Lithium Exploration Group, Inc. - Exhibit 10.1 - Filed by newsfilecorp.com






SECURITIES PURCHASE AGREEMENT 

          This
Securities Purchase Agreement (this “Agreement”) is dated as of June 29,
2011, between Lithium Exploration Group, Inc., a Nevada corporation (the
“Company”), and the purchaser identified on the signature page hereto
(including its successors and assigns, the “Purchaser”). 

          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 the Purchaser, and the Purchaser 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 the Purchaser agree as follows: 

ARTICLE I. 

  DEFINITIONS 

          1.1        Definitions.
In addition to the terms defined elsewhere in this Agreement: (a) capitalized
terms that are not otherwise defined herein have the meanings given to such
terms in the Debentures (as defined herein), and (b) 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 4.7. 

          “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. 

          “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 Purchaser’s obligations to pay the initial
Subscription Amount and (ii) the Company’s obligations to deliver the
Securities, in each case, have been satisfied or waived, but in no
event later than the third Trading Day following the date hereof. 




          “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, right, option, warrant
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 Macdonald Tuskey, with offices located at 400-570 Granville
St., Vancouver, BC V6C 3P1. 

          “Conversion
Price” shall have the meaning ascribed to such term in the Debentures. 

          “Debentures”
means the 12% Senior Convertible Debentures due, subject to the terms therein,
18 months from their date of issuance, issued by the Company to the Purchaser
hereunder, in the form of Exhibit A attached hereto. 

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

          “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
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 owner of 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, and (d) Common Stock issued or issuable at a price no
lower than the then current market price for such shares on the Trading Market.

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          “FCPA”
means the Foreign Corrupt Practices Act of 1977, as amended. 

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

          “Guarantee”
shall mean the guarantee pledge of Alexander Walsh, pledging certain shares of
the Company’s common stock to guarantee the terms of the Debentures. 

          “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) . 

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

          “Liens”
means a lien, charge, pledge, 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) .


          “Maximum
Rate” shall have the meaning ascribed to such term in Section 5.17. 

          
“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. 

          “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
4.3(b) . 

          “Purchaser
Party” shall have the meaning ascribed to such term in Section 4.10. 

          “Registration
Statement” means a registration statement covering the resale of the
Underlying Shares by the Purchaser. 

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


          “Required
Minimum” means, as of any date, the maximum aggregate number of shares of
Common Stock then issued or potentially issuable in the future pursuant to the
Transaction Documents, including any Underlying Shares issuable upon exercise in
full of all Warrants or conversion in full of all Debentures (including
Underlying Shares issuable as payment of interest on the Debentures), ignoring
any conversion or exercise limits set forth therein, and assuming that the
Conversion Price is at all times on and after the date of determination 75% of
the then Conversion Price on the Trading Day immediately prior to the date of
determination. 

          “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 Debentures, the Warrants, the Warrant Shares and the Underlying
Shares. 

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

          “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).

          “SRFF”
means Sichenzia Ross Friedman Ference LLP with offices located at 61 Broadway,
New York, New York 10006. 

          
“Subscription Amount” means, as to the Purchaser, the aggregate amount to
be paid for Debentures and Warrants purchased hereunder. 

          
“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. 

4 




          “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 Debentures, the
Warrants, the Guarantee, all exhibits and schedules thereto and hereto and any
other documents or agreements executed in connection with the transactions
contemplated hereunder. 

          “Transfer
Agent” means Island Stock Transfer, the current transfer agent of the
Company, with a mailing address of 100 Second Avenue South, St. Petersburg, FL
33701 and a facsimile number of 727-289-0010, and any successor transfer agent
of the Company. 

          “Underlying
Shares” means the shares of Common Stock issued and issuable upon conversion
of the Debentures and upon exercise of the Warrants and issued and issuable in
lieu of the cash payment of interest on the Debentures in accordance with the
terms of the Debentures. 

          
“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 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
Purchaser 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 purchased by the
Purchaser hereunder 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 B attached hereto. 

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

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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 Purchaser agrees to purchase $1,000,000 in principal amount of the
Debentures. The Purchaser shall deliver to the Company, via wire transfer or a
certified check, immediately available funds, and the Company shall deliver to
the Purchaser its Debenture and a Warrant, as determined pursuant to Section
2.2(a), and the Company and the 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 SRFF or such other location as the parties shall
mutually agree. On or before the earlier to occur of August 1, 2011 or the date
which is five calendar days after the date the SEC declares the Registration
Statement effective, the Purchaser shall purchase an additional aggregate of
$500,000 principal amount of Debentures, together with Warrants, on the same
terms and conditions. 

          2.2      
 Deliveries. 

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

          (i)      this
Agreement duly executed by the Company; 

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

          (iii)      a
Debenture with a principal amount the Purchaser’s Subscription Amount,
registered in the name of the Purchaser;

          (iv)      a
Warrant registered in the name of the Purchaser to purchase up to a number of
shares of Common Stock equal to 100% of the Purchaser’s Subscription Amount
divided by the initial Conversion Price of the Debenture, with an initial
exercise price equal to 110% of the initial Conversion Price of the Debenture;
and 

          (v)      the
Guarantee, duly executed by the guarantor. 

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

          (i)      this
Agreement duly executed by the Purchaser; and 

          (ii)     
the Purchaser’s Subscription Amount by wire transfer to the account as specified
in writing by the Company; 

          2.3       
Closing Conditions.

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          (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 Purchaser contained herein (unless as of a specific date
therein in which case they shall be accurate as of such date); 

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

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

          (b)      
 The obligations of the Purchaser 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); 

          (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
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 the Purchaser, makes it impracticable or inadvisable to
purchase the Securities at the Closing. 

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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 the 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 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
this Agreement and each of the other Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and each of the other 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 herewith or therewith other than in
connection with the Required Approvals. This Agreement and each other
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. 

8 




          (d)      
 No Conflicts. The execution, delivery and performance by the
Company of this Agreement and the other Transaction Documents to which it is a
party, the issuance and sale of the Securities and the consummation by it of the
transactions contemplated hereby and thereby 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 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 notice and/or application(s) to each applicable Trading
Market for the issuance and sale of the Securities and the listing of the Shares
and Warrant Shares for trading thereon in the time and manner required thereby
and (ii) 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 Underlying 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 a
number of shares of Common Stock for issuance of the Underlying Shares at least
equal to the Required Minimum on the date hereof.

9 




          (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. 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 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 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
Purchaser) 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
duly authorized, 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 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. 

10 




          (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 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 businesses, 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.

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          (k)      
 Labor Relations. No 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. To the knowledge of the Company, no
executive officer of the Company or any Subsidiary, 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 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 other
governmental authority 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 relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as could not have
or reasonably be expected to result in a Material Adverse Effect. 

12 




          (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 (i) 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 (ii) Liens for the
payment of federal, state or other taxes, for which appropriate reserves have
been made therefor in accordance with GAAP and, 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)       
Intellectual Property. 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 required for use in connection with their
respective businesses and which the failure to so have could have a Material
Adverse Effect (collectively, the “Intellectual Property Rights”).
None of, and neither the Company nor any Subsidiary has received a notice
(written or otherwise) that any of, the Intellectual Property Rights has
expired, terminated or been abandoned, or is expected to expire or terminate or
be abandoned, within two (2) years from the date of this Agreement. Neither the
Company nor any Subsidiary has received, since the date of the latest audited
financial statements included within the SEC Reports, a written notice of a
claim or otherwise has any knowledge that the Intellectual Property Rights
violate or infringe upon the rights of any Person, except as could not have or
reasonably be expected to not have a Material Adverse Effect. 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)       
Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged, including, but not limited to, directors and
officers insurance coverage at least equal to the aggregate
Subscription Amount. Neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business without a significant increase in
cost. 

13 




          (q)       
Transactions With Affiliates and Employees. Except as set forth in the
SEC Reports, none of the officers or directors of the Company or any Subsidiary
and, to the knowledge of the Company, none of the employees of the Company or
any Subsidiary 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 providing for the borrowing of money from or lending of
money to, 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, stockholder, member 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 and the
Subsidiaries are in compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and
all applicable rules and regulations promulgated by the Commission thereunder
that are effective as of the date hereof and as of the Closing Date. 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 and the Subsidiaries have
established disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries 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 disclosure controls and procedures of
the Company and the Subsidiaries as of the end of the period covered by the most
recently filed periodic report under the Exchange 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 internal control over financial reporting (as such term is
defined in the Exchange Act) that have materially affected, or is reasonably
likely to materially affect, the internal control over financial reporting of
the Company and its Subsidiaries. 

14 




          (s)       
Certain Fees. No brokerage or finder’s fees or commissions are or will be
payable by the Company or any Subsidiaries 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
Purchaser 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 Purchaser’s
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 Purchaser 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. No Person has any right to cause the Company
to effect the registration under the Securities Act of any securities of the
Company or any Subsidiaries. 

          (w)      
 Listing and Maintenance Requirements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act or the Company
is obligated to file reports with the SEC pursuant to Section 15(d) 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. 

          (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 Purchaser as a result of the Purchaser 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 Purchaser’s ownership of the Securities. 

15 




          (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 the Purchaser 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 Purchaser 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 Purchaser
regarding the Company and its Subsidiaries, their respective businesses 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 the Purchaser has not
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 Purchaser’s
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 capital needs taking into account the
particular capital requirements of the business conducted by the Company,
consolidated 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. Schedule 3.1(aa) sets forth as of
the date hereof all outstanding secured and unsecured Indebtedness of the
Company or any Subsidiary, or for which the Company or any Subsidiary has
commitments. 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 consolidated 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. 

16 




          (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 its Subsidiaries each (i) has made or filed all United
States federal, state and local income and all foreign income and franchise tax
returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations and (iii) has set aside on its books provision
reasonably adequate for the payment of all material taxes for periods subsequent
to the periods to which such returns, reports or declarations apply. There are
no unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company or of any Subsidiary know
of no basis for any such claim. 

          (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 Purchaser and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act. 

          (dd)     
Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to
the knowledge of the Company or any Subsidiary, any agent or other person acting
on behalf of the Company or any Subsidiary, 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 any Subsidiary (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 fiscal year ending June 30, 2011. 

          (ff)      Seniority.
As of the Closing Date, no Indebtedness or other claim against the Company is
senior to the Debentures in right of payment, whether with respect to interest
or upon liquidation or dissolution, or otherwise, other than indebtedness
secured by purchase money security interests (which is senior only as to
underlying assets covered thereby) and capital lease obligations (which is
senior only as to the property covered thereby). 

          (gg)     
No Disagreements with Accountants and Lawyers; Outstanding SEC
Comments. 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 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. There are no comments outstanding with respect
to any review of the Company’s Exchange Act filings by the SEC, or any other
review by the SEC. 

          (hh)     
Acknowledgment Regarding Purchaser’s Purchase of Securities. The Company
acknowledges and agrees that the Purchaser 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 the
Purchaser is not 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 the 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
Purchaser’s purchase of the Securities. The Company further represents to the
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. 

          (ii)      Acknowledgment
Regarding Purchaser’s Trading Activity. Anything in this Agreement or
elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and
4.16 hereof), it is understood and acknowledged by the Company that: (i) the
Purchaser has not been asked by the Company to agree, nor has the Purchaser
agreed, to desist from purchasing or selling, long, 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 the Purchaser, other than Short
Sales, which may negatively impact the market price of the Company’s
publicly-traded securities, (iii) the 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) the Purchaser 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 Underlying 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 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. 

18 




          (jj)      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. 

          (kk)     
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. 

          (ll)      Office
of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to
the Company's knowledge, any director, officer, agent, employee or affiliate of
the Company or any Subsidiary is currently subject to any U.S. sanctions
administered by the Office of Foreign Assets Control of the U.S. Treasury
Department (“OFAC”). 

          (mm)     
U.S. Real Property Holding Corporation. The Company is not and has never
been a U.S. real property holding corporation within the meaning of Section 897
of the Internal Revenue Code of 1986, as amended, and the Company shall so
certify upon Purchaser’s request. 

          (nn)     
Bank Holding Company Act. Neither the Company nor any of its Subsidiaries
or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to
regulation by the Board of Governors of the Federal Reserve System (the
“Federal Reserve”). Neither the Company nor any of its Subsidiaries or
Affiliates owns or controls, directly or indirectly, five percent (5%) or more
of the outstanding shares of any class of voting securities or twenty-five
percent or more of the total equity of a bank or any entity that is subject to
the BHCA and to regulation by the Federal Reserve. Neither the Company nor any
of its Subsidiaries or Affiliates exercises a controlling influence over the
management or policies of a bank or any entity that is subject to the BHCA and
to regulation by the Federal Reserve. 

19 




          (oo)      Money
Laundering. The operations of the Company and its Subsidiaries are and have
been conducted at all times in compliance with applicable financial
record-keeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, applicable money laundering
statutes and applicable rules and regulations thereunder (collectively, the
“Money Laundering Laws”), and no action, suit or proceeding by or before
any court or governmental agency, authority or body or any arbitrator involving
the Company or any Subsidiary with respect to the Money Laundering Laws is
pending or, to the knowledge of the Company or any Subsidiary, threatened. 

          3.2   
    Representations and Warranties of the Purchaser.
The 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. The Purchaser is an entity duly
incorporated or formed, validly existing and in good standing under the laws of
the jurisdiction of its incorporated or formed with full right, corporate,
partnership, limited liability company or similar 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 the
Purchaser of the transactions contemplated by the Transaction Documents have
been duly authorized by all necessary limited liability company or similar
action, as applicable, on the part of the Purchaser. Each Transaction Document
to which it is a party has been duly executed by the Purchaser, and when
delivered by the Purchaser in accordance with the terms hereof, will constitute
the valid and legally binding obligation of the 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.


          (b)       
Own Account. The 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 the Purchaser’s right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws). The Purchaser is acquiring
the Securities hereunder in the ordinary course of its business. 

20 




          (c)      
 Purchaser Status. At the time the 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 or converts any Debentures it will be either: (i) an
“accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as
defined in Rule 144A(a) under the Securities Act. The Purchaser is not required
to be registered as a broker-dealer under Section 15 of the Exchange Act. 

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

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

          (f)      
 Certain Transactions. Other than consummating the transactions
contemplated hereunder, the Purchaser has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with the
Purchaser, executed any purchases or sales, including Short Sales, of the
securities of the Company during the period commencing as of the time that the
Purchaser first received a term sheet (written or oral) from 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. The Purchaser agrees not to engage in any Short Sales of the
Company’s securities while any Debentures remain outstanding. 

The Company acknowledges and agrees that the representations
contained in Section 3.2 shall not modify, amend or affect the 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. 

21 




ARTICLE IV. 

  OTHER AGREEMENTS OF THE PARTIES 

          4.1       
Transfer Restrictions. 

          (a)      
 The Securities may only be disposed of in compliance with state and
federal 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 shall have the rights and
obligations of a Purchaser under this Agreement.

          (b)       
The Purchaser agrees to the imprinting, so long as is required by this Section
4.1, of a legend on any of the Securities in the following form: 

[NEITHER] THIS SECURITY [NOR THE
SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] 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 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
[AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF 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. 

          The
Company acknowledges and agrees that the 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, if required under the terms of such arrangement, the Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties. 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 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. 

22 




          (c)       
Certificates evidencing the Underlying Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof): (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 Underlying Shares pursuant to Rule 144, (iii) if such
Underlying 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 Underlying Shares and without volume or manner-of-sale
restrictions or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). 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
legend hereunder. If all or any portion of a Debenture is converted or Warrant
is exercised at a time when there is an effective registration statement to
cover the resale of the Underlying Shares, or if such Underlying 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 such Underlying 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
Underlying Shares and without volume or manner-of-sale restrictions or if such
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 Underlying Shares shall be issued free of all
legends. The Company agrees that following the Effective Date or at such time as
such 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 Underlying Shares, as
applicable, issued with a restrictive legend (such third Trading Day, the
“Legend Removal Date”), deliver or cause to be delivered to the Purchaser
a certificate representing such shares that is free from all restrictive and
other legends. 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 Underlying Shares 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 the Purchaser. With respect to any legal opinions
required to be provided by Company counsel, such opinions shall only be issued
to the extent that Rule 144 is then available to the Purchaser and that
documentation reasonably requested by such counsel shall have been provided by
the Purchaser. 

          (d)       
In addition to the 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 Underlying 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 legend 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 a legend.
Nothing herein shall limit the Purchaser’s right to pursue actual damages for
the Company’s failure to deliver certificates representing any Securities as
required by the Transaction Documents, and the 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. 

23 




          (e)       
The Purchaser agrees with the Company that the 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, 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 restrictive 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      
 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 Underlying
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 the Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company. 

          4.3      
 Furnishing of Information; Public Information.

          (a)      
 The Company covenants 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, until
such time as the Purchaser does not own any Debentures, Warrants or other
Securities. 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, including but not limited to the
furnishing of opinions of counsel by Company counsel for the benefit of the
Purchaser, without cost to the Purchaser.

          (b)      
 At any time during the period commencing on 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 the Company shall fail for
any reason to satisfy the current public information requirement
under Rule 144(c) (a “Public Information Failure”) then, if such
Public Information Failure shall cause Rule 144 to be unavailable to the
Purchaser in the reasonable opinion of counsel to the Purchaser, in addition to
the Purchaser’s other available remedies, such Public Information Failure shall
constitute an Event of Default under the Debentures. Nothing herein shall limit
the Purchaser’s right to pursue actual damages for the Public Information
Failure, and the 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. 

24 




          4.4      
 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.

          4.5      
 Conversion and Exercise Procedures. Each of the form of Notice of
Exercise included in the Warrants and the form of Notice of Conversion included
in the Debentures set forth the totality of the procedures required of
the Purchaser in order to exercise the Warrants or convert the Debentures. No
additional legal opinion, other information or instructions shall be required of
the Purchaser to exercise their Warrants or convert their Debentures. The
Company shall honor exercises of the Warrants and conversions of the Debentures
and shall deliver Underlying Shares in accordance with the terms, conditions and
time periods set forth in the Transaction Documents. 

          4.6       
Securities Laws Disclosure; Publicity. The Company shall, by 9:00 a.m.
(New York City time) on the second Trading Day immediately following the date
hereof, file a Current Report on Form 8-K disclosing the material terms of the
transactions contemplated hereby, including the Transaction Documents as
exhibits thereto. From and after the issuance of such Form 8-K, the Company
represents to the Purchaser that it shall have publicly disclosed all material,
non-public information delivered to the Purchaser 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 the Purchaser shall consult with each other in
issuing any press releases with respect to the transactions contemplated hereby,
and neither the Company nor the 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 the Purchaser, or without the
prior consent of the 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.

          4.7      
 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that the
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 the 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 Purchaser. 

25 




          4.8       
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 the Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto the Purchaser shall have entered into a written agreement with the
Company regarding the confidentiality and use of such information. The Company
understands and confirms that the Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company. 

          4.9       
  Use of Proceeds. Except as set forth on Schedule 4.9 attached
  hereto, the Company shall use the net proceeds from the sale of the Securities
  hereunder for working capital purposes and shall not use such proceeds: (a)
  for the satisfaction of any portion of the Company’s debt (other than payment
  of trade payables in the ordinary course of the Company’s business and
  prior practices), (b) for the redemption of any Common Stock or Common Stock
  Equivalents, (c) for the settlement of any outstanding litigation or (d) in
  violation of FCPA or OFAC regulations.

          4.10      Indemnification
of Purchaser. Subject to the provisions of this Section 4.10, the Company
will indemnify and hold the 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 the 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 the 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 the Purchaser Parties in any
capacity, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of Purchaser Party, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of the Purchaser Party’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
the Purchaser Party may have with any such stockholder or any violations by such
Purchaser Party of state or federal securities laws or any conduct by the
Purchaser Party 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 Agreement, the
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 the 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 the 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 the Purchaser Party in this Agreement or in the other Transaction Documents.
The indemnification required by this Section 4.10 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or are incurred. The indemnity
agreements contained herein shall be in addition to any cause of action or
similar right of any Purchaser Party against the Company or others, and (y) any
liabilities the Company may be subject to pursuant to law. 

26 




          4.11      Reservation
and Listing of Securities. 

          (a)       
The Company shall maintain a reserve from its duly authorized shares of Common
Stock for issuance pursuant to the Transaction Documents in such amount as may
then be required to fulfill its obligations in full under the Transaction
Documents. 

          (b)      
 If, on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than the Required Minimum on such
date, then the Board of Directors shall use commercially reasonable efforts to
amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least the
Required Minimum at such time, as soon as possible and in any event not later
than the 75th day after such date. 

          (c)       
The Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing or quotation on such Trading Market as soon as possible
thereafter, (iii) provide to the Purchaser evidence of such listing or quotation
and (iv) maintain the listing or quotation of such Common Stock on any date at
least equal to the Required Minimum on such date on such Trading Market or
another Trading Market. 

          4.12     
Subsequent Equity Sales. From the date hereof until such time as the
Purchaser holds no Debentures, 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), other than with respect to an Exempt
Issuance.

27 




          4.13      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 the 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 Purchaser 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. 

ARTICLE V. 

  MISCELLANEOUS 

          5.1      
 Termination. This Agreement may be terminated by the Purchaser by
written notice to the Company, if the Closing has not been consummated on or
before July 10, 2011. 

          5.2      
 Fees and Expenses. At the Closing, the Company has agreed to
reimburse he Purchaser the non-accountable sum of $25,000 for its legal fees and
expenses. 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 Purchaser. The Company shall pay the fees of counsel
designated by the Purchaser to prepare a file the Registration Statement with
the SEC. 

          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 thereof 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 at or 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. 

28 




          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 the Purchaser 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 the Purchaser (other than by merger). The
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom the 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
“Purchaser”, further provided that the Purchaser may not assign this Agreement
and its obligation to purchase an aggregate of $1,500,000 principal amount of
Debentures, until all of such Debentures have been purchased by the Purchaser.


          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, nor may any provision hereof be enforced by, any
other Person, except as otherwise set forth in Section 4.10. 

          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, partners, members,
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, suit or
proceeding to enforce any provisions of the Transaction Documents, then, in
addition to the obligations of the Company under Section 4.10, the prevailing
party in such action, suit 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. 

 29 




          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 each other party, it being understood that the 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,
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 the
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 a conversion of a Debenture
or exercise of a Warrant, the applicable Purchaser shall be required to return
any shares of Common Stock subject to any such rescinded conversion or exercise
notice concurrently with the return to the Purchaser of the aggregate exercise
price paid to the Company for such shares and the restoration of the Purchaser’s
right to acquire such shares pursuant to the Purchaser’s Warrant (including,
issuance of a replacement warrant certificate evidencing such restored right).


30 




          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, the Purchaser 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. 

          5.17     
Usury. To the extent it may lawfully do so, the Company hereby agrees not
to insist upon or plead or in any manner whatsoever claim, and will resist any
and all efforts to be compelled to take the benefit or advantage of, usury laws
wherever enacted, now or at any time hereafter in force, in connection with any
claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum
Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other
sums in the nature of interest that the Company may be obligated to pay under
the Transaction Documents exceed such Maximum Rate. It is agreed that if the
maximum contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate
of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date thereof forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by
the Purchaser to the unpaid principal balance of any such indebtedness or be
refunded to the Company, the manner of handling such excess to be at the
Purchaser’s election. 

31 




          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 have 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 thereto. 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.

(Signature Pages Follow) 

32 




          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. 

	LITHIUM EXPLORATION GROUP, INC. 	Address for Notice: 
	  	3200 N. Hayden Road Suite 
	  	Scottsdale, AZ 85251 
	  	  
	By:__________________________________________ 	Fax: 480 641 4794 
	       Name: 	  
	       Title: 	  


With a copy to (which shall not constitute notice): 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 

  SIGNATURE PAGE FOR PURCHASER FOLLOWS] 

33 




[PURCHASER SIGNATURE PAGES TO 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 to Purchaser: 

 

 

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

 

 

Subscription Amount: _____________

Warrant Shares: _________________


 

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER] 

[SIGNATURE PAGES CONTINUE] 

34