THIRD MODIFICATION, WAIVER AND
ACKNOWLEDGEMENT AGREEMENT
This Third
Modification, Waiver and Acknowledgement Agreement ("Agreement")
dated as of August 27, 2008 is entered into by and among Liberty
Star Uranium & Metals Corp., a Nevada corporation (the
"Company") and the subscribers identified on the signature page
hereto (each herein a "Subscriber" and collectively "Subscribers"
or the "Parties").
WHEREAS, the
Company and the Subscribers are parties to a Subscription Agreement
("Subscription Agreement") and other Transaction Documents dated at
and about May 11, 2007 as amended on or about February 12, 2008 and
May 12, 2008, respectively, relating to an aggregate purchase by
Subscribers of $4,400,000 of principal amount of promissory notes
(the "Notes") of the Company convertible into shares of the
Company’s $.001 par value common stock and Warrants
exercisable for Common Stock; and
WHEREAS, the
Company is in default of material terms of the Transaction
Documents and the Subscribers may elect to exercise their rights to
accelerate the Maturity Date of the Notes; and
WHEREAS, the
Company is contemplating an offering of $500,000 of Convertible
Notes of the Company ("New Offering"), to the Subscribers which New
Offering will result in the activation of Subscribers’ rights
under the Transaction Documents, including but not limited to
Section 12(b) of the Subscription Agreement, Section 3.4D of the
Notes and Section 3.4 of the Warrants; and
WHEREAS, the
Company and Subscribers desire to further restructure the terms of
the Transaction Documents to their mutual benefit.
NOW THEREFORE, in
consideration of the mutual covenants and other agreements
contained in this Agreement, the Company and the Subscribers hereby
agree as follows:
1. Capitalized
terms employed herein shall have the meanings attributed to them in
the Transaction Documents.
2. Effective
as of the date of this Agreement, Section 2.1 of the Notes is
deleted and replaced with the following:
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"2.1.
Payment of Monthly Amount in Cash or Common Stock . Subject
to Section 3.2 hereof, the Borrower shall pay the Monthly Amount on
the applicable Repayment Date at the Borrower’s election, in
either of the following manners: (i) in cash equal to 110% of the
Principal portion of the Monthly Amount and 100% of all other
components of the Monthly Amount, or (ii) with Common Stock at an
applied conversion rate equal to the lesser of (A) the Fixed
Conversion Price (as defined in section 3.1 hereof), or (B) eighty
percent (80%) of the average daily closing bid prices of the Common
Stock as reported by Bloomberg L.P. for the Principal Market for
the five trading days preceding such Repayment Date (as such amount
may be adjusted as described herein). Amounts paid with cash or
shares of Common Stock must be delivered to the Holder not later
than three business days after the applicable Repayment Date. The
Borrower must send notice to the Holder by confirmed telecopier not
later than 6:00 PM, New York City time on the tenth calendar day
preceding a Repayment Date notifying Holder of Borrower’s
election to pay the Monthly Amount in cash or Common Stock. The
Notice must state the amount of the Monthly Amount including a
description of the components of such Monthly Amount and include
supporting
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calculations. The same election must be made to
all Holders and Other Holders. If such notice is not given, or is
not timely given or if the Monthly Redemption Amount is not timely
delivered, then the Holder shall at anytime thereafter have the
right on three business days prior notice to the Borrower to elect
to receive such Monthly Amount in cash or Common Stock as described
in Sections (i) and (ii) above. Anything to the contrary herein
notwithstanding in addition to any other rights of the Holder, the
Holder may convert up to one-twelfth (1/12 th ) of the
initial Principal Amount of this Note, on a cumulative basis, each
30 days for a period of 180 days commencing August 30, 2008, at a
conversion price equal to the lesser of (i) the Fixed Conversion
Price, or (ii) eighty percent (80%)
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