OR CONDITION (FINANCIAL OR
OTHERWISE) OF THE COMPANY AND THE SUBSIDIARIES, TAKEN AS A WHOLE, OR (III) A
MATERIAL ADVERSE EFFECT ON THE COMPANY'S ABILITY TO PERFORM IN ANY MATERIAL
RESPECT ON A TIMELY BASIS ITS OBLIGATIONS UNDER ANY TRANSACTION DOCUMENT (ANY OF
(I), (II) OR (III), A "MATERIAL ADVERSE EFFECT") AND NO PROCEEDING HAS BEEN
INSTITUTED IN ANY SUCH JURISDICTION REVOKING, LIMITING OR CURTAILING OR SEEKING
TO REVOKE, LIMIT OR CURTAIL SUCH POWER AND AUTHORITY OR QUALIFICATION.
(C)
AUTHORIZATION, ENFORCEMENT, COMPLIANCE WITH OTHER INSTRUMENTS.
(I) THE COMPANY HAS THE REQUISITE CORPORATE POWER AND AUTHORITY TO ENTER INTO
AND PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT, THE CONVERTIBLE DEBENTURES,
THE WARRANTS, , THE REGISTRATION RIGHTS AGREEMENT, THE IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS, AND EACH OF THE OTHER AGREEMENTS
6
ENTERED INTO BY THE PARTIES HERETO IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT (COLLECTIVELY THE "TRANSACTION DOCUMENTS") AND TO
ISSUE THE SECURITIES IN ACCORDANCE WITH THE TERMS HEREOF AND THEREOF, (II) THE
EXECUTION AND DELIVERY OF THE TRANSACTION DOCUMENTS BY THE COMPANY AND THE
CONSUMMATION BY IT OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY,
INCLUDING, WITHOUT LIMITATION, THE ISSUANCE OF THE SECURITIES, THE RESERVATION
FOR ISSUANCE AND THE ISSUANCE OF THE CONVERSION SHARES, AND THE RESERVATION FOR
ISSUANCE AND THE ISSUANCE OF THE WARRANT SHARES, 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) THE
TRANSACTION DOCUMENTS HAVE BEEN DULY EXECUTED AND DELIVERED BY THE COMPANY, (IV)
THE TRANSACTION DOCUMENTS 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.
THE AUTHORIZED OFFICER OF THE COMPANY EXECUTING THE
TRANSACTION DOCUMENTS KNOWS OF NO REASON WHY THE COMPANY CANNOT FILE THE
REGISTRATION STATEMENT AS REQUIRED UNDER THE REGISTRATION RIGHTS AGREEMENT OR
PERFORM ANY OF THE COMPANY'S OTHER OBLIGATIONS UNDER THE TRANSACTION DOCUMENTS.
(D)
CAPITALIZATION.
THE AUTHORIZED CAPITAL STOCK OF THE COMPANY
CONSISTS OF 175,000,000 SHARES OF COMMON STOCK AND 7,650,000 SHARES OF PREFERRED
STOCK, NO PAR VALUE
("PREFERRED STOCK") OF WHICH 12,189,405 SHARES OF COMMON
STOCK AND ZERO SHARES OF PREFERRED STOCK ARE ISSUED AND OUTSTANDING AS OF MARCH
31, 2007, WHICH AMOUNT DOES NOT INCLUDE 250,000 SHARES ISSUABLE TO JAMES E.
ALEXANDER AND 200,000 SHARES ISSUABLE TO BORIS RUBIZHEVSKY AS A RESULT OF
SETTLEMENT AGREEMENTS THEY ENTERED INTO WITH THE COMPANY.
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.
EXCEPT AS DISCLOSED IN SCHEDULE 3(D): (I) NONE OF THE
COMPANY'S CAPITAL STOCK IS