STANDBY EQUITY DISTRIBUTION AGREEMENT

 

                      STANDBY EQUITY DISTRIBUTION AGREEMENT

 

      THIS   AGREEMENT   dated as of the 5th day of July   2005   (the   "Agreement")

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

"Investor"),   and NETFABRIC HOLDINGS, 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 Ten Million Dollars   ($10,000,000)   of the Company's common stock,

par value $0.001 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

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 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

Ten Million   Dollars   ($10,000,000)   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 Ten Million

Dollars   ($10,000,000),   (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 $0.001 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   closing Bid Price of

the Common Stock during the Pricing Period.

 

      Section   1.17.   "Maximum   Advance   Amount"   shall be Seven   Hundred   Fifty

Thousand Dollars ($750,000) 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 (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.

 

 

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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.

 

      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

received by the   Investor.   There   shall be a minimum of five (5)   Trading   Days

between each Advance Notice Date.

 

 

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            (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 the Company's independent certified public accountants 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:

 

 

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      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, 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.

 

 

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      Section   3.7.   Receipt of   Documents.   The   Investor   and its counsel have

received and read in their entirety: (i) this Agreement and the Exhibits annexed

hereto;   (ii) all due   diligence and other   information   necessary to verify the

accuracy and   completeness   of such   representations,   warranties and covenants;

(iii) the   Company's   Form 10-KSB for the year ended   December 31, 2004 and Form

10-QSB   for the   period   ended   September   30,   2004;   and (iv)   answers   to all

questions the Investor   submitted to the Company   regarding an investment in the

Company;   and the Investor has relied on the information   contained   therein and

has   not   been   furnished   any   other   documents,    literature,    memorandum   or

prospectus.

 

      Section 3.8.   Registration   Rights   Agreement   and Escrow   Agreement.   The

parties have   entered   into the   Registration   Rights   Agreement   and the Escrow

Agreement, each dated the date hereof.

 

      Section 3.9. No General Solicitation.   Neither the Company, nor any of its

affiliates,   nor any person   acting on its or their   behalf,   has engaged in any

form of general   solicitation   or general   advertising   (within   the   meaning of

Regulation D under the Securities   Act) in connection   with the offer or sale of

the shares of Common Stock offered hereby.

 

      Section 3.10. 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.

 

                                   ARTICLE IV.

                  Representations and Warranties of the Company

 

      Except as stated below, on the Disclosure   Schedule   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 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.

 

 

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      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   100,000,000   shares of Common   Stock,   par value

$0.001 per share and 10,000,000 shares of Preferred Stock,   $0.001 par value per

share   ("Preferred   Stock"),   of which 61,748,358   shares of Common Stock and no

shares of Preferred Stock were issued and   outstanding.   All of such outstanding

shares have been validly issued and are fully paid and nonassessable.   Except as

disclosed   in the SEC   Documents,   no   shares of Common   Stock   are   subject   to

preemptive   rights or any   other   similar   rights   or any liens or   encumbrances

suffered or permitted by the Company.   Except as disclosed in the SEC Documents,

as of the date hereof, (i) there are no outstanding   options,   warrants,   scrip,

rights   to   subscribe   to,   calls or   commitments   of any   character   whatsoever

relating to, or securities   or rights   convertible   into,   any shares of capital

stock of the   Company or any of its   subsidiaries,   or   contracts,   commitments,

understandings   or arrangements by which the Company or any of its   subsidiaries

is or may   become   bound to issue   additional   shares   of   capital   stock of the

Company   or any of its   subsidiaries   or   options,   warrants,   scrip,   rights to

subscribe to, calls or commitments of any character   whatsoever   relating to, or

securities   or rights   convertible   into,   any   shares of   capital   stock of the

Company   or   any   of its   subsidiaries,   (ii)   there   are   no   outstanding   debt

securities (iii) there are no outstanding   registration statements other than on

Form S-8 and (iv)   there   are no   agreements   or   arrangements   under   which the

Company or any of its   subsidiaries   is obligated to register the sale of any of

their   securities   under the Securities Act (except pursuant to the Registration

Rights    Agreement).    There   are   no   securities   or    instruments    containing

anti-dilution or similar   provisions that will be triggered by this Agreement or

any related   agreement or the consummation of the transactions   described herein

or therein. The Company has furnished to the Investor true and correct copies of

the Company's   Certificate of Incorporation,   as amended and as in effect on the

date hereof (the "Certificate of Incorporation"),   and the Company's By-laws, as

in effect on the date hereof (the   "By-laws"),   and the terms of all   securities

convertible   into or exercisable for Common Stock and the material rights of the

holders thereof in respect thereto.

 

 

                                       9

<PAGE>

 

      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   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

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