Strategic American Oil Corporation - Exhibit 10.1






SECURITIES PURCHASE AGREEMENT

     This Securities Purchase
Agreement (this “Agreement”) is dated as of October 15, 2009, between
Strategic American Oil Corporation, a Nevada corporation (the “Company”),
and each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and collectively, the
“Purchasers”).

     WHEREAS, subject to the terms and
conditions set forth in this Agreement and pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the “Securities Act”), and Rule 506
promulgated thereunder, the Company desires to issue and sell to each Purchaser,
and each Purchaser, severally and not jointly, desires to purchase from the
Company, securities of the Company as more fully described in this
Agreement.

     NOW, THEREFORE, IN CONSIDERATION
of the mutual covenants contained in this Agreement, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Company and each Purchaser agree as follows:

ARTICLE I. 
DEFINITIONS

     1.1 Definitions. In
addition to the terms defined elsewhere in this Agreement, for all purposes of
this Agreement, the following terms have the meanings set forth in this Section
1.1:

               “Acquiring
Person” shall have the meaning ascribed to such term in Section 4.5.

               “Action”
shall have the meaning ascribed to such term in Section 3.1(j) .

               “Affiliate”
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 405 under the
Securities Act.

               “Board
of Directors” means the board of directors of the Company.

               “Business
Day” means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.

               “Canadian
Purchaser Certificate” means that certificate attached hereto as Annex
C.

               “Closing”
means the closing of the purchase and sale of the Securities pursuant to Section
2.1.

               “Closing
Date” means the Trading Day on which all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers’ obligations to pay the Subscription
Amount 

1




and (ii) the Company’s obligations to deliver the Securities,
in each case, have been satisfied or waived.

               “Closing
Statement” means the Closing Statement in the form on Annex A
attached hereto.

               “Commission”
means the United States Securities and Exchange Commission.

               “Common
Stock” means the common stock of the Company, par value $0.001 per share,
and any other class of securities into which such securities may hereafter be
reclassified or changed. 

               “Common
Stock Equivalents” means any securities of the Company or the Subsidiaries
which 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 convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

               “Company
Counsel” means Lang Michener LLP, with offices located at 1500-1055 West
Georgia Street, Vancouver, British Columbia, Canada V6E 4N7.

               “Disclosure
Schedules” shall have the meaning ascribed to such term in Section 3.1.

               “Effective
Date” means the earlier of the date that (a) all of the Registrable
Securities (as defined in the Registration Rights Agreement) have been
registered for resale by the holders thereof pursuant to a registration
statement(s) declared effective by the Commission and (b) all of the Registrable
Securities have been sold pursuant to Rule 144 or may be sold pursuant to Rule
144 without the requirement for the Company to be in compliance with the current
public information required under Rule 144 and without volume or manner-of-sale
restrictions.

               “Evaluation
Date” shall have the meaning ascribed to such term in Section 3.1(r) . 

               “Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.

               “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 for such purpose, by a majority of the non-employee members of
the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise or exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock 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 price,
exchange price or conversion price of such securities, (c) securities issued
pursuant to acquisitions or strategic transactions approved by a majority of the


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disinterested directors of the Company, provided that any such
issuance shall only be to a Person (or to the equityholders of a Person) which
is, itself or through its subsidiaries, an operating company or an asset in a
business synergistic with the business of the Company and shall provide to the
Company additional 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. 

               “GAAP”
shall have the meaning ascribed to such term in Section 3.1(h) .

               “Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(aa) .

               “Intellectual
Property Rights” shall have the meaning ascribed to such term in Section
3.1(o) .

               “Investor
Questionnaire” shall mean the U.S. Accredited Investor Questionnaire
attached hereto as Annex B.

               “Legend
Removal Date” shall have the meaning ascribed to such term in Section 4.1(c)
.. 

               “Liens”
means a lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.

               “Material
Adverse Effect” shall have the meaning assigned to such term in Section
3.1(b) .

               “Material
Permits” shall have the meaning ascribed to such term in Section 3.1(m)
..

               “Participation
Maximum” shall have the meaning ascribed to such term in Section 4.11(a) .


               “Per
Share Purchase Price” equals $0.20, subject to adjustment for reverse
and forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this
Agreement.

               “Person”
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

               “Pre-Notice”
shall have the meaning ascribed to such term in Section 4.11(b) . 

               “Pro
Rata Portion” shall have the meaning ascribed to such term in Section
4.11(e) .

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               “Proceeding”
means an action, claim, suit, investigation or proceeding (including, without
limitation, an informal investigation or partial proceeding, such as a
deposition), whether commenced or threatened.

               “Public
Information Failure” shall have the meaning ascribed to such term in Section
4.2(b) .

               “Public
Information Failure Payments” shall have the meaning ascribed to such term
in Section 4.2(b) .

               “Purchaser
Party” shall have the meaning ascribed to such term in Section 4.8.

               “Registration
Rights Agreement” means the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit B
attached hereto.

               “Registration
Statement” means a registration statement meeting the requirements set forth
in the Registration Rights Agreement and covering the resale by the Purchasers
of the Shares and the Warrant Shares. 

               “Required
Approvals” shall have the meaning ascribed to such term in Section 3.1(e)
..

               “Rule
144” means Rule 144 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
effect as such Rule. 

               “Rule
424” means Rule 424 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended or interpreted from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same purpose and effect as such Rule.

               “SEC
Reports” shall have the meaning ascribed to such term in Section 3.1(h)
..

               “Securities”
means the Shares, the Warrants and the Warrant Shares.

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

               “Shares”
means the shares of Common Stock issued or issuable to each Purchaser pursuant
to this Agreement.

               “Short
Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock).

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               “Subscription
Amount” means, as to each Purchaser, the aggregate amount to be paid for
Shares and Warrants purchased hereunder as specified below such Purchaser’s name
on the signature page of this Agreement and next to the heading “Subscription
Amount,” in United States dollars and in immediately available funds or upon
settlement of outstanding debt in such amount as set forth on such Purchaser’s
signature page to this Agreement.

               “Subsequent
Financing” shall have the meaning ascribed to such term in Section 4.11(a)
..

               “Subsequent
Financing Notice” shall have the meaning ascribed to such term in Section
4.11(b) . 

               “Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1(a)
and shall, where applicable, also include any direct or indirect subsidiary
of the Company formed or acquired after the date hereof.

               “Trading
Day” means a day on which the principal Trading Market is open for
trading.

               “Trading
Market” means any of the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the NYSE AMEX,
the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select
Market, the New York Stock Exchange or the OTC Bulletin Board (or any successors
to any of the foregoing).

               “Transaction
Documents” means this Agreement, the Warrants, the Registration Rights
Agreement, all exhibits and schedules thereto and hereto and any other documents
or agreements executed in connection with the transactions contemplated
hereunder.

               “Transfer
Agent” means TranShare Corporation, the current transfer agent of the
Company, with a mailing address of 5105 DTC Parkway, Suite 325, Greenwood
Village, CO 80111 and a facsimile number of (303) 662-1113, and any successor
transfer agent of the Company.

               “Variable
Rate Transaction” shall have the meaning ascribed to such term in Section
4.12.

               “VWAP”
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price of the Common Stock for such
date (or the nearest preceding date) on the Trading Market on which the Common
Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading
Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)
if the OTC Bulletin Board is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on the
OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for
trading on the OTC Bulletin Board and if prices for the Common Stock are then
reported in the “Pink Sheets” published by Pink 

5




OTC Markets, Inc. (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported, or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchasers of a majority in interest of
the Shares then outstanding and reasonably acceptable to the Company, the fees
and expenses of which shall be paid by the Company. 

               “Warrants”
means, collectively, the Common Stock purchase warrants delivered to the
Purchasers at the Closing in accordance with Section 2.2(a) hereof, which
Warrants shall be exercisable immediately and have a term of exercise equal to
five years, in the form of Exhibit A attached hereto.

               “Warrant
Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.

               “WS”
means Weinstein Smith LLP with offices located at 420 Lexington Avenue, Suite
2620, New York, New York 10170-0002.

ARTICLE II. 
PURCHASE AND SALE

               2.1
Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and the Purchasers, severally and not jointly, agree to purchase, up to an
aggregate of Two Million Five Hundred Thousand Dollars ($2,500,000) of Shares
and Warrants. Each Purchaser shall deliver to the Company via wire transfer or a
certified check of immediately available funds equal to such Purchaser’s
Subscription Amount as set forth on the signature page hereto executed by such
Purchaser, and the Company shall deliver to each Purchaser its respective Shares
and a Warrant, as determined pursuant to Section 2.2(a), and the Company and
each Purchaser shall deliver the other items set forth in Section 2.2
deliverable at the Closing. Upon satisfaction of the covenants and conditions
set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of WS
or such other location as the parties shall mutually agree.

               2.2
Deliveries.

               (a)
On or prior to the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:

                              (i)
this Agreement duly executed by the Company;

                              (ii)
a legal opinion of Company Counsel, substantially in the form of Exhibit B
attached hereto; 

                              (iii)
a copy of the irrevocable instructions to the Transfer Agent instructing the
Transfer Agent to deliver, on an expedited basis, a certificate evidencing a
number of Shares equal to such Purchaser’s Subscription Amount divided by the
Per Share Purchase Price, registered in the name of such Purchaser;

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                              (iv)
a Warrant registered in the name of such Purchaser to purchase up to a number of
shares of Common Stock equal to 100% of such Purchaser’s Shares, with an
exercise price equal to $0.35, subject to adjustment therein; and

                              (v)
the Registration Rights Agreement duly executed by the Company.

               (b)
On or prior to the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:

                              (i)
this Agreement duly executed by such Purchaser;

                              (ii)
such Purchaser’s Subscription Amount by wire transfer to the account as
specified in writing by the Company (or acknowledgement of settlement of
outstanding debt owed by the Company to such Purchaser in the amount set forth
on such Purchaser’s signature page to this Agreement); 

                              (iii)
the Investor Questionnaire completed and executed by such Purchaser;

                              (iv)
if the Purchaser is a Canadian resident, the Canadian Purchaser Certificate
completed and executed by such Purchaser; and

                              (v)
the Registration Rights Agreement duly executed by such Purchaser.

               2.3
Closing Conditions.

               (a)
The obligations of the Company hereunder in connection with the Closing are
subject to the following conditions being met:

                              (i)
the accuracy in all material respects on the Closing Date of the representations
and warranties of the Purchasers contained herein (unless as of a specific date
therein); 

                              (ii)
all obligations, covenants and agreements of each Purchaser required to be
performed at or prior to the Closing Date shall have been performed; and

                              (iii)
the delivery by each Purchaser of the items set forth in Section 2.2(b) of this
Agreement.

               (b)
The respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:

                              (i)
the accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Company contained herein (unless as of a
specific date therein);

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                              (ii)
all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed; 

                              (iii)
the delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement; 

                              (iv)
there shall have been no Material Adverse Effect with respect to the Company
since the date hereof; and

                              (v)
from the date hereof to the Closing Date, trading in the Common Stock shall not
have been suspended by the Commission or the Company’s principal Trading Market
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing), and, at any
time prior to the Closing Date, trading in securities generally as reported by
Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable to
purchase the Securities at the Closing.

ARTICLE III. 
REPRESENTATIONS AND WARRANTIES

               3.1
Representations and Warranties of the Company. Except as set forth in the
Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof
and shall qualify any representation or otherwise made herein to the extent of
the disclosure contained in the corresponding section of the Disclosure
Schedules, the Company hereby makes the following representations and warranties
to each Purchaser:

               (a)
Subsidiaries. All of the direct and indirect subsidiaries of the Company
are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all of the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities. If the Company has no subsidiaries, all other references
to the Subsidiaries or any of them in the Transaction Documents shall be
disregarded.

               (b)
Organization and Qualification. The Company and each of the Subsidiaries
is an entity duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in 

8




violation nor default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and the Subsidiaries is
duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case may
be, could not have or reasonably be expected to result in: (i) a material
adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) a material adverse effect on the results of operations, assets,
business, prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material Adverse Effect”) and no Proceeding has been instituted
in any such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.

               (c)
Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, the Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals. Each Transaction
Document to which it is a party has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the terms hereof
and thereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except: (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

               (d)
No Conflicts. The execution, delivery and performance by the Company of
the Transaction Documents, the issuance and sale of the Securities and the
consummation by it of the transactions contemplated hereby and thereby to which
it is a party do not and will not: (i) conflict with or violate any provision of
the Company’s or any Subsidiary’s certificate or articles of incorporation,
bylaws or other organizational or charter documents, (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required 

9




Approvals, conflict with or result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.

               (e)
Filings, Consents and Approvals. The Company is not required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii)
the filing with the Commission pursuant to the Registration Rights Agreement,
(iii) the notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Securities and the listing of the Securities for
trading thereon in the time and manner required thereby, and (iv) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the “Required
Approvals”).

               (f)
Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Warrant Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents. The Company
has reserved from its duly authorized capital stock the maximum number of shares
of Common Stock issuable pursuant to this Agreement and the Warrants.

               (g)
Capitalization. The capitalization of the Company is as set forth on
Schedule 3.1(g), which Schedule 3.1(g) shall also include the
number of shares of Common Stock owned beneficially, and of record, by
Affiliates of the Company as of the date hereof. Except as set forth on the SEC
Reports, the Company has not issued any capital stock since its most recently
filed periodic report under the Exchange Act, other than pursuant to the
exercise of employee stock options under the Company’s stock option plans, the
issuance of shares of Common Stock to employees pursuant to the Company’s
employee stock purchase plans and pursuant to the conversion and/or exercise of
Common Stock Equivalents outstanding as of the date of the most recently filed
periodic report under the Exchange Act. No Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as set forth on the SEC Reports and as a result of the purchase and sale
of the Securities, there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire any
shares of Common Stock, or contracts, commitments, understandings or
arrangements by which 

10




the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock or Common Stock Equivalents. The issuance and
sale of the Securities will not obligate the Company to issue shares of Common
Stock or other securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under any of such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. No further approval or authorization of any stockholder,
the Board of Directors or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company’s capital stock to which the
Company is a party or, to the knowledge of the Company, between or among any of
the Company’s stockholders.

               (h)
SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The Company has never been an issuer subject to Rule 144(i) under
the Securities Act. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved (“GAAP”), except as may
be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.

               (i)
Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in a subsequent SEC Report filed prior
to the date hereof: (i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not 

11




incurred any liabilities (contingent or otherwise) other than
(A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or disclosed in
filings made with the Commission, (iii) the Company has not altered its method
of accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the Commission any request for
confidential treatment of information. Except for the issuance of the Securities
contemplated by this Agreement or as set forth on Schedule 3.1(i), no
event, liability, fact, circumstance, occurrence or development has occurred or
exists, or is reasonably expected to occur or exist, with respect to the Company
or its Subsidiaries or their respective business, properties, operations, assets
or financial condition, that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is made or
deemed made that has not been publicly disclosed at least 1 Trading Day prior to
the date that this representation is made.

               (j)
Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer thereof, is
or has been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving
the Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.

               (k)
Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company,
which could reasonably be expected to result in a Material Adverse Effect. None
of the Company’s or its Subsidiaries’ employees is a member of a union that
relates to such employee’s relationship with the Company or such Subsidiary, and
neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. No executive officer, 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 or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of any third party,
and the 

12




continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters. The Company and its Subsidiaries are in compliance
with all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

               (l)
Compliance. Neither the Company nor any Subsidiary: (i) is in default
under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary received
notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
judgment, decree, or order of any court, arbitrator or governmental body or
(iii) is or has been in violation of any statute, rule, ordinance or regulation
of any governmental authority, including without limitation all foreign,
federal, state and local laws applicable to its business and all such laws that
affect the environment, except in each case as could not have or reasonably be
expected to result in a Material Adverse Effect.

               (m)
Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.

               (n)
Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are in
compliance.

               (o)
Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights as described
in the SEC Reports as necessary or material for use in connection with their
respective businesses and which the failure to so 

13




have could have a Material Adverse Effect (collectively, the
“Intellectual Property Rights”). Neither the Company nor any
Subsidiary has received a notice (written or otherwise) that any of the
Intellectual Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person. To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights. The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties,
except where failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

               (p)
RESERVED.

               (q)
Transactions With Affiliates and Employees. Except as set forth in the
SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than 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
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $120,000 other than for: (i) payment of
salary or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) other employee benefits, including
stock option agreements under any stock option plan of the Company.

               (r)
Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are
applicable to it as of the Closing Date. As set forth on Schedule 3.1(r),
and as the date hereof, the Company has not been required to provide a
management report with respect to internal control of financial reporting,
including whether the Company and the Subsidiaries 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 GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms. The Company’s certifying officers
have evaluated the effectiveness of the Company’s disclosure controls and
procedures as of the end of the period covered by the Company’s most recently
filed periodic report under the Exchange 

14




Act (such date, the “Evaluation Date”). The Company
presented in its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no changes in the Company’s internal
control over financial reporting (as such term is defined in the Exchange Act)
that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.

               (s)
Certain Fees. Except as otherwise set forth in Section 5.2 of this
Agreement or Schedule 3.1(s), no brokerage or finder’s fees or
commissions are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by the Transaction
Documents. The Purchasers shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents.

               (t)
Private Placement. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.

               (u)
Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become an “investment company” subject to
registration under the Investment Company Act of 1940, as amended.

               (v)
Registration Rights. Other than each of the Purchasers, no Person has any
right to cause the Company to effect the registration under the Securities Act
of any securities of the Company.

               (w)
Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. The Company has not, in the 12
months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.

15




               (x)
Application of Takeover Protections. The Company and the 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 certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company’s
issuance of the Securities and the Purchasers’ ownership of the Securities.

               (y)
Disclosure. Except with respect to the material terms and conditions of
the transactions contemplated by the Transaction Documents, the Company confirms
that 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 it believes
constitutes or might constitute material, non-public information. The Company
understands and confirms that the Purchasers will rely on the foregoing
representation in effecting transactions in securities of the Company. All of
the disclosure furnished by or on behalf of the Company to the Purchasers
regarding the Company, its business and the transactions contemplated hereby,
including the Disclosure Schedules to this Agreement, is true and correct and
does 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. The press
releases disseminated by the Company during the twelve months preceding the date
of this Agreement taken as a whole do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made and when made, not misleading. The Company
acknowledges and agrees that no Purchaser makes or has made any representations
or warranties with respect to the transactions contemplated hereby other than
those specifically set forth in Section 3.2 hereof.

               (z)
No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, 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 cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of (i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.

               (aa)
Solvency. Based on the consolidated financial condition of the Company as
of the Closing Date, after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder: (i) the fair saleable value
of the Company’s assets exceeds the amount that will be required to be paid on
or in respect of the Company’s existing debts and other liabilities (including
known contingent liabilities) as they mature, (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business as now conducted
and as proposed to be conducted including its 

16




capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof, and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its
liabilities when such amounts are required to be paid. The Company does not
intend to incur debts beyond its ability to pay such debts as they mature
(taking into account the timing and amounts of cash to be payable on or in
respect of its debt). The Company has no knowledge of any facts or circumstances
which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year
from the Closing Date. Other than as disclosed in the SEC Reports, neither the
Company nor any Subsidiary has any Indebtedness that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect. For
the purposes of this Agreement, “Indebtedness” means (x) any liabilities
for borrowed money or amounts owed in excess of $50,000 (other than trade
accounts payable incurred in the ordinary course of business), (y) all
guaranties, endorsements and other contingent obligations in respect of
indebtedness of others, whether or not the same are or should be reflected in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (z) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is
in default with respect to any Indebtedness.

               (bb)
Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary.

               (cc)
No General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.

               (dd)
Foreign Corrupt Practices. Neither the Company, nor to the knowledge of
the Company, any agent or other person acting on behalf of the Company, has: (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law or (iv) violated in any
material respect any provision of the Foreign Corrupt Practices Act of 1977, as
amended.

17




               (ee)
Accountants. The Company’s accounting firm is set forth on
Schedule 3.1(ee) of the Disclosure Schedules. To the knowledge and
belief of the Company, such accounting firm: (i) is a registered public
accounting firm as required by the Exchange Act and (ii) shall express its
opinion with respect to the financial statements to be included in the Company’s
Annual Report for the year ended July 31, 2009. 

               (ff)
No Disagreements with Accountants and Lawyers. There are no disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise, between the Company and the accountants and lawyers formerly or presently
employed by the Company and, except as set forth on Schedule 3.1(ff), the
Company is current with respect to any fees owed to its accountants and lawyers
which could affect the Company’s ability to perform any of its obligations under
any of the Transaction Documents.

               (gg)
Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser or any
of their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to the
Purchasers’ purchase of the Securities. The Company further represents to each
Purchaser that the Company’s decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

               (hh)
Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for
Sections 3.2(f) and 4.15 hereof), it is understood and acknowledged by the
Company that: (i) none of the Purchasers have been asked by the Company to
agree, nor has any Purchaser agreed, to desist from purchasing or selling, long
and/or short, securities of the Company, or “derivative” securities based on
securities issued by the Company or to hold the Securities for any specified
term, (ii) past or future open market or other transactions by any Purchaser,
specifically including, without limitation, Short Sales or “derivative”
transactions, before or after the closing of this or future private placement
transactions, may negatively impact the market price of the Company’s
publicly-traded securities, (iii) any Purchaser, and counter-parties in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, may presently have a “short” position in the Common Stock and (iv)
each Purchaser shall not be deemed to have any affiliation with or control over
any arm’s length counter-party in any “derivative” transaction. The Company
further understands and acknowledges that (y) one or more Purchasers may engage
in hedging activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Warrant Shares deliverable with respect to Securities are being determined,
and (z) such hedging activities (if any) could reduce the value of the existing
stockholders' equity 

18




interests in the Company at and after the time that the hedging
activities are being conducted. The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.

               (ii)
Regulation M Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii),
compensation paid to the Company’s placement agent in connection with the
placement of the Securities.

               (jj)
Stock Option Plans. Each stock option granted by the Company under the
Company’s stock option plan was granted (i) in accordance with the terms of the
Company’s stock option plan and (ii) with an exercise price at least equal to
the fair market value of the Common Stock on the date such stock option would be
considered granted under GAAP and applicable law. No stock option granted under
the Company’s stock option plan has been backdated. The Company has not
knowingly granted, and there is no and has been no Company policy or practice to
knowingly grant, stock options prior to, or otherwise knowingly coordinate the
grant of stock options with, the release or other public announcement of
material information regarding the Company or its Subsidiaries or their
financial results or prospects.

               3.2
Representations and Warranties of the Purchasers. Each Purchaser, for
itself and for no other Purchaser, hereby represents and warrants as of the date
hereof and as of the Closing Date to the Company as follows (unless as of a
specific date therein):

               (a)
Organization; Authority. Such Purchaser is either an individual or an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of the
Transaction Documents and performance by such Purchaser of the transactions
contemplated by the Transaction Documents have been duly authorized by all
necessary corporate, partnership, limited liability company or similar action,
as applicable, on the part of such Purchaser. Each Transaction Document to which
it is a party has been duly executed by such Purchaser, and when delivered by
such Purchaser in accordance with the terms hereof, will constitute the valid
and legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.

19




               (b)
Own Account. Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting such Purchaser’s right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws). Such Purchaser is acquiring
the Securities hereunder in the ordinary course of its business.

               (c)
Purchaser Status. At the time such Purchaser was offered the Securities,
it was, and as of the date hereof it is, and on each date on which it exercises
any Warrants, it will be an “accredited investor” as defined in Rule 501(a)
under the Securities Act, as evidenced by such Purchaser’s Investor
Questionnaire. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act. If the Purchaser is a
Canadian resident, it was, as of the date hereof, and on each date on which it
exercises any warrants it will be able to avail itself of an applicable
exemption from Canadian prospectus and registration requirements, as evidenced
by such Purchaser’s Canadian Purchaser Certificate.

               (d)
Experience of Such Purchaser. Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.

               (e)
General Solicitation. Such Purchaser is not purchasing the Securities as
a result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

               (f)
Certain Transactions and Confidentiality. Other than consummating the
transactions contemplated hereunder, such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any purchases or sales, including
Short Sales, of the securities of the Company during the period commencing as of
the time that such Purchaser first received a term sheet (written or oral) as of
the Company or any other Person representing the Company setting forth the
material terms of the transactions contemplated hereunder and ending immediately
prior to the execution hereof. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio
managers 

20




have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement. Other than to other Persons
party to this Agreement, such Purchaser has maintained the confidentiality of
all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Notwithstanding the foregoing, for
avoidance of doubt, nothing contained herein shall constitute a representation
or warranty, or preclude any actions, with respect to the identification of the
availability of, or securing of, available shares to borrow in order to effect
Short Sales or similar transactions in the future.

The Company acknowledges and agrees that the representations
contained in Section 3.2 shall not modify, amend or affect such Purchaser’s
right to rely on the Company’s representations and warranties contained in this
Agreement or any representations and warranties contained in any other
Transaction Document or any other document or instrument executed and/or
delivered in connection with this Agreement or the consummation of the
transaction contemplated hereby.

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

               4.1
Transfer Restrictions.

               (a)
The Securities may only be disposed of in compliance with all applicable
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company or
to an Affiliate of a Purchaser or in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and the Registration Rights Agreement
and shall have the rights and obligations of a Purchaser under this Agreement
and the Registration Rights Agreement.

               (b)
The Purchasers agree to the imprinting, so long as is required by this Section
4.1, of the following legends on any of the Securities in the following
form:

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES 

21




ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED
BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED
INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN
SECURED BY SUCH SECURITIES.

               UNLESS
PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT
TRADE THIS SECURITY BEFORE FEBRUARY 16, 2010.

               UNLESS
OTHERWISE PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY
MUST NOT TRADE THE SECURITY IN OR FROM BRITISH COLUMBIA UNLESS THE CONDITIONS IN
SECTION 12(2) OF BC INSTRUMENT 51-509 ISSUERS QUOTED IN THE U.S.
OVER-THE-COUNTER MARKET ARE MET.

               The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties, provided that such pledge is in compliance with all
applicable securities laws. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, 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 Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders (as defined in the
Registration Rights Agreement) thereunder.

               (c)
The legends set forth in Section 4.1(b) hereof may be removed in accordance with
applicable securities laws. With respect to the Canadian restrictive legend (the
second and third legends set froth in Section 4.1(b) (the “Canadian
Legend”)), the Purchaser shall contact the Company and the Company shall
use commercially reasonable efforts to effect the removal of the Canadian Legend
and, if such Canadian Legend may not be removed pursuant to the applicable
securities laws, the Company shall cause its counsel to provide a written
representation that the Canadian Legend cannot be removed pursuant to the
applicable securities laws. With respect to the U.S. restrictive legend, (the
first of the three legends set forth in Section 4.1(b) (the “U.S. 

22




Legend”)), certificates evidencing the Shares and
Warrant Shares shall not contain any such legend, (i) while a registration
statement (including the Registration Statement) covering the resale of such
security is effective under the Securities Act, (ii) following any sale of such
Shares or Warrant Shares pursuant to Rule 144, (iii) if such Shares or Warrant
Shares are eligible for sale under Rule 144, without the requirement for the
Company to be in compliance with the current public information required under
Rule 144 as to such Shares and Warrant Shares and without volume or
manner-of-sale restrictions, or (iv) if such U.S. Legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). In
such circumstances, the Company shall cause its counsel to issue a legal opinion
to the Transfer Agent promptly after the Effective Date if required by the
Transfer Agent to effect the removal of the U.S. Legend hereunder. If all or any
portion of a Warrant is exercised at a time when there is an effective
registration statement to cover the resale of the Warrant Shares, or if such
Shares or Warrant Shares may be sold under Rule 144 and the Company is then in
compliance with the current public information required under Rule 144, or if
the Shares or Warrant Shares may be sold under Rule 144 without the requirement
for the Company to be in compliance with the current public information required
under Rule 144 as to such Shares or Warrant Shares or if such U.S. Legend is not
otherwise required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission) then such Warrant Shares shall be issued free of the U.S.
Legend. The Company agrees that following the Effective Date or at such time as
any such restrictive legend is no longer required under this Section 4.1(c), it
will, no later than three Trading Days following the delivery by a Purchaser to
the Company or the Transfer Agent of a certificate representing Shares or
Warrant Shares, as the case may be, issued with a restrictive legend (such third
Trading Day, the “Legend Removal Date”), together with any supporting
documentation as the Company and/or the Transfer Agent may reasonably require,
the Company shall deliver or cause to be delivered to such Purchaser a
certificate representing such shares that is free from all restrictive and other
legends for which the Company may authorize removal at such time. Unless
otherwise required by applicable securities or other laws, the Company may not
make any notation on its records or give instructions to the Transfer Agent that
enlarge the restrictions on transfer set forth in this Section 4. Certificates
for Securities subject to legend removal hereunder shall be transmitted by the
Transfer Agent to the Purchaser by crediting the account of the Purchaser’s
prime broker with the Depository Trust Company System as directed by such
Purchaser or as otherwise instructed by such Purchaser.

               (d)
In addition to such Purchaser’s other available remedies, the Company shall pay
to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Shares or Warrant Shares (based on the VWAP of the Common Stock
on the date such Securities are submitted to the Transfer Agent) delivered for
removal of the restrictive U.S. Legend and/or Canadian Legend, as applicable,
and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per
Trading Day five (5) Trading Days after such damages have begun to accrue) for
each Trading Day after the Legend Removal Date until such certificate is
delivered without any legend. Nothing herein shall limit such Purchaser’s right
to pursue actual damages for the Company’s failure to 

23




deliver certificates representing any Securities as required by
the Transaction Documents, 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.

               (e)
Each Purchaser, severally and not jointly with the other Purchasers, agrees with
the Company that such Purchaser will sell any Securities pursuant to either the
registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom (including, if
applicable, all applicable provisions of Rule 144), and all other applicable
securities laws, and that if Securities are sold pursuant to a Registration
Statement, they will be sold in compliance with the plan of distribution set
forth therein, and acknowledges that the removal of the U.S. Legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company’s reliance upon this understanding.

               4.2
Furnishing of Information; Public Information.

               (a)
If the Common Stock is not registered under Section 12(b) or 12(g) of the
Exchange Act on the date hereof, the Company agrees to cause the Common Stock to
be registered under Section 12(g) of the Exchange Act on or before the 60th
calendar day following the date hereof. Until the time that is the earlier
of (i) when no Purchaser owns Securities or (ii) the five (5) year anniversary
of the date hereof, the Company covenants to maintain the registration of the
Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file
(or obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act even if the Company is not then subject to the
reporting requirements of the Exchange Act. Until the time that is the earlier
of (i) when no Purchaser owns Securities or (ii) the five (5) year anniversary
of the date hereof, if the Company is not required to file reports pursuant to
the Exchange Act, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities, including without
limitation, under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act, including without limitation, within the
requirements of the exemption provided by Rule 144.

               (b)
At any time during the period commencing from the six (6) month anniversary of
the date hereof and ending at such time that all of the Securities may be sold
without the requirement for the Company to be in compliance with Rule 144(c)(1)
and otherwise without restriction or limitation pursuant to Rule 144, if a
Purchaser is delayed or is unable to sell Securities pursuant to Rule 144 as a
result of a failure by the Company for any reason to satisfy the current public
information requirement under Rule 144(c) (a “Public Information
Failure”) then, in addition to such Purchaser’s other available remedies,
upon notice from the Purchaser, the Company shall pay to a Purchaser, in cash,
as partial liquidated damages and not as a penalty, by reason of any such delay
in or reduction of its ability to sell the Securities, an amount in cash equal
to 

24




two percent (2.0%) of the aggregate Subscription Amount of such
Purchaser’s Securities on the day of a Public Information Failure and on every
thirtieth (30th) day (pro rated for periods totaling less than thirty
days) thereafter until the earlier of (a) the date such Public Information
Failure is cured and (b) such time that such public information is no longer
required for the Purchasers to transfer the Shares and Warrant Shares pursuant
to Rule 144. The payments to which a Purchaser shall be entitled pursuant to
this Section 4.2(b) are referred to herein as “Public Information Failure
Payments.” Public Information Failure Payments shall be paid on the earlier
of (i) the last day of the calendar month during which such Public Information
Failure Payments are incurred and (ii) the third (3rd) Business Day
after the event or failure giving rise to the Public Information Failure
Payments is cured. In the event the Company fails to make Public Information
Failure Payments in a timely manner, such Public Information Failure Payments
shall bear interest at the rate of 1.5% per month (prorated for partial months)
until paid in full. Nothing herein shall limit such Purchaser’s right to pursue
actual damages for the Public Information Failure, 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.

               4.3
Integration. The Company shall not sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of any Trading
Market such that it would require shareholder approval prior to the closing of
such other transaction unless shareholder approval is obtained before the
closing of such subsequent transaction.

               4.4
Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
(New York City time) on the Trading Day immediately following the date hereof,
issue a Current Report on Form 8-K and press release disclosing the material
terms of the transactions contemplated hereby, and including the Transaction
Documents as exhibits thereto. From and after the issuance of such press
release, the Company shall have publicly disclosed all material, non-public
information delivered to any of the Purchasers by the Company or any of its
subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the transactions contemplated by the Transaction
Documents. The Company and each Purchaser shall consult with each other in
issuing any other press releases with respect to the transactions contemplated
hereby, and neither the Company nor any Purchaser shall issue any such press
release nor otherwise make any such public statement without the prior consent
of the Company, with respect to any press release of any Purchaser, or without
the prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except: (a) as required by any
applicable securities laws, in connection with (i) any registration statement
contemplated by the Registration Rights Agreement and (ii) the filing of final
Transaction Documents (including signature pages thereto) with the Commission
and (b) 

25




to the extent such disclosure is required by law or Trading
Market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure permitted under this clause (b).

               4.5
Shareholder Rights Plan. No claim will be made or enforced by the Company
or, with the consent of the Company, any other Person, that any Purchaser is an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that any Purchaser could be deemed to trigger the provisions of any such plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the
Purchasers.

               4.6
Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, 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 with the
Company regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.

               4.7
Use of Proceeds. The Company shall use the net proceeds from the sale of
the Securities hereunder for working capital purposes and otherwise in the
discretion of the Company’s management.

               4.8
Indemnification of Purchasers. Subject to the provisions of this Section
4.8, the Company will indemnify and hold each Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser Party”) harmless from any and all losses, liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys’
fees and costs of investigation that any such Purchaser Party may suffer or
incur as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action instituted
against a Purchaser in any capacity, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of such
Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any
such stockholder or any violations by such Purchaser of any applicable
securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be sought pursuant
to this 

26




Agreement, such Purchaser Party shall promptly notify the
Company in writing, and the Company shall have the right to assume the defense
thereof with counsel of its own choosing reasonably acceptable to the Purchaser
Party. Any Purchaser Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Purchaser Party except
to the extent that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of counsel, a material conflict on any
material issue between the position of the Company and the position of such
Purchaser Party, in which case the Company shall be responsible for the
reasonable fees and expenses of no more than one such separate counsel. The
Company will not be liable to any Purchaser Party under this Agreement (y) for
any settlement by a Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (z) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by such Purchaser Party in this
Agreement or in the other Transaction Documents.

               4.9
Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.

               4.10
Listing of Common Stock. The Company hereby agrees to use best efforts to
maintain the listing or quotation of the Common Stock on the Trading Market on
which it is currently listed, and concurrently with the Closing, the Company
shall apply to list or quote all of the Shares and Warrant Shares on such
Trading Market and promptly secure the listing of all of the Shares and Warrant
Shares on such Trading Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Trading Market, it will
then include in such application all of the Shares and Warrant Shares, and will
take such other action as is necessary to cause all of the Shares and Warrant
Shares to be listed or quoted on such other Trading Market as promptly as
possible. The Company will then take all action reasonably necessary to continue
the listing or quotation and trading of its Common Stock on a Trading Market and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Trading Market.

               4.11
Participation in Future Financing.

               (a)
From the date hereof until the date that is the earlier of (i) the date that the
Purchaser seeking to participate in a financing under this Section 4.11 no
longer owns any Securities or (ii) the five (5) year anniversary of the date
hereof, upon any issuance by the Company or any of its Subsidiaries of Common
Stock, Common Stock Equivalents for cash consideration, Indebtedness (or a
combination of units hereof) (a “Subsequent Financing”), such Purchaser
shall have the right to participate in up to an amount of the Subsequent
Financing equal to 100% of such Purchaser’s Subscription Amount under this
Agreement (the “Participation Maximum”) on the same terms, conditions and
price provided for in the Subsequent Financing.

27




               (b)
At least five (5) Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to each Purchaser a written notice of its intention to
effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask
such Purchaser if it wants to review the details of such financing (such
additional notice, a “Subsequent Financing Notice”). Upon the
request of a Purchaser, and only upon a request by such Purchaser, for a
Subsequent Financing Notice, the Company shall promptly, but no later than one
(1) Trading Day after such request, deliver a Subsequent Financing Notice to
such Purchaser. The Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, the amount of proceeds
intended to be raised thereunder and the Person or Persons through or with whom
such Subsequent Financing is proposed to be effected and shall include a term
sheet or similar document relating thereto as an attachment.

               (c)
Any Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the fifth (5th) Trading Day after all of the Purchasers have
received the Pre-Notice that the Purchaser is willing to participate in the
Subsequent Financing, the amount of the Purchaser’s participation, and
representing and warranting that the Purchaser has such funds ready, willing,
and available for investment on the terms set forth in the Subsequent Financing
Notice. If the Company receives no such notice from a Purchaser as of such fifth
(5th) Trading Day, such Purchaser shall be deemed to have notified
the Company that it does not elect to participate.

               (d)
If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day
after all of the Purchasers have received the Pre-Notice, notifications by the
Purchasers of their willingness to participate in the Subsequent Financing (or
to cause their designees to participate) is, in the aggregate, less than the
total amount of the Subsequent Financing, then the Company may effect the
remaining portion of such Subsequent Financing on the terms and with the Persons
set forth in the Subsequent Financing Notice.

               (e)
If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day
after all of the Purchasers have received the Pre-Notice, the Company receives
responses to a Subsequent Financing Notice from Purchasers seeking to purchase
more than the aggregate amount of the Subsequent Financing, each such Purchaser
shall have the right to purchase its Pro Rata Portion (as defined below) of the
Subsequent Financing, which shall, in any event, not exceed such Purchaser’s
Participation Maximum. “Pro Rata Portion” means the ratio of (x)
the Subscription Amount of Securities purchased on the Closing Date by a
Purchaser participating under this Section 4.11 and (y) the sum of the aggregate
Subscription Amounts of Securities purchased on the Closing Date by all
Purchasers participating under this Section 4.11.

               (f)
The Company must provide the Purchasers with a second Subsequent Financing
Notice, and the Purchasers will again have the right of participation set forth
above in this Section 4.11, if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms set
forth in such Subsequent Financing Notice within thirty (30) Trading Days after
the date of the initial Subsequent Financing Notice.

28




               (g)
Notwithstanding the foregoing, this Section 4.11 shall not apply in respect of
(i) an Exempt Issuance, or (ii) an underwritten public offering of Common
Stock.

               4.12
Subsequent Equity Sales. From the date hereof until such time as no
Purchaser holds any of the Securities, the Company shall be prohibited from
effecting or entering into an agreement to effect any issuance by the Company or
any of its Subsidiaries of Common Stock or Common Stock Equivalents for cash
consideration (or a combination of units thereof) involving a Variable Rate
Transaction. “Variable Rate Transaction” means a transaction in which the
Company (i) issues or sells any debt or equity securities that are convertible
into, exchangeable or exercisable for, or include the right to receive,
additional shares of Common Stock either (A) at a conversion price, exercise
price or exchange rate or other price that is based upon, and/or varies with,
the trading prices of or quotations for the shares of Common Stock at any time
after the initial issuance of such debt or equity securities or (B) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the Common Stock or (ii) enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price. Any
Purchaser shall be entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to any right to
collect damages. Notwithstanding the foregoing, this Section 4.12 shall not
apply in respect of an Exempt Issuance, except that no Variable Rate Transaction
shall be an Exempt Issuance.

               4.13
Equal Treatment of Purchasers. No consideration (including any
modification of any Transaction Document) shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents. For clarification purposes, this
provision constitutes a separate right granted to each Purchaser by the Company
and negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.

               4.14
Certain Transactions and Confidentiality. Each Purchaser, severally and
not jointly with the other Purchasers, covenants that neither it, nor any
Affiliate acting on its behalf or pursuant to any understanding with it will
execute any purchases or sales, including Short Sales, of any of the Company’s
securities during the period commencing with the execution of this Agreement and
ending at such time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in
Section 4.4. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company pursuant to the initial
press release as described in Section 4.4, such Purchaser will maintain the
confidentiality of the existence and terms of this transaction and the
information included in the Transaction Documents and the Disclosure Schedules.
Notwithstanding the foregoing, and notwithstanding anything contained in this
Agreement to the contrary, the Company expressly acknowledges and agrees that
(i) no Purchaser makes any representation, warranty or covenant hereby that it
will not engage in effecting transactions in any securities of the Company after
the time that the transactions contemplated by this Agreement are first publicly
announced pursuant 

29




to the initial press release as described in Section 4.4, (ii)
no Purchaser shall be restricted or prohibited from effecting any transactions
in any securities of the Company in accordance with applicable securities laws
from and after the time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in
Section 4.4 and (iii) no Purchaser shall have any duty of confidentiality to the
Company or its Subsidiaries after the issuance of the initial press release as
described in Section 4.4. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser’s assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.

               4.15
Form D; Blue Sky Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof, promptly upon request of any Purchaser. The Company shall take such
action as the Company shall reasonably determine is necessary in order to obtain
an exemption for, or to qualify the Securities for, sale to the Purchasers at
the Closing under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of any Purchaser.

               4.16
Capital Changes. Until the one year anniversary of the Effective Date,
the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of the
Purchasers holding a majority in interest of the Shares.

               4.17
Delivery of Securities After Closing. The Company shall deliver, or cause
to be delivered, the respective Securities purchased by each Purchaser to such
Purchaser within 3 Trading Days of the Closing Date.

               4.18
Acknowledgment of Dilution. The Company acknowledges that the issuance of
the Securities may result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market conditions. The Company
further acknowledges that its obligations under the Transaction Documents,
including, without limitation, its obligation to issue the Shares and Warrant
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.

               4.19
Per Share Purchase Price Protection. From the date hereof until the three
(3) year anniversary of the date hereof, if in connection with a Subsequent
Financing, the Company or any Subsidiary shall issue any Common Stock or Common
Stock Equivalents entitling any person or entity to acquire shares of Common
Stock at an effective price per share less than the Per Share Purchase Price
(subject to reverse and forward stock splits and the like) (the
“Discounted Purchase Price,” as further defined below), the
Company shall issue to each Purchaser that number of additional shares of Common
Stock equal to (a) the Subscription Amount paid by such 

30




Purchaser at the Closing divided by the Discounted Purchase
Price, less (b) the Shares issued to such Purchaser at the Closing pursuant to
this Agreement and pursuant to this Section 4.19; provided,
however, that the number of additional shares of Common Stock issuable to
any Purchaser pursuant to this Section 4.19 shall not, in the aggregate (whether
issued in connection with one or more Subsequent Financings), exceed the number
of shares of Common Stock that such Purchaser purchased on the Closing Date
pursuant to this Agreement. The term “Discounted Purchase Price”
shall mean the amount actually paid in new cash consideration by third parties
for each share of Common Stock. 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 Discounted Purchase Price covered thereby shall also include
the actual exercise or conversion price thereof at the time of the 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. The Company
shall not refuse to issue a Purchaser additional Shares hereunder based on any
claim that such Purchaser or any one 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 VWAP of the Common Stock
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. On the date of closing
of any transaction pursuant to which securities are issued for a Discounted
Purchase Price, the Company shall give the Purchasers written notice thereof.
Notwithstanding anything to the contrary herein, this Section 4.19 shall not
apply to an Exempt Issuance.

ARTICLE V. 
MISCELLANEOUS

               5.1
Termination. This Agreement may be terminated by any Purchaser, as to
such Purchaser’s obligations hereunder only and without any effect whatsoever on
the obligations between the Company and the other Purchasers, by written notice
to the other parties, if the Closing has not been consummated on or before
October 15, 2009; provided, however, that such termination will
not affect the right of any party to sue for any breach by the other party (or
parties).

               5.2
Fees and Expenses. At the Closing, the Company has agreed to reimburse
Bristol Investment Fund, Ltd. (“Bristol”) the non-accountable sum of
$50,000 for its legal fees and expenses, none of which has been paid prior to
the Closing. Accordingly, in lieu of the foregoing payments, the aggregate
amount that Bristol is to pay for the Securities at the Closing shall be reduced
by $50,000 in lieu thereof. The Company shall deliver to each Purchaser, prior
to the Closing, a completed and executed copy of the Closing Statement, attached
hereto as 

31




Annex A. Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of any Securities to the Purchasers.

               5.3
Entire Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

               5.4
Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of: (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second (2nd) Trading Day following the date of mailing,
if sent by U.S. nationally recognized overnight courier service or (d) upon
actual receipt by the party to whom such notice is required to be given. The
address for such notices and communications shall be as set forth on the
signature pages attached hereto.

               5.5
Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and each of the Purchasers or, in the case
of a waiver, by the party against whom enforcement of any such waived provision
is sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right.

               5.6
Headings. The headings herein are for convenience only, do not constitute
a part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.

               5.7
Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
“Purchasers.”

               5.8
No Third-Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective successors and permitted assigns and
is not for the benefit of, 

32




nor may any provision hereof be enforced by, any other Person,
except as otherwise set forth in Section 4.8.

               5.9
Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then in addition to the obligations of the Company under Section 4.8,
the prevailing party in such action or proceeding shall be reimbursed by the
other party for its reasonable attorneys’ fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such action or
proceeding.

               5.10
Survival. The representations and warranties contained herein shall
survive the Closing and the delivery of the Securities.

               5.11
Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.

               5.12
Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, 

33




covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

               5.13
Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights; provided,
however, that in the case of a rescission of an exercise of a Warrant,
the applicable Purchaser shall be required to return any shares of Common Stock
subject to any such rescinded exercise notice concurrently with the return to
such Purchaser of the aggregate exercise price paid to the Company for such
shares and the restoration of such Purchaser’s right to acquire such shares
pursuant to such Purchaser’s Warrant (including, issuance of a replacement
warrant certificate evidencing such restored right).

               5.14
Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The applicant
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with the
issuance of such replacement Securities.

               5.15
Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Purchasers
and the Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
contained in the Transaction Documents and hereby agree to waive and not to
assert in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate.

               5.16
Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

34




               5.17
Independent Nature of Purchasers’ Obligations and Rights. The obligations
of each Purchaser under any Transaction Document are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, each Purchaser and
its respective counsel have chosen to communicate with the Company through WS.
WS does not represent any of the Purchasers and only represents Bristol. The
Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by any of the Purchasers.

               5.18
Liquidated Damages. The Company’s obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.

               5.19
Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then such action may be taken or such right may be
exercised on the next succeeding Business Day.

               5.20
Construction. The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto. In
addition, each and every reference to share prices and shares of Common Stock in
any Transaction Document shall be subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar transactions
of the Common Stock that occur after the date of this Agreement.

               5.21
WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN
ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE
PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND
EXPRESSLY WAIVES FOREVER TRIAL BY JURY. 

35




(Signature Pages Follow)

36




               IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

	STRATEGIC AMERICAN OIL CORPORATION 	Address for Notice: 
	  	  	Suite 2015, 600 Leopard Street
  
	  	  	Corpus Christi, Texas 78473

	By:__________________________________________ 	Fax: (512) 233-2531 
	       Name: 	Johnathan Lindsay 	  
	       Title: 	Secretary, Treasurer & Chief
      Financial Officer 	  


With a copy to (which shall not constitute notice): 
Lang
Michener LLP
1500 – 1055 West Georgia Street 
Vancouver, British Columbia
V6E 4N7 
Canada 
Attn: Thomas J. Deutsch 
Fax: (604) 893-2679

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 
SIGNATURE PAGE
FOR PURCHASER FOLLOWS]

37




[PURCHASER SIGNATURE PAGES TO SGCA SECURITIES PURCHASE
AGREEMENT]

               IN
WITNESS WHEREOF, the undersigned have caused this Securities 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:
____________________________________________________

Title of Authorized Signatory:
_____________________________________________________

Email Address of Authorized Signatory:
______________________________________________

Facsimile Number of Authorized Signatory:
_____________________________________________

Address for Notice of Purchaser:

 

 

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

 

 

Subscription Amount – New Funds:
$_________________
Subscription Amount – Settlement of Outstanding Debt:
$_______________

Shares: _________________

Warrant Shares: __________________

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

[SIGNATURE PAGES CONTINUE]

38




Annex A 

CLOSING STATEMENT

Pursuant to the attached Securities Purchase Agreement, dated
as of the date hereto, the purchasers shall purchase up to $2,500,000 of Common
Stock and Warrants from Strategic American Oil Corporation, a Nevada corporation
(the “Company”). All funds will be wired into an account maintained by
the Company. All funds will be disbursed in accordance with this Closing
Statement.

Disbursement Date: October 15, 2009

	I. PURCHASE PRICE 	  
	 	 
	               
                         
                         
                 Gross Proceeds to be
      Received 	$2,500,000 
	II. DISBURSEMENTS 	  
	 	 
	               
                         
                       
       Subscriptions in settlement of debt 	$310,000 
	               
                         
                         Legal
      fees per Section 5.2 of this Agreement 	$50,000* 
	               
                         
                       
       Settlement of past debt 	$12,000* 
	               
                         
                       
       Finders’ fees 	$87,750 
	 	 
	Total Amount Disbursed: 	$459,750 


WIRE INSTRUCTIONS:

To: _____________________________________

 

To: _____________________________________

 

* Bristol will withhold these amounts (totaling $62,000) from
their Subscription Amount.

39




Annex B

U.S. ACCREDITED INVESTOR STATUS CERTIFICATE

	
      In connection with the acquisition of certain securities
      of Strategic American Oil Corporation (the “Company”) by the
      holder, the undersigned hereby represents and warrants to the Company that
      the undersigned satisfies one or more of the following categories of
      Accredited Investor (please initial on each line that applies):
    

	
       
	
       
	
	
      ___
	
      (1) 
	
      Any bank as defined in Section 3(a)(2) of the U.S.
      Securities Act of 1933, as amended (the “U.S. Securities
      Act”) or any savings and loan association or other institution as
      defined in Section 3(a)(5)(A) of the U.S. Securities Act whether acting in
      its individual or fiduciary capacity; any broker or dealer registered
      pursuant to Section 15 of the U.S. Securities Exchange Act of 1934 or any
      insurance company as defined in Section 2(a)(13) of the U.S. Securities
      Act; any investment company registered under the U.S. Investment Company
      Act of 1940 or a business development company as defined in Section
      2(a)(48) of that Act; any Small Business Investment Company licensed by
      the U.S. Small Business Administration under Section 301(c) or (d) of the
      U.S. Small Business Investment Act of 1958; any plan established and
      maintained by a state, its political subdivisions, or any agency or
      instrumentality of a state or its political subdivisions, for the benefit
      of its employees if such plan has total assets in excess of US$5,000,000;
      any employee benefit plan within the meaning of the U.S. Employee
      Retirement Income Security Act of 1974 if the investment decision is made
      by a plan fiduciary, as defined in Section 3(21) of such Act, which is
      either a bank, savings and loan association, insurance company, or
      registered investment adviser, or if the employee benefit plan has total
      assets in excess of US$5,000,000, or, if a self-directed plan, with
      investment decisions made solely by persons that are “accredited
      investors” (as such term is defined in Rule 501 of Regulation D of the
      U.S. Securities Act); 

	
       
	
       
	
       

	
      ___
	
      (2) 
	
      Any private business development company as defined in
      Section 202(a)(22) of the U.S. Investment Advisers Act of 1940; 

	
       
	
       
	
       

	
      ___
	
      (3) 
	
      Any organization described in Section 501(c)(3) of the
      U.S. Internal Revenue Code, corporation, Massachusetts or similar business
      trust, or partnership, not formed for the specific purpose of acquiring
      the securities offered, with total assets in excess of US$5,000,000;
    

	
       
	
       
	
       

	
      ___
	
      (4) 
	
      Any director, executive officer or general partner of the
      issuer of the securities being offered or sold, or any director, executive
      officer or general partner of a general partner of that issuer; 

	
       
	
       
	
       

	
      ___
	
      (5) 
	
      Any natural person whose individual net worth, or joint
      net worth with that person’s spouse, at the time of his purchase exceeds
      US$1,000,000; 

	
       
	
       
	
       

	
      ___
	
      (6) 
	
      Any natural person who had an individual income in excess
      of US$200,000 in each of the two most recent years or joint income with
      that person’s spouse in excess of US$300,000 in each of those years and
      has a reasonable expectation of reaching the same income level in the
      current year; 

	
       
	
       
	
       

	
      ___
	
      (7) 
	
      Any trust with total assets in excess of US$5,000,000,
      not formed for the specific purpose of acquiring the securities offered,
      whose purchase is directed by a sophisticated person (being defined as a
      person who has such knowledge and experience in financial and business
      matters that he or she is capable of evaluating the merits and risks of
      the prospective investment); or 

	
       
	
       
	
       

	
       ___
	
      (8) 
	
      Any entity in which all of the equity owners are
      accredited investors. 



DATED this ____ day of ______________, 200____.

 

__________________________________________
Signature

__________________________________________
Name (please
print)

__________________________________________
Address

40




Annex C

PURCHASER CERTIFICATE

          In
connection with the acquisition of certain securities of Strategic American
Oil Corporation (the “Company”), the undersigned hereby represents and
warrants to the Company that the undersigned satisfies one or more of the
following exemptions from Canadian prospectus and registration requirements
under applicable Canadian securities laws in that the undersigned:

	
      1. 
	
      is an “accredited investor”, as defined in
      National Instrument 45-106 – Prospectus and Registration
      Exemptions by virtue of being {please check the appropriate
      category or categories where applicable}:
    

	
      
	
      
	
       

	[   ]	
      (a) 
	
      a Canadian financial institution, or an authorized
      foreign bank listed in Schedule III of the Bank Act (Canada);
    

	
      
	
      
	
       

	[   ]	
      (b) 
	
      the Business Development Bank incorporated under the
      Business Development Bank Act (Canada); 

	
      
	
      
	
       

	[   ]	
      (c) 
	
      a subsidiary of a person referred to in paragraphs (a) or
      (b), if the person owns all of the voting shares of the subsidiary, except
      the voting securities required by law to be owned by directors of that
      subsidiary; 

	
      
	
      
	
       

	[   ]	
      (d) 
	
      a person registered under the securities legislation of a
      jurisdiction of Canada as an adviser or dealer, other than a person
      registered solely as a limited market dealer under one or both of the
      Securities Act (Ontario) or the Securities Act (Newfoundland
      and Labrador); 

	
      
	
      
	
       

	[   ]	
      (e) 
	
      an individual registered or formerly registered under the
      securities legislation of a jurisdiction of Canada as a representative of
      a person referred to in paragraph (d); 

	
      
	
      
	
       

	[   ]	
      (f) 
	
      the Government of Canada or a jurisdiction of Canada, or
      any crown corporation, agency or wholly owned entity of the Government of
      Canada or a jurisdiction of Canada,; 

	
      
	
      
	
       

	[   ]	
      (g) 
	
      a municipality, public board or commission in Canada and
      a metropolitan community, school board, the Comité de gestion de la taxe
      scolaire de l’île de Montréal or an intermunicipal management board in
      Québec; 

	
      
	
      
	
       

	[   ]	
      (h) 
	
      any national, federal, state, provincial, territorial or
      municipal government of or in any foreign jurisdiction, or any agency of
      that government; 

	
      
	
      
	
       

	[   ]	
      (i) 
	
      a pension fund that is regulated by either the Office of
      the Superintendent of Financial Institutions (Canada) or a pension
      commission or similar regulatory authority of a jurisdiction of Canada;
      

	
      
	
      
	
       

	[   ]	
      (j) 
	
      an individual who, either alone or with a spouse,
      beneficially owns, directly or indirectly, financial assets having an
      aggregate realizable value that before taxes, but net of any related
      liabilities, exceeds $1,000,000; 

	
      
	
      
	
       

	[   ]	
      (k) 
	
      an individual whose net income before taxes exceeded
      $200,000 in each of the two most recent calendar years or whose net income
      before taxes combined with that of a spouse 



41





	
       
		
      exceeded $300,000 in each of the two most recent calendar
      years and who, in either case, reasonably expects to exceed that net
      income level in the current calendar year; 

	
       
	
      
	
      
	
      

	
      [   ]
	
      (l) 
	
      an individual who, either alone or with a spouse, has net
      assets of at least $5,000,000; 

	
       
	
      
	
      
	
      

	
      [   ]
	
      (m) 
	
      a person, other than an individual or investment fund,
      that has net assets of at least $5,000,000 as shown on its most recently
      prepared financial statements; 

	
       
	
      
	
      
	
      

	
      [   ]
	
      (n) 
	
      an investment fund that distributes or has distributed
      its securities only to 

	
       
	
      
	
      
	
      

	
       
	
      
	
      (i) 
	
      a person that is or was an accredited investor at the
      time of the distribution; 

	
       
	
      
	
      
	
      

	
       
		
      (ii) 
	
      a person that acquires or acquired securities in the
      circumstances referred to in sections 2.10 [Minimum amount investment] and
      2.19 of National Instrument 45- 106 – Prospectus and Registration
      Exemptions [Additional investment in investment funds]; or 

	
       
	
      
	
      
	
      

	
       
		
      (iii) 
	
      a person described in paragraph (i) or (ii) that acquires
      or acquired securities under section 2.18 of National Instrument 45-106 –
      Prospectus and Registration Exemptions [Investment fund
      reinvestment]; 

	
       
	
      
	
      
	
      

	
      [   ]
	
      (o) 
	
      an investment fund that distributes or has distributed
      securities under a prospectus in a jurisdiction of Canada for which the
      regulator or, in Québec, the securities regulatory authority, has issued a
      receipt, 

	
       
	
      
	
      
	
      

	
      [   ]
	
      (p) 
	
      a trust company or trust corporation registered or
      authorized to carry on business under the Trust and Loan Companies Act
      (Canada) or under comparable legislation in a jurisdiction of Canada
      or a foreign jurisdiction, acting on behalf of a fully managed account
      managed by the trust company or trust corporation, as the case may be;
    

	
       
	
      
	
      
	
      

	
      [   ]
	
      (q) 
	
      a person acting on behalf of a fully managed account
      managed by that person, if that person 

	
       
	
      
	
      
	
      

	
       
	
      
	
      (i) 
	
      is registered or authorized to carry on business as an
      adviser or the equivalent under the securities legislation of a
      jurisdiction of Canada or a foreign jurisdiction, and 

	
       
	
      
	 	 
	
       
	
      
	
      (ii) 
	
      in Ontario, is purchasing a security that is not a
      security of an investment fund; 

	 	 	 	 
	
      [   ]
	
      (r) 
	
      a registered charity under the Income Tax Act
      (Canada) that, in regard to the trade, has obtained advice from an
      eligibility adviser or an adviser registered under the securities
      legislation of the jurisdiction of the registered charity to give advice
      on the securities being traded; 

	
       
	
      
	
      
	
      

	
      [   ]
	
      (s) 
	
      an entity organized in a foreign jurisdiction that is
      analogous to any of the entities referred to in paragraphs (a) to (d) or
      paragraph (i) in form and function; 

	
       
	
      
	
      
	
      

	
      [   ]
	
      (t) 
	
      a person in respect of which all of the owners of
      interests, direct, indirect or beneficial, except the voting securities
      required by law to be owned by directors, are persons that are accredited
      investors; 

	
       
	
      
	
      
	
      

	[   ]	
      (u) 
	
      an investment fund that is advised by a person registered
      as an adviser or a person that is exempt from registration as an adviser;
      or 



42






  	 [   ]
	(v) 	a person that is recognized or designated by the securities
        regulatory authority or, except in Ontario and Québec, the regulator
        as 
	  	  	  
	  	  	(i) an accredited investor, or
	  	  	  
	  	  	(ii) an exempt purchaser in Alberta or British Columbia.
      
	OR 	  	  
	  	  	  
	2. 	 is resident in one of the Provinces
          of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, Prince
          Edward Island, Nova Scotia, New Brunswick, Newfoundland and Labrador,
          the Northwest Territories or the Yukon and is {please check the
          appropriate category or categories where applicable
          and complete the missing information as appropriate}:
        

	  	  	  
	 [   ]
	(a) 	a director, senior officer or control person of the Company,
        or of an affiliate of the Company; or 
	  	  	  
	 [   ]
	(b) 	a spouse, parent, grandparent, brother, sister or child of
        __________________________  (insert name), a director,
        senior officer or control person of the Company, or of an affiliate of
        the Company; or 
	  	  	  
	 [   ]
	(c) 	a close personal friend of __________________________ 
        (insert name), a director, senior officer or control person of
        the Company, or of an affiliate of the Company; or 
	  	  	  
	 [   ]
	(d) 	a close business associate of __________________________ 
        (insert name), a director, senior officer or control person of
        the Company, or of an affiliate of the Company; or 
	  	  	  
	[   ]	(e) 	a founder of the Company; or 
	  	  	  
	 [   ]
	(f) 	a parent, grandparent, brother, sister, child, spouse, close
        personal friend or close business associate of __________________________ 
        (insert name), a founder of the Company; or 
	  	  	  
	 [   ]
	(g) 	a person or company that is wholly-owned by, or a majority
        of its board of directors is comprised of, any combination of persons
        or companies described in §(a) to (f) above; or 
	  	  	  
	 [   ]
	(h) 	a trust or estate of which all of the beneficiaries or a
        majority of the trustees are persons or companies described in §(a)
        to (f) above. 
	  	  	  
	OR 	  	  
	  	  	  
	3. 	 is resident in the Province
          of Ontario and is {please check the appropriate category
          or categories where applicable and complete the missing information
          as appropriate}: 

	  	
	  	  	  
	 [   ]
	(a) 	a founder of the Company, or an affiliate of __________________________
        (insert name), a founder of the Company; or 
	  	  	  
	 [   ]
	(b) 	a spouse, parent, brother, sister, grandparent or child of
        __________________________  (insert name),
        an executive officer, director or founder of the Company; or 
	  	  	  
	[   ]	(c) 	a control person of the Company. 
	  	  	  
	OR 	  	  




43





	
      4. 
	
      as defined in National Instrument 45-106 - Prospectus
      and Registration Exemptions {please check the
      category where applicable}: 

	
      
	
      
	
       

	
      [   ]
	
      an employee, executive officer, director or consultant of
      the Company, of a related entity of the Company or of a permitted assign
      of one of those persons and the purchase of the Units is voluntary.
  

	
      
	
      
	
       

	
      OR 
	
      
	
      

	
      
	
      
	
       

	
      5. 
	
      {please check the appropriate category or
      categories where applicable}: 

	
      
	
      
	
       

	
      [   ]
	
      (a) 
	
      an individual and will have an aggregate acquisition cost
      for the Units of not less than $150,000; or 

	
      
	
      
	
       

	
      [   ]
	
      (b) 
	
      not an individual but is a corporation, partnership,
      trust, fund, association or any other organized group of persons that was
      not created solely, nor used primarily, to permit a group of individuals
      to purchase securities without a prospectus which will have an aggregate
      acquisition cost of purchasing the Units of not less than $150,000.
  



Dated at __________,
__________, on this _____day of __________, 2009.

 

_____________________________________________________________
Name
of Purchaser - please print

By:
_____________________________________________________________
Official
Capacity or Title - please print

_____________________________________________________________
Signature
of Purchaser

_____________________________________________________________
Please
print name of individual whose signature appears above if different than the
Purchaser

Purchaser’s Address:
_____________________________________________________________
                                       _____________________________________________________________

__________

44




Schedule 3.1(a) – List of the Company’s Subsidiaries

The Company’s sole subsidiary is Penasco Petroleum, Inc., a
wholly-owned subsidiary incorporated under the laws of the State of Nevada.

45




Schedule 3.1(g) – The Company’s Capitalization

Common Shares

In the Company’s most recent 10-Q (for the quarterly period
ended April 30, 2009), the Company disclosed that it had 29,231,779 shares of
common stock issued and outstanding as of June 12, 2009. Since June 12, 2009 to
the date of this Securities Purchase Agreement, the Company has issued an
aggregate of 1,282,356 shares of common stock, bringing the Company’s issued and
outstanding shares of common stock to 30,514,135.

Share Purchase Warrants

In the Company’s most recent 10-Q (for the quarterly period
ended April 30, 2009), the Company disclosed that it had warrants to purchase
6,360,279 shares of common stock outstanding as of April 30, 2009. Since April
30, 2009, the Company extended the expiry date of the exercise period for
outstanding warrants to purchase 5,158,238 shares of common stock for one year
(from August 14, 2009 to August 14, 2010. In addition, since April 30, 2009, the
Company issued warrants to purchase an aggregate of 1,139,498 shares of common
stock. As such, as of the date of this Securities Purchase Agreement, the
Company has warrants to purchase 7,499,777 shares issued and outstanding.

Stock Options

In the Company’s most recent 10-Q (for the quarterly period
ended April 30, 2009), the Company disclosed that it had options to purchase
4,300,000 shares of common stock outstanding as of April 30, 2009. Since April
30, 2009, the Company has issued options to purchase an aggregate of 2,230,000
shares of common stock. As such, as of the date of this Securities Purchase
Agreement, the Company has options to purchase 6,530,000 shares issued and
outstanding.

46




Schedule 3.1(i) – Material Changes; Undisclosed Events,
Liabilities or Developments

None.

47




Schedule 3.1(r) – Sarbanes-Oxley; Internal Accounting
Controls

As of the date of the Securities Purchase Agreement, the
Company has not been required to provide a management report with respect to
internal control of financial reporting. The Company will be required to provide
such management report in its Annual Report on Form 10-K for its fiscal year
ended July 31, 2009.

48




Schedule 3.1(s) – Certain Fees.

In addition to the fees and expenses identified in Section 5.2
of the Securities Purchase Agreement, certain brokerage or finders’ fees or
commissions are or will be payable by the Company (in the form of cash and/or
the issuance of warrants to purchase shares of common stock of the Company) with
respect to the transactions contemplated in the Transaction Documents. 

49




Schedule 3.1(ee) -- The Company’s Accounting Firm 

Dale Matheson Carr-Hilton LaBonte LLP

50




Schedule 3.1(ff) – Fees Owed to Accountants and Lawyers


As of the date of the Securities Purchase Agreement, the
following fees have been billed to the Company by its auditors and lawyers and
remain outstanding: (i) CDN$196,797.38 payable to Lang Michener LLP and (ii)
US$11,417.11 payable to Dale Matheson Carr-Hilton LaBonte LLP.

51