Exhibit 10.01
 
PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (“Agreement”) is made as of the ___ day of ____ 2011, by
and among Pegasi Energy Resources Corporation, a Nevada corporation (the
“Company”), and each investor identified on the signature pages hereto (each,
including its successors and assigns, an “Investor” and collectively, the
“Investors”).

Recitals

A.           The Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D (“Regulation D”), as promulgated by the U.S.
Securities and Exchange Commission (the “SEC”) under 1933 Act; and

B.           The Investors wish to purchase from the Company, and the Company
wishes to sell and issue to the Investors, upon the terms and conditions stated
in this Agreement, up to 12,500,000 shares of the Company’s common stock, $.001
par value per share (the “Shares”) at a price per Share of $0.45.

In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1.           Definitions.  In addition to those terms defined above and
elsewhere in this Agreement, for the purposes of this Agreement, the following
terms shall have the meanings set forth below:

“Affiliate” means, with respect to any Person, any other Person which directly
or indirectly through one or more intermediaries Controls, is controlled by, or
is under common control with, such Person.

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.

“Closing” has the meaning set forth in Section 3.

“Closing Date” has the meaning set forth in Section 3.

“Common Stock” means common stock of the Company.

“Company’s Knowledge” means the actual knowledge of the executive officers (as
defined in Rule 405 under the 1933 Act) of the Company, after due inquiry.

“Confidential Information” means trade secrets, confidential information and
know-how (including but not limited to ideas, formulae, compositions, processes,
procedures and techniques, research and development information, computer
program code, performance specifications, support documentation, drawings,
specifications, designs, business and marketing plans, and customer and supplier
lists and related information).
 
 
 
1

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

 

 
“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

“Environmental Laws” has the meaning set forth in Section 4.15.

“GAAP” has the meaning set forth in Section 4.18.

“Infringe” has the meaning set forth in Section 4.15(d).

“Intellectual Property” means all of the following: (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice); (ii) trademarks, service marks, trade
dress, trade names, corporate names, logos, slogans and Internet domain names,
together with all goodwill associated with each of the foregoing; (iii)
copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; and (v) proprietary computer software
(including but not limited to data, data bases and documentation).

“License Agreements” has the meaning set forth in Section 4.15(b).

“Material Adverse Effect” means a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise),
business, or prospects of the Company and its Subsidiaries taken as a whole, or
(ii) the ability of the Company to perform its obligations under the Transaction
Documents.

“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

“Purchase Price” means a maximum of $5,625,000.

“Securities Act” means the Securities Act of 1933, as amended, or any successor
statute, and the rules and regulations promulgated thereunder.

“Subsidiary” of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first Person.

“Transaction Documents” means this Agreement and the Escrow Agreement.

2.           Purchase and Issuance of the Shares

2.1           Shares.  Upon the terms and conditions set forth herein, the
Company shall issue and sell to the Investors and each of the Investors,
severally and not jointly, shall purchase from the Company, the number of Shares
in the amounts set forth opposite each Investor’s name on the signature pages
attached hereto.
 
 
 
2

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

 

 
3.           Closing.  On the date of executing this Agreement, the Company
shall cause the delivery of the certificates representing the Shares, registered
in the names and amounts of the Investors as set forth on the signature pages
attached hereto to the Investors and the Investors shall wire to the escrow
account, established pursuant to the escrow agreement in the form attached
hereto as Exhibit A (the “Escrow Agreement”) in same day funds an amount
representing such Investor’s Purchase Price, as set forth on the signature page
hereto (“Closing” or “Closing Date”).  The Closing shall occur upon confirmation
that the conditions to Closing in Section 6 hereof have been satisfied.  The
Closing of the purchase and sale of the Shares shall take place at the offices
of Sichenzia Ross Friedman Ference LLP, 61 Broadway, 32nd Floor, New York, New
York 10006.  Notwithstanding anything else to the foregoing, the sale of the
Shares may be made in one or more Closings and on one or more Closing Dates.

4.           Representations and Warranties of the Company.  The Company hereby
represents and warrants to the Investor that, except as set forth in the
schedules delivered herewith (collectively, the “Disclosure Schedules”):

4.1           Organization, Good Standing and Qualification.  Each of the
Company and its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all requisite corporate power and authority to carry on its business as now
conducted and to own its properties.  Each of the Company and its Subsidiaries
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property makes such qualification or leasing necessary
unless the failure to so qualify has not had and could not reasonably be
expected to have a Material Adverse Effect.  Schedule 4.1 sets forth the full
corporation name and all assumed names of the Company and each Subsidiary, its
respective place of incorporation, and jurisdictions where each conducts
business.

4.2           Authorization.  The Company has full power and authority and has
taken all requisite action on the part of the Company, its officers, directors
and stockholders necessary for (i) the authorization, execution and delivery of
the Transaction Documents, (ii) the authorization of the performance of all
obligations of the Company hereunder or thereunder, and (iii) the authorization,
issuance (or reservation for issuance) and delivery of the Shares.  The
Transaction Documents constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability, relating to or affecting creditors’
rights generally.

4.3           Capitalization.  Schedule 4.3 sets forth (a) the authorized
capital stock of the Company on the date hereof; (b) the number of shares of
capital stock issued and outstanding; (c) the number of shares of capital stock
issuable pursuant to the Company’s stock plans; and (d) the number of shares of
capital stock issuable and reserved for issuance pursuant to securities
exercisable for, or convertible into or exchangeable for any shares of capital
stock of the Company.  All of the issued and outstanding shares of the Company’s
capital stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of pre-emptive rights and were issued in full compliance
with applicable state and federal securities law and any rights of third
parties.  Except as described on Schedule 4.3, all of the issued and outstanding
shares of capital stock of each Subsidiary have been duly authorized and validly
issued and are fully paid, nonassessable and free of pre-emptive rights, were
issued in full compliance with applicable state and federal securities law and
any rights of third parties and are owned by the Company, beneficially and of
record, subject to no lien, encumbrance or other adverse claim.  Except as
described on Schedule 4.3, no Person is entitled to pre-emptive or similar
statutory or contractual rights with respect to any securities of the
Company.  Except as described on Schedule 4.3, there are no outstanding
warrants, options, convertible securities or other rights, agreements or
arrangements of any character under which the Company or any of its Subsidiaries
is or may be obligated to issue any equity securities of any kind and except as
contemplated by this Agreement, neither the Company nor any of its Subsidiaries
is currently in negotiations for the issuance of any equity securities of any
kind.  Except as described on Schedule 4.3, there are no voting agreements,
buy-sell agreements, option or right of first purchase agreements or other
agreements of any kind among the Company and any of the securityholders of the
Company relating to the securities of the Company held by them.  Except as
described on Schedule 4.3, no Person has the right to require the Company to
register any securities of the Company under the Securities Act, whether on a
demand basis or in connection with the registration of securities of the Company
for its own account or for the account of any other Person.

Except as described on Schedule 4.3, the issuance and sale of the Shares
hereunder will not obligate the Company to issue shares of Common Stock or other
securities to any other Person (other than the Investor) and will not result in
the adjustment of the exercise, conversion, exchange or reset price of any
outstanding security.

Except as described on Schedule 4.3, the Company does not have outstanding
stockholder purchase rights or “poison pill” or any similar arrangement in
effect giving any Person the right to purchase any equity interest in the
Company upon the occurrence of certain events.
 
 
 
3

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

 

 
4.4           Valid Issuance.  The Shares have been duly and validly authorized
and, when issued and paid for pursuant to this Agreement, will be validly
issued, fully paid and nonassessable, and shall be free and clear of all
encumbrances and restrictions (other than those created by the Investor), except
for restrictions on transfer set forth in the Transaction Documents or imposed
by applicable securities laws.

4.5           Consents.  The execution, delivery and performance by the Company
of the Transaction Documents and the offer, issuance and sale of the Shares
require no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than filings that have been made
pursuant to applicable state securities laws and post-sale filings pursuant to
applicable state and federal securities laws which the Company undertakes to
file within the applicable time periods.  Subject to the accuracy of the
representations and warranties of the Investor set forth in Section 5 hereof,
the Company has taken all action necessary to exempt (i) the issuance and sale
of the Shares and (ii) the other transactions contemplated by the Transaction
Documents from the provisions of any stockholder rights plan or other “poison
pill” arrangement, any anti-takeover, business combination or control share law
or statute binding on the Company or to which the Company or any of its assets
and properties may be subject and any provision of the Company’s Articles of
Incorporation, Bylaws or other organizational or charter documents that is or
could reasonably be expected to become applicable to the Investor as a result of
the transactions contemplated hereby, including without limitation, the issuance
of the Shares and the ownership, disposition or voting of the Shares by the
Investor or the exercise of any right granted to the Investor pursuant to this
Agreement or the other Transaction Documents.

4.6           Use of Proceeds.  The net proceeds of the sale of the Shares
hereunder shall be used by the Company for working capital purposes.

4.7           No Conflict, Breach, Violation or Default.  The execution,
delivery and performance of the Transaction Documents by the Company and the
issuance and sale of the Shares will not conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default under
(i) the Company’s Articles of Incorporation, the Company’s Bylaws or other
organizational or charter documents, as in effect on the date hereof, or (ii)(a)
any statute, rule, regulation or order of any governmental agency or body or any
court, domestic or foreign, having jurisdiction over the Company, any Subsidiary
or any of their respective assets or properties, or (b) any agreement or
instrument to which the Company or any Subsidiary is a party or by which the
Company or a Subsidiary is bound or to which any of their respective assets or
properties is subject.

4.8           Tax Matters.  Except as described on Schedule 4.8, the Company and
each Subsidiary has prepared and filed all tax returns required to have been
filed by the Company or such Subsidiary with all appropriate governmental
agencies and paid all taxes and penalties shown thereon or otherwise owed by it,
except to the extent the Company and Subsidiaries have set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes.  The charges, accruals and reserves on the books of the Company in
respect of taxes for all fiscal periods are adequate in all material respects,
and there are no material unpaid assessments against the Company or any
Subsidiary nor, to the Company’s Knowledge, any basis for the assessment of any
additional taxes, penalties or interest for any fiscal period or audits by any
federal, state or local taxing authority except for any assessment which is not
material to the Company and its Subsidiaries, taken as a whole.  All taxes and
other assessments and levies that the Company or any Subsidiary is required to
withhold or to collect for payment have been duly withheld and collected and
paid to the proper governmental entity or third party when due, except to the
extent the Company and Subsidiaries have set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes.  There
are no tax liens or claims pending or, to the Company’s Knowledge, threatened
against the Company or any Subsidiary or any of their respective assets or
property.  There are no outstanding tax sharing agreements or other such
arrangements between the Company and any Subsidiary or other corporation or
entity.

4.9           Title to Properties.  The Company and each Subsidiary has good and
marketable title to all real properties and all other properties and assets
owned by it, in each case free from liens, encumbrances and defects that would
materially affect the value thereof or materially interfere with the use made or
currently planned to be made thereof by them; and the Company and each
Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.

4.10           Certificates, Authorities and Permits.  The Company and each
Subsidiary possess all material certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by it, and neither the Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or
such Subsidiary, could reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.

                      4.11           Environmental Matters.  Neither the Company
nor any Subsidiary is in violation of any statute, rule, regulation, decision or
order of any governmental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic substances or
relating to the protection or restoration of the environment or human exposure
to hazardous or toxic substances (collectively, “Environmental Laws”), owns or
operates any real property contaminated with any substance that is subject to
any Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim has had
or could reasonably be expected to have a Material Adverse Effect, individually
or in the aggregate; and there is no pending or, to the Company’s Knowledge,
threatened investigation that might lead to such a claim.

4.12           Brokers and Finders.  Except as described on Schedule 4.12, no
Person will have, as a result of the transactions contemplated by the
Transaction Documents, any valid right, interest or claim against or upon the
Company, any Subsidiary or an Investor for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Company.

4.13           No Directed Selling Efforts or General Solicitation.  Neither the
Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Shares.
 
 
 
4

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

 

 
4.14           No Integrated Offering.  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 Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the Shares
under the Securities Act.

4.15           Private Placement.  The offer and sale of the Shares to the
Investor as contemplated hereby is exempt from the registration requirements of
the Securities Act.

4.16           Questionable Payments.  Neither the Company nor any of its
Subsidiaries, nor their respective directors, officers or employees nor, to the
Company’s Knowledge, any of their respective current or former stockholders,
agents or other Persons acting on behalf of the Company or any Subsidiary, has
on behalf of the Company or any Subsidiary or in connection with their
respective businesses: (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
(b) made any direct or indirect unlawful payments to any governmental officials
or employees from corporate funds; (c) established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; (d) made any false or
fictitious entries on the books and records of the Company or any Subsidiary; or
(e) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment of any nature.

4.17           Transactions with Affiliates.  Except as set forth on Schedule
4.17, none of the officers or directors of the Company and, to the Company’s
Knowledge, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than as holders of stock
options and/or warrants, and for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the Company’s Knowledge, any entity in which
any officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.

4.18           Disclosures.  Neither the Company nor any Person acting on its
behalf has provided the Investor or its agent or counsel with any information
that constitutes or might constitute material, non-public information.  The
written materials delivered to the Investor in connection with the transactions
contemplated by the Transaction Documents do not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.

4.19.           No Shell Company.  The Company is not, nor at any time during
the 12 months preceding the date hereof has the Company been a “shell company,”
as such term is defined in paragraph (i)(1)(i) of Rule 144 of the Securities Act
or Rule 12b-2 of the Exchange Act of 1934, the effect of which would prevent the
Investor from selling the Shares without restriction pursuant to Rule 144.

4.20.           No Investment Company.  The Company is not, and upon the
issuance and sale of the Shares as contemplated by this Agreement will not be an
“investment company” required to be registered under the Investment Company Act
of 1940 (an “Investment Company”).  The Company is not controlled by an
Investment Company.

5.           Representations and Warranties of the Investors.  Each Investor,
for itself and for no other Investor, hereby represents and warrants as of the
date hereof to the Company as follows:

5.1           Organization and Existence.  If the Investor is an entity, such
Investor is a validly existing corporation, limited partnership or limited
liability company and has all requisite corporate, partnership or limited
liability company power and authority to invest in the Shares pursuant to this
Agreement.

5.2           Authorization.  The execution, delivery and performance by such
Investor of the Transaction Documents to which such Investor is a party have
been duly authorized and will each constitute the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors’ rights generally.

5.3           Purchase Entirely for Own Account.  The Shares to be received by
such Investor hereunder will be acquired for Investor’s own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof in violation of the Securities Act, and such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same in violation of the Securities Act without prejudice, however, to such
Investor’s right at all times to sell or otherwise dispose of all or any part of
such Shares in compliance with applicable federal and state securities
laws.  Nothing contained herein shall be deemed a representation or warranty by
such Investor to hold the Shares for any period of time.  Investor is not a
broker-dealer registered with the SEC under the 1934 Act or an entity engaged in
a business that would require it to be so registered.

5.4           Investment Experience.  Investor acknowledges that it can bear the
economic risk and complete loss of its investment in the Shares and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment contemplated hereby.

5.5           Disclosure of Information.  Investor has had an opportunity to
receive all information related to the Company requested by it and to ask
questions of and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Shares.  Neither
such inquiries nor any other due diligence investigation conducted by such
Investor shall modify, amend or affect Investor’s right to rely on the Company’s
representations and warranties contained in this Agreement.
 
 
 
5

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

 

 
5.6           Restricted Securities.  Investor understands that the Shares are
characterized as “restricted securities” under the U.S. federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act only
in certain limited circumstances.  The Investor understands that the Shares are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and
Investor’s compliance with, the representations, warranties, agreements,
acknowledgments and understanding of Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of Investor to
acquire such securities.

5.7           Legends.  It is understood that, except as provided below,
certificates evidencing the Shares may bear the following or any similar legend:

(a)           “The securities represented hereby may not be transferred unless
(i) such securities have been registered for sale pursuant to the Securities Act
of 1933, as amended, (ii) such securities may be sold pursuant to Rule 144, or
(iii) the Company has received an opinion of counsel reasonably satisfactory to
it that such transfer may lawfully be made without registration under the
Securities Act of 1933 or qualification under applicable state securities
laws.  Notwithstanding the foregoing, the securities may be pledged in
connection with a bona fide margin account secured by the securities.”

(b)           If required by the authorities of any state in connection with the
issuance of sale of the Shares, the legend required by such state authority.

5.8           Accredited Investor.  Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the Securities Act.

5.9           No General Advertisement.  Investor did not learn of the
investment in the Shares as a result of any public advertisement, article,
notice or other communication regarding the Shares published in any newspaper,
magazine or similar media or broadcast over television, radio or internet or
presented at any seminar or other general advertisement.

5.10           Brokers and Finders.  Except as described on Schedule 4.12, no
Person will have, as a result of the transactions contemplated by the
Transaction Documents, any valid right, interest or claim against or upon the
Company, any Subsidiary or an Investor for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of such Investor.

5.11           Patriot Act.  Neither Investor nor any of its Affiliates has been
designated, and is not owned or controlled, by a “suspected terrorist” as
defined in Executive Order 13224.  None of the cash used to fund such Investor’s
portion of the Purchase Price has been or derived from, any activity that could
cause the Company to be in violation of the United States Bank Secrecy Act, the
United States International Money Laundering Control Act of 1986 or the United
States International Money Laundering Abatement and Anti-Terrorist Financing Act
of 2001.

5.12           Risk Factors.  The investment described herein involves a very
high degree of risk and speculation and has the potential to result in a one
hundred percent loss without an effective legal remedy or recourse due to the
nature of the investment.  All prospective investors herein agree to be entirely
responsible for their own due diligence as to the veracity, accuracy or
prospects of the issuer or the safety of the investment. Prospective
investors cannot rely on any matter or representation made by the Company or any
other party relating to this investment, and shall be accountable for completing
their own analysis and review of the risks, representations and warranties of
the Company or any party assisting or otherwise advising a) the Company or
b) investors themselves in this matter.

6.  Conditions to Closing.

6.1           Conditions to the Investors’ Obligations. The obligation of each
Investor to purchase its Shares at the Closing is subject to the fulfillment to
each Investor’s satisfaction, on or prior to the Closing Date, of the following
conditions, any of which may be waived by Investor:

(a)           The representations and warranties made by the Company in Section
4 hereof qualified as to materiality shall be true and correct at all times
prior to and on the Closing Date, except to the extent any such representation
or warranty expressly speaks as of an earlier date, in which case such
representation or warranty shall be true and correct as of such earlier date,
and, the representations and warranties made by the Company in Section 4 hereof
not qualified as to materiality shall be true and correct in all material
respects at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct in all material
respects as of such earlier date.  The Company shall have performed in all
material respects all obligations and covenants herein required to be performed
by it on or prior to the Closing Date.

(b)           The Company shall have obtained any and all consents, permits,
approvals, registrations and waivers necessary or appropriate for consummation
of the purchase and sale of the Shares and the consummation of the other
transactions contemplated by the Transaction Documents, all of which shall be in
full force and effect.
 
 
 
6

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

 

 
(c)           No judgment, writ, order, injunction, award or decree of or by any
court, or judge, justice or magistrate, including any bankruptcy court or judge,
or any order of or by any governmental authority, shall have been issued, and no
action or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated hereby
or in the other Transaction Documents.

(d)           The Company shall have delivered the executed Transaction
Documents to each Investor.

6.2           Conditions to Obligations of the Company. The Company's obligation
to sell and issue the Shares at the Closing is subject to the fulfillment to the
satisfaction of the Company on or prior to the Closing Date of the following
conditions, any of which may be waived by the Company:

(a)           The representations and warranties made by each Investor in
Sections 5.1 and 5.2 hereof (the “Investment Representations”), shall be true
and correct in all material respects when made, and 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.  The Investment Representations shall
be true and correct in all respects when made, and shall be true and correct in
all respects on the Closing Date with the same force and effect as if they had
been made on and as of said date.  The Investor shall have performed in all
material respects all obligations and covenants herein required to be performed
prior to the Closing Date.

(b)           Each Investor shall have delivered its Purchase Price to the
Escrow Agent (as defined in the Escrow Agreement).

(c)           Each Investor shall have delivered the executed Transaction
Documents to the Company.

6.3           Termination by Either Company or Investor.  Either the Company or
any Investor shall have the right to terminate this Agreement if the Closing
hasn’t occurred prior to November 15, 2011.

7.           Covenants and Agreements of the Company.

7.1           Delivery of Shares.  The Company shall, within five (5) business
days of the Closing Date, delivery the Shares to the Investors.

7.2           [Reserved]

7.3           No Conflicting Agreements.  The Company will not take any action,
enter into any agreement or make any commitment that would conflict or interfere
in any material respect with the Company’s obligations to the Investor under the
Transaction Documents.

7.4           Compliance with Laws.  The Company will comply in all material
respects with all applicable laws, rules, regulations, orders and decrees of all
governmental authorities.

7.5           Removal of Legends.  Upon the earlier of (i) registration of the
resale pursuant to a registration statement of the Shares, or (ii) Rule 144(b)
becoming available, the Company shall (A) deliver to the transfer agent for the
Common Stock (the “Transfer Agent”) irrevocable instructions that the Transfer
Agent shall reissue a certificate representing the Shares without legends upon
receipt by such Transfer Agent of the legended certificates for such Shares,
together with either (1) a customary representation by the Investor that Rule
144 applies to the shares of Common Stock represented thereby or (2) a statement
by the Investor that such Investor has sold the shares of Common Stock
represented thereby in accordance with the plan of distribution contained in the
registration statement and, if applicable, in accordance with any prospectus
delivery requirements, and (B) cause its counsel to deliver to the Transfer
Agent one or more blanket opinions to the effect that the removal of such
legends in such circumstances may be effected under the Securities Act.  From
and after the earlier of such dates, upon an Investor’s written request, the
Company shall promptly cause certificates evidencing the Investor’s Shares to be
replaced with certificates which do not bear such restrictive legends.

8.           Survival and Indemnification.

8.1  Survival.  The representations, warranties, covenants and agreements
contained in this Agreement shall survive the Closing of the transactions
contemplated by this Agreement.

8.2  Indemnification.  The Company agrees to indemnify and hold harmless the
Investors and their Affiliates and their respective directors, officers,
employees and agents from and against any and all losses, claims, damages,
liabilities and expenses (including without limitation reasonable attorney fees
and disbursements and other expenses incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened
and the costs of enforcement thereof) (collectively, “Losses”) to which such
Person may become subject as a result of any breach of representation, warranty,
covenant or agreement made by or to be performed on the part of the Company
under the Transaction Documents, and will reimburse any such Person for all such
amounts as they are incurred by such Person unless such action is based upon a
breach of Investor’s representations, warranties or covenants under the
Transaction Documents which causes a material adverse effect on the Company or
any conduct by Investor which constitutes fraud, gross negligence, willful
misconduct or malfeasance related to the transactions contemplated by the
Transaction Documents.
 
 
 
7

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

 

 
8.3  Conduct of Indemnification Proceedings.  Promptly after receipt by any
Person (the “Indemnified Person”) of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 8.2, such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and shall assume the payment of all fees and expenses; provided,
however, that the failure of any Indemnified Person so to notify the Company
shall not relieve the Company of its obligations hereunder except to the extent
that the Company is materially prejudiced by such failure to notify.  In any
such proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them.  The Company shall not be liable for any settlement of
any proceeding effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Company shall indemnify and hold harmless such
Indemnified Person from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment.  Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.

9.           Miscellaneous.

9.1           Successors and Assigns.  This Agreement may not be assigned by a
party hereto without the prior written consent of the Company or the Investors,
as applicable, provided, however, that an Investor may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Shares in a private transaction without the
prior written consent of the Company, after notice duly given by such Investor
to the Company provided, that no such assignment or obligation shall affect the
obligations of Investor hereunder.  The provisions of this Agreement shall inure
to the benefit of and be binding upon the respective permitted successors and
assigns of the parties.  Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

9.2           Counterparts; Faxes.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.  This Agreement may also
be executed via facsimile, which shall be deemed an original.

9.3           Titles and Subtitles.  The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

9.4           Notices.  Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or telecopier, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one Business Day after
delivery to such carrier.  All notices shall be addressed to the party to be
notified at the address as follows, or at such other address as such party may
designate by ten days’ advance written notice to the other party:

If to the Company:

Pegasi Energy Resources Corporation
218 N. Broadway, Suite 204
Tyler, Texas 75702
Attention: Chief Financial Officer
Fax No.: (903) 595-0344

With a copy to:

Sichenzia Ross Friedman Ference LLP
61 Broadway, 32nd Floor
New York, New York 10006
Attention:  Marc J. Ross, Esq.
Fax No.: (212) 930-9725

If to the Investor, to the address set forth on the signature page.
 
 
 
8

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

 

 
9.5           Amendments and Waivers.  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 and either retroactively or prospectively), only
with the written consent of the Company and the Investors.  Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Shares purchased under this Agreement at the time outstanding,
each future holder of all such Shares, and the Company.

9.6           Severability.  Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof but shall be interpreted as if it
were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.  To the extent permitted by applicable law, the parties hereby
waive any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.

9.7           Entire Agreement.  This Agreement, including the Exhibits and the
Disclosure Schedules, and the other Transaction Documents constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.

9.8           Further Assurances.  The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.

9.9           Governing Law; Consent to Jurisdiction; Waiver of Jury
Trial.  This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of New York without regard to the choice of law
principles thereof.  Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated
hereby.  Service of process in connection with any such suit, action or
proceeding may be served on each party hereto anywhere in the world by the same
methods as are specified for the giving of notices under this Agreement.  Each
of the parties hereto irrevocably consents to the jurisdiction of any such court
in any such suit, action or proceeding and to the laying of venue in such
court.  Each party hereto irrevocably waives any objection to the laying of
venue of any such suit, action or proceeding brought in such courts and
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum. EACH OF THE PARTIES
HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH
RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED
SPECIFICALLY AS TO THIS WAIVER.

 
(Signature Pages Follow)
 

 
9

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

 

IN WITNESS WHEREOF, the parties have executed this Agreement or caused their
duly authorized officers to execute this Agreement as of the date first above
written.
 

The Company:  PEGASI ENERGY RESOURCES CORPORATION          
 
By:
       
Name:  Michael Neufeld
     
Title:    Chief Executive Officer
         

                                                               

                                                   

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR INVESTORS FOLLOW]
 
 
 
 

 
 
10

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

 

[INVESTOR SIGNATURE PAGES TO PEGASI PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Purchase Agreement to be
duly executed by their respective authorized signatories as of the date first
indicated above.
 
Name of
Purchaser:______________________________________________________________________
 
Signature of Authorized Signatory of Purchaser:
_______________________________________________
 
Name of Authorized
Signatory:  _____________________________________________________________                                                                                                                                                   
 
EIN or Social Security
Number:  _____________________________________________________________

Title of Authorized
Signatory:  ______________________________________________________________                                                                                                                                                   
 
Email Address of Authorized Signatory:
_______________________________________________________
 
Facsimile Number of Authorized Signatory:
_____________________________________________________

Address for Notice of Purchaser:
_____________________________________________________________

Address for Delivery of Shares for Purchaser (if not same as address for
notice):

Aggregate Purchase
Price:  $    _____________________                                                                                 

Number of
Shares       ____________________________                                               

11