6.1(a)
is difficult to ascertain or incapable of estimation.  If the Company fails to
pay any liquidated damages pursuant to this section in full within seven days
after the date payable, the Company will pay interest thereon at a rate of 10%
per annum (or such lesser maximum amount that is permitted to be paid by
applicable law) to the Purchasers, accruing daily from the date such liquidated
damages are due until such amounts, plus all such interest thereon, are paid in
full.  “Business day” means any day except Saturday, Sunday and any day that is
a federal legal holiday in the United States.
 
 
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(b)            Notwithstanding anything to the contrary in this Section 6, if
the Company is required by the SEC to cutback the number of securities being
registered in the Registration Statement pursuant to Rule 415 under the
Securities Act, then the Company shall reduce the Registrable Securities pro
rata, and unless otherwise directed in writing by a Purchaser as to its
Registrable Securities, the number of Registrable Securities and other
securities to be registered on such Registration Statement will first be reduced
by securities (if any) included in such Registration Statement that are not
Registrable Securities and second by the Registrable Securities represented by
the Shares.  Notwithstanding anything to the contrary contained in this Section
6, if the Company receives comments from the SEC with respect to the
Registration Statement, and following discussions with and responses to the SEC
in which the Company uses its commercially reasonable best efforts to cause as
many Registrable Securities for as many Purchasers as possible to be included in
the Registration Statement filed pursuant to Section 6 without characterizing
any Purchaser as an underwriter, the Company is unable to cause the inclusion of
all Registrable Securities in such Registration Statement, then the Company may,
following not less than one Business day prior written notice to the Purchasers,
(i) remove from the Registration Statement Registrable Securities (the “Cut Back
Shares”) in accordance with the terms of this Section 6.1(b) and/or (ii) agree
to such restrictions and limitations on the registration and resale of the
Registrable Securities, in each case as the SEC may require in order for the SEC
to allow such Registration Statement to become effective (collectively, the “SEC
Restrictions”).  Unless the SEC Restrictions otherwise require, any cutback
imposed pursuant to this Section 6.1(b) shall be allocated among the Registrable
Securities of the Purchasers on a pro rata basis.  No liquidated damages under
this Section 6 shall accrue on or as to any Cut Back Shares, and the Required
Effective Date with respect to such additional Registration Statement including
the Cutback Shares will be tolled, until such time as the Company is able to
effect the registration of the Cut Back Shares in accordance with any SEC
Restrictions (such date, the “Restriction Termination Date”).  From and after
the Restriction Termination Date, all provisions of this Section 6 (including,
without limitation, the liquidated damages provisions, subject to tolling as
provided above) shall again be applicable to the Cut Back Shares (which, for
avoidance of doubt, retain their character as Registrable Securities) so that
the Company will be required to file with and cause to be declared effective by
the SEC such additional Registration Statements in the time frames set forth
herein as necessary to ultimately cause to be covered by effective Registration
Statements all Registrable Securities (if such Registrable Securities cannot at
such time be resold by the Purchaser thereof pursuant to Rule 144 under the
Securities Act).  For purposes of this Section 6.1(b), the shares of Common
Stock issuable upon exercise of the warrants to be issued to the Placement
Agents in connection with the transactions contemplated hereby shall be
considered “Registrable Securities” and the Placement Agents shall be treated as
“Purchasers.”
 
 
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(c)            The Company shall use its reasonable efforts to:
 
(i)           prepare and file with the applicable governmental authority such
amendments and supplements to each Blue Sky Registration, the Registration
Statement and the Prospectus used in connection therewith as may be necessary or
advisable to keep the Blue Sky Registration and the Registration Statement
current and effective for the resale of Shares held by a Purchaser in the manner
contemplated by such Purchaser for a period ending on the earlier of (i) the
second anniversary of the final Closing Date, (ii) the date on which all Shares
may be sold pursuant to Rule 144 under the Securities Act or any successor rule
(“Rule 144”) and the blue sky laws of any state or (iii) such time as all Shares
have been sold pursuant to a registration statement or Rule 144 and any
applicable blue sky exemption for resale.  At such time the Company is no longer
required to keep the Blue Sky Registrations and the Registration Statement
current and effective for the Shares held by a Purchaser (the “Registration
Statement Termination Date”), that Purchaser will no longer accrue any
additional liquidated damages payments pursuant to Sections 6.1(a) or 6.2(c);
however, the Company shall still be obligated to make all payments under
Sections 6.1(a) or 6.2(c) that were not made prior to the Registration Statement
Termination Date for that Purchaser.  The Company shall notify each Purchaser
promptly upon each Blue Sky Registration, the Registration Statement and each
post-effective amendment to any of the foregoing, being declared effective by
the applicable governmental authority and advise each Purchaser that the form of
Prospectus contained in the Registration Statement or post-effective amendment
thereto, as the case may be, at the time of effectiveness meets the requirements
of Section 10(a) of the Securities Act or that it intends to file a Prospectus
pursuant to Rule 424(b) under the Securities Act that meets the requirements of
Section 10(a) of the Securities Act;
 
(ii)           furnish to the Purchaser with respect to the Shares registered
under the Registration Statement such number of copies of the Registration
Statement and the Prospectus (including supplemental prospectuses) filed with
the SEC in conformance with the requirements of the Securities Act and other
such documents (including any Blue Sky Registration) as the Purchaser may
reasonably request, in order to facilitate the public sale or other disposition
of all or any of the Shares by the Purchaser;
 
(iii)           make any necessary blue sky filings in addition the Blue Sky
Registrations;
 
(iv)           pay the expenses incurred by the Company and the Purchasers in
complying with Section 6, including, all registration and filing fees, FINRA
fees, exchange listing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses and the expense of any
special audits incident to or required by any such registration (but excluding
attorneys’ fees of any Purchaser and any and all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities by the
Purchasers);
 
(v)           advise the Purchasers, promptly after it shall receive notice or
obtain knowledge of the issuance of any stop order by the SEC or any state
securities regulator delaying or suspending the effectiveness of the
Registration Statement or any Blue Sky Registration or of the initiation of any
proceeding for that purpose; and it will promptly use its commercially
reasonable best efforts to prevent the issuance of any stop order or to obtain
its withdrawal at the earliest possible moment if such stop order should be
issued; and
 
 
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(vi)           with a view to making available to the Purchaser the benefits of
Rule 144 and any other rule or regulation of the SEC that may at any time permit
the Purchaser to sell Shares to the public without registration, the Company
covenants and agrees to use reasonable efforts to:  (i) make and keep public
information available, as those terms are understood and defined in Rule 144,
until the earlier of (A) such date as all of the Shares qualify to be resold
immediately pursuant to Rule 144 or any other rule of similar effect and all
blue sky laws or (B) such date as all of the Shares shall have been resold
pursuant to Rule 144 and applicable blue sky laws (and may be further resold
without restriction); (ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and under the
Exchange Act; and (iii) furnish to the Purchaser upon request, as long as the
Purchaser owns any Shares, (A) a written statement by the Company as to whether
it has complied with the reporting requirements of the Securities Act and the
Exchange Act, (B) a copy of the Company’s most recent Annual Report on Form 10-K
or Quarterly Report on Form 10-Q, and (C) such other information as may be
reasonably requested in order to avail the Purchaser of any rule or regulation
of the SEC that permits the selling of any such Shares without registration.
 
The Company understands that the Purchasers disclaim being an underwriter, but
acknowledges that a determination by the SEC that a Purchaser is deemed an
underwriter shall not relieve the Company of any obligations it has hereunder.
 
6.2                      Transfer of Shares After Registration; Suspension.
 
(a)            Except in the event that Section 6.2(b) applies, the Company
shall: (i) if deemed necessary or advisable by the Company, prepare and file
from time to time with the applicable governmental authority a post-effective
amendment to any Blue Sky Registration, the Registration Statement or a
supplement to the related Prospectus or a supplement or amendment to any
document incorporated therein by reference or file any other required document
so that such Blue Sky Registration or such Registration Statement will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and so that, as thereafter delivered to purchasers of the securities
being sold thereunder, such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; (ii) provide the Purchasers copies of any
documents filed pursuant to Section 6.2(a)(i); and (iii) upon request, inform
each Purchaser who so requests that the Company has complied with its
obligations in Section 6.2(b)(i) (or that, if the Company has filed a
post-effective amendment to the Registration Statement or any Blue Sky
Registration which has not yet been declared effective, the Company will notify
the Purchaser to that effect, will use reasonable efforts to secure the
effectiveness of such post-effective amendment as promptly as possible and will
promptly notify the Purchaser pursuant to Section 6.2(b)(i) when the amendment
has become effective).
 
(b)            Subject to Section 6.2(c), in the event: (i) of any request by
the SEC or any other federal or state governmental authority during the period
of effectiveness of any Blue Sky Registration or the Registration Statement or
for amendments or supplements to such Blue Sky Registration, the Registration
Statement or related Prospectus or for additional information; (ii) of the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of such Blue Sky Registration or of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Shares for sale in any jurisdiction or the initiation of any proceeding for such
purpose; or (iv) of any event or circumstance which necessitates the making of
any changes in any Blue Sky Registration, the Registration Statement or
Prospectus, or any document incorporated or deemed to be incorporated therein by
reference, so that, in the case of any Blue Sky Registration or the Registration
Statement, it will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the Prospectus, it
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; then the Company shall promptly deliver a certificate in writing to
the Purchasers (the “Suspension Notice”) to the effect of the foregoing and,
upon receipt of such Suspension Notice, the Purchasers will refrain from selling
any Shares pursuant to such Blue Sky Registration or the Registration Statement
(a “Suspension”) until the Purchasers are advised in writing by the Company that
the current Blue Sky Registration or the Prospectus may be used, and have
received copies from the Company of any additional or supplemental filings that
are incorporated or deemed incorporated by reference in any such Blue Sky
Registration or Prospectus.  In the event of any Suspension, the Company will
use its commercially reasonable best efforts to cause the use of the Blue Sky
Registration or Prospectus so suspended to be resumed as soon as reasonably
practicable after delivery of a Suspension Notice to the Purchasers.  In
addition to and without limiting any other remedies (including, without
limitation, at law or at equity) available to the Company and the Purchaser, the
Company and the Purchasers shall be entitled to specific performance in the
event that the other party fails to comply with the provisions of this Section
6.2(b).
 
 
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(c)            Notwithstanding the foregoing paragraphs of this Section 6.2, the
Company shall use its commercially reasonable best efforts to ensure that (i) a
Suspension shall not exceed 30 days individually, (ii) Suspensions covering no
more than 45 days, in the aggregate, shall occur during any twelve month period
and (iii) each Suspension shall be separated by a period of at least 30 days
from a prior Suspension (each Suspension that satisfies the foregoing criteria
being referred to herein as a “Qualifying Suspension”). In the event that there
occurs a Suspension (or part thereof) that does not constitute a Qualifying
Suspension, the Company shall pay to the Purchaser, on the 30th day following
the first day of such Suspension (or the first day of such part), and on each
30th day thereafter, an amount equal to 1% of the Purchase Price paid for the
Shares purchased by the Purchaser and not previously sold by the Purchaser with
such payments to be prorated on a daily basis during each 30 day period and will
be paid to the Purchaser by wire transfer or check within five business days
after the end of each 30 day period following.  The Company and the Purchaser
each acknowledge that the payments provided for in this Section 6.2(c) bear a
reasonable relationship to the anticipated loss that would be suffered by the
Purchaser as a result of a Suspension and the actual loss the Purchaser would
suffer as a result of a Suspension is difficult to ascertain or incapable of
estimation.
 
(d)            If a Suspension is not then in effect, the Purchasers may sell
Shares under the Registration Statement and each Blue Sky Registration, provided
that they comply with any applicable prospectus delivery requirements.  Upon
receipt of a request therefor, the Company will provide an adequate number of
current Prospectuses or Blue Sky Registrations to a Purchaser and to any other
parties reasonably requiring such documents.
 
(e)            The Company agrees that it shall, immediately prior to the
Registration Statement and all Blue Sky Registrations being declared effective,
deliver to its transfer agent an opinion letter of counsel, opining that at any
time the Registration Statement and the Blue Sky Registrations are effective,
the transfer agent may issue, in connection with the sale of the Shares,
certificates representing such Shares without restrictive legend, provided the
Shares are to be sold pursuant to the prospectus contained in the Registration
Statement and any applicable Blue Sky Registration.  Upon receipt of such
opinion, the Company shall cause the transfer agent to confirm promptly, for the
benefit of the Purchasers, that no further opinion of counsel is required at the
time of transfer in order to issue such Shares without restrictive legend.
 
The Company shall cause its transfer agent to issue promptly a certificate
without any restrictive legend to a purchaser of any Shares from the Purchasers,
if no Suspension is in effect at the time of sale, and (a) the sale of such
Shares is registered under the Registration Statement (including registration
pursuant to Rule 415 under the Securities Act) and all applicable blue sky laws;
(b) the holder has provided the Company with an opinion of counsel, in form,
substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Shares may be
made without registration under the Securities Act or any blue sky law; or (c)
such Shares are sold in compliance with Rule 144 under the Securities Act and
all applicable blue sky laws.  In addition, the Company shall remove the
restrictive legend from any Shares held by the Purchasers following the
expiration of the holding period required by Rule 144 under the Securities Act
(or any successor rule) and all blue sky  laws.
 
 
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6.3       Indemnification.  For the purpose of this Section 6.3:
 
(a)            the term “Selling Stockholder” shall mean a Purchaser, its
executive officers and directors and each person, if any, who controls that
Purchaser within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act;
 
(b)            the term “Registration Statement” shall include any final
Prospectus, exhibit, supplement or amendment included in or relating to, and any
document incorporated by reference in, the Registration Statement (or deemed to
be a part thereof) referred to in Section 6.1; and
 
(c)            the term “untrue statement” shall mean any untrue statement or
alleged untrue statement of a material fact, or any omission or alleged omission
to state in the Registration Statement a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
 
(d)            The Company agrees to indemnify and hold harmless each Selling
Stockholder from and against any losses, claims, damages or liabilities to which
such Selling Stockholder may become subject (under the Securities Act or
otherwise) insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon (i) any untrue
statement of a material fact contained in the Registration Statement, (ii) any
inaccuracy in the representations and warranties of the Company contained in
this Agreement or the failure of the Company to perform its obligations
hereunder or (iii) any failure by the Company to fulfill any undertaking
included in the Registration Statement, and the Company will reimburse such
Selling Stockholder for any reasonable legal expense or other actual accountable
out of pocket expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim; provided, however,
that the Company shall not be liable in any such case to the extent that such
loss, claim, damage or liability arises out of, or is based upon, an untrue
statement made in such Registration Statement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such
Selling Stockholder specifically for use in preparation of the Registration
Statement or the failure of such Selling Stockholder to comply with its
covenants and agreements contained herein or any statement or omission in any
Prospectus that is corrected in any subsequent Prospectus that was delivered to
the Selling Stockholder prior to the pertinent sale or sales by the Selling
Stockholder.
 
(e)            Each Purchaser severally (as to itself), and not jointly, agrees
to indemnify and hold harmless the Company (and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, each officer of the Company who signs the
Registration Statement and each director of the Company) from and against any
losses, claims, damages or liabilities to which the Company (or any such
officer, director or controlling person) may become subject (under the
Securities Act or otherwise), insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon, (i) any failure by that Purchaser to comply with the covenants and
agreements contained herein or (ii) any untrue statement of a material fact
contained in the Registration Statement if, and only if, such untrue statement
was made in reliance upon and in conformity with written information furnished
by or on behalf of that Purchaser specifically for use in preparation of the
Registration Statement, and that Purchaser will reimburse the Company (or such
officer, director or controlling person, as the case may be), for any reasonable
legal expense or other reasonable actual accountable out-of-pocket expenses
reasonably incurred in investigating, defending or preparing to defend any such
action, proceeding or claim.  The obligation to indemnify shall be limited to
the net amount of the proceeds received by the Purchaser from the sale of the
Shares pursuant to the Registration Statement.
 
 
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(f)            Promptly after receipt by any indemnified person of a notice of a
claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 6.3, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, but the omission to so notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party under this Section 6.3 (except to the extent that such
omission materially and adversely affects the indemnifying party’s ability to
defend such action) or from any liability otherwise than under this Section
6.3.  Subject to the provisions hereinafter stated, in case any such action
shall be brought against an indemnified person, the indemnifying person shall be
entitled to participate therein, and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, shall be entitled to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified
person.  After notice from the indemnifying person to such indemnified person of
its election to assume the defense thereof (unless it has failed to assume the
defense thereof and appoint counsel reasonably satisfactory to the indemnified
party), such indemnifying person shall not be liable to such indemnified person
for any legal expenses subsequently incurred by such indemnified person in
connection with the defense thereof; provided, however, that if there exists or
shall exist a conflict of interest that would make it inappropriate, in the
reasonable opinion of counsel to the indemnified person, for the same counsel to
represent both the indemnified person and such indemnifying person or any
affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel (who shall not be the same as the opining counsel) at the
expense of such indemnifying person; provided, however, that no indemnifying
person shall be responsible for the fees and expenses of more than one separate
counsel (together with appropriate local counsel) for all indemnified
parties.  In no event shall any indemnifying person be liable in respect of any
amounts paid in settlement of any action unless the indemnifying person shall
have approved the terms of such settlement; provided that such consent shall not
be unreasonably withheld.  No indemnifying person shall, without the prior
written consent of the indemnified person, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified person is or could
reasonably have been a party and indemnification could have been sought
hereunder by such indemnified person, unless such settlement includes an
unconditional release of such indemnified person from all liability on claims
that are the subject matter of such proceeding.
 
(g)            If the indemnification provided for in this Section 6.3 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (d) or (e) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Company on the one hand and the liable
Purchaser on the other in connection with the statements or omissions or other
matters which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations.  The relative fault shall be determined by reference to, among
other things, in the case of an untrue statement, whether the untrue statement
relates to information supplied by the Company on the one hand or the liable
Purchaser on the other and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement.  The
Company and the Purchasers agree that it would not be just and equitable if
contribution pursuant to this subsection (g) were determined by pro rata
allocation (even if the Purchasers were treated as one entity for such purpose)
or by any other method of allocation which does not take into account the
equitable considerations referred to above in this subsection (g).  The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (g) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim.  Notwithstanding the provisions of this subsection
(g), no Purchasers shall be required to contribute any amount in excess of the
amount by which the net amount received by that Purchaser from the sale of the
Shares to which such loss relates exceeds the amount of any damages which that
Purchaser has otherwise been required to pay to the Company by reason of such
untrue statement.  No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.  The Purchasers’ obligations in this subsection to contribute
are several in proportion to their sales of Shares to which such loss relates
and not joint.
 
 
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(h)            The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 6.3, and are fully informed regarding said
provisions.  They further acknowledge that the provisions of this Section 6.3
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is made
in the Registration Statement as required by the Securities Act and the Exchange
Act.
 
6.4        Termination of Conditions and Obligations.  The conditions precedent
imposed by Section 3 or this Section 6 upon the transferability of the Shares
shall cease and terminate as to any particular number of the Shares when such
Shares shall have been effectively registered under the Securities Act and any
applicable blue sky laws and sold or otherwise disposed of in accordance with
the intended method of disposition set forth in the Registration Statement
covering such Shares or at such time as an opinion of counsel satisfactory to
the Company shall have been rendered to the effect that such conditions are not
necessary in order to comply with the Securities Act and any applicable blue sky
laws.  The Company shall request an opinion of counsel promptly upon receipt of
a request therefor from Purchaser.
 
6.5        Information Available.  So long as the Registration Statement is
effective covering the resale of Shares owned by a Purchaser, the Company will
furnish (or, to the extent such information is available electronically through
the Company’s filings with the SEC, the Company will make available via the
SEC’s EDGAR system or any successor thereto) to each Purchaser:
 
(a)            as soon as practicable after it is available, one copy of (i) its
Annual Report to Stockholders (which Annual Report shall contain financial
statements audited in accordance with generally accepted accounting principles
by a national firm of certified public accountants, the Independent Accountant
or a firm of certified public accounts with a standing reputation substantially
the same as that of the Independent Accountant) and (ii) if not included in
substance in the Annual Report to Stockholders, its Annual Report on Form 10-K
(the foregoing, in each case, excluding exhibits);
 
(b)            upon the request of the Purchaser, all exhibits excluded by the
parenthetical to subparagraph (a)(ii) of this Section 6.5 as filed with the SEC
and all other information that is made available to stockholders; and
 
(c)            upon the reasonable request of the Purchaser, an adequate number
of copies of the Prospectuses to supply to any other party requiring such
Prospectuses; and the Company, upon the reasonable request of a Purchaser, will
meet with each Purchaser or a representative thereof at the Company’s
headquarters during the Company’s normal business hours to discuss all
information relevant for disclosure in the Registration Statement covering the
Shares and will otherwise reasonably cooperate with the Purchasers conducting an
investigation for the purpose of reducing or eliminating the Purchasers’
exposure to liability under the Securities Act, including the reasonable
production of information at the Company’s headquarters; provided, that the
Company shall not be required to disclose any confidential information to or
meet at its headquarters with a Purchaser until and unless that Purchaser shall
have entered into a confidentiality agreement in form and substance reasonably
satisfactory to the Company with the Company with respect thereto.
 
 
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6.6         Public Statements; Limitation on Information.  The Company agrees to
disclose on a Current Report on Form 8-K (the “Initial Closing 8-K”) the
existence of the Offering and the material terms, thereof, including pricing,
within four business days after it specifies the Initial Closing Date in
accordance with Section 1.3.  Such Current Report on Form 8-K shall include a
form of this Agreement (and all exhibits and schedules thereto) as an exhibit
thereto.  If not disclosed in the Initial Closing 8-K, the Company will disclose
on a Current Report on Form 8-K the occurrence and material terms of any Closing
subsequent to the Initial Closing, including the number of Shares sold and the
Purchase Price therefor, within one business day after the applicable Closing
Date.  The Company will not issue any public statement, press release or any
other public disclosure listing a Purchaser as one of the purchasers of the
Shares without that Purchaser’s prior written consent, except as may be required
by applicable law or rules of any exchange on which the Company’s securities are
listed.  The Company shall not provide, and shall cause its subsidiary and the
respective officers, directors, employees and agents of the Company and its
subsidiary not to provide, the Purchasers with any material nonpublic
information regarding the Company or its subsidiary from and after the date the
Company files, or is required by this Section to file, the Current Report on
Form 8-K with the SEC without the prior express written consent of the
Purchaser.
 
6.7         Limits on Additional Issuances.  The Company will not, for a period
of six months following the final Closing Date offer for sale or sell any
securities unless, in the opinion of the Company’s counsel, such offer or sale
does not jeopardize the availability of exemptions from the registration and
qualification requirements under applicable securities laws with respect to the
Offering.  Except for the issuance of stock options under the Company’s stock
option plans, the issuance of common stock upon exercise of outstanding options
and warrants, the issuance of common stock purchase warrants, and the offering
contemplated hereby, the Company has not engaged in any offering of equity
securities during the six months prior to the date of this Agreement.  The
foregoing provisions shall not prevent the Company from filing a “shelf”
registration statement pursuant to Rule 415 under the Securities Act, but the
foregoing provisions shall apply to any sale of securities thereunder.
 
6.8         Form D and State Securities Filings.  The Company will file with the
SEC a Notice of Sale of Securities on Form D with respect to the Shares, as
required under Regulation D under the Securities Act, no later than 15 days
after the Initial Closing Date.  The Company will promptly and timely file all
documents and pay all filing fees required by any states’ securities laws in
connection with the sale of the Shares.
 
6.9          Assignment of Registration Rights.  The rights to cause the Company
to register Registrable Securities pursuant to this Section 6 may be assigned by
a Purchaser to a party that acquires, other than pursuant to the Registration
Statement or Rule 144, any of the Shares originally issued to such Purchaser
pursuant to this Agreement (or any Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, any such Shares), or to any affiliate of a Purchaser that
acquires any Registrable Securities.  Any such permitted assignee shall have all
the rights of such Purchaser under this Section 6 with respect to the
Registrable Securities transferred.
 
6.9         Stockholder Questionnaire. Each Purchaser agrees to furnish to the
Company a completed questionnaire in the form attached to this Agreement as
Exhibit C (a “Selling Holder Questionnaire”).  The Company shall not be required
to include the Registrable Securities of a Purchaser in a Registration Statement
and shall not be required to pay any liquidated or other damages hereunder to
any such Purchaser who fails to furnish to the Company a fully completed Selling
Holder Questionnaire at least three business days prior to the filing of the
Registration Statement.
 
 
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7.           Miscellaneous.
 
7.1           Governing Law.  This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
choice of law provisions thereof, and the federal laws of the United States.
 
7.2           Successors and Assigns.  Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
 
7.3           Entire Agreement.  This Agreement and the exhibits hereto, and the
other documents delivered pursuant hereto, constitute the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and no party shall be liable or bound to any other party in any manner by any
representations, warranties, covenants, or agreements except as specifically set
forth herein or therein.  Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
 
7.4           Severability. In the event any provision of this Agreement shall
be invalid, illegal, or unenforceable, it shall to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
 
7.5           Amendment and Waiver.  Except as otherwise provided herein, any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), with the written consent of the Company and the Purchasers
holding Shares that constitute at least a majority of the Shares then held by
the Purchasers.  Any amendment or waiver effected in accordance with this
Section 7.5 shall be binding upon any holder of any Shares purchased under this
Agreement, each future holder of all such securities, and the Company.
 
7.6           Fees and Expenses.  Except as otherwise set forth herein, the
Company and the Purchasers shall bear their own expenses and legal fees incurred
on their behalf with respect to this Agreement and the transactions contemplated
hereby.  Each party hereby agrees to indemnify and to hold harmless of and from
any liability the other party for any commission or compensation in the nature
of a finder’s fee to any broker or other person or firm (and the costs and
expenses of defending against such liability or asserted liability) for which
such indemnifying party or any of its employees or representatives are
responsible.
 
7.7           Notices.  All notices, requests, consents and other communications
hereunder shall be in writing, shall be delivered (A) if within the United
States, by first-class registered or certified airmail, or nationally recognized
overnight express courier, postage prepaid, or by facsimile, or (B) if from
outside the United States, by International Federal Express (or comparable
service) or facsimile, and shall be deemed given (i) if delivered by first-class
registered or certified mail domestic, upon the business day received, (ii) if
delivered by nationally recognized overnight carrier, one business day after
timely delivery to such carrier, (iii) if delivered by International Federal
Express (or comparable service), two business days after so mailed, (iv) if
delivered by facsimile, upon electric confirmation of receipt and shall be
addressed as follows, or to such other address or addresses as may have been
furnished in writing by a party to another party pursuant to this paragraph:
if to the Company, to:
 
 
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Location Based Technologies, Inc.
49 Discovery
Suite 260
Irvine, California 92618
Attn: David Morse
 
Facsimile: (714) 200-0287
 
with a copy to:
Locke Lord Bissell & Liddell LLP
300 S. Grand Avenue
Suite 2600
Los Angeles, California 90071
Attn: Ron Warner
Facsimile: (213) 341-6767
 
if to the Purchaser, at its address on the signature page to this Agreement.
 
7.8           Survival of Representations, Warranties and
Agreements.  Notwithstanding any investigation made by any party to this
Agreement or by any of the Placement Agents, all covenants, agreements,
representations and warranties made by the Company and the Purchaser herein
shall survive the execution of this Agreement, the delivery to the Purchaser of
the Shares being purchased and the payment therefor, and a party’s reliance on
such representations and warranties shall not be affected by any investigation
made by such party or any information developed thereby.
 
7.9           Counterparts.  This Agreement may be executed by facsimile
signature and in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one instrument.
 
7.10         Independent Nature of Purchasers’ Obligations and Rights.  The
obligations of each Purchaser under this Agreement are several and not joint
with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under this Agreement.  Nothing contained herein, and no action taken
by any Purchaser pursuant hereto, shall be deemed to constitute the Purchasers
as a partnership, an association, a joint venture or any other kind of entity,
or create a presumption that the Purchasers are in any way acting in concert or
as a group with respect to such obligations or the transactions contemplated by
this Agreement.  Each Purchaser confirms that it has independently participated
in the negotiation of the transaction contemplated hereby with the advice of its
own counsel and advisors.  Each Purchaser shall be entitled to independently
protect and enforce its rights, including, without limitation, the rights
arising out of this Agreement, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.
 
 
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           In witness whereof, the foregoing Common Stock Purchase Agreement is
hereby executed as of the date first above written.

 

  Location Based Technologies, Inc.                  
 
   By: /s/ David M. Morse  

     Name: David M. Morse        Title: Chief Executive Officer          

 
 
Signature Page to Purchase Agreement

--------------------------------------------------------------------------------

 

In witness whereof, the foregoing Common Stock Purchase Agreement is hereby
executed as of the date first above written.

 

      Name of Purchaser           By:
 

   Name:  

  Title:          

 

 
Investment Amount:
   
Tax Identification No.:
   
State of Organization:
 

  State of Principal Place of Operations:        
Address for Notice:
           

 
Attention:
   
Telephone:
   
Facsimile:
       
Delivery Instructions (if different from above):
           

 
Attention:
   
Telephone:
   
Facsimile:
 

                                                                 

Signature Page to Purchase Agreement