EXHIBIT 10.1

 

STANDBY EQUITY DISTRIBUTION AGREEMENT

 

THIS AGREEMENT dated as of the 22nd day of July 2005 (the “Agreement”) between
CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the “Investor”),
and SPHERIX INCORPORATED, a corporation organized and existing under the laws of
the State of Delaware (the “Company”).

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Investor, from time to
time as provided herein, and the Investor shall purchase from the Company, up to
Four Million Dollars ($4,000,000) of the Company’s common stock, par value
$0.005 per share (the “Common Stock”); and

 

WHEREAS, such investments will be made in reliance upon the provisions of
Regulation D (“Regulation D”) of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder (the “Securities Act”), and or upon such
other exemption from the registration requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.

 

WHEREAS, the Company has engaged Newbridge Securities Corporation (the
“Placement Agent”), to act as the Company’s exclusive placement agent in
connection with the sale of the Common Stock to the Investor hereunder pursuant
to the Placement Agent Agreement dated the date hereof by and among the Company,
the Placement Agent and the Investor (the “Placement Agent Agreement”).

 

NOW, THEREFORE, the parties hereto agree as follows:

 

ARTICLE I.
CERTAIN DEFINITIONS

 

SECTION 1.1.                                   “ADVANCE” SHALL MEAN THE PORTION
OF THE COMMITMENT AMOUNT REQUESTED BY THE COMPANY IN THE ADVANCE NOTICE.

 

SECTION 1.2.                                   “ADVANCE DATE” SHALL MEAN THE
DATE THE DAVID GONZALEZ ATTORNEY TRUST ACCOUNT IS IN RECEIPT OF THE FUNDS FROM
THE INVESTOR AND DAVID GONZALEZ, ESQ., IS IN POSSESSION OF FREE TRADING SHARES
FROM THE COMPANY AND THEREFORE AN ADVANCE BY THE INVESTOR TO THE COMPANY CAN BE
MADE AND DAVID GONZALEZ, ESQ. CAN RELEASE THE FREE TRADING SHARES TO THE
INVESTOR. THE ADVANCE DATE SHALL BE THE FIRST (1ST) TRADING DAY AFTER EXPIRATION
OF THE APPLICABLE PRICING PERIOD FOR EACH ADVANCE.

 

SECTION 1.3.                                   “ADVANCE NOTICE” SHALL MEAN A
WRITTEN NOTICE TO THE INVESTOR SETTING FORTH THE ADVANCE AMOUNT THAT THE COMPANY
REQUESTS FROM THE INVESTOR AND THE ADVANCE DATE.

 

SECTION 1.4.                                   “ADVANCE NOTICE DATE” SHALL MEAN
EACH DATE THE COMPANY DELIVERS TO THE INVESTOR AN ADVANCE NOTICE REQUIRING THE
INVESTOR TO ADVANCE FUNDS TO THE COMPANY, SUBJECT TO THE TERMS OF THIS
AGREEMENT.  NO ADVANCE NOTICE DATE SHALL BE LESS THAN FIVE (5) TRADING DAYS
AFTER THE PRIOR ADVANCE NOTICE DATE.

 

SECTION 1.5.                                   “BID PRICE” SHALL MEAN, ON ANY
DATE, THE CLOSING BID PRICE (AS REPORTED BY BLOOMBERG L.P.) OF THE COMMON STOCK
ON THE PRINCIPAL MARKET OR IF THE COMMON STOCK IS NOT

 

 

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TRADED ON A PRINCIPAL MARKET, THE HIGHEST REPORTED BID PRICE FOR THE COMMON
STOCK, AS FURNISHED BY THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC.

 

SECTION 1.6.                                   “CLOSING” SHALL MEAN ONE OF THE
CLOSINGS OF A PURCHASE AND SALE OF COMMON STOCK PURSUANT TO SECTION 2.3.

 

SECTION 1.7.                                   “COMMITMENT AMOUNT” SHALL MEAN
THE AGGREGATE AMOUNT OF UP TO FOUR MILLION DOLLARS ($4,000,000) WHICH THE
INVESTOR HAS AGREED TO PROVIDE TO THE COMPANY IN ORDER TO PURCHASE THE COMMON
STOCK PURSUANT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, PROVIDED THAT THE
COMPANY SHALL NOT HAVE THE RIGHT TO REQUEST AN ADVANCE IF THE ISSUANCE OF THE
FULL NUMBER OF SHARES OF COMMON STOCK ISSUABLE IN CONNECTION WITH SUCH ADVANCE
WOULD, TOGETHER WITH ALL SHARES OF COMMON STOCK PREVIOUSLY ISSUED UNDER THIS
AGREEMENT, EXCEED 2,378,726 SHARES OF COMMON STOCK (WHICH IS NO MORE THAN 19.99%
OF THE 11,953,398 OUTSTANDING SHARES OF COMMON STOCK AS OF THE DATE OF THIS
AGREEMENT) UNLESS THE NECESSARY SHAREHOLDER APPROVAL OR CONSENT HAS BEEN
RECEIVED PRIOR TO SUCH REQUEST.

 

SECTION 1.8.                                   “COMMITMENT PERIOD” SHALL MEAN
THE PERIOD COMMENCING ON THE EARLIER TO OCCUR OF (I) THE EFFECTIVE DATE, OR (II)
SUCH EARLIER DATE AS THE COMPANY AND THE INVESTOR MAY MUTUALLY AGREE IN WRITING,
AND EXPIRING ON THE EARLIEST TO OCCUR OF (X) THE DATE ON WHICH THE INVESTOR
SHALL HAVE MADE PAYMENT OF ADVANCES PURSUANT TO THIS AGREEMENT IN THE AGGREGATE
AMOUNT OF FOUR MILLION DOLLARS ($4,000,000), (Y) THE DATE THIS AGREEMENT IS
TERMINATED PURSUANT TO SECTION 2.4, OR (Z) THE DATE OCCURRING TWENTY-FOUR (24)
MONTHS AFTER THE EFFECTIVE DATE.

 

SECTION 1.9.                                   “COMMON STOCK” SHALL MEAN THE
COMPANY’S COMMON STOCK, PAR VALUE $0.005 PER SHARE.

 

SECTION 1.10.                             “CONDITION SATISFACTION DATE” SHALL
HAVE THE MEANING SET FORTH IN SECTION 7.2.

 

SECTION 1.11.                             “DAMAGES” SHALL MEAN ANY LOSS, CLAIM,
DAMAGE, LIABILITY, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEY’S FEES AND DISBURSEMENTS AND COSTS AND EXPENSES OF EXPERT WITNESSES AND
INVESTIGATION).

 

SECTION 1.12.                             “EFFECTIVE DATE” SHALL MEAN THE DATE
ON WHICH THE SEC FIRST DECLARES EFFECTIVE A REGISTRATION STATEMENT REGISTERING
THE RESALE OF THE REGISTRABLE SECURITIES AS SET FORTH IN SECTION 7.2(A).

 

SECTION 1.13.                             “ESCROW AGREEMENT” SHALL MEAN THE
ESCROW AGREEMENT AMONG THE COMPANY, THE INVESTOR, AND DAVID GONZALEZ, ESQ.,
DATED THE DATE HEREOF.

 

SECTION 1.14.                             “EXCHANGE ACT” SHALL MEAN THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER.

 

SECTION 1.15.                             “MATERIAL ADVERSE EFFECT” SHALL MEAN
ANY CONDITION, CIRCUMSTANCE, OR SITUATION THAT WOULD PROHIBIT OR OTHERWISE
MATERIALLY INTERFERE WITH THE ABILITY OF THE COMPANY TO ENTER INTO AND PERFORM
ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR THE REGISTRATION RIGHTS AGREEMENT
IN ANY MATERIAL RESPECT.

 

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SECTION 1.16.                             “MARKET PRICE” SHALL MEAN THE LOWEST
VWAP OF THE COMMON STOCK DURING THE PRICING PERIOD.

 

SECTION 1.17.                             “MAXIMUM ADVANCE AMOUNT” SHALL BE
THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000) PER ADVANCE NOTICE.

 

SECTION 1.18.                             “NASD” SHALL MEAN THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.

 

SECTION 1.19.                             “PERSON” SHALL MEAN AN INDIVIDUAL, A
CORPORATION, A PARTNERSHIP, AN ASSOCIATION, A TRUST OR OTHER ENTITY OR
ORGANIZATION, INCLUDING A GOVERNMENT OR POLITICAL SUBDIVISION OR AN AGENCY OR
INSTRUMENTALITY THEREOF.

 

SECTION 1.20.                             “PLACEMENT AGENT” SHALL MEAN NEWBRIDGE
SECURITIES CORPORATION, A REGISTERED BROKER-DEALER.

 

SECTION 1.21.                             “PRICING PERIOD” SHALL MEAN THE FIVE
(5) CONSECUTIVE TRADING DAYS AFTER THE ADVANCE NOTICE DATE.

 

SECTION 1.22.                             “PRINCIPAL MARKET” SHALL MEAN THE
NASDAQ NATIONAL MARKET, THE NASDAQ SMALLCAP MARKET, THE AMERICAN STOCK EXCHANGE,
THE OTC BULLETIN BOARD (“OTCBB”) OR THE NEW YORK STOCK EXCHANGE (BUT NOT THE
PINK SHEETS OR THE GREY SHEETS), WHICHEVER IS AT THE TIME THE PRINCIPAL TRADING
EXCHANGE OR MARKET FOR THE COMMON STOCK.

 

SECTION 1.23.                             “PURCHASE PRICE” SHALL BE SET AT
NINETY FIVE PERCENT (95%) OF THE MARKET PRICE DURING THE PRICING PERIOD.

 

SECTION 1.24.                             “REGISTRABLE SECURITIES” SHALL MEAN
THE SHARES OF COMMON STOCK TO BE ISSUED HEREUNDER (I) IN RESPECT OF WHICH THE
REGISTRATION STATEMENT HAS NOT BEEN DECLARED EFFECTIVE BY THE SEC, (II) WHICH
HAVE NOT BEEN SOLD UNDER CIRCUMSTANCES MEETING ALL OF THE APPLICABLE CONDITIONS
OF RULE 144 (OR ANY SIMILAR PROVISION THEN IN FORCE) UNDER THE SECURITIES ACT
(“RULE 144”) OR (III) WHICH HAVE NOT BEEN OTHERWISE TRANSFERRED TO A HOLDER WHO
MAY TRADE SUCH SHARES WITHOUT RESTRICTION UNDER THE SECURITIES ACT, AND THE
COMPANY HAS DELIVERED A NEW CERTIFICATE OR OTHER EVIDENCE OF OWNERSHIP FOR SUCH
SECURITIES NOT BEARING A RESTRICTIVE LEGEND.

 

SECTION 1.25.                             “REGISTRATION RIGHTS AGREEMENT” SHALL
MEAN THE REGISTRATION RIGHTS AGREEMENT DATED THE DATE HEREOF, REGARDING THE
FILING OF THE REGISTRATION STATEMENT FOR THE RESALE OF THE REGISTRABLE
SECURITIES, ENTERED INTO BETWEEN THE COMPANY AND THE INVESTOR.

 

SECTION 1.26.                             “REGISTRATION STATEMENT” SHALL MEAN A
REGISTRATION STATEMENT ON FORM S-2 (IF USE OF SUCH FORM IS THEN AVAILABLE TO THE
COMPANY PURSUANT TO THE RULES OF THE SEC AND, IF NOT, ON SUCH OTHER FORM
PROMULGATED BY THE SEC FOR WHICH THE COMPANY THEN QUALIFIES AND WHICH COUNSEL
FOR THE COMPANY SHALL DEEM APPROPRIATE, AND WHICH FORM SHALL BE AVAILABLE FOR
THE RESALE OF THE REGISTRABLE SECURITIES TO BE REGISTERED THEREUNDER IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT AND THE REGISTRATION RIGHTS
AGREEMENT, AND IN ACCORDANCE WITH THE INTENDED METHOD OF DISTRIBUTION OF SUCH
SECURITIES), FOR THE REGISTRATION OF THE RESALE BY THE INVESTOR OF THE
REGISTRABLE SECURITIES UNDER THE SECURITIES ACT.

 

SECTION 1.27.                             “REGULATION D” SHALL HAVE THE MEANING
SET FORTH IN THE RECITALS OF THIS AGREEMENT.

 

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SECTION 1.28.                             “SEC” SHALL MEAN THE SECURITIES AND
EXCHANGE COMMISSION.

 

SECTION 1.29.                             “SECURITIES ACT” SHALL HAVE THE
MEANING SET FORTH IN THE RECITALS OF THIS AGREEMENT.

 

SECTION 1.30.                             “SEC DOCUMENTS” SHALL MEAN ANNUAL
REPORTS ON FORM 10-K, QUARTERLY REPORTS ON FORM 10-Q, CURRENT REPORTS ON FORM
8-K AND PROXY STATEMENTS OF THE COMPANY AS SUPPLEMENTED TO THE DATE HEREOF,
FILED BY THE COMPANY FOR A PERIOD OF AT LEAST TWELVE (12) MONTHS IMMEDIATELY
PRECEDING THE DATE HEREOF OR THE ADVANCE DATE, AS THE CASE MAY BE, UNTIL SUCH
TIME AS THE COMPANY NO LONGER HAS AN OBLIGATION TO MAINTAIN THE EFFECTIVENESS OF
A REGISTRATION STATEMENT AS SET FORTH IN THE REGISTRATION RIGHTS AGREEMENT.

 

SECTION 1.31.                             “TRADING DAY” SHALL MEAN ANY DAY
DURING WHICH THE NEW YORK STOCK EXCHANGE SHALL BE OPEN FOR BUSINESS.

 

SECTION 1.32.                             “VWAP” SHALL MEAN THE VOLUME WEIGHTED
AVERAGE PRICE OF THE COMMON STOCK AS QUOTED BY BLOOMBERG, LP.

 

ARTICLE II.
ADVANCES

 

SECTION 2.1.                                   INVESTMENTS.

 

(A)                                  ADVANCES.  UPON THE TERMS AND CONDITIONS
SET FORTH HEREIN (INCLUDING, WITHOUT LIMITATION, THE PROVISIONS OF ARTICLE VII
HEREOF), ON ANY ADVANCE NOTICE DATE THE COMPANY MAY REQUEST AN ADVANCE BY THE
INVESTOR BY THE DELIVERY OF AN ADVANCE NOTICE.  THE NUMBER OF SHARES OF COMMON
STOCK THAT THE INVESTOR SHALL RECEIVE FOR EACH ADVANCE SHALL BE DETERMINED BY
DIVIDING THE AMOUNT OF THE ADVANCE BY THE PURCHASE PRICE.  NO FRACTIONAL SHARES
SHALL BE ISSUED. FRACTIONAL SHARES SHALL BE ROUNDED TO THE NEXT HIGHER WHOLE
NUMBER OF SHARES.  THE AGGREGATE MAXIMUM AMOUNT OF ALL ADVANCES THAT THE
INVESTOR SHALL BE OBLIGATED TO MAKE UNDER THIS AGREEMENT SHALL NOT EXCEED THE
COMMITMENT AMOUNT.

 

SECTION 2.2.                                   MECHANICS.

 

(A)                                  ADVANCE NOTICE.  AT ANY TIME DURING THE
COMMITMENT PERIOD, THE COMPANY MAY DELIVER AN ADVANCE NOTICE TO THE INVESTOR,
SUBJECT TO THE CONDITIONS SET FORTH IN SECTION 7.2; PROVIDED, HOWEVER, THE
AMOUNT FOR EACH ADVANCE AS DESIGNATED BY THE COMPANY IN THE APPLICABLE ADVANCE
NOTICE, SHALL NOT BE MORE THAN THE MAXIMUM ADVANCE AMOUNT.  THE AGGREGATE AMOUNT
OF THE ADVANCES PURSUANT TO THIS AGREEMENT SHALL NOT EXCEED THE COMMITMENT
AMOUNT.  THE COMPANY ACKNOWLEDGES THAT THE INVESTOR MAY SELL SHARES OF THE
COMPANY’S COMMON STOCK CORRESPONDING WITH A PARTICULAR ADVANCE NOTICE ON THE DAY
THE ADVANCE NOTICE IS RECEIVED BY THE INVESTOR.  THERE SHALL BE A MINIMUM OF
FIVE (5) TRADING DAYS BETWEEN EACH ADVANCE NOTICE DATE.

 

(B)                                 DATE OF DELIVERY OF ADVANCE NOTICE.  AN
ADVANCE NOTICE SHALL BE DEEMED DELIVERED ON (I) THE TRADING DAY IT IS RECEIVED
BY FACSIMILE OR OTHERWISE BY THE INVESTOR IF SUCH NOTICE IS RECEIVED PRIOR TO
12:00 NOON EASTERN TIME, OR (II) THE IMMEDIATELY SUCCEEDING TRADING DAY IF IT IS
RECEIVED BY FACSIMILE OR OTHERWISE AFTER 12:00 NOON EASTERN TIME ON A TRADING
DAY

 

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OR AT ANY TIME ON A DAY WHICH IS NOT A TRADING DAY.  NO ADVANCE NOTICE MAY BE
DEEMED DELIVERED ON A DAY THAT IS NOT A TRADING DAY.

 

SECTION 2.3.                                   CLOSINGS.  ON EACH ADVANCE DATE,
WHICH SHALL BE THE FIRST (1ST) TRADING DAY AFTER EXPIRATION OF THE APPLICABLE
PRICING PERIOD FOR EACH ADVANCE, (I) THE COMPANY SHALL DELIVER TO DAVID
GONZALEZ, ESQ. (THE “ESCROW AGENT”) SHARES OF THE COMPANY’S COMMON STOCK,
REPRESENTING THE AMOUNT OF THE ADVANCE BY THE INVESTOR PURSUANT TO SECTION 2.1
HEREIN, REGISTERED IN THE NAME OF THE INVESTOR WHICH SHALL BE DELIVERED TO THE
INVESTOR, OR OTHERWISE IN ACCORDANCE WITH THE ESCROW AGREEMENT AND (II) THE
INVESTOR SHALL DELIVER TO ESCROW AGENT THE AMOUNT OF THE ADVANCE SPECIFIED IN
THE ADVANCE NOTICE BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS WHICH SHALL
BE DELIVERED TO THE COMPANY, OR OTHERWISE IN ACCORDANCE WITH THE ESCROW
AGREEMENT.  IN ADDITION, ON OR PRIOR TO THE ADVANCE DATE, EACH OF THE COMPANY
AND THE INVESTOR SHALL DELIVER TO THE OTHER THROUGH THE INVESTOR’S COUNSEL, ALL
DOCUMENTS, INSTRUMENTS AND WRITINGS REQUIRED TO BE DELIVERED BY EITHER OF THEM
PURSUANT TO THIS AGREEMENT IN ORDER TO IMPLEMENT AND EFFECT THE TRANSACTIONS
CONTEMPLATED HEREIN.  PAYMENT OF FUNDS TO THE COMPANY AND DELIVERY OF THE
COMPANY’S COMMON STOCK TO THE INVESTOR SHALL OCCUR IN ACCORDANCE WITH THE
CONDITIONS SET FORTH ABOVE AND THOSE CONTAINED IN THE ESCROW AGREEMENT;
PROVIDED, HOWEVER, THAT TO THE EXTENT THE COMPANY HAS NOT PAID THE FEES,
EXPENSES, AND DISBURSEMENTS OF THE INVESTOR, THE INVESTOR’S COUNSEL, OR THE
COMPANY’S COUNSEL IN ACCORDANCE WITH SECTION 12.4, THE AMOUNT OF SUCH FEES,
EXPENSES, AND DISBURSEMENTS MAY BE DEDUCTED BY THE INVESTOR (AND SHALL BE PAID
TO THE RELEVANT PARTY) FROM THE AMOUNT OF THE ADVANCE WITH NO REDUCTION IN THE
AMOUNT OF SHARES OF THE COMPANY’S COMMON STOCK TO BE DELIVERED ON SUCH ADVANCE
DATE.

 

SECTION 2.4.                                   TERMINATION OF INVESTMENT.  THE
OBLIGATION OF THE INVESTOR TO MAKE AN ADVANCE TO THE COMPANY PURSUANT TO THIS
AGREEMENT SHALL TERMINATE PERMANENTLY (INCLUDING WITH RESPECT TO AN ADVANCE DATE
THAT HAS NOT YET OCCURRED) IN THE EVENT THAT (I) THERE SHALL OCCUR ANY STOP
ORDER OR SUSPENSION OF THE EFFECTIVENESS OF THE REGISTRATION STATEMENT FOR AN
AGGREGATE OF FIFTY (50) TRADING DAYS, OTHER THAN DUE TO THE ACTS OF THE
INVESTOR, DURING THE COMMITMENT PERIOD, OR (II) THE COMPANY SHALL AT ANY TIME
FAIL MATERIALLY TO COMPLY WITH THE REQUIREMENTS OF ARTICLE VI AND SUCH FAILURE
IS NOT CURED WITHIN THIRTY (30) DAYS AFTER RECEIPT OF WRITTEN NOTICE FROM THE
INVESTOR, PROVIDED, HOWEVER, THAT THIS TERMINATION PROVISION SHALL NOT APPLY TO
ANY PERIOD COMMENCING UPON THE FILING OF A POST-EFFECTIVE AMENDMENT TO SUCH
REGISTRATION STATEMENT AND ENDING UPON THE DATE ON WHICH SUCH POST EFFECTIVE
AMENDMENT IS DECLARED EFFECTIVE BY THE SEC.

 

SECTION 2.5.                                   AGREEMENT TO ADVANCE FUNDS.  THE
INVESTOR AGREES TO ADVANCE THE AMOUNT SPECIFIED IN THE ADVANCE NOTICE TO THE
COMPANY AFTER THE COMPLETION OF EACH OF THE FOLLOWING CONDITIONS AND THE OTHER
CONDITIONS SET FORTH IN THIS AGREEMENT:

 

(a)                              the execution and delivery by the Company, and
the Investor, of this Agreement and the Exhibits hereto;

 

(b)                             the Escrow Agent shall have received the shares
of Common Stock applicable to the Advance in accordance with Section 2.3.  Such
shares shall be free of restrictive legends.

 

(c)                              the Company’s Registration Statement with
respect to the resale of the Registrable Securities in accordance with the terms
of the Registration Rights Agreement shall have been declared effective by the
SEC;

 

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(d)                             the Company shall have obtained all material
permits and qualifications required by any applicable state for the offer and
sale of the Registrable Securities, or shall have the availability of exemptions
therefrom.  The sale and issuance of the Registrable Securities shall be legally
permitted by all laws and regulations to which the Company is subject;

 

(e)                              the Company shall have filed with the
Commission in a timely manner all reports, notices and other documents required
of a “reporting company” under the Exchange Act and applicable Commission
regulations;

 

(f)                                the fees as set forth in Section 12.4 below
shall have been paid or can be withheld as provided in Section 2.3; and

 

(g)                             the conditions set forth in Section 7.2 shall
have been satisfied.

 

(h)                             The Company’s transfer agent shall be DWAC
eligible.

 

SECTION 2.6.                                   LOCK UP PERIOD.  ON THE DATE
HEREOF, THE COMPANY SHALL OBTAIN FROM EACH OFFICER AND DIRECTOR A LOCK-UP
AGREEMENT, AS DEFINED BELOW, IN THE FORM ANNEXED HERETO AS SCHEDULE 2.6 AGREEING
TO ONLY SELL IN COMPLIANCE WITH THE VOLUME LIMITATION OF RULE 144.

 

Section 2.7.                                   Hardship.  In the event the
Investor sells shares of the Company’s Common Stock after receipt of an Advance
Notice and the Company fails to perform its obligations as mandated in Section
2.3, and specifically the Company fails to deliver to the Escrow Agent on the
Advance Date the shares of Common Stock corresponding to the applicable Advance,
the Company acknowledges that the Investor shall suffer financial hardship and
therefore shall be liable for any and all losses, commissions, fees, or
financial hardship caused to the Investor.

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF INVESTOR

 

Investor hereby represents and warrants to, and agrees with, the Company that
the following are true and correct as of the date hereof and as of each Advance
Date:

 

SECTION 3.1.                                   ORGANIZATION AND AUTHORIZATION. 
THE INVESTOR IS DULY INCORPORATED OR ORGANIZED AND VALIDLY EXISTING IN THE
JURISDICTION OF ITS INCORPORATION OR ORGANIZATION AND HAS ALL REQUISITE POWER
AND AUTHORITY TO PURCHASE AND HOLD THE SECURITIES ISSUABLE HEREUNDER.  THE
DECISION TO INVEST AND THE EXECUTION AND DELIVERY OF THIS AGREEMENT BY SUCH
INVESTOR, THE PERFORMANCE BY SUCH INVESTOR OF ITS OBLIGATIONS HEREUNDER AND THE
CONSUMMATION BY SUCH INVESTOR OF THE TRANSACTIONS CONTEMPLATED HEREBY HAVE BEEN
DULY AUTHORIZED AND REQUIRES NO OTHER PROCEEDINGS ON THE PART OF THE INVESTOR. 
THE UNDERSIGNED HAS THE RIGHT, POWER AND AUTHORITY TO EXECUTE AND DELIVER THIS
AGREEMENT AND ALL OTHER INSTRUMENTS (INCLUDING, WITHOUT LIMITATIONS, THE
REGISTRATION RIGHTS AGREEMENT), ON BEHALF OF THE INVESTOR.  THIS AGREEMENT HAS
BEEN DULY EXECUTED AND DELIVERED BY THE INVESTOR AND, ASSUMING THE EXECUTION AND
DELIVERY HEREOF AND ACCEPTANCE THEREOF BY THE COMPANY, WILL CONSTITUTE THE
LEGAL, VALID AND BINDING OBLIGATIONS OF THE INVESTOR, ENFORCEABLE AGAINST THE
INVESTOR IN ACCORDANCE WITH ITS TERMS.

 

SECTION 3.2.                                   EVALUATION OF RISKS.  THE
INVESTOR HAS SUCH KNOWLEDGE AND EXPERIENCE IN FINANCIAL, TAX AND BUSINESS
MATTERS AS TO BE CAPABLE OF EVALUATING THE MERITS AND RISKS OF, AND

 

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BEARING THE ECONOMIC RISKS ENTAILED BY, AN INVESTMENT IN THE COMPANY AND OF
PROTECTING ITS INTERESTS IN CONNECTION WITH THIS TRANSACTION.  IT RECOGNIZES
THAT ITS INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK.

 

SECTION 3.3.                                   NO LEGAL ADVICE FROM THE
COMPANY.  THE INVESTOR ACKNOWLEDGES THAT IT HAD THE OPPORTUNITY TO REVIEW THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT WITH HIS OR ITS
OWN LEGAL COUNSEL AND INVESTMENT AND TAX ADVISORS.  THE INVESTOR IS RELYING
SOLELY ON SUCH COUNSEL AND ADVISORS AND NOT ON ANY STATEMENTS OR REPRESENTATIONS
OF THE COMPANY OR ANY OF ITS REPRESENTATIVES OR AGENTS FOR LEGAL, TAX OR
INVESTMENT ADVICE WITH RESPECT TO THIS INVESTMENT, THE TRANSACTIONS CONTEMPLATED
BY THIS AGREEMENT OR THE SECURITIES LAWS OF ANY JURISDICTION.

 

SECTION 3.4.                                   INVESTMENT PURPOSE. THE
SECURITIES ARE BEING PURCHASED BY THE INVESTOR FOR ITS OWN ACCOUNT, AND FOR
INVESTMENT PURPOSES.  THE INVESTOR AGREES NOT TO ASSIGN OR IN ANY WAY TRANSFER
THE INVESTOR’S RIGHTS TO THE SECURITIES OR ANY INTEREST THEREIN AND ACKNOWLEDGES
THAT THE COMPANY WILL NOT RECOGNIZE ANY PURPORTED ASSIGNMENT OR TRANSFER EXCEPT
IN ACCORDANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS.  NO OTHER
PERSON HAS OR WILL HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST IN THE
SECURITIES.  THE INVESTOR AGREES NOT TO SELL, HYPOTHECATE OR OTHERWISE TRANSFER
THE INVESTOR’S SECURITIES UNLESS THE SECURITIES ARE REGISTERED UNDER FEDERAL AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM SUCH LAWS IS AVAILABLE.

 

SECTION 3.5.                                   ACCREDITED INVESTOR.  THE
INVESTOR IS AN “ACCREDITED INVESTOR” AS THAT TERM IS DEFINED IN RULE 501(A)(3)
OF REGULATION D OF THE SECURITIES ACT.

 

SECTION 3.6.                                   INFORMATION.  THE INVESTOR AND
ITS ADVISORS (AND ITS COUNSEL), IF ANY, HAVE BEEN FURNISHED WITH ALL MATERIALS
RELATING TO THE BUSINESS, FINANCES AND OPERATIONS OF THE COMPANY AND INFORMATION
IT DEEMED MATERIAL TO MAKING AN INFORMED INVESTMENT DECISION.  THE INVESTOR AND
ITS ADVISORS, IF ANY, HAVE BEEN AFFORDED THE OPPORTUNITY TO ASK QUESTIONS OF THE
COMPANY AND ITS MANAGEMENT.  NEITHER SUCH INQUIRIES NOR ANY OTHER DUE DILIGENCE
INVESTIGATIONS CONDUCTED BY SUCH INVESTOR OR ITS ADVISORS, IF ANY, OR ITS
REPRESENTATIVES SHALL MODIFY, AMEND OR AFFECT THE INVESTOR’S RIGHT TO RELY ON
THE COMPANY’S REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT.  THE
INVESTOR UNDERSTANDS THAT ITS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.  THE
INVESTOR IS IN A POSITION REGARDING THE COMPANY, WHICH, BASED UPON EMPLOYMENT,
FAMILY RELATIONSHIP OR ECONOMIC BARGAINING POWER, ENABLED AND ENABLES SUCH
INVESTOR TO OBTAIN INFORMATION FROM THE COMPANY IN ORDER TO EVALUATE THE MERITS
AND RISKS OF THIS INVESTMENT.  THE INVESTOR HAS SOUGHT SUCH ACCOUNTING, LEGAL
AND TAX ADVICE, AS IT HAS CONSIDERED NECESSARY TO MAKE AN INFORMED INVESTMENT
DECISION WITH RESPECT TO THIS TRANSACTION.

 

SECTION 3.7.                                   RECEIPT OF DOCUMENTS. THE
INVESTOR AND ITS COUNSEL HAVE RECEIVED AND READ IN THEIR ENTIRETY:  (I) THIS
AGREEMENT AND THE EXHIBITS ANNEXED HERETO; (II) ALL DUE DILIGENCE AND OTHER
INFORMATION NECESSARY TO VERIFY THE ACCURACY AND COMPLETENESS OF SUCH
REPRESENTATIONS, WARRANTIES AND COVENANTS; (III) THE COMPANY’S FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 2004 AND FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2005;
AND (IV) ANSWERS TO ALL QUESTIONS THE INVESTOR SUBMITTED TO THE COMPANY
REGARDING AN INVESTMENT IN THE COMPANY; AND THE INVESTOR HAS RELIED ON THE
INFORMATION CONTAINED THEREIN AND HAS NOT BEEN FURNISHED ANY OTHER DOCUMENTS,
LITERATURE, MEMORANDUM OR PROSPECTUS.

 

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SECTION 3.8.                                   REGISTRATION RIGHTS AGREEMENT AND
ESCROW AGREEMENT.  THE PARTIES HAVE ENTERED INTO THE REGISTRATION RIGHTS
AGREEMENT AND THE ESCROW AGREEMENT, EACH DATED THE DATE HEREOF.

 

SECTION 3.9.                                   NO GENERAL SOLICITATION.  NEITHER
THE COMPANY, NOR ANY OF ITS AFFILIATES, NOR ANY PERSON ACTING ON ITS OR THEIR
BEHALF, HAS ENGAGED IN ANY FORM OF GENERAL SOLICITATION OR GENERAL ADVERTISING
(WITHIN THE MEANING OF REGULATION D UNDER THE SECURITIES ACT) IN CONNECTION WITH
THE OFFER OR SALE OF THE SHARES OF COMMON STOCK OFFERED HEREBY.

 

SECTION 3.10.                             NOT AN AFFILIATE.  THE INVESTOR IS NOT
AN OFFICER, DIRECTOR OR A PERSON THAT DIRECTLY, OR INDIRECTLY THROUGH ONE OR
MORE INTERMEDIARIES, CONTROLS OR IS CONTROLLED BY, OR IS UNDER COMMON CONTROL
WITH THE COMPANY OR ANY “AFFILIATE” OF THE COMPANY (AS THAT TERM IS DEFINED IN
RULE 405 OF THE SECURITIES ACT).

 

Section 3.11.                             Trading Activities.  The Investor’s
trading activities with respect to the Company’s Common Stock shall be in
compliance with all applicable federal and state securities laws, rules and
regulations and the rules and regulations of the Principal Market on which the
Company’s Common Stock is listed or traded. Neither the Investor nor its
affiliates has an open short position in the Common Stock of the Company, the
Investor agrees that it shall not, and that it will cause its affiliates not to,
engage in any short sales of or hedging transactions with respect to the Common
Stock, provided that the Company acknowledges and agrees that upon receipt of an
Advance Notice the Investor has the right to sell the shares to be issued to the
Investor pursuant to the Advance Notice during the applicable Pricing Period. 

 

ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as stated below, on the disclosure schedules attached hereto or in the
SEC Documents (as defined herein), the Company hereby represents and warrants
to, and covenants with, the Investor that the following are true and correct as
of the date hereof:

 

SECTION 4.1.                                   ORGANIZATION AND QUALIFICATION. 
THE COMPANY IS DULY INCORPORATED OR ORGANIZED AND VALIDLY EXISTING IN THE
JURISDICTION OF ITS INCORPORATION OR ORGANIZATION AND HAS ALL REQUISITE
CORPORATE POWER TO OWN ITS PROPERTIES AND TO CARRY ON ITS BUSINESS AS NOW BEING
CONDUCTED.  EACH OF THE COMPANY AND ITS SUBSIDIARIES IS DULY QUALIFIED AS A
FOREIGN CORPORATION TO DO BUSINESS AND IS IN GOOD STANDING IN EVERY JURISDICTION
IN WHICH THE NATURE OF THE BUSINESS CONDUCTED BY IT MAKES SUCH QUALIFICATION
NECESSARY, EXCEPT TO THE EXTENT THAT THE FAILURE TO BE SO QUALIFIED OR BE IN
GOOD STANDING WOULD NOT HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY AND ITS
SUBSIDIARIES TAKEN AS A WHOLE.

 

SECTION 4.2.                                   AUTHORIZATION, ENFORCEMENT,
COMPLIANCE WITH OTHER INSTRUMENTS.  (I) THE COMPANY HAS THE REQUISITE CORPORATE
POWER AND AUTHORITY TO ENTER INTO AND PERFORM THIS AGREEMENT, THE REGISTRATION
RIGHTS AGREEMENT, THE ESCROW AGREEMENT, THE PLACEMENT AGENT AGREEMENT AND ANY
RELATED AGREEMENTS, IN ACCORDANCE WITH THE TERMS HEREOF AND THEREOF, (II) THE
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE
ESCROW AGREEMENT, THE PLACEMENT AGENT AGREEMENT AND ANY RELATED AGREEMENTS BY
THE COMPANY AND THE CONSUMMATION BY IT OF THE TRANSACTIONS CONTEMPLATED HEREBY
AND THEREBY, HAVE BEEN DULY AUTHORIZED BY THE COMPANY’S BOARD OF DIRECTORS AND
NO FURTHER CONSENT OR AUTHORIZATION IS REQUIRED BY THE COMPANY, ITS BOARD OF
DIRECTORS OR ITS STOCKHOLDERS, (III) THIS AGREEMENT, THE

 

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REGISTRATION RIGHTS AGREEMENT, THE ESCROW AGREEMENT, THE PLACEMENT AGENT
AGREEMENT AND ANY RELATED AGREEMENTS HAVE BEEN DULY EXECUTED AND DELIVERED BY
THE COMPANY, (IV) THIS AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT, THE ESCROW
AGREEMENT, THE PLACEMENT AGENT AGREEMENT AND ASSUMING THE EXECUTION AND DELIVERY
THEREOF AND ACCEPTANCE BY THE INVESTOR AND ANY RELATED AGREEMENTS CONSTITUTE THE
VALID AND BINDING OBLIGATIONS OF THE COMPANY ENFORCEABLE AGAINST THE COMPANY IN
ACCORDANCE WITH THEIR TERMS, EXCEPT AS SUCH ENFORCEABILITY MAY BE LIMITED BY
GENERAL PRINCIPLES OF EQUITY OR APPLICABLE BANKRUPTCY, INSOLVENCY,
REORGANIZATION, MORATORIUM, LIQUIDATION OR SIMILAR LAWS RELATING TO, OR
AFFECTING GENERALLY, THE ENFORCEMENT OF CREDITORS’ RIGHTS AND REMEDIES.

 

SECTION 4.3.                                   CAPITALIZATION.  AS OF THE DATE
HEREOF, THE AUTHORIZED CAPITAL STOCK OF THE COMPANY CONSISTS OF 50,000,000
SHARES OF COMMON STOCK, PAR VALUE $0.005 PER SHARE AND 2,000,000 SHARES OF
PREFERRED STOCK, $0.01 PAR VALUE PER SHARE (“PREFERRED STOCK”), OF WHICH
11,953,398 SHARES OF COMMON STOCK AND NO SHARES OF PREFERRED STOCK WERE ISSUED
AND OUTSTANDING.  ALL OF SUCH OUTSTANDING SHARES HAVE BEEN VALIDLY ISSUED AND
ARE FULLY PAID AND NONASSESSABLE.  EXCEPT AS DISCLOSED IN THE SEC DOCUMENTS, NO
SHARES OF COMMON STOCK ARE SUBJECT TO PREEMPTIVE RIGHTS OR ANY OTHER SIMILAR
RIGHTS OR ANY LIENS OR ENCUMBRANCES SUFFERED OR PERMITTED BY THE COMPANY. 
EXCEPT AS DISCLOSED IN THE SEC DOCUMENTS, AS OF THE DATE HEREOF, (I) THERE ARE
NO OUTSTANDING OPTIONS, WARRANTS, SCRIP, RIGHTS TO SUBSCRIBE TO, CALLS OR
COMMITMENTS OF ANY CHARACTER WHATSOEVER RELATING TO, OR SECURITIES OR RIGHTS
CONVERTIBLE INTO, ANY SHARES OF CAPITAL STOCK OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES, OR CONTRACTS, COMMITMENTS, UNDERSTANDINGS OR ARRANGEMENTS BY WHICH
THE COMPANY OR ANY OF ITS SUBSIDIARIES IS OR MAY BECOME BOUND TO ISSUE
ADDITIONAL SHARES OF CAPITAL STOCK OF THE COMPANY OR ANY OF ITS SUBSIDIARIES OR
OPTIONS, WARRANTS, SCRIP, RIGHTS TO SUBSCRIBE TO, CALLS OR COMMITMENTS OF ANY
CHARACTER WHATSOEVER RELATING TO, OR SECURITIES OR RIGHTS CONVERTIBLE INTO, ANY
SHARES OF CAPITAL STOCK OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, (II) THERE
ARE NO OUTSTANDING DEBT SECURITIES (III) THERE ARE NO OUTSTANDING REGISTRATION
STATEMENTS OTHER THAN ON FORM S-8 AND (IV) THERE ARE NO AGREEMENTS OR
ARRANGEMENTS UNDER WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES IS OBLIGATED TO
REGISTER THE SALE OF ANY OF THEIR SECURITIES UNDER THE SECURITIES ACT (EXCEPT
PURSUANT TO THE REGISTRATION RIGHTS AGREEMENT).  EXCEPT WITH RESPECT TO THE
WARRANTS OUTSTANDING, THERE ARE NO SECURITIES OR INSTRUMENTS CONTAINING
ANTI-DILUTION OR SIMILAR PROVISIONS THAT WILL BE TRIGGERED BY THIS AGREEMENT OR
ANY RELATED AGREEMENT OR THE CONSUMMATION OF THE TRANSACTIONS DESCRIBED HEREIN
OR THEREIN.  THE COMPANY HAS FURNISHED TO THE INVESTOR TRUE AND CORRECT COPIES
OF THE COMPANY’S CERTIFICATE OF INCORPORATION, AS AMENDED AND AS IN EFFECT ON
THE DATE HEREOF (THE “CERTIFICATE OF INCORPORATION”), AND THE COMPANY’S BY-LAWS,
AS IN EFFECT ON THE DATE HEREOF (THE “BY-LAWS”), AND THE TERMS OF ALL SECURITIES
CONVERTIBLE INTO OR EXERCISABLE FOR COMMON STOCK AND THE MATERIAL RIGHTS OF THE
HOLDERS THEREOF IN RESPECT THERETO.

 

SECTION 4.4.                                   NO CONFLICT.  THE EXECUTION,
DELIVERY AND PERFORMANCE OF THIS AGREEMENT BY THE COMPANY AND THE CONSUMMATION
BY THE COMPANY OF THE TRANSACTIONS CONTEMPLATED HEREBY WILL NOT (I) RESULT IN A
VIOLATION OF THE CERTIFICATE OF INCORPORATION, ANY CERTIFICATE OF DESIGNATIONS
OF ANY OUTSTANDING SERIES OF PREFERRED STOCK OF THE COMPANY OR BY-LAWS OR (II)
CONFLICT WITH OR CONSTITUTE A DEFAULT (OR AN EVENT WHICH WITH NOTICE OR LAPSE OF
TIME OR BOTH WOULD BECOME A DEFAULT) UNDER, OR GIVE TO OTHERS ANY RIGHTS OF
TERMINATION, AMENDMENT, ACCELERATION OR CANCELLATION OF, ANY AGREEMENT,
INDENTURE OR INSTRUMENT TO WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES IS A
PARTY, OR RESULT IN A VIOLATION OF ANY LAW, RULE, REGULATION, ORDER, JUDGMENT OR
DECREE (INCLUDING FEDERAL AND STATE SECURITIES LAWS AND REGULATIONS AND THE
RULES AND REGULATIONS OF THE PRINCIPAL MARKET ON WHICH THE COMMON STOCK IS
QUOTED) APPLICABLE TO THE COMPANY OR

 

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ANY OF ITS SUBSIDIARIES OR BY WHICH ANY MATERIAL PROPERTY OR ASSET OF THE
COMPANY OR ANY OF ITS SUBSIDIARIES IS BOUND OR AFFECTED AND WHICH WOULD CAUSE A
MATERIAL ADVERSE EFFECT.  EXCEPT AS DISCLOSED IN THE SEC DOCUMENTS, NEITHER THE
COMPANY NOR ITS SUBSIDIARIES IS IN VIOLATION OF ANY TERM OF OR IN DEFAULT UNDER
ITS ARTICLES OF INCORPORATION OR BY-LAWS OR THEIR ORGANIZATIONAL CHARTER OR
BY-LAWS, RESPECTIVELY, OR ANY MATERIAL CONTRACT, AGREEMENT, MORTGAGE,
INDEBTEDNESS, INDENTURE, INSTRUMENT, JUDGMENT, DECREE OR ORDER OR ANY STATUTE,
RULE OR REGULATION APPLICABLE TO THE COMPANY OR ITS SUBSIDIARIES.  THE BUSINESS
OF THE COMPANY AND ITS SUBSIDIARIES IS NOT BEING CONDUCTED IN VIOLATION OF ANY
MATERIAL LAW, ORDINANCE, REGULATION OF ANY GOVERNMENTAL ENTITY.  EXCEPT AS
SPECIFICALLY CONTEMPLATED BY THIS AGREEMENT AND AS REQUIRED UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, THE COMPANY IS NOT REQUIRED TO
OBTAIN ANY CONSENT, AUTHORIZATION OR ORDER OF, OR MAKE ANY FILING OR
REGISTRATION WITH, ANY COURT OR GOVERNMENTAL AGENCY IN ORDER FOR IT TO EXECUTE,
DELIVER OR PERFORM ANY OF ITS OBLIGATIONS UNDER OR CONTEMPLATED BY THIS
AGREEMENT OR THE REGISTRATION RIGHTS AGREEMENT IN ACCORDANCE WITH THE TERMS
HEREOF OR THEREOF.  ALL CONSENTS, AUTHORIZATIONS, ORDERS, FILINGS AND
REGISTRATIONS WHICH THE COMPANY IS REQUIRED TO OBTAIN PURSUANT TO THE PRECEDING
SENTENCE HAVE BEEN OBTAINED OR EFFECTED ON OR PRIOR TO THE DATE HEREOF.  THE
COMPANY AND ITS SUBSIDIARIES ARE UNAWARE OF ANY FACT OR CIRCUMSTANCE WHICH MIGHT
GIVE RISE TO ANY OF THE FOREGOING.

 

SECTION 4.5.                                   SEC DOCUMENTS; FINANCIAL
STATEMENTS.  SINCE JANUARY 1, 2003, THE COMPANY HAS FILED ALL REPORTS,
SCHEDULES, FORMS, STATEMENTS AND OTHER DOCUMENTS REQUIRED TO BE FILED BY IT WITH
THE SEC UNDER THE EXCHANGE ACT.  THE COMPANY HAS DELIVERED TO THE INVESTOR OR
ITS REPRESENTATIVES, OR MADE AVAILABLE THROUGH THE SEC’S WEBSITE AT
HTTP://WWW.SEC.GOV, TRUE AND COMPLETE COPIES OF THE SEC DOCUMENTS.  AS OF THEIR
RESPECTIVE DATES, THE FINANCIAL STATEMENTS OF THE COMPANY DISCLOSED IN THE SEC
DOCUMENTS (THE “FINANCIAL STATEMENTS”) COMPLIED AS TO FORM IN ALL MATERIAL
RESPECTS WITH APPLICABLE ACCOUNTING REQUIREMENTS AND THE PUBLISHED RULES AND
REGULATIONS OF THE SEC WITH RESPECT THERETO.  SUCH FINANCIAL STATEMENTS HAVE
BEEN PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES,
CONSISTENTLY APPLIED, DURING THE PERIODS INVOLVED (EXCEPT (I) AS MAY BE
OTHERWISE INDICATED IN SUCH FINANCIAL STATEMENTS OR THE NOTES THERETO, OR (II)
IN THE CASE OF UNAUDITED INTERIM STATEMENTS, TO THE EXTENT THEY MAY EXCLUDE
FOOTNOTES OR MAY BE CONDENSED OR SUMMARY STATEMENTS) AND, FAIRLY PRESENT IN ALL
MATERIAL RESPECTS THE FINANCIAL POSITION OF THE COMPANY AS OF THE DATES THEREOF
AND THE RESULTS OF ITS OPERATIONS AND CASH FLOWS FOR THE PERIODS THEN ENDED
(SUBJECT, IN THE CASE OF UNAUDITED STATEMENTS, TO NORMAL YEAR-END AUDIT
ADJUSTMENTS).  NO OTHER INFORMATION PROVIDED BY OR ON BEHALF OF THE COMPANY TO
THE INVESTOR WHICH IS NOT INCLUDED IN THE SEC DOCUMENTS CONTAINS ANY UNTRUE
STATEMENT OF A MATERIAL FACT OR OMITS TO STATE ANY MATERIAL FACT NECESSARY IN
ORDER TO MAKE THE STATEMENTS THEREIN, IN THE LIGHT OF THE CIRCUMSTANCES UNDER
WHICH THEY WERE MADE, NOT MISLEADING.

 

SECTION 4.6.                                   10B-5.  THE SEC DOCUMENTS DO NOT
INCLUDE ANY UNTRUE STATEMENTS OF MATERIAL FACT, NOR DO THEY OMIT TO STATE ANY
MATERIAL FACT REQUIRED TO BE STATED THEREIN NECESSARY TO MAKE THE STATEMENTS
MADE, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.

 

SECTION 4.7.                                   NO DEFAULT.  EXCEPT AS DISCLOSED
IN THE SEC DOCUMENTS, THE COMPANY IS NOT IN DEFAULT IN THE PERFORMANCE OR
OBSERVANCE OF ANY MATERIAL OBLIGATION, AGREEMENT, COVENANT OR CONDITION
CONTAINED IN ANY INDENTURE, MORTGAGE, DEED OF TRUST OR OTHER MATERIAL INSTRUMENT
OR AGREEMENT TO WHICH IT IS A PARTY OR BY WHICH IT IS OR ITS PROPERTY IS BOUND
AND NEITHER THE EXECUTION, NOR THE DELIVERY BY THE COMPANY, NOR THE PERFORMANCE
BY THE COMPANY OF ITS

 

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OBLIGATIONS UNDER THIS AGREEMENT OR ANY OF THE EXHIBITS OR ATTACHMENTS HERETO
WILL CONFLICT WITH OR RESULT IN THE BREACH OR VIOLATION OF ANY OF THE TERMS OR
PROVISIONS OF, OR CONSTITUTE A DEFAULT OR RESULT IN THE CREATION OR IMPOSITION
OF ANY LIEN OR CHARGE ON ANY ASSETS OR PROPERTIES OF THE COMPANY UNDER ITS
CERTIFICATE OF INCORPORATION, BY-LAWS, ANY MATERIAL INDENTURE, MORTGAGE, DEED OF
TRUST OR OTHER MATERIAL AGREEMENT APPLICABLE TO THE COMPANY OR INSTRUMENT TO
WHICH THE COMPANY IS A PARTY OR BY WHICH IT IS BOUND, OR ANY STATUTE, OR ANY
DECREE, JUDGMENT, ORDER, RULES OR REGULATION OF ANY COURT OR GOVERNMENTAL AGENCY
OR BODY HAVING JURISDICTION OVER THE COMPANY OR ITS PROPERTIES, IN EACH CASE
WHICH DEFAULT, LIEN OR CHARGE IS LIKELY TO CAUSE A MATERIAL ADVERSE EFFECT ON
THE COMPANY’S BUSINESS OR FINANCIAL CONDITION.

 

SECTION 4.8.                                   ABSENCE OF EVENTS OF DEFAULT. 
EXCEPT FOR MATTERS DESCRIBED IN THE SEC DOCUMENTS AND/OR THIS AGREEMENT, NO
EVENT OF DEFAULT, AS DEFINED IN THE RESPECTIVE AGREEMENT TO WHICH THE COMPANY IS
A PARTY, AND NO EVENT WHICH, WITH THE GIVING OF NOTICE OR THE PASSAGE OF TIME OR
BOTH, WOULD BECOME AN EVENT OF DEFAULT (AS SO DEFINED), HAS OCCURRED AND IS
CONTINUING, WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY’S
BUSINESS, PROPERTIES, PROSPECTS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.

 

SECTION 4.9.                                   INTELLECTUAL PROPERTY RIGHTS. 
THE COMPANY AND ITS SUBSIDIARIES OWN OR POSSESS ADEQUATE RIGHTS OR LICENSES TO
USE ALL MATERIAL TRADEMARKS, TRADE NAMES, SERVICE MARKS, SERVICE MARK
REGISTRATIONS, SERVICE NAMES, PATENTS, PATENT RIGHTS, COPYRIGHTS, INVENTIONS,
LICENSES, APPROVALS, GOVERNMENTAL AUTHORIZATIONS, TRADE SECRETS AND RIGHTS
NECESSARY TO CONDUCT THEIR RESPECTIVE BUSINESSES AS NOW CONDUCTED.   THE COMPANY
AND ITS SUBSIDIARIES DO NOT HAVE ANY KNOWLEDGE OF ANY INFRINGEMENT BY THE
COMPANY OR ITS SUBSIDIARIES OF TRADEMARK, TRADE NAME RIGHTS, PATENTS, PATENT
RIGHTS, COPYRIGHTS, INVENTIONS, LICENSES, SERVICE NAMES, SERVICE MARKS, SERVICE
MARK REGISTRATIONS, TRADE SECRET OR OTHER SIMILAR RIGHTS OF OTHERS, AND, TO THE
KNOWLEDGE OF THE COMPANY, THERE IS NO CLAIM, ACTION OR PROCEEDING BEING MADE OR
BROUGHT AGAINST, OR TO THE COMPANY’S KNOWLEDGE, BEING THREATENED AGAINST, THE
COMPANY OR ITS SUBSIDIARIES REGARDING TRADEMARK, TRADE NAME, PATENTS, PATENT
RIGHTS, INVENTION, COPYRIGHT, LICENSE, SERVICE NAMES, SERVICE MARKS, SERVICE
MARK REGISTRATIONS, TRADE SECRET OR OTHER INFRINGEMENT; AND THE COMPANY AND ITS
SUBSIDIARIES ARE UNAWARE OF ANY FACTS OR CIRCUMSTANCES WHICH MIGHT GIVE RISE TO
ANY OF THE FOREGOING.

 

SECTION 4.10.                             EMPLOYEE RELATIONS.  NEITHER THE
COMPANY NOR ANY OF ITS SUBSIDIARIES IS INVOLVED IN ANY LABOR DISPUTE NOR, TO THE
KNOWLEDGE OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, IS ANY SUCH DISPUTE
THREATENED.  NONE OF THE COMPANY’S OR ITS SUBSIDIARIES’ EMPLOYEES IS A MEMBER OF
A UNION AND THE COMPANY AND ITS SUBSIDIARIES BELIEVE THAT THEIR RELATIONS WITH
THEIR EMPLOYEES ARE GOOD.

 

SECTION 4.11.                             ENVIRONMENTAL LAWS.  THE COMPANY AND
ITS SUBSIDIARIES ARE (I) IN COMPLIANCE WITH ANY AND ALL APPLICABLE MATERIAL
FOREIGN, FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS RELATING TO THE
PROTECTION OF HUMAN HEALTH AND SAFETY, THE ENVIRONMENT OR HAZARDOUS OR TOXIC
SUBSTANCES OR WASTES, POLLUTANTS OR CONTAMINANTS (“ENVIRONMENTAL LAWS”), (II)
HAVE RECEIVED ALL PERMITS, LICENSES OR OTHER APPROVALS REQUIRED OF THEM UNDER
APPLICABLE ENVIRONMENTAL LAWS TO CONDUCT THEIR RESPECTIVE BUSINESSES AND (III)
ARE IN COMPLIANCE WITH ALL TERMS AND CONDITIONS OF ANY SUCH PERMIT, LICENSE OR
APPROVAL.

 

SECTION 4.12.                             TITLE.  EXCEPT AS SET FORTH IN THE SEC
DOCUMENTS, THE COMPANY HAS GOOD AND MARKETABLE TITLE TO ITS PROPERTIES AND
MATERIAL ASSETS OWNED BY IT, FREE AND CLEAR OF ANY

 

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PLEDGE, LIEN, SECURITY INTEREST, ENCUMBRANCE, CLAIM OR EQUITABLE INTEREST OTHER
THAN SUCH AS ARE NOT MATERIAL TO THE BUSINESS OF THE COMPANY.  ANY REAL PROPERTY
AND FACILITIES HELD UNDER LEASE BY THE COMPANY AND ITS SUBSIDIARIES ARE HELD BY
THEM UNDER VALID, SUBSISTING AND ENFORCEABLE LEASES WITH SUCH EXCEPTIONS AS ARE
NOT MATERIAL AND DO NOT INTERFERE WITH THE USE MADE AND PROPOSED TO BE MADE OF
SUCH PROPERTY AND BUILDINGS BY THE COMPANY AND ITS SUBSIDIARIES.

 

SECTION 4.13.                             INSURANCE.  THE COMPANY AND EACH OF
ITS SUBSIDIARIES ARE INSURED BY INSURERS OF RECOGNIZED FINANCIAL RESPONSIBILITY
AGAINST SUCH LOSSES AND RISKS AND IN SUCH AMOUNTS AS MANAGEMENT OF THE COMPANY
BELIEVES TO BE PRUDENT AND CUSTOMARY IN THE BUSINESSES IN WHICH THE COMPANY AND
ITS SUBSIDIARIES ARE ENGAGED.  NEITHER THE COMPANY NOR ANY SUCH SUBSIDIARY HAS
BEEN REFUSED ANY INSURANCE COVERAGE SOUGHT OR APPLIED FOR AND NEITHER THE
COMPANY NOR ANY SUCH SUBSIDIARY HAS ANY REASON TO BELIEVE THAT IT WILL NOT BE
ABLE TO RENEW ITS EXISTING INSURANCE COVERAGE AS AND WHEN SUCH COVERAGE EXPIRES
OR TO OBTAIN SIMILAR COVERAGE FROM SIMILAR INSURERS AS MAY BE NECESSARY TO
CONTINUE ITS BUSINESS AT A COST THAT WOULD NOT MATERIALLY AND ADVERSELY AFFECT
THE CONDITION, FINANCIAL OR OTHERWISE, OR THE EARNINGS, BUSINESS OR OPERATIONS
OF THE COMPANY AND ITS SUBSIDIARIES, TAKEN AS A WHOLE.

 

SECTION 4.14.                             REGULATORY PERMITS.  THE COMPANY AND
ITS SUBSIDIARIES POSSESS ALL MATERIAL CERTIFICATES, AUTHORIZATIONS AND PERMITS
ISSUED BY THE APPROPRIATE FEDERAL, STATE OR FOREIGN REGULATORY AUTHORITIES
NECESSARY TO CONDUCT THEIR RESPECTIVE BUSINESSES, AND NEITHER THE COMPANY NOR
ANY SUCH SUBSIDIARY HAS RECEIVED ANY NOTICE OF PROCEEDINGS RELATING TO THE
REVOCATION OR MODIFICATION OF ANY SUCH CERTIFICATE, AUTHORIZATION OR PERMIT.

 

SECTION 4.15.                             INTERNAL ACCOUNTING CONTROLS.  THE
COMPANY AND EACH OF ITS 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 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES 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.

 

SECTION 4.16.                             NO MATERIAL ADVERSE BREACHES, ETC. 
EXCEPT AS SET FORTH IN THE SEC DOCUMENTS, NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES IS SUBJECT TO ANY CHARTER, CORPORATE OR OTHER LEGAL RESTRICTION, OR
ANY JUDGMENT, DECREE, ORDER, RULE OR REGULATION WHICH IN THE JUDGMENT OF THE
COMPANY’S OFFICERS HAS OR IS EXPECTED IN THE FUTURE TO HAVE A MATERIAL ADVERSE
EFFECT ON THE BUSINESS, PROPERTIES, OPERATIONS, FINANCIAL CONDITION, RESULTS OF
OPERATIONS OR PROSPECTS OF THE COMPANY OR ITS SUBSIDIARIES.  EXCEPT AS SET FORTH
IN THE SEC DOCUMENTS, NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES IS IN
BREACH OF ANY CONTRACT OR AGREEMENT WHICH BREACH, IN THE JUDGMENT OF THE
COMPANY’S OFFICERS, HAS OR IS EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON THE
BUSINESS, PROPERTIES, OPERATIONS, FINANCIAL CONDITION, RESULTS OF OPERATIONS OR
PROSPECTS OF THE COMPANY OR ITS SUBSIDIARIES.

 

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SECTION 4.17.                             ABSENCE OF LITIGATION.  EXCEPT AS SET
FORTH IN THE SEC DOCUMENTS, THERE IS NO ACTION, SUIT, PROCEEDING, INQUIRY OR
INVESTIGATION BEFORE OR BY ANY COURT, PUBLIC BOARD, GOVERNMENT AGENCY,
SELF-REGULATORY ORGANIZATION OR BODY PENDING AGAINST OR AFFECTING THE COMPANY,
THE COMMON STOCK OR ANY OF THE COMPANY’S SUBSIDIARIES, WHEREIN AN UNFAVORABLE
DECISION, RULING OR FINDING WOULD (I) HAVE A MATERIAL ADVERSE EFFECT ON THE
TRANSACTIONS CONTEMPLATED HEREBY (II) ADVERSELY AFFECT THE VALIDITY OR
ENFORCEABILITY OF, OR THE AUTHORITY OR ABILITY OF THE COMPANY TO PERFORM ITS
OBLIGATIONS UNDER, THIS AGREEMENT OR ANY OF THE DOCUMENTS CONTEMPLATED HEREIN,
OR (III) EXCEPT AS EXPRESSLY DISCLOSED IN THE SEC DOCUMENTS, HAVE A MATERIAL
ADVERSE EFFECT ON THE BUSINESS, OPERATIONS, PROPERTIES, FINANCIAL CONDITION OR
RESULTS OF OPERATION OF THE COMPANY AND ITS SUBSIDIARIES TAKEN AS A WHOLE.

 

SECTION 4.18.                             SUBSIDIARIES.  EXCEPT AS DISCLOSED IN
THE SEC DOCUMENTS, THE COMPANY DOES NOT PRESENTLY OWN OR CONTROL, DIRECTLY OR
INDIRECTLY, ANY INTEREST IN ANY OTHER CORPORATION, PARTNERSHIP, ASSOCIATION OR
OTHER BUSINESS ENTITY.

 

SECTION 4.19.                             TAX STATUS.  EXCEPT AS DISCLOSED IN
THE SEC DOCUMENTS, THE COMPANY AND EACH OF ITS SUBSIDIARIES HAS MADE OR FILED
ALL FEDERAL AND STATE INCOME AND ALL OTHER TAX RETURNS, REPORTS AND DECLARATIONS
REQUIRED BY ANY JURISDICTION TO WHICH IT IS SUBJECT AND (UNLESS AND ONLY TO THE
EXTENT THAT THE COMPANY AND EACH OF ITS SUBSIDIARIES HAS SET ASIDE ON ITS BOOKS
PROVISIONS REASONABLY ADEQUATE FOR THE PAYMENT OF ALL UNPAID AND UNREPORTED
TAXES) HAS PAID ALL TAXES AND OTHER GOVERNMENTAL ASSESSMENTS AND CHARGES THAT
ARE MATERIAL IN AMOUNT, SHOWN OR DETERMINED TO BE DUE ON SUCH RETURNS, REPORTS
AND DECLARATIONS, EXCEPT THOSE BEING CONTESTED IN GOOD FAITH AND HAS SET ASIDE
ON ITS BOOKS PROVISION REASONABLY ADEQUATE FOR THE PAYMENT OF ALL TAXES FOR
PERIODS SUBSEQUENT TO THE PERIODS TO WHICH SUCH RETURNS, REPORTS OR DECLARATIONS
APPLY.  THERE ARE NO UNPAID TAXES IN ANY MATERIAL AMOUNT CLAIMED TO BE DUE BY
THE TAXING AUTHORITY OF ANY JURISDICTION, AND THE OFFICERS OF THE COMPANY KNOW
OF NO BASIS FOR ANY SUCH CLAIM.

 

SECTION 4.20.                             CERTAIN TRANSACTIONS.  EXCEPT AS SET
FORTH IN THE SEC DOCUMENTS NONE OF THE OFFICERS, DIRECTORS, OR EMPLOYEES OF THE
COMPANY IS PRESENTLY A PARTY TO ANY TRANSACTION WITH THE COMPANY (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 CORPORATION, PARTNERSHIP, TRUST OR OTHER ENTITY IN
WHICH ANY OFFICER, DIRECTOR, OR ANY SUCH EMPLOYEE HAS A SUBSTANTIAL INTEREST OR
IS AN OFFICER, DIRECTOR, TRUSTEE OR PARTNER.

 

SECTION 4.21.                             FEES AND RIGHTS OF FIRST REFUSAL.  THE
COMPANY IS NOT OBLIGATED TO OFFER THE SECURITIES OFFERED HEREUNDER ON A RIGHT OF
FIRST REFUSAL BASIS OR OTHERWISE TO ANY THIRD PARTIES INCLUDING, BUT NOT LIMITED
TO, CURRENT OR FORMER SHAREHOLDERS OF THE COMPANY, UNDERWRITERS, BROKERS, AGENTS
OR OTHER THIRD PARTIES.

 

SECTION 4.22.                             USE OF PROCEEDS.  THE COMPANY SHALL
USE THE NET PROCEEDS FROM THIS OFFERING FOR GENERAL CORPORATE PURPOSES,
INCLUDING, WITHOUT LIMITATION, THE PAYMENT OF LOANS INCURRED BY THE COMPANY. 
HOWEVER, IN NO EVENT SHALL THE COMPANY USE THE NET PROCEEDS FROM THIS OFFERING
FOR THE PAYMENT (OR LOAN TO ANY SUCH PERSON FOR THE PAYMENT) OF ANY JUDGMENT, OR
OTHER LIABILITY, INCURRED BY ANY EXECUTIVE OFFICER, OFFICER, DIRECTOR OR
EMPLOYEE OF THE COMPANY, EXCEPT FOR ANY LIABILITY OWED TO SUCH PERSON FOR
SERVICES RENDERED, OR IF ANY JUDGMENT OR OTHER

 

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LIABILITY IS INCURRED BY SUCH PERSON ORIGINATING FROM SERVICES RENDERED TO THE
COMPANY, OR THE COMPANY HAS INDEMNIFIED SUCH PERSON FROM LIABILITY.

 

SECTION 4.23.                             FURTHER REPRESENTATION AND WARRANTIES
OF THE COMPANY.  FOR SO LONG AS ANY SECURITIES ISSUABLE HEREUNDER HELD BY THE
INVESTOR REMAIN OUTSTANDING, THE COMPANY ACKNOWLEDGES, REPRESENTS, WARRANTS AND
AGREES THAT IT WILL MAINTAIN THE LISTING OF ITS COMMON STOCK ON THE PRINCIPAL
MARKET.

 

SECTION 4.24.                             OPINION OF COUNSEL.  INVESTOR SHALL
RECEIVE AN OPINION LETTER FROM COUNSEL TO THE COMPANY ON THE DATE HEREOF.

 

SECTION 4.25.                             OPINION OF COUNSEL.  THE COMPANY WILL
OBTAIN FOR THE INVESTOR, AT THE COMPANY’S EXPENSE, ANY AND ALL OPINIONS OF
COUNSEL WHICH MAY BE REASONABLY REQUIRED IN ORDER TO SELL THE SECURITIES
ISSUABLE HEREUNDER WITHOUT RESTRICTION.

 

SECTION 4.26.                             DILUTION.  THE COMPANY IS AWARE AND
ACKNOWLEDGES THAT ISSUANCE OF SHARES OF THE COMPANY’S COMMON STOCK COULD CAUSE
DILUTION TO EXISTING SHAREHOLDERS AND COULD SIGNIFICANTLY INCREASE THE
OUTSTANDING NUMBER OF SHARES OF COMMON STOCK.

 

ARTICLE V.
INDEMNIFICATION

 

The Investor and the Company represent to the other the following with respect
to itself:

 

SECTION 5.1.                                   INDEMNIFICATION.

 

(A)                                  IN CONSIDERATION OF THE INVESTOR’S
EXECUTION AND DELIVERY OF THIS AGREEMENT, AND IN ADDITION TO ALL OF THE
COMPANY’S OTHER OBLIGATIONS UNDER THIS AGREEMENT, THE COMPANY SHALL DEFEND,
PROTECT, INDEMNIFY AND HOLD HARMLESS THE INVESTOR, AND ALL OF ITS OFFICERS,
DIRECTORS, PARTNERS, EMPLOYEES AND AGENTS (INCLUDING, WITHOUT LIMITATION, THOSE
RETAINED IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT)
(COLLECTIVELY, THE “INVESTOR INDEMNITEES”) FROM AND AGAINST ANY AND ALL ACTIONS,
CAUSES OF ACTION, SUITS, CLAIMS, LOSSES, COSTS, PENALTIES, FEES, LIABILITIES AND
DAMAGES, AND EXPENSES IN CONNECTION THEREWITH (IRRESPECTIVE OF WHETHER ANY SUCH
INVESTOR INDEMNITEE IS A PARTY TO THE ACTION FOR WHICH INDEMNIFICATION HEREUNDER
IS SOUGHT), AND INCLUDING REASONABLE ATTORNEYS’ FEES AND DISBURSEMENTS (THE
“INDEMNIFIED LIABILITIES”), INCURRED BY THE INVESTOR INDEMNITEES OR ANY OF THEM
AS A RESULT OF, OR ARISING OUT OF, OR RELATING TO (A) ANY MISREPRESENTATION OR
BREACH OF ANY REPRESENTATION OR WARRANTY MADE BY THE COMPANY IN THIS AGREEMENT
OR THE REGISTRATION RIGHTS AGREEMENT OR ANY OTHER CERTIFICATE, INSTRUMENT OR
DOCUMENT CONTEMPLATED HEREBY OR THEREBY, (B) ANY BREACH OF ANY COVENANT,
AGREEMENT OR OBLIGATION OF THE COMPANY CONTAINED IN THIS AGREEMENT OR THE
REGISTRATION RIGHTS AGREEMENT OR ANY OTHER CERTIFICATE, INSTRUMENT OR DOCUMENT
CONTEMPLATED HEREBY OR THEREBY, OR (C) ANY CAUSE OF ACTION, SUIT OR CLAIM
BROUGHT OR MADE AGAINST SUCH INVESTOR INDEMNITEE NOT ARISING OUT OF ANY ACTION
OR INACTION OF AN INVESTOR INDEMNITEE, AND ARISING OUT OF OR RESULTING FROM THE
EXECUTION, DELIVERY, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED PURSUANT HERETO BY ANY OF THE
INVESTOR INDEMNITEES.  TO THE EXTENT THAT THE FOREGOING UNDERTAKING BY THE
COMPANY MAY BE UNENFORCEABLE FOR ANY REASON, THE COMPANY SHALL MAKE THE MAXIMUM
CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED
LIABILITIES, WHICH IS PERMISSIBLE UNDER APPLICABLE LAW.

 

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(B)                                 IN CONSIDERATION OF THE COMPANY’S EXECUTION
AND DELIVERY OF THIS AGREEMENT, AND IN ADDITION TO ALL OF THE INVESTOR’S OTHER
OBLIGATIONS UNDER THIS AGREEMENT, THE INVESTOR SHALL DEFEND, PROTECT, INDEMNIFY
AND HOLD HARMLESS THE COMPANY AND ALL OF ITS OFFICERS, DIRECTORS, SHAREHOLDERS,
EMPLOYEES AND AGENTS (INCLUDING, WITHOUT LIMITATION, THOSE RETAINED IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT) (COLLECTIVELY,
THE “COMPANY INDEMNITEES”) FROM AND AGAINST ANY AND ALL INDEMNIFIED LIABILITIES
INCURRED BY THE COMPANY INDEMNITEES OR ANY OF THEM AS A RESULT OF, OR ARISING
OUT OF, OR RELATING TO (A) ANY MISREPRESENTATION OR BREACH OF ANY REPRESENTATION
OR WARRANTY MADE BY THE INVESTOR IN THIS AGREEMENT, THE REGISTRATION RIGHTS
AGREEMENT, OR ANY INSTRUMENT OR DOCUMENT CONTEMPLATED HEREBY OR THEREBY EXECUTED
BY THE INVESTOR, (B) ANY BREACH OF ANY COVENANT, AGREEMENT OR OBLIGATION OF THE
INVESTOR(S) CONTAINED IN THIS AGREEMENT,  THE REGISTRATION RIGHTS AGREEMENT OR
ANY OTHER CERTIFICATE, INSTRUMENT OR DOCUMENT CONTEMPLATED HEREBY OR THEREBY
EXECUTED BY THE INVESTOR, OR (C) ANY CAUSE OF ACTION, SUIT OR CLAIM BROUGHT OR
MADE AGAINST SUCH COMPANY INDEMNITEE BASED ON MISREPRESENTATIONS OR DUE TO A
BREACH BY THE INVESTOR AND ARISING OUT OF OR RESULTING FROM THE EXECUTION,
DELIVERY, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED PURSUANT HERETO BY ANY OF THE COMPANY
INDEMNITEES.  TO THE EXTENT THAT THE FOREGOING UNDERTAKING BY THE INVESTOR MAY
BE UNENFORCEABLE FOR ANY REASON, THE INVESTOR SHALL MAKE THE MAXIMUM
CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED
LIABILITIES, WHICH IS PERMISSIBLE UNDER APPLICABLE LAW.

 

(c)                                  The obligations of the parties to indemnify
or make contribution under this Section 5.1 shall survive termination.

 

ARTICLE VI.
COVENANTS OF THE COMPANY

 

SECTION 6.1.                                   REGISTRATION RIGHTS.  THE COMPANY
SHALL CAUSE THE REGISTRATION RIGHTS AGREEMENT TO REMAIN IN FULL FORCE AND EFFECT
AND THE COMPANY SHALL COMPLY IN ALL MATERIAL RESPECTS WITH THE TERMS THEREOF.

 

SECTION 6.2.                                   LISTING OF COMMON STOCK.  THE
COMPANY SHALL MAINTAIN THE COMMON STOCK’S AUTHORIZATION FOR QUOTATION ON THE
NASDAQ NATIONAL MARKET, THE NASDAQ SMALLCAP MARKET OR THE OTCBB.

 

SECTION 6.3.                                   EXCHANGE ACT REGISTRATION.  THE
COMPANY WILL CAUSE ITS COMMON STOCK TO CONTINUE TO BE REGISTERED UNDER SECTION
12(G) OF THE EXCHANGE ACT, WILL FILE IN A TIMELY MANNER ALL REPORTS AND OTHER
DOCUMENTS REQUIRED OF IT AS A REPORTING COMPANY UNDER THE EXCHANGE ACT AND WILL
NOT TAKE ANY ACTION OR FILE ANY DOCUMENT (WHETHER OR NOT PERMITTED BY EXCHANGE
ACT OR THE RULES THEREUNDER) TO TERMINATE OR SUSPEND SUCH REGISTRATION OR TO
TERMINATE OR SUSPEND ITS REPORTING AND FILING OBLIGATIONS UNDER SAID EXCHANGE
ACT.

 

SECTION 6.4.                                   TRANSFER AGENT INSTRUCTIONS. 
UPON EFFECTIVENESS OF THE REGISTRATION STATEMENT THE COMPANY SHALL DELIVER
INSTRUCTIONS TO ITS TRANSFER AGENT TO ISSUE SHARES OF COMMON STOCK TO THE
INVESTOR FREE OF RESTRICTIVE LEGENDS ON OR BEFORE EACH ADVANCE DATE

 

SECTION 6.5.                                   CORPORATE EXISTENCE.  THE COMPANY
WILL TAKE ALL STEPS NECESSARY TO PRESERVE AND CONTINUE THE CORPORATE EXISTENCE
OF THE COMPANY.

 

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SECTION 6.6.                                   NOTICE OF CERTAIN EVENTS
AFFECTING REGISTRATION; SUSPENSION OF RIGHT TO MAKE AN ADVANCE.  THE COMPANY
WILL IMMEDIATELY NOTIFY THE INVESTOR UPON ITS BECOMING AWARE OF THE OCCURRENCE
OF ANY OF THE FOLLOWING EVENTS IN RESPECT OF A REGISTRATION STATEMENT OR RELATED
PROSPECTUS RELATING TO AN OFFERING OF REGISTRABLE SECURITIES: (I) RECEIPT OF ANY
REQUEST FOR ADDITIONAL INFORMATION BY THE SEC OR ANY OTHER FEDERAL OR STATE
GOVERNMENTAL AUTHORITY DURING THE PERIOD OF EFFECTIVENESS OF THE REGISTRATION
STATEMENT FOR AMENDMENTS OR SUPPLEMENTS TO THE REGISTRATION STATEMENT OR RELATED
PROSPECTUS; (II) THE ISSUANCE BY THE SEC OR ANY OTHER FEDERAL OR STATE
GOVERNMENTAL AUTHORITY OF ANY STOP ORDER SUSPENDING THE EFFECTIVENESS OF THE
REGISTRATION STATEMENT OR THE INITIATION OF ANY PROCEEDINGS FOR THAT PURPOSE;
(III) RECEIPT OF ANY NOTIFICATION WITH RESPECT TO THE SUSPENSION OF THE
QUALIFICATION OR EXEMPTION FROM QUALIFICATION OF ANY OF THE REGISTRABLE
SECURITIES FOR SALE IN ANY JURISDICTION OR THE INITIATION OR THREATENING OF ANY
PROCEEDING FOR SUCH PURPOSE; (IV) THE HAPPENING OF ANY EVENT THAT MAKES ANY
STATEMENT MADE IN THE REGISTRATION STATEMENT OR RELATED PROSPECTUS OF ANY
DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED THEREIN BY REFERENCE UNTRUE
IN ANY MATERIAL RESPECT OR THAT REQUIRES THE MAKING OF ANY CHANGES IN THE
REGISTRATION STATEMENT, RELATED PROSPECTUS OR DOCUMENTS SO THAT, IN THE CASE OF
THE REGISTRATION STATEMENT, IT WILL NOT CONTAIN ANY UNTRUE STATEMENT OF A
MATERIAL FACT OR OMIT TO STATE ANY MATERIAL FACT REQUIRED TO BE STATED THEREIN
OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING, AND THAT IN THE CASE
OF THE RELATED PROSPECTUS, IT WILL NOT CONTAIN ANY UNTRUE STATEMENT OF A
MATERIAL FACT OR OMIT TO STATE ANY MATERIAL FACT REQUIRED TO BE STATED THEREIN
OR NECESSARY TO MAKE THE STATEMENTS THEREIN, IN THE LIGHT OF THE CIRCUMSTANCES
UNDER WHICH THEY WERE MADE, NOT MISLEADING; AND (V) THE COMPANY’S REASONABLE
DETERMINATION THAT A POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT
WOULD BE APPROPRIATE; AND THE COMPANY WILL PROMPTLY MAKE AVAILABLE TO THE
INVESTOR ANY SUCH SUPPLEMENT OR AMENDMENT TO THE RELATED PROSPECTUS.  THE
COMPANY SHALL NOT DELIVER TO THE INVESTOR ANY ADVANCE NOTICE DURING THE
CONTINUATION OF ANY OF THE FOREGOING EVENTS.

 

SECTION 6.7.                                   RESTRICTION ON SALE OF CAPITAL
STOCK.  DURING THE COMMITMENT PERIOD, THE COMPANY SHALL NOT, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE INVESTOR, (I) ISSUE OR SELL ANY COMMON STOCK OR PREFERRED
STOCK WITHOUT CONSIDERATION OR FOR A CONSIDERATION PER SHARE LESS THAN THE BID
PRICE OF THE COMMON STOCK DETERMINED IMMEDIATELY PRIOR TO ITS ISSUANCE,
(II) ISSUE OR SELL ANY PREFERRED STOCK WARRANT, OPTION, RIGHT, CONTRACT, CALL,
OR OTHER SECURITY OR INSTRUMENT GRANTING THE HOLDER THEREOF THE RIGHT TO ACQUIRE
COMMON STOCK WITHOUT CONSIDERATION OR FOR A CONSIDERATION PER SHARE LESS THAN
SUCH COMMON STOCK’S BID PRICE DETERMINED IMMEDIATELY PRIOR TO ITS ISSUANCE, OR
(III) FILE ANY REGISTRATION STATEMENT ON FORM S-8.

 

SECTION 6.8.                                   CONSOLIDATION; MERGER.  THE
COMPANY SHALL NOT, AT ANY TIME AFTER THE DATE HEREOF, EFFECT ANY MERGER OR
CONSOLIDATION OF THE COMPANY WITH OR INTO, OR A TRANSFER OF ALL OR SUBSTANTIALLY
ALL THE ASSETS OF THE COMPANY TO ANOTHER ENTITY (A “CONSOLIDATION EVENT”) UNLESS
THE RESULTING SUCCESSOR OR ACQUIRING ENTITY (IF NOT THE COMPANY) ASSUMES BY
WRITTEN INSTRUMENT THE OBLIGATION TO DELIVER TO THE INVESTOR SUCH SHARES OF
STOCK AND/OR SECURITIES AS THE INVESTOR IS ENTITLED TO RECEIVE PURSUANT TO THIS
AGREEMENT.

 

SECTION 6.9.                                   ISSUANCE OF THE COMPANY’S COMMON
STOCK.  THE SALE OF THE SHARES OF COMMON STOCK SHALL BE MADE IN ACCORDANCE WITH
THE PROVISIONS AND REQUIREMENTS OF REGULATION D AND ANY APPLICABLE STATE
SECURITIES LAW.

 

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ARTICLE VII.
CONDITIONS FOR ADVANCE AND CONDITIONS TO CLOSING

 

SECTION 7.1.                                   CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF THE COMPANY.  THE OBLIGATION HEREUNDER OF THE COMPANY TO ISSUE
AND SELL THE SHARES OF COMMON STOCK TO THE INVESTOR INCIDENT TO EACH CLOSING IS
SUBJECT TO THE SATISFACTION, OR WAIVER BY THE COMPANY, AT OR BEFORE EACH SUCH
CLOSING, OF EACH OF THE CONDITIONS SET FORTH BELOW.

 

(A)                                  ACCURACY OF THE INVESTOR’S REPRESENTATIONS
AND WARRANTIES.  THE REPRESENTATIONS AND WARRANTIES OF THE INVESTOR SHALL BE
TRUE AND CORRECT IN ALL MATERIAL RESPECTS.

 

(B)                                 PERFORMANCE BY THE INVESTOR.  THE INVESTOR
SHALL HAVE PERFORMED, SATISFIED AND COMPLIED IN ALL RESPECTS WITH ALL COVENANTS,
AGREEMENTS AND CONDITIONS REQUIRED BY THIS AGREEMENT AND THE REGISTRATION RIGHTS
AGREEMENT TO BE PERFORMED, SATISFIED OR COMPLIED WITH BY THE INVESTOR AT OR
PRIOR TO SUCH CLOSING.

 

SECTION 7.2.                                   CONDITIONS PRECEDENT TO THE RIGHT
OF THE COMPANY TO DELIVER AN ADVANCE NOTICE AND THE OBLIGATION OF THE INVESTOR
TO PURCHASE SHARES OF COMMON STOCK.  THE RIGHT OF THE COMPANY TO DELIVER AN
ADVANCE NOTICE AND THE OBLIGATION OF THE INVESTOR HEREUNDER TO ACQUIRE AND PAY
FOR SHARES OF THE COMPANY’S COMMON STOCK INCIDENT TO A CLOSING IS SUBJECT TO THE
FULFILLMENT BY THE COMPANY, ON (I) THE DATE OF DELIVERY OF SUCH ADVANCE NOTICE
AND (II) THE APPLICABLE ADVANCE DATE (EACH A “CONDITION SATISFACTION DATE”), OF
EACH OF THE FOLLOWING CONDITIONS:

 

(A)                                  REGISTRATION OF THE COMMON STOCK WITH THE
SEC.  THE COMPANY SHALL HAVE FILED WITH THE SEC A REGISTRATION STATEMENT WITH
RESPECT TO THE RESALE OF THE REGISTRABLE SECURITIES IN ACCORDANCE WITH THE TERMS
OF THE REGISTRATION RIGHTS AGREEMENT.  AS SET FORTH IN THE REGISTRATION RIGHTS
AGREEMENT, THE REGISTRATION STATEMENT SHALL HAVE PREVIOUSLY BECOME EFFECTIVE AND
SHALL REMAIN EFFECTIVE ON EACH CONDITION SATISFACTION DATE AND (I) NEITHER THE
COMPANY NOR THE INVESTOR SHALL HAVE RECEIVED NOTICE THAT THE SEC HAS ISSUED OR
INTENDS TO ISSUE A STOP ORDER WITH RESPECT TO THE REGISTRATION STATEMENT OR THAT
THE SEC OTHERWISE HAS SUSPENDED OR WITHDRAWN THE EFFECTIVENESS OF THE
REGISTRATION STATEMENT, EITHER TEMPORARILY OR PERMANENTLY, OR INTENDS OR HAS
THREATENED TO DO SO (UNLESS THE SEC’S CONCERNS HAVE BEEN ADDRESSED AND THE
INVESTOR IS REASONABLY SATISFIED THAT THE SEC NO LONGER IS CONSIDERING OR
INTENDS TO TAKE SUCH ACTION), AND (II) NO OTHER SUSPENSION OF THE USE OR
WITHDRAWAL OF THE EFFECTIVENESS OF THE REGISTRATION STATEMENT OR RELATED
PROSPECTUS SHALL EXIST.  THE REGISTRATION STATEMENT MUST HAVE BEEN DECLARED
EFFECTIVE BY THE SEC PRIOR TO THE FIRST ADVANCE NOTICE DATE.

 

(B)                                 AUTHORITY.  THE COMPANY SHALL HAVE OBTAINED
ALL PERMITS AND QUALIFICATIONS REQUIRED BY ANY APPLICABLE STATE IN ACCORDANCE
WITH THE REGISTRATION RIGHTS AGREEMENT FOR THE OFFER AND SALE OF THE SHARES OF
COMMON STOCK, OR SHALL HAVE THE AVAILABILITY OF EXEMPTIONS THEREFROM.  THE SALE
AND ISSUANCE OF THE SHARES OF COMMON STOCK SHALL BE LEGALLY PERMITTED BY ALL
LAWS AND REGULATIONS TO WHICH THE COMPANY IS SUBJECT.

 

(C)                                  FUNDAMENTAL CHANGES. THERE SHALL NOT EXIST
ANY FUNDAMENTAL CHANGES TO THE INFORMATION SET FORTH IN THE REGISTRATION
STATEMENT WHICH WOULD REQUIRE THE COMPANY TO FILE A POST-EFFECTIVE AMENDMENT TO
THE REGISTRATION STATEMENT.

 

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(D)                                 PERFORMANCE BY THE COMPANY.  THE COMPANY
SHALL HAVE PERFORMED, SATISFIED AND COMPLIED IN ALL MATERIAL RESPECTS WITH ALL
COVENANTS, AGREEMENTS AND CONDITIONS REQUIRED BY THIS AGREEMENT (INCLUDING,
WITHOUT LIMITATION, THE CONDITIONS SPECIFIED IN SECTION 2.5 HEREOF) AND THE
REGISTRATION RIGHTS AGREEMENT TO BE PERFORMED, SATISFIED OR COMPLIED WITH BY THE
COMPANY AT OR PRIOR TO EACH CONDITION SATISFACTION DATE.

 

(E)                                  NO INJUNCTION.  NO STATUTE, RULE,
REGULATION, EXECUTIVE ORDER, DECREE, RULING OR INJUNCTION SHALL HAVE BEEN
ENACTED, ENTERED, PROMULGATED OR ENDORSED BY ANY COURT OR GOVERNMENTAL AUTHORITY
OF COMPETENT JURISDICTION THAT PROHIBITS OR DIRECTLY AND ADVERSELY AFFECTS ANY
OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND NO PROCEEDING SHALL HAVE
BEEN COMMENCED THAT MAY HAVE THE EFFECT OF PROHIBITING OR ADVERSELY AFFECTING
ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

(F)                                    NO SUSPENSION OF TRADING IN OR DELISTING
OF COMMON STOCK.  THE TRADING OF THE COMMON STOCK IS NOT SUSPENDED BY THE SEC OR
THE PRINCIPAL MARKET (IF THE COMMON STOCK IS TRADED ON A PRINCIPAL MARKET).  THE
ISSUANCE OF SHARES OF COMMON STOCK WITH RESPECT TO THE APPLICABLE CLOSING, IF
ANY, SHALL NOT VIOLATE THE SHAREHOLDER APPROVAL REQUIREMENTS OF THE PRINCIPAL
MARKET (IF THE COMMON STOCK IS TRADED ON A PRINCIPAL MARKET).  THE COMPANY SHALL
NOT HAVE RECEIVED ANY NOTICE THREATENING THE CONTINUED LISTING OF THE COMMON
STOCK ON THE OTCBB (IF THE COMMON STOCK IS TRADED ON THE OTCBB).

 

(G)                                 MAXIMUM ADVANCE AMOUNT.  THE AMOUNT OF AN
ADVANCE REQUESTED BY THE COMPANY SHALL NOT EXCEED THE MAXIMUM ADVANCE AMOUNT. 
IN ADDITION, IN NO EVENT SHALL THE NUMBER OF SHARES ISSUABLE TO THE INVESTOR
PURSUANT TO AN ADVANCE CAUSE THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK
BENEFICIALLY OWNED BY THE INVESTOR AND ITS AFFILIATES TO EXCEED NINE AND 9/10
PERCENT (9.9%) OF THE THEN OUTSTANDING COMMON STOCK OF THE COMPANY.  FOR THE
PURPOSES OF THIS SECTION BENEFICIAL OWNERSHIP SHALL BE CALCULATED IN ACCORDANCE
WITH SECTION 13(D) OF THE EXCHANGE ACT.

 

(H)                                 NO KNOWLEDGE.  THE COMPANY HAS NO KNOWLEDGE
OF ANY EVENT WHICH WOULD BE MORE LIKELY THAN NOT TO HAVE THE EFFECT OF CAUSING
SUCH REGISTRATION STATEMENT TO BE SUSPENDED OR OTHERWISE INEFFECTIVE.

 

(I)                                     OTHER.  ON EACH CONDITION SATISFACTION
DATE, THE INVESTOR SHALL HAVE RECEIVED THE CERTIFICATE EXECUTED BY AN OFFICER OF
THE COMPANY IN THE FORM OF EXHIBIT A ATTACHED HERETO.

 

ARTICLE VIII.
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION

 

SECTION 8.1.                                   DUE DILIGENCE REVIEW.  PRIOR TO
THE FILING OF THE REGISTRATION STATEMENT THE COMPANY SHALL MAKE AVAILABLE FOR
INSPECTION AND REVIEW BY THE INVESTOR, ITS ADVISORS AND REPRESENTATIVES, AND ANY
UNDERWRITER PARTICIPATING IN ANY DISPOSITION OF THE REGISTRABLE SECURITIES ON
BEHALF OF THE INVESTOR PURSUANT TO THE REGISTRATION STATEMENT, ANY SUCH
REGISTRATION STATEMENT OR AMENDMENT OR SUPPLEMENT THERETO OR ANY BLUE SKY, NASD
OR OTHER FILING, ALL FINANCIAL AND OTHER RECORDS, ALL SEC DOCUMENTS AND OTHER
FILINGS WITH THE SEC, AND ALL OTHER CORPORATE DOCUMENTS AND PROPERTIES OF THE
COMPANY AS MAY BE REASONABLY NECESSARY FOR THE PURPOSE OF SUCH REVIEW, AND CAUSE
THE COMPANY’S OFFICERS, DIRECTORS AND EMPLOYEES TO SUPPLY ALL SUCH INFORMATION
REASONABLY REQUESTED BY THE INVESTOR OR ANY SUCH REPRESENTATIVE, ADVISOR OR

 

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UNDERWRITER IN CONNECTION WITH SUCH REGISTRATION STATEMENT (INCLUDING, WITHOUT
LIMITATION, IN RESPONSE TO ALL QUESTIONS AND OTHER INQUIRIES REASONABLY MADE OR
SUBMITTED BY ANY OF THEM), PRIOR TO AND FROM TIME TO TIME AFTER THE FILING AND
EFFECTIVENESS OF THE REGISTRATION STATEMENT FOR THE SOLE PURPOSE OF ENABLING THE
INVESTOR AND SUCH REPRESENTATIVES, ADVISORS AND UNDERWRITERS AND THEIR
RESPECTIVE ACCOUNTANTS AND ATTORNEYS TO CONDUCT INITIAL AND ONGOING DUE
DILIGENCE WITH RESPECT TO THE COMPANY AND THE ACCURACY OF THE REGISTRATION
STATEMENT.

 

SECTION 8.2.                                   NON-DISCLOSURE OF NON-PUBLIC
INFORMATION.

 

(A)                                  THE COMPANY SHALL NOT DISCLOSE NON-PUBLIC
INFORMATION TO THE INVESTOR, ITS ADVISORS, OR ITS REPRESENTATIVES, UNLESS PRIOR
TO DISCLOSURE OF SUCH INFORMATION THE COMPANY IDENTIFIES SUCH INFORMATION AS
BEING NON-PUBLIC INFORMATION AND PROVIDES THE INVESTOR, SUCH ADVISORS AND
REPRESENTATIVES WITH THE OPPORTUNITY TO ACCEPT OR REFUSE TO ACCEPT SUCH
NON-PUBLIC INFORMATION FOR REVIEW.  THE COMPANY MAY, AS A CONDITION TO
DISCLOSING ANY NON-PUBLIC INFORMATION HEREUNDER, REQUIRE THE INVESTOR’S ADVISORS
AND REPRESENTATIVES TO ENTER INTO A CONFIDENTIALITY AGREEMENT IN FORM REASONABLY
SATISFACTORY TO THE COMPANY AND THE INVESTOR.

 

(B)                                 NOTHING HEREIN SHALL REQUIRE THE COMPANY TO
DISCLOSE NON-PUBLIC INFORMATION TO THE INVESTOR OR ITS ADVISORS OR
REPRESENTATIVES, AND THE COMPANY REPRESENTS THAT IT DOES NOT DISSEMINATE
NON-PUBLIC INFORMATION TO ANY INVESTORS WHO PURCHASE STOCK IN THE COMPANY IN A
PUBLIC OFFERING, TO MONEY MANAGERS OR TO SECURITIES ANALYSTS, PROVIDED, HOWEVER,
THAT NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE COMPANY WILL, AS
HEREINABOVE PROVIDED, IMMEDIATELY NOTIFY THE ADVISORS AND REPRESENTATIVES OF THE
INVESTOR AND, IF ANY, UNDERWRITERS, OF ANY EVENT OR THE EXISTENCE OF ANY
CIRCUMSTANCE (WITHOUT ANY OBLIGATION TO DISCLOSE THE SPECIFIC EVENT OR
CIRCUMSTANCE) OF WHICH IT BECOMES AWARE, CONSTITUTING NON-PUBLIC INFORMATION
(WHETHER OR NOT REQUESTED OF THE COMPANY SPECIFICALLY OR GENERALLY DURING THE
COURSE OF DUE DILIGENCE BY SUCH PERSONS OR ENTITIES), WHICH, IF NOT DISCLOSED IN
THE PROSPECTUS INCLUDED IN THE REGISTRATION STATEMENT WOULD CAUSE SUCH
PROSPECTUS TO INCLUDE A MATERIAL MISSTATEMENT OR TO OMIT A MATERIAL FACT
REQUIRED TO BE STATED THEREIN IN ORDER TO MAKE THE STATEMENTS, THEREIN, IN LIGHT
OF THE CIRCUMSTANCES IN WHICH THEY WERE MADE, NOT MISLEADING.  NOTHING CONTAINED
IN THIS SECTION 8.2 SHALL BE CONSTRUED TO MEAN THAT SUCH PERSONS OR ENTITIES
OTHER THAN THE INVESTOR (WITHOUT THE WRITTEN CONSENT OF THE INVESTOR PRIOR TO
DISCLOSURE OF SUCH INFORMATION) MAY NOT OBTAIN NON-PUBLIC INFORMATION IN THE
COURSE OF CONDUCTING DUE DILIGENCE IN ACCORDANCE WITH THE TERMS OF THIS
AGREEMENT AND NOTHING HEREIN SHALL PREVENT ANY SUCH PERSONS OR ENTITIES FROM
NOTIFYING THE COMPANY OF THEIR OPINION THAT BASED ON SUCH DUE DILIGENCE BY SUCH
PERSONS OR ENTITIES, THAT THE REGISTRATION STATEMENT CONTAINS AN UNTRUE
STATEMENT OF MATERIAL FACT OR OMITS A MATERIAL FACT REQUIRED TO BE STATED IN THE
REGISTRATION STATEMENT OR NECESSARY TO MAKE THE STATEMENTS CONTAINED THEREIN, IN
LIGHT OF THE CIRCUMSTANCES IN WHICH THEY WERE MADE, NOT MISLEADING.

 

ARTICLE IX.
CHOICE OF LAW/JURISDICTION

 

SECTION 9.1.                                   GOVERNING LAW.  THIS AGREEMENT
SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW JERSEY WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.  THE PARTIES
FURTHER AGREE THAT ANY ACTION BETWEEN THEM SHALL BE HEARD IN HUDSON COUNTY, NEW
JERSEY, AND EXPRESSLY CONSENT TO THE JURISDICTION AND VENUE OF THE SUPERIOR
COURT OF NEW JERSEY, SITTING IN HUDSON COUNTY, NEW JERSEY AND THE UNITED STATES
DISTRICT COURT OF NEW

 

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JERSEY, SITTING IN NEWARK, NEW JERSEY, FOR THE ADJUDICATION OF ANY CIVIL ACTION
ASSERTED PURSUANT TO THIS PARAGRAPH.

 

ARTICLE X.
ASSIGNMENT; TERMINATION

 

SECTION 10.1.                             ASSIGNMENT.  NEITHER THIS AGREEMENT
NOR ANY RIGHTS OF THE COMPANY HEREUNDER MAY BE ASSIGNED TO ANY OTHER PERSON.

 

SECTION 10.2.                             TERMINATION.

 

(A)                                  THE OBLIGATIONS OF THE INVESTOR TO MAKE
ADVANCES UNDER ARTICLE II HEREOF SHALL TERMINATE TWENTY-FOUR (24) MONTHS AFTER
THE EFFECTIVE DATE.

 

(B)                                 THE COMPANY MAY TERMINATE THIS AGREEMENT
UPON FIFTEEN (15) DAYS WRITTEN NOTICE TO THE INVESTOR PROVIDED THAT (I) THERE
ARE NO ADVANCES OUTSTANDING, AND (II) THE COMPANY HAS PAID ALL AMOUNTS OWED TO
THE INVESTOR PURSUANT TO THIS AGREEMENT OR ANY OTHER AGREEMENTS BETWEEN THE
COMPANY AND THE INVESTOR.  ANY TERMINATION OF THIS AGREEMENT PURSUANT TO THIS
SECTION 10.2 (B) SHALL NOT TERMINATE THE REGISTRATION RIGHTS AGREEMENT UNLESS
THE INVESTOR HAS DISPOSED OF ALL THE INVESTOR SHARES (AS DEFINED BELOW) AND ALL
SHARES ISSUED TO THE INVESTOR PURSUANT TO ADVANCES, OR ALL SUCH SHARES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144(K).

 

RTICLE XI.
NOTICES

 

SECTION 11.1.                             NOTICES.  ANY NOTICES, CONSENTS,
WAIVERS, OR OTHER COMMUNICATIONS REQUIRED OR PERMITTED TO BE GIVEN UNDER THE
TERMS OF THIS AGREEMENT MUST BE IN WRITING AND WILL BE DEEMED TO HAVE BEEN
DELIVERED (I) UPON RECEIPT, WHEN DELIVERED PERSONALLY; (II) UPON RECEIPT, WHEN
SENT BY FACSIMILE, PROVIDED A COPY IS MAILED BY U.S. CERTIFIED MAIL, RETURN
RECEIPT REQUESTED; (III) THREE (3) DAYS AFTER BEING SENT BY U.S. CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, OR (IV) ONE (1) DAY AFTER DEPOSIT WITH A NATIONALLY
RECOGNIZED OVERNIGHT DELIVERY SERVICE, IN EACH CASE PROPERLY ADDRESSED TO THE
PARTY TO RECEIVE THE SAME.  THE ADDRESSES AND FACSIMILE NUMBERS FOR SUCH
COMMUNICATIONS SHALL BE:

 

If to the Company, to:

Spherix Incorporated

 

12051 Indian Creek Court

 

Beltsville, Maryland 20705

 

Attention:

President

 

Telephone:

(301) 419-3900

 

Facsimile:

(301) 210-4908

 

 

With a copy to:

James E. Baker, Jr., Esq.

 

Baxter, Baker, Sidle, Conn & Jones, P.A.

 

120 E. Baltimore Street, Suite 2100

 

Baltimore, MD 21202

 

Facsimile:

(410) 230-3801

 

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If to the Investor(s):

Cornell Capital Partners, LP

 

101 Hudson Street –Suite 3700

 

Jersey City, NJ 07302

 

Attention:

Mark Angelo

 

 

Portfolio Manager

 

Telephone:

(201) 985-8300

 

Facsimile:

(201) 985-8266

 

 

With a Copy to:

Troy Rillo, Esq.

 

101 Hudson Street – Suite 3700

 

Jersey City, NJ 07302

 

Telephone:

(201) 985-8300

 

Facsimile:

(201) 985-8266

 

Each party shall provide five (5) days’ prior written notice to the other party
of any change in address or facsimile number.

 

ARTICLE XII.
MISCELLANEOUS

 

SECTION 12.1.                             COUNTERPARTS.  THIS AGREEMENT MAY BE
EXECUTED IN TWO OR MORE IDENTICAL COUNTERPARTS, ALL OF WHICH 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.  IN THE EVENT ANY
SIGNATURE PAGE IS DELIVERED BY FACSIMILE TRANSMISSION, THE PARTY USING SUCH
MEANS OF DELIVERY SHALL CAUSE FOUR (4) ADDITIONAL ORIGINAL EXECUTED SIGNATURE
PAGES TO BE PHYSICALLY DELIVERED TO THE OTHER PARTY WITHIN FIVE (5) DAYS OF THE
EXECUTION AND DELIVERY HEREOF, THOUGH FAILURE TO DELIVER SUCH COPIES SHALL NOT
AFFECT THE VALIDITY OF THIS AGREEMENT.

 

SECTION 12.2.                             ENTIRE AGREEMENT; AMENDMENTS.  THIS
AGREEMENT SUPERSEDES ALL OTHER PRIOR ORAL OR WRITTEN AGREEMENTS BETWEEN THE
INVESTOR, THE COMPANY, THEIR AFFILIATES AND PERSONS ACTING ON THEIR BEHALF WITH
RESPECT TO THE MATTERS DISCUSSED HEREIN, AND THIS AGREEMENT AND THE INSTRUMENTS
REFERENCED HEREIN CONTAIN THE ENTIRE UNDERSTANDING OF THE PARTIES WITH RESPECT
TO THE MATTERS COVERED HEREIN AND THEREIN AND, EXCEPT AS SPECIFICALLY SET FORTH
HEREIN OR THEREIN, NEITHER THE COMPANY NOR THE INVESTOR MAKES ANY
REPRESENTATION, WARRANTY, COVENANT OR UNDERTAKING WITH RESPECT TO SUCH MATTERS. 
NO PROVISION OF THIS AGREEMENT MAY BE WAIVED OR AMENDED OTHER THAN BY AN
INSTRUMENT IN WRITING SIGNED BY THE PARTY TO BE CHARGED WITH ENFORCEMENT.

 

SECTION 12.3.                             REPORTING ENTITY FOR THE COMMON
STOCK.  THE REPORTING ENTITY RELIED UPON FOR THE DETERMINATION OF THE TRADING
PRICE OR TRADING VOLUME OF THE COMMON STOCK ON ANY GIVEN TRADING DAY FOR THE
PURPOSES OF THIS AGREEMENT SHALL BE BLOOMBERG, L.P. OR ANY SUCCESSOR THERETO. 
THE WRITTEN MUTUAL CONSENT OF THE INVESTOR AND THE COMPANY SHALL BE REQUIRED TO
EMPLOY ANY OTHER REPORTING ENTITY.

 

SECTION 12.4.                             FEES AND EXPENSES.  THE COMPANY HEREBY
AGREES TO PAY THE FOLLOWING FEES:

 

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(A)                                  STRUCTURING FEES.  EACH OF THE PARTIES
SHALL PAY ITS OWN FEES AND EXPENSES (INCLUDING THE FEES OF ANY ATTORNEYS,
ACCOUNTANTS, APPRAISERS OR OTHERS ENGAGED BY SUCH PARTY) IN CONNECTION WITH THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY, EXCEPT THAT THE COMPANY WILL
PAY A STRUCTURING FEE OF FIFTEEN THOUSAND DOLLARS ($15,000) TO YORKVILLE
ADVISORS MANAGEMENT, LLC, WHICH SHALL BE PAID ON THE DATE HEREOF.  SUBSEQUENTLY
ON EACH ADVANCE DATE, THE COMPANY WILL PAY YORKVILLE ADVISORS MANAGEMENT, LLC A
STRUCTURING FEE OF FIVE HUNDRED DOLLARS ($500) DIRECTLY OUT THE PROCEEDS OF ANY
ADVANCES HEREUNDER.

 

(B)                                 DUE DILIGENCE FEE. COMPANY SHALL PAY THE
INVESTOR A NON-REFUNDABLE DUE DILIGENCE FEE OF FIVE THOUSAND DOLLARS ($5,000)
WHICH WAS PAID UPON SUBMISSION OF THE DUE DILIGENCE DOCUMENTS TO THE INVESTOR.

 

(C)                                  COMMITMENT FEES.

 

(i)                                     On each Advance Date the Company shall
pay to the Investor, directly from the gross proceeds held in escrow, an amount
equal to five percent (5%) of the amount of each Advance.  The Company hereby
agrees that if such payment, as is described above, is not made by the Company
on the Advance Date, such payment will be made at the direction of the Investor
as outlined and mandated by Section 2.3 of this Agreement.

 

(ii)                                  Upon the execution of this Agreement the
Company shall issue to the Investor shares of the Company’s Common Stock in an
amount equal to One Hundred Ninety Thousand Dollars ($190,000) divided by by Two
Dollars ($2) per share (the agreed upon market value of the Common Stock on the
date hereof) (the “Investor’s Shares”).

 

(iii)                               Fully Earned.  The Investor’s Shares shall
be deemed fully earned as of the date hereof.

 

(iv)                              Registration Rights.  The Investor’s Shares
will have “piggy-back” registration rights.

 

SECTION 12.5.                             BROKERAGE.  EACH OF THE PARTIES HERETO
REPRESENTS THAT IT HAS HAD NO DEALINGS IN CONNECTION WITH THIS TRANSACTION WITH
ANY FINDER OR BROKER WHO WILL DEMAND PAYMENT OF ANY FEE OR COMMISSION FROM THE
OTHER PARTY.  THE COMPANY ON THE ONE HAND, AND THE INVESTOR, ON THE OTHER HAND,
AGREE TO INDEMNIFY THE OTHER AGAINST AND HOLD THE OTHER HARMLESS FROM ANY AND
ALL LIABILITIES TO ANY PERSON CLAIMING BROKERAGE COMMISSIONS OR FINDER’S FEES ON
ACCOUNT OF SERVICES PURPORTED TO HAVE BEEN RENDERED ON BEHALF OF THE
INDEMNIFYING PARTY IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

 

SECTION 12.6.                             CONFIDENTIALITY.  IF FOR ANY REASON
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT ARE NOT CONSUMMATED, EACH OF THE
PARTIES HERETO SHALL KEEP CONFIDENTIAL ANY INFORMATION OBTAINED FROM ANY OTHER
PARTY (EXCEPT INFORMATION PUBLICLY AVAILABLE OR IN SUCH PARTY’S DOMAIN PRIOR TO
THE DATE HEREOF, AND EXCEPT AS REQUIRED BY COURT ORDER) AND SHALL PROMPTLY
RETURN TO THE OTHER PARTIES ALL SCHEDULES, DOCUMENTS, INSTRUMENTS, WORK PAPERS
OR OTHER WRITTEN INFORMATION WITHOUT RETAINING COPIES THEREOF, PREVIOUSLY
FURNISHED BY IT AS A RESULT OF THIS AGREEMENT OR IN CONNECTION HEREIN.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Standby Equity
Distribution Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.

 

 

COMPANY:

 

SPHERIX INCORPORATED

 

 

 

By:

 

 

 

Name:

Richard C. Levin

 

Title:

President

 

 

 

 

 

INVESTOR:

 

CORNELL CAPITAL PARTNERS, LP

 

 

 

By:

Yorkville Advisors, LLC

 

Its:

General Partner

 

 

 

By:

 

 

 

Name:

Mark Angelo

 

Title:

Portfolio Manager

 

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EXHIBIT A

 

ADVANCE NOTICE/COMPLIANCE CERTIFICATE

 

SPHERIX INCORPORATED

 

The undersigned,                                       hereby certifies, with
respect to the sale of shares of Common Stock of SPHERIX INCORPORATED (the
“Company”), issuable in connection with this Advance Notice and Compliance
Certificate dated                        (the “Notice”), delivered pursuant to
the Standby Equity Distribution Agreement (the “Agreement”), as follows:

 

1.                                       The undersigned is the duly elected
                       of the Company.

 

2.                                       There are no fundamental changes to the
information set forth in the Registration Statement which would require the
Company to file a post effective amendment to the Registration Statement.

 

3.                                       The Company has performed in all
material respects all covenants and agreements to be performed by the Company on
or prior to the Advance Date related to the Notice and has complied in all
material respects with all obligations and conditions contained in the
Agreement.

 

4.                                       The undersigned hereby represents,
warrants and covenants that it has made all filings (“SEC Filings”) required to
be made by it pursuant to applicable securities laws (including, without
limitation, all filings required under the Securities Exchange Act of 1934,
which include Forms 10-Q, 10-K, 8-K, etc.  All SEC Filings and other public
disclosures made by the Company, including, without limitation, all press
releases, analysts meetings and calls, etc. (collectively, the “Public
Disclosures”), have been reviewed and approved for release by the Company’s
attorneys and, if containing financial information, the Company’s independent
certified public accountants.  None of the Company’s Public Disclosures contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.

 

5.                                       The Advance requested is
                                           .

 

The undersigned has executed this Certificate this           day of
                                       .

 

 

SPHERIX INCORPORATED

 

 

 

 

 

By:

 

 

 

Name:

 

Title:

 

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SCHEDULE 2.6

 

SPHERIX INCORPORATED

 

The undersigned hereby agrees that for a period commencing on July      , 2005
and expiring on the termination of the Standby Equity Distribution Agreement
dated July       , 2005 between the Company and the Investor (the “Lock-up
Period”), he, she or it will not, directly or indirectly, without the prior
written consent of the Investor, issue, offer, agree or offer to sell, sell,
grant an option for the purchase or sale of, transfer, pledge, assign,
hypothecate, distribute or otherwise encumber or dispose of any securities of
the Company, including common stock or options, rights, warrants or other
securities underlying, convertible into, exchangeable or exercisable for or
evidencing any right to purchase or subscribe for any common stock (whether or
not beneficially owned by the undersigned), or any beneficial interest therein
(collectively, the “Securities”) except in accordance with the volume
limitations set forth in Rule 144(e) of the General Rules and Regulations under
the Securities Act of 1933, as amended, and except for planned sales pursuant to
a plan in effect prior to the date hereof made in accordance with Rule 10b5-1 of
the Securities Exchange Act of 1934, as amended.

 

In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Company’s securities with respect to any of the Securities
registered in the name of the undersigned or beneficially owned by the
undersigned, and the undersigned hereby confirms the undersigned’s investment in
the Company.

 

Dated:

 

, 2005

 

 

 

 

Signature

 

 

 

 

 

Name:

 

 

Address:

 

 

City, State, Zip Code:

 

 

 

 

 

 

Print Social Security Number
or Taxpayer I.D. Number

 

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