SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of February
27, 2011 between Specialty Beverage and Supplement, Inc., a Nevada corporation
(the “Company”), and each purchaser identified on the signature pages hereto
(each, including its successors and assigns, a “Purchaser” and collectively the
“Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to the Purchaser, and the Purchaser desires to purchase from the
Company, securities of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser agree
as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1    Definitions.  In addition to the terms defined elsewhere in this
Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Subordinated Debentures (as defined herein),
and (b) the following terms have the meanings set forth in this Section 1.1:

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate” means any Person that, Advisors directly or indirectly through one
or more intermediaries, controls or is controlled by or is under common control
with a Person, as such terms are used in and construed under Rule 405 under the
Securities Act.  With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.

 

“Board of Directors” means the board of directors of the Company.

 

 ”Business Day” means any day except any Saturday, any Sunday, any day which is
a federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.

 

 ”Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.1.

 

“Closing Date” means the Business Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers’ obligations to pay the Purchase
Price and (ii) the Company’s obligations to deliver the Securities have been
satisfied or waived, including without limitation the Company’s written
acceptance of the subscriptions as set forth in Section 2.1.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may
hereafter be reclassified or changed into.

 

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

 

“Disclosure Schedules” shall have the meaning ascribed to such term in Section
3.1.

 

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(y).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).

 

“Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.

 

“Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section
3.1(m).

 

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

 

“Merger” means the merger among the Company, Pubco and the Acquisition Sub
pursuant to the Merger Agreement and the timely submission of all applicable
filings with state and regulatory authorities in connection with such
transaction.

 

“Merger Agreement” means the Agreement and Plan of Merger among the Company,
Pubco, and the Acquisition Sub for the merger of the Acquisition Sub with and
into the Company, with the Company as the surviving entity, to be entered into
on or about May 15, 2011 pursuant to which the stockholders of the Company will
exchange all of their Common Stock and Common Stock Equivalents for shares of
Pubco Common Stock. The Merger Agreement will contain customary representations
and warranties for a transaction of this type, including the representations
warranties and covenants to be made by Pubco (and the Acquisition Sub, as
applicable) on the closing date of the Merger as set forth on Exhibit B attached
hereto.

 

“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

 

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an informal investigation or partial proceeding,
such as a deposition), whether commenced or threatened.

 

“Purchase Price” means, as to each Purchaser, the aggregate amount to be paid
for Subordinated Debentures purchased hereunder as specified below such
Purchaser’s name on the signature page of this Agreement and next to the heading
“Purchase Price,” in United States dollars and in immediately available funds.

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.8.

 

“Pubco” means Mojo Incorporated, a Delaware corporation listed on the FINRA OTC
Bulletin Board and currently reporting under the Exchange Act.

 

“Pubco Common Stock” means the common stock of Pubco, and any other class of
securities into which such securities may hereafter be reclassified or changed
into.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

“Securities” means the Subordinated Debentures and the Underlying Securities.

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“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“Subordinated Debentures” means the 9% Convertible Subordinated Debentures due,
subject to the terms therein, six months from the date of issuance, issued by
the Company to the Purchaser hereunder, in the form of Exhibit A attached
hereto.

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a)
and shall, where applicable, include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.

 

“Trading Day” means a day on which the New York Stock Exchange is open for
trading.

 

“Transaction Documents” means this Agreement, the Subordinated Debentures, all
exhibits and schedules thereto and hereto and any other documents or agreements
executed in connection with the transactions contemplated hereunder.

 

“Underlying Securities” means the Common Stock issued and issuable upon
conversion of the Subordinated Debentures.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1    Closing.  On the Closing Date, upon the terms and subject to the
conditions set forth herein, substantially concurrent with the execution and
delivery of this Agreement by the parties hereto, the Company agrees to sell,
and the Purchasers, severally and not jointly, agree to purchase a minimum of
$1,250,000 (the “Minimum Amount”) up to an aggregate of $4,000,000 (the “Maximum
Amount”) in principal amount of the Subordinated Debentures.  Each Purchaser
shall deliver to the Company, via wire transfer or a certified check,
immediately available funds equal to its Purchase Price and the Company shall
deliver each Purchaser’s respective Subordinated Debenture, as determined
pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the
other items set forth in Section 2.2 deliverable at the Closing. Upon
satisfaction of the conditions set forth in Sections 2.2 and 2.3, and receipt of
subscriptions for the Minimum Amount, an initial Closing shall occur at the
offices of the Company or such other location as the parties shall mutually
agree. Additional Closings of this Offering shall be held thereafter at the
discretion of the Company as additional subscription proceeds are received and
cleared up to the Maximum Amount.

 

2.2    Deliveries.

 

(a) On the Closing Date, the Company shall deliver or cause to be delivered to
the Purchaser the following:

 

(i) this Agreement duly executed by the Company;

 

(ii) a Subordinated Debenture with a principal amount equal to the Purchase
Price, registered in the name of the Purchaser, duly executed by the Company;
and

 

(iii) a certificate of the Company’s Chief Executive Officer, in substantially
the form of Exhibit C attached hereto; and

 

  

(b) On the Closing Date, the Purchaser shall deliver or cause to be delivered to
the Company the following:

 

(i) this Agreement duly executed by the Purchaser; and

 

(ii) the Purchase Price by wire transfer to the account as specified in writing
by the Company.

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2.3    Closing Conditions.

 

(a) The obligations of the Company hereunder in connection with the Closing are
subject to the following conditions being met:

 

(i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Purchasers contained herein;

 

(ii) all obligations, covenants and agreements of the Purchaser required to be
performed at or prior to the Closing Date shall have been performed;

 

(iii) Company’s written acceptance of subscriptions referenced in Section 2.1,
which acceptance shall be at the sole discretion of the Company; and

 

(iv) the delivery by the Purchaser of the items set forth in Section 2.2(b) of
this Agreement.

 

(b) The respective obligations of the Purchasers hereunder in connection with
the Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects when made and on the Closing Date of
the representations and warranties of the Company contained herein;

 

(ii) all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed;

 

(iii) the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;

 

(iv) there shall have been no Material Adverse Effect with respect to the
Company since the date hereof; and

 

(v) from the date hereof to the Closing Date, a banking moratorium shall not
have been declared either by the United States or New York State authorities nor
shall there have occurred any material outbreak or escalation of hostilities or
other national or international calamity of such magnitude in its effect on, or
any material adverse change in, any financial market which, in each case, in the
reasonable judgment of the Purchaser, makes it impracticable or inadvisable to
purchase the Securities at the Closing.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1    Representations and Warranties of the Company. Except as set forth in the
disclosure schedules attached hereto (the “Disclosure Schedules”), which
Disclosure Schedules shall be deemed a part hereof and shall qualify any
representation or warranty made herein to the extent of the disclosure contained
in the corresponding section of the Disclosure Schedules, provided the
disclosures in any section or subsection of the Disclosure Schedules shall
qualify only the corresponding section or subsection in this Article III, the
Company hereby makes the following representations and warranties to the
Purchaser:

 

(a) Subsidiaries.  All of the direct and indirect subsidiaries of the Company
are set forth on Schedule 3.1(a).  The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary free and clear
of any Liens, and all of the issued and outstanding shares of capital stock of
each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights to subscribe for or purchase securities.  If
the Company has no subsidiaries, all other references to the Subsidiaries or any
of them in the Transaction Documents shall be disregarded.

 

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(b) Organization and Qualification.  The Company and each of the Subsidiaries is
an entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any Subsidiary is in violation or default of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.  Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, (iii) a material adverse effect
on the Company’s ability to perform in any material respect on a timely basis
its obligations under any Transaction Document, or (iv) a material adverse
effect on the Company’s ability to consummate the Merger on or about May 15,
2011 (any of (i), (ii), (iii) or (iv), a “Material Adverse Effect”) and no
Proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.

 

(c) Authorization; Enforcement.  The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder.  The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, the Board of Directors or the Company’s stockholders in connection
therewith.  Each Transaction Document has been (or upon delivery will have been)
duly executed by the Company and, when delivered in accordance with the terms
hereof and thereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except (i)
as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.

 

(d) No Conflicts.  Except as set forth on Schedule 2.1(d), the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the other transactions contemplated hereby and
thereby do not and will not: (i) conflict with or violate any provision of the
Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws
or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary except as created by
the Transaction Documents, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other understanding to
which the Company or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected, or (iii) conflict with or
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not have or reasonably be expected to result in a Material
Adverse Effect.

 

(e) Filings, Consents and Approvals.  The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
the filing of Form D with the Commission and such filings as are required to be
made under applicable state securities laws.

 

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(f) Issuance of the Securities.  The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents.  The Underlying Securities, when issued in
accordance with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens other than
restrictions on transfer provided for in the Transaction Documents.  

 

 (g) Capitalization.  The capitalization of the Company is as set forth on
Schedule 3.1(g).  No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.  Except as set forth in Schedule
3.1(g), as a result of the purchase and sale of the Securities, there are no
outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any Common Stock or Common Stock
Equivalents, or contracts, commitments, understandings or arrangements by which
the Company or any Subsidiary is or may become bound to issue additional Common
Stock or Common Stock Equivalents. The issuance and sale of the Securities will
not obligate the Company to issue Common Stock or Common Stock Equivalents or
other securities to any Person (other than the Purchasers) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under any of such securities. All of the
outstanding Common Stock or Common Stock Equivalents are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities.  No further approval or authorization of any stockholder,
the Board of Directors or other Person is required for the issuance and sale of
the Securities.  There are no stockholders agreements, voting agreements or
other similar agreements with respect to the Company’s Common Stock or Common
Stock Equivalents to which the Company is a party or, to the knowledge of the
Company, between or among any of the Company’s stockholders.

 

(h) Financial Statements.  Schedule 3.1(h) attached hereto contains the audited
consolidated balance sheet and related statements of operations and cash flows
of the Company and its subsidiaries at and for the year ending December 31, 2010
(the “Company Financial Statements”). The Company Financial Statements have been
prepared in accordance with United States generally accepted accounting
principles (“GAAP”) applied on a consistent basis throughout the periods covered
thereby, fairly present the financial condition, results of operations and cash
flows of the Company and its subsidiaries as of the date thereof and for the
period referred to therein and are consistent with the books and records of the
Company and its subsidiaries, except as may be otherwise specified in such
financial statements or the notes thereto and except that the Company Financial
Statements may not contain all footnotes required by GAAP.

 

(i) Material Changes.  Since December 31, 2010, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any
material liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent with
past practice, (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP and (C) except as set forth in Schedule
3.1(i), (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any Common Stock or Common Stock Equivalents and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option plans.

 

(j) Litigation.  Other than as set forth on Schedule 3.1(j), there is no action,
suit, inquiry, notice of violation, or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) or
Proceeding which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
could, if there were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect.  Neither the Company nor any Subsidiary,
nor any Manager, director or officer thereof, is or has been the subject of any
Action or Proceeding involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.  There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation or Proceeding by the Commission involving the
Company or any current or former director or officer of the Company.  

6

 

(k) Labor Relations.  No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company
which could reasonably be expected to result in a Material Adverse Effect.  None
of the Company’s or its Subsidiaries’ employees is a member of a union that
relates to such employee’s relationship with the Company or such Subsidiary, and
neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good.  No executive officer, to the
knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of any third party,
and the continued employment of each such executive officer does not subject the
Company or any of its Subsidiaries to any liability with respect to any of the
foregoing matters.  The Company and its Subsidiaries are in compliance with all
U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

  

(l) Compliance.  Neither the Company nor any Subsidiary (i) is in default under
or in violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the Company
or any Subsidiary under), nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws
applicable to its business and all such laws that affect the environment, except
in each case as could not have or reasonably be expected to result in a Material
Adverse Effect.

 

(m) Regulatory Permits.  The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such permits could
not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.

 

(n) Title to Assets.  The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and marketable
title in all personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties.  Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are in
compliance.

 

(o) Patents and Trademarks.  The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights necessary or
material for use in connection with their respective businesses and which the
failure to so have could have a Material Adverse Effect (collectively, the
“Intellectual Property Rights”).  Neither the Company nor any Subsidiary has
received a notice (written or otherwise) that any of the Intellectual Property
Rights used by the Company or any Subsidiary violates or infringes upon the
rights of any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights.  The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

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(p) Insurance.  Except as disclosed in Schedule 3.1(p), the Company and the
Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are prudent and customary
in the businesses in which the Company and the Subsidiaries are engaged,
including, but not limited to, directors and officers insurance coverage at
least equal to the Purchase Price.  Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.

 

(q) Transactions with Affiliates and Employees. None of the officers or
directors of the Company and, to the knowledge of the Company, none of the
employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $100,000
other than for (i) payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii)
other employee benefits, including stock option agreements under any stock
option plan of the Company.

 

(r) Internal Accounting Controls.  The Company and the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.  

 

(s) Certain Fees.  Except as set forth in Schedule 3.1(s), no brokerage or
finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
the Transaction Documents.  The Purchasers shall have no obligation with respect
to any fees or with respect to any claims made by or on behalf of other Persons
for fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by the Transaction Documents.

 

(t) Private Placement.  Assuming the accuracy of the Purchasers’ representations
and warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Securities by the Company to the
Purchasers as contemplated hereby.

 

(u) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an
Affiliate required to file as, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended within a period of one year from the
date hereof.

 

(v) Registration Rights.  No Person has any right to cause the Company to effect
the registration under the Securities Act of any securities of the Company.

 

(w) Disclosure.  All disclosure furnished by or on behalf of the Company to the
Purchasers regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, is true and
correct and does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.   The
Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.

 

8

 

(x) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, except as set forth in
Schedule 3.1(x), neither the Company, nor any of its Affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated
with prior offerings by the Company for purposes of the Securities Act which
would require the registration of any such securities under the Securities Act.

 

(y) Solvency.  Based on the consolidated financial condition of the Company as
of the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder (i) the fair saleable value
of the Company’s assets exceeds the amount that will be required to be paid on
or in respect of the Company’s existing debts and other liabilities (including
known contingent liabilities) as they mature, (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof, and (iii)
the anticipated cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its liabilities when such amounts are required to be paid.  The
Company does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable on
or in respect of its debt).  The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date.  Schedule 3.1(y) sets forth as of the
date hereof all outstanding secured and unsecured Indebtedness of the Company or
any Subsidiary, or for which the Company or any Subsidiary has commitments.  For
the purposes of this Agreement, “Indebtedness” means (a) any liabilities for
borrowed money or amounts owed in excess of $25,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of indebtedness of
others, whether or not the same are or should be reflected in the Company’s
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in
excess of $25,000 due under leases required to be capitalized in accordance with
GAAP.  Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.

 

(z) Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary.

 

(aa)    No General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising.  The Company has offered the
Securities for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.

 

(bb) Foreign Corrupt Practices.  Neither the Company, nor to the knowledge of
the Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is  in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.

 

(cc) Seniority.  Except as set forth on Schedule 3.1(cc), as of the Closing
Date, no Indebtedness or other claim against the Company is senior to, or pari
passu with, the Subordinated Debentures in right of payment, whether with
respect to interest or upon liquidation or dissolution, or otherwise, other than
indebtedness secured by purchase money security interests (which is senior only
as to underlying assets covered thereby) and capital lease obligations (which is
senior only as to the property covered thereby).

 

9

 

(dd) No Disagreements with Accountants and Lawyers.  There are no disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise, between the Company and the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees owed
to its accountants and lawyers which could affect the Company’s ability to
perform any of its obligations under any of the Transaction Documents.

 

(ee)  Acknowledgment Regarding Purchasers’ Purchase of Securities.  The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby.  The Company further acknowledges
that no Purchaser is acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser or any
of their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to the
Purchasers’ purchase of the Securities.  The Company further represents to the
Purchaser that the Company’s decision to enter into this Agreement and the other
Transaction Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

 

3.2    Representations and Warranties of the Purchaser.  Each of the Purchasers
severally, and not jointly, represents and warrants as of the date hereof and as
of the Closing Date to the Company as follows:

 

(a) Organization; Authority.  The Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of the Transaction Documents and performance by the
Purchaser of the transactions contemplated by the Transaction Documents have
been duly authorized by all necessary corporate or similar action on the part of
the Purchaser.  Each Transaction Document to which it is a party has been duly
executed by the Purchaser, and when delivered by the Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of the Purchaser, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.

 

(b) Own Account.  The Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for
its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
(this representation and warranty not limiting the Purchaser’s right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law.  The Purchaser is
acquiring the Securities hereunder in the ordinary course of its business. The
undersigned acknowledges that (i) the Securities will be issued pursuant to
applicable exemptions from registration under the Act and any applicable state
securities laws, and (ii) the Securities have not been registered under the Act,
in reliance on the exemption from registration provided by Section 4(2) thereof.
In connection therewith, the undersigned hereby covenants and agrees that it
will not offer, sell, or otherwise transfer the Securities unless and until it
obtains the consent of the Company and such Securities are registered pursuant
to the Act and the laws of all jurisdictions which in the opinion of the Company
may be applicable or unless such Securities are, in the opinion of the Company,
otherwise exempt from registration thereunder.

10

 

(c) Purchaser Status.  At the time the Purchaser was offered the Securities, it
was, and at the date hereof it is, and on each date on which it converts any
Subordinated Debentures it will be either: (i) an “accredited investor” as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities
Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under
the Securities Act.  The Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.

 

(d) Experience of The Purchaser.  The Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment.  The Purchaser has had the opportunity to
ask questions and obtain information necessary to make an investment decision.
To the extent the undersigned has taken advantage of such opportunity, they have
received satisfactory answers concerning the purchase of the Securities.
Purchaser understands that the offer and sale of the Securities is being made
only by means of this Agreement. Purchaser understands that the Company has not
authorized the use of, and Purchaser confirms that Investor is not relying upon
any other information, written or oral, other than material contained in this
Agreement and the Transaction Documents. The Purchaser is able to bear the
economic risk of an investment in the Securities and, at the present time, is
able to afford a complete loss of such investment and its financial condition is
such that it has no need for liquidity with respect to its investment in the
Securities to satisfy any existing or contemplated undertaking or indebtedness.
The Purchaser has discussed with its professional, legal, tax and financial
advisers the suitability of an investment in the Company by the undersigned for
its particular tax and financial situation. All information that the undersigned
has provided to the Company concerning itself and its financial position is
correct and complete as of the date set forth below, and if there should be any
material change in such information, the undersigned will immediately provide
such information to the Company.

 

(e) General Solicitation.  The Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement. The Purchaser did not enter into
any discussions or initiate any contacts (in each case, regarding the offer or
sale of the Securities) as a result of any General Solicitation, including the
Registration Statement, nor did the Purchaser decide to enter into this
Agreement as a result of any General Solicitation, including the Registration
Statement. As used herein, “Registration Statement” means the Company’s
registration statement on Form S-1 for its common stock, which has been
withdrawn prior to the date hereof, and “General Solicitation” means any general
solicitation or general advertising within the meaning of Rule 502(c) under the
Securities Act.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer Restrictions.

 

(a) The Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company or
to an Affiliate of the Purchaser, in connection with the Merger, or in
connection with a pledge as contemplated in Section 4.1(b), the Company may
require the transferor thereof to provide to the Company an opinion of counsel
selected by the transferor and reasonably acceptable to the Company, the form
and substance of which opinion shall be reasonably satisfactory to the Company,
to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act.  As a condition of transfer,
any such transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement.

 

(b) The Purchasers agree to the imprinting, so long as is required by this
Section 4.1, of a legend on any of the Securities in the following form:

 

11

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS
[CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY.  THIS SECURITY [AND THE SECURITIES ISSUABLE UPON
[CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and, if required under the terms of such arrangement, the Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties.  Such a pledge
or transfer would not be subject to approval of the Company and no legal opinion
of legal counsel of the pledgee, secured party or pledgor shall be required in
connection therewith.  Further, no notice shall be required of such pledge.  At
the Purchaser’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities.

 

4.2 Merger. The Company has not, and hereby covenants that during the period
from and including the Closing Date to and including Maturity Date, it will not,
enter into any purchase, sale, merger or business combination transaction
pursuant to which the business of another Person is combined with that of the
Company, in whatever form, or enter into any other agreement or series of
related agreements (including, without limitation, joint venture, sale of
assets, license agreement, distribution agreement, etc.) or enter into any other
transaction that would preclude the closing of the Merger, without the prior
written consent of the holders of two-thirds in principal amount outstanding of
the Subordinated Debentures.

 

4.3 Integration.  From and after the Closing Date, the Company shall not sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in Section 2 of the Securities Act) that would be
integrated with the offer or sale of the Securities to the Purchasers in a
manner that would require the registration under the Securities Act of the sale
of the Securities to the Purchasers.

 

4.4 Conversion Procedures.  The form of Notice of Conversion included in the
Subordinated Debentures set forth the totality of the procedures required of the
Purchasers in order to convert the Subordinated Debentures.  No additional legal
opinion or other information or instructions shall be required of the Purchasers
to convert their Subordinated Debentures.  The Company shall honor conversions
of the Subordinated Debentures and shall deliver Underlying Securities in
accordance with the terms, conditions and time periods set forth in the
Transaction Documents.

 

4.5 Publicity.  The Company and the Purchaser shall consult with each other in
issuing any other press releases with respect to the transactions contemplated
hereby, and neither the Company nor any Purchaser shall issue any such press
release or otherwise make any such public statement without the prior consent of
the Company, with respect to any press release of any Purchaser, or without the
prior consent of the Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication.  

12

 

 

 4.6 Non-Public Information.  Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents and the
Merger Agreement, the Company covenants and agrees that neither it nor any other
Person acting on its behalf will provide any Purchaser or its agents or counsel
with any information that the Company believes constitutes material non-public
information, unless prior thereto the Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information.  The
Company understands and confirms that the Purchaser shall be relying on the
foregoing covenant in effecting transactions in securities of the Company. The
Company covenants that within four (4) Trading Days of the closing of the Merger
it shall cause Pubco to issue a Current Report on Form 8-K disclosing the
material terms of the transactions contemplated hereby and thereby.

 

4.7 Use of Proceeds.  Except as set forth on Schedule 4.7 attached hereto, the
Company shall use the net proceeds from the sale of the Securities hereunder for
working capital purposes, and shall not use such proceeds for (a) the
satisfaction of any portion of the Company’s debt (other than payment of trade
payables in the ordinary course of the Company’s business and prior practices),
(b) the redemption of any Common Stock or Common Stock Equivalents or (c) the
settlement of any outstanding litigation.

 

4.8 Indemnification of Purchasers.   Subject to the provisions of this Section
4.8, the Company will indemnify and hold the Purchaser and its directors,
officers, stockholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls the Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, stockholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser
in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of the Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of the Purchaser’s representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings the Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by the Purchaser which constitutes fraud, negligence, willful misconduct or
malfeasance).  If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party.  Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Purchaser
Party, in which case the Company shall be responsible for the reasonable fees
and expenses of no more than one such separate counsel.  The Company will not be
liable to any Purchaser Party under this Agreement (i) for any settlement by a
Purchaser Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (ii) to the extent, but only
to the extent that a loss, claim, damage or liability is attributable to any
Purchaser Party’s breach of any of the representations, warranties, covenants or
agreements made by such Purchaser Party in this Agreement or in the other
Transaction Documents.

13

 

4.9  Equal Treatment of Purchasers.  No consideration shall be offered or paid
to any Person to amend or consent to a waiver or modification of any provision
of any of the Transaction Documents unless the same consideration is also
offered to all of the parties to the Transaction Documents. Further, the Company
shall not make any payment of principal or interest on the Subordinated
Debentures in amounts which are disproportionate to the respective principal
amounts outstanding on the Subordinated Debentures at any applicable time.  For
clarification purposes, this provision constitutes a separate right granted to
the Purchaser by the Company and negotiated separately by the Purchaser, and is
intended for the Company to treat the Purchasers as a class and shall not in any
way be construed as the Purchasers acting in concert or as a group with respect
to the purchase, disposition or voting of Securities or otherwise.

 

4.10 Form D; Blue Sky Filings.  The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to Purchaser upon filing. The Company shall take such action as the
Company shall reasonably determine is necessary in order to obtain an exemption
for, or to qualify the Securities for, sale to the Purchasers at the Closing
under applicable securities or “Blue Sky” laws of the states of the United
States, and shall provide evidence of such actions promptly upon request of any
Purchaser.

 

4.11 Reporting Requirements. Until the time the Company becomes subject to the
reporting provisions of the Exchange Act, the Company shall furnish to each
Purchaser that holds Securities, the following:

 

(a) As soon as available and in any event within ninety (90) days after the end
of each fiscal year of the Company commencing with the fiscal year ending
December 31, 2010, audited financial statements of the Company as at the end of
such fiscal year and related statements of income and expenses for such fiscal
year, all in reasonable detail and in scope to the Purchaser, prepared in
accordance with GAAP, with the opinion of an independent certified public
accountant reasonably acceptable to the Purchaser as evidenced by the prior
written consent of the Purchaser;

 

(b) As soon as available and in any event within thirty (30) days after the end
of each fiscal quarter, quarterly financial statements prepared by the Company
and other information reasonably requested by the Purchaser;

 

(c) As soon as available and in any event within fifteen (15) days after the end
of each month, monthly reports containing information on the Company’s sales and
other information reasonably requested by the Purchaser;

 

(d) As soon as available and in any event not less than thirty (30) days prior
to the commencement of each fiscal year, a detailed annual budget and strategic
plan for the Company’s business for such fiscal year, which shall have been
approved by the Company’s Board of Directors;

 

(e) As soon as possible and in any event within five (5) days after the
Purchasers notify the Company of the occurrence of each Event of Default, a
statement of an authorized officer of the Company setting forth the nature and
period of existence of such Event of Default and the action which the Company
has taken and proposes to take with respect thereto;

 

(f) Promptly after the sending or filing thereof, copies of all reports, if any,
which the Company sends to any of its shareholders, and copies of all reports
and registration statements, if any, which the Company files with the Commission
or any Trading Market;

 

(g) Promptly after the filing or receiving thereof, copies of all reports and
notices, if any, which the Company files under ERISA, with the Internal Revenue
Service or the Pension Benefit Guaranty Corporation or the U.S. Department of
Labor or which the Company receives from any of such Persons;

 

(h) Promptly upon determination by the Company’s Chief Executive Officer of the
need for the Company or Board of Directors to obtain additional financing, all
information concerning such determination if, as and when available;

 

14

 

(i) Information concerning offers or solicitations, and the terms and conditions
thereof, for additional equity financing, given to the Purchaser not less than
30 days prior to the entering into of such financial arrangement;

 

(j) Such other information respecting the condition or operations, financial or
otherwise, of the Company as the Purchasers may from time to time reasonably
request; and;

(k) Promptly upon receipt, notice in writing of all Actions and Proceedings.

 

4.12. Accountants. Until the time the Company becomes subject to the reporting
provisions of the Exchange Act, the Company shall promptly give the Purchaser
notice of any change in the firm of independent certified public accountants
utilized by the Company.

 

4.13 Access to Records. Until the time the Company becomes subject to the
reporting provisions of the Exchange Act, the Company shall furnish to each
Purchaser that holds Securities, or any of its duly authorized representatives,
attorneys or accountants reasonable access to any and all records at the
premises of the Company where such records are kept, such access being afforded
without charge, but only upon reasonable request stating the purpose of such
request and during normal business hours. Each such Purchaser making such
request agrees to request to execute a confidentiality agreement or similar
document reasonably requested by the Company.

 

4.15 Preservation of Corporate Existence. The Company shall preserve and
maintain its corporate existence, rights, privileges and franchises in the
jurisdiction of its incorporation, and qualify and remain qualified, as a
foreign corporation in each jurisdiction in which such qualification is
necessary in view of its business or operations and where the failure to qualify
or remain qualified might reasonably have a Material Adverse Effect upon the
financial condition, business or operations of the Company and its Subsidiaries
taken as a whole.

 

4.16 Confidentiality. The Purchaser agrees to maintain the confidentiality of
this Agreement, the transactions contemplated hereby, including the Merger, and
not use any confidential information it may learn about another party for any
purpose other than to consummate the transactions contemplated hereby. The
Purchaser acknowledges that the information concerning the Company and the
transactions contemplated by this Agreement is confidential and proprietary to
the Company, and is being submitted to the Purchaser solely for confidential use
and with the explicit understanding that, without the prior written permission
of the Company, Purchaser will not release this Agreement or any of the related
transaction documentation, including the Company’s confidential investor
presentation, or discuss the foregoing, its existence, or any of the information
contained herein, or make any reproduction of or use of such documentation or
information for any purpose other than to evaluate a potential investment in the
Subordinated Debentures offered hereby; provided, however, that you are
authorized to disclose the tax treatment and the tax structure of the
transactions described herein to your advisors, without limitation of any kind.
By accepting delivery of this Agreement, you agree to promptly return it and any
other documents or information furnished to you by the Company, and all copies
thereof, if you elect not to purchase any of the Subordinated Debentures offered
hereby, or if the offering is terminated or withdrawn.

 

ARTICLE V.

MISCELLANEOUS

 

5.1  Termination.  This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the
obligations between the Company and the other Purchasers, by written notice to
the other parties, if the Closing has not been consummated on or before 5:30
p.m. (New York City time) on May 15, 2011; provided, however, that such
termination will not affect the right of any party to sue for any breach by the
other party (or parties).

 

5.2  Fees and Expenses.   Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement.  The Company shall pay all transfer
agent fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities to the Purchasers.

15

 

5.3  Entire Agreement.  The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

 

5.4  Notices.  Any and all notices or other communications or deliveries to be
provided by the Holder hereunder, shall be in writing and delivered personally,
by facsimile, pdf or other electronic delivery, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth below, or such other email address, facsimile number or address as the
Company may specify for such purpose by notice to the Holder delivered in
accordance with this Section 5.4.  Any and all notices or other communications
or deliveries to be provided by the Company hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, or sent by a nationally recognized overnight courier
service addressed to the Holder at the address set forth below.  Any notice or
other communication or deliveries hereunder shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile or electronic delivery at the facsimile number or
email address specified in this Section 5.4 prior to 5:30 p.m. (New York City
time), (ii) the Business Day immediately following the date of transmission, if
such notice or communication is delivered via facsimile or electronic delivery
at the facsimile number or email address specified in this Section 5.4 between
5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date,
(iii) the second Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given.

 

If to the Company, to:

 

Specialty Beverage and Supplement Inc.

836 Grundy Avenue

Holbrook, NY 11741

Telephone: (631) 750-3195 ext 112

Facsimile: (631) 750-3088

Email: Petes@specialbev.com

Attention: Peter Scalise III, Chairman and CEO

 

With a copy (which shall not constitute notice) to:

 

David Lubin & Associates, PLLC

10 Union Avenue, Suite 5

Lynbrook, NY 11563

Telephone: (516) 887-8200

Facsimile: (516) 887-8250

Attention: David Lubin, Esq.

Email: david@dlubinassociates.com

 

If to the Holder, as set forth on the signature pages attached hereto.

 

5.5  Amendments; Waivers.  No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Purchasers of at least 75% in
interest of the Securities still held by Purchasers or, in the case of a waiver,
by the party against whom enforcement of any such waived provision is
sought.  No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right.

 

5.6  Headings.  The headings herein are for convenience only, do not constitute
a part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.

16

 

5.7  Successors and Assigns.  This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns.  The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser (other than by merger).  Any
Purchaser may assign any or all of its rights under this Agreement to any Person
to whom such Purchaser assigns or transfers any Securities, provided that such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the
“Purchasers.”

  

5.8  No Third-Party Beneficiaries.  This Agreement is intended for the benefit
of the parties hereto and their respective successors and permitted assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other Person, except as otherwise set forth in Section 4.10.

 

5.9  Governing Law.  All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflict of laws thereof.  Each
party agrees that all legal proceedings concerning the interpretation,
enforcement and defense of the transactions contemplated by any of the
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, directors, officers, shareholders, employees or agents) shall be
commenced in the state and federal courts sitting in the City of New York,
County of New York (the “New York Courts”).  Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such New York Courts,
or such New York Courts are improper or inconvenient venue for such
proceeding.  Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under the Transaction Documents and agrees that such service shall
constitute good and sufficient service of process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by applicable law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
the Transaction Documents or the transactions contemplated hereby or thereby. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred in the investigation, preparation and
prosecution of such action or proceeding.

 

5.10  Survival.  The representations and warranties shall survive the Closing
and the delivery of the Securities for the applicable statue of limitations.

 

5.11  Execution.  This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.  In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.

 

5.12  Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

17

 

5.13  Rescission and Withdrawal Right.  Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.

 

5.14  Replacement of Securities.  If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction.  The applicant
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with the
issuance of such replacement Securities.

 

5.15  Remedies.  In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Purchasers
and the Company will be entitled to specific performance under the Transaction
Documents.  The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
contained in the Transaction Documents and hereby agrees to waive and not to
assert in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate.

 

5.16  Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

 

5.17  Usury.  To the extent it may lawfully do so, the Company hereby agrees not
to insist upon or plead or in any manner whatsoever claim, and will resist any
and all efforts to be compelled to take the benefit or advantage of, usury laws
wherever enacted, now or at any time hereafter in force, in connection with any
claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Document.  Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate.  It is agreed that if the
maximum contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate
of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date forward, unless such application
is precluded by applicable law.  If under any circumstances whatsoever, interest
in excess of the Maximum Rate is paid by the Company to any Purchaser with
respect to indebtedness evidenced by the Transaction Documents, such excess
shall be applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser’s election.

 

18

 

5.18  Independent Nature of Purchasers’ Obligations and Rights.  The obligations
of the Purchaser under any Transaction Document are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document.  Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents.  The Purchaser shall be entitled to independently protect
and enforce its rights, including without limitation the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.  The Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents.  The Company has elected to provide all Purchasers with the same
terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers.

 

5.19  Liquidated Damages.  The Company’s obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.

 

5.20  Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then such action may be taken or such right may be
exercised on the next succeeding Business Day.

 

5.21  Construction. The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.

 

5.22 Waiver of Jury Trial.  In any action, suit or proceeding in any
jurisdiction brought by any party against any other party, the parties each
knowingly and intentionally, to the greatest extent permitted by applicable law,
hereby absolutely, unconditionally, irrevocably and expressly waives forever
trial by jury.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOLLOW]

19

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

SPECIALTY BEVERAGE AND SUPPLEMENT, INC.

 

By: /s/ Peter Scalise III

Name: Peter Scalise III

Title: Chairman and Chief Executive Officer

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASERS FOLLOW]

 

20

 

[PURCHASER SIGNATURE PAGES TO SPECIALTY BEVERAGE AND SUPPLEMENT, INC. SECURITIES
PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

Name of Purchaser:

 

Signature of Authorized Signatory of Purchaser:

 

Name of Authorized Signatory:

 

Title of Authorized Signatory:

 

Email Address of Purchaser:

 

Facsimile Number of Purchaser:

 

Address for Notice of Purchaser:

 

Address for Delivery of Securities for Purchaser (if not same as address for
notice):

 

Purchase Price:

 

SSN / EIN Number:  

 

21

 

[PURCHASER INVESTOR QUESTIONNAIRE TO SPECIALTY BEVERAGE AND SUPPLEMENT, INC.
SECURITIES PURCHASE AGREEMENT]

 

Purchaser represents and warrants that Purchaser is an “accredited investor”
because Purchaser is (initial applicable box(es):

 

[ ] an individual whose individual net worth, or joint net worth with his or her
spouse (if any), at the time of purchase exceeds $1,000,000;

[ ] an individual who had an individual income in excess of $200,000 in each of
the two most recent calendar years, or joint income with his or her spouse (if
any) in excess of $300,000 in each of those years, and has a reasonable
expectation of reaching the same income level in the current calendar year;

[ ] a director or an executive officer of the Company;

[ ] a trust or a person acting on behalf of a trust (i) with total assets in
excess of $5,000,000, (ii) which was not formed for the specific purpose of
acquiring the Shares, and (iii) whose purchase is directed by a person who has
such knowledge and experience in financial and business matters that he or she
is capable of evaluating the merits and risks of the prospective investment;

[ ] any organization described in Section 501(c)(3) of the Internal Revenue
Code, as amended, corporation, Massachusetts or similar business trust, or
partnership (i) not formed for the specific purpose of acquiring the Shares, and
(ii) with total assets in excess of $5,000,000; or

[ ] any entity in which all of the equity owners are accredited investors.

 

Indicate whether you are you a broker or dealer registered pursuant to section
15 of the Securities Exchange Act of 1934 or an affiliate of such broker or
dealer.

 

  [ ] Yes  [ ] No

 

If yes, please provide the following information:

 

Name of Broker/Dealer:

 

Address of Broker/Dealer:

 

Position held with or relationship to Broker/Dealer:__

 

The foregoing statements are true and accurate to the best of my information and
belief and I will promptly notify Specialty Beverage and Supplement, Inc., if
any of the responses to the foregoing questions should be changed.

 

Name of Purchaser:

 

Signature of Authorized Signatory of Purchaser:

 

Name of Authorized Signatory:

 

Title of Authorized Signatory:

22

 

Exhibit A

 

Form of Subordinated Debenture

23

 

Exhibit B

 

Certain Merger Agreement Terms; Pubco Representations

 

1.  Structure. Pursuant to the Merger Agreement, Pubco will enter into a reverse
triangular merger with the Company and a newly formed acquisition subsidiary of
Pubco (the “Acquisition Sub”). The Company will be the surviving entity in the
Merger and will be a wholly-owned subsidiary of Pubco upon the closing of the
Merger. Pursuant to the Merger, Pubco will acquire all of the Company’s
outstanding Common Stock and Common Stock Equivalents in exchange for a number
of shares of Pubco Common Stock representing not less than 50% of Pubco’s
outstanding Common Stock before the issuance of the Underlying Securities
issuable upon conversion of the Subordinated Debentures, with the Pubco
stockholders retaining not more than 50% of Pubco’s Common Stock on a
fully-diluted basis after the closing of the Merger but before the issuance of
the Underlying Securities issuable upon conversion of the Subordinated
Debentures. It is the intention of the parties that the Merger qualify as a
“reorganization” under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the “Code”) and not subject the holder’s of the Company’s Common Stock
to any tax liability as a result of the Merger. At the Closing of the Merger and
before giving effect to the issuance of any Common Stock upon conversion of any
Subordinated Debentures, there will be 51,000,000 shares of Common Stock issued
and outstanding. After giving effect to the issuance of Common Stock upon
conversion of all of the Subordinated Debentures (assuming the Maximum Amount is
sold) there will be 62,428,571 shares of Common Stock issued and outstanding.

 

2.  Certain Representations and Warranties. The Merger Agreement will contain
customary representations, warranties, covenants and indemnities for a
transaction of this type. In particular, Pubco will make, among others, the
following representations and warranties to the Company on the signing date and
on the closing date: (a) Pubco is a US corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation and
the Pubco Common Stock is presently eligible for quotation and trading on the
OTCBB in all 50 states of the United States and not subject to any notice of
suspension or delisting; (b) the Company will have shares of Pubco Common Stock
in the public float which were issued pursuant to an effective Registration
Statement on Form SB-2 as filed with the Commission; (c) Pubco has complied with
all applicable federal and state securities laws and regulations, including
being current in all of its reporting obligations under federal securities laws
and regulations; (d) Pubco is not, and has not, and the past and present
officers, directors and affiliates of Pubco are not and have not, been the
subject of, nor does any officer or director have any reason to believe that
Pubco or any of its officers, directors or affiliates will be the subject of,
any civil or criminal proceeding or investigation by any federal or state agency
alleging the violation of securities laws; (e) Pubco has not been the subject of
any voluntary or involuntary bankruptcy proceeding, nor has it been a party to
any material litigation; (f) Pubco has not, and the past and present officers,
directors and affiliates have not, been the subject of, nor does any officer or
director of Pubco have any reason to believe that the Pubco or any of its
officers, directors or affiliates will be the subject of, any civil, criminal or
administrative investigation or proceeding brought by any federal or state
agency having regulatory authority over such entity or person; (g) Pubco does
not and will not on the closing date of the Merger, have any liabilities,
contingent or otherwise, including but not limited to notes payable and accounts
payable, and is not a party to any executory agreements; and (h) Pubco is not a
“blank check company” as such term is defined by Rule 419 of the Securities Act.
Pubco will be identified by the Advisor and be reasonably acceptable to the
Company after customary due diligence review.

 

3.  Composition of Pubco Board following the Merger. Immediately following the
closing date of the Merger, the Board of Directors of Pubco shall consist of
five (5) members. On the closing date of the Merger, all of the current officers
and directors of Pubco shall resign and, simultaneously therewith, a new Board
of Directors and such executive officers shall be appointed as shall be
determined by the parties. On the closing date of the Merger, the holders of the
Subordinated Debentures shall have the right to appoint one (1) member to the
Board.

24

 

4.  Registration Rights. Purchaser’s of the Subordinated Debentures and the
Company stockholders will not have demand or “piggy-back” registration rights.
Unless the Company elects to file a registration statement under the Securities
Act to register the Common Stock and the Underlying Securities issued in
connection with the Merger or upon conversion of the Subordinated Debentures,
respectively, such shares may be sold only pursuant to an exemption from the
registration requirements of the Securities Act, including Rule 144 promulgated
thereunder.

 

5.  Lock-up; No-Shorting. At the closing date of the Merger, all officers,
directors and key employees of the Company, as well as any 5% holders of Pubco
securities, will enter into a Lock-Up Agreement with Pubco for a term of 12
months whereby they agree to certain restrictions on the sale or disposition of
all the Common Stock acquired by them in connection with the Merger. In
addition, each such stockholder subject to Lock-Up Agreements shall agree that
it will not, for the longer of two (2) years from the closing date of the
Merger, directly or indirectly, effect or agree to effect any short sale (as
defined in Rule 200 under Regulation SHO of the Exchange Act), whether or not
against the box, establish any “put equivalent position” (as defined under Rule
16a-1(h) of the Exchange Act) with respect to the Common Stock, or grant any
other right with respect to the Common Stock or any security that includes,
relates to or derives any material part of its value from the Common Stock, or
otherwise seek to hedge its position in the Common Stock.

25

 

Exhibit C

 

Form of Officer’s Certificate

 

Certificate of Secretary of
Specialty Beverage and Supplement, Inc.

 

Reference is made to the Securities Purchase Agreement (the “Purchase
Agreement”) dated as of April 19, 2011 among Specialty Beverage and Supplement,
Inc., a Nevada corporation (the “Company”) and the other signatories thereto,
regarding 9% Convertible Subordinated Debentures of the Company. Capitalized
terms used herein and not otherwise defined herein shall have the meaning given
to them in the Purchase Agreement.

 

I, Peter Scalise lll, hereby certify on behalf of the Company that:

 

1. I am the Chairman and Chief Executive Officer of the Company.

 

2. Attached hereto as Appendix A is a copy of a certificate of good standing of
the Company, issued by the Nevada Secretary of State and dated no earlier than
three business days before the Closing.

 

3. Attached hereto as Appendix B is a true, correct and complete copy of the
Company’s Articles of Incorporation, as amended and restated and in effect on
the date hereof.

 

4. Attached hereto as Appendix C is a true, correct and complete copy of the
Company’s bylaws, as amended and restated and in effect on the date hereof.

 

5. Attached hereto as Appendix D is a true and correct copy of resolutions of
the Board of Directors of the Company, which resolutions are in full force and
effect and have not been amended.

 

Dated as of April 19, 2011

 

 

SPECIALTY BEVERAGE AND SUPPLEMENT, INC.

 

By: /s/ Peter Scalise III

Name: Peter Scalise III

Title: Chairman and Chief Executive Officer

 

26

 

DISCLOSURE SCHEDULES

 

Reference is made to the Securities Purchase Agreement (“Purchase Agreement”) of
even date herewith by and among Specialty Beverage and Supplement, Inc., a
Nevada corporation (the “Company”) and the other signatories thereto, regarding
the issuance of the Securities as defined in the Purchase Agreement.

 

These Disclosure Schedules are being furnished pursuant to the Purchase
Agreement.

 

Capitalized terms used in these Disclosure Schedules and not otherwise defined
herein have the meaning given to them in the Purchase Agreement.

 

The fact that an item is disclosed in these Disclosure Schedules does not mean
that such item is required to be disclosed or that it is material.

 

Dated as of April 19, 2011.

27

 

Schedule 3.1 (a) Direct and Indirect Subsidiaries of the Company

 

The Company has the following direct subsidiaries:

 

Graphic Gorilla, LLC a New York limited liability company.

 

Infusenomics Inc, a Nevada corporation.

 

The Company has no indirect subsidiaries.

 

Schedule 3.1 (f) Issuance of the Subordinated Debentures

 

The Securities are subject to restrictions under applicable securities laws.

 

Schedule 3.1 (g) Capitalization of the Company

 

This Schedule 3.1(g) describes the capitalization of Specialty Beverage and
Supplement, Inc., immediately prior to the Closing.

 

The authorized shares of Specialty Beverage and Supplement, Inc., consists of
135,000,000 shares of Common Stock, par value $0.001 per share, and 25,000,000
shares of preferred stock, par value $0.001 per share. As of the date hereof and
at the Closing there will be 124,349,018 shares of Common Stock and no shares of
preferred stock issued and outstanding.

 

There are no stockholder agreements between the Company and any Person.

 

Schedule 3.1 (h) Company Financial Statements

 

The Company Financial Statements are attached.

 

Schedule 3.1 (i) Material Changes

 

None

 

Schedule 3.1 (n) Title to Assets

 

None

 

3.1 (q) Transactions With Affiliates and Employees

 

None

 

Schedule 3.1 (s) Certain Fees

 

None

 

Schedule 3.1 (y) Solvency

 

Indebtedness

 

As of April 19, 2011, immediately prior to the Closing, the Company has no
Indebtedness other than for notes issued to investors in an aggregate amount
equal to $1,360,000 which the holders have each agreed to exchange the entire
principal and accrued interest thereunder for Subordinated Debentures in this
offering.

28

 

Solvency

 

If the Company does not obtain additional debt or equity financing, including
completion of the Closing, then Section 3.1(y) of the Purchase Agreement is, or
depending on the amount of money raised, may be, inaccurate. No assurance can be
given that such debt or equity financing will be available. Concern about our
ability to continue as a going concern may place additional constraints on
operations and make it more difficult for us to meet our obligations or
adversely affect the terms of possible future funding.

 

In the audit report on our financial statements for our fiscal years ended
December 31, 2009 and 2010, our auditors included a going concern qualification
indicating that our recurring operating losses and working capital deficit cause
substantial doubt about our ability to continue as a going concern. For these
same reasons, we would expect to receive a similar going concern qualification
on our financial statements for the fiscal year ended December 31, 2011, unless
we continue to raise additional capital prior to year-end.

 

 

Schedule 3.1 (cc) Seniority

 

See Schedule 3.1(y) for a description of the existing senior indebtedness of
Specialty Beverage and Supplement, Inc.

 

Schedule 3.1 (dd) No Disagreements With Accountants and Lawyers

 

None

29