STANDBY EQUITY DISTRIBUTION AGREEMENT

 

 

 

 

 

 

 

 

 

 

                     STANDBY EQUITY DISTRIBUTION AGREEMENT

 

      THIS   AGREEMENT   dated   as   of the 17th day of May 2005 (the "Agreement")

between   CORNELL CAPITAL PARTNERS, LP,   a   Delaware   limited   partnership   (the

"Investor"),   and   TRANSAX   INTERNATIONAL,   LTD.,   a   corporation organized and

existing under the laws of the State of Colorado (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 Five Million U.S. Dollars ($5,000,000)   of   the   Company's common

stock, par value $0.00001 per share (the "Common Stock");

 

      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; and

 

      WHEREAS,   the   Company   has engaged Monitor Capital, Inc. (the "Placement

Agent"), to act as the Company's   exclusive   placement agent in connection with

the sale of the Company's 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   David Gonzalez PC Escrow

Account is in receipt of the funds from the Investor and   David Gonzalez PC, as

the   Investor's   Counsel,   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 PC 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 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

Five Million U.S. Dollars ($5,000,000) which the Investor has agreed to provide

to the Company in order to purchase the Company's   Common Stock pursuant to the

terms and conditions of this Agreement.

 

      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 Five Million

U.S. Dollars ($5,000,000), (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 $0.00001 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 PC, 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.

 

      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 Two Hundred Fifty Thousand

U.S. Dollars (US$250,000) per Advance Notice,   provided that aggregate Advances

in   any   thirty   (30)   day   period   shall   not   exceed   One    Million    Dollars

($1,000,000).

 

      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   Monitor   Capital,   Inc.,   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 or

the New York Stock Exchange, 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 seven   percent   (97%)

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-1 or SB-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.

 

      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-KSB,

Quarterly   Reports   on   Form 10-QSB, 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

Company's 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.

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 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.

 

            (c)    Pre-Closing Share Credit.   Within two (2) business days after

the   Advance   Notice   Date,   the   Company   shall credit shares of the Company's

Common Stock to the Investor's counsel's balance   account   with   The Depository

Trust Company through its Deposit Withdrawal At Custodian system,   in an amount

equal to the amount of the requested Advance divided by the closing   Bid   Price

of   the   Company's Common Stock as of the Advance Notice Date multiplied by one

point one   (1.1).    Any   adjustments to the number of shares to be delivered to

the Investor at the Closing   as   a   result   of   fluctuations in the closing Bid

Price   of   the Company's Common Stock shall be made   as   of   the   date   of   the

Closing.   Any excess shares shall be credited to the next Advance.   In no event

shall the number   of   shares   issuable   to   the Investor pursuant to an Advance

cause the Investor to own in excess of nine and 9/10 percent (9.9%) of the then

outstanding Common Stock of the Company.

 

            (d)    Hardship.    In the event the   Investor   sells   the   Company's

Common Stock pursuant to subsection   (c) above and the Company fails to perform

its obligations as mandated in Section   2.5 and 2.2 (c), and specifically fails

to provide the Investor with the shares of   Common   Stock   for   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.

 

      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 the Investor's Counsel,   as   defined

pursuant to   the   Escrow   Agreement,   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 David   Gonzalez PC (the "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,   Kirkpatrick &   Lockhart Nicholson   Graham   LLP,   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, and (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.

 

            (a)    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:

 

                  (i)    the   execution   and   delivery   by   the Company, and the

Investor, of this Agreement and the Exhibits hereto;

 

                  (ii)   Investor's Counsel shall have received   the   shares   of

Common   Stock   applicable   to   the   Advance   in   accordance with Section 2.2(c)

hereof;

 

                  (iii) 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;

 

                  (iv)   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;

 

                  (v)    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;

 

                  (vi)   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

 

                  (vii) the conditions set forth in Section 7.2 shall have been

satisfied.

 

                  (viii)the   Company shall have provided   to   the   Investor   an

acknowledgement, from Moores Stephens   P.C,   as   to   its ability to provide all

consents required in order to file a registration statement   in connection with

this transaction;

 

                  (ix)   The Company's transfer agent shall be DWAC eligible.

 

      Section 2.6 Lock Up Period.

 

                  (i)    During   the   Commitment Period, the Company   shall   not

issue or sell (i) any Common Stock or   Preferred Stock without consideration or

for a consideration per share less than   the   Bid Price on the date of issuance

or   (ii) issue or sell any 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 the Bid

Price on the date of issuance.

 

                  (ii)   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.

 

 

                                  ARTICLE III.

 

 

                  REPRESENTATIONS AND WARRANTIES OF INVESTOR

 

      Investor hereby represents and warrants to, and   agrees with, the Company

that the following are true and 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 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,   for   investment   and without any view to the

distribution, assignment or resale to others or fractionalization   in   whole or

in   part.    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-KSB for the year ended December 31, 2003

and Form 10-QSB for the period   ended   September   30, 2004; 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.

 

      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 3.10Not   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 3.11Trading 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, and the Investor agrees that

it will 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   is   permitted 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   power   and   authority

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   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 100,000,000 shares   of   Common   Stock,

par   value $0.00001 per share and 20,000,000 shares of Preferred Stock of which

28,987,210   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).   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