STANDBY EQUITY DISTRIBUTION AGREEMENT

 

 

 

                                                                   EXHIBIT 10.2

 

                      STANDBY EQUITY DISTRIBUTION AGREEMENT

                      -------------------------------------

 

         THIS AGREEMENT dated as of the 28th day of April 2005 (the "AGREEMENT")

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

"INVESTOR"),   and VALENTEC SYSTEMS,   INC., 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 Fifteen   Million   Dollars   ($15,000,000)   of the Company's   common

stock, par value $0.01 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 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 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

 

 

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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   Fifteen   Million   Dollars   ($15,000,000)   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 Fifteen

Million   Dollars   ($15,000,000),   (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 $0.01 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 Five Hundred Thousand

Dollars ($500,000) 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

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 eight   percent

(98%) of the Market Price during the Pricing Period.

 

         Section 1.24. "REGISTRABLE   SECURITIES" shall mean the shares of Common

Stock to be issued   hereunder,   including 10% of the Common Stock of the Company

held by Armament   Systems   International,   Inc. and the Warrant   Shares (as such

term is defined in the   Warrant   issued by the   Company to the   Investor of even

date herewith) (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

 

 

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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.   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

 

 

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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 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,   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. 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;

 

 

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                 (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;

 

                 (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   shall   have   provided   to   the   Investor   an

acknowledgement,   from Heard, McElroy & Vestal, LLP as to its ability to provide

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

with this transaction;

 

                 (i) 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 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

 

 

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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

 

 

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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; and

(iii) 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   3.10.   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. PUBLIC COMPANY.   No Investor makes any   representation or

warranty regarding the Company's ability to successfully become a public company

or to have any   registration   statement   filed by the   Company   pursuant   to the

Registration   Rights Agreement or otherwise   declared   effective by the SEC. The

Company   has the sole   obligation   to make any and all   such   filings   as may be

necessary   to become a public   company   and to have any   registration   statement

declared effective by the SEC.

 

         Section 3.12. The Company   acknowledges that the Investor is relying on

the   representations   and warranties made by the Company hereunder and that such

representations   and   warranties   are a   material   inducement   to   the   Investor

purchasing the Convertible   Debentures.   The Company further   acknowledges   that

without such   representations and warranties of the Company made hereunder,   the

Investor would not enter into this Agreement.

 

                                    ARTICLE IV.

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

         Except as stated below,   on the Disclosure   Schedules (the   "DISCLOSURE

SCHEDULE")   attached   hereto as Exhibit "B," the Company   hereby   represents and

warrants to, and   covenants   with,   the Investor that the following are true and

correct as of the date hereof:

 

 

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         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 shares of Common Stock,   par value

$0.01 per share and no shares of   Preferred   Stock of which 100 shares of Common

Stockare   issued   and   outstanding.   All of such   outstanding   shares   have been

validly issued and are fully paid and nonassessable.   Except as disclosed in the

Disclosure Schedule,   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 Disclosure Schedule,   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   Section   1.24   above   and   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

 

 

                                       9

<PAGE>

 

 

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 any of its  <