Preferred Stock Purchase Agreement between Cornell Capital Partners, LP and Celerity Systems Inc.

Summary

Cornell Capital Partners, LP has agreed to purchase $1 million in preferred stock from Celerity Systems Inc. The agreement outlines the terms for dividends, redemption, conversion to common stock, and registration rights. Celerity Systems must pay various fees and ensure enough common stock is available for conversion. The agreement also restricts short selling by the investor and requires confidentiality. If the registration statement is not effective within 120 days, Celerity must pay liquidated damages. Both parties will enter into formal agreements to finalize these terms.

EX-10.1 2 v025081_ex10-1.txt Exhibit 10.1 CORNELL CAPITAL PARTNERS, LP 101 HUDSON STREET, SUITE 3700 JERSEY CITY, NEW JERSEY 07302 August 29, 2005 PREFERRED STOCK PERSONAL AND CONFIDENTIAL On the terms and subject to the conditions set forth below, Cornell Capital Partners, LP (the "Investor") will commit to purchase $1.0 million of preferred stock from Celerity Systems Inc. (the "Issuer") on the principal terms set forth below. This letter is binding and the parties will enter into formal agreements setting forth their respective rights and obligations. Such agreements will contain customary representations, warranties and indemnifications. The material terms of the offering are set forth below: Issuer Celerity Systems Inc. (CESY) Investor Cornell Capital Partners, LP Securities Preferred Stock ("Preferred") Amount $1,000,000 ("Commitment Amount") which will be disbursed on the Closing Date Dividend Rate 0% per annum although if the outstanding shares of the company become less than 4 billion shares prior to conversion, the Preferred will accrue a dividend at 12% per annum. Liquidation Preference $100,000 Closing Date The closing date will be the date on which definitive documents are signed by and between the Issuer and Investor ("Closing Date"). It is estimated that the Closing Date shall take place within a reasonable amount of time from the execution of this term sheet, notwithstanding any and all due diligence and documentation issues that can arise. August 31, 2005 Page 2 of 4 Redemption The Issuer shall have the right to redeem the Preferred upon three (3) business days prior written notice, any or all-outstanding Preferred remaining in its sole discretion. The redemption price shall be one hundred twenty-five percent (125%) of the face amount redeemed plus accrued dividends. Conversion Upon termination of the Issuer's status as a business development company under the Investment Company Act of 1940, the Preferred will become convertible. At such time, the Investor shall have the right to convert the Preferred including accrued dividends, at its sole option and at any time, into Common Stock of the Issuer at a fixed conversion price equal to $0.001 per share ("Conversion Price"). In no event shall the number of shares issuable to the Investor cause the aggregate number of shares of common stock beneficially owned by the Investor and its affiliates exceed four and 9/10 percent (4.9%) of the then outstanding common stock of the company. Registration Rights Promptly, but no later than forty-five (45) calendar days from the Closing Date, the Issuer shall file a registration statement with the United States Securities & Exchange Commission ("SEC") for the Preferred and Warrants (see below) and use its best efforts to ensure that such registration statement is declared effective within one hundred twenty (120) calendar days from the Closing Date. In the event the registration statement is not declared effective within one hundred twenty (120) calendar days, then the Issuer shall pay to the Investors a cash amount within 3 business days of the end of the month equal to two percent (2.0%) per month of the Liquidation Value of the Preferred outstanding as liquidated damages and not as a penalty. The Issuer shall keep the registration statement "Evergreen" for the life of the Convertible. The Issuer shall use a recommended law firm to file the registration statement. Due Diligence Fee The Issuer shall pay the Investor at closing a due diligence fee of $5,000 in connection with this transaction. August 31, 2005 Page 3 of 4 Structuring Fee The Issuer shall pay the Investor at closing a structuring fee of $15,000 in connection with this transaction. The Issuer shall be responsible for all of its own fees and expenses incurred in connection with the documentation and closing of this transaction. Banker Fee For its services, the Issuer shall pay the Investor a commitment fee of 10% of the Commitment Amount, which shall be paid proportionally upon each disbursement. Share Issuance At all times, the Issuer shall keep available Common Stock duly authorized for issuance against the Preferred including the Escrow Shares. If at any time, the Issuer does not have available an amount of authorized and non-issued Common Stock necessary to satisfy issuance of the Escrow Shares, the Issuer shall call and hold a special meeting within thirty (30) days of such occurrence, for the sole purpose of increasing the number of shares of Common Stock authorized. Management of the Issuer shall recommend to shareholders to vote in favor of increasing the number of Common Stock authorized. Management shall also vote all of its shares in favor of increasing the number of Common Stock authorized. Short Selling Neither the Investor nor its affiliates has an open short position in the Common Stock of the Issuer, 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. Confidentiality The existence of this term sheet and the individual terms and conditions are of a confidential nature and shall not be disclosed to anyone, except the Issuer, the Issuer's management and its Board of Directors and its legal and accounting advisors. August 31, 2005 Page 4 of 4 If the terms and conditions contained herein are satisfactory, please sign as indicated below. We appreciate this opportunity to work with you on this investment. We look forward to an expeditious and successful closing of this transaction. Sincerely, CORNELL CAPITAL PARTNERS, LP By: Yorkville Advisors Management, LLC Its: General Partner By: _________________________________ Name: Mark Angelo Title: Portfolio Manager AGREED TO AND ACCEPTED: Celerity Systems Inc. By: _________________________________ Name: Rob Legnosky Title: CEO Dated: August ___, 2005