Document:

syn_ex101-80401.htm

    Exhibit
10.1

    

    THIRD
AMENDMENT OF LOAN AND SECURITY AGREEMENT

    

    

    This THIRD  AMENDMENT OF LOAN
AND SECURITY AGREEMENT (“Amendment”) is dated as of March 19, 2008, by
and between Synthetech, Inc., an
Oregon
Corporation, having a place of business at 1290 Industrial Way Albany,
OR  97322 (“Borrower”) and ACCESS BUSINESS FINANCE LLC, having
a principal place of business at 14205 S. E. 36th Street, Suite 350, Bellevue,
WA  98006 (“Lender”).

    

    RECITALS

    

    

    
      	 	
              A. 

            	
              Borrower
      and Lender have entered into that certain Loan and Security Agreement
      dated as ofJune 15, 2006
      (as amended or modified to the date hereof, the “Loan
      Agreement”).

            

    

    

    
      	 	
              B. 

            	
              Borrower
      has requested that Lender amend, and Lender has agreed to amend, the Loan
      Agreement to:

            

    

    

    
      
        	 	
                1. 

              	
                 Increase
      the Borrowing Base on Eligible Inventory from 40% to
  50%.

              

      

    

    
      
        	 	
                2. 

              	
                 Extend
      the Loan and Security Agreement through June 15,
  2009.

              

      

    

    
      
        	 	
                3. 

              	
                 Increase
      the Annual Loan Fee from .75% to 1% and pay the Loan Fee for the Renewal
      Term ending June 15, 2009 on March 28,
2008.

              

      

    

    

    NOW,
THEREFORE, in consideration of the premises, and intending to be legally bound
hereby, the parties hereby agree as follows:

    

    AGREEMENT

    

    
      1.    Amendment of the Loan
Agreement.  The Loan Agreement is hereby amended as follows,
effective as of the date hereof:

    

    

    
      	 	
              1.1

            	
              The term “Borrowing Base” is
      changed to read in its entirety: “the sum of:  (i) Eighty-Five
      (85%)
      percent of the Net Face Amount of Borrower's Eligible Accounts,
      plus the lesser of (1) Fifty
      (50%)
      percent of the Value of Eligible Inventory, (2) $1,500,000.00
      or N/A of
      the Net Face Amount of Borrower’s Eligible
  Accounts.

            

    

    
      	 	
              1.2 

            	
              The
      term “Contractual Termination Date” is changed in its entirety to
      read:  “The end of the Initial Term, any Renewal Term, or June
      15, 2009.”

            

    

    
      	 	
              1.3 

            	
              The
      term “Loan Fee” is amended and shall be increased to 1% of the Maximum
      Amount at the time this fee accrues.  The fee for the Renewal
      Term ending June 15, 2009 is due on March 28,
  2008.

            

    

    

    2.    Modification.  Except
as expressly modified hereby, the Loan Agreement shall remain unchanged and in
full force and effect.

    

    3.    Conflicts.  If
a conflict exists between the provisions of the Loan Agreement and the
provisions of this Amendment, the provisions of this Amendment shall
control.

    

    4.    Further
Assurances.  Borrower agrees to make and execute such other
documents as may be necessary or required to effectuate the terms and conditions
of this Agreement.

    

    5.    Future
Modifications.  This Amendment does not entitle, or imply any
consent or agreement to, any further or future modification of, amendment to,
waiver of, or consent with respect to any provision of the Loan
Agreement.

    

    6.    Severability.  In
the event any one or more of the provisions contained in this Agreement is held
to be invalid, illegal or unenforceable in any respect, then such provision
shall be ineffective only to the extent of such prohibition or invalidity, and
the validity, legality, and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    7.    Headings.  Section
headings and numbers have been set forth for convenience only.

    

    8.    Counterparts.  This
Amendment may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if all signatures were upon the same
instrument.  Delivery of an executed counterpart of the signature page
to this Amendment by telefacsimile shall be effective as delivery of a manually
executed counterpart of this  Amendment, and any party delivering such
an executed counterpart of the signature page to this Amendment by telefacsimile
to any other party shall thereafter also promptly deliver a manually executed
counterpart of this Amendment to such other party, provided that the failure to
deliver such manually executed counterpart shall not affect the validity,
enforceability, or binding effect of this Agreement.

    

    IN WITNESS WHEREOF, the parties hereto
have caused this Amendment to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first above
written.

     

     

    
      
        	 	Synthetech,
      Inc.	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ Gary Weber	 
	 	 	Gary
      Weber	 
	 	Title:	VP
      Finance, CFO	 
	 	 	 	 

      

      
        	 	ACCESS
      BUSINESS FINANCE, LLC	 
	 	 	 	 
	 	
                By:
      

              	/s/ Mark
      King	 
	 	 	 	 
	 	Title:	Director
      of Operationsexh10_1.htm

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    
      	
               Exhibit
10.1

            

    

     

    SECURITIES
PURCHASE AGREEMENT

     

    This
Securities Purchase Agreement (this “Agreement”) is dated
as of March 26, 2008, among LML Payments Systems, Inc., a Yukon corporation (the
“Company”), and
each purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and
collectively the “Purchasers”);
and

     

    WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act (as defined below), and Rule 506 promulgated
thereunder, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company in
the aggregate, up to $7,200,000 of shares of Common Stock on the Closing
Date.

     

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

     

    ARTICLE
I.

     

    DEFINITIONS

     

    1.1 Definitions

     

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

     

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

     

    “Affiliate” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person as such terms are
used in and construed under Rule 144.  With respect to a Purchaser,
any investment fund or managed account that is managed on a discretionary basis
by the same investment manager as such Purchaser will be deemed to be an
Affiliate of such Purchaser.

     

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

     

    “Closing Date” means
the Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to (i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities have been satisfied or
waived.

     

    “Closing Price” means
on any particular date (a) the last reported closing bid price per share of
Common Stock on such date on the Trading Market (as reported by Bloomberg L.P.
at 4:15 PM (New York time), or (b) if there is no such price on such date, then
the closing bid price on the Trading Market on the date nearest preceding such
date (as reported by Bloomberg L.P. at 4:15 PM (New York time) for the closing
bid price for regular session trading on such day), or (c) if the Common
Stock is not then listed or quoted on the Trading Market and if prices for the
Common Stock are then reported in the “pink sheets” published by the National
Quotation Bureau Incorporated

     

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported, or
(d) if the shares of Common Stock are not then publicly traded the fair
market value of a share of Common Stock as determined by a qualified independent
appraiser selected in good faith by the Purchasers of a majority in interest of
the Shares then outstanding.

     

     “Commission” means the
Securities and Exchange Commission.

     

    “Common Stock” means
the common shares of the Company, no par value per share, and any securities
into which such common stock may hereafter be reclassified.

     

    “Common Stock
Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

     

    “Company Counsel”
means Clark Wilson LLP with offices at 800 – 885 West Georgia Street, Vancouver,
B.C. Canada V6M 3R9.

     

    “Disclosure Schedules”
means the Disclosure Schedules of the Company delivered concurrently
herewith.

     

    “Effective Date” means
the date that the Registration Statement is first declared effective by the
Commission.

     

    “Exchange Act” means
the Securities Exchange Act of 1934, as amended.

     

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

     

    “Ladenburg” means
Ladenburg Thalmann & Co. Inc., the Company’s placement agent for this
offering.

     

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

     

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

     

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

     

    “Per Share Purchase
Price” equals $1.80.

     

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

     

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

     

    “Registration Rights
Agreement” means the Registration Rights Agreement, dated as of the date
of this Agreement, among the Company and each Purchaser, in the form of Exhibit B
hereto.

     

    

    
      
        
           

        

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

     

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

     

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

     

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

     

    “Securities” means the
Shares.

     

    “Securities Act” means
the Securities Act of 1933, as amended.

     

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

     

    “Subscription Amount”
means, as to each Purchaser, the amounts set forth below such Purchaser’s
signature block on the signature page hereto, in United States dollars and in
immediately available funds.

     

    “Subsidiary” shall
mean the subsidiaries of the Company, if any, set forth on Schedule
3.1(a).

     

    “Trading Day” means a
day on which the Common Stock is traded on a Trading Market.

     

    “Trading Market” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the Nasdaq Capital Market, the American
Stock Exchange, the New York Stock Exchange, the Nasdaq Global Select Market or
the OTC Bulletin Board.

     

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

     

    ARTICLE
II.

     

    PURCHASE
AND SALE

     

    2.1 Closing.  On
the Closing Date, each Purchaser shall purchase from the Company, severally and
not jointly with the other Purchasers, and the Company shall issue and sell to
each Purchaser, (a) a number of Shares equal to such Purchaser’s Subscription
Amount divided by the Per Share Purchase Price. The aggregate Subscription
Amount for Shares sold hereunder shall be up to $7,200,0000. Upon satisfaction
of the conditions set forth in Section 2.2, the Closing shall occur at the
offices of Ladenburg or such other location as the parties shall mutually
agree.

     

    

    
      
        
           

        

        
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    2.2 Deliveries.

     

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

     

    (i) this
Agreement duly executed by the Company;

     

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

     

    (iii) an
Officer’s Certificate in a form approved by the Buyer acting
reasonably;

     

    (iv) the
Registration Rights Agreement duly executed by the Company; and

     

    (v) a legal
opinion of Company Counsel, in the form of Exhibit C attached
hereto.

     

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

     

    (i) this
Agreement duly executed by such Purchaser;

     

    (ii) the
Registration Rights Agreement duly executed by such Purchaser; and

     

    (iii) such
Purchaser’s Subscription Amount by wire transfer to the account as specified in
Exhibit “A” attached to this Agreement.

     

    2.3 Closing
Conditions.

     

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

     

    (i) the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Purchasers contained herein;

     

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

     

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

     

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

     

    (i) the
accuracy in all material respects on the Closing Date of the representations and
warranties of the Company contained herein;

     

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

     

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

     

    

    
      
        
           

        

        
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    (iv) the
absence of any order, writ, injunction, judgment or decree that could negatively
affect the validity of this Agreement or the right of the Company to enter into
this Agreement or to consummate the transactions contemplated
hereby;

     

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

     

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

     

    ARTICLE
III.

     

    REPRESENTATIONS
AND WARRANTIES

     

    3.1 Representations and
Warranties of the Company.

     

    Except as
set forth under the corresponding section of the Disclosure Schedules which
Disclosure Schedules shall be deemed a part hereof, the Company hereby makes the
representations and warranties set forth below to each Purchaser:

     

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

     

    (b) Organization and
Qualification.  Each of the Company and the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any Subsidiary is in violation or
default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter
documents.  Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or financial condition of the Company or any of its Subsidiaries, or
(iii) a material adverse effect on the Company’s ability to perform in any
material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material Adverse
Effect”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.

     

    

    
      
        
           

        

        
          - 5
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    (c) Authorization;
Enforcement.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
thereunder.  The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company in
connection therewith other than in connection with the Required
Approvals.  Each Transaction Document has been (or upon delivery will
have been) duly executed by the Company and, when delivered in accordance with
the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.

     

    (d) No
Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Shares and
the consummation by the Company of the other transactions contemplated thereby
do not and will not (i) conflict with or violate any provision of the Company’s
or any Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any Lien upon any of the properties or
assets of the Company or any Subsidiary, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected, or (iv) conflict with or violate the terms of any
agreement by which the Company or any Subsidiary is bound or to which any
property or asset of the Company or any Subsidiary is bound or affected; except
in the case of each of clauses (ii) and (iii), such as could not have or
reasonably be expected to result in a Material Adverse Effect.

     

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

     

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

     

    

    
      
        
           

        

        
          - 6
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    (g) Capitalization.  The
capitalization of the Company is as described in the Company’s most recent
periodic report filed with the Commission.  The Company has not issued
any capital stock since such filing other than pursuant to the exercise of
employee stock options under the Company’s stock option plans, the issuance of
shares of Common Stock to employees pursuant to the Company’s employee stock
purchase plan and pursuant to the conversion or exercise of outstanding Common
Stock Equivalents.  No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents.  Except as
a result of the purchase and sale of the Securities, and as set out in Schedule 3.1(g),
there are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common
Stock.  The issue and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person (other
than the Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities. All of the outstanding shares of capital stock of the Company
are validly issued, fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to subscribe
for or purchase securities.  No further approval or authorization of
any stockholder, the Board of Directors of the Company or others is required for
the issuance and sale of the Shares.  Except as disclosed in the SEC
Reports, there are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company’s capital stock to which the
Company is a party or, to the knowledge of the Company, between or among any of
the Company’s stockholders.

     

    (h) SEC Reports; Financial
Statements.  Except as set out in Schedule 3.1(h), the
Company has filed all reports required to be filed by it under the Securities
Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing materials,
including the exhibits thereto, being collectively referred to herein as the
“SEC Reports”)
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such
extension.  As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.  The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing.  Such financial statements have been prepared in accordance
with Canadian generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may
be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.

     

    

    
      
        
           

        

        
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    (i) Material
Changes.  Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports, (i) there has been no event, occurrence or development that has
had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company's financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans.  The Company does not have pending before
the Commission any request for confidential treatment of
information.

     

    (j) Litigation.  Except
as disclosed on Schedule 3.1(j), there is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect.  Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty.  The Commission has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.

     

    (k) Labor
Relations.  No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect. To the best of the Company’s knowledge, no officer or key employee
intends to terminate their employment with the Company, nor does the Company
have any present intention of terminating the employment of any of its officers
or key employees.

     

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

     

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

     

    

    
      
        
           

        

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

     

    (o) Patents and
Trademarks.  The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so have
could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”).  Neither the Company nor any Subsidiary has received
any communication that the Intellectual Property Rights used by the Company or
any Subsidiary violates or infringes upon the rights of any
Person.  To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by the
Company of any of the Intellectual Property Rights of others.

     

    (p) Transactions With Affiliates
and Employees.  Except as set forth in the SEC Reports, none of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $60,000 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.

     

    (q) Sarbanes-Oxley; Internal
Accounting Controls.  The Company is in material compliance
with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it
as of the Closing Date.  The Company and the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company's most recently filed periodic report under the
Exchange Act, as the case may be, is being prepared.  The Company's
certifying officers have evaluated the effectiveness of the Company's controls
and procedures as of the date prior to the filing date of the most recently
filed periodic report under the Exchange Act (such date, the “Evaluation
Date”).  The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date.  Since the Evaluation
Date, there have been no significant changes in the Company's internal control
over financial reporting (as such term is defined in Regulation S-K under the
Exchange Act).

     

    

    
      
        
           

        

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

     

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

     

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

     

    (u) Registration
Rights.  Except for piggyback registration rights granted to
certain parties with respect to an underwritten public offering of equity
securities by the Company for its own account, and other than the Registration
Statement, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the
Company.

     

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

     

    (w) Application of Takeover
Protections.  The Company and its Board of Directors have taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company's
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation the Company's issuance of the Securities and the Purchasers’
ownership of the Securities.

     

    

    
      
        
           

        

        
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    (x) Disclosure.  The
Company confirms that, neither the Company nor any other Person acting on its
behalf has provided any of the Purchasers or their agents or counsel with any
information that constitutes or might constitute material, non-public
information.   The Company understands and confirms that the
Purchasers will rely on the foregoing representations and covenants in effecting
transactions in securities of the Company.  All disclosure provided to
the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Disclosure Schedules to this Agreement,
furnished by or on behalf of the Company with respect to the representations and
warranties made herein are true and correct with respect to such representations
and warranties and do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The Company acknowledges and agrees that no Purchaser makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2
hereof.

     

    (y) No Integrated
Offering. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2, neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
the Securities Act or any applicable shareholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated.

     

    (z) 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
Securities 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 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).

     

    (aa) Taxes. Neither the
Company nor any Subsidiary has failed to file any federal, state and foreign
income and franchise tax returns required to be filed and the Company has no
knowledge of a tax deficiency which has been asserted or threatened against the
Company or any Subsidiary.

     

    (bb) General
Solicitation.  Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Shares by any form of
general solicitation or general advertising.  The Company has offered
the Shares for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.

     

    

    
      
        
           

        

        
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    (cc) 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 corrupt 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.

     

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

     

    Each
Purchaser acknowledges and agrees that the Company does not make or has not made
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.1.

     

    3.2 Representations and
Warranties of the Purchasers

     

    Each
Purchaser hereby, for itself and for no other Purchaser, represents and warrants
as of the date hereof and as of the Closing Date to the Company as
follows:

     

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

     

    

    
      
        
           

        

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

     

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

     

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

     

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

     

    (f) Short
Sales.  Each Purchaser represents that from the date that it
was approached to participate in the transaction contemplated by this Agreement
through the Closing Date, neither it nor its affiliates have made any net short
sales of, or granted any option for the purchase of or entered into any hedging
or similar transaction with the same economic effect as a net short sale, in the
Common Stock.

     

    The
Company acknowledges and agrees that each Purchaser does not make or has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section
3.2.

     

    ARTICLE
IV.

     

    OTHER
AGREEMENTS OF THE PARTIES

     

    4.1 Transfer
Restrictions.

     

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

     

    

    
      
        
           

        

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

     

    THESE
SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.

     

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

     

    (c) Certificates
evidencing the Shares shall not contain any legend (including the legend set
forth in Section 4.1(b)), (i) while a registration statement (including the
Registration Statement) covering the resale of such security is effective under
the Securities Act, or (ii) following any sale of such Shares pursuant to Rule
144, or (iii) if such Shares are eligible for sale under Rule 144(b)(1), or (iv)
if such legend is not required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the Staff
of the Commission).  The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that enlarge
the restrictions on transfer set forth in this Section.

     

    (d) Each
Purchaser, severally and not jointly with the other Purchasers, agrees that the
removal of the restrictive legend from certificates representing Securities as
set forth in this Section 4.1 is predicated upon the Company’s reliance that the
Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom.

     

    

    
      
        
           

        

        
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    4.2 Furnishing of
InformationFor a
period ending on the earlier of (i) five years from Closing and (ii) the date no
Purchaser owns Securities (the “Compliance Period”) ,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange
Act.  During the Compliance Period, if the Company is not required to
file reports pursuant to the Exchange Act, it will prepare and furnish to the
Purchasers and make publicly available in accordance with Rule 144(c) such
information as is required for the Purchasers to sell the Securities under Rule
144. The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell such Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144.

     

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

     

    4.4 Securities Laws Disclosure;
Publicity.  The Company shall, by 9:30 a.m. Eastern time on or
before the  Trading Day following the Closing Date, issue a press
release (“Press
Release”) or file a Current Report on Form 8-K attaching as exhibits the
Transaction Documents, including the schedules and exhibits thereto (the “8-K”), disclosing the
material terms of the transactions contemplated hereby. After the issuance of
the Press Release or Filing of the 8-K, as applicable, the Purchasers shall not
be in possession of any material non-public information provided by the Company.
.. If required by the Purchasers, the Company shall not publicly disclose the
name of any Purchaser, or include the name of any Purchaser in any filing with
the Commission or any regulatory agency or Trading Market, without the prior
written consent of such Purchaser, except (i) as required by federal or state
securities law in connection with a registration statement or Form D filing, and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, or to provide the tradability opinion required for registration or
removal of a legend.

     

    4.5 Shareholders Rights
Plan.  No claim will be made or enforced by the Company or, to
the knowledge of the Company, any other Person that any Purchaser is an
“Acquiring Person” under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers. The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act.

     

    4.6 Non-Public
Information.  The Company covenants and agrees that neither it
nor any other Person acting on its behalf will provide any Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information.  The Company understands and confirms that each Purchaser
shall be relying on the foregoing representations in effecting transactions in
securities of the Company.

     

    4.7 Use of
Proceeds.  The Company shall use the net proceeds from the sale
of the Securities hereunder for any purpose its directors deem
appropriate.

     

    

    
      
        
           

        

        
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    4.8 Indemnification of
Purchasers.   Subject to the provisions of this Section
4.8, the Company will indemnify and hold the Purchasers and their directors,
officers, shareholders, partners, employees and agents (each, a “Purchaser Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser, or any
of them or their respective Affiliates, by any stockholder of the Company who is
not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Purchaser’s representation, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations by the Purchaser of state or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance).  If any
action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing.  Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Purchaser Party except to the extent
that (i) the employment thereof has been specifically authorized by the Company
in writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in
the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Company and the position of such
Purchaser Party.  The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by an Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent that a loss, claim, damage or
liability is attributable to any Purchaser Party’s breach of any of the
representations, warranties, covenants or agreements made by the Purchaser in
this Agreement or in the other Transaction Documents, or otherwise is the
responsibility of the Purchaser or its agents.

     

    4.9 Reservation of Common
Stock. As of the closing date of this subscription, the Company will have
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement.

     

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

     

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

     

    

    
      
        
           

        

        
          - 16
-

          
            

          

        

        
           

        

      

    

    

    

     

    ARTICLE
V.

     

    MISCELLANEOUS

     

    5.1 Fees and
Expenses.  Except as otherwise set forth in this Agreement,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement.  The Company shall pay all stamp and other taxes and
duties levied in connection with the sale of the Securities.

     

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

     

    5.3 Notices.  Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 6:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 6:30 p.m. (New York City time) on any Trading Day, or (c) upon
actual receipt by the party to whom such notice is required to be
given.  The address for such notices and communications shall be as
set forth on the signature pages attached hereto.

     

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

     

    5.5 Construction.  The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.  The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.

     

    5.6 Successors and
AssignsThis
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns.  No party may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other party hereto.

     

    5.7 No Third-Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.

     

    

    
      
        
           

        

        
          - 17
-

          
            

          

        

        
           

        

      

    

    

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

     

    5.9 Survival.  The
representations and warranties herein shall survive the Closing and delivery of
the Shares.

     

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

     

    5.11 Severability.  If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.

     

    5.12 Rescission and Withdrawal
Right.  Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) the Transaction Documents,
whenever any Purchaser exercises a right, election, demand or option under a
Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Purchaser may rescind
or withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.

     

    5.13 Replacement of
Securities.  If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested.  The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities, including
without limitation any bond costs.

     

    

    
      
        
           

        

        
          - 18
-

          
            

          

        

        
           

        

      

    

    

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

     

    5.15 Independent Nature of
Purchasers’ Obligations and Rights.  The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance of the obligations of any other Purchaser under any
Transaction Document.  Nothing contained herein or in any Transaction
Document, and no action taken by any Purchaser pursuant thereto, shall be deemed
to constitute the Purchasers as a partnership, an association, a joint venture
or any other kind of entity, or create a presumption that the Purchasers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Document.  Each Purchaser
shall be entitled to independently protect and enforce its rights, including
without limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such
purpose.  Each Purchaser has been represented by its own separate
legal counsel in their review and negotiation of the Transaction
Documents..

     

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

     

    (Signature
Page Follows)

     

    

    
      
        
           

        

        
          - 19
-

          
            

          

        

        
           

        

      

    

    

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

     

    

    
      	
              LML
      PAYMENTS SYSTEMS, INC.

            	
              Address
      for Notice:

            
	 
      	 
      
	
              By:  /s/ Patrick H.
      Gaines

            	
              
                1680
      - 1140 West Pender Street

              

            
	
              Name:
      Patrick H. Gaines

            	
              Vancouver,
      BC V6E 4G1

            
	
              Title:
      President and Chief Executive Officer

            	
              
                
                  Canada

                

              

            
	 
      	 
	 
      	
              Att: Patrick Gaines

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

            	 
      
	 
      	 
      
	
              Clark
      Wilson LLP

            	 
      
	
              800
      – 885 West Georgia Street

            	 
      
	
              Vancouver,
      B.C. Canada V6M 3R9

            	 
      
	 
      	 
      
	
              fax:
      (604) 687-6314

            	 
      
	 
      	 
      
	
              Att:
      Bernard Pinsky

            	 
      

    

    

    

    

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
PAGES FOR PURCHASERS FOLLOW]

    

    
      
        
           

        

        
          - 20
-

          
            

          

        

        
           

        

      

    

    

    [PURCHASER
SIGNATURE PAGES TO LML SECURITIES PURCHASE AGREEMENT]

    

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

     

    Name of
Investing
Entity:                   Millennium
Partners, L.P.

    By:  Millennium Management
LLC

    

    By:  /s/ Terry Feeney

    Name:  Terry
Feeney

    Title:   Chief
Operating Officer

    

    Email
Address of Authorized Entity: tfeeney@mlp.com
(Legal:  lhalustick@mlp.com)

    

    Facsimile
Number                                           (212)
905-4141

    

    Address
for Notice of Investing Entity:

    

    
      	
              Millennium
      Partners, L.P.

            
	
              c/o 
      Millennium Management LLC

            
	
              666
      Fifth Avenue, 8th Floor

            
	
              New
      York, NY 10103

            
	
              Tel: 
      (212) 841-4100

            
	
              Fax: (212)
      905-4141

            
	
              Attn: 
      Terry Feeney 

            

    

    

    Address
for Delivery of Securities for Investing Entity (if not same as
above):

    

    Same as
Above, Attn:  Lisa Halustick, Esq.

    

    Subscription
Amount: $7,200,000

    

    Shares:
4,000,000

    

    EIN
Number: 13-3521699

    

    SSN
Number (if individual)

    

    [SIGNATURE
PAGES CONTINUE]

    

    
      
        
           

        

        
          - 21
-

          
            

          

        

        
           

        

      

    

    

    Exhibit
“A”

    

    WIRING
INSTRUCTIONS

    

    Pursuant
to the attached Securities Purchase Agreement, dated as of the date hereto, the
purchasers shall purchase up to $7,200,0000 of Common Stock from LML Payments
Systems, Inc., (the “Company”).  All
funds will be wired into an account maintained by the Company to be held until
Closing.

    

    
      	
              Disbursement
      Date:

            	
              March
      26, 2008

            

    

    

    

    
      	
              WIRE INSTRUCTIONS:

            	 
      
	
              Beneficiary:

            	
              LML
      Payment Systems Inc.

            	 
      
	 
      	
              1140
      West Pender Street

            	 
      
	 
      	 
      	 
      
	 
      	
              Suite
      1680

            	 
      
	 
      	
              Vancouver,
      B.C.

            	 
      
	 
      	
              V6E
      4G1

            	 
      
	 
      	 
      	 
      
	
              Beneficiary
      Bank:

            	
              Canadian
      Imperial Bank of Commerce – C.I.B.C.

            	 
      
	 
      	
              Commerce
      Place

            	 
      
	 
      	
              400
      Burrard Street

            	 
      
	 
      	
              Vancouver,
      B.C.    V6C 3A6

            	 
      
	 
      	 
      	 
      
	
              Transit
      #:

            	
               

            	 
      
	 
      	 
      	 
      
	
              ABA#

            	
               

            	 
      
	 
      	 
      	 
      
	
              Account
      #:

            	
               

            	 
      

    

    

    
      
        
           

        

        
          - 22
-

          
            

          

        

        
           

        

      

    

    

    Exhibit
“B”

    

    REGISTRATION
RIGHTS AGREEMENT

    

    

    

     

    

    
      
        
           

        

        
          - 23
-

          
            

          

        

        
           

        

      

    

    

    

     

    Exhibit
“C”

    

     

     

    [Letterhead
of Clark Wilson LLP]

    

    

    

    March 26,
2008

    

    
      	
              Millennium
      Partners, L.P.

            
	
              c/o 
      Millennium Management LLC

            
	
              666
      Fifth Avenue, 8th Floor

            
	
              New
      York, NY 10103

            

    

    

    Attn: 
Terry Feeney 

    

    
      	
              Re:

            	
              Securities Purchase
      Agreement

            

    

    

    Ladies
and Gentlemen:

     

    This
opinion is furnished to you pursuant to the Securities Purchase Agreement by and
among the purchasers signatory thereto (the “Purchasers”) and LML
Payment Systems, Inc., a Yukon corporation (the “Company”), dated as
of March 26, 2008, (the “Purchase Agreement”),
which provides for the issuance and sale by the Company of, Common Stock (the
“Common
Shares”) pursuant to the terms of the Purchase
Agreement.  All terms
used herein have the meanings defined for them in the Purchase Agreement unless
otherwise defined herein.

     

    We have
acted as counsel for the Company in connection with the negotiation of the
Purchase Agreement and the Registration Rights Agreement between the Purchasers
and the Company, dated as of March 26, 2008 (the “Registration Rights
Agreement”), (collectively the “Agreements”).  As
counsel, we have made such legal and factual examinations and inquiries as we
have deemed advisable or necessary for the purpose of rendering this
opinion.  In addition, we have examined the corporate records of the
Company as included in the Company’s minute book and a directors’ resolution
approving the Agreements. In such examination we have assumed the genuineness of
all signatures on original documents, the authenticity and completeness of all
documents submitted to us as originals, the conformity to original documents of
all copies submitted to us as copies thereof, the legal capacity of natural
persons, and the due execution and delivery of all documents (except as to due
execution and delivery by the Company) where due execution and delivery are a
prerequisite to the effectiveness thereof.

     

    As used
in this opinion, the expression “to our knowledge” refers to the current actual
knowledge of the attorneys of this firm who have worked on matters for the
Company solely in connection with the Agreements and the transactions
contemplated thereby, and without any independent investigation of any
underlying facts or situations.

     

    For
purposes of this opinion, we have assumed that the Purchasers have all requisite
power and authority, and have taken any and all necessary corporate action, to
execute and deliver the Agreements, and we are assuming that the representations
and warranties made by each Purchaser in the Agreements and pursuant thereto are
true and correct.

     

    

    
      
        
           

        

        
          - 24
-

          
            

          

        

        
           

        

      

    

    

    

     

    For the
purposes of the opinions rendered in paragraph 1, we have relied solely on a
Certificate of Good Standing issued by the Yukon Territory dated March 20, 2008.
For the purposes of the opinion rendered in paragraph 7 as to the number of
issued and outstanding shares, we have relied solely upon verbal advice from the
Company’s registrar and transfer agent dated March 20, 2008.

     

    Based
upon and subject to the foregoing, we are of the opinion that:

     

    1. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of Yukon and has all requisite corporate power and authority to
carry on its business and to own, lease and operate its properties and assets as
described in the Company’s SEC Documents.

     

    2. The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Agreements and to issue the Common
Shares.  The execution and delivery of the Agreements by the Company
and the consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required.  Each of the Agreements has been duly executed and delivered
and each of the Agreements constitutes valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other equitable principles of general
application.

     

    3. The
execution, delivery and performance of the Agreements by the Company and the
consummation by the Company of the transactions contemplated thereby, including,
without limitation, the issuance of the Common Shares, to our knowledge, does
not and will not (i) result in a violation of the Company’s Certificate of
Incorporation or By-Laws; (ii) conflict with, or constitute a material default
(or an event that with notice or lapse of time or both would become a default)
under, require a consent under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture,
instrument or any “lock-up”, refusal or similar provision of any underwriting or
similar agreement to which the Company is a party; or (iii) result in a
violation of any federal or state law, rule or regulation or any rule or
regulation of the Trading Market applicable to the Company or by which any
property or asset of the Company is bound or affected, except for such
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.

     

    4. The
issuance of the Common Shares in accordance with the Purchase Agreement will be
exempt from registration under the Securities Act of 1933, as
amended.  When so issued in accordance with the Purchase Agreement,
the Common Shares will be duly and validly issued, fully paid and nonassessable,
and free of any liens, encumbrances and preemptive or similar rights contained
in the Company’s Certificate of Incorporation or Bylaws or, to our knowledge, in
any agreement to which the Company is party.

     

    5. We have
not been engaged to devote substantive attention to any claims, actions, suits,
proceedings or investigations that are pending against the Company or its
properties, or against any officer or director of the Company in his or her
capacity as such.  To our knowledge, the Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. To our knowledge, there is no
litigation commenced against the Company other than that disclosed in the
Securities Purchase Agreement of the Company filings with the U.S. Securities
and Exchange Commission.

     

    

    
      
        
           

        

        
          - 25
-

          
            

          

        

        
           

        

      

    

    

    6. We are
not aware of any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
would become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation as a result of the Company's
issuance of the Securities and the Purchasers' ownership of the
Securities.

    

    7. The
authorized capital stock of the Company consists of: Class A, preferred stock,
$1.00 CDN par value, 150,000,000 shares authorized, issuable in series, none
issued or outstanding; Class B, preferred stock, $1.00 CDN par value,
150,000,000 shares authorized, issuable in series, none issued or outstanding;
and Common shares, no par value, 100,000,000 shares authorized, 22,341,832
shares issued and outstanding as at March 20, 2008.

    

    We have attorneys qualified to practice
law in the states of California, New York, District of Columbia, Florida,
Washington State and Virginia. We are also qualified to practice law in the
province of British Columbia. For the purposes of this opinion we have assumed
that the relevant laws of the Yukon Territory are the same as those in British
Columbia. This opinion is limited to the laws of the State of New York and the
United States federal laws applicable in that state, and to the laws of the
Province of British Columbia, the Yukon Territory and the federal laws of Canada
applicable to those jurisdictions.

    

    This
opinion is furnished to the Purchasers for their benefit in connection with the
transactions described above and may not be relied upon by any other person or
for any other purpose without our prior written consent, except that the
Company’s transfer agent, Computershare Investor Services, Inc., or its
successor agent, may rely upon this opinion in acting as transfer agent with
respect to the transactions contemplated by the Agreements.

    

    Very
truly yours,

    

    

    
      
        
           

        

        
          - 26
-

          
            

          

        

        
           

        

      

    

    

    SCHEDULE
3.1 (a)

    

    SUBSIDIARIES

    

    

    
      	 
      	 
      	 
      	
              Jurisdiction
      of

            
	 
      	
              Subsidiary

            	 
      	
              Incorporation

            
	 
      	 
      	 
      	 
      
	
              1.

            	
              LML
      Corp

            	 
      	
              Delaware,
      U.S.

            
	
              2.

            	
              LML
      Payment Systems Corp.

            	 
      	
              Delaware,
      U.S.

            
	
              3.

            	
              LML
      Patent Corp.

            	 
      	
              Delaware,
      U.S.

            
	
              4.

            	
              LHTW
      Properties Inc.

            	 
      	
              Nevada,
      U.S.

            
	
              5.

            	
              Beanstream
      Internet Commerce Inc.

            	 
      	
              British
      Columbia, Canada

            
	
              6.

            	
              Legacy
      Promotions Inc.

            	 
      	
              British
      Columbia, Canada

            

    

    

    

    

    

    

    

    

    

    
      
        
           

        

        
          - 27
-

          
            

          

        

        
           

        

      

    

    

    SCHEDULE
3.1 (g)

    

    OUTSTANDING
OPTIONS, WARRANTS OR OTHER RIGHTS TO ACQUIRE SHARES

    

    

    The
Company acquired Beanstream Internet Commerce inc. on June 30, 2007 pursuant to
an Arrangement Agreement dated as of April 30, 2007 between LML and
Beanstream.

    

    In
addition to the purchase price paid at closing, the Arrangement Agreement also
provides that the Shareholders can receive as an earn-out up to an additional
$CDN2.0 million if certain revenue milestones are reached by the first
anniversary of the closing.  The earn out, if achieved, would be
payable through the issuance of shares of LML common stock, with such earn out
shares to have a per share price, for purposes of determining how many shares
would be issuable, equal to the volume weighted average of the closing price for
the purchase of one share of LML common stock as reported on the NASDAQ Stock
Exchange during the ten trading days immediately before the earn out record
date.

    

    Since
LML’s common stock trades in U.S. dollars (on the NASDAQ Stock Exchange), the
actual number of shares of LML stock that would be required to be issued
pursuant to any earn out would depend both on the weighted average closing price
of LML’s common stock and on the U.S./Canadian currency exchange rate in effect
as of the earn out date.  In addition, if the earn out per share price
is less than the closing date per share price of LML’s common stock, then LML
has the option to pay all or any portion of the earn out in cash in lieu of
issuing shares of its common stock.

    

    

    

    

    

    

    

    
      
        
           

        

        
          - 28
-

          
            

          

        

        
           

        

      

    

    

    SCHEDULE
3.1 (h)

    

    EXCEPTIONS
TO TIMELY FILINGS

    

    On
September 17, 2007, an amended form 8-K/A was due to be filed which included the
audited financial statements of Beanstream Internet Commerce Inc, which had been
purchased by the Company on June 30, 2007. The filing was made after 5:30 P.M.
EST on that date, so that the filing was made for SEC purposes on September 18,
2008.

    

    

    
      
        
           

        

        
          - 29
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    SCHEDULE
3.1 (j)

    

    LITIGATION

    

    Law Suit
in United States District Court, Eastern Division, Marshall Division, TX Case
#2:02-CU-0018, Sharon Taylor et. al. vs. Biometric Access Company et. al.
including LML Payment Systems Corp. On March 6, 2007 LML received
notification that it was named in a class-action lawsuit filed in the
United States District Court, Eastern District, Marshall Division, Texas,
alleging that numerous defendants violated the Driver’s Privacy Protection Act
of Texas regulating the use of personal information such as driver’s license
numbers and home addresses contained in motor vehicle records held by motor
vehicle departments, by not having a permissible use in obtaining the State of
Texas’ entire database of names, addresses and other personal
information.

    

    

    
      
        
           

        

        
          - 30
-

          
            

          

        

        
           

        

      

    

    

    SCHEDULE
3.1 (r)

    

    COMPENSATION
TO LADENBURG

    

    Transaction
fee of  6.5% of the Buyer’s purchase price in cash.

    

    Warrants
totaling 10% of the number of common shares purchased by the Buyer
..

    

    
      
        
           

        

        
          - 31
-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00140-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00140-of-00352.parquet"}]]