STANDBY EQUITY DISTRIBUTION AGREEMENT

 

 

                      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 THE CERTO GROUP,   INC., a   corporation   organized and existing

under the laws of the State of Delware (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 Twenty   Million   Dollars   ($20,000,000)   of the   Company's   common

stock, no par value (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   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 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.

 

 

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     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

Twenty Million Dollars ($20,000,000) 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 Twenty Million

Dollars   ($20,000,000),   (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, no par

value.

 

     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.

 

     Section 1.16. "Market Price" shall mean the lowest VWAP of the Common Stock

during the Pricing Period.

 

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     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   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 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-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.

 

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     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.

 

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     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;

 

          (b)   The   Company's   Common   Stock   shall   have   been   authorized   for

quotation on the Principal Market.

 

          (c) 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.

 

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          (d) 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;

 

          (e)   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 there from.

The sale and issuance of the Registrable   Securities shall be legally   permitted

by all laws and regulations to which the Company is subject;

 

          (f) 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;

 

          (g) 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

 

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

 

          (i) the Company shall have provided to the Investor an acknowledgement

from its certified public   accountants as to its ability to provide all consents

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

transaction;

 

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

 

     Section 2.6.    Lock Up Period.

                    ---------------

 

          (a) On the date hereof, the Company shall obtain from each officer and

director a lockup agreement in the form annexed hereto as Schedule 2.6(a).

 

          (b) In the event that the Company consummates a merger with a publicly

traded   entity,   the Company   shall obtain from each officer and director of the

surviving   entity a lockup   agreement   in the form   annexed   hereto as   Schedule

2.6(b).

 

 

                                  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

 

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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 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   has

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.

 

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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.

 

     Section 3.12. 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.

 

 

                                    ARTICLE IV.

                  Representations and Warranties of the Company

 

     Except as stated below,   on the   disclosure   schedules   attached   hereto as

Exhibit B ("Disclosure   Schedule"),   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

 

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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,   no par value and

zero shares of   Preferred   Stock of which 100 shares of Common   Stock are 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 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.

 

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     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   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 Disclosure Schedule, 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.   Financial   Statements.   As of their   respective   dates,   the

financial   statements of the Company (the   "Financial   Statements")   for the two

most recently   completed fiscal years and any subsequent interim period 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   contains any untrue   statement of