STANDBY EQUITY DISTRIBUTION AGREEMENT

 

                      STANDBY EQUITY DISTRIBUTION AGREEMENT

 

      AGREEMENT dated as of the 19th day of April 2004 (the "Agreement") between

CORNELL CAPITAL PARTNERS,   LP, a Delaware limited   partnership (the "Investor"),

and ATC HEALTHCARE,   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 Five Million Dollars   ($5,000,000) of the Company's Class A common

stock, $.01 par value 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 Arthurs   Lestrange & Company,   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 Butler Gonzalez LLP Escrow

Account is in receipt of the funds from the Investor and Butler Gonzalez LLP, as

the Escrow Agent,   is in possession of free trading   shares of Common Stock from

the Company and   therefore an Advance by the Investor to the Company can be made

and Butler Gonzalez LLP can release the free trading shares to the Investor.   No

Advance   Date shall be less than six (6)   Trading   Days after an Advance   Notice

Date.

 

       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 seven (7) 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

Five Million   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

Dollars   ($5,000,000),   (y) the date this   Agreement is   terminated   pursuant to

Section   2.5,   or (z) the date   occurring   twenty-four   (24)   months   after   the

Effective Date.

 

      Section 1.9. "Common Stock" shall mean the Company's Class A common stock,

$.01 oar value 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 Butler Gonzalez LLP 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   Closing Bid Price of

the Company's Common Stock during the Pricing Period.

 

      Section   1.17.   "Maximum   Advance   Amount"   shall be Fifty Three   Thousand

Dollars ($53,000) per Advance Notice up to a maximum of Two Hundred Ten Thousand

Dollars ($210,000), in the aggregate, in any thirty-day (30) calendar period.

 

      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 Arthurs   Lestrange & Company,   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   there under 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.

 

 

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      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.

 

                                   ARTICLE II.

                                     Advances

 

      Section 2.1. Investments.

 

            (a)   Advances.   Upon the   terms   and   conditions   set   forth   herein

(including,   without   limitation,   the provisions of Article VII hereof), on any

Advance   Notice Date the   Company may request an Advance by the   Investor by the

delivery   of an Advance   Notice.   The number of shares of Common   Stock that the

Investor   shall   receive for each Advance   shall be   determined   by dividing the

amount of the Advance by the   Purchase   Price.   No   fractional   shares   shall be

issued.   Fractional   shares   shall be rounded to the next higher whole number of

shares.   The aggregate maximum amount of all Advances that the Investor shall be

obligated to make under this Agreement shall not exceed the Commitment Amount.

 

      Section 2.2. Mechanics.

 

            (a) Advance Notice.   At any time during the Commitment   Period,   the

Company may deliver an Advance Notice to the Investor, subject to the conditions

set forth in Section   7.2;   provided,   however,   the amount for each   Advance as

designated by the Company in the applicable   Advance   Notice,   shall not be more

than the Maximum Advance Amount.   The aggregate amount of the Advances   pursuant

to   this   Agreement   shall   not   exceed   the   Commitment    Amount.   The   Company

acknowledges   that the   Investor may sell shares of the   Company's   Common Stock

corresponding   with a particular Advance Notice on the day the Advance Notice is

received   by the   Investor.   There will be a minimum of seven (7)   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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            (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 Escrow Agent's   account with The Depository   Trust Company   ("DTC")

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 the event there is no Advance

made within sixty (60) days after the   Closing,   the Company may have the excess

shares   cancelled on the books of the   Company.   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 or prior to each Advance Date,   which shall be

six (6) Trading Days after an Advance Notice Date, (i) the Company shall deliver

to the Escrow Agent in it's account at DTC shares of the Company's Common Stock,

representing   the amount of the Advance by the Investor   pursuant to Section 2.1

herein, registered in accordance with the Escrow Agreement,   provided that under

no circumstances shall the Company have to deliver or credit to the Escrow Agent

more than the total number of shares of Common Stock required to be delivered by

it in respect of the amount of the Advance   requested in the applicable   Advance

Notice,   and (ii) the Investor shall deliver to 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 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 Escrow Agent 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 and the Escrow Agent 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 number of shares of the Company's

Common Stock to be delivered on such Advance Date.

 

 

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      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)   Escrow   Agent 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;

provided   that the Investor   shall provide the Company with a list of the states

in which   qualification   is desired on the date the   Agreement   is   executed   as

provide   in   Schedule   2.5   (iv).   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 SEC in a timely

manner   all   reports,   notices   and other   documents   required   of a   "reporting

company" under the Exchange Act and applicable SEC 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's transfer agent shall be DWAC eligible.

 

 

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      Section 2.6. Lock Up Period.

 

                  (i) During the   Commitment   Period or until this   Agreement is

terminated, whichever occurs first, 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.

 

 

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      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;

(iii) the   Company's   Form 10-KSB or Form 10-K for the year ended   February   28,

2004 and Form 10-Q for the period   ended   November   30, 2003 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 3.10. 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).   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   will sell the   Shares to be issued   to the   Investor   pursuant   to the

Advance Notice, even if the Shares have not been delivered to the Investor.

 

 

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      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 and, except as set forth below,   the

Investor shall not and will cause its affiliates not to engage in any short sale

as defined in any applicable SEC or National   Association of Securities   Dealers

rules on any hedging   transactions   with   respect to the Common   Stock.   Without

limiting the   foregoing,   the   Investor   agrees not to engage in any naked short

transactions   in excess of the   amount of shares   owned (or an   offsetting   long

position) during the Commitment   Period.   The Investor shall be entitled to sell

Common Stock during the applicable Pricing Period.

 

                                   ARTICLE IV.

                  Representations and Warranties of the Company

 

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

the SEC   Documents   (as defined   herein),   the   Company   hereby   represents   and

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

correct as of the date hereof:

 

      Section   4.1.    Organization   and   Qualification.    The   Company   is   duly

incorporated   or   organized   and   validly   existing in the   jurisdiction   of its

incorporation   or   organization   and   has   all   requisite   corporate   power   and

authority   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.

 

 

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      Section 4.3. Capitalization. As of the date hereof, the authorized capital

stock of the Company consists of 75,000,000 shares of Class A Common Stock, $.01

par value per share,   1,554,936   shares of Class B Common Stock,   $.01 par value

per share, and 4,000 shares of Convertible   Series A Preferred   Stock,   $.01 par

value per share,   of which   24,587,585   shares of Class A Common Stock,   256,191

shares of Class B Common Stock,   2,000 shares of Convertible   Series A Preferred

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

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 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 SEC Documents,   neither the

Company nor its   subsidiaries is in violation of any term of or in default under

its Certificate 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.

 

 

                                        10

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      Section 4.5. SEC Documents; Financial Statements. Since February 28, 2003,

the   Company   has filed all   reports,   schedules,   forms,   statements   and other

documents required to be filed by it with the SEC under of the Exchange Act. The

Company has delivered to the Investor or its representatives,   or made available

through the SEC's website at http://www.sec.gov, true and complete copies of the

SEC Documents.   As of their respective   dates,   the financial   statements of the

Company disclosed in the SEC Documents (the "Financial   Statements") complied as

to form in all material respects with applicable accounting requirements and the

published rules and regulations of the SEC with respect thereto.   Such financial

statements have been prepared in accordance with generally   accepted   accounting

principles, consistently applied, during the periods involved (except (i) as may

be otherwise   indicated in such financial   statements or the notes   thereto,   or

(ii) in the case of unaudited interim statements, to the extent they may exclude

footnotes or may be condensed or summary   statements) and, fairly present in all

mate