Document:

Exhibit 10.6

 

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

 

This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of the first day of September,
2008, by and between Sciele Pharma, Inc.,
a Delaware corporation (the “Company”), and Joseph
Ciaffoni (“Executive”), and shall become
effective as of the Effective Date (as defined below).

 

WITNESSETH:

 

WHEREAS, Executive is currently serving as Executive
Vice President and Chief Commercial Officer of the Company pursuant to
that certain Amended and Restated Employment Agreement, dated as of July 7,
2008, by and between the Company and Executive (the “Existing Employment Agreement”);

 

WHEREAS, contemporaneously herewith, the Company has entered into an
Agreement and Plan of Merger (the “Merger Agreement”)
with Shionogi & Co. Ltd. (“Parent”) and
Tall Bridge, Inc. (“Merger  Sub”), contemplating the acquisition by Parent and Merger
Sub of the Company, including the merger of the Company with and into Merger
Sub, with the Company as the surviving corporation;

 

WHEREAS, the parties desire to amend and restate the terms and
conditions of employment between the Company and Executive, to be effective
upon, and subject to, the consummation of the merger of the Company and Merger
Sub, as contemplated by the Merger Agreement (the “Merger”);
and

 

WHEREAS, effective as of the Effective Date (provided that Executive is employed with the Company as of
the Effective Date), this Agreement shall supersede the Existing
Employment Agreement.

 

NOW, THEREFORE, in consideration of Executive’s continued employment,
the covenants and mutual agreements set forth herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:

 

1.             Employment.
Throughout the Term (as defined in Section 2 below), the Company shall
employ Executive as provided herein, and Executive hereby accepts such
employment.  In accepting such employment,
Executive states that he is not now, and by accepting such employment, will not
be, under any restrictions in the performance of the duties contemplated under
this Agreement as a result of the provisions of any prior employment agreement
or non-compete or similar agreement to which Executive is or was a party.

 

2.             Term of Employment.
The term of Executive’s employment by the Company hereunder shall commence upon
consummation of the Merger (the “Effective Date”)
and shall continue until December 31, 2012, unless sooner terminated as a
result of Executive’s death or in accordance with the provisions of Section 6
below (the “Initial 

 

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Term”).  At the conclusion of the Initial Term,
this Agreement shall automatically renew for successive one-year periods (each,
a “Renewal  Term”,
and collectively with the Initial Term, the “Term”)
unless notice is provided by either party of its or his intent not to renew this
Agreement at least ninety (90) days prior to the conclusion of the Initial Term or any
Renewal Term.  Any election by the Company
not to renew this Agreement at the conclusion of the Initial Term or any
Renewal Term shall be deemed a termination without Cause (as defined in Section 6(c) below)
by the Company pursuant to Section 6(a)(iii) below for all purposes
of this Agreement, and any election by Executive not to renew this Agreement at the
conclusion of the Initial Term or any Renewal Term shall be deemed a
termination without Good Reason (as defined in Section 6(d) below)
by Executive pursuant to Section 6(b)(i) below for all
purposes of this Agreement.  In the
event that Executive’s employment with the Company terminates for any reason prior to
the Effective Date or the Merger does not occur for any reason, this
Agreement shall be void ab initio without
further action on the part of either party.

 

3.        Duties.
Throughout the Term, and except as otherwise expressly provided herein,
Executive shall be employed by the Company as the Executive Vice President and Chief
Commercial Officer of the Company.  Executive
shall devote his full time to the performance of his duties as Executive
Vice President and Chief Commercial Officer of the Company in accordance
with the Company’s bylaws, this Agreement and the directions of the Company’s
Board of Directors (the “Board”) and, if
applicable, any executive officer of the Company who is senior to Executive.  Without limiting the generality of the
foregoing, throughout the Term, Executive shall faithfully perform his duties
as Executive
Vice President and Chief Commercial Officer at all times so as to
promote the best interests of the Company.

 

4.        Compensation.

 

(a)       Salary. For any and all services performed by Executive
under this Agreement during the Term, in whatever capacity, the Company shall
pay to Executive an annual base salary (the “Salary”).
 The Salary shall be paid in the same
increments as the Company’s normal payroll, but no less frequently than
bi-monthly and prorated, however, for any period of less than a full month.  The Salary for the remainder of calendar year
2008 will remain $300,000 per annum, the Salary for calendar year 2009 will be
$387,500 per annum, and the Salary for calendar year 2010 will be $475,000 per
annum.  Thereafter, the Salary
will be reviewed annually by the Board, commencing with calendar year 2011,
and a determination shall be made by the Board at that time as to the amount of
the increase thereto for the following calendar year; provided that
Executive’s Salary with respect to any calendar year during the Initial Term commencing
with 2011 shall be not less than four percent (4%)
more than Executive’s prior year’s Salary.  Except
as described in Section 6(d) below, the Salary shall not be decreased
during the Term without the consent of Executive.

 

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(b)      Annual Bonus.

 

(i)        Executive’s
annual incentive compensation bonus with respect to calendar year 2008 shall be
paid in accordance with the terms and conditions of the annual incentive
compensation plan in which he participates as of the date hereof, other than
with respect to the amount payable under such plan, which shall be guaranteed
to be paid at target.

 

(ii)       With
respect to each calendar year during the Term commencing with 2009,
Executive shall be eligible to receive from the Company an annual incentive
compensation bonus (the “Annual Bonus”)
in a target amount equal to a percentage of the Salary for such
year (the “Target Annual Bonus”).  With respect to calendar year 2009, (A) the
Target Annual Bonus shall be an amount equal to sixty percent (60%) of the
Salary for calendar year 2009; and (B) the performance criteria shall be
mutually agreed upon following the date hereof and prior to the Effective
Date.  With respect to calendar year 2010
and thereafter during the Term, the Target Annual Bonus and performance
criteria shall be determined by the Board in its sole discretion; provided that Executive’s Target Annual Bonus shall be not
less than Executive’s prior year’s Target Annual Bonus.

 

(iii)      Except
as described in Section 6(d) below, the Target Annual Bonus shall not be
decreased during the Term without the consent of Executive.

 

(iv)     Satisfaction
of performance criteria, which determination shall be made
by the Board in its sole discretion, (A) below eighty percent (80%) shall result in
no payout of the Annual Bonus; (B) at eighty percent (80%) shall result in
a payout of the Annual Bonus at sixty-five percent (65%) of the Target Annual
Bonus; (C) above eighty percent (80%) and at or below one hundred percent
(100%) shall result in a payout of the Annual Bonus in an amount equal to the
Target Annual Bonus multiplied by the Annual Bonus Medium Multiplication
Factor, where the “Annual Bonus Medium
Multiplication Factor” equals the sum of sixty-five percent (65%)
plus the product of one-and-three-quarters percent (1.75%) multiplied by the
number of percentage points above eighty percent (80%) by which the performance
criteria are satisfied; provided that
the Annual Bonus Medium Multiplication Factor shall not exceed one hundred
percent (100%); and (D) above one hundred percent (100%) shall result in a
payout of the Annual Bonus in an amount equal to the Target Annual Bonus
multiplied by the Annual Bonus High Multiplication Factor, where the “Annual Bonus High Multiplication Factor” equals the sum of
one hundred percent (100%) plus the product of five percent (5%) multiplied by
the number of percentage points above one hundred percent (100%) by which the
performance criteria are satisfied; provided that
the Annual Bonus High Multiplication Factor 

 

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shall not exceed two hundred
percent (200%) (for example, if the performance criteria were satisfied at a
92.3% level, then the Annual Bonus would be paid out at 86.525 of the Target
Annual Bonus and, if the performance criteria were satisfied at a 105.4% level,
then the applicable portion of the Annual Bonus would be paid out at 127% of
the Target Annual Bonus).

 

(v)      Subject
to Section 7 below, the Annual Bonus, if any, shall be paid to
Executive not later than March 15 of the year following the calendar year
with respect to which the Annual Bonus was earned; provided that
Executive (x) is employed with the Company on December 31 of such
calendar year and (y) has not given or received a notice of termination of
employment without Good Reason or for Cause on or prior to such December 31.

 

(c)       Long-Term Incentive Compensation. On January 1 of each calendar year
during the Term commencing with 2009, Executive shall be eligible
to receive
from the Company an award under the Company’s long-term incentive
compensation plan (such plan, the “LTIP” and any
such award, a “LTI Award”) in a target
amount equal to a fixed amount (the “Target LTI”).

 

(i)        With
respect to calendar year 2009, (A) the Target LTI shall be $1,080,000; and
(B) the performance criteria shall be mutually agreed upon following the
date hereof and prior to the Effective Date. 
With respect to calendar year 2010 and thereafter during the Term, the Target
LTI and performance criteria (which shall be based on earnings before interest,
taxes, depreciation and amortization (EBITDA)) shall be determined by the Board
in its sole discretion.

 

(ii)       Except
as described in Section 6(d) below, from the end of the Initial Term,
the Target
LTI shall not be decreased during the Term without the consent of
Executive.

 

(iii)      Satisfaction
of performance criteria, which determination shall be made
by the Board in its sole discretion, (A) below eighty percent (80%) shall result in
no payout of the applicable portion of the LTI Award; (B) at eighty
percent (80%) shall result in a payout of the applicable portion of the LTI
Award at seventy percent (70%) of the Target LTI; and (C) above eighty
percent (80%) shall result in a payout of the applicable portion of the LTI
Award in an amount equal to the Target LTI multiplied by the LTI Multiplication
Factor, where the “LTI  Multiplication Factor” equals the sum of seventy percent
(70%) plus the product of one-and-one-half percent (1.5%) multiplied by the
number of percentage points above eighty percent (80%) by which the performance
criteria are satisfied; provided that
the LTI Multiplication Factor shall not exceed one hundred percent (100%) (for
example, if the performance criteria were satisfied at a 92.3% level, then the
applicable portion of the 

 

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LTI Award would be paid out at
88.45% of the Target LTI and, if the performance criteria were satisfied at a
105.4% level, then the applicable portion of the LTI Award would be paid out at
100% of the Target LTI).

 

(iv)     Each LTI
Award shall vest as follows: (A) twenty-five percent (25%) shall vest on December 31
of the calendar year in which the grant date occurs and shall be paid out on
the basis of the satisfaction of performance criteria during such calendar
year; (B) twenty-five percent (25%) shall vest on December 31 of the
first calendar year following the year in which the grant date occurs and shall
be paid out on the basis of the satisfaction of performance criteria during
such first calendar year; (C) twenty-five percent (25%) shall vest on December 31
of the second calendar year following the year in which the grant date occurs
and shall be paid out on the basis of the satisfaction of performance criteria
during such second calendar year; and (D) twenty-five percent (25%) shall
vest on December 31 of the second calendar year following the year in
which the grant date occurs and shall be paid out on the basis of the
cumulative satisfaction of performance criteria during the three calendar years
commencing with the year in which the grant date occurs.

 

(v)      Subject
to Section 7 below, the applicable portion of the LTI Award,
if any, shall be paid to Executive as soon as reasonably practicable following the
applicable vesting date and, in any event, not later than March 15
of the year following the calendar year during which the LTI Award vested;
provided that Executive (x) is
employed with the Company on the applicable vesting date and (y) has not
given or received a notice of termination of employment without Good Reason or
for Cause on or prior to such vesting date.

 

(d)      Total
Direct Compensation Opportunity. 
The sum of Executive’s Salary, Target Annual Bonus and Target LTI shall be
referred to as his “Total Direct Compensation
Opportunity”; it being understood
that Total Direct Compensation Opportunity shall not include any other
compensation, including, but not limited to, the Retention Bonus (as defined in
Section 4(e) below), and benefits. 
Executive’s Total Direct Compensation Opportunity with respect to any
calendar year during the Initial Term commencing with 2010 shall
be not less than four percent (4%) more than Executive’s
prior year’s Total Direct Compensation Opportunity.

 

(e)       Retention Bonus.  On the
Effective Date, Executive shall be entitled to receive from the Company
a retention bonus (the “Retention Bonus”)
in an aggregate amount equal to $1,700,000. 
Subject to Section 7 below, the Retention Bonus shall vest and be paid
out in eight (8) equal semi-annual installments commencing with the six (6) month
anniversary of the Effective Date; provided that
Executive (x) is employed with the Company on the applicable vesting date
and (y) has not given or received a notice of termination of employment
without Good Reason or for Cause on or prior to such vesting date.

 

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(f)       Taxes.  Any and all
amounts payable pursuant to this Agreement shall be less any and all applicable
federal, state and local payroll and withholding taxes.

 

(g)      Board.  If Executive is a member of the Board, he shall recuse
himself from any discussions and decision-making relating to his compensation,
benefits and performance; provided that
he shall be permitted to participate in such discussions (but not any
decision-making) at the invitation of the Board.

 

(h)      Post-December 31,
2008 Effective Date.  The parties
acknowledge their expectation that the Effective Date shall occur on or before December 31,
2008.  However, if the Effective Date
occurs after December 31, 2008, then the parties shall, in good faith,
make appropriate changes to this Agreement to reflect such delay.

 

5.        Benefits and Other Rights.

 

(a)       The
Company will provide Executive with cash advances for or reimbursement of all
reasonable out-of-pocket business expenses incurred by Executive in connection
with his employment hereunder.  Such
reimbursement, which in all cases will be made no later than sixty (60) days
after Executive incurs the expense, is conditioned upon Executive adhering to
any and all reasonable policies established by Company from time to time with
respect to such reimbursements or advances, including, but not limited to, a
requirement that Executive submit supporting evidence of any such expenses to
the Company.

 

(b)      The
Company will provide Executive and his family with the opportunity to receive
group medical coverage under the terms of the Company’s health insurance plan.  In addition, Executive and his eligible
dependents shall be eligible to participate in all other employee benefit
programs applicable to the Company’s senior executives generally (including,
but not limited to, those set forth on Exhibit A attached hereto, during
the period of eighteen (18) months following the Effective Time, to the
extent that Executive is eligible to participate in the programs described
therein as of the date hereof).

 

(c)       During
the Term, Executive shall be entitled to an aggregate of thirty-five (35) days of
paid time off (i.e., paid vacation and paid
personal days) and eight (8) days of federal holidays.  Unused paid time off shall not be carried over from
one year to the next.

 

6.        Termination of the
Agreement.

 

(a)       The
Company shall have the right to terminate this Agreement under the following
circumstances:

 

(i)        Executive
shall die;

 

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(ii)       With
Cause, effective at any time upon written notice to Executive by the Company; or

 

(iii)      Without
Cause, effective at any time upon written notice to Executive by
the Company.

 

(b)      Executive
shall have the right to terminate this Agreement under the following
circumstances:

 

(i)        Without
Good Reason, at any time upon not less than sixty (60) days’ prior written
notice to the Company; or

 

(ii)       For
Good Reason, effective at any time upon written notice to the Company
by Executive.

 

(c)       For
purposes of this Agreement, “Cause” shall
mean:

 

(i)        Executive
shall be convicted of the commission of a felony or a crime involving
dishonesty, fraud or moral turpitude;

 

(ii)       Executive
has engaged in acts of fraud, embezzlement, theft or dishonest acts against the
Company;

 

(iii)      Executive
commits an act which negatively and not insignificantly impacts the Company or
its employees, including, but not limited to, engaging in competition with the
Company, disclosing confidential information or engaging in sexual harassment,
discrimination or other human rights-type violations;

 

(iv)     Executive’s
gross neglect or willful misconduct in the discharge of his duties and
responsibilities; or

 

(v)      Executive’s
repeated refusal to follow the lawful direction of the Board or, if applicable,
supervising officers.

 

(d)      For
purposes of this Agreement, “Good Reason”
shall mean the occurrence of any one or more of the following events which
continues uncured for a period of not less thirty (30) days following written
notice given by Executive to the Company within ninety (90) days after the
later of (x) the occurrence of such event or (y) when Executive
should have reasonably become aware of such occurrence, unless Executive
specifically agrees in writing that such event shall not be Good Reason:

 

(i)        Any
material breach of this Agreement by the Company;

 

(ii)       Any
failure to continue Executive as an executive-level officer of the Company;

 

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(iii)      A
material diminution in Executive’s duties; or assignment to him of duties that
are materially inconsistent with his duties or materially impair his ability to
function as Executive Vice President and Chief Commercial Officer; it being understood that, effective as of the Effective
Time, (A) a change in or assignment of duties attributable to the Company
not being a public company, (B) Executive not being a member of the Board
and (C) Executive reporting to Parent or an affiliate of Parent shall not
constitute Good Reason;

 

(iv)     The
requirement by the Company that Executive relocate his primary location of the performance of
his services under this Agreement outside of the metropolitan Atlanta, Georgia
area;
it being understood that overnight or
short-term business travel in connection with the performance of Executive’s
services under this Agreement shall not constitute Good Reason; or

 

(v)      The
reduction in Executive’s Total Direct Compensation Opportunity below the amounts
contemplated by Section 4 above; it being understood
that (A) such a reduction as part of a broad-based and significant
reduction of compensation generally of employees and senior executives of Parent’s U.S.
operations, as discussed and agreed upon in good faith with Executive, and (B) a
change to the terms and conditions of the LTIP following December 31, 2012
(provided that the overall value of the
LTIP remains substantially the same) shall not constitute Good Reason.

 

7.        Effect of Expiration or
Termination of the Agreement. 
Promptly following the termination of the Agreement, and, except as
otherwise expressly agreed to by the Company in writing:

 

(a)       Executive
shall immediately resign from any and all other positions or committees which
Executive holds or is a member of with the Company or any affiliate of the
Company, including, but not limited to, as an officer and director of the
Company or any affiliate of the Company.

 

(b)      Executive
shall provide the Company with all reasonable assistance necessary to permit
the Company to continue its business operations without interruption and in a
manner consistent with reasonable business practices; provided,
however, that such transition period shall not exceed thirty (30)
days after termination nor require more than twenty (20) hours of Executive’s
time per week and Executive shall be promptly paid for such time (at an hourly
rate commensurate with a pro rata portion of his Salary) as if his employment
were not terminated and shall be reimbursed for all out-of-pocket expenses.

 

(c)       Executive
shall deliver to the Company possession of any and all property owned or leased
by the Company which may then be in Executive’s 

 

8

 

possession or
under his control, including, but not limited to, any and all such keys, credit
cards, automobiles, equipment, supplies, books, records, files, computer
equipment, computer software and other such tangible and intangible property of
any description whatsoever.  If,
following the expiration or termination of the Term, Executive shall receive
any mail addressed to the Company, then Executive shall immediately deliver
such mail, unopened and in its original envelope or package, to the Company.

 

(d)      Other
than as provided in this Section 7, the Company shall cease all other
benefits and/or entitlements to participate in programs or benefits, if any, as
of the effective date of termination, except medical insurance coverage that may be
continued at Executive’s own expense as provided by applicable law or written
Company policy.

 

(e)       Upon
termination of Executive’s employment on account of Executive’s death pursuant
to Section 6(a)(i) above, the Company shall pay to Executive’s
estate a lump sum amount (the “Death Payment”)
equal to the sum of (i) one year’s Salary as then in effect; (ii) the
Annual Bonus with respect to the calendar year during which such death occurs,
at target, prorated to reflect the number of days during such calendar year
during which Executive was employed; (iii) the portion of any outstanding
LTI Award that would have otherwise vested during the performance period in
which such death occurs, at target, prorated to reflect the number of days
during such calendar year during which Executive was employed (for the
avoidance of doubt, in the case of an annual performance period, one (1) year,
and, in the case of a three (3) cumulative performance period, three (3) years);
(iv) any outstanding Retention Bonus that would have otherwise vested
during the semi-annual period in which such death occurs, prorated to reflect
the number of days during such period during which Executive was employed; (v) any
accrued but unpaid Salary through the date of such death; (vi) any accrued
but unused paid time off through the date of such death; and (vii) any
unpaid Annual Bonus, LTI Award or Retention Bonus, in each case that was earned
or vested prior to the date of such death. 
The Death Payment shall be paid to Executive not later than thirty (30)
days after such death occurs.

 

(f)       Upon
termination of Executive’s employment pursuant to Section 6(a)(ii) above
with Cause, Section 6(b)(i) above without Good Reason or Section 2
above
on account of Executive’s non-renewal of this Agreement, the Company shall pay
Executive any accrued but unpaid Salary through the date of such termination and any
accrued but unused paid time off through the date of such termination.

 

(g)      Upon
termination of Executive’s employment pursuant to Section 6(a)(iii) above
without Cause or Section 6(b)(ii) above for Good Reason or Section 2
above
on account of the Company’s non-renewal of this Agreement, the Company shall
provide Executive with the following payments and benefits (the “Severance”):

 

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(i)        payments
made in equal consecutive installments in accordance with the Company’s regular
payroll practices during the twelve (12) months following such termination
in an aggregate amount equal to the sum of (A) two (2) times the Salary at
the highest annual rate in effect during the Term; (B) two (2) times (x) the
Annual Bonus, if any, earned by Executive for the calendar year immediately
preceding such termination or (y) if Executive was not eligible to earn an
Annual Bonus with respect to such year, the Target Annual Bonus;
plus (C) the balance of all outstanding unvested LTI Awards, at target, and
any outstanding unvested Retention Bonus;

 

(ii)       payment of
any unpaid Annual Bonus, LTI Award or Retention Bonus, in each case that was
earned or vested prior to the date of such termination; and

 

(iii)      Company-paid
COBRA coverage for Executive and his eligible dependents which shall be
substantially equivalent to that provided by the Company prior to termination
of Executive’s employment, until the earlier of (A) twenty-four
(24) months after the date of such termination or (B) Executive’s acceptance
of replacement coverage from a third-party employer.

 

The Company’s
obligation to provide the Severance is subject to Executive’s execution and
non-revocation of a release of claims against the Company and its affiliates in
substantially the form on Exhibit B attached hereto.  In addition, upon Executive’s breach of any
of the covenants set forth in Sections 8, 9 or 10 below, the Company’s obligation to
provide the Severance shall immediately cease.

 

In addition, the
Company shall pay Executive any accrued but unpaid Salary through the date of such
termination and any accrued but unused paid time off through the date of such
termination.  These accrued payments,
together with the payment described in Section 6(g)(ii) above, shall
be paid to Executive not later than thirty (30) days after the date of such termination.

 

(h)      For the
avoidance of doubt, Executive acknowledges that, upon the effectiveness of this
Agreement, he shall not have any right to terminate his employment for Good
Reason (for this Section 7(h) only, as defined in the Existing
Employment Agreement) and receive any payments and benefits in connection
therewith.

 

(i)        If
the Company or the Company’s accountants determine that any payment called for
under this Agreement either alone or in conjunction with any other payments or
benefits made available to Executive by the Company will result in Executive
being subject to an excise tax (“Excise Tax”)
under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or if an Excise Tax is assessed against Executive as
a result of such payment or other payments and benefits, the Company shall make
a Gross-Up Payment (as defined 

 

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below) to or
on behalf of Executive as and when such determination(s) and
assessment(s), as appropriate, are made, subject to the conditions of this
subsection (i).  A “Gross-Up Payment” shall mean a payment to or on behalf of
Executive that shall be sufficient to pay (x) any Excise Tax in full, (y) any
federal, state and local income tax and Social Security or other employment tax
on the payment made to pay such Excise Tax as well as any additional Excise Tax
on the Gross-Up Payment and (z) any interest or penalties assessed by the
Internal Revenue Service or any other applicable taxing authority on Executive
if such interest or penalties are attributable to the Company’s failure to
comply with its obligations under this subsection (i) or applicable law.  Any determination under this subsection
(i) by the Company or the Company’s accountants shall be made in
accordance with Section 280G of the Code (including any applicable related
regulations (whether proposed, temporary or final), any related Internal Revenue
Service rulings and any related case law), and shall assume that Executive
shall pay Federal income taxes at the highest marginal rate in effect for the
year in which the Gross-Up Payment is made and state and local income taxes at
the highest marginal rate in effect in the state of Executive’s residence for
such year.  Executive shall take such
action (other than waiving Employee’s right to any payments or benefits) as the
Company reasonably requests under the circumstances to mitigate or challenge
such tax. If the Company reasonably requests that Executive take action to
mitigate or challenge any such tax or assessment and Executive complies with
such request, the Company shall provide Executive with such information and
such expert advice and assistance from the Company’s accountants, lawyers and
other advisors as Executive may reasonably request and shall pay for all
expenses incurred in effecting such compliance and any related fines,
penalties, interest and other assessments. Subject to the provisions of this
subsection (i), all determinations required to be made under this subsection
(i), including whether and when a Gross-Up Payment is required and the amount
of such Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by an independent public accounting firm retained
by the Company (the “Accounting Firm”),
which shall provide detailed supporting calculations both to the Company and
Executive within thirty (30) business days of the receipt of notice from the
Company or Executive, with a copy to the other party, that there has been a
payment that could trigger a Gross-Up Payment, or such earlier time as is
requested by the Company (collectively, the “Determination”), which
shall be binding upon the Company and Executive.  All
fees and expenses of the Accounting Firm shall be borne solely by the Company
and the Company shall enter into any agreement reasonably requested by the
Accounting Firm in connection with the performance of the services hereunder.  The Gross-Up Payment under this
subsection (i) shall be made no later than sixty (60) days following such
payments; provided that the Gross-Up Payment shall
in all events be paid no later than the end of Executive’s taxable year next
following the Executive’s taxable year in which the Excise Tax (and any income
or other related taxes or interest or penalties thereon) on a payment
are remitted to the Internal Revenue Service or any other applicable taxing
authority.  As a result of any
uncertainty in the application of Section 4999 of the 

 

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Code at the
time of the Determination, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made (“Underpayment”)
or Gross-Up Payments are made by the Company which should not have been made (“Overpayment”), consistent with the calculations required to
be made hereunder.  In
the event that Executive thereafter is required to make payment of any
additional Excise Tax, any such Underpayment (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly
paid by the Company to or for the benefit of Executive.  In
the event the amount of the Gross-Up Payment exceeds the amount necessary to
reimburse Executive for his Excise Tax as herein set forth, such Overpayment
(together with interest at the rate provided in Section 1274(b)(2) of
the Code) shall be promptly paid by Executive to or for the benefit of the
Company.  Executive shall cooperate, to
the extent Executive’s expenses are reimbursed by the Company, with any
reasonable requests by the Company in connection with any contests or disputes
with the Internal Revenue Service in connection with the Excise Tax.  The Company’s obligation to provide the
Gross-Up Payment is subject to Executive’s execution and non-revocation of a
release of claims against the Company and its affiliates in substantially
the form on Exhibit B attached hereto.

 

(j)        Notwithstanding
any other provision of this Agreement, if at the time of termination of
Executive’s employment he is a “specified employee” (as defined in Section 409A
of the Code) and any payment upon such termination under this Section 7
will result in additional tax or interest to Executive under Section 409A of
the Code (including any applicable related regulations (whether proposed,
temporary or final), any related Internal Revenue Service rulings and any
related case law), he will not be entitled to such payments until the earlier
of (i) the date that is six (6) months after such termination of
employment or (ii) any earlier date that does not result in any additional
tax or interest to Executive under Section 409A of the Code.  In addition, if any provision of this
Agreement would subject Executive to any additional tax or interest under Section 409A
of the Code, then the Company shall reform such provision; provided
that the Company shall (x) maintain, to the maximum extent practicable,
the original intent of the applicable provision without subjecting Executive to
such additional tax or interest and without substantively reducing the amount payable
under such provision and (y) not incur any additional compensation
expense as a result of such reformation.

 

8.        Confidentiality. Executive
hereby agrees that, other than in the ordinary course of performing his duties
for the Company, he shall not, directly or indirectly, at any time (whether
during or after termination of Executive’s employment with the Company for any
reason), intentionally or negligently divulge to any person or entity other
than the Company or any affiliate, without the Company’s express written
authorization, any information known to him to constitute trade secrets or
proprietary information belonging to the Company or any of its affiliates, or
other confidential financial information, operating budgets, strategic plans,
or research methods, projects or plans of the Company or any of its affiliates,
received or created by him in the course of his employment by the Company or in
connection with his duties with the Company 

 

12

 

(“Confidential Information”).  Anything herein to the contrary
notwithstanding, the provisions of this Section 8 shall not apply (i) when
disclosure is required by law or by any court, arbitrator, mediator or
administrative or legislative body (including any committee thereof) with
apparent jurisdiction to order Executive to disclose or make accessible any
information, (ii) with respect to any other litigation, arbitration or mediation
involving this Agreement, including, but not limited to, the enforcement of
this Agreement, or (iii) as to Confidential Information that becomes
generally known to the public or within the relevant trade or industry other
than due to Executive’s violation of this Section 8.

 

9.        Nonsolicitation.  During Executive’s employment with the
Company and for a period specified below following the termination of Executive’s
employment for any reason (the “Relevant Period”),
Executive shall not, directly or indirectly:

 

(a)       induce
or attempt to induce any employee of the Company or any of its affiliates to be
employed or to perform services elsewhere;

 

(b)      hire
any employee of the Company or of any of its affiliates to be employed or to
perform services elsewhere; provided that
Executive may hire such employees if their employment is terminated by the
Company; or

 

(c)       solicit
or attempt to solicit the trade of any individual or entity which, at the time
of such solicitation, is a customer of the Company or any of its subsidiaries,
or which the Company or any of its subsidiaries is undertaking reasonable steps
to procure as a customer at the time of or immediately preceding termination of
employment; provided, however, that this limitation (i) shall
not
apply to any wholesalers and (ii) shall only apply to any product
or service which is in competition with a product or service of the Company or
any of its subsidiaries.

 

The
Relevant Period shall be twenty-four (24) months in the case of Sections 9(a) and
9(b) above and twelve (12) months in the case of Section 9(c) above.

 

10.      Nondisparagement.  Executive will not at any time (whether
during or after termination of Executive’s employment with the Company for any
reason) knowingly make any statement, written or oral, or take any other action
that disparages or otherwise harms the Company, its business or reputation or
the reputation of any of its affiliates or the officers and directors of any of
them.

 

11.      Remedies.  The covenants of Sections 8, 9 and 10 below shall
form the basis of injunctive relief and damages including expenses of
litigation (including, but not limited to, reasonable attorney’s fees upon
trial and appeal) suffered by the Company arising out of any breach of the
aforesaid covenants by Executive.

 

12.      Indemnification.

 

(a)       The
Company shall indemnify Executive and hold Executive harmless from and against
any and all liabilities, suits, claims, actions, causes of 

 

13

 

action,
judgments, settlements, debts and expenses (including actually and reasonably
incurred legal fees and costs) of any kind whatsoever arising from and in
connection with Executive’s employment with the Company and its
affiliates, other than any arising from Executive’s willful or criminal misconduct or
gross negligence (separately and collectively, the “Indemnifiable Claims”)
to the fullest extent permitted by law. 
The Company shall control Executive’s defense against any such Indemnifiable
Claims, and Executive agrees to cooperate with the Company to mitigate
costs, expenses and other damages associated with such Indemnifiable Claims and to
cooperate fully in such defense.  The
Company agrees that, for purposes of this Section 12(a), it shall
interpret and/or apply any provision of applicable law (and, as applicable, the
bylaws and/or other organizational documents of the Company and its applicable
affiliates) with respect to Executive in a manner not less favorable than
how such provision is interpreted and applied by the Company to then active directors
and officers of the Company.

 

(b)      The Company
shall, as of the Effective Time, cause Executive to be covered under a
prepaid directors’ and officers’ liability insurance policy on terms and
conditions no less advantageous to such individuals than the Company’s
directors’ and officers’ liability insurance policy existing as of the date hereof (the “D&O Insurance”), during the Term and for a period of
not less than six (6) years after the termination of this Agreement, but
only to the extent related to actions or omissions of such officers and
directors in their capacities as such; provided, that
in no event shall the Surviving Corporation be required, in order to maintain or procure
insurance coverage pursuant hereto, to (i) expend more than $20,000
for the
“tail” portion of such insurance or (ii) pay annual premiums for the
non-”tail” portion of such insurance that are materially greater than for
comparable coverage obtained by comparable companies on the date hereof,
subject to reasonable increase from time to time  (collectively, the “Maximum Amount”); provided, further,
that if the amount of the annual premiums necessary to maintain or procure such
insurance coverage exceeds the Maximum Amount, the Surviving Corporation shall
procure and maintain during the Term and for such six (6) year
period as much coverage as is available for the Maximum Amount.  The Company shall have the right to
cause coverage to be extended under the D&O Insurance by obtaining
a “tail” policy on terms and conditions no less advantageous to such former
directors or officers than the D&O Insurance, and such “tail” policy shall
satisfy the provisions of this Section 12(b).

 

(c)       Nothing
in this Agreement shall operate to limit or extinguish any right to indemnification,
advancement of expenses, or contribution that Executive would otherwise have,
including, but not limited to, by agreement or under applicable law.

 

13.      Enforcement Costs.
If any legal action or other proceeding is brought for the enforcement of this Agreement,
or because of an alleged dispute, breach, default or misrepresentation in
connection with any provisions of this Agreement, the successful or prevailing
party shall be entitled to recover reasonable attorney’s fees, court costs and
all 

 

14

 

expenses, even if not taxable as court costs
(including, but not limited to, all such fees, costs and expenses incident to
appeal and other post-judgment proceedings), incurred in that action or
proceeding, in addition to any other relief to which such party may be
entitled. Attorneys’ fees shall include, without limitation, paralegal fees,
investigative fees, administrative costs, sales and use taxes and all other
charges billed by the attorney to the prevailing party.

 

14.      Notices.
Any and all notices necessary or desirable to be served hereunder shall be in
writing and shall be:

 

(a)       Personally
delivered, or

 

(b)      Sent
by certified mail, postage prepaid, return receipt requested, or guaranteed
overnight delivery by a nationally recognized express delivery company, in each
case addressed to the intended recipient at the address set forth below.

 

For notices
sent to the Company:

 

Sciele Pharma, Inc.

Five Concourse
Parkway, Suite 1800

Atlanta,
Georgia 30328

Attn: General
Counsel

Facsimile:
(678) 992-1043

 

For notices
sent to Executive:

 

Joseph
Ciaffoni

10674 Polly Taylor Road

Johns Creek, GA 30097

 

Either party may amend the addresses for
notices to such party hereunder by delivery of a written notice thereof
served upon the other party as provided herein. Any notice sent by certified
mail as provided above shall be deemed delivered on the third (3rd) business
day next following the postmark date which it bears.

 

15.      Entire Agreement.
This Agreement sets forth the entire agreement of the parties hereto with
respect to the subject matter hereof, and specifically supersedes any other
agreement or understanding among the parties hereto related to the subject
matter hereof, including, but not limited to, as of the Effective Date, the
Existing Employment Agreement and any other agreement covering the subject
matter hereof (including, but not limited to, indemnification and directors’ and officer’s
insurance).  This Agreement may not be
modified or revised except pursuant to a written instrument signed by the party
against whom enforcement is sought.

 

16.      Severability.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining 

 

15

 

provisions or portions of this Agreement
shall be unaffected thereby and shall remain in full force and effect to the
fullest extent permitted by law.

 

17.      Waiver.
Failure to insist upon strict compliance with any of the terms or conditions
hereof shall not be deemed a waiver of such term or condition, and the waiver
or relinquishment of any right or remedy hereunder at any one or more times
shall not be deemed a waiver or relinquishment of such right or remedy at any other
time or times.

 

18.      Arbitration.
Any claims, disputes or controversies arising out of or relating to this
Agreement between the parties shall be submitted to arbitration by the parties.
The arbitration shall be conducted in Atlanta, Georgia in accordance with the rules of
the American Arbitration Association then in existence and the following
provisions: Either party may serve upon the other party by guaranteed overnight
delivery by a nationally recognized express delivery service, written demand
that the dispute, specifying in detail its nature, be submitted to arbitration.
Within seven (7) business days after the service of such demand, each of
the parties shall appoint an arbitrator and serve written notice by guaranteed
overnight delivery by a nationally recognized express delivery service, of such
appointment upon the other party. The two arbitrators appointed shall appoint a
third arbitrator. The decision of two arbitrators in writing under oath shall
be final and binding upon the parties. The arbitrators shall decide who is to
pay the expenses of the arbitration. If the two arbitrators appointed fail to
agree upon a third arbitrator within ten (10) days after their
appointment, then an application may be made by either party, upon notice to
the other party, to any court of competent jurisdiction for the appointment of
a third arbitrator, and any such appointment shall be binding upon both
parties.

 

19.      Governing Law.  This Agreement and the rights and obligations
of the parties hereto shall be governed by and construed in accordance with the
law of the State of Georgia, without regard to its conflicts of laws
provisions. Subject to Section 18 above, each party hereto hereby (a) agrees
that the state and federal courts of the Northern District of Georgia shall
have exclusive jurisdiction and venue of any litigation which may be initiated
with respect to this Agreement or to enforce rights granted hereunder and (b) consents
to the personal jurisdiction and venue of such courts for such purposes.

 

20.      Benefit and Assignability.  This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. The rights and
obligations of Executive hereunder are personal to him, and are not subject to
voluntary or involuntary alienation, transfer, delegation or assignment.

 

[Signatures on Next Page]

 

16

 

IN
WITNESS WHEREOF, the parties hereto have executed this Amended and Restated
Employment Agreement as of the day and year first above written.

 

 

	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Joseph Ciaffoni

  
	
   

  	
  Name: Joseph Ciaffoni

  
	
   

  	
   

  	
   

  
	
   

  	
  COMPANY: 

  

  SCIELE PHARMA, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Patrick P.
  Fourteau

  
	
   

  	
  Name: Patrick P. Fourteau

  

 

17

 

Exhibit A

Benefits

 

	
  Executive Supplemental
  Life Insurance

  	
   

  	
  $500,000 policy; builds
  projected cash value to cover premiums on a $250,000 policy at age 55 or in four (4) years if over
  55.

  
	
   

  	
   

  	
   

  
	
  Executive Supplemental
  Disability Coverage

  	
   

  	
  Individual, portable
  disability policy targeted to provide approximately 66 2/3% of pay combined
  with Group LTD policy. Policy amounts are reviewed every two (2) years.

  
	
   

  	
   

  	
   

  
	
  Annual Executive Physical

  	
   

  	
  Provided through Emory
  University’s Executive Healthcare System.

  
	
   

  	
   

  	
   

  
	
  Financial Planning

  	
   

  	
  Financial planning and tax
  preparation assistance provided through a local Atlanta firm.

  
	
   

  	
   

  	
   

  
	
  Company Executive Deferred Compensation
  Plan

  	
   

  	
  Allows deferral of up to
  75% of salary and up to 100% of annual and long-term incentive
  awards.

  

 

A-1

 

Exhibit B

 

WAIVER
AND RELEASE AGREEMENT

 

This Waiver and Release
Agreement (this “Agreement”) is made and entered
into as of the          day of                     ,
20    , by and between Sciele Pharma, Inc., a Delaware
corporation (the “Company”), and                         
(“Executive”).

 

1.             Release: 
Executive, for himself/herself, his/her heirs, agents, executors and
administrators, hereby releases and discharges the Company and its current and
former subsidiaries, parents, affiliates, joint ventures, officers, directors,
employees, partners, owners, attorneys and agents (collectively, the “Company Releasees”) from all debts, obligations, promises,
covenants, collective bargaining obligations, agreements, contracts,
endorsements, bonds, controversies, suits or causes of actions known or
unknown, suspected or unsuspected, of every kind and nature whatsoever, which
may heretofore have existed or which may now exist, including, but not limited,
to those arising under the Age Discrimination in Employment Act, as modified by
the Older Workers Benefit Protection Act, Title VII of the Civil Rights
Act of 1964, as amended, 42 U.S.C. Section 2000e et seq.,
the Worker Adjustment Retraining and Notification Act, 29 U.S.C. Section 2101,
et seq., the Employee Retirement Income
Security Act of 1974, as amended, 29 U.S.C. Section 1001 et seq., the Americans with Disabilities Act, as amended,
42 U.S.C. Section 12101 et seq., the
Reconstruction Era Civil Rights Act, as amended, 42 U.S.C. Section 1981
et seq., the Rehabilitation Act of 1973,
as amended, 29 U.S.C. Section 701 et seq., the
Family and Medical Leave Act of 1992, 29 U.S.C. Section 2601 et seq., and any and all state or local laws regarding
employment discrimination and/or federal, state or local laws of any type or
description regarding employment, as well as any claim for breach of contract,
wrongful discharge, breach of any express or implied promise,
misrepresentation, fraud, retaliation, violation of public policy, infliction
of emotional distress, defamation, promissory estoppel, invasion of privacy or
any other theory or claim, whether legal or equitable, including, but not
limited to, any claims arising from or derivative of Executive’s employment
with the Company and Executive’s termination of employment with the Company or
otherwise.  This release is for any and
all relief, without regard to its form or characterization.  Executive acknowledges that he/she has not
been discriminated against on the basis of age, sex, handicap, race, ethnicity,
religion or any other protected class status.

 

THIS MEANS THAT BY
SIGNING THIS AGREEMENT, EXECUTIVE WILL HAVE WAIVED ANY RIGHT HE/SHE MAY HAVE
TO BRING A LAWSUIT OR MAKE ANY CLAIM OF ANY KIND WHATSOEVER AGAINST ANY OF THE
COMPANY RELEASEES BASED ON ANY ACTIONS OR OMISSIONS

 

B-1

 

OF ANY OF THE COMPANY RELEASEES
ON OR PRIOR TO THE DATE OF SIGNING THIS AGREEMENT.

 

2.             Covenant Not to Sue: 
Executive understands and agrees that, to the fullest extent permitted
by law, Executive is precluded from filing or pursuing any legal claim of any
kind against any of the Company Releasees at any time in the future, in any
federal, state or municipal court, administrative agency or other tribunal,
arising out of any of the claims that Executive has released and waived by
virtue of executing this Agreement. 
Executive agrees not to file or pursue any such legal claims.  Excluded from this release and covenant not
to sue is any right or claim that cannot be waived by law, including, but not limited to,
(a) any rights or claims of the Executive that arise after this
Agreement becomes effective; (b) any vested rights under any tax-qualified
and/or retirement plan(s) maintained by the Company or its affiliates; (c) any
rights under any indemnification agreement(s) between the Executive and
the Company, any rights to and claims for indemnification or as an insured
under any directors’ and officers’ liability insurance policy in connection
with the Executive’s service as a director, officer, employee or agent of the
Company or any of its subsidiaries or affiliates, under their respective
certificates of incorporation and bylaws, or otherwise as provided by law; (d) Executive’s
right to participate in an investigation conducted by any government agency; (e) the
independent right and responsibility of the Equal Employment Opportunity
Commission (the “EEOC”) to enforce the law; (f) Executive’s
right to seek a determination of the validity of whether his/her waiver of
his/her rights under the ADEA was voluntary and knowing; (g) Executive’s
right to enforce this Agreement and (h) Executive’s right to receive
payments and benefits under Sections 7(g), 7(i), 12 and 13 of his/her Amended
and Restated Employment Agreement dated as of August     , 2008.  Executive understands, however, that, while
this Agreement does not affect his/her right to file a charge or participate in
an investigation or proceeding conducted by the EEOC or any other federal,
state or local court or agency, it does bar any claim he/she might have to
receive monetary damages should any agency pursue any claims on Executive’s
behalf.

 

3.             Knowledge and Understanding:   Executive
acknowledges that:

 

(a)       he/she has been advised in
writing (by this Agreement) to consult with an attorney prior to executing this
Agreement;

 

(b)      he/she has been given a
period of twenty-one (21) days to consider this Agreement and, if he/she elects
to sign it before that time, acknowledges that he/she has done so voluntarily;
and

 

(d)      he/she is fully aware of
his/her rights and has carefully read and has fully come to understand all
provisions of this Agreement before signing.

 

B-2

 

4.             Effective Date: 
Executive will have seven (7) days after signing this Agreement to
revoke it.  Any revocation will be in
writing and addressed to [Name and Address].  This Agreement will not become effective
until the earliest date after (a) both parties have executed this
Agreement and (b) Executive’s seven (7) day revocation period has
passed without revocation.

 

5.             Reasonable Cooperation:  Executive agrees to make himself/herself
reasonably available and to cooperate with the Company and its affiliates and
their respective counsel in connection with any investigation, administrative
proceeding or litigation relating to any matter in which he/she was involved or
of which he/she has knowledge as a result of his/her employment with the
Company.  The Company shall reimburse the
Executive for reasonable expenses (including, but not limited to, lost wages,
transportation costs, and postage or telephone charges) that the Executive
incurs in assisting the Company or any affiliate pursuant to this Section 5
within fifteen (15) days after the Company receives Executive’s request for
reimbursement, along with satisfactory written substantiation of the claimed
expenses.

 

6.             Successors: 
This Agreement will apply to Executive, as well as his/her heirs,
agents, executors and administrators. 
The Agreement also will apply to, and inure to the benefit of, the predecessors,
successors and assigns of the Company and its respective current and former
subsidiaries, parents, affiliates, joint ventures, officers, directors,
employees, partners, owners, attorneys and agents.

 

7.             Severability: 
The parties explicitly acknowledge and agree that the provisions of this
Agreement are both reasonable and enforceable. 
However, the provisions of this Agreement are severable, and the
invalidity of any one or more provisions will not affect or limit the
enforceability of the remaining provisions. 
If any provision of this Agreement is held unenforceable for any reason,
then such provision will be enforced to the maximum extent permitted by law.

 

8.             No Admission:  Executive
acknowledges that neither the Company’s execution of this Agreement nor the
Company’s performance of its terms shall constitute an admission by the Company
of any wrongdoing by it or any of the other Company Releasees with respect to
Executive in connection with any matter.

 

9.             Applicable Law: 
This Agreement will be interpreted, enforced and governed under the laws
of the State of Georgia.

 

10.           Jurisdiction: 
Any action brought by or on behalf of Executive, his/her agents, heirs,
administrators, or executors against any of the Company Releasees relating to
or arising from this Agreement or Executive’s employment with or separation
from the Company will be maintained in a court in Atlanta, Georgia.

 

B-3

 

11.           Complete Agreement: 
Executive represents and acknowledges that in executing this Agreement
he/she does not rely upon and has not relied upon any representations or
statements not set forth herein made by the Company or any of the other Company
Releasees with regard to the subject matter, basis or effect of this Agreement
or otherwise.  It is mutually understood
and agreed that this Agreement constitutes the entire understanding between the
Company and Executive relating to the subject matter hereof.

 

The parties have each executed this Agreement
on the dates indicated below.

 

PLEASE
READ CAREFULLY.  THIS AGREEMENT IS A
LEGAL DOCUMENT AND INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS,
INCLUDING, BUT NOT LIMITED, TO ALL CLAIMS AS REFERENCED ABOVE, TO THE FULLEST
EXTENT PERMITTED BY LAW.

 

BY
SIGNING THIS AGREEMENT, EXECUTIVE ACKNOWLEDGES AND AFFIRMS THAT HE/SHE IS
COMPETENT, THAT HE/SHE HAS BEEN AFFORDED TWENTY-ONE (21) DAYS TO REVIEW AND
CONSIDER THIS AGREEMENT WITH AN ATTORNEY OF HIS/HER CHOICE AND HAS SEVEN (7) DAYS
TO REVOKE HIS/HER SIGNATURE, THAT HE/SHE HAS READ AND UNDERSTANDS AND ACCEPTS
THIS DOCUMENT AS FULLY AND FINALLY WAIVING AND RELEASING ANY AND ALL CLAIMS,
DEMANDS, DISPUTES AND ANY DIFFERENCES OF ANY KIND WHATSOEVER WHICH HE/SHE MAY HAVE
HAD, NOW HAS OR IN THE FUTURE MAY HAVE AGAINST THE COMPANY OR ANY OF THE
OTHER COMPANY RELEASEES ARISING OUT OF OR RELATING TO HIS/HER EMPLOYMENT WITH
THE COMPANY, HIS/HER COMPENSATION AND BENEFITS WITH THE COMPANY AND/OR HIS/HER
TERMINATION OF EMPLOYMENT WITH THE COMPANY UP TO AND INCLUDING THE DATE OF THIS
AGREEMENT, EXCLUDING CLAIMS THAT THE LAW DOES NOT PERMIT EXECUTIVE TO WAIVE BY
SIGNING THIS AGREEMENT, AND HE/SHE 
FURTHER ACKNOWLEDGES AND AFFIRMS THAT NO REPRESENTATIONS, PROMISES OR
INDUCEMENTS HAVE BEEN MADE TO HIM/HER EXCEPT AS SET FORTH IN THIS AGREEMENT,
THAT HE/SHE  HAS SIGNED THIS AGREEMENT
FREELY AND VOLUNTARILY INTENDING TO BE LEGALLY BOUND

 

B-4

 

BY ITS
TERMS, AND THAT HE/SHE HAS DONE SO WITH FULL UNDERSTANDING OF ITS BINDING LEGAL
CONSEQUENCES.

 

B-5

 

IN
WITNESS WHEREOF, the parties hereto have executed this Waiver and Release
Agreement as of the day and year first above written.

 

 

	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  

 

B-6

 

WAIVER OF TWENTY-ONE (21) DAY REVIEW
PERIOD

 

I acknowledge that in connection with the
foregoing Waiver and Release Agreement (the “Agreement”)
between Sciele Pharma, Inc. (“Company”) and
me, [Name of Executive], the Company has advised me that pursuant to the Older
Workers Benefit Protection Act, I have twenty-one (21) days to review the
Agreement before I execute it and return it to the Company.

 

I hereby waive my right to this twenty-one (21) day review
period and wish to execute the Agreement prior to the conclusion of this twenty-one (21) day
period.  However, I understand that I
have seven (7) days to revoke this waiver should I change my mind.  I further understand that the Agreement shall
not be binding on the Company or me until seven (7) days after I sign the
Agreement.

 

 

	
  BY:

  	
   

  	
   

  	
  Date:

  	
   

  
	
  [Name
  of Executive]                         

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ACKNOWLEDGED THIS
         DAY OF
                                ,
  20    .

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SCIELE PHARMA, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Its:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
   

  

 

B-7Filed by sedaredgar.com - Liberty Star Uranium & Metals Corp. - Exhibit 10.1

SUBSCRIPTION AGREEMENT 

          THIS
SUBSCRIPTION AGREEMENT (this “Agreement”), is dated as of August 27,
2008, by and among Liberty Star Uranium & Metals Corp., a Nevada corporation
(the “Company”), and the subscribers identified on the signature page
hereto (each a “Subscriber” and collectively “Subscribers”). 

          WHEREAS,
the Company and the Subscribers are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the
provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”) as promulgated by the United States Securities and Exchange Commission
(the “Commission”) under the Securities Act of 1933, as amended (the
“1933 Act”). 

          WHEREAS,
the parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Subscribers, as provided herein,
and the Subscribers, in the aggregate, shall purchase up to $500,000 (the
"Purchase Price") of principal amount of promissory notes of the Company
(“Note” or “Notes”), a form of which is annexed hereto as
Exhibit A, convertible into shares of the Company's Common Stock, $0.001
par value (the "Common Stock") at a per share conversion price set forth
in the Note (“Conversion Price”) (the “Offering”). The Notes and
shares of Common Stock issuable upon conversion of the Notes (the
“Shares” or “Conversion Shares”) are collectively referred to
herein as the "Securities"; and 

          WHEREAS,
the aggregate proceeds of the sale of the Notes contemplated hereby shall be
held in escrow pursuant to the terms of a Funds Escrow Agreement to be executed
by the parties substantially in the form attached hereto as Exhibit B
(the “Escrow Agreement”). 

          NOW,
THEREFORE, in consideration of the mutual covenants and other agreements
contained in this Agreement the Company and the Subscribers hereby agree as
follows: 

          1.           Closing
Date. The “Closing Date” shall be the date that the Purchase Price is
transmitted by wire transfer or otherwise credited to or for the benefit of the
Company. The consummation of the transactions contemplated herein shall take
place at the offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite
1601, New York, New York 10176, upon the satisfaction or waiver of all
conditions to closing set forth in this Agreement. 

          2.           Closing.
Subject to the satisfaction or waiver of the terms and conditions of this
Agreement, on the Closing Date, each Subscriber shall purchase and the Company
shall sell to each Subscriber a Note in the Principal Amount designated on the
signature page hereto for the Purchase Price indicated thereon. 

          3.      Security
Interest.

                         (a)          
The Subscribers will be granted a security interest in the assets of the
Company, including ownership of the Subsidiaries (as defined in Section 5(a) of
this Agreement) and in the assets of the Subsidiaries, which security interest
will be memorialized in a “Security Agreement,” a form of which is
annexed hereto as Exhibit C. The Subsidiaries will guaranty the Company’s
obligations under the Transaction Documents as defined in Section 5(c) and the
May Transaction Documents (as defined in Section 4(b) below). Such guaranties
will be memorialized in a “Subsidiary Guaranty”, the form of which is
annexed hereto as Exhibit D. The Company will execute documents and
agreements described on Schedule 3.1 and such other documents reasonably
requested by the Subscribers (“Additional Security Documents”) 

1

which will be prepared and filed at the Company’s expense with
the jurisdictions, states and counties designated by the Subscribers. The
Company will also execute all such documents reasonably necessary in the opinion
of the Subscribers to memorialize and further protect the security interest
described herein. The Subscribers will appoint a Collateral Agent to represent
them collectively in connection with the security interests to be granted to the
Subscribers. The appointment of the Collateral Agent in connection with the
Security Agreement will be pursuant to a “Collateral Agent Agreement,” a
form of which is annexed hereto as Exhibit E. 

                         (b)           Prior
Offering. On May 11, 2007, the Company issued convertible promissory notes
(“May Notes”) to the Subscribers pursuant to a subscription agreement
(“May Subscription Agreement”) and “transaction documents” as defined in
the May Subscription Agreement (“May Transaction Documents”). Schedule
3.3 hereto sets forth the principal and interest outstanding on the May
Notes as of the Closing Date. The outstanding May Note principal interest and
all other amounts payable to the Subscribers in connection with the May
Transaction Documents will be included in the term “obligations” as defined in
the Security Agreement. 

          4.          
Subscriber Representations and Warranties. Each Subscriber hereby
represents and warrants to and agrees with the Company only as to such
Subscriber that: 

                         (a)           Organization
and Standing of the Subscribers. If such Subscriber is an entity, such
Subscriber is a corporation, partnership or other entity duly incorporated or
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization. 

                         (b)           Authorization
and Power. Such Subscriber has the requisite power and authority to enter
into and perform this Agreement and the other Transaction Documents and to
purchase the Notes being sold to it hereunder. The execution, delivery and
performance of this Agreement and the other Transaction Documents by such
Subscriber and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate or partnership
action, and no further consent or authorization of such Subscriber or its Board
of Directors, stockholders, partners, members, as the case may be, is required.
This Agreement and the other Transaction Documents have been duly authorized,
executed and delivered by such Subscriber and constitutes, or shall constitute
when executed and delivered, a valid and binding obligation of such Subscriber
enforceable against such Subscriber in accordance with the terms thereof. 

                         (c)           No
Conflicts. The execution, delivery and performance of this Agreement and the
other Transaction Documents and the consummation by such Subscriber of the
transactions contemplated hereby and thereby or relating hereto do not and will
not (i) result in a violation of such Subscriber’s charter documents or bylaws
or other organizational documents or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
such Subscriber is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Subscriber or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on such
Subscriber). Such Subscriber is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement and the other Transaction Documents or to
purchase the Securities in accordance with the terms hereof, provided that for
purposes of the representation made in this sentence, such Subscriber is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Company herein. 

2

                         (d)           Information
on Company. Such Subscriber has been furnished with or has had access at the
EDGAR Website of the Commission to the Company's Form 10-KSB filed on April 29,
2008 for the fiscal year ended January 31, 2008, and the financial statements
included therein for the year ended January 31, 2008, together with all
subsequent filings made with the Commission available at the EDGAR website until
five days before the Closing Date (hereinafter referred to collectively as the
"Reports"). In addition, such Subscriber may have received in writing
from the Company such other information concerning its operations, financial
condition and other matters as such Subscriber has requested in writing,
identified thereon as OTHER WRITTEN INFORMATION (such other information is
collectively, the "Other Written Information"), and considered all
factors such Subscriber deems material in deciding on the advisability of
investing in the Securities.

                         (e)           Information
on Subscriber. Subscriber is, and will be at the time of the conversion of
the Notes, an "accredited investor", as such term is defined in
Regulation D promulgated by the Commission under the 1933 Act, is experienced in
investments and business matters, has made investments of a speculative nature
and has purchased securities of United States publicly-owned companies in
private placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable such
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. Such
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. Such Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding such Subscriber is accurate.

                         (f)           Purchase
of Notes. On the Closing Date, such Subscriber will purchase the Notes as
principal for its own account for investment only and not with a view toward, or
for resale in connection with, the public sale or any distribution thereof. 

                         (g)          
Compliance with Securities Act. Such Subscriber understands and agrees
that the Securities have not been registered under the 1933 Act or any
applicable state securities laws, by reason of their issuance in a transaction
that does not require registration under the 1933 Act (based in part on the
accuracy of the representations and warranties of such Subscriber contained
herein), and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration. In any event, and subject to
compliance with applicable securities laws, the Subscriber may enter into lawful
hedging transactions in the course of hedging the position they assume and the
Subscriber may also enter into lawful short positions or other derivative
transactions relating to the Securities, or interests in the Securities, and
deliver the Securities, or interests in the Securities, to close out their short
or other positions or otherwise settle other transactions, or loan or pledge the
Securities, or interests in the Securities, to third parties that in turn may
dispose of these Securities. 

                         (h)          
Shares Legend. The Shares shall bear the following or similar legend:

  
    
      
        "THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED
          BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
          OF 1933, AS AMENDED, NOR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
          MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
          ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE 

      

    

  

3

  
    
      
        SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
          AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED
          BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
          NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144
          OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
          MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
          LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES." 

      

    

  

                         (i)           Note
Legend. The Note shall bear the following legend: 

  
    
      
        "NEITHER THE ISSUANCE AND SALE OF THE SECURITIES
          REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
          SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES
          ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
          MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
          ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
          UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL
          (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE
          FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
          SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING
          THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
          FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
          THE SECURITIES. " 

      

    

  

                         (j)           Communication
of Offer. The offer to sell the Securities was directly communicated to such
Subscriber by the Company. At no time was such Subscriber presented with or
solicited by any leaflet, newspaper or magazine article, radio or television
advertisement, or any other form of general advertising or solicited or invited
to attend a promotional meeting otherwise than in connection and concurrently
with such communicated offer. 

                         (k)          
Restricted Securities. Such Subscriber understands that the Securities
have not been registered under the 1933 Act and such Subscriber will not sell,
offer to sell, assign, pledge, hypothecate or otherwise transfer any of the
Securities unless pursuant to an effective registration statement under the 1933
Act, or unless an exemption from registration is available. Notwithstanding
anything to the contrary contained in this Agreement, such Subscriber may
transfer (without restriction and without the need for an opinion of counsel)
the Securities to its Affiliates (as defined below) provided that each such
Affiliate is an “accredited investor” under Regulation D and such Affiliate
agrees to be bound by the terms and conditions of this Agreement. For the
purposes of this Agreement, an “Affiliate” of any person or entity means
any other person or entity directly or indirectly controlling, controlled by or
under direct or indirect common control with such person or entity. Affiliate
includes each Subsidiary of the Company. For purposes of this definition,
“control” means the power to direct the management and policies of such
person or firm, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise. 

4

                         (l)           No
Governmental Review. Such Subscriber understands that no United States
federal or state agency or any other governmental or state agency has passed on
or made recommendations or endorsement of the Securities or the suitability of
the investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities. 

                         (m)          
Correctness of Representations. Such Subscriber represents as to such
Subscriber that the foregoing representations and warranties are true and
correct as of the date hereof and, unless such Subscriber otherwise notifies the
Company prior to the Closing Date shall be true and correct as of the Closing
Date. 

                         (n)           Survival.
The foregoing representations and warranties shall survive the Closing Date.

          5.          
Company Representations and Warranties. The Company represents and
warrants to and agrees with each Subscriber that: 

                         (a)          
Due Incorporation. The Company is a corporation or other entity duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization and has the requisite
corporate power to own its properties and to carry on its business as presently
conducted. The Company is duly qualified as a foreign corporation to do business
and is in good standing in each jurisdiction where the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purposes of this Agreement, a “Material Adverse
Effect” shall mean a material adverse effect on the financial condition,
results of operations, prospects, properties or business of the Company and its
Subsidiaries taken as a whole. For purposes of this Agreement,
“Subsidiary” means, with respect to any entity at any date, any
corporation, limited or general partnership, limited liability company, trust,
estate, association, joint venture or other business entity of which more than
30% of (i) the outstanding capital stock having (in the absence of
contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity. As of the Closing Date, the Company’s only
Subsidiary is Big Chunk Corp., an Alaska corporation, which is wholly-owned by
the Company. 

                         (b)          
Outstanding Stock. All issued and outstanding shares of capital stock of
the Company and Subsidiary have been duly authorized and validly issued and are
fully paid and non-assessable. 

                         (c)          
Authority; Enforceability. This Agreement, the Note, the Security
Agreement, Subsidiary Guaranty, the Escrow Agreement, Collateral Agent
Agreement, agreements described on Schedule 3.1, and any other agreements
delivered together with this Agreement or in connection herewith (collectively
“Transaction Documents”) have been duly authorized, executed and
delivered by the Company and Subsidiaries (as applicable) and are valid and
binding agreements of the Company enforceable in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity. The Company has
full corporate power and authority necessary to enter into and deliver the
Transaction Documents and to perform its obligations thereunder. 

                         (d)          
Additional Issuances. There are no outstanding agreements or preemptive
or similar rights affecting the Company's Common Stock or equity and no
outstanding rights, warrants or 

5

options to acquire, or instruments convertible into or
exchangeable for, or agreements or understandings with respect to the sale or
issuance of any shares of Common Stock or equity of the Company or Subsidiaries
or other equity interest in the Company except as described on Schedule
5(d). The Common Stock of the Company on a fully diluted basis outstanding
as of the last Business Day preceding the Closing Date and the components
thereof are set forth on Schedule 5(d). 

                         (e)          
Consents. No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
or any of its Affiliates, the OTC Bulletin Board (the “Bulletin Board”)
or the Company's shareholders is required for the execution by the Company of
the Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities. The Transaction Documents and the Company’s
performance of its obligations thereunder has been unanimously approved by the
Company’s Board of Directors. 

                         (f)           No
Violation or Conflict. Assuming the representations and warranties of the
Subscribers in Section 4 are true and correct, neither the issuance and sale of
the Securities nor the performance of the Company’s obligations under this
Agreement and all other agreements entered into by the Company relating thereto
by the Company will: 

                                        (i)           violate,
conflict with, result in a breach of, or constitute a default (or an event which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default) under (A) the articles or certificate of
incorporation, charter or bylaws of the Company, (B) to the Company's knowledge,
any decree, judgment, order, law, treaty, rule, regulation or determination
applicable to the Company of any court, governmental agency or body, or
arbitrator having jurisdiction over the Company or over the properties or assets
of the Company or any of its Affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock option or
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company or any of its Affiliates is a party, by which
the Company or any of its Affiliates is bound, or to which any of the properties
of the Company or any of its Affiliates is subject, or (D) the terms of any
"lock-up" or similar provision of any underwriting or similar agreement to which
the Company, or any of its Affiliates is a party except the violation, conflict,
breach, or default of which would not have a Material Adverse Effect; or 

                                        (ii)           result
in the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates except
as described herein; or 

                                        (iii)          
except as described in Schedule 5(d), or in connection with the May
Transaction Documents, result in the activation of any anti-dilution rights or a
reset or repricing of any debt, equity or security instrument of any other
creditor or equity holder of the Company, or the holder of the right to receive
any debt, equity or security instrument of the Company nor result in the
acceleration of the due date of any obligation of the Company; or 

                                        
(iv)           will
result in the triggering of any piggy-back or other registration rights of any
person or entity holding securities of the Company or having the right to
receive securities of the Company. 

                         (g)           The
Securities. The Securities upon issuance: 

                                        (i)          
are, or will be, free and clear of any security interests, liens, claims or
other encumbrances, subject to restrictions upon transfer under the 1933 Act and
any applicable state securities laws; 

6

                                        (ii)           have
been, or will be, duly and validly authorized and on the date of issuance of the
Shares upon conversion of the Notes, the Shares will be duly and validly issued,
fully paid and non-assessable and if registered pursuant to the 1933 Act and
resold pursuant to an effective registration statement will be free trading and
unrestricted; 

                                        (iii)           will
not have been issued or sold in violation of any preemptive or other similar
rights of the holders of any securities of the Company; 

                                        (iv)           will
not subject the holders thereof to personal liability by reason of being such
holders; and 

                                        
(v)           assuming the
representations warranties of the Subscribers as set forth in Section 4 hereof
are true and correct, will not result in a violation of Section 5 under the 1933
Act. 

                         (h)          
Litigation. There is no pending or, to the best knowledge of the Company,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its Affiliates that would affect the execution by the Company or the
performance by the Company of its obligations under the Transaction Documents.
Except as disclosed in the Reports, there is no pending or, to the best
knowledge of the Company, basis for or threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse Effect. 

                         (i)          
No Market Manipulation. The Company and its Affiliates have not taken,
and will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Securities
or affect the price at which the Securities may be issued or resold. 

                         (j)          
Information Concerning Company. The Reports and Other Written Information
contain all material information relating to the Company and its operations and
financial condition as of their respective dates which information is required
to be disclosed therein. Since January 31, 2008 and except as modified in the
Other Written Information or in the Schedules hereto, there has been no Material
Adverse Event relating to the Company's business, financial condition or affairs
not disclosed in the Reports. The Reports and Other Written Information
including the financial statements included therein do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, taken as a whole,
not misleading in light of the circumstances when made. 

                         (k)           Solvency.
Based on the 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
Notes hereunder, (i) the Company’s fair saleable value of its 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 for the current fiscal year 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,
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 debt when such amounts are required to be paid. The Company
does not intend to incur debts beyond its ability to 

7

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). 

                         (l)          
Defaults. The Company is not in violation of its articles of
incorporation or bylaws. The Company is (i) not in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a Material Adverse Effect, (ii) not in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) not in
violation of any statute, rule or regulation of any governmental authority which
violation would have a Material Adverse Effect. 

                         (m)           No
Integrated Offering. Neither the Company, nor any of its Affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers
or sales of any security or solicited any offers to buy any security under
circumstances that would cause the offer of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the Bulletin Board. No
prior integrated offering will impair the exemptions relied upon in this
Offering or the Company’s ability to timely comply with its obligations
hereunder. Neither the Company nor any of its Affiliates will take any action or
steps that would cause the offer or issuance of the Securities to be integrated
with other offerings which would impair the exemptions relied upon in this
Offering or the Company’s ability to timely comply with its obligations
hereunder. The Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of the
Securities that would impair the exemptions relied upon in this Offering or the
Company’s ability to timely comply with its obligations hereunder. 

                         (n)           No
General Solicitation. Neither the Company, nor any of its Affiliates, nor to
its knowledge, any person acting on its or their behalf, has engaged in any form
of general solicitation or general advertising (within the meaning of Regulation
D under the 1933 Act) in connection with the offer or sale of the Securities.

                         (o)           No
Undisclosed Liabilities. The Company has no liabilities or obligations which
are material, individually or in the aggregate, other than those incurred in the
ordinary course of the Company businesses since January 31, 2008 and which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, except as disclosed in the Reports or on Schedule
5(o). 

                         (p)           No
Undisclosed Events or Circumstances. Since January 31, 2008, except as
disclosed in the Reports, no event or circumstance has occurred or exists with
respect to the Company or its businesses, properties, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the Reports. 

                         (q)           Capitalization.
The authorized and outstanding capital stock of the Company and Subsidiaries as
of the date of this Agreement and the Closing Date (not including the
Securities) are set forth on Schedule 5(d). Except as set forth on
Schedule 5(d), there are no options, warrants, or rights to subscribe to,
securities, rights or obligations convertible into or exchangeable for or giving
any right to subscribe for any shares of capital stock of the Company or any of
its Subsidiaries. The only officer, director, employee and consultant stock
option or stock incentive plan currently in effect or contemplated by the
Company is described on Schedule 5(d). 

8

                         (r)           Dilution.
The Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders of
the Company’s equity or rights to receive equity of the Company. The board of
directors of the Company has concluded, in its good faith business judgment that
the issuance of the Securities is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Notes is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company or parties entitled to receive equity of the
Company. 

                         (s)          
No Disagreements with Accountants and Lawyers. There are no material
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise between the Company and the accountants and lawyers presently
employed by the Company, including but not limited to disputes or conflicts over
payment owed to such accountants and lawyers, nor have there been any such
disagreements during the two years prior to the Closing Date. 

                         (t)           Investment
Company. Neither the Company nor any Affiliate of the Company is an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended. 

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

                         (v)           Reporting
Company. The Company is a publicly-held company subject to reporting
obligations pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended (the "1934 Act") and has a class of Common Stock registered
pursuant to Section 12(g) of the 1934 Act. Pursuant to the provisions of the
1934 Act, the Company has timely filed all reports and other materials required
to be filed thereunder with the Commission during the preceding twelve months.

                         (w)          
Listing. The Company's Common Stock is quoted on the Bulletin Board under
the symbol LBSU. The Company has not received any oral or written notice that
its Common Stock is not eligible nor will become ineligible for quotation on the
Bulletin Board nor that its Common Stock does not meet all requirements for the
continuation of such quotation. The Company satisfies all the requirements for
the continued quotation of its Common Stock on the Bulletin Board. 

                         (x)           DTC
Status. The Company’s transfer agent is a participant in, and the Common
Stock is eligible for transfer pursuant to, the Depository Trust Company
Automated Securities Transfer Program. The name, address, telephone number, fax
number, contact person and email address of the Company transfer agent is set
forth on Schedule 5(x) hereto. 

                         (y)          
Company Predecessor and Subsidiaries. The Company makes each of the
representations contained in Sections 5(a), (b), (c), (d), (e), (f), (h), (j),
(l), (o), (p), (q), (s), (t) and (u) of this Agreement, as same relate to the
Subsidiary of the Company. All representations made by or relating to the
Company of a historical or prospective nature and all undertakings described in
Sections 9(g) through 9(l) shall relate, apply and refer to the Company and its
predecessors. The Company represents that it owns the 

9

equity of the Subsidiaries and rights to receive equity of the
Subsidiaries as set forth on Schedule 5(a), free and clear of all liens,
encumbrances and claims, except as set forth on Schedule 5(a). No person
or entity other than the Company has the right to receive any equity interest in
the Subsidiaries. 

                         (z)          
Banking. Schedule 5(z) contains a list of all financial
institutions at which the Company maintains deposit and checking accounts. The
list includes the address of such financial institution and account number of
such accounts. 

                         (AA)          
Correctness of Representations. The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all
material respects, and, unless the Company otherwise notifies the Subscribers
prior to the Closing Date, shall be true and correct in all material respects as
of the Closing Date; provided, that, if such representation or warranty is made
as of a different date in which case such representation or warranty shall be
true as of such date. 

                         (BB)          
Survival. The foregoing representations and warranties shall survive the
Closing Date. 

          6.          
Regulation D Offering/Legal Opinion. The offer and issuance of the
Securities to the Subscribers is being made pursuant to the exemption from the
registration provisions of the 1933 Act afforded by Section 4(2) or Section 4(6)
of the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion reasonably acceptable to the
Subscribers from the Company's legal counsel opining on the availability of an
exemption from registration under the 1933 Act as it relates to the offer and
issuance of the Securities and other matters reasonably requested by
Subscribers. A form of the legal opinion is annexed hereto as Exhibit F.
The Company will provide, at the Company's expense, such other legal opinions,
if any, as are reasonably necessary in each Subscriber’s opinion for the
issuance and resale of the Common Stock issuable upon conversion of the Notes
pursuant to an effective registration statement, Rule 144 under the 1933 Act or
an exemption from registration. 

          7.1.           Conversion
of Note. 

                         (a)           Upon
the conversion of a Note or part thereof, the Company shall, at its own cost and
expense, take all necessary action, including obtaining and delivering, an
opinion of counsel to assure that the Company's transfer agent shall issue stock
certificates in the name of Subscriber (or its permitted nominee) or such other
persons as designated by Subscriber and in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable upon such
conversion. The Company warrants that no instructions other than these
instructions have been or will be given to the transfer agent of the Company's
Common Stock and that the certificates representing such shares shall contain no
legend other than the legend set forth in Section 4(h). If and when a Subscriber
sells the Shares, assuming (i) a registration statement including such Shares
for registration, filed with the Commission is effective and the prospectus, as
supplemented or amended, contained therein is current and (ii) such Subscriber
or its agent confirms in writing to the transfer agent that such Subscriber has
complied with the prospectus delivery requirements, the Company will reissue the
Shares without restrictive legend and the Shares will be free-trading, and
freely transferable. In the event that the Shares are sold in a manner that
complies with an exemption from registration, the Company will promptly instruct
its counsel to issue to the transfer agent an opinion permitting removal of the
legend indefinitely, if pursuant to Rule 144(b)(1)(i) of the 1933 Act, or for 90
days if pursuant to the other provisions of Rule 144 of the 1933 Act, provided
that Subscriber delivers all reasonably requested representations in support of
such opinion. 

                         (b)           A
Subscriber will give notice of its decision to exercise its right to convert the
Note, interest, or part thereof by telecopying, or otherwise delivering a
completed Notice of Conversion (a 

10

form of which is annexed as Exhibit A to the Note) to
the Company via confirmed telecopier transmission or otherwise pursuant to
Section 13(a) of this Agreement. Such Subscriber will not be required to
surrender the Note until the Note has been fully converted or satisfied. Each
date on which a Notice of Conversion is telecopied to the Company in accordance
with the provisions hereof by 6 PM Eastern Time (“ET”) (or if received by the
Company after 6 PM ET then the next business day) shall be deemed a
“Conversion Date.” The Company will itself or cause the Company’s
transfer agent to transmit the Company's Common Stock certificates representing
the Shares issuable upon conversion of the Note to such Subscriber via express
courier for receipt by such Subscriber within three (3) business days after the
Notice of Conversion is given by the Subscriber (such third day being the
"Delivery Date"). In the event the Shares are electronically
transferable, then delivery of the Shares must be made by electronic
transfer provided request for such electronic transfer has been made by the
Subscriber. A Note representing the balance of the Note not so converted will be
provided by the Company to such Subscriber if requested by Subscriber, provided
such Subscriber delivers the original Note to the Company. In the event that a
Subscriber elects not to surrender a Note for reissuance upon partial payment or
conversion of a Note, such Subscriber hereby indemnifies the Company against
loss or damage attributable to a third-party claim in an amount in excess of the
actual amount then due under the Note. 

                         (c)           The
Company understands that a delay in the delivery of the Shares in the form
required pursuant to Section 7.1 hereof, or the Mandatory Redemption Amount
described in Section 7.2 hereof, respectively later than the Delivery Date or
the Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to Subscriber for such loss,
the Company agrees to pay (as liquidated damages and not as a penalty) to such
Subscriber for late issuance of Shares in the form required pursuant to Section
7.1 hereof upon Conversion of the Note in the amount of $100 per business day
after the Delivery Date for each $10,000 of Note principal amount (and
proportionately for other amounts) being converted of the corresponding Shares
which are not timely delivered. The Company shall pay any payments incurred
under this Section upon demand. Furthermore, in addition to any other remedies
which may be available to the Subscriber, in the event that the Company fails
for any reason to effect delivery of the Shares within seven (7) business days
after the Delivery Date or make payment within seven (7) business days after the
Mandatory Redemption Payment Date (as defined in Section 7.2 below), such
Subscriber will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company and
such Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that the liquidated damages
described above shall be payable through the date notice of revocation or
rescission is given to the Company. 

          
7.2.           Mandatory
Redemption at Subscriber’s Election. In the event (i) the Company is
prohibited from issuing Shares, (ii) upon the occurrence of any other Event of
Default (as defined in the Note or in this Agreement), that continues for more
than thirty (30) business days, (iii) a Change in Control (as defined below), or
(iv) of the liquidation, dissolution or winding up of the Company, then at the
Subscriber's election, the Company must pay to each Subscriber ten (10) business
days after request by each Subscriber (“Calculation Period”), a sum of
money determined by multiplying up to the outstanding principal amount of the
Note designated by each such Subscriber by 115%, plus accrued but unpaid
interest and any other amounts due under the Transaction Documents
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must
be received by each Subscriber on the same date as the Shares otherwise
deliverable or within ten (10) business days after request, whichever is sooner
("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory
Redemption Payment, the corresponding Note principal, interest and other amounts
will be deemed paid and no longer outstanding. The Subscriber may rescind the
election to receive a Mandatory Redemption Payment at any time until such
payment is actually received. Liquidated damages calculated pursuant to Section
7.1(c) hereof, that have been paid or accrued for the ten day period prior to
the actual receipt of the Mandatory Redemption Payment by a Subscriber shall be
credited 

11

against the Mandatory Redemption Payment. For purposes of this
Section 7.2, “Change in Control” shall mean (i) the Company becoming a
Subsidiary of another entity (other than a corporation formed by the Company for
purposes of reincorporation in another U.S. jurisdiction), (ii) the sale, lease
or transfer of substantially all the assets of the Company or its Subsidiaries,
and (iii) if the holders of the Company’s Common Stock as of the Closing Date
beneficially own at any time after the Closing Date less than forty percent of
the Common Stock owned by them on the Closing Date (other than as a result of
their having sold their stock except under a tender offer). 

          
7.3.           Maximum
Conversion. A Subscriber shall not be entitled to convert on a Conversion
Date that amount of the Note nor may the Company make any payment including
principal, interest, or liquidated or other damages in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by such Subscriber and its
Affiliates on a Conversion Date or payment date, and (ii) the number of shares
of Common Stock issuable upon the conversion of the Note with respect to which
the determination of this provision is being made on a Conversion Date, which
would result in beneficial ownership by such Subscriber and its Affiliates of
more than 4.99% of the outstanding shares of Common Stock of the Company on such
Conversion Date. For the purposes of the provision to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3
thereunder. Subject to the foregoing, the Subscriber shall not be limited to
aggregate conversions of only 4.99% and aggregate conversions by the Subscriber
may exceed 4.99% . The Subscriber may increase the permitted beneficial
ownership amount up to 9.99% upon and effective after 61 days’ prior written
notice to the Company. Such Subscriber may allocate which of the equity of the
Company deemed beneficially owned by such Subscriber shall be included in the
4.99% amount described above and which shall be allocated to the excess above
4.99% . 

          7.4.          
Injunction/ Posting of Bond. In the event a Subscriber shall elect to
convert a Note or part thereof, the Company may not refuse conversion or
exercise based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or for
any other reason, unless, an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of such Note shall have been sought and
obtained by the Company or at the Company’s request or with the Company’s
assistance, and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 120% of the outstanding principal and interest of
the Note, or aggregate purchase price of the Shares which are sought to be
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Subscriber to the extent Subscriber obtains judgment in
Subscriber’s favor. 

          
7.5.           Buy-In.
In addition to any other rights available to a Subscriber, if the Company fails
to deliver to a Subscriber such shares issuable upon conversion of a Note by the
Delivery Date and if after seven (7) business days after the Delivery Date such
Subscriber or a broker on such Subscriber’s behalf purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by such Subscriber of the Common Stock which such Subscriber was entitled
to receive upon such conversion (a "Buy-In"), then the Company shall pay
to such Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) such Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if a Subscriber purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of $10,000 of note principal and/or interest, the Company
shall be 

12

required to pay such Subscriber $1,000 plus interest. Such
Subscriber shall provide the Company written notice and evidence indicating the
amounts payable to such Subscriber in respect of the Buy-In. 

          7.6           Adjustments.
The Conversion Price and amount of Shares issuable upon conversion of the
Notes shall be equitably adjusted and as otherwise described in this Agreement
and the Notes. 

          7.7.           Redemption.
  The Notes shall not be redeemable or callable by the Company except as described
  in the Notes.

          8.           Broker/Due
Diligence/Legal Fees. 

                         
(a)           Broker.
The Company on the one hand, and each Subscriber (for himself only) on the
other hand, agree to indemnify the other against and hold the other harmless
from any and all liabilities to any persons claiming brokerage commissions,
finder’s fees or due diligence fees on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby or in connection with any
investment in the Company at any time, whether or not such investment was
consummated and arising out of such party’s actions. The Company represents that
other than as described on Schedule 8(a), there are no parties entitled
to receive fees, commissions, due diligence fees, lead investor fees, or similar
payments in connection with the Offering. 

                         (b)           Subscriber’s
Legal Fees. The Company shall pay to Grushko & Mittman, P.C., a fee of
$25,000 (“Subscriber’s Legal Fees”) as reimbursement for services
rendered to the Subscribers in connection with this Agreement and the purchase
and sale of the Notes. The Company will also pay all legal fees and expenses in
connection with the preparation and filing of the agreements and documents
described on Schedule 3.1. The Subscriber’s Legal Fees and expenses (to
the extent known as of the Closing) will be payable out of funds held pursuant
to the Escrow Agreement. Grushko & Mittman, P.C. and Subscriber’s other
legal counsel will be reimbursed at Closing for all lien searches, filing fees,
and printing and shipping costs for the closing statements to be delivered to
Subscribers. 

          9.           Covenants
of the Company. The Company covenants and agrees with the Subscribers as
follows: 

                         (a)           Stop
Orders. The Company will advise the Subscribers, within twenty-four hours
after it receives notice of issuance by the Commission, any state securities
commission or any other regulatory authority of any stop order or of any order
preventing or suspending any offering of any securities of the Company, or of
the suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose. The Company will not issue any stop transfer order or other
order impeding the sale, resale or delivery of any of the Securities, except as
may be required by any applicable federal or state securities laws and unless
contemporaneous notice of such instruction is given to the Subscriber. 

                         (b)           Listing/Quotation.
The Company shall promptly secure the quotation or listing of the Shares upon
each national securities exchange, or automated quotation system upon which they
are or become eligible for quotation or listing (subject to official notice of
issuance) and shall maintain same so long as any Notess are outstanding. The
Company will maintain the quotation or listing of its Common Stock on the
American Stock Exchange, Nasdaq Capital Market, Nasdaq Global Market, Nasdaq
Global Select Market, Bulletin Board, or New York Stock Exchange (whichever of
the foregoing is at the time the principal trading exchange or market for the
Common Stock (the “Principal Market”), and will comply in all respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of the Principal Market, as applicable. The Company will provide the
Subscribers copies of all notices it receives notifying 

13

the Company of the threatened and actual delisting of the
Common Stock from any Principal Market. As of the date of this Agreement and the
Closing Date, the Bulletin Board is and will be the Principal Market. 

                         (c)           Market
Regulations. If required, the Company shall notify the Commission, the
Principal Market and applicable state authorities, in accordance with their
requirements, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Subscribers and promptly provide copies thereof to the
Subscribers. 

                         (d)           Filing
Requirements. From the date of this Agreement and until the last to occur of
(i) two (2) years after the Closing Date, (ii) until all the Shares have been
resold or transferred by all the Subscribers pursuant to a registration
statement or pursuant to Rule 144(b)(1)(i), or (iii) the Notes are no longer
outstanding (the date of such latest occurrence being the “End Date”),
the Company will (A) cause its Common Stock to continue to be registered under
Section 12(b) or 12(g) of the 1934 Act, (B) comply in all respects with its
reporting and filing obligations under the 1934 Act, (C) voluntarily comply with
all reporting requirements that are applicable to an issuer with a class of
shares registered pursuant to Section 12(g) of the 1934 Act, if the Company is
not subject to such reporting requirements, and (D) comply with all requirements
related to any registration statement filed pursuant to this Agreement. The
Company will use its best efforts not to take any action or file any document
(whether or not permitted by the 1933 Act or the 1934 Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said acts until the End Date. Until
the End Date, the Company will continue the listing or quotation of the Common
Stock on a Principal Market and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
Principal Market. The Company agrees to timely file a Form D with respect to the
Securities if required under Regulation D and to provide a copy thereof to each
Subscriber promptly after such filing. 

                         (e)           Use
of Proceeds. The proceeds of the Offering will be employed by the Company
for the purposes set forth on Schedule 9(e) unless otherwise agreed to by
Subscribers. Except as described on Schedule 9(e), the Purchase Price may
not and will not be used for accrued and unpaid officer and director salaries,
payment of financing related debt, redemption of outstanding notes or equity
instruments of the Company nor non-trade obligations outstanding on a Closing
Date. For so long as any Notes are outstanding, the Company will not prepay any
financing related debt obligations, except equipment payments, nor redeem any
equity instruments of the Company without the prior consent of the Subscribers.

                         (f)          
Reservation. Prior to the Closing, the Company undertakes to reserve and
maintain such reservation, pro rata, on behalf of each holder of a
Note, from its authorized but unissued Common Stock, a number of shares of
Common Stock equal to 175% of the amount of Common Stock necessary to allow each
holder of a Note to be able to convert all such outstanding Notes (“Required
Reservation”). Failure to have sufficient shares reserved pursuant to this
Section 9(f) at any time shall be a material default of the Company’s
obligations under this Agreement and an Event of Default under the Note. If at
any time after February 11, 2009 when Notes are outstanding the Company has
insufficient Common Stock reserved on behalf of the Subscribers in an amount
equal to at least 125% of the amount necessary for full conversion of all the
outstanding Notes (“Minimum Required Reservation”), the Company will
promptly take all action necessary to increase its authorized capital to be able
to fully satisfy its reservation requirements hereunder, including the filing of
a preliminary proxy with the Commission not later than thirty days after the
first day the Company has less than the Minimum Required Reservation. The
Company agrees to provide notice to the Subscribers not later than three days
after the date the Company has less than the Minimum Required Reservation
reserved on behalf of the Subscribers. For purposes of determining the
Required Reservation and Minimum Required Reservation, the lesser of the Fixed
Conversion Price or the Conversion Price set forth in Section 2.1(ii)(B) of the
Note shall be employed. In any event, the Company undertakes to increase its
authorized Common Stock to not less than 500,000,000 shares of 

14

Common Stock. It will be an Event of Default under the Note if
such increase is not effectuated within 150 calendar days after the Closing
Date.

                         (g)           DTC
Program. At all times that Notes are outstanding, the Company will employ as
the transfer agent for the Common Stock and Shares a participant in the
Depository Trust Company Automated Securities Transfer Program. 

                         (h)          
Taxes. From the date of this Agreement and until the End Date, the
Company will promptly pay and discharge, or cause to be paid and discharged,
when due and payable, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, property or business of the Company;
provided, however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company shall have set aside on its books
adequate reserves with respect thereto, and provided, further, that the Company
will pay all such taxes, assessments, charges or levies forthwith upon the
commencement of proceedings to foreclose any lien which may have attached as
security therefore. 

                         (i)          
Insurance. From the date of this Agreement and until the End Date, the
Company will keep its assets which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in the
Company’s line of business and location, in amounts sufficient to prevent the
Company from becoming a co-insurer and not in any event less than one hundred
percent (100%) of the insurable value of the property insured less reasonable
deductible amounts; and the Company will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated and located and to the extent available on
commercially reasonable terms. 

                         (j)          
Books and Records. From the date of this Agreement and until the End
Date, the Company will keep true records and books of account in which full,
true and correct entries will be made of all dealings or transactions in
relation to its business and affairs in accordance with generally accepted
accounting principles applied on a consistent basis. 

                         (k)          
Governmental Authorities. From the date of this Agreement and until the
End Date, the Company shall duly observe and conform in all material respects to
all valid requirements of governmental authorities relating to the conduct of
its business or to its properties or assets. 

                         (l)           Intellectual
Property. From the date of this Agreement and until the End Date, the
Company shall maintain in full force and effect its corporate existence, rights
and franchises and all licenses and other rights to use intellectual property
owned or possessed by it and reasonably deemed to be necessary to the conduct of
its business, unless it is sold for value. 

                         (m)           Properties.
From the date of this Agreement and until the End Date, the Company will
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto; and the Company will
at all times comply with each provision of all leases and claims to which it is
a party or under which it occupies or has rights to property if the breach of
such provision could reasonably be expected to have a Material Adverse Effect.
The Company will not abandon any of its assets except for those assets which
have negligible or marginal value or for which it is prudent to do so under the
circumstances. 

                         (n)           Confidentiality/Public
Announcement. From the date of this Agreement and until the End Date, the
Company agrees that except in connection with a Form 8-K and the registration

15

statement or statements regarding the Subscribers’ securities
or in correspondence with the SEC regarding same, it will not disclose publicly
or privately the identity of the Subscribers unless expressly agreed to in
writing by a Subscriber or only to the extent required by law and then only upon
not less than three days prior notice to Subscriber. In any event and subject to
the foregoing, the Company undertakes to file a Form 8-K or make a public
announcement describing the Offering not later than the fourth business day
after the Closing Date and each Additional Closing Date. Prior to filing or
announcement, such Form 8-K or public announcement will be provided to
Subscribers for their review and approval. In the Form 8-K or public
announcement, the Company will specifically disclose the amount of Common Stock
outstanding immediately after the Closing. Upon delivery by the Company to the
Subscribers after the Closing Date of any notice or information, in writing,
electronically or otherwise, and while a Note or Shares are held by such
Subscribers, unless the Company has in good faith determined that the matters
relating to such notice do not constitute material, nonpublic information
relating to the Company or Subsidiaries, the Company shall within one business
day after any such delivery publicly disclose such material, nonpublic
information on a Report on Form 8-K or otherwise. In the event that the
Company believes that a notice or communication to a Subscriber contains
material, nonpublic information, relating to the Company or Subsidiaries, the
Company shall so indicate to such Subscriber prior to delivery of such notice or
information. Subscriber will be granted sufficient time to notify the Company
that Subscriber elects not to receive such information. In such case, the
Company will not deliver such information to Subscriber. In the absence of any
such indication, such Subscriber shall be allowed to presume that all matters
relating to such notice and information do not constitute material, nonpublic
information relating to the Company or its Subsidiaries. 

                         
(o)           Non-Public
Information. The Company covenants and agrees that except for the Reports,
Other Written Information and schedules and exhibits to this Agreement and any
other disclosure required under the Transaction Documents, which information the
Company undertakes to publicly disclose not later than the sooner of the
required or actual filing date of the Form 8-K described in Section 9(n) above,
neither it nor any other person acting on its behalf will at any time provide
any Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to accept such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company. 

                         (p)           Negative
Covenants. So long as a Note is outstanding, without the consent of the
Subscribers, the Company will not and will not permit any of its Subsidiaries to
directly or indirectly: 

                                        (i)          
create, incur, assume or suffer to exist any pledge, hypothecation, assignment,
deposit arrangement, lien, charge, claim, security interest, security title,
mortgage, security deed or deed of trust, easement or encumbrance, or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including any lease or title retention agreement,
any financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
perfecting a security interest under the Uniform Commercial Code or comparable
law of any jurisdiction) (each, a “Lien”) upon any of its property,
whether now owned or hereafter acquired except for: (A) the Excepted Issuances
(as defined in Section 12 hereof), and (B) (a) Liens imposed by law for taxes
that are not yet due or are being contested in good faith and for which adequate
reserves have been established in accordance with generally accepted accounting
principles; (b) carriers’, warehousemen’s, mechanics’, material men’s,
repairmen’s and other like Liens imposed by law, arising in the ordinary course
of business and securing obligations that are not overdue by more than 30 days
or that are being contested in good faith and by appropriate proceedings; (c)
pledges and deposits made in the ordinary course of business in compliance with
workers’ compensation, unemployment insurance and other social security laws or
regulations; (d) deposits to secure the performance of bids, trade contracts,
leases, statutory 

16

obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business; (e) Liens created with respect to the financing of the purchase of new
property in the ordinary course of the Company’s business up to the amount of
the purchase price of such property; and (f) easements, zoning restrictions,
rights-of-way and similar encumbrances on real property imposed by law or
arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the value of the affected
property (each of (a) through (f), a “Permitted Lien”) and (g)
indebtedness for borrowed money which is not senior or pari passu in right of
payment of the Notes, or distribution or interest in the Company’s assets. 

                                        
(ii)           except as
required pursuant to Section 9(f) of this Agreement, amend its certificate of
incorporation, bylaws or its charter documents so as to materially and adversely
affect any rights of the Subscriber (an increase in the amount of authorized
shares and an increase in the number of directors will not be deemed adverse to
the rights of the Subscribers); 

                                        (iii)          
repay, repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock,
or other equity securities other than to the extent permitted or required under
the Transaction Documents. 

                                        (iv)           engage
in any transactions with any officer, director, employee or any Affiliate of the
Company, including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $100,000
other than (i) for payment of salary, or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company, and (iii) for
other employee benefits, including stock option agreements under any stock
option plan of the Company; or 

                                        (v)          
prepay or redeem any financing related debt or past due obligations outstanding
as of the Closing Date, except prepayment of equipment leases. 

The Company agrees to provide Subscribers not less than ten
(10) days notice prior to becoming obligated to or effectuating a Permitted Lien
or Excepted Issuance. 

                         
(q)           Further
Registration Statements. Except for a registration statement filed on behalf
of the Subscribers, the Company will not, without the consent of the
Subscribers, file with the Commission or with state regulatory authorities any
registration statements or amend any already filed registration statement to
increase the amount of Common Stock registered therein, or reduce the price of
which such Common Stock is registered therein, (including but not limited to
Forms S-8), until the expiration of the “Exclusion Period,” which shall
be defined as the sooner of (i) eighteen months after the Closing Date, or (ii)
until all the Shares have been resold or transferable by the Subscribers for 270
days pursuant to a registration statement or Rule 144b(1)(i), without regard to
volume limitations. The Exclusion Period will be tolled or reinstated, as the
case may be, during the pendency of an Event of Default as defined in the Note.

                         
(r)           Offering
Restrictions. For so long as the Notes are outstanding, the Company will not
enter into any Equity Line of Credit or similar agreement, nor issue nor agree
to issue any floating or Variable Priced Equity Linked Instruments nor any of
the foregoing or equity with price reset rights (collectively, the “Variable
Rate Restrictions”), unless the proceeds of which are used to pay out the
Notes and the convertible promissory notes issued to the Subscribers by the
Company or about May 11, 2007 in full. For purposes hereof, “Equity Line of
Credit” shall include any transaction involving a written agreement between
the Company and an investor or underwriter whereby the Company has the right to
“put” 

17

its securities to the investor or underwriter over an agreed
period of time and at an agreed price or price formula, and “Variable Priced
Equity Linked Instruments” shall include: (A) any debt or equity securities
which are convertible into, exercisable or exchangeable for, or carry the right
to receive additional shares of Common Stock either (1) at any conversion,
exercise or exchange rate or other price that is based upon and/or varies with
the trading prices of or quotations for Common Stock at any time after the
initial issuance of such debt or equity security, or (2) with a fixed
conversion, exercise or exchange price that is subject to being reset at some
future date at any time after the initial issuance of such debt or equity
security due to a change in the market price of the Company’s Common Stock since
date of initial issuance, and (B) any amortizing convertible security which
amortizes prior to its maturity date, where the Company is required or has the
option to (or any investor in such transaction has the option to require the
Company to) make such amortization payments in shares of Common Stock which are
valued at a price that is based upon and/or varies with the trading prices of or
quotations for Common Stock at any time after the initial issuance of such debt
or equity security (whether or not such payments in stock are subject to certain
equity conditions). 

                         
(s)           Seniority.
Except for Permitted Liens and as otherwise provided for herein, until the Notes
are fully satisfied or converted, the Company shall not grant any security
interest to be taken in the assets of the Company or any Subsidiary; nor issue
any debt, equity or other instrument which would give the holder thereof
directly or indirectly, a right in any assets of the Company or any Subsidiary
equal to or superior to any right of the holder of a Note in or to such assets.

                         
(t)           Lockup
Agreement. The Company will deliver to the Subscribers on or before the
Closing Date and enforce the provisions of an irrevocable lockup agreement
(“Lockup Agreement”) in the form annexed hereto as Exhibit G, with
the persons identified on Schedule 9(t). 

                         
(u)           Prior
Offering. The Company will execute and deliver to the Subscribers at the
Closing the Third Modification, Waiver and Acknowledgement Agreement in the form
annexed hereto as Exhibit H. 

                         
(v)           Notices.
For so long as the Subscribers hold any Securities, the Company will maintain a
United States address and United States fax number for notice purposes under the
Transaction Documents. 

                         (w)          
Transactions With Insiders. So long as any Note is outstanding, the
Company shall not, and shall cause each of its subsidiaries not to, enter into,
amend, modify or supplement, or permit any subsidiary to enter into, amend,
modify or supplement any agreement, transaction, commitment, or arrangement
relating to the sale, transfer or assignment of any of the Company’s tangible or
intangible assets (including but not limited to the Company’s mineral rights,
mineral claims, and federal mining claims) with any of its Insiders (as defined
below)(or any persons who were Insiders at any time during the previous two (2)
years), or any Affiliates (as defined below) thereof, or with any individual
related by blood, marriage, or adoption to any such individual. Affiliate for
purposes of this Section 9(w) means, with respect to any person or entity,
another person or entity that, directly or indirectly, (i) has a ten percent
(10%) or more equity interest in that person or entity, (ii) has ten percent
(10%) or more common ownership with that person or entity, (iii) controls that
person or entity, or (iv) shares common control with that person or entity.
“Control” or “Controls” for purposes hereof means that a person or entity has
the power, direct or indirect, to conduct or govern the policies of another
person or entity. For purposes hereof, “Insiders” shall mean any officer,
director or manager of the Company, including but not limited to the Company’s
president, chief executive officer, chief financial officer and chief operations
officer, and any of their affiliates or family members. 

          10.          
Covenants of the Company and Subscriber Regarding Indemnification. 

                         (a)          
The Company agrees to indemnify, hold harmless, reimburse and defend the 

18

Subscribers, the Subscribers' officers, directors, agents,
Affiliates, members, managers, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Subscriber or any such person which results, arises out of or is based upon (i)
any material misrepresentation by Company or breach of any representation or
warranty by Company in this Agreement or in any Exhibits or Schedules attached
hereto, or other agreement delivered pursuant hereto; or (ii) after any
applicable notice and/or cure periods, any breach or default in performance by
the Company of any covenant or undertaking to be performed by the Company
hereunder, or any other agreement entered into by the Company and Subscriber
relating hereto. 

                         (b)           Each
Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company’s officers, directors, agents, Affiliates, control
persons against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Company or any such person which results, arises out of or is based upon (i) any
material misrepresentation by such Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach or
default in performance by such Subscriber of any covenant or undertaking to be
performed by such Subscriber hereunder, or any other agreement entered into by
the Company and Subscribers, relating hereto. 

                         (c)          
In no event shall the liability of any Subscriber or permitted successor
hereunder or under any Transaction Document or other agreement delivered in
connection herewith be greater in amount than the dollar amount of the net
proceeds actually received by such Subscriber upon the sale of Registrable
Securities (as defined herein). 

          11.            
 Additional Post-Closing Obligations. 

          11.1.          
Piggy-Back Registrations. If at any time until eighteen months after the
Closing Date there is not an effective registration statement covering all of
the Shares and the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the 1933 Act of any of its equity securities,
including on Form S-4 (as promulgated under the 1933 Act) or its then equivalent
form but excluding Form S-8, , then the Company shall send to each holder of any
of the Securities written notice of such determination and, if within fifteen
calendar days after receipt of such notice, any such holder shall so request in
writing, the Company shall include in such registration statement all or any
part of the Shares such holder requests to be registered, subject to customary
underwriter cutbacks applicable to all holders of registration rights. The
obligations of the Company under this Section may be waived by any holder of any
of the Securities entitled to registration rights under this Section 11.1. The
holders whose Shares are included or required to be included in such
registration statement are granted the same rights, benefits, liquidated or
other damages and indemnification granted to other holders of Securities
included in such registration statement. Notwithstanding anything to the
contrary herein, the registration rights granted hereunder to the holders of
Securities shall not be applicable for such times as such Shares may be sold by
the holder thereof without restriction pursuant to Section 144(b)(1) of the 1933
Act. In no event shall the liability of any holder of Securities or permitted
successor in connection with any Shares included in any such registration
statement be greater in amount than the dollar amount of the net proceeds
actually received by such Subscriber upon the sale of the Shares sold pursuant
to such registration or such lesser amount applicable to other holders of
Securities included in such registration statement. All expenses incurred by the
Company in complying with Section 11, including, without limitation, all
registration and filing fees, printing expenses (if required), fees and
disbursements of counsel and independent public accountants for the Company,
fees and expenses (including reasonable counsel fees) incurred in connection
with complying with state securities or “blue sky” laws, fees of the NASD,
transfer taxes, and fees of transfer agents and registrars, are called
“Registration Expenses.” All underwriting 

19

discounts and selling commissions applicable to the sale of
Registrable Securities are called "Selling Expenses." The Company will
pay all Registration Expenses in connection with the registration statement
under Section 11. Selling Expenses in connection with each registration
statement under Section 11 shall be borne by the holder and will be apportioned
among such holders in proportion to the number of Shares included therein for a
holder relative to all the Securities included therein for all selling holders,
or as all holders may agree. 

          11.2.           Delivery
  of Unlegended Shares.

                         (a)           Within
three (3) business days (such third business day being the “Unlegended Shares
Delivery Date”) after the business day on which the Company has received (i)
a notice that Shares or any other Common Stock held by a Subscriber have been
sold pursuant to the Registration Statement or Rule 144 under the 1933 Act, (ii)
a representation that the prospectus delivery requirements, or the requirements
of Rule 144, as applicable and if required, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of the Subscriber and, if required, Subscriber’s broker
regarding compliance with the requirements of Rule 144, the Company at its
expense, (y) shall deliver, and shall cause legal counsel selected by the
Company to deliver to its transfer agent (with copies to Subscriber) an
appropriate instruction and opinion of such counsel, directing the delivery of
shares of Common Stock without any legends including the legend set forth in
Section 4(i) above (the “Unlegended Shares”); and (z) cause the
transmission of the certificates representing the Unlegended Shares together
with a legended certificate representing the balance of the submitted Shares
certificate, if any, to the Subscriber at the address specified in the notice of
sale, via express courier, by electronic transfer or otherwise on or before the
Unlegended Shares Delivery Date. 

                         (b)           In
lieu of delivering physical certificates representing the Unlegended Shares,
upon request of a Subscriber, so long as the certificates therefor do not bear a
legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission system, if such transfer agent participates in such
DWAC system. Such delivery must be made on or before the Unlegended Shares
Delivery Date. 

                         (c)          
The Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 11 hereof later than two business days after the Unlegended
Shares Delivery Date could result in economic loss to a Subscriber. As
compensation to a Subscriber for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Subscriber for
late delivery of Unlegended Shares in the amount of $100 per business day after
the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
subject to the delivery default. If during any 360 day period, the Company fails
to deliver Unlegended Shares as required by this Section 11.2 for an aggregate
of thirty (30) days, then each Subscriber or assignee holding Securities subject
to such default may, at its option, require the Company to redeem all or any
portion of the Shares subject to such default at a price per share equal to the
greater of (i) 120%, or (ii) a fraction in which the numerator is the highest
closing price of the Common Stock during the aforedescribed thirty day period
and the denominator of which is the lowest conversion price during such thirty
day period, multiplied by the price paid by Subscriber for such Common Stock
(“Unlegended Redemption Amount”). The Company shall pay any payments
incurred under this Section in immediately available funds upon demand. 

                         (d)          
In addition to any other rights available to a Subscriber, if the Company fails
to deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber or a broker on the Subscriber’s 

20

behalf, purchases (in an open market transaction or otherwise)
shares of common stock to deliver in satisfaction of a sale by such Subscriber
of the shares of Common Stock which the Subscriber was entitled to receive from
the Company (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares together with
interest thereon at a rate of 15% per annum accruing until such amount and any
accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if a Subscriber purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to $10,000 of purchase price of shares of Common Stock
delivered to the Company for reissuance as Unlegended Shares, the Company shall
be required to pay the Subscriber $1,000, plus interest. The Subscriber shall
provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In. 

                         (e)          
In the event a Subscriber shall request delivery of Unlegended Shares as
described in Section 11.2 and the Company is required to deliver such Unlegended
Shares pursuant to Section 11.2, the Company may not refuse to deliver
Unlegended Shares based on any claim that such Subscriber or any one associated
or affiliated with such Subscriber has been engaged in any violation of law, or
for any other reason, unless, an injunction or temporary restraining order from
a court, on notice, restraining and or enjoining delivery of such Unlegended
Shares shall have been sought and obtained by the Company or at the Company’s
request or with the Company’s assistance, and the Company has posted a surety
bond for the benefit of such Subscriber in the amount of 120% of the amount of
the aggregate purchase price of the Common Stock which are subject to the
injunction or temporary restraining order, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber’s favor. 

          11.3.           In
the event commencing six months after the Closing Date and ending twenty-four
months thereafter, the Subscriber is not permitted to resell any of the Shares,
without any restrictive legend or if such sales are permitted but subject to
volume limitations or further restrictions on resale as a result of the
unavailability to non-affiliate Subscribers of Rule 144(b)(1)(i) under the 1933
Act or any successor rule (a “144 Default”), for any reason except for
Subscriber’s status as an Affiliate or “control person” of the Company or change
in current applicable securities laws, then the Company shall pay such
Subscriber as liquidated damages and not as a penalty an amount equal to 1.75%
for each thirty days (or such lesser pro-rata amount for any period less than
thirty days) thereafter of the purchase price of the Shares by the Subscriber
during the pendency of the 144 Default. Liquidated Damages shall not be payable
pursuant to this Section 11.3 in connection with Shares for such times as such
Shares may be sold by the holder thereof without volume or other restrictions
pursuant to Section 144(b)(1)(i) of the 1933 Act. 

          12.           (a)           Right
of Participation. Until eighteen months after the Closing Date, the
Subscribers shall be given not less than ten business days prior written notice
of any proposed sale by the Company of its Common Stock or other securities or
equity linked debt obligations, except in connection with (i) full or partial
consideration in connection with a strategic merger, acquisition, consolidation
or purchase of substantially all of the securities or assets of corporation or
other entity which holders of such securities or debt are not at any time
granted registration rights, (ii) the Company’s issuance of securities in
connection with strategic license agreements and other partnering arrangements
so long as such issuances are not for the purpose of raising capital and which
holders of such securities or debt are not at any time granted registration
rights, (iii) the Company’s issuance of Common Stock or the issuances or grants
of options to purchase Common Stock to employees, directors, and consultants,
pursuant to plans described on Schedule 5(d), (iv) securities upon the
exercise or exchange of or conversion of any securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement and described 

21

on Schedule 5(d), and (v) as a result of the conversion
of Notes which are granted or issued pursuant to this Agreement on the terms
described in the Transaction Documents as of the Closing Date (collectively the
foregoing (i) through (v) are “Excepted Issuances”). The Subscribers who
exercise their rights pursuant to this Section 12(a) shall have the right during
the ten business days following receipt of the notice to purchase for cash or by
using the outstanding balance including principal, interest, liquidated damages
and any other amount then owing to such Subscriber by the Company, such offered
Common Stock, debt or other securities in accordance with the terms and
conditions set forth in the notice of sale, and if the aggregate other offering
is for less than the amounts owned to the Subscribers, collectively; in the same
proportion to each other as their purchase of Notes in the Offering. In the
event such terms and conditions are modified during the notice period, the
Subscribers shall be given prompt notice of such modification and shall have the
right during the ten business days following the notice of modification to
exercise the right to participate in such offering. 

                         (b)          
Favored Nations Provision. Other than in connection with the Excepted
Issuances, if at any time the Notes are outstanding, the Company shall agree to
or issue (the “Lower Price Issuance”) any Common Stock or securities convertible
into or exercisable for shares of Common Stock (or modify any of the foregoing
which may be outstanding) to any person or entity at a price per share or
conversion or exercise price per share which shall be less than the Fixed
Conversion Price in effect at such time, without the consent of the Subscribers,
then the Company shall issue, for each such occasion, additional shares of
Common Stock to the Subscribers respecting the Shares that are then still owned
by the Subscriber at the time of the Lower Price Issuance so that the average
per share purchase price of the Shares owned by the Subscriber on the date of
the Lower Price Issuance is equal to such other lower price per share and the
Conversion Price shall automatically and without the requirement of further
action be reduced to such other lower price. The delivery to a Subscriber of the
additional shares of Common Stock shall be not later than the closing date of
the transaction giving rise to the requirement to issue additional shares of
Common Stock. Each Subscriber is granted the registration rights described in
Section 11 hereof in relation to such additional shares of Common Stock. For
purposes of the issuance and adjustment described in this paragraph, the
issuance of any security of the Company carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in the issuance of the additional shares of
Common Stock upon the sooner of the agreement to or actual issuance of such
convertible security, warrant, right or option and again at any time upon any
subsequent issuances of shares of Common Stock upon exercise of such conversion
or purchase rights if such issuance is at a price lower than the Conversion
Price in effect upon such issuance or lower than the Conversion Price paid for
Shares held on the day the adjustment required hereunder is made. Common Stock
issued or issuable by the Company for no consideration will be deemed issuable
or to have been issued for $0.001 per share of Common Stock. The rights of each
Subscriber set forth in this Section 12 are in addition to any other rights the
Subscriber has pursuant to this Agreement, the Note, any Transaction Document,
and any other agreement referred to or entered into in connection herewith or to
which such Subscriber and Company are parties. 

                         (c)          
Maximum Exercise of Rights. In the event the exercise of the rights
described in Sections 12(a) and 12(b) would or could result in the issuance of
an amount of Common Stock of the Company that would exceed the maximum amount
that may be issued to a Subscriber calculated in the manner described in Section
7.3 of this Agreement, then the issuance of such additional shares of Common
Stock of the Company to such Subscriber will be deferred in whole or in part
until such time as such Subscriber is able to beneficially own such Common Stock
without exceeding the applicable maximum amount set forth calculated in the
manner described in Section 7.3 of this Agreement. The determination of when
such Common Stock may be issued shall be made by each Subscriber as to only such
Subscriber. 

          13.           Miscellaneous.

                         (a)           Notices.
All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, 

22

shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company, to: Liberty Star Uranium &
Metals Corp., 3024 E. Fort Lowell Road, Tucson, Arizona 85716-1572, Attn: James
A. Briscoe, President, telecopier: (520) 844-1118, with a copy by telecopier
only to: Clark Wilson LLP, 800-885 West Georgia Street, Vancouver, B.C. Canada,
Attn: Bernard Pinsky, Esq., telecopier: (604) 687-6314, and (ii) if to the
Subscriber, to: the one or more addresses and fax numbers indicated on the
signature pages hereto, with an additional copy by fax only to: Grushko &
Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, fax
number: (212) 697-3575. 

                         
(b)           Entire
Agreement; Assignment. This Agreement and other documents delivered in
connection herewith represent the entire agreement between the parties hereto
with respect to the subject matter hereof and may be amended only by a writing
executed by both parties. Neither the Company nor the Subscribers have relied on
any representations not contained or referred to in this Agreement and the
documents delivered herewith. No right or obligation of the Company shall be
assigned without prior notice to and the written consent of the Subscribers.

                         (c)          
Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by the different signatories hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. This Agreement
may be executed by facsimile signature and delivered by facsimile transmission.

                         (d)          
Law Governing this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state and county of New York. The parties to this Agreement hereby
irrevocably waive any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. The parties
executing this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the in personam
jurisdiction of such courts and hereby irrevocably waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
Each party hereby irrevocably waives personal service of process and consents to
process being served in any suit, action or proceeding in connection with this
Agreement or any other Transaction Document 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. 

23

                         (e)           Specific
Enforcement, Consent to Jurisdiction. The Company and Subscriber acknowledge
and agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity. Subject to Section 13(d)
hereof, the Company hereby irrevocably waives, and agrees not to assert in any
such suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction in New York of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Nothing in this Section shall affect or limit any right
to serve process in any other manner permitted by law. 

                         (f)           Independent
Nature of Subscribers. The Company acknowledges that the obligations of each
Subscriber under the Transaction Documents are several and not joint with the
obligations of any other Subscriber, and no Subscriber shall be responsible in
any way for the performance of the obligations of any other Subscriber under the
Transaction Documents. The Company acknowledges that each Subscriber has
represented that the decision of each Subscriber to purchase Securities has been
made by such Subscriber independently of any other Subscriber and independently
of any information, materials, statements or opinions as to the business,
affairs, operations, assets, properties, liabilities, results of operations,
condition (financial or otherwise) or prospects of the Company which may have
been made or given by any other Subscriber or by any agent or employee of any
other Subscriber, and no Subscriber or any of its agents or employees shall have
any liability to any Subscriber (or any other person) relating to or arising
from any such information, materials, statements or opinions. The Company
acknowledges that nothing contained in any Transaction Document, and no action
taken by any Subscriber pursuant hereto or thereto (including, but not limited
to, the (i) inclusion of a Subscriber in a registration statement and (ii)
review by, and consent to, such registration statement by a Subscriber) shall be
deemed to constitute the Subscribers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the
Subscribers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. The
Company acknowledges that each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of the Transaction Documents, and it shall not be necessary for any other
Subscriber to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that it has elected to provide all Subscribers
with the same terms and Transaction Documents for the convenience of the Company
and not because Company was required or requested to do so by the Subscribers.
The Company acknowledges that such procedure with respect to the Transaction
Documents in no way creates a presumption that the Subscribers are in any way
acting in concert or as a group with respect to the Transaction Documents or the
transactions contemplated thereby. 

                         (g)           Damages.
In the event the Subscriber is entitled to receive any liquidated damages
pursuant to the Transactions, the Subscriber may elect to receive the greater of
actual damages or such liquidated damages. 

                         (h)           Consent.
As used in this Agreement and the Transaction Documents and any other agreement
delivered in connection herewith, “consent of the Subscribers” or similar
language means the consent of holders of not less than 70% of the outstanding
principal amount of the Notes on the date consent is requested (such amount
being a “Majority in Interest”). A Majority in Interest may consent to
take or forebear from any action permitted under or in connection with the
Transactions, modify any Transaction Document or waive any default or
requirement applicable to the Company, Subsidiaries or Subscribers under the
Transaction Documents provided the effect of such action does not waive any
accrued damages and further provided that the relative rights of the Subscribers
to each other remains unchanged. 

24

                         (i)          
Equal Treatment. No consideration shall be offered or paid to any person
to amend or consent to a waiver or modification of any provision of the
Transaction Documents unless the same consideration is also offered and paid to
all the Subscribers and their permitted successors and assigns who agree or are
deemed to have agreed to such amendment or consent. 

                         (j)           Maximum
Payments. Nothing contained herein or in any document referred to herein or
delivered in connection herewith shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or dividends
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Subscriber and thus refunded to the Company.

                         (k)           Calendar
  Days. All references to “days” in the Transaction Documents shall
  mean calendar days unless otherwise stated. The terms “business days”
  and “trading days” shall mean days that the New York Stock Exchange
  is open for trading for three or more hours. Time periods shall be determined
  as if the relevant action, calculation or time period were occurring in New
  York City. Any deadline that falls on a non-business day in any of the Transaction
  Documents shall be automatically extended to the next business day and interest,
  if any, shall be calculated and payable through such extended period.

                         (l)           Maximum
Liability. In no event shall the liability of any Subscriber or permitted
successor hereunder or under any Transaction Document or other agreement
delivered in connection herewith be greater in amount than the dollar amount of
the net proceeds actually received by such Subscriber upon the sale of
Registrable Securities. 

                         (m)           Captions:
Certain Definitions. The captions of the various sections and paragraphs of
this Agreement have been inserted only for the purposes of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
As used in this Agreement the term “person” shall mean and include an
individual, a partnership, a joint venture, a corporation, a limited liability
company, a trust, an unincorporated organization and a government or any
department or agency thereof. 

                         (n)           Severability.
In the event that any term or provision of this Agreement shall be finally
determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by an authority having jurisdiction and venue, that
determination shall not impair or otherwise affect the validity, legality or
enforceability: (i) by or before that authority of the remaining terms and
provisions of this Agreement, which shall be enforced as if the unenforceable
term or provision were deleted, or (ii) by or before any other authority of any
of the terms and provisions of this Agreement. 

                         (o)           Successor
Laws. References in the Transaction Documents to laws, rules, regulations
and forms shall also include successors to and functionally equivalent
replacements of such laws, rules, regulations and forms. A successor rule to
Rule 144(b)(1)(i) shall include any rule that would be available to a
non-Affiliate of the Company for the sale of Common Stock not subject to volume
restrictions and after a six month holding period.

25

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)

          Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us. 

LIBERTY STAR URANIUM & METALS
CORP. 
a Nevada corporation 

By:/s/ James
Briscoe                                                                   
     
Name: 
       Title:

Dated: August 27, 2008 

	SUBSCRIBER 
	PURCHASE PRICE AND
      
PRINCIPAL AMOUNT 
	ALPHA CAPITAL ANSTALT 
Pradafant 7 
9490 Furstentums
      
Vaduz, Lichtenstein
      

      /s/ Konrad Ackerman 

      Fax:
      011-42-32323196 
(Signature) 
By: 	$90,830.15
      

26

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)

          Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us. 

LIBERTY STAR URANIUM & METALS
CORP. 
a Nevada corporation 

By:/s/ James
Briscoe                                                                   
     
Name: 
       Title:

Dated: August 27, 2008 

	SUBSCRIBER 
	PURCHASE PRICE AND
      
PRINCIPAL AMOUNT 
	HARBORVIEW MASTER FUND L.P. 
2nd Floor,
      Harbor House 
Waterfront Drive, Road Town 
Tortola, British Virgin
      Islands
      

        /s/ Navigator Management Ltd.

        Fax:
      (284) 494-4771 
(Signature) 
By: 	$50,055.88
      

27

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C)

          Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us. 

LIBERTY STAR URANIUM & METALS
CORP. 
a Nevada corporation 

By:/s/ James
Briscoe                                                                   
     
Name: 
       Title:

Dated: August ___, 2008 

	SUBSCRIBER 
	PURCHASE PRICE AND
      
PRINCIPAL AMOUNT 
	PLATINUM PARTNERS LONG TERM GROWTH VI 
152 West
      57th Street 
New York, New York 10019 
Attn: Mark
      Nordlicht 
Fax: (212) 

        /s/ Mark Nordlicht                                                                               

        (Signature)
      
By: 	$61,472.13
      

28

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (D)

          Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us. 

LIBERTY STAR URANIUM & METALS
CORP. 
a Nevada corporation 

By:/s/ James
Briscoe                                                                   
     
Name: 
       Title:

Dated: August 27, 2008 

	SUBSCRIBER 
	PURCHASE PRICE AND
      
PRINCIPAL AMOUNT 
	BRIDGEPOINTE MASTER FUND, LTD. 
a Cayman Islands
      exempted company 
1120 Sanctuary Parkway, Suite 325 
Alpharetta,
      Georgia 30004 
Fax: (770) 777-5844 

/s/ Eric S.
      Swartz                                                                                       
(Signature)
      
By: 	$75,874.18
      

29

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (E)

          Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us. 

LIBERTY STAR URANIUM & METALS
CORP. 
a Nevada corporation 

By:/s/ James
Briscoe                                                                   
     
Name: 
       Title:

Dated: August ___, 2008 

	SUBSCRIBER 
	PURCHASE PRICE AND
      
PRINCIPAL AMOUNT 
	BRIO CAPITAL LP 
401 E. 34th St.-Suite South
      33C 
New York, NY 10016 
Fax: (646) 390-2158
      

        /s/ Shaye Hirsch                                                                                      

        (Signature)
      
By: 	$18,487.31
      

30

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (F)

          Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us. 

LIBERTY STAR URANIUM & METALS
CORP. 
a Nevada corporation 

By:/s/ James
Briscoe                                                                   
     
Name: 
       Title:

Dated: August ___, 2008 

	SUBSCRIBER 
	PURCHASE PRICE AND 
PRINCIPAL
      AMOUNT 
	IROQUOIS MASTER FUND LTD. 
c/o Iroquois Capital
      Management, LLC 
641 Lexington Avenue, 26th Floor 
New
      York, NY 10022 
Fax: (212) 207-3452 

        /s/ Joshua Silverman                                                                            

        (Signature) 
By: 	$25,027.94
      

31

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (G)

          Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us. 

LIBERTY STAR URANIUM & METALS
CORP. 
a Nevada corporation 

By:/s/ James
Briscoe                                                                   
     
Name: 
       Title:

Dated: August ___, 2008 

	SUBSCRIBER 
	PURCHASE PRICE AND 
PRINCIPAL
      AMOUNT 
	ENABLE GROWTH PARTNERS LP 
One Ferry Building, Suite 255
      
San Francisco, CA 94111 
Fax: (415) 677-1580
      

        /s/ Brendan O’Neil                                                                           

        (Signature) 
By: 	$78,571.18
    

32

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (H)

          Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us. 

LIBERTY STAR URANIUM & METALS
CORP. 
a Nevada corporation 

By:/s/ James
Briscoe                                                                   
    
Name: 
     Title:

Dated: August 27, 2008 

	SUBSCRIBER 
	PURCHASE PRICE AND 
PRINCIPAL
      AMOUNT 
	ENABLE OPPORTUNITY PARTNERS LP 
One Ferry Building,
      Suite 255 
San Francisco, CA 94111 
Fax: (415)
      677-1580

        _________________________________________________

        (Signature)
      
By: 	$13,865.52
    

33

LIST OF EXHIBITS AND SCHEDULES

	Exhibit A 	Form of Note 
	 	 
	Exhibit B 	Escrow Agreement 
	 	 
	Exhibit C 	Form of Security Agreement 
	 	 
	Exhibit D 	Form of Subsidiary Guaranty

	 	 
	Exhibit E 	Form of Collateral Agent
      Agreement 
	 	 
	Exhibit F 	Form of Legal Opinion 
	 	 
	Exhibit G 	Form of Lock Up Agreement 
	 	 
	Exhibit H 	Third Modification, Waiver and
      Acknowledgement Agreement 
	 	 
	Schedule 3.1 	Security Interest Filings on
      Mineral Claims 
	 	 
	Schedule 5(a) 	Equity and encumbrances on
      ownership in Subsidiaries 
	 	 
	Schedule 5(d) 	Additional Issuances /
      Capitalization / Reset Rights 
	 	 
	Schedule 5(o) 	Undisclosed Liabilities 
	 	 
	Schedule 5(x) 	Transfer Agent 
	 	 
	Schedule 5(z) 	Financial Accounts 
	 	 
	Schedule 8(a) 	Placement Agent Compensation
  
	 	 
	Schedule 9(e) 	Use of Proceeds 
	 	 
	Schedule 9(t) 	Lockup Agreement Providers
  

34

EXHIBIT G 

LOCKUP AGREEMENT 

          This
AGREEMENT (the "Agreement") is made as of the ____ day of August, 2008, by James
Briscoe ("Holder"), in connection with his ownership of shares of Liberty Star
Uranium & Metals Corp., a Nevada corporation (the "Company"). 

          NOW,
THEREFORE, for good and valuable consideration, the sufficiency and receipt of
which consideration are hereby acknowledged, Holder agrees as follows: 

         
1.          
Background. 

                        
a.           Holder is the
beneficial owner of the amount of shares of the Common Stock, $.001 par value,
of the Company (“Common Stock”) designated on the signature page hereto. 

                        
b.           Holder
acknowledges that the Company has entered into or will enter into at or about
the date hereof agreements with subscribers each a (“Subscription Agreement”) to
the Company’s Notes which are convertible into Common Stock (“Notes”) (the
“Subscribers”). Holder understands that, as a condition to proceeding with the
Offering, the Subscribers have required, and the Company has agreed to obtain on
behalf of the Subscribers an agreement from the Holder to refrain from selling
any securities of the Company from the date of the Subscription Agreement until
two years after the Closing Date (as defined in the Subscription Agreement) (the
"Restriction Period"), except as described below.

         
2.          
Share Restriction.

                        
a.           Holder hereby
agrees that during the Restriction Period, the Holder will not sell or otherwise
dispose of any shares of Common Stock or any options, warrants or other rights
to purchase shares of Common Stock or any other security of the Company which
Holder owns or has a right to acquire as of the date hereof, other than in
connection with an offer made to all shareholders of the Company in connection
with merger, consolidation or similar transaction involving the Company. Holder
further agrees that the Company is authorized to and the Company agrees to place
"stop orders" on its books to prevent any transfer of shares of Common Stock or
other securities of the Company held by Holder in violation of this Agreement.
The Company agrees not to allow to occur any transaction inconsistent with this
Agreement. 

                        
b.           Any subsequent
issuance to and/or acquisition by Holder of Common Stock or options or
instruments convertible into Common Stock will be subject to the provisions of
this Agreement. 

                        
  c.           Notwithstanding
  the foregoing restrictions on transfer, the Holder may, at any time and from
  time to time during the Restriction Period, transfer the Common Stock (i) as
  bona fide gifts or transfers by will or intestacy, (ii) to any trust for the
  direct or indirect benefit of the undersigned or the immediate family of the
  Holder, provided that any such transfer shall not involve a disposition for
  value, (iii) to a partnership which is the general partner of a partnership
  of which the Holder is a general partner, provided, that, in the case of any
  gift or transfer described in clauses (i), (ii) or (iii), each donee or transferee
  agrees in writing to be bound by the terms and conditions contained herein in
  the same manner as such terms and conditions apply to the undersigned, or (iv)
  a bona fide sale for cash at not less than $0.90 per share of Common Stock (which
  price shall be equitably adjusted in connection with stock splits, stock dividends,
  and similar events). For purposes hereof, "immediate family" means any relationship
  by blood, marriage or adoption, not more remote than first cousin.

35

         
3.          
Miscellaneous. 

                        
a.           At any time, and
from time to time, after the signing of this Agreement Holder will execute such
additional instruments and take such action as may be reasonably requested by
the Subscribers to carry out the intent and purposes of this Agreement. 

                        
b.           This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflicts of laws. Any action brought
by either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. The parties to this Agreement
hereby irrevocably waive any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. The
parties executing this Agreement and other agreements referred to herein or
delivered in connection herewith agree to submit to the in personam jurisdiction
of such courts and hereby irrevocably waive trial by jury. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Agreement or
any other agreement delivered in connection herewith is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement. 

                        
c.           The restrictions
on transfer described in this Agreement are in addition to and cumulative with
any other restrictions on transfer otherwise agreed to by the Holder or to which
the Holder is subject to by applicable law. 

                        
d.           This Agreement
shall be binding upon Holder, its legal representatives, successors and assigns.

                        
e.           This Agreement
may be signed and delivered by facsimile and such facsimile signed and delivered
shall be enforceable. 

                        
f.           The Company
agrees not to take any action or allow any act to be taken which would be
inconsistent with this Agreement. 

36

          IN
WITNESS WHEREOF, and intending to be legally bound hereby, Holder has executed
this Agreement as of the day and year first above written. 

HOLDER: 

________________________________
(Signature of Holder) 

________________________________
(Print Name of Holder)

________________________________
Number of Shares of Common
Stock 
Beneficially Owned and as more fully 
described below if not in the
form of 
shares of Common Stock 

COMPANY: 

LIBERTY STAR URANIUM & METALS
CORP. 

By:______________________________ 

37

SCHEDULE 3.1 

ADDITIONAL SECURITY INTEREST FILINGS 

Alaska – Deed of Trust 

Alaska – Financing Statement UCC-1 

Arizona – Deed of Trust – Coconino County 

Arizona – Deed of Trust – Mojave County 

Arizona – Financing Statements on UCC-1 

38

SCHEDULE 5(a) 

EQUITY AND ENCUMBRANCES ON OWNERSHIP IN
SUBSIDIARIES 

          Liberty
Star owns two common shares in the capital of Big Chunk Corp., representing 100%
of the outstanding equity and rights to receive equity of Big Chunk Corp. There
are no encumbrances on such ownership. 

39

SCHEDULE 5(x) 

TRANSFER AGENT 

Nevada Agency and Trust Company (NATCO) 
Bank of America
Plaza 
50 Wet Liberty Street, Suite 880 
Reno, NV 89501

Phone:    775-322-0626

Fax:          775-322-5623

Contact:   Mary Ramsey 
E-mail: mary@natco.org 

40

SCHEDULE 8(a) 

DUE DILIGENCE NOTES 

          Due
diligence fee of $12,000 will be paid to each of Libra Finance, S.A., Harborview
Master Fund L.P., and Platinum Partners Long Term Growth VI. The fee will be
paid as a non-secured, subordinate promissory note otherwise on the same terms
and conditions as the Notes issued to the Subscribers (each a “Due Diligence
Note”). The holders of the Due Diligence Notes are granted all of the
rights, benefits, registration, reservation, indemnification, Events of Default
and other rights granted to the Subscribers pursuant to the Subscription
Agreement, except that the Due Diligence Notes will not be secured. 

41

SCHEDULE 9(t) 

LOCKUP AGREEMENT PROVIDERS 

James Briscoe 

42

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