Exhibit 10.1

 

SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT

 

PURCHASE AGREEMENT

 

 

Dated as of July 3, 2007

 

 

among

 

 

NASCENT WINE COMPANY, INC.

 

 

and

 

 

THE PURCHASERS LISTED ON EXHIBIT A

 

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TABLE OF CONTENTS

 

PAGE

ARTICLE I

Purchase and Sale of Preferred Stock and Warrants

1

 

 

 

Section 1.1

Purchase and Sale of Stock

1

Section 1.2

Warrants

1

Section 1.3

Conversion Shares

2

Section 1.4

Purchase Price and Closing

2

 

 

 

ARTICLE II

Representations and Warranties

2

 

 

 

Section 2.1

Representations and Warranties of the Company

2

Section 2.2

Representations and Warranties of the Purchasers

13

 

 

 

ARTICLE III

Covenants

15

 

 

 

Section 3.1

Securities Compliance

15

Section 3.2

Registration and Listing

15

Section 3.3

Inspection Rights

15

Section 3.4

Compliance with Laws

16

Section 3.5

Keeping of Records and Books of Account

16

Section 3.6

Reporting Requirements

16

Section 3.7

Amendments

16

Section 3.8

Other Agreements

16

Section 3.9

Distributions

16

Section 3.10

Status of Dividends

17

Section 3.11

Use of Proceeds

17

Section 3.12

Reservation of Shares

18

Section 3.13

Transfer Agent Instructions

18

Section 3.14

Disposition of Assets

18

Section 3.15

Reporting Status

18

Section 3.16

Disclosure of Transaction

19

Section 3.17

Disclosure of Material Information

19

Section 3.18

Pledge of Securities

19

Section 3.19

Form SB-2 Eligibility

19

Section 3.20

Stockholders Agreement

19

Section 3.21

Right of First Refusal on Additional Financing

19

Section 3.22

Board of Directors

20

Section 3.23

Confidentiality, Non-Competition and Non-Solicitation Agreement

20

Section 3.24

Comprehensive Operating Budget

20

Section 3.25

Board Materials

20

Section 3.26

Acquisitions

20

Section 3.27

D&O Insurance

20

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Section 3.28

Series B Certificate of Designation

20

 

 

 

ARTICLE IV

CONDITIONS

20

 

 

 

Section 4.1

Conditions Precedent to the Obligation of the Company to Sell the Shares

22

Section 4.2

Conditions Precedent to the Obligation of the Purchasers to Purchase the Shares

22

 

 

 

ARTICLE V

Stock Certificate Legend

25

 

 

 

Section 5.1

Legend

25

 

 

 

ARTICLE VI

Indemnification

26

 

 

 

Section 6.1

Company Indemnity

26

Section 6.2

Indemnification Procedure

26

 

 

 

ARTICLE VII

Miscellaneous

27

 

 

 

Section 7.1

Fees and Expenses

27

Section 7.2

Specific Enforcement, Consent to Jurisdiction.

28

Section 7.3

Entire Agreement; Amendment

28

Section 7.4

Notices

28

Section 7.5

Waivers

29

Section 7.6

Headings

29

Section 7.7

Successors and Assigns

30

Section 7.8

No Third Party Beneficiaries

30

Section 7.9

Governing Law

30

Section 7.10

Survival

30

Section 7.11

Counterparts

30

Section 7.12

Publicity

30

Section 7.13

Severability

30

Section 7.14

Further Assurances

30

 

ii

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SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT

This SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the
“Agreement”) is dated as of July 3, 2007 by and among Nascent Wine Company,
Inc., a Nevada corporation (the “Company”), and each of the Purchasers of shares
of Series A Convertible Preferred Stock of the Company whose names are set forth
on Exhibit A hereto (individually, a “Purchaser” and collectively, the
“Purchasers”).

The parties hereto agree as follows:

ARTICLE I

Purchase and Sale of Preferred Stock and Warrants

SECTION 1.1             PURCHASE AND SALE OF STOCK.  UPON THE FOLLOWING TERMS
AND CONDITIONS, THE COMPANY SHALL ISSUE AND SELL TO THE PURCHASERS AND EACH OF
THE PURCHASERS SHALL PURCHASE FROM THE COMPANY, THE NUMBER OF SHARES OF THE
COMPANY’S SERIES A CONVERTIBLE PREFERRED STOCK, PAR VALUE $0.001 PER SHARE AND
AT A PURCHASE PRICE OF $8.00 PER SHARE (THE “PREFERRED SHARES”), CONVERTIBLE
INTO SHARES OF THE COMPANY’S COMMON STOCK, PAR VALUE $0.001 PER SHARE (THE
“COMMON STOCK”), IN THE AMOUNTS SET FORTH OPPOSITE SUCH PURCHASER’S NAME ON
EXHIBIT A HERETO.  THE DESIGNATION, RIGHTS, PREFERENCES AND OTHER TERMS AND
PROVISIONS OF THE SERIES A CONVERTIBLE PREFERRED STOCK ARE SET FORTH IN THE
CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES OF THE SERIES
A CONVERTIBLE PREFERRED STOCK ATTACHED HERETO AS EXHIBIT B (THE “CERTIFICATE OF
DESIGNATION”).  THE COMPANY AND THE PURCHASERS ARE EXECUTING AND DELIVERING THIS
AGREEMENT IN ACCORDANCE WITH AND IN RELIANCE UPON THE EXEMPTION FROM SECURITIES
REGISTRATION AFFORDED BY RULE 506 OF REGULATION D (“REGULATION D”) AS
PROMULGATED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE
“COMMISSION”) UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) OR SECTION 4(2) OF THE SECURITIES ACT.

SECTION 1.2             WARRANTS.  UPON THE FOLLOWING TERMS AND CONDITIONS AND
FOR NO ADDITIONAL CONSIDERATION, EACH OF THE PURCHASERS SHALL BE ISSUED: (I)
SERIES A-1 WARRANTS, IN SUBSTANTIALLY THE FORM ATTACHED HERETO AS EXHIBIT C-1
(THE “SERIES A-1 WARRANT”), TO PURCHASE AN AGGREGATE OF 500,000 PREFERRED
SHARES, AS SET FORTH OPPOSITE SUCH PURCHASER’S NAME ON EXHIBIT A HERETO; (II)
SERIES A-2 WARRANTS, IN SUBSTANTIALLY THE FORM ATTACHED HERETO AS EXHIBIT C-2
(THE “SERIES A-2 WARRANT”), TO PURCHASE AN AGGREGATE OF 375,000 PREFERRED
SHARES, AS SET FORTH OPPOSITE SUCH PURCHASER’S NAME ON EXHIBIT A HERETO AND
(III) SERIES B WARRANTS, IN SUBSTANTIALLY THE FORM ATTACHED HERETO AS EXHIBIT
C-3 (THE “SERIES B WARRANT” AND TOGETHER WITH THE SERIES A-1 WARRANT AND SERIES
A-2 WARRANT, THE “WARRANTS”) TO PURCHASE AN AGGREGATE OF 375,000 SERIES B
PREFERRED CONVERTIBLE STOCK (THE “SERIES B PREFERRED SHARES”), AS SET FORTH
OPPOSITE SUCH PURCHASER’S NAME ON EXHIBIT A HERETO.  THE SERIES A-1 WARRANT
SHALL EXPIRE THREE (3) YEARS FOLLOWING THE CLOSING DATE.  THE SERIES A-2 WARRANT
SHALL EXPIRE SEVEN (7) YEARS FOLLOWING THE CLOSING DATE.  THE SERIES B WARRANT
SHALL EXPIRE SEVEN (7) YEARS FOLLOWING THE CLOSING DATE.  EACH OF THE WARRANTS
SHALL HAVE AN EXERCISE PRICE PER SHARE EQUAL TO THE WARRANT PRICE (AS DEFINED IN
THE APPLICABLE WARRANT).

SECTION 1.3             CONVERSION SHARES.  THE COMPANY HAS AUTHORIZED AND HAS
RESERVED AND COVENANTS TO CONTINUE TO RESERVE, FREE OF PREEMPTIVE RIGHTS AND
OTHER SIMILAR CONTRACTUAL

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RIGHTS OF STOCKHOLDERS, A NUMBER OF SHARES OF COMMON STOCK EQUAL TO ONE HUNDRED
TWENTY PERCENT (120%) OF THE NUMBER OF SHARES OF COMMON STOCK AS SHALL FROM TIME
TO TIME BE SUFFICIENT TO EFFECT THE CONVERSION OF ALL OF THE PREFERRED SHARES,
THE SERIES B PREFERRED SHARES AND THE CONVERSION OF THE PREFERRED SHARES
UNDERLYING THE WARRANTS THEN OUTSTANDING.  ANY SHARES OF PREFERRED SHARES OR
SERIES B PREFERRED SHARES ISSUABLE UPON EXERCISE OF THE WARRANTS ARE HEREIN
REFERRED TO AS THE “WARRANT PREFERRED SHARES”.  ANY SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THE PREFERRED SHARES AND ISSUABLE UPON THE
CONVERSION OF THE WARRANT PREFERRED SHARES (AND SUCH SHARES WHEN ISSUED) ARE
HEREIN REFERRED TO AS THE “CONVERSION SHARES” AND THE “WARRANT SHARES”,
RESPECTIVELY.  THE PREFERRED SHARES, WARRANT PREFERRED SHARES, THE CONVERSION
SHARES AND THE WARRANT SHARES ARE SOMETIMES COLLECTIVELY REFERRED TO AS THE
“SHARES”.

SECTION 1.4             PURCHASE PRICE AND CLOSING.  SUBJECT TO THE TERMS AND
CONDITIONS HEREOF, THE COMPANY AGREES TO ISSUE AND SELL TO THE PURCHASERS AND,
IN CONSIDERATION OF AND IN EXPRESS RELIANCE UPON THE REPRESENTATIONS,
WARRANTIES, COVENANTS, TERMS AND CONDITIONS OF THIS AGREEMENT, THE PURCHASERS,
SEVERALLY BUT NOT JOINTLY, AGREE TO PURCHASE THE PREFERRED SHARES AND THE
WARRANTS FOR AN AGGREGATE PURCHASE PRICE OF UP TO $8,000,000 (THE “PURCHASE
PRICE”).  THE PREFERRED SHARES AND THE WARRANTS SHALL BE SOLD AND FUNDED IN ONE
OR MORE CLOSINGS (EACH, A “CLOSING”).  THE CLOSING OF THE PURCHASE AND SALE OF
THE PREFERRED SHARES AND THE WARRANTS TO BE ACQUIRED BY THE PURCHASERS FROM THE
COMPANY UNDER THIS AGREEMENT SHALL TAKE PLACE AT THE OFFICES OF KRAMER LEVIN
NAFTALIS & FRANKEL LLP, 1177 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10036
(THE “CLOSING”) AT 10:00 A.M., NEW YORK TIME ON SUCH DATE AS THE PURCHASERS AND
THE COMPANY MAY AGREE UPON; PROVIDED, THAT ALL OF THE CONDITIONS SET FORTH IN
ARTICLE IV HEREOF AND APPLICABLE TO THE CLOSING SHALL HAVE BEEN FULFILLED OR
WAIVED IN ACCORDANCE HEREWITH (THE “CLOSING DATE”).  SUBJECT TO THE TERMS AND
CONDITIONS OF THIS AGREEMENT, AT THE CLOSING THE COMPANY SHALL DELIVER OR CAUSE
TO BE DELIVERED TO EACH PURCHASER (X) A CERTIFICATE FOR THE NUMBER OF PREFERRED
SHARES SET FORTH OPPOSITE THE NAME OF SUCH PURCHASER ON EXHIBIT A HERETO AND (Y)
ITS WARRANTS TO PURCHASE SUCH NUMBER OF PREFERRED SHARES AS IS SET FORTH
OPPOSITE THE NAME OF SUCH PURCHASE ON EXHIBIT A ATTACHED HERETO AND (Z) ANY
OTHER DOCUMENTS REQUIRED TO BE DELIVERED PURSUANT TO ARTICLE IV HEREOF.  AT THE
CLOSING, EACH PURCHASER SHALL DELIVER ITS PURCHASE PRICE BY WIRE TRANSFER TO THE
COMPANY.

ARTICLE II

Representations and Warranties

SECTION 2.1             REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  THE
COMPANY HEREBY REPRESENTS AND WARRANTS TO THE PURCHASERS, AS OF THE DATE HEREOF
AND THE CLOSING DATE (EXCEPT AS SET FORTH ON THE SCHEDULE OF EXCEPTIONS ATTACHED
HERETO WITH EACH NUMBERED SCHEDULE CORRESPONDING TO THE SECTION NUMBER HEREIN),
AS FOLLOWS:

(A)           ORGANIZATION, GOOD STANDING AND POWER.  THE COMPANY IS A
CORPORATION DULY INCORPORATED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE
LAWS OF THE STATE OF NEVADA AND HAS THE REQUISITE CORPORATE POWER TO OWN, LEASE
AND OPERATE ITS PROPERTIES AND ASSETS AND TO CONDUCT ITS BUSINESS AS IT IS NOW
BEING CONDUCTED.  THE COMPANY DOES NOT HAVE ANY SUBSIDIARIES EXCEPT AS SET FORTH
IN THE COMPANY’S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2006, INCLUDING THE
ACCOMPANYING FINANCIAL STATEMENTS (THE “FORM 10-KSB”), OR IN THE COMPANY’S

2

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FORM 10-QSB FOR THE FISCAL QUARTERS ENDED MARCH 31, 2007 (THE “FORM 10-QSB”), OR
ON SCHEDULE 2.1(G) HERETO.  THE COMPANY AND EACH SUCH SUBSIDIARY IS DULY
QUALIFIED AS A FOREIGN CORPORATION TO DO BUSINESS AND IS IN GOOD STANDING IN
EVERY JURISDICTION IN WHICH THE NATURE OF THE BUSINESS CONDUCTED OR PROPERTY
OWNED BY IT MAKES SUCH QUALIFICATION NECESSARY EXCEPT FOR ANY JURISDICTION(S)
(ALONE OR IN THE AGGREGATE) IN WHICH THE FAILURE TO BE SO QUALIFIED WOULD NOT
HAVE A MATERIAL ADVERSE EFFECT (AS DEFINED IN SECTION 2.1(C) HEREOF).

(B)           AUTHORIZATION; ENFORCEMENT.  THE COMPANY HAS THE REQUISITE
CORPORATE POWER AND AUTHORITY TO ENTER INTO AND PERFORM THIS AGREEMENT, THE
REGISTRATION RIGHTS AGREEMENT IN THE FORM ATTACHED HERETO AS EXHIBIT D (THE
“REGISTRATION RIGHTS AGREEMENT”), THE STOCKHOLDERS AGREEMENT (AS DEFINED IN
SECTION 3.20 HEREOF) IN THE FORM ATTACHED HERETO AS EXHIBIT E, THE
CONFIDENTIALITY, NON-COMPETITION AND NON-SOLICITATION AGREEMENT (AS DEFINED IN
SECTION 3.23 HEREOF) IN THE FORM ATTACHED HERETO AS EXHIBIT H, THE DIRECTOR
INDEMNIFICATION AGREEMENT (AS DEFINED IN SECTION 3.29 HEREOF) IN THE FORM
ATTACHED HERETO AS EXHIBIT I, THE IRREVOCABLE TRANSFER AGENT INSTRUCTIONS (AS
DEFINED IN SECTION 3.13) AND THE CERTIFICATE OF DESIGNATION (COLLECTIVELY, THE
“TRANSACTION DOCUMENTS”) AND TO ISSUE AND SELL THE SHARES IN ACCORDANCE WITH THE
TERMS HEREOF.  THE EXECUTION, DELIVERY AND PERFORMANCE OF THE TRANSACTION
DOCUMENTS BY THE COMPANY AND THE CONSUMMATION BY IT OF THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY HAVE BEEN DULY AND VALIDLY AUTHORIZED BY ALL
NECESSARY CORPORATE ACTION, AND NO FURTHER CONSENT OR AUTHORIZATION OF THE
COMPANY OR ITS BOARD OF DIRECTORS OR STOCKHOLDERS IS REQUIRED.  THIS AGREEMENT
HAS BEEN DULY EXECUTED AND DELIVERED BY THE COMPANY.  THE OTHER TRANSACTION
DOCUMENTS WILL HAVE BEEN DULY EXECUTED AND DELIVERED BY THE COMPANY AT THE
CLOSING.  EACH OF THE TRANSACTION DOCUMENTS CONSTITUTES, OR SHALL CONSTITUTE
WHEN EXECUTED AND DELIVERED, A VALID AND BINDING OBLIGATION OF THE COMPANY
ENFORCEABLE AGAINST THE COMPANY IN ACCORDANCE WITH ITS TERMS, EXCEPT AS SUCH
ENFORCEABILITY MAY BE LIMITED BY APPLICABLE BANKRUPTCY, INSOLVENCY,
REORGANIZATION, MORATORIUM, LIQUIDATION, CONSERVATORSHIP, RECEIVERSHIP OR
SIMILAR LAWS RELATING TO, OR AFFECTING GENERALLY THE ENFORCEMENT OF, CREDITOR’S
RIGHTS AND REMEDIES OR BY OTHER EQUITABLE PRINCIPLES OF GENERAL APPLICATION.

(C)           CAPITALIZATION.  THE AUTHORIZED CAPITAL STOCK OF THE COMPANY AND
THE SHARES THEREOF CURRENTLY ISSUED AND OUTSTANDING IMMEDIATELY PRECEDING THE
CLOSING DATE ARE SET FORTH ON SCHEDULE 2.1(C) HERETO.  ALL OF THE OUTSTANDING
SHARES OF THE COMMON STOCK AND THE PREFERRED SHARES HAVE BEEN DULY AND VALIDLY
AUTHORIZED.  EXCEPT AS SET FORTH ON SCHEDULE 2.1(C) HERETO, NO SHARES OF COMMON
STOCK ARE ENTITLED TO PREEMPTIVE RIGHTS OR REGISTRATION RIGHTS AND THERE ARE NO
OUTSTANDING OPTIONS, WARRANTS, SCRIP, RIGHTS TO SUBSCRIBE TO, CALL OR
COMMITMENTS OF ANY CHARACTER WHATSOEVER RELATING TO, OR SECURITIES OR RIGHTS
CONVERTIBLE INTO, ANY SHARES OF CAPITAL STOCK OF THE COMPANY.  THERE ARE NO
CONTRACTS, COMMITMENTS, UNDERSTANDINGS, OR ARRANGEMENTS BY WHICH THE COMPANY IS
OR MAY BECOME BOUND TO ISSUE ADDITIONAL SHARES OF THE CAPITAL STOCK OF THE
COMPANY OR OPTIONS, SECURITIES OR RIGHTS CONVERTIBLE INTO SHARES OF CAPITAL
STOCK OF THE COMPANY.  EXCEPT AS SET FORTH ON SCHEDULE 2.1(C) HERETO, THE
COMPANY IS NOT A PARTY TO ANY AGREEMENT GRANTING REGISTRATION OR ANTI-DILUTION
RIGHTS TO ANY PERSON WITH RESPECT TO ANY OF ITS EQUITY OR DEBT SECURITIES.  THE
COMPANY IS NOT A PARTY TO, AND IT HAS NO KNOWLEDGE OF, ANY AGREEMENT RESTRICTING
THE VOTING OR TRANSFER OF ANY SHARES OF THE CAPITAL STOCK OF THE COMPANY.  THE
OFFER AND SALE OF ALL CAPITAL STOCK, CONVERTIBLE SECURITIES, RIGHTS, WARRANTS,
OR OPTIONS OF THE COMPANY ISSUED PRIOR TO THE CLOSING COMPLIED WITH ALL
APPLICABLE FEDERAL AND STATE SECURITIES LAWS, AND NO STOCKHOLDER HAS A RIGHT OF
RESCISSION OR CLAIM FOR DAMAGES WITH RESPECT THERETO

3

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WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT (AS DEFINED BELOW).  THE COMPANY HAS
FURNISHED OR MADE AVAILABLE TO THE PURCHASERS TRUE AND CORRECT COPIES OF THE
COMPANY’S ARTICLES OF INCORPORATION AS IN EFFECT ON THE DATE HEREOF (THE
“ARTICLES”), AND THE COMPANY’S BYLAWS AS IN EFFECT ON THE DATE HEREOF (THE
“BYLAWS”).  FOR THE PURPOSES OF THIS AGREEMENT, “MATERIAL ADVERSE EFFECT” MEANS
ANY MATERIAL ADVERSE EFFECT ON THE BUSINESS, OPERATIONS, PROPERTIES, PROSPECTS,
OR FINANCIAL CONDITION OF THE COMPANY AND ITS SUBSIDIARIES AND/OR ANY CONDITION,
CIRCUMSTANCE, OR SITUATION THAT WOULD PROHIBIT OR OTHERWISE MATERIALLY INTERFERE
WITH THE ABILITY OF THE COMPANY TO PERFORM ANY OF ITS OBLIGATIONS UNDER THIS
AGREEMENT IN ANY MATERIAL RESPECT.

(D)           ISSUANCE OF SHARES.  THE PREFERRED SHARES AND THE WARRANTS TO BE
ISSUED AT THE CLOSING HAVE BEEN DULY AUTHORIZED BY ALL NECESSARY CORPORATE
ACTION AND THE PREFERRED SHARES, WHEN PAID FOR OR ISSUED IN ACCORDANCE WITH THE
TERMS HEREOF, SHALL BE VALIDLY ISSUED AND OUTSTANDING, FULLY PAID AND
NONASSESSABLE AND ENTITLED TO THE RIGHTS AND PREFERENCES SET FORTH IN THE
CERTIFICATE OF DESIGNATION.  WHEN THE WARRANT PREFERRED SHARES ARE ISSUED IN
ACCORDANCE WITH THE TERMS OF THE WARRANTS, SUCH SHARES WILL BE DULY AUTHORIZED
BY ALL NECESSARY CORPORATE ACTION AND VALIDLY ISSUED AND OUTSTANDING, FULLY PAID
AND NONASSESSABLE, AND THE HOLDERS SHALL BE ENTITLED TO ALL RIGHTS ACCORDED TO A
HOLDER OF PREFERRED SHARES OR SERIES B PREFERRED SHARES, AS APPLICABLE.  WHEN
THE CONVERSION SHARES ARE ISSUED IN ACCORDANCE WITH THE TERMS OF THE CERTIFICATE
OF DESIGNATION, SUCH SHARES WILL BE DULY AUTHORIZED BY ALL NECESSARY CORPORATE
ACTION AND VALIDLY ISSUED AND OUTSTANDING, FULLY PAID AND NONASSESSABLE, AND THE
HOLDERS SHALL BE ENTITLED TO ALL RIGHTS ACCORDED TO A HOLDER OF COMMON STOCK. 
WHEN THE WARRANT SHARES ARE ISSUED IN ACCORDANCE WITH THE TERMS OF THE
CERTIFICATE OF DESIGNATION OR THE CERTIFICATE OF DESIGNATION OF THE RELATIVE
RIGHTS AND PREFERENCES OF THE SERIES B CONVERTIBLE PREFERRED STOCK (THE “SERIES
B CERTIFICATE OF DESIGNATION”), AS APPLICABLE, SUCH SHARES WILL BE DULY
AUTHORIZED BY ALL NECESSARY CORPORATE ACTION AND VALIDLY ISSUED AND OUTSTANDING,
FULLY PAID AND NONASSESSABLE, AND THE HOLDERS SHALL BE ENTITLED TO ALL RIGHTS
ACCORDED TO A HOLDER OF COMMON STOCK.

(E)           NO CONFLICTS.  THE EXECUTION, DELIVERY AND PERFORMANCE OF THE
TRANSACTION DOCUMENTS BY THE COMPANY, THE PERFORMANCE BY THE COMPANY OF ITS
OBLIGATIONS UNDER THE CERTIFICATE OF DESIGNATION AND THE SERIES B CERTIFICATE OF
DESIGNATION AND THE CONSUMMATION BY THE COMPANY OF THE TRANSACTIONS CONTEMPLATED
HEREIN AND THEREIN DO NOT AND WILL NOT (I) VIOLATE ANY PROVISION OF THE
COMPANY’S ARTICLES OR BYLAWS, (II) CONFLICT WITH, OR CONSTITUTE A DEFAULT (OR AN
EVENT WHICH WITH NOTICE OR LAPSE OF TIME OR BOTH WOULD BECOME A DEFAULT) UNDER,
OR GIVE TO OTHERS ANY RIGHTS OF TERMINATION, AMENDMENT, ACCELERATION OR
CANCELLATION OF, ANY AGREEMENT, MORTGAGE, DEED OF TRUST, INDENTURE, NOTE, BOND,
LICENSE, LEASE AGREEMENT, INSTRUMENT OR OBLIGATION TO WHICH THE COMPANY IS A
PARTY OR BY WHICH IT OR ITS PROPERTIES OR ASSETS ARE BOUND, (III) CREATE OR
IMPOSE A LIEN, MORTGAGE, SECURITY INTEREST, CHARGE OR ENCUMBRANCE OF ANY NATURE
ON ANY PROPERTY OF THE COMPANY UNDER ANY AGREEMENT OR ANY COMMITMENT TO WHICH
THE COMPANY IS A PARTY OR BY WHICH THE COMPANY IS BOUND OR BY WHICH ANY OF ITS
RESPECTIVE PROPERTIES OR ASSETS ARE BOUND, OR (IV) RESULT IN A VIOLATION OF ANY
FEDERAL, STATE, LOCAL OR FOREIGN STATUTE, RULE, REGULATION, ORDER, JUDGMENT OR
DECREE (INCLUDING FEDERAL AND STATE SECURITIES LAWS AND REGULATIONS) APPLICABLE
TO THE COMPANY OR ANY OF ITS SUBSIDIARIES OR BY WHICH ANY PROPERTY OR ASSET OF
THE COMPANY OR ANY OF ITS SUBSIDIARIES ARE BOUND OR AFFECTED, EXCEPT, IN ALL
CASES OTHER THAN VIOLATIONS PURSUANT TO CLAUSES (I) AND (IV) ABOVE, FOR SUCH
CONFLICTS, DEFAULTS, TERMINATIONS, AMENDMENTS, ACCELERATIONS, CANCELLATIONS AND
VIOLATIONS AS WOULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, HAVE A MATERIAL
ADVERSE EFFECT.  THE BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES IS NOT BEING
CONDUCTED IN

4

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VIOLATION OF ANY LAWS, ORDINANCES OR REGULATIONS OF ANY GOVERNMENTAL ENTITY,
EXCEPT FOR POSSIBLE VIOLATIONS WHICH SINGULARLY OR IN THE AGGREGATE DO NOT AND
WILL NOT HAVE A MATERIAL ADVERSE EFFECT.  THE COMPANY IS NOT REQUIRED UNDER
FEDERAL, STATE OR LOCAL LAW, RULE OR REGULATION TO OBTAIN ANY CONSENT,
AUTHORIZATION OR ORDER OF, OR MAKE ANY FILING OR REGISTRATION WITH, ANY COURT OR
GOVERNMENTAL AGENCY IN ORDER FOR IT TO EXECUTE, DELIVER OR PERFORM ANY OF ITS
OBLIGATIONS UNDER THE TRANSACTION DOCUMENTS, OR ISSUE AND SELL THE PREFERRED
SHARES, THE WARRANTS, THE WARRANT PREFERRED SHARES, THE CONVERSION SHARES AND
THE WARRANT SHARES IN ACCORDANCE WITH THE TERMS HEREOF OR THEREOF (OTHER THAN
ANY FILINGS WHICH MAY BE REQUIRED TO BE MADE BY THE COMPANY WITH THE COMMISSION
OR STATE SECURITIES ADMINISTRATORS SUBSEQUENT TO THE CLOSING, ANY REGISTRATION
STATEMENT WHICH MAY BE FILED PURSUANT HERETO, AND THE CERTIFICATE OF
DESIGNATION); PROVIDED THAT, FOR PURPOSES OF THE REPRESENTATION MADE IN THIS
SENTENCE, THE COMPANY IS ASSUMING AND RELYING UPON THE ACCURACY OF THE RELEVANT
REPRESENTATIONS AND AGREEMENTS OF THE PURCHASERS HEREIN.

(F)            COMMISSION DOCUMENTS, FINANCIAL STATEMENTS.  THE COMMON STOCK IS
REGISTERED PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED THE “EXCHANGE ACT”), THE COMPANY HAS TIMELY FILED ALL REPORTS,
SCHEDULES, FORMS, STATEMENTS AND OTHER DOCUMENTS REQUIRED TO BE FILED BY IT WITH
THE COMMISSION PURSUANT TO THE REPORTING REQUIREMENTS OF THE EXCHANGE ACT,
INCLUDING MATERIAL FILED PURSUANT TO SECTION 13(A) OR 15(D) OF THE EXCHANGE ACT
(ALL OF THE FOREGOING INCLUDING FILINGS INCORPORATED BY REFERENCE THEREIN BEING
REFERRED TO HEREIN AS THE “COMMISSION DOCUMENTS”).  THE COMPANY HAS DELIVERED OR
MADE AVAILABLE TO EACH OF THE PURCHASERS TRUE AND COMPLETE COPIES OF THE
COMMISSION DOCUMENTS.  THE COMPANY HAS NOT PROVIDED TO THE PURCHASERS ANY
MATERIAL NON-PUBLIC INFORMATION OR OTHER INFORMATION WHICH, ACCORDING TO
APPLICABLE LAW, RULE OR REGULATION, WAS REQUIRED TO HAVE BEEN DISCLOSED PUBLICLY
BY THE COMPANY BUT WHICH HAS NOT BEEN SO DISCLOSED, OTHER THAN WITH RESPECT TO
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.  AT THE TIMES OF THEIR
RESPECTIVE FILINGS, THE FORM 10-KSB AND THE FORM 10-QSB COMPLIED IN ALL MATERIAL
RESPECTS WITH THE REQUIREMENTS OF THE EXCHANGE ACT AND THE RULES AND REGULATIONS
OF THE COMMISSION PROMULGATED THEREUNDER AND OTHER FEDERAL, STATE AND LOCAL
LAWS, RULES AND REGULATIONS APPLICABLE TO SUCH DOCUMENTS, AND, AS OF THEIR
RESPECTIVE DATES, NONE OF THE FORM 10-KSB AND THE FORM 10-QSB CONTAINED ANY
UNTRUE STATEMENT OF A MATERIAL FACT OR OMITTED TO STATE A MATERIAL FACT REQUIRED
TO BE STATED THEREIN OR NECESSARY IN ORDER TO MAKE THE STATEMENTS THEREIN, IN
LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.  THE
FINANCIAL STATEMENTS OF THE COMPANY INCLUDED IN THE COMMISSION DOCUMENTS COMPLY
AS TO FORM IN ALL MATERIAL RESPECTS WITH APPLICABLE ACCOUNTING REQUIREMENTS AND
THE PUBLISHED RULES AND REGULATIONS OF THE COMMISSION OR OTHER APPLICABLE RULES
AND REGULATIONS WITH RESPECT THERETO.  SUCH FINANCIAL STATEMENTS HAVE BEEN
PREPARED IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (“GAAP”) APPLIED ON A CONSISTENT BASIS DURING THE PERIODS INVOLVED
(EXCEPT (I) AS MAY BE OTHERWISE INDICATED IN SUCH FINANCIAL STATEMENTS OR THE
NOTES THERETO OR (II) IN THE CASE OF UNAUDITED INTERIM STATEMENTS, TO THE EXTENT
THEY MAY NOT INCLUDE FOOTNOTES OR MAY BE CONDENSED OR SUMMARY STATEMENTS), AND
FAIRLY PRESENT IN ALL MATERIAL RESPECTS THE FINANCIAL POSITION OF THE COMPANY
AND ITS SUBSIDIARIES AS OF THE DATES THEREOF AND THE RESULTS OF OPERATIONS AND
CASH FLOWS FOR THE PERIODS THEN ENDED (SUBJECT, IN THE CASE OF UNAUDITED
STATEMENTS, TO NORMAL, IMMATERIAL (INDIVIDUALLY OR IN THE AGGREGATE) YEAR-END
AUDIT ADJUSTMENTS).

(G)           SUBSIDIARIES.  SCHEDULE 2.1(G) HERETO SETS FORTH EACH SUBSIDIARY
OF THE COMPANY, SHOWING THE JURISDICTION OF ITS INCORPORATION OR ORGANIZATION
AND SHOWING THE

5

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PERCENTAGE OF EACH PERSON’S OWNERSHIP.  FOR THE PURPOSES OF THIS AGREEMENT,
“SUBSIDIARY” SHALL MEAN ANY CORPORATION OR OTHER ENTITY OF WHICH AT LEAST A
MAJORITY OF THE SECURITIES OR OTHER OWNERSHIP INTEREST HAVING ORDINARY VOTING
POWER (ABSOLUTELY OR CONTINGENTLY) FOR THE ELECTION OF DIRECTORS OR OTHER
PERSONS PERFORMING SIMILAR FUNCTIONS ARE AT THE TIME OWNED DIRECTLY OR
INDIRECTLY BY THE COMPANY AND/OR ANY OF ITS OTHER SUBSIDIARIES.  ALL OF THE
OUTSTANDING SHARES OF CAPITAL STOCK OF EACH SUBSIDIARY HAVE BEEN DULY AUTHORIZED
AND VALIDLY ISSUED, AND ARE FULLY PAID AND NONASSESSABLE.  THERE ARE NO
OUTSTANDING PREEMPTIVE, CONVERSION OR OTHER RIGHTS, OPTIONS, WARRANTS OR
AGREEMENTS GRANTED OR ISSUED BY OR BINDING UPON ANY SUBSIDIARY FOR THE PURCHASE
OR ACQUISITION OF ANY SHARES OF CAPITAL STOCK OF ANY SUBSIDIARY OR ANY OTHER
SECURITIES CONVERTIBLE INTO, EXCHANGEABLE FOR OR EVIDENCING THE RIGHTS TO
SUBSCRIBE FOR ANY SHARES OF SUCH CAPITAL STOCK.  NEITHER THE COMPANY NOR ANY
SUBSIDIARY IS SUBJECT TO ANY OBLIGATION (CONTINGENT OR OTHERWISE) TO REPURCHASE
OR OTHERWISE ACQUIRE OR RETIRE ANY SHARES OF THE CAPITAL STOCK OF ANY SUBSIDIARY
OR ANY CONVERTIBLE SECURITIES, RIGHTS, WARRANTS OR OPTIONS OF THE TYPE DESCRIBED
IN THE PRECEDING SENTENCE.  NEITHER THE COMPANY NOR ANY SUBSIDIARY IS PARTY TO,
NOR HAS ANY KNOWLEDGE OF, ANY AGREEMENT RESTRICTING THE VOTING OR TRANSFER OF
ANY SHARES OF THE CAPITAL STOCK OF ANY SUBSIDIARY.

(H)           NO MATERIAL ADVERSE CHANGE.  SINCE DECEMBER 31, 2006, THE COMPANY
HAS NOT EXPERIENCED OR SUFFERED ANY MATERIAL ADVERSE EFFECT.

(I)            NO UNDISCLOSED LIABILITIES.  NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES HAS ANY LIABILITIES, OBLIGATIONS, CLAIMS OR LOSSES (WHETHER
LIQUIDATED OR UNLIQUIDATED, SECURED OR UNSECURED, ABSOLUTE, ACCRUED, CONTINGENT
OR OTHERWISE) OTHER THAN THOSE INCURRED IN THE ORDINARY COURSE OF THE COMPANY’S
OR ITS SUBSIDIARIES RESPECTIVE BUSINESSES SINCE DECEMBER 31, 2006 AND WHICH,
INDIVIDUALLY OR IN THE AGGREGATE, DO NOT OR WOULD NOT HAVE A MATERIAL ADVERSE
EFFECT ON THE COMPANY OR ITS SUBSIDIARIES.

(J)            NO UNDISCLOSED EVENTS OR CIRCUMSTANCES.  NO EVENT OR CIRCUMSTANCE
HAS OCCURRED OR EXISTS WITH RESPECT TO THE COMPANY OR ITS SUBSIDIARIES OR THEIR
RESPECTIVE BUSINESSES, PROPERTIES, PROSPECTS, OPERATIONS OR FINANCIAL CONDITION,
WHICH, UNDER APPLICABLE LAW, RULE OR REGULATION, REQUIRES PUBLIC DISCLOSURE OR
ANNOUNCEMENT BY THE COMPANY BUT WHICH HAS NOT BEEN SO PUBLICLY ANNOUNCED OR
DISCLOSED.

(K)           INDEBTEDNESS.  THE FORM 10-KSB, FORM 10-QSB OR SCHEDULE 2.1(K)
HERETO SETS FORTH AS OF A RECENT DATE 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”
SHALL MEAN (A) ANY LIABILITIES FOR BORROWED MONEY OR AMOUNTS OWED IN EXCESS OF
$50,000 (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.  EXCEPT AS SET FORTH ON SCHEDULE 2.1(K),
NEITHER THE COMPANY NOR ANY SUBSIDIARY IS IN DEFAULT WITH RESPECT TO ANY
INDEBTEDNESS.

6

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(L)            TITLE TO ASSETS.  EACH OF THE COMPANY AND THE SUBSIDIARIES HAS
GOOD AND MARKETABLE TITLE TO ALL OF ITS REAL AND PERSONAL PROPERTY REFLECTED IN
THE FORM 10-KSB, FREE AND CLEAR OF ANY MORTGAGES, PLEDGES, CHARGES, LIENS,
SECURITY INTERESTS OR OTHER ENCUMBRANCES, EXCEPT FOR THOSE DISCLOSED IN THE FORM
10-KSB OR SUCH THAT, INDIVIDUALLY OR IN THE AGGREGATE, DO NOT CAUSE A MATERIAL
ADVERSE EFFECT.  ALL LEASES OF THE COMPANY AND EACH OF ITS SUBSIDIARIES ARE
VALID AND SUBSISTING AND IN FULL FORCE AND EFFECT.

(M)          ACTIONS PENDING.  THERE IS NO ACTION, SUIT, CLAIM, INVESTIGATION,
ARBITRATION, ALTERNATE DISPUTE RESOLUTION PROCEEDING OR ANY OTHER PROCEEDING
PENDING OR, TO THE KNOWLEDGE OF THE COMPANY, THREATENED AGAINST THE COMPANY OR
ANY SUBSIDIARY WHICH QUESTIONS THE VALIDITY OF THIS AGREEMENT OR ANY OF THE
OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY
OR ANY ACTION TAKEN OR TO BE TAKEN PURSUANT HERETO OR THERETO.  THERE IS NO
ACTION, SUIT, CLAIM, INVESTIGATION, ARBITRATION, ALTERNATE DISPUTE RESOLUTION
PROCEEDING OR ANY OTHER PROCEEDING PENDING OR, TO THE KNOWLEDGE OF THE COMPANY,
THREATENED, AGAINST OR INVOLVING THE COMPANY, ANY SUBSIDIARY OR ANY OF THEIR
RESPECTIVE PROPERTIES OR ASSETS.  THERE ARE NO OUTSTANDING ORDERS, JUDGMENTS,
INJUNCTIONS, AWARDS OR DECREES OF ANY COURT, ARBITRATOR OR GOVERNMENTAL OR
REGULATORY BODY AGAINST THE COMPANY OR ANY SUBSIDIARY OR ANY OFFICERS OR
DIRECTORS OF THE COMPANY OR SUBSIDIARY IN THEIR CAPACITIES AS SUCH.

(N)           COMPLIANCE WITH LAW.  THE BUSINESS OF THE COMPANY AND THE
SUBSIDIARIES HAS BEEN AND IS PRESENTLY BEING CONDUCTED IN ACCORDANCE WITH ALL
APPLICABLE FEDERAL, STATE AND LOCAL GOVERNMENTAL LAWS, RULES, REGULATIONS AND
ORDINANCES, EXCEPT FOR SUCH NONCOMPLIANCE THAT, INDIVIDUALLY OR IN THE
AGGREGATE, WOULD NOT CAUSE A MATERIAL ADVERSE EFFECT.  THE COMPANY AND EACH OF
ITS SUBSIDIARIES HAVE ALL FRANCHISES, PERMITS, LICENSES, CONSENTS AND OTHER
GOVERNMENTAL OR REGULATORY AUTHORIZATIONS AND APPROVALS NECESSARY FOR THE
CONDUCT OF ITS BUSINESS AS NOW BEING CONDUCTED BY IT UNLESS THE FAILURE TO
POSSESS SUCH FRANCHISES, PERMITS, LICENSES, CONSENTS AND OTHER GOVERNMENTAL OR
REGULATORY AUTHORIZATIONS AND APPROVALS, INDIVIDUALLY OR IN THE AGGREGATE, COULD
NOT REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT.

(O)           TAXES.  THE COMPANY AND EACH OF THE SUBSIDIARIES HAS ACCURATELY
PREPARED AND FILED ALL FEDERAL, STATE AND OTHER TAX RETURNS REQUIRED BY LAW TO
BE FILED BY IT, HAS PAID OR MADE PROVISIONS FOR THE PAYMENT OF ALL TAXES SHOWN
TO BE DUE AND ALL ADDITIONAL ASSESSMENTS, AND ADEQUATE PROVISIONS HAVE BEEN AND
ARE REFLECTED IN THE FINANCIAL STATEMENTS OF THE COMPANY AND THE SUBSIDIARIES
FOR ALL CURRENT TAXES AND OTHER CHARGES TO WHICH THE COMPANY OR ANY SUBSIDIARY
IS SUBJECT AND WHICH ARE NOT CURRENTLY DUE AND PAYABLE.  NONE OF THE FEDERAL
INCOME TAX RETURNS OF THE COMPANY OR ANY SUBSIDIARY HAVE BEEN AUDITED BY THE
INTERNAL REVENUE SERVICE.  THE COMPANY HAS NO KNOWLEDGE OF ANY ADDITIONAL
ASSESSMENTS, ADJUSTMENTS OR CONTINGENT TAX LIABILITY (WHETHER FEDERAL OR STATE)
OF ANY NATURE WHATSOEVER, WHETHER PENDING OR THREATENED AGAINST THE COMPANY OR
ANY SUBSIDIARY FOR ANY PERIOD, NOR OF ANY BASIS FOR ANY SUCH ASSESSMENT,
ADJUSTMENT OR CONTINGENCY.

(P)           CERTAIN FEES.  EXCEPT AS SET FORTH ON SCHEDULE 2.1(P), THE COMPANY
HAS NOT EMPLOYED ANY BROKER OR FINDER OR INCURRED ANY LIABILITY FOR ANY
BROKERAGE OR INVESTMENT BANKING FEES, COMMISSIONS, FINDERS’ STRUCTURING FEES,
FINANCIAL ADVISORY FEES OR OTHER SIMILAR FEES IN CONNECTION WITH THE TRANSACTION
DOCUMENTS.

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(Q)           DISCLOSURE.  NEITHER THIS AGREEMENT OR THE SCHEDULES HERETO NOR
ANY OTHER DOCUMENTS, CERTIFICATES OR INSTRUMENTS FURNISHED TO THE PURCHASERS BY
OR ON BEHALF OF THE COMPANY OR ANY SUBSIDIARY IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT CONTAIN ANY UNTRUE STATEMENT OF A
MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
STATEMENTS MADE HEREIN OR THEREIN, IN THE LIGHT OF THE CIRCUMSTANCES UNDER WHICH
THEY WERE MADE HEREIN OR THEREIN, NOT MISLEADING.

(R)            OPERATION OF BUSINESS.  THE COMPANY AND EACH OF THE SUBSIDIARIES
OWNS OR POSSESSES ALL PATENTS, TRADEMARKS, DOMAIN NAMES (WHETHER OR NOT
REGISTERED) AND ANY PATENTABLE IMPROVEMENTS OR COPYRIGHTABLE DERIVATIVE WORKS
THEREOF, WEBSITES AND INTELLECTUAL PROPERTY RIGHTS RELATING THERETO, SERVICE
MARKS, TRADE NAMES, COPYRIGHTS, LICENSES AND AUTHORIZATIONS AS SET FORTH IN THE
FORM 10-KSB, AND ALL RIGHTS WITH RESPECT TO THE FOREGOING, WHICH ARE NECESSARY
FOR THE CONDUCT OF ITS BUSINESS AS NOW CONDUCTED WITHOUT ANY CONFLICT WITH THE
RIGHTS OF OTHERS.

(S)           ENVIRONMENTAL COMPLIANCE.  THE COMPANY AND EACH OF ITS
SUBSIDIARIES HAVE OBTAINED ALL MATERIAL APPROVALS, AUTHORIZATION, CERTIFICATES,
CONSENTS, LICENSES, ORDERS AND PERMITS OR OTHER SIMILAR AUTHORIZATIONS OF ALL
GOVERNMENTAL AUTHORITIES, OR FROM ANY OTHER PERSON, THAT ARE REQUIRED UNDER ANY 
ENVIRONMENTAL LAWS.  THE FORM 10-KSB OR FORM 10-QSB DESCRIBES ALL MATERIAL
PERMITS, LICENSES AND OTHER AUTHORIZATIONS ISSUED UNDER ANY ENVIRONMENTAL LAWS
TO THE COMPANY OR ITS SUBSIDIARIES.  “ENVIRONMENTAL LAWS” SHALL MEAN ALL
APPLICABLE LAWS RELATING TO THE PROTECTION OF THE ENVIRONMENT INCLUDING, WITHOUT
LIMITATION, ALL REQUIREMENTS PERTAINING TO REPORTING, LICENSING, PERMITTING,
CONTROLLING, INVESTIGATING OR REMEDIATING EMISSIONS, DISCHARGES, RELEASES OR
THREATENED RELEASES OF HAZARDOUS SUBSTANCES, CHEMICAL SUBSTANCES, POLLUTANTS,
CONTAMINANTS OR TOXIC SUBSTANCES, MATERIALS OR WASTES, WHETHER SOLID, LIQUID OR
GASEOUS IN NATURE, INTO THE AIR, SURFACE WATER, GROUNDWATER OR LAND, OR RELATING
TO THE MANUFACTURE, PROCESSING, DISTRIBUTION, USE, TREATMENT, STORAGE, DISPOSAL,
TRANSPORT OR HANDLING OF HAZARDOUS SUBSTANCES, CHEMICAL SUBSTANCES, POLLUTANTS,
CONTAMINANTS OR TOXIC SUBSTANCES, MATERIAL OR WASTES, WHETHER SOLID, LIQUID OR
GASEOUS IN NATURE.  THE COMPANY HAS ALL NECESSARY GOVERNMENTAL APPROVALS
REQUIRED UNDER ALL ENVIRONMENTAL LAWS AND USED IN ITS BUSINESS OR IN THE
BUSINESS OF ANY OF ITS SUBSIDIARIES.  THE COMPANY AND EACH OF ITS SUBSIDIARIES
ARE ALSO IN COMPLIANCE WITH ALL OTHER LIMITATIONS, RESTRICTIONS, CONDITIONS,
STANDARDS, REQUIREMENTS, SCHEDULES AND TIMETABLES REQUIRED OR IMPOSED UNDER ALL
ENVIRONMENTAL LAWS.  EXCEPT FOR SUCH INSTANCES AS WOULD NOT INDIVIDUALLY OR IN
THE AGGREGATE HAVE A MATERIAL ADVERSE EFFECT, THERE ARE NO PAST OR PRESENT
EVENTS, CONDITIONS, CIRCUMSTANCES, INCIDENTS, ACTIONS OR OMISSIONS RELATING TO
OR IN ANY WAY AFFECTING THE COMPANY OR ITS SUBSIDIARIES THAT VIOLATE OR MAY
VIOLATE ANY ENVIRONMENTAL LAW AFTER THE CLOSING DATE OR THAT MAY GIVE RISE TO
ANY ENVIRONMENTAL LIABILITY, OR OTHERWISE FORM THE BASIS OF ANY CLAIM, ACTION,
DEMAND, SUIT, PROCEEDING, HEARING, STUDY OR INVESTIGATION (I) UNDER ANY
ENVIRONMENTAL LAW, OR (II) BASED ON OR RELATED TO THE MANUFACTURE, PROCESSING,
DISTRIBUTION, USE, TREATMENT, STORAGE (INCLUDING WITHOUT LIMITATION UNDERGROUND
STORAGE TANKS), DISPOSAL, TRANSPORT OR HANDLING, OR THE EMISSION, DISCHARGE,
RELEASE OR THREATENED RELEASE OF ANY HAZARDOUS SUBSTANCE.

(T)            BOOKS AND RECORD INTERNAL ACCOUNTING CONTROLS.  THE BOOKS AND
RECORDS OF THE COMPANY AND ITS SUBSIDIARIES ACCURATELY REFLECT IN ALL MATERIAL
RESPECTS THE INFORMATION RELATING TO THE BUSINESS OF THE COMPANY AND THE
SUBSIDIARIES, THE LOCATION AND COLLECTION OF THEIR ASSETS, AND THE NATURE OF ALL
TRANSACTIONS GIVING RISE TO THE OBLIGATIONS OR ACCOUNTS RECEIVABLE OF

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THE COMPANY OR ANY SUBSIDIARY.  THE COMPANY AND EACH OF ITS SUBSIDIARIES
MAINTAIN A SYSTEM OF INTERNAL ACCOUNTING CONTROLS SUFFICIENT, IN THE JUDGMENT OF
THE COMPANY, 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
ACTIONS IS TAKEN WITH RESPECT TO ANY DIFFERENCES.

(U)           MATERIAL AGREEMENTS.  NEITHER THE COMPANY NOR ANY SUBSIDIARY IS A
PARTY TO ANY WRITTEN OR ORAL CONTRACT, INSTRUMENT, AGREEMENT, COMMITMENT,
OBLIGATION, PLAN OR ARRANGEMENT, A COPY OF WHICH WOULD BE REQUIRED TO BE FILED
WITH THE COMMISSION AS AN EXHIBIT TO A REGISTRATION STATEMENT ON FORM S-3 OR
APPLICABLE FORM (COLLECTIVELY, “MATERIAL AGREEMENTS”) IF THE COMPANY OR ANY
SUBSIDIARY WERE REGISTERING SECURITIES UNDER THE SECURITIES ACT.  THE COMPANY
AND EACH OF ITS SUBSIDIARIES HAS IN ALL MATERIAL RESPECTS PERFORMED ALL THE
OBLIGATIONS REQUIRED TO BE PERFORMED BY THEM TO DATE UNDER THE FOREGOING
AGREEMENTS, HAVE RECEIVED NO NOTICE OF DEFAULT AND ARE NOT IN DEFAULT UNDER ANY
MATERIAL AGREEMENT NOW IN EFFECT, THE RESULT OF WHICH COULD CAUSE A MATERIAL
ADVERSE EFFECT.  NO WRITTEN OR ORAL CONTRACT, INSTRUMENT, AGREEMENT, COMMITMENT,
OBLIGATION, PLAN OR ARRANGEMENT OF THE COMPANY OR OF ANY SUBSIDIARY LIMITS OR
SHALL LIMIT THE PAYMENT OF DIVIDENDS ON THE COMPANY’S PREFERRED SHARES, OTHER
PREFERRED STOCK, IF ANY, OR ITS COMMON STOCK.

(V)           TRANSACTIONS WITH AFFILIATES.  EXCEPT AS SET FORTH IN THE
COMMISSION DOCUMENTS, THERE ARE NO LOANS, LEASES, AGREEMENTS, CONTRACTS, ROYALTY
AGREEMENTS, MANAGEMENT CONTRACTS OR ARRANGEMENTS OR OTHER CONTINUING
TRANSACTIONS BETWEEN (A) THE COMPANY OR ANY SUBSIDIARY ON THE ONE HAND, AND (B)
ON THE OTHER HAND, ANY OFFICER, EMPLOYEE, CONSULTANT OR DIRECTOR OF THE COMPANY,
OR ANY OF ITS SUBSIDIARIES, OR ANY PERSON OWNING ANY CAPITAL STOCK OF THE
COMPANY OR ANY SUBSIDIARY OR ANY MEMBER OF THE IMMEDIATE FAMILY OF SUCH OFFICER,
EMPLOYEE, CONSULTANT, DIRECTOR OR STOCKHOLDER OR ANY CORPORATION OR OTHER ENTITY
CONTROLLED BY SUCH OFFICER, EMPLOYEE, CONSULTANT, DIRECTOR OR STOCKHOLDER, OR A
MEMBER OF THE IMMEDIATE FAMILY OF SUCH OFFICER, EMPLOYEE, CONSULTANT, DIRECTOR
OR STOCKHOLDER.

(W)          SECURITIES ACT OF 1933.  BASED IN MATERIAL PART UPON THE
REPRESENTATIONS HEREIN OF THE PURCHASERS, THE COMPANY HAS COMPLIED AND WILL
COMPLY WITH ALL APPLICABLE FEDERAL AND STATE SECURITIES LAWS IN CONNECTION WITH
THE OFFER, ISSUANCE AND SALE OF THE SHARES AND THE WARRANTS HEREUNDER.  NEITHER
THE COMPANY NOR ANYONE ACTING ON ITS BEHALF, DIRECTLY OR INDIRECTLY, HAS OR WILL
SELL, OFFER TO SELL OR SOLICIT OFFERS TO BUY ANY OF THE SHARES OR SIMILAR
SECURITIES TO, OR SOLICIT OFFERS WITH RESPECT THERETO FROM, OR ENTER INTO ANY
PRELIMINARY CONVERSATIONS OR NEGOTIATIONS RELATING THERETO WITH, ANY PERSON, OR
HAS TAKEN OR WILL TAKE ANY ACTION SO AS TO BRING THE ISSUANCE AND SALE OF ANY OF
THE SHARES AND THE WARRANTS UNDER THE REGISTRATION PROVISIONS OF THE SECURITIES
ACT AND APPLICABLE STATE SECURITIES LAWS, AND NEITHER THE COMPANY NOR ANY OF ITS
AFFILIATES, NOR ANY PERSON ACTING ON ITS OR THEIR BEHALF, HAS ENGAGED IN ANY
FORM OF GENERAL SOLICITATION OR GENERAL ADVERTISING (WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT) IN CONNECTION WITH THE OFFER OR SALE OF
ANY OF THE SHARES AND THE WARRANTS.

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(X)            GOVERNMENTAL APPROVALS.  EXCEPT FOR THE FILING OF ANY NOTICE
PRIOR OR SUBSEQUENT TO THE CLOSING DATE THAT MAY BE REQUIRED UNDER APPLICABLE
STATE AND/OR FEDERAL SECURITIES LAWS (WHICH IF REQUIRED, SHALL BE FILED ON A
TIMELY BASIS), INCLUDING THE FILING OF A FORM D AND A REGISTRATION STATEMENT OR
STATEMENTS PURSUANT TO THE REGISTRATION RIGHTS AGREEMENT, AND THE FILING OF THE
CERTIFICATE OF DESIGNATION WITH THE SECRETARY OF STATE FOR THE STATE OF NEVADA,
NO AUTHORIZATION, CONSENT, APPROVAL, LICENSE, EXEMPTION OF, FILING OR
REGISTRATION WITH ANY COURT OR GOVERNMENTAL DEPARTMENT, COMMISSION, BOARD,
BUREAU, AGENCY OR INSTRUMENTALITY, DOMESTIC OR FOREIGN, IS OR WILL BE NECESSARY
FOR, OR IN CONNECTION WITH, THE EXECUTION OR DELIVERY OF THE PREFERRED SHARES
AND THE WARRANTS, OR FOR THE PERFORMANCE BY THE COMPANY OF ITS OBLIGATIONS UNDER
THE TRANSACTION DOCUMENTS.

(Y)           EMPLOYEES.  NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS ANY
COLLECTIVE BARGAINING ARRANGEMENTS OR AGREEMENTS COVERING ANY OF ITS EMPLOYEES. 
NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS ANY EMPLOYMENT CONTRACT, AGREEMENT
REGARDING PROPRIETARY INFORMATION, NON-COMPETITION AGREEMENT, NON-SOLICITATION
AGREEMENT, CONFIDENTIALITY AGREEMENT, OR ANY OTHER SIMILAR CONTRACT OR
RESTRICTIVE COVENANT, RELATING TO THE RIGHT OF ANY OFFICER, EMPLOYEE OR
CONSULTANT TO BE EMPLOYED OR ENGAGED BY THE COMPANY OR SUCH SUBSIDIARY.  NO
OFFICER, CONSULTANT OR KEY EMPLOYEE OF THE COMPANY OR ANY SUBSIDIARY WHOSE
TERMINATION, EITHER INDIVIDUALLY OR IN THE AGGREGATE, COULD HAVE A MATERIAL
ADVERSE EFFECT, HAS TERMINATED OR, TO THE KNOWLEDGE OF THE COMPANY, HAS ANY
PRESENT INTENTION OF TERMINATING HIS OR HER EMPLOYMENT OR ENGAGEMENT WITH THE
COMPANY OR ANY SUBSIDIARY.

(Z)            ABSENCE OF CERTAIN DEVELOPMENTS.  SINCE DECEMBER 31, 2006,
NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS:

(I)            ISSUED ANY STOCK, BONDS OR OTHER CORPORATE SECURITIES OR ANY
RIGHTS, OPTIONS OR WARRANTS WITH RESPECT THERETO;

(II)           BORROWED ANY AMOUNT OR INCURRED OR BECOME SUBJECT TO ANY
LIABILITIES (ABSOLUTE OR CONTINGENT) EXCEPT CURRENT LIABILITIES INCURRED IN THE
ORDINARY COURSE OF BUSINESS WHICH ARE COMPARABLE IN NATURE AND AMOUNT TO THE
CURRENT LIABILITIES INCURRED IN THE ORDINARY COURSE OF BUSINESS DURING THE
COMPARABLE PORTION OF ITS PRIOR FISCAL YEAR, AS ADJUSTED TO REFLECT THE CURRENT
NATURE AND VOLUME OF THE COMPANY’S OR SUCH SUBSIDIARY’S BUSINESS;

(III)          DISCHARGED OR SATISFIED ANY LIEN OR ENCUMBRANCE OR PAID ANY
OBLIGATION OR LIABILITY (ABSOLUTE OR CONTINGENT), OTHER THAN CURRENT LIABILITIES
PAID IN THE ORDINARY COURSE OF BUSINESS;

(IV)          DECLARED OR MADE ANY PAYMENT OR DISTRIBUTION OF CASH OR OTHER
PROPERTY TO STOCKHOLDERS WITH RESPECT TO ITS STOCK, OR PURCHASED OR REDEEMED, OR
MADE ANY AGREEMENTS SO TO PURCHASE OR REDEEM, ANY SHARES OF ITS CAPITAL STOCK;

(V)           SOLD, ASSIGNED OR TRANSFERRED ANY OTHER TANGIBLE ASSETS, OR
CANCELED ANY DEBTS OR CLAIMS, EXCEPT IN THE ORDINARY COURSE OF BUSINESS;

 

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(VI)          SOLD, ASSIGNED OR TRANSFERRED ANY PATENT RIGHTS, TRADEMARKS, TRADE
NAMES, COPYRIGHTS, TRADE SECRETS OR OTHER INTANGIBLE ASSETS OR INTELLECTUAL
PROPERTY RIGHTS, OR DISCLOSED ANY PROPRIETARY CONFIDENTIAL INFORMATION TO ANY
PERSON EXCEPT TO CUSTOMERS IN THE ORDINARY COURSE OF BUSINESS OR TO THE
PURCHASERS OR THEIR REPRESENTATIVES;

(VII)         SUFFERED ANY SUBSTANTIAL LOSSES OR WAIVED ANY RIGHTS OF MATERIAL
VALUE, WHETHER OR NOT IN THE ORDINARY COURSE OF BUSINESS, OR SUFFERED THE LOSS
OF ANY MATERIAL AMOUNT OF PROSPECTIVE BUSINESS;

(VIII)        MADE ANY CHANGES IN EMPLOYEE COMPENSATION EXCEPT IN THE ORDINARY
COURSE OF BUSINESS AND CONSISTENT WITH PAST PRACTICES;

(IX)           MADE CAPITAL EXPENDITURES OR COMMITMENTS THEREFOR THAT AGGREGATE
IN EXCESS OF $100,000;

(X)            ENTERED INTO ANY OTHER TRANSACTION OTHER THAN IN THE ORDINARY
COURSE OF BUSINESS, OR ENTERED INTO ANY OTHER MATERIAL TRANSACTION, WHETHER OR
NOT IN THE ORDINARY COURSE OF BUSINESS;

(XI)           MADE CHARITABLE CONTRIBUTIONS OR PLEDGES IN EXCESS OF $25,000;

(XII)          SUFFERED ANY MATERIAL DAMAGE, DESTRUCTION OR CASUALTY LOSS,
WHETHER OR NOT COVERED BY INSURANCE;

(XIII)         EXPERIENCED ANY MATERIAL PROBLEMS WITH LABOR OR MANAGEMENT IN
CONNECTION WITH THE TERMS AND CONDITIONS OF THEIR EMPLOYMENT;

(XIV)        EFFECTED ANY TWO OR MORE EVENTS OF THE FOREGOING KIND WHICH IN THE
AGGREGATE WOULD BE MATERIAL TO THE COMPANY OR ITS SUBSIDIARIES; OR

(XV)         ENTERED INTO AN AGREEMENT, WRITTEN OR OTHERWISE, TO TAKE ANY OF THE
FOREGOING ACTIONS.

(AA)         PUBLIC UTILITY HOLDING COMPANY ACT AND INVESTMENT COMPANY ACT
STATUS.  THE COMPANY IS NOT A “HOLDING COMPANY” OR A “PUBLIC UTILITY COMPANY” AS
SUCH TERMS ARE DEFINED IN THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, AS
AMENDED.  THE COMPANY IS NOT, AND AS A RESULT OF AND IMMEDIATELY UPON THE
CLOSING WILL NOT BE, AN “INVESTMENT COMPANY” OR A COMPANY “CONTROLLED” BY AN
“INVESTMENT COMPANY,” WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940,
AS AMENDED.

(BB)         ERISA.  NO LIABILITY TO THE PENSION BENEFIT GUARANTY CORPORATION
HAS BEEN INCURRED WITH RESPECT TO ANY PLAN (AS DEFINED BELOW) BY THE COMPANY OR
ANY OF ITS SUBSIDIARIES WHICH IS OR WOULD BE MATERIALLY ADVERSE TO THE COMPANY
AND ITS SUBSIDIARIES.  THE EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE
ISSUANCE AND SALE OF THE PREFERRED SHARES WILL NOT INVOLVE ANY TRANSACTION WHICH
IS SUBJECT TO THE PROHIBITIONS OF SECTION 406 OF ERISA OR IN CONNECTION WITH
WHICH A TAX COULD BE IMPOSED PURSUANT TO SECTION 4975 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, PROVIDED THAT, IF ANY OF THE PURCHASERS, OR ANY PERSON
OR ENTITY THAT

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OWNS A BENEFICIAL INTEREST IN ANY OF THE PURCHASERS, IS AN “EMPLOYEE PENSION
BENEFIT PLAN” (WITHIN THE MEANING OF SECTION 3(2) OF ERISA) WITH RESPECT TO
WHICH THE COMPANY IS A “PARTY IN INTEREST” (WITHIN THE MEANING OF SECTION 3(14)
OF ERISA), THE REQUIREMENTS OF SECTIONS 407(D)(5) AND 408(E) OF ERISA, IF
APPLICABLE, ARE MET.  AS USED IN THIS SECTION 2.1(BB), THE TERM “PLAN” SHALL
MEAN AN “EMPLOYEE PENSION BENEFIT PLAN” (AS DEFINED IN SECTION 3 OF ERISA) WHICH
IS OR HAS BEEN ESTABLISHED OR MAINTAINED, OR TO WHICH CONTRIBUTIONS ARE OR HAVE
BEEN MADE, BY THE COMPANY OR ANY SUBSIDIARY OR BY ANY TRADE OR BUSINESS, WHETHER
OR NOT INCORPORATED, WHICH, TOGETHER WITH THE COMPANY OR ANY SUBSIDIARY, IS
UNDER COMMON CONTROL, AS DESCRIBED IN SECTION 414(B) OR (C) OF THE CODE.

(CC)         DILUTIVE EFFECT.  THE COMPANY UNDERSTANDS AND ACKNOWLEDGES THAT ITS
OBLIGATION TO ISSUE CONVERSION SHARES UPON CONVERSION OF THE PREFERRED SHARES IN
ACCORDANCE WITH THIS AGREEMENT AND THE CERTIFICATE OF DESIGNATION AND ITS
OBLIGATIONS TO ISSUE THE WARRANTS SHARES UPON THE CONVERSION OF THE WARRANT
PREFERRED SHARES IN ACCORDANCE WITH THIS AGREEMENT, THE CERTIFICATE OF
DESIGNATION AND THE WARRANTS, IN EACH CASE, IS ABSOLUTE AND UNCONDITIONAL
REGARDLESS OF THE DILUTIVE EFFECT THAT SUCH ISSUANCE MAY HAVE ON THE OWNERSHIP
INTEREST OF OTHER STOCKHOLDERS OF THE COMPANY.

(DD)         NO INTEGRATED OFFERING.  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 THE OFFERING OF THE SHARES
PURSUANT TO THIS AGREEMENT TO BE INTEGRATED WITH PRIOR OFFERINGS BY THE COMPANY
FOR PURPOSES OF THE SECURITIES ACT WHICH WOULD PREVENT THE COMPANY FROM SELLING
THE SHARES PURSUANT TO RULE 506 UNDER THE SECURITIES ACT, OR ANY APPLICABLE
EXCHANGE-RELATED STOCKHOLDER APPROVAL PROVISIONS, NOR WILL THE COMPANY OR ANY OF
ITS AFFILIATES OR SUBSIDIARIES TAKE ANY ACTION OR STEPS THAT WOULD CAUSE THE
OFFERING OF THE SHARES TO BE INTEGRATED WITH OTHER OFFERINGS.  THE COMPANY DOES
NOT HAVE ANY REGISTRATION STATEMENT PENDING BEFORE THE COMMISSION OR CURRENTLY
UNDER THE COMMISSION’S REVIEW AND SINCE DECEMBER 1, 2006, THE COMPANY HAS NOT
OFFERED OR SOLD ANY OF ITS EQUITY SECURITIES OR DEBT SECURITIES CONVERTIBLE INTO
SHARES OF COMMON STOCK.

(EE)         SARBANES-OXLEY ACT.  THE COMPANY IS IN COMPLIANCE WITH THE
APPLICABLE PROVISIONS OF THE SARBANES-OXLEY ACT OF 2002 (THE “SARBANES-OXLEY
ACT”), AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER, THAT ARE EFFECTIVE,
AND INTENDS TO COMPLY WITH OTHER APPLICABLE PROVISIONS OF THE SARBANES-OXLEY
ACT, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER, UPON THE
EFFECTIVENESS OF SUCH PROVISIONS.

(FF)           INTENTIONALLY OMITTED.

(GG)         DTC STATUS.  THE COMPANY’S TRANSFER AGENT IS A PARTICIPANT IN AND
THE COMMON STOCK IS ELIGIBLE FOR TRANSFER PURSUANT TO THE DEPOSITORY TRUST
COMPANY AUTOMATED SECURITIES TRANSFER PROGRAM.  THE NAME, ADDRESS, TELEPHONE
NUMBER, FAX NUMBER, CONTACT PERSON AND EMAIL ADDRESS OF THE COMPANY’S TRANSFER
AGENT IS SET FORTH ON SCHEDULE 2.1(GG) HERETO.

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SECTION 2.2             REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.  EACH
PURCHASER HEREBY MAKES THE FOLLOWING REPRESENTATIONS AND WARRANTIES TO THE
COMPANY WITH RESPECT SOLELY TO ITSELF AND NOT WITH RESPECT TO ANY OTHER
PURCHASER:

(A)           ORGANIZATION AND STANDING OF THE PURCHASERS.  IF THE PURCHASER IS
AN ENTITY, SUCH PURCHASER IS A CORPORATION OR PARTNERSHIP DULY INCORPORATED OR
ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE
JURISDICTION OF ITS INCORPORATION OR ORGANIZATION.

(B)           AUTHORIZATION AND POWER.  EACH PURCHASER HAS THE REQUISITE POWER
AND AUTHORITY TO ENTER INTO AND PERFORM THIS AGREEMENT AND TO PURCHASE THE
PREFERRED SHARES AND WARRANTS BEING SOLD TO IT HEREUNDER.  THE EXECUTION,
DELIVERY AND PERFORMANCE OF THIS AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT
BY SUCH PURCHASER AND THE CONSUMMATION BY IT OF THE TRANSACTIONS CONTEMPLATED
HEREBY AND THEREBY HAVE BEEN DULY AUTHORIZED BY ALL NECESSARY CORPORATE OR
PARTNERSHIP ACTION, AND NO FURTHER CONSENT OR AUTHORIZATION OF SUCH PURCHASER OR
ITS BOARD OF DIRECTORS, STOCKHOLDERS, OR PARTNERS, AS THE CASE MAY BE, IS
REQUIRED.  EACH OF THIS AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT HAS BEEN
DULY AUTHORIZED, EXECUTED AND DELIVERED BY SUCH PURCHASER AND CONSTITUTES, OR
SHALL CONSTITUTE WHEN EXECUTED AND DELIVERED, A VALID AND BINDING OBLIGATION OF
THE PURCHASER ENFORCEABLE AGAINST THE PURCHASER IN ACCORDANCE WITH THE TERMS
THEREOF.

(C)           NO CONFLICTS.  THE EXECUTION, DELIVERY AND PERFORMANCE OF THIS
AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT AND THE CONSUMMATION BY SUCH
PURCHASER OF THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY OR RELATING HERETO
DO NOT AND WILL NOT (I) RESULT IN A VIOLATION OF SUCH PURCHASER’S CHARTER
DOCUMENTS OR BYLAWS OR OTHER ORGANIZATIONAL DOCUMENTS OR (II) CONFLICT WITH, OR
CONSTITUTE A DEFAULT (OR AN EVENT WHICH WITH NOTICE OR LAPSE OF TIME OR BOTH
WOULD BECOME A DEFAULT) UNDER, OR GIVE TO OTHERS ANY RIGHTS OF TERMINATION,
AMENDMENT, ACCELERATION, PURCHASE OR CANCELLATION OF ANY AGREEMENT, INDENTURE OR
INSTRUMENT OR OBLIGATION TO WHICH SUCH PURCHASER IS A PARTY OR BY WHICH ITS
PROPERTIES OR ASSETS ARE BOUND, OR RESULT IN A VIOLATION OF ANY LAW, RULE, OR
REGULATION, OR ANY ORDER, JUDGMENT OR DECREE OF ANY COURT OR GOVERNMENTAL AGENCY
APPLICABLE TO SUCH PURCHASER OR ITS PROPERTIES (EXCEPT FOR SUCH CONFLICTS,
DEFAULTS AND VIOLATIONS AS WOULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, HAVE A
MATERIAL ADVERSE EFFECT ON SUCH PURCHASER).  SUCH PURCHASER IS NOT REQUIRED TO
OBTAIN ANY CONSENT, AUTHORIZATION OR ORDER OF, OR MAKE ANY FILING OR
REGISTRATION WITH, ANY COURT OR GOVERNMENTAL AGENCY IN ORDER FOR IT TO EXECUTE,
DELIVER OR PERFORM ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR THE
REGISTRATION RIGHTS AGREEMENT OR TO PURCHASE THE PREFERRED SHARES OR ACQUIRE THE
WARRANTS IN ACCORDANCE WITH THE TERMS HEREOF, PROVIDED THAT FOR PURPOSES OF THE
REPRESENTATION MADE IN THIS SENTENCE, SUCH PURCHASER IS ASSUMING AND RELYING
UPON THE ACCURACY OF THE RELEVANT REPRESENTATIONS AND AGREEMENTS OF THE COMPANY
HEREIN.

(D)           ACQUISITION FOR INVESTMENT.  EACH PURCHASER IS ACQUIRING THE
PREFERRED SHARES AND THE WARRANTS SOLELY FOR ITS OWN ACCOUNT FOR THE PURPOSE OF
INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH DISTRIBUTION. 
EACH PURCHASER DOES NOT HAVE A PRESENT INTENTION TO SELL THE PREFERRED SHARES OR
THE WARRANTS, NOR A PRESENT ARRANGEMENT (WHETHER OR NOT LEGALLY BINDING) OR
INTENTION TO EFFECT ANY DISTRIBUTION OF THE PREFERRED SHARES OR THE WARRANTS TO
OR THROUGH ANY PERSON OR ENTITY; PROVIDED, HOWEVER, THAT BY MAKING THE
REPRESENTATIONS HEREIN AND SUBJECT TO SECTION 2.2(H) BELOW, SUCH PURCHASER DOES
NOT AGREE TO HOLD THE SHARES OR THE

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WARRANTS FOR ANY MINIMUM OR OTHER SPECIFIC TERM AND RESERVES THE RIGHT TO
DISPOSE OF THE SHARES AT ANY TIME IN ACCORDANCE WITH FEDERAL AND STATE
SECURITIES LAWS APPLICABLE TO SUCH DISPOSITION.  EACH PURCHASER ACKNOWLEDGES
THAT IT IS ABLE TO BEAR THE FINANCIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE
PREFERRED SHARES AND THE WARRANTS AND THAT IT HAS BEEN GIVEN FULL ACCESS TO SUCH
RECORDS OF THE COMPANY AND THE SUBSIDIARIES AND TO THE OFFICERS OF THE COMPANY
AND THE SUBSIDIARIES AND RECEIVED SUCH INFORMATION AS IT HAS DEEMED NECESSARY OR
APPROPRIATE TO CONDUCT ITS DUE DILIGENCE INVESTIGATION AND HAS SUFFICIENT
KNOWLEDGE AND EXPERIENCE IN INVESTING IN COMPANIES SIMILAR TO THE COMPANY IN
TERMS OF THE COMPANY’S STAGE OF DEVELOPMENT SO AS TO BE ABLE TO EVALUATE THE
RISKS AND MERITS OF ITS INVESTMENT IN THE COMPANY.

(E)           STATUS OF PURCHASERS.  EACH PURCHASER IS AN “ACCREDITED INVESTOR”
AS DEFINED IN REGULATION D PROMULGATED UNDER THE SECURITIES ACT.  SUCH PURCHASER
IS NOT REQUIRED TO BE REGISTERED AS A BROKER-DEALER UNDER SECTION 15 OF THE
EXCHANGE ACT AND SUCH PURCHASER IS NOT A BROKER-DEALER.

(F)            OPPORTUNITIES FOR ADDITIONAL INFORMATION.  EACH PURCHASER
ACKNOWLEDGES THAT SUCH PURCHASER HAS HAD THE OPPORTUNITY TO ASK QUESTIONS OF AND
RECEIVE ANSWERS FROM, OR OBTAIN ADDITIONAL INFORMATION FROM, THE EXECUTIVE
OFFICERS OF THE COMPANY CONCERNING THE FINANCIAL AND OTHER AFFAIRS OF THE
COMPANY, AND TO THE EXTENT DEEMED NECESSARY IN LIGHT OF SUCH PURCHASER’S
PERSONAL KNOWLEDGE OF THE COMPANY’S AFFAIRS, SUCH PURCHASER HAS ASKED SUCH
QUESTIONS AND RECEIVED ANSWERS TO THE FULL SATISFACTION OF SUCH PURCHASER, AND
SUCH PURCHASER DESIRES TO INVEST IN THE COMPANY.

(G)           NO GENERAL SOLICITATION.  EACH PURCHASER ACKNOWLEDGES THAT THE
PREFERRED SHARES AND THE WARRANTS WERE NOT OFFERED TO SUCH PURCHASER BY MEANS OF
ANY FORM OF GENERAL OR PUBLIC SOLICITATION OR GENERAL ADVERTISING, OR PUBLICLY
DISSEMINATED ADVERTISEMENTS OR SALES LITERATURE, INCLUDING (I) ANY
ADVERTISEMENT, ARTICLE, NOTICE OR OTHER COMMUNICATION PUBLISHED IN ANY
NEWSPAPER, MAGAZINE, OR SIMILAR MEDIA, OR BROADCAST OVER TELEVISION OR RADIO, OR
(II) ANY SEMINAR OR MEETING TO WHICH SUCH PURCHASER WAS INVITED BY ANY OF THE
FOREGOING MEANS OF COMMUNICATIONS.

(H)           RULE 144.  SUCH PURCHASER UNDERSTANDS THAT THE SHARES MUST BE HELD
INDEFINITELY UNLESS SUCH SHARES ARE REGISTERED UNDER THE SECURITIES ACT OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.  SUCH PURCHASER ACKNOWLEDGES THAT SUCH
PURCHASER IS FAMILIAR WITH RULE 144 OF THE RULES AND REGULATIONS OF THE
COMMISSION, AS AMENDED, PROMULGATED PURSUANT TO THE SECURITIES ACT (“RULE 144”),
AND THAT SUCH PERSON HAS BEEN ADVISED THAT RULE 144 PERMITS RESALES ONLY UNDER
CERTAIN CIRCUMSTANCES.  SUCH PURCHASER UNDERSTANDS THAT TO THE EXTENT THAT RULE
144 IS NOT AVAILABLE, SUCH PURCHASER WILL BE UNABLE TO SELL ANY SHARES WITHOUT
EITHER REGISTRATION UNDER THE SECURITIES ACT OR THE EXISTENCE OF ANOTHER
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT.

(I)            GENERAL.  SUCH PURCHASER UNDERSTANDS THAT THE SHARES ARE BEING
OFFERED AND SOLD IN RELIANCE ON A TRANSACTIONAL EXEMPTION FROM THE REGISTRATION
REQUIREMENT OF FEDERAL AND STATE SECURITIES LAWS AND THE COMPANY IS RELYING UPON
THE TRUTH AND ACCURACY OF THE REPRESENTATIONS, WARRANTIES, AGREEMENTS,
ACKNOWLEDGMENTS AND UNDERSTANDINGS OF SUCH PURCHASER SET FORTH HEREIN IN ORDER
TO DETERMINE THE APPLICABILITY OF SUCH EXEMPTIONS AND THE SUITABILITY OF SUCH
PURCHASER TO ACQUIRE THE SHARES.

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(J)            INDEPENDENT INVESTMENT.  EXCEPT AS MAY BE DISCLOSED IN ANY
FILINGS WITH THE COMMISSION BY THE PURCHASERS UNDER SECTION 13 AND/OR SECTION 16
OF THE EXCHANGE ACT, NO PURCHASER HAS AGREED TO ACT WITH ANY OTHER PURCHASER FOR
THE PURPOSE OF ACQUIRING, HOLDING, VOTING OR DISPOSING OF THE SHARES PURCHASED
HEREUNDER FOR PURPOSES OF SECTION 13(D) UNDER THE EXCHANGE ACT, AND EACH
PURCHASER IS ACTING INDEPENDENTLY WITH RESPECT TO ITS INVESTMENT IN THE SHARES.

ARTICLE III

Covenants

The Company covenants with each of the Purchasers as follows, which covenants
are for the benefit of the Purchasers and their permitted assignees (as defined
herein).

SECTION 3.1             SECURITIES COMPLIANCE.  THE COMPANY SHALL NOTIFY THE
COMMISSION IN ACCORDANCE WITH THEIR RULES AND REGULATIONS, OF THE TRANSACTIONS
CONTEMPLATED BY ANY OF THE TRANSACTION DOCUMENTS, INCLUDING FILING A FORM D WITH
RESPECT TO THE PREFERRED SHARES, WARRANTS, WARRANT PREFERRED SHARES, CONVERSION
SHARES AND WARRANT SHARES AS REQUIRED UNDER REGULATION D AND APPLICABLE “BLUE
SKY” LAWS, AND SHALL TAKE ALL OTHER NECESSARY ACTION AND PROCEEDINGS AS MAY BE
REQUIRED AND PERMITTED BY APPLICABLE LAW, RULE AND REGULATION, FOR THE LEGAL AND
VALID ISSUANCE OF THE PREFERRED SHARES, THE WARRANTS, THE WARRANT PREFERRED
SHARES, THE CONVERSION SHARES AND THE WARRANTS SHARES TO THE PURCHASERS OR
SUBSEQUENT HOLDERS.

SECTION 3.2             REGISTRATION AND LISTING.  THE COMPANY SHALL CAUSE ITS
COMMON STOCK TO CONTINUE TO BE REGISTERED UNDER SECTIONS 12(B) OR 12(G) OF THE
EXCHANGE ACT, TO COMPLY IN ALL RESPECTS WITH ITS REPORTING AND FILING
OBLIGATIONS UNDER THE EXCHANGE ACT, TO COMPLY WITH ALL REQUIREMENTS RELATED TO
ANY REGISTRATION STATEMENT FILED PURSUANT TO THIS AGREEMENT, AND TO NOT TAKE ANY
ACTION OR FILE ANY DOCUMENT (WHETHER OR NOT PERMITTED BY THE SECURITIES ACT OR
THE RULES PROMULGATED THEREUNDER) TO TERMINATE OR SUSPEND SUCH REGISTRATION OR
TO TERMINATE OR SUSPEND ITS REPORTING AND FILING OBLIGATIONS UNDER THE EXCHANGE
ACT OR SECURITIES ACT, EXCEPT AS PERMITTED HEREIN.  THE COMPANY WILL TAKE ALL
ACTION NECESSARY TO CONTINUE THE LISTING OR TRADING OF ITS COMMON STOCK ON THE
OTC BULLETIN BOARD OR OTHER EXCHANGE OR MARKET ON WHICH THE COMMON STOCK IS
TRADING OR MAY BE TRADED IN THE FUTURE.  SUBJECT TO THE TERMS OF THE TRANSACTION
DOCUMENTS, THE COMPANY FURTHER COVENANTS THAT IT WILL TAKE SUCH FURTHER ACTION
AS THE PURCHASERS MAY REASONABLY REQUEST, ALL TO THE EXTENT REQUIRED FROM TIME
TO TIME TO ENABLE THE PURCHASERS TO SELL THE SHARES WITHOUT REGISTRATION UNDER
THE SECURITIES ACT WITHIN THE LIMITATION OF THE EXEMPTIONS PROVIDED BY RULE 144
PROMULGATED UNDER THE SECURITIES ACT.  UPON THE REQUEST OF THE PURCHASERS, THE
COMPANY SHALL DELIVER TO THE PURCHASERS A WRITTEN CERTIFICATION OF A DULY
AUTHORIZED OFFICER AS TO WHETHER IT HAS COMPLIED WITH SUCH REQUIREMENTS.

SECTION 3.3             INSPECTION RIGHTS.  THE COMPANY SHALL PERMIT, DURING
NORMAL BUSINESS HOURS AND UPON REASONABLE REQUEST AND REASONABLE NOTICE, EACH
PURCHASER OR ANY EMPLOYEES, AGENTS OR REPRESENTATIVES THEREOF, SO LONG AS SUCH
PURCHASER SHALL BENEFICIALLY OWN ANY PREFERRED SHARES, OR SHALL OWN CONVERSION
SHARES WHICH, IN THE AGGREGATE, REPRESENT MORE THAN 2% OF THE TOTAL COMBINED
VOTING POWER OF ALL VOTING SECURITIES THEN OUTSTANDING, FOR PURPOSES REASONABLY
RELATED TO SUCH PURCHASER’S INTERESTS AS A STOCKHOLDER TO EXAMINE AND MAKE
REASONABLE COPIES OF AND EXTRACTS FROM THE RECORDS AND BOOKS OF ACCOUNT OF, AND
VISIT AND INSPECT

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THE PROPERTIES, ASSETS, OPERATIONS AND BUSINESS OF THE COMPANY AND ANY
SUBSIDIARY, AND TO DISCUSS THE AFFAIRS, FINANCES AND ACCOUNTS OF THE COMPANY AND
ANY SUBSIDIARY WITH ANY OF ITS OFFICERS, CONSULTANTS, DIRECTORS, AND KEY
EMPLOYEES.

SECTION 3.4             COMPLIANCE WITH LAWS.  THE COMPANY SHALL COMPLY, AND
CAUSE EACH SUBSIDIARY TO COMPLY, WITH ALL APPLICABLE LAWS, RULES, REGULATIONS
AND ORDERS, NONCOMPLIANCE WITH WHICH COULD HAVE A MATERIAL ADVERSE EFFECT.

SECTION 3.5             KEEPING OF RECORDS AND BOOKS OF ACCOUNT.  THE COMPANY
SHALL KEEP AND CAUSE EACH SUBSIDIARY TO KEEP ADEQUATE RECORDS AND BOOKS OF
ACCOUNT, IN WHICH COMPLETE ENTRIES WILL BE MADE IN ACCORDANCE WITH GAAP
CONSISTENTLY APPLIED, REFLECTING ALL FINANCIAL TRANSACTIONS OF THE COMPANY AND
ITS SUBSIDIARIES, AND IN WHICH, FOR EACH FISCAL YEAR, ALL PROPER RESERVES FOR
DEPRECIATION, DEPLETION, OBSOLESCENCE, AMORTIZATION, TAXES, BAD DEBTS AND OTHER
PURPOSES IN CONNECTION WITH ITS BUSINESS SHALL BE MADE.

SECTION 3.6             REPORTING REQUIREMENTS.  IF THE COMMISSION CEASES MAKING
PERIODIC REPORTS FILED UNDER THE EXCHANGE ACT AVAILABLE VIA THE INTERNET, THEN
AT A PURCHASER’S REQUEST THE COMPANY SHALL FURNISH THE FOLLOWING TO SUCH
PURCHASER SO LONG AS SUCH PURCHASER SHALL BENEFICIALLY OWN ANY SHARES:

(A)           QUARTERLY REPORTS FILED WITH THE COMMISSION ON FORM 10-QSB AS SOON
AS PRACTICAL AFTER THE DOCUMENT IS FILED WITH THE COMMISSION, AND IN ANY EVENT
WITHIN FIVE (5) DAYS AFTER THE DOCUMENT IS FILED WITH THE COMMISSION;

(B)           ANNUAL REPORTS FILED WITH THE COMMISSION ON FORM 10-KSB AS SOON AS
PRACTICAL AFTER THE DOCUMENT IS FILED WITH THE COMMISSION, AND IN ANY EVENT
WITHIN FIVE (5) DAYS AFTER THE DOCUMENT IS FILED WITH THE COMMISSION; AND

(C)           COPIES OF ALL NOTICES AND INFORMATION, INCLUDING WITHOUT
LIMITATION NOTICES AND PROXY STATEMENTS IN CONNECTION WITH ANY MEETINGS, THAT
ARE PROVIDED TO HOLDERS OF SHARES OF COMMON STOCK, CONTEMPORANEOUSLY WITH THE
DELIVERY OF SUCH NOTICES OR INFORMATION TO SUCH HOLDERS OF COMMON STOCK.

SECTION 3.7             AMENDMENTS.  THE COMPANY SHALL NOT AMEND OR WAIVE ANY
PROVISION OF THE ARTICLES, INCLUDING THE CERTIFICATE OF DESIGNATION OR BYLAWS OF
THE COMPANY IN ANY WAY THAT WOULD ADVERSELY AFFECT THE LIQUIDATION PREFERENCES,
DIVIDENDS RIGHTS, CONVERSION RIGHTS, VOTING RIGHTS OR REDEMPTION RIGHTS OF THE
PREFERRED SHARES.

SECTION 3.8             OTHER AGREEMENTS.  THE COMPANY SHALL NOT ENTER INTO ANY
AGREEMENT IN WHICH THE TERMS OF SUCH AGREEMENT WOULD RESTRICT OR IMPAIR THE
RIGHT OR ABILITY TO PERFORM OF THE COMPANY OR ANY SUBSIDIARY UNDER ANY
TRANSACTION DOCUMENT.

SECTION 3.9             DISTRIBUTIONS.  SO LONG AS ANY PREFERRED SHARES,
PREFERRED WARRANT SHARES OR WARRANTS REMAIN OUTSTANDING, THE COMPANY AGREES THAT
IT SHALL NOT (I) DECLARE OR PAY ANY DIVIDENDS OR MAKE ANY DISTRIBUTIONS TO ANY
HOLDER(S) OF COMMON STOCK OR (II) PURCHASE OR OTHERWISE ACQUIRE FOR VALUE,
DIRECTLY OR INDIRECTLY, ANY COMMON STOCK OR OTHER EQUITY SECURITY OF THE
COMPANY.

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SECTION 3.10           STATUS OF DIVIDENDS.  THE COMPANY COVENANTS AND AGREES
THAT (I) NO FEDERAL INCOME TAX RETURN OR CLAIM FOR REFUND OF FEDERAL INCOME TAX
OR OTHER SUBMISSION TO THE INTERNAL REVENUE SERVICE (THE “SERVICE”) WILL
ADVERSELY AFFECT THE PREFERRED SHARES, ANY OTHER SERIES OF ITS PREFERRED STOCK,
OR THE COMMON STOCK, AND NO DEDUCTION SHALL OPERATE TO JEOPARDIZE THE
AVAILABILITY TO PURCHASERS OF THE DIVIDENDS RECEIVED DEDUCTION PROVIDED BY
SECTION 243(A)(1) OF THE CODE OR ANY SUCCESSOR PROVISION, (II) IN NO REPORT TO
SHAREHOLDERS OR TO ANY GOVERNMENTAL BODY HAVING JURISDICTION OVER THE COMPANY OR
OTHERWISE WILL IT TREAT THE PREFERRED SHARES OTHER THAN AS EQUITY CAPITAL OR THE
DIVIDENDS PAID THEREON OTHER THAN AS DIVIDENDS PAID ON EQUITY CAPITAL UNLESS
REQUIRED TO DO SO BY A GOVERNMENTAL BODY HAVING JURISDICTION OVER THE ACCOUNTS
OF THE COMPANY OR BY A CHANGE IN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
REQUIRED AS A RESULT OF ACTION BY AN AUTHORITATIVE ACCOUNTING STANDARDS SETTING
BODY, AND (III) IT WILL TAKE NO ACTION WHICH WOULD RESULT IN THE DIVIDENDS PAID
BY THE COMPANY ON THE PREFERRED SHARES OUT OF THE COMPANY’S CURRENT OR
ACCUMULATED EARNINGS AND PROFITS BEING INELIGIBLE FOR THE DIVIDENDS RECEIVED
DEDUCTION PROVIDED BY SECTION 243(A)(1) OF THE CODE.  THE PRECEDING SENTENCE
SHALL NOT BE DEEMED TO PREVENT THE COMPANY FROM DESIGNATING THE PREFERRED STOCK
AS “CONVERTIBLE PREFERRED STOCK” IN ITS ANNUAL AND QUARTERLY FINANCIAL
STATEMENTS IN ACCORDANCE WITH ITS PRIOR PRACTICE CONCERNING OTHER SERIES OF
PREFERRED STOCK OF THE COMPANY.  IN THE EVENT THAT THE PURCHASERS HAVE
REASONABLE CAUSE TO BELIEVE THAT DIVIDENDS PAID BY THE COMPANY ON THE PREFERRED
SHARES OUT OF THE COMPANY’S CURRENT OR ACCUMULATED EARNINGS AND PROFITS WILL NOT
BE TREATED AS ELIGIBLE FOR THE DIVIDENDS RECEIVED DEDUCTION PROVIDED BY SECTION
243(A)(1) OF THE CODE, OR ANY SUCCESSOR PROVISION, THE COMPANY WILL, AT THE
REASONABLE REQUEST OF THE PURCHASERS OF 51% OF THE OUTSTANDING PREFERRED SHARES,
JOIN WITH THE PURCHASERS IN THE SUBMISSION TO THE SERVICE OF A REQUEST FOR A
RULING THAT DIVIDENDS PAID ON THE SHARES WILL BE SO ELIGIBLE FOR FEDERAL INCOME
TAX PURPOSES, AT THE PURCHASERS EXPENSE.  IN ADDITION, THE COMPANY WILL
REASONABLY COOPERATE WITH THE PURCHASERS (AT PURCHASERS’ EXPENSE) IN ANY
LITIGATION, APPEAL OR OTHER PROCEEDING CHALLENGING OR CONTESTING ANY RULING,
TECHNICAL ADVICE, FINDING OR DETERMINATION THAT EARNINGS AND PROFITS ARE NOT
ELIGIBLE FOR THE DIVIDENDS RECEIVED DEDUCTION PROVIDED BY SECTION 243(A)(1) OF
THE CODE, OR ANY SUCCESSOR PROVISION TO THE EXTENT THAT THE POSITION TO BE TAKEN
IN ANY SUCH LITIGATION, APPEAL, OR OTHER PROCEEDING IS NOT CONTRARY TO ANY
PROVISION OF THE CODE.  NOTWITHSTANDING THE FOREGOING, NOTHING HEREIN CONTAINED
SHALL BE DEEMED TO PRECLUDE THE COMPANY FROM CLAIMING A DEDUCTION WITH RESPECT
TO SUCH DIVIDENDS IF (I) THE CODE SHALL HEREAFTER BE AMENDED, OR FINAL TREASURY
REGULATIONS THEREUNDER ARE ISSUED OR MODIFIED, TO PROVIDE THAT DIVIDENDS ON THE
PREFERRED SHARES OR CONVERSION SHARES SHOULD NOT BE TREATED AS DIVIDENDS FOR
FEDERAL INCOME TAX PURPOSES OR THAT A DEDUCTION WITH RESPECT TO ALL OR A PORTION
OF THE DIVIDENDS ON THE SHARES IS ALLOWABLE FOR FEDERAL INCOME TAX PURPOSES, OR
(II) IN THE ABSENCE OF SUCH AN AMENDMENT, ISSUANCE OR MODIFICATION AND AFTER A
SUBMISSION OF A REQUEST FOR RULING OR TECHNICAL ADVICE, THE SERVICE SHALL ISSUE
A PUBLISHED RULING OR ADVISE THAT DIVIDENDS ON THE SHARES SHOULD NOT BE TREATED
AS DIVIDENDS FOR FEDERAL INCOME TAX PURPOSES.  IF THE SERVICE SPECIFICALLY
DETERMINES THAT THE PREFERRED SHARES OR CONVERSION SHARES CONSTITUTE DEBT, THE
COMPANY MAY FILE PROTECTIVE CLAIMS FOR REFUND.

SECTION 3.11           USE OF PROCEEDS.  THE NET PROCEEDS FROM THE SALE OF THE
SHARES HEREUNDER SHALL BE USED BY THE COMPANY TO FUND ACQUISITIONS AND THE
BALANCE SHALL BE USED FOR WORKING CAPITAL AND GENERAL CORPORATE PURPOSES AND NOT
TO REDEEM ANY COMMON STOCK OR SECURITIES CONVERTIBLE, EXERCISABLE OR
EXCHANGEABLE INTO COMMON STOCK OR TO SETTLE ANY OUTSTANDING LITIGATION.  THE
PROCEEDS FROM THE CLOSING SHALL BE USED SOLELY IN ACCORDANCE WITH THE USES SET
FORTH IN THE FLOW OF FUNDS MEMO ATTACHED HERETO AS SCHEDULE 3.11.

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SECTION 3.12           RESERVATION OF SHARES.  SO LONG AS ANY OF THE PREFERRED
SHARES, PREFERRED WARRANT SHARES OR WARRANTS REMAIN OUTSTANDING, THE COMPANY
SHALL TAKE ALL ACTION NECESSARY TO AT ALL TIMES HAVE AUTHORIZED, AND RESERVED
FOR THE PURPOSE OF ISSUANCE, NO LESS THAN ONE HUNDRED TWENTY PERCENT (120%) OF
THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK NEEDED TO PROVIDE FOR THE
ISSUANCE OF THE CONVERSION SHARES AND WARRANT SHARES.

SECTION 3.13           TRANSFER AGENT INSTRUCTIONS.  THE COMPANY SHALL ISSUE
IRREVOCABLE INSTRUCTIONS TO ITS TRANSFER AGENT, AND ANY SUBSEQUENT TRANSFER
AGENT, TO ISSUE CERTIFICATES, REGISTERED IN THE NAME OF EACH PURCHASER OR ITS
RESPECTIVE NOMINEE(S), FOR THE CONVERSION SHARES AND THE WARRANT SHARES IN SUCH
AMOUNTS AS SPECIFIED FROM TIME TO TIME BY EACH PURCHASER TO THE COMPANY UPON
CONVERSION OF THE PREFERRED SHARES OR CONVERSION OF THE PREFERRED WARRANT SHARES
IN THE FORM OF EXHIBIT F ATTACHED HERETO (THE “IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS”).  PRIOR TO REGISTRATION OF THE CONVERSION SHARES AND THE WARRANT
SHARES UNDER THE SECURITIES ACT, ALL SUCH CERTIFICATES SHALL BEAR THE
RESTRICTIVE LEGEND SPECIFIED IN SECTION 5.1 OF THIS AGREEMENT.  THE COMPANY
WARRANTS THAT NO INSTRUCTION OTHER THAN THE IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS REFERRED TO IN THIS SECTION 3.13 WILL BE GIVEN BY THE COMPANY TO
ITS TRANSFER AGENT AND THAT THE SHARES SHALL OTHERWISE BE FREELY TRANSFERABLE ON
THE BOOKS AND RECORDS OF THE COMPANY AS AND TO THE EXTENT PROVIDED IN THIS
AGREEMENT AND THE REGISTRATION RIGHTS AGREEMENT.  IF A PURCHASER PROVIDES THE
COMPANY WITH AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, TO THE
EFFECT THAT A PUBLIC SALE, ASSIGNMENT OR TRANSFER OF THE SHARES MAY BE MADE
WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR THE PURCHASER PROVIDES THE
COMPANY WITH REASONABLE ASSURANCES THAT SUCH SHARES CAN BE SOLD PURSUANT TO RULE
144 WITHOUT ANY RESTRICTION AS TO THE NUMBER OF SECURITIES ACQUIRED AS OF A
PARTICULAR DATE THAT CAN THEN BE IMMEDIATELY SOLD, THE COMPANY SHALL PERMIT THE
TRANSFER, AND, IN THE CASE OF THE CONVERSION SHARES AND THE WARRANT SHARES
PROMPTLY INSTRUCT ITS TRANSFER AGENT TO ISSUE ONE OR MORE CERTIFICATES IN SUCH
NAME AND IN SUCH DENOMINATIONS AS SPECIFIED BY SUCH PURCHASER AND WITHOUT ANY
RESTRICTIVE LEGEND.  THE COMPANY ACKNOWLEDGES THAT A BREACH BY IT OF ITS
OBLIGATIONS UNDER THIS SECTION 3.13 WILL CAUSE IRREPARABLE HARM TO THE
PURCHASERS BY VITIATING THE INTENT AND PURPOSE OF THE TRANSACTION CONTEMPLATED
HEREBY.  ACCORDINGLY, THE COMPANY ACKNOWLEDGES THAT THE REMEDY AT LAW FOR A
BREACH OF ITS OBLIGATIONS UNDER THIS SECTION 3.13 WILL BE INADEQUATE AND AGREES,
IN THE EVENT OF A BREACH OR THREATENED BREACH BY THE COMPANY OF THE PROVISIONS
OF THIS SECTION 3.13, THAT THE PURCHASERS SHALL BE ENTITLED, IN ADDITION TO ALL
OTHER AVAILABLE REMEDIES, TO AN ORDER AND/OR INJUNCTION RESTRAINING ANY BREACH
AND REQUIRING IMMEDIATE ISSUANCE AND TRANSFER, WITHOUT THE NECESSITY OF SHOWING
ECONOMIC LOSS AND WITHOUT ANY BOND OR OTHER SECURITY BEING REQUIRED.

SECTION 3.14           DISPOSITION OF ASSETS.  SO LONG AS ANY PREFERRED SHARES
REMAIN OUTSTANDING, NEITHER THE COMPANY NOR ANY SUBSIDIARY SHALL SELL, TRANSFER
OR OTHERWISE DISPOSE OF ANY OF ITS PROPERTIES, ASSETS AND RIGHTS INCLUDING,
WITHOUT LIMITATION, ITS SOFTWARE AND INTELLECTUAL PROPERTY, TO ANY PERSON EXCEPT
FOR SALES TO CUSTOMERS IN THE ORDINARY COURSE OF BUSINESS OR WITH THE PRIOR
WRITTEN CONSENT OF THE HOLDERS OF A MAJORITY OF THE PREFERRED SHARES THEN
OUTSTANDING.

SECTION 3.15           REPORTING STATUS.  SO LONG AS A PURCHASER BENEFICIALLY
OWNS ANY OF THE SHARES, THE COMPANY SHALL TIMELY FILE ALL REPORTS REQUIRED TO BE
FILED WITH THE COMMISSION PURSUANT TO THE EXCHANGE ACT, AND THE COMPANY SHALL
NOT TERMINATE ITS STATUS AS AN ISSUER REQUIRED TO FILE REPORTS UNDER THE
EXCHANGE ACT EVEN IF THE EXCHANGE ACT OR THE RULES AND REGULATIONS THEREUNDER
WOULD PERMIT SUCH TERMINATION.

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SECTION 3.16           DISCLOSURE OF TRANSACTION.  THE COMPANY SHALL ISSUE A
PRESS RELEASE DESCRIBING THE MATERIAL TERMS OF THE TRANSACTIONS CONTEMPLATED
HEREBY (THE “PRESS RELEASE”) AS SOON AS PRACTICABLE AFTER THE CLOSING BUT IN NO
EVENT LATER THAN 9:00 A.M. EASTERN TIME ON THE FIRST TRADING DAY FOLLOWING THE
CLOSING.  THE COMPANY SHALL ALSO FILE WITH THE COMMISSION A CURRENT REPORT ON
FORM 8-K (THE “FORM 8-K”) DESCRIBING THE MATERIAL TERMS OF THE TRANSACTIONS
CONTEMPLATED HEREBY (AND ATTACHING AS EXHIBITS THERETO THIS AGREEMENT, THE
REGISTRATION RIGHTS AGREEMENT, THE CERTIFICATE OF DESIGNATION, THE STOCKHOLDERS
AGREEMENT, THE FORM OF EACH SERIES OF WARRANT AND THE PRESS RELEASE) AS SOON AS
PRACTICABLE FOLLOWING THE CLOSING DATE BUT IN NO EVENT MORE THAN TWO (2) TRADING
DAYS FOLLOWING THE CLOSING DATE, WHICH PRESS RELEASE AND FORM 8-K SHALL BE
SUBJECT TO PRIOR REVIEW AND COMMENT BY THE PURCHASERS.  “TRADING DAY” MEANS ANY
DAY DURING WHICH THE OTC BULLETIN BOARD (OR OTHER QUOTATION VENUE OR PRINCIPAL
EXCHANGE ON WHICH THE COMMON STOCK IS TRADED) SHALL BE OPEN FOR TRADING.

SECTION 3.17           DISCLOSURE OF MATERIAL INFORMATION.  THE COMPANY
COVENANTS AND AGREES THAT NEITHER IT NOR ANY OTHER PERSON ACTING ON ITS BEHALF
HAS PROVIDED OR WILL PROVIDE ANY PURCHASER OR ITS AGENTS OR COUNSEL WITH ANY
INFORMATION THAT THE COMPANY BELIEVES CONSTITUTES MATERIAL NON-PUBLIC
INFORMATION (OTHER THAN WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT), UNLESS PRIOR THERETO SUCH PURCHASER SHALL HAVE EXECUTED A WRITTEN
AGREEMENT REGARDING THE CONFIDENTIALITY AND USE OF SUCH INFORMATION.  UPON THE
REQUEST OF THE PURCHASERS, THE COMPANY SHALL PROVIDE A WRITTEN CONFIRMATION WHEN
SUCH PURCHASER IS NO LONGER IN POSSESSION OF MATERIAL NON-PUBLIC INFORMATION
UNDER ANY SUCH AGREEMENT.  THE COMPANY UNDERSTANDS AND CONFIRMS THAT EACH
PURCHASER SHALL BE RELYING ON THE FOREGOING REPRESENTATIONS IN EFFECTING
TRANSACTIONS IN SECURITIES OF THE COMPANY.

SECTION 3.18           PLEDGE OF SECURITIES.  THE COMPANY ACKNOWLEDGES AND
AGREES THAT THE SHARES MAY BE PLEDGED BY A PURCHASER IN CONNECTION WITH A BONA
FIDE MARGIN AGREEMENT OR OTHER LOAN OR FINANCING ARRANGEMENT THAT IS SECURED BY
THE COMMON STOCK.  THE PLEDGE OF COMMON STOCK SHALL NOT BE DEEMED TO BE A
TRANSFER, SALE OR ASSIGNMENT OF THE COMMON STOCK HEREUNDER, AND NO PURCHASER
EFFECTING A PLEDGE OF COMMON STOCK SHALL BE REQUIRED TO PROVIDE THE COMPANY WITH
ANY NOTICE THEREOF OR OTHERWISE MAKE ANY DELIVERY TO THE COMPANY PURSUANT TO
THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT; PROVIDED THAT A PURCHASER AND
ITS PLEDGEE SHALL BE REQUIRED TO COMPLY WITH THE PROVISIONS OF ARTICLE V HEREOF
IN ORDER TO EFFECT A SALE, TRANSFER OR ASSIGNMENT OF COMMON STOCK TO SUCH
PLEDGEE. AT THE PURCHASERS’ EXPENSE, THE COMPANY HEREBY AGREES TO EXECUTE AND
DELIVER SUCH DOCUMENTATION AS A PLEDGEE OF THE COMMON STOCK MAY REASONABLY
REQUEST IN CONNECTION WITH A PLEDGE OF THE COMMON STOCK TO SUCH PLEDGEE BY A
PURCHASER.

SECTION 3.19           FORM SB-2 ELIGIBILITY.  THE COMPANY CURRENTLY MEETS THE
“REGISTRANT ELIGIBILITY” AND TRANSACTION REQUIREMENTS SET FORTH IN THE GENERAL
INSTRUCTIONS TO FORM SB-2 APPLICABLE TO “RESALE” REGISTRATIONS ON FORM SB-2 AND
THE COMPANY SHALL FILE ALL REPORTS REQUIRED TO BE FILED BY THE COMPANY WITH THE
COMMISSION IN A TIMELY MANNER.

SECTION 3.20           STOCKHOLDERS AGREEMENT.  THE PERSONS LISTED ON SCHEDULE
3.20 ATTACHED HERETO SHALL BE SUBJECT TO THE TERMS AND PROVISIONS OF A
STOCKHOLDERS AGREEMENT IN SUBSTANTIALLY THE FORM AS EXHIBIT D HERETO (THE
“STOCKHOLDERS AGREEMENT”).

SECTION 3.21           RIGHT OF FIRST REFUSAL ON ADDITIONAL FINANCINGS.

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(A)           FOR A PERIOD OF TWELVE (12) MONTHS FOLLOWING THE LAST CLOSING DATE
UNDER THIS AGREEMENT, THE COMPANY COVENANTS AND AGREES TO GIVE THE PURCHASERS
THE RIGHT OF FIRST REFUSAL TO PROVIDE ANY ADDITIONAL FINANCING (“ADDITIONAL
FINANCING”) ON THE SAME TERMS AND CONDITIONS DESCRIBED HEREIN.  THE COMPANY
SHALL PROMPTLY NOTIFY (IN NO EVENT LATER THAN FIVE (5) DAYS AFTER MAKING OR
RECEIVING AN APPLICABLE OFFER) IN WRITING (A “RIGHTS NOTICE”) THE PURCHASERS OF
THE TERMS AND CONDITIONS OF ANY PROPOSED OFFER OR SALE TO, OR EXCHANGE WITH (OR
OTHER TYPE OF DISTRIBUTION TO) ANY THIRD PARTY (A “THIRD PARTY FINANCING”), OF
COMMON STOCK OR ANY DEBT OR EQUITY SECURITIES CONVERTIBLE, EXERCISABLE OR
EXCHANGEABLE INTO COMMON STOCK; PROVIDED, HOWEVER, PRIOR TO DELIVERING TO EACH
PURCHASER A RIGHTS NOTICE, THE COMPANY SHALL FIRST DELIVER TO EACH PURCHASER A
WRITTEN NOTICE OF ITS INTENTION TO EFFECT A THIRD PARTY FINANCING (“PRE-NOTICE”)
WITHIN THREE (3) TRADING DAYS OF RECEIVING AN APPLICABLE OFFER, WHICH PRE-NOTICE
SHALL ASK SUCH PURCHASER IF IT WANTS TO REVIEW THE DETAILS OF SUCH FINANCING. 
UPON THE REQUEST OF A PURCHASER, AND ONLY UPON A REQUEST BY SUCH PURCHASER
WITHIN THREE (3) TRADING DAYS OF RECEIPT OF A PRE-NOTICE, THE COMPANY SHALL
PROMPTLY, BUT NO LATER THAN TWO (2) TRADING DAYS AFTER SUCH REQUEST, DELIVER A
RIGHTS NOTICE TO SUCH PURCHASER.  THE RIGHTS NOTICE SHALL DESCRIBE, IN
REASONABLE DETAIL, THE PROPOSED THIRD PARTY FINANCING AND ALL OF THE TERMS AND
CONDITIONS THEREOF AND PROPOSED DEFINITIVE DOCUMENTATION TO BE ENTERED INTO IN
CONNECTION THEREWITH.  THE RIGHTS NOTICE SHALL PROVIDE EACH PURCHASER AN OPTION
(THE “RIGHTS OPTION”) TO INFORM THE COMPANY DURING THE TEN (10) TRADING DAYS
FOLLOWING DELIVERY OF THE RIGHTS NOTICE (THE “OPTION PERIOD”) WHETHER SUCH
PURCHASER WILL PROVIDE ADDITIONAL FINANCING IN THE AMOUNT BEING OFFERED IN THE
THIRD PARTY FINANCING ON THE SAME, ABSOLUTE TERMS AND CONDITIONS DESCRIBED IN
THIS AGREEMENT.  IF THE COMPANY DOES NOT RECEIVE NOTICE OF EXERCISE OF THE
RIGHTS OPTION FROM THE PURCHASERS WITHIN THE OPTION PERIOD, THE COMPANY SHALL
HAVE THE RIGHT TO CLOSE THE THIRD PARTY FINANCING ON THE SCHEDULED CLOSING DATE
WITH A THIRD PARTY.  IF THE CLOSING OF THE PROPOSED SUBSEQUENT FINANCING DOES
NOT OCCUR ON THAT DATE, ANY CLOSING OF THE CONTEMPLATED THIRD PARTY FINANCING OR
ANY OTHER THIRD PARTY FINANCING SHALL BE SUBJECT TO ALL OF THE PROVISIONS OF
THIS SECTION 3.21(A), INCLUDING, WITHOUT LIMITATION, THE DELIVERY OF A NEW
RIGHTS NOTICE.

(B)           FOR PURPOSES OF THIS AGREEMENT, A PERMITTED FINANCING (AS DEFINED
HEREINAFTER) SHALL NOT BE CONSIDERED A THIRD PARTY FINANCING.  A “PERMITTED
FINANCING” SHALL MEAN (I) SECURITIES ISSUED (OTHER THAN FOR CASH) IN CONNECTION
WITH A MERGER, ACQUISITION, OR CONSOLIDATION, (II) SECURITIES ISSUED PURSUANT TO
THE CONVERSION OR EXERCISE OF CONVERTIBLE OR EXERCISABLE SECURITIES ISSUED OR
OUTSTANDING ON OR PRIOR TO THE DATE OF THIS AGREEMENT OR ISSUED PURSUANT TO THIS
AGREEMENT (SO LONG AS THE CONVERSION OR EXERCISE PRICE IN SUCH SECURITIES ARE
NOT AMENDED TO LOWER SUCH PRICE AND/OR ADVERSELY AFFECT THE PURCHASERS), (III)
SECURITIES ISSUED IN CONNECTION WITH BONA FIDE STRATEGIC LICENSE AGREEMENTS OR
OTHER PARTNERING ARRANGEMENTS SO LONG AS SUCH ISSUANCES ARE NOT FOR THE PURPOSE
OF RAISING CAPITAL, (IV) COMMON STOCK ISSUED OR THE ISSUANCE OR GRANTS OF
OPTIONS TO PURCHASE COMMON STOCK PURSUANT TO THE COMPANY’S STOCK OPTION PLANS
AND EMPLOYEE STOCK PURCHASE PLANS OUTSTANDING AS THEY EXIST ON THE DATE OF THIS
AGREEMENT, AND (V) ANY WARRANTS ISSUED TO THE PLACEMENT AGENT AND ITS DESIGNEES
FOR THE TRANSACTIONS CONTEMPLATED BY THE PURCHASE AGREEMENT.

SECTION 3.22           BOARD OF DIRECTORS.  THE COMPANY COVENANTS AND AGREES
THAT SO LONG AS THE PURCHASERS HOLD PREFERRED SHARES, THE PURCHASERS SHALL BE
ENTITLED TO DESIGNATE TWO (2) INDIVIDUALS (THE “PURCHASER DESIGNEES”) TO SERVE
AS MEMBERS OF THE COMPANY’S BOARD OF DIRECTORS PURSUANT TO THE TERMS AND
PROVISIONS OF THE STOCKHOLDERS AGREEMENT; PROVIDED,

 

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HOWEVER, THE COMPANY SHALL HAVE UP TO THIRTY (30) DAYS AFTER THE CLOSING TO
APPOINT THE PURCHASER DESIGNEES TO THE BOARD OF DIRECTORS IN ACCORDANCE WITH
THIS SECTION 3.22; PROVIDED, FURTHER, THAT IN NO EVENT SHALL THE NUMBER OF
PURCHASER DESIGNEES BE PROPORTIONATELY LESS THAN THE INVESTORS’ AGGREGATE EQUITY
INTEREST OF THE COMPANY.  THE COMPANY COVENANTS AND AGREES THAT SO LONG AS THE
PURCHASERS HOLD PREFERRED SHARES, THERE SHALL BE NO GREATER THAN FIVE (5)
MEMBERS OF THE BOARD OF DIRECTORS EXCEPT AS CONTEMPLATED IN THIS SECTION 3.22
WITHOUT THE PRIOR WRITTEN CONSENT OF THE PURCHASERS.

SECTION 3.23           CONFIDENTIALITY, NON-COMPETITION AND NON-SOLICITATION
AGREEMENT.  THE PERSONS LISTED ON SCHEDULE 3.23 ATTACHED HERETO SHALL BE SUBJECT
TO THE TERMS AND PROVISIONS OF A CONFIDENTIALITY, NON-COMPETITION AND
NON-SOLICITATION AGREEMENT (THE “NON-COMPETITION AGREEMENT”) IN THE FORM
SUBSTANTIALLY ATTACHED HERETO AS EXHIBIT H.

SECTION 3.24           COMPREHENSIVE OPERATING BUDGET.  THE COMPANY COVENANTS
AND AGREES THAT AS SOON AS AVAILABLE AND IN ANY EVENT WITHIN THIRTY (30) DAYS
PRIOR TO THE END OF EACH FISCAL YEAR OF THE COMPANY, THE COMPANY SHALL DELIVER
TO THE PURCHASERS A COMPREHENSIVE OPERATING BUDGET FORECASTING THE COMPANY’S
FINANCIAL POSITION ON A MONTH-TO-MONTH BASIS FOR THE UPCOMING FISCAL YEAR.

SECTION 3.25           BOARD MATERIALS.  THE COMPANY COVENANTS AND AGREES TO
DELIVER TO EACH PURCHASER COPIES OF ALL MATERIALS PROVIDED TO MEMBERS OF THE
BOARD OF DIRECTORS CONTEMPORANEOUSLY WITH THE DELIVERY OF MATERIALS TO SUCH
MEMBERS OF THE BOARD OF DIRECTORS, INCLUDING, WITHOUT LIMITATION, ALL FINANCIAL
MATERIALS USED IN PREPARATION OF THE COMPANY’S FINANCIAL STATEMENTS.

SECTION 3.26           ACQUISITIONS.  THE COMPANY COVENANTS AND AGREES THAT IT
SHALL NOT CONSUMMATE ANY ACQUISITIONS BY THE COMPANY WITHOUT THE CONSENT OF THE
BOARD OF DIRECTORS OF THE COMPANY, INCLUDING THE CONSENT OF THE MAJORITY OF THE
INVESTOR DESIGNEES (AS DEFINED IN THE STOCKHOLDERS AGREEMENT).

SECTION 3.27           D&O INSURANCE.  PROMPTLY FOLLOWING THE CLOSING AND AS
LONG AS ANY INVESTOR DESIGNEE (AS DEFINED IN THE STOCKHOLDERS AGREEMENT) SHALL
CONTINUE TO SERVE AS A DIRECTOR OF THE COMPANY AND THEREAFTER SO LONG AS THE
INVESTOR DESIGNEE SHALL BE SUBJECT TO ANY POSSIBLE PROCEEDING (AS DEFINED IN THE
STOCKHOLDERS AGREEMENT), THE COMPANY COVENANTS AND AGREES THAT IT SHALL OBTAIN
AND MAINTAIN IN FULL FORCE AND EFFECT DIRECTORS’ AND OFFICERS’ LIABILITY
INSURANCE IN THE AMOUNT OF $5,000,000 FROM ESTABLISHED AND REPUTABLE INSURERS.

SECTION 3.28           SERIES B CERTIFICATE OF DESIGNATION.  IMMEDIATELY UPON
EXERCISE OF THE SERIES B WARRANT, THE COMPANY SHALL FILE THE SERIES B
CERTIFICATE OF DESIGNATION SUBSTANTIALLY IN THE FORM OF EXHIBIT B-2 ATTACHED
HERETO WITH THE SECRETARY OF STATE OF NEVADA.

SECTION 3.29           DIRECTOR INDEMNIFICATION AGREEMENT.  THE COMPANY
COVENANTS AND AGREES TO ENTER INTO THE DIRECTOR INDEMNIFICATION AGREEMENT
SUBSTANTIALLY IN THE FORM OF EXHIBIT I ATTACHED HERETO IMMEDIATELY UPON THE
APPOINTMENT OF THE PURCHASER DESIGNEES.

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ARTICLE IV

CONDITIONS

SECTION 4.1             CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
SELL THE SHARES.  THE OBLIGATION HEREUNDER OF THE COMPANY TO ISSUE AND SELL THE
PREFERRED SHARES AND THE WARRANTS TO THE PURCHASERS IS SUBJECT TO THE
SATISFACTION OR WAIVER, AT OR BEFORE THE CLOSING, OF EACH OF THE CONDITIONS SET
FORTH BELOW.  THESE CONDITIONS ARE FOR THE COMPANY’S SOLE BENEFIT AND MAY BE
WAIVED BY THE COMPANY AT ANY TIME IN ITS SOLE DISCRETION.

(A)           ACCURACY OF EACH PURCHASER’S REPRESENTATIONS AND WARRANTIES.  THE
REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER SHALL BE TRUE AND CORRECT IN
ALL MATERIAL RESPECTS AS OF THE DATE WHEN MADE AND AS OF THE CLOSING DATE AS
THOUGH MADE AT THAT TIME, EXCEPT FOR REPRESENTATIONS AND WARRANTIES THAT ARE
EXPRESSLY MADE AS OF A PARTICULAR DATE, WHICH SHALL BE TRUE AND CORRECT IN ALL
MATERIAL RESPECTS AS OF SUCH DATE.

(B)           PERFORMANCE BY THE PURCHASERS.  EACH PURCHASER SHALL HAVE
PERFORMED, SATISFIED AND COMPLIED IN ALL RESPECTS WITH ALL COVENANTS, AGREEMENTS
AND CONDITIONS REQUIRED BY THIS AGREEMENT TO BE PERFORMED, SATISFIED OR COMPLIED
WITH BY SUCH PURCHASER AT OR PRIOR TO THE CLOSING.

(C)           NO INJUNCTION.  NO STATUTE, RULE, REGULATION, EXECUTIVE ORDER,
DECREE, RULING OR INJUNCTION SHALL HAVE BEEN ENACTED, ENTERED, PROMULGATED OR
ENDORSED BY ANY COURT OR GOVERNMENTAL AUTHORITY OF COMPETENT JURISDICTION WHICH
PROHIBITS THE CONSUMMATION OF ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.

(D)           DELIVERY OF PURCHASE PRICE.  THE PURCHASE PRICE FOR THE PREFERRED
SHARES HAS BEEN DELIVERED TO THE COMPANY AT THE CLOSING DATE.

(E)           DELIVERY OF TRANSACTION DOCUMENTS.  THE TRANSACTION DOCUMENTS HAVE
BEEN DULY EXECUTED AND DELIVERED BY THE PURCHASERS TO THE COMPANY.

SECTION 4.2             CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS
TO PURCHASE THE SHARES.  THE OBLIGATION HEREUNDER OF EACH PURCHASER TO ACQUIRE
AND PAY FOR THE PREFERRED SHARES AND THE WARRANTS IS SUBJECT TO THE SATISFACTION
OR WAIVER, AT OR BEFORE CLOSING, OF EACH OF THE CONDITIONS SET FORTH BELOW. 
THESE CONDITIONS ARE FOR EACH PURCHASER’S SOLE BENEFIT AND MAY BE WAIVED BY SUCH
PURCHASER AT ANY TIME IN ITS SOLE DISCRETION.

(A)           ACCURACY OF THE COMPANY’S REPRESENTATIONS AND WARRANTIES.  EACH OF
THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY IN THIS AGREEMENT AND THE
REGISTRATION RIGHTS AGREEMENT SHALL BE TRUE AND CORRECT IN ALL RESPECTS AS OF
THE DATE WHEN MADE AND AS OF THE CLOSING DATE AS THOUGH MADE AT THAT TIME
(EXCEPT FOR REPRESENTATIONS AND WARRANTIES THAT ARE EXPRESSLY MADE AS OF A
PARTICULAR DATE), WHICH SHALL BE TRUE AND CORRECT IN ALL RESPECTS AS OF SUCH
DATE.

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(B)           PERFORMANCE BY THE COMPANY.  THE COMPANY SHALL HAVE PERFORMED,
SATISFIED AND COMPLIED IN ALL RESPECTS WITH ALL COVENANTS, AGREEMENTS AND
CONDITIONS REQUIRED BY THIS AGREEMENT TO BE PERFORMED, SATISFIED OR COMPLIED
WITH BY THE COMPANY AT OR PRIOR TO THE CLOSING.

(C)           NO SUSPENSION, ETC.  TRADING IN THE COMPANY’S COMMON STOCK SHALL
NOT HAVE BEEN SUSPENDED BY THE COMMISSION OR THE OTC BULLETIN BOARD (EXCEPT FOR
ANY SUSPENSION OF TRADING OF LIMITED DURATION AGREED TO BY THE COMPANY, WHICH
SUSPENSION SHALL BE TERMINATED PRIOR TO THE APPLICABLE CLOSING), AND, AT ANY
TIME PRIOR TO THE CLOSING DATE, TRADING IN SECURITIES GENERALLY AS REPORTED BY
BLOOMBERG FINANCIAL MARKETS (“BLOOMBERG”) SHALL NOT HAVE BEEN SUSPENDED OR
LIMITED, OR MINIMUM PRICES SHALL NOT HAVE BEEN ESTABLISHED ON SECURITIES WHOSE
TRADES ARE REPORTED BY BLOOMBERG, OR ON THE NEW YORK STOCK EXCHANGE, NOR SHALL A
BANKING MORATORIUM 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 OR CRISIS
OF SUCH MAGNITUDE IN ITS EFFECT ON, OR ANY MATERIAL ADVERSE CHANGE IN ANY
FINANCIAL MARKET WHICH, IN EACH CASE, IN THE JUDGMENT OF SUCH PURCHASER, MAKES
IT IMPRACTICABLE OR INADVISABLE TO PURCHASE THE PREFERRED SHARES.

(D)           NO INJUNCTION.  NO STATUTE, RULE, REGULATION, EXECUTIVE ORDER,
DECREE, RULING OR INJUNCTION SHALL HAVE BEEN ENACTED, ENTERED, PROMULGATED OR
ENDORSED BY ANY COURT OR GOVERNMENTAL AUTHORITY OF COMPETENT JURISDICTION WHICH
PROHIBITS THE CONSUMMATION OF ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.

(E)           NO PROCEEDINGS OR LITIGATION.  NO ACTION, SUIT OR PROCEEDING
BEFORE ANY ARBITRATOR OR ANY GOVERNMENTAL AUTHORITY SHALL HAVE BEEN COMMENCED,
AND NO INVESTIGATION BY ANY GOVERNMENTAL AUTHORITY SHALL HAVE BEEN THREATENED,
AGAINST THE COMPANY OR ANY SUBSIDIARY, OR ANY OF THE OFFICERS, DIRECTORS OR
AFFILIATES OF THE COMPANY OR ANY SUBSIDIARY SEEKING TO RESTRAIN, PREVENT OR
CHANGE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, OR SEEKING DAMAGES IN
CONNECTION WITH SUCH TRANSACTIONS.

(F)            CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES.  PRIOR TO
THE CLOSING, THE CERTIFICATE OF DESIGNATION IN THE FORM OF EXHIBIT B-1 ATTACHED
HERETO SHALL HAVE BEEN FILED WITH THE SECRETARY OF STATE OF NEVADA.

(G)           OPINION OF COUNSEL, ETC. AT THE CLOSING, THE PURCHASERS SHALL HAVE
RECEIVED AN OPINION OF COUNSEL TO THE COMPANY, DATED THE DATE OF THE CLOSING, IN
THE FORM OF EXHIBIT G HERETO, AND SUCH OTHER CERTIFICATES AND DOCUMENTS AS THE
PURCHASERS OR ITS COUNSEL SHALL REASONABLY REQUIRE INCIDENT TO THE CLOSING.

(H)           REGISTRATION RIGHTS AGREEMENT.  AT THE CLOSING, THE COMPANY SHALL
HAVE EXECUTED AND DELIVERED THE REGISTRATION RIGHTS AGREEMENT TO EACH PURCHASER.

(I)            CERTIFICATES.  THE COMPANY SHALL HAVE EXECUTED AND DELIVERED TO
THE PURCHASERS THE CERTIFICATES (IN SUCH DENOMINATIONS AS SUCH PURCHASER SHALL
REQUEST) FOR THE

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PREFERRED SHARES AND THE WARRANTS BEING ACQUIRED BY SUCH PURCHASER AT THE
CLOSING (IN SUCH DENOMINATIONS AS SUCH PURCHASER SHALL REQUEST).

(J)            RESOLUTIONS.  THE BOARD OF DIRECTORS OF THE COMPANY SHALL HAVE
ADOPTED RESOLUTIONS CONSISTENT WITH SECTION 2.1(B) HEREOF IN A FORM REASONABLY
ACCEPTABLE TO SUCH PURCHASER (THE “RESOLUTIONS”).

(K)           RESERVATION OF SHARES.  AS OF THE CLOSING DATE, THE COMPANY SHALL
HAVE RESERVED OUT OF ITS AUTHORIZED AND UNISSUED COMMON STOCK, SOLELY FOR THE
PURPOSE OF EFFECTING THE CONVERSION OF THE PREFERRED SHARES AND THE CONVERSION
OF THE WARRANT PREFERRED SHARES, A NUMBER OF SHARES OF COMMON STOCK EQUAL TO ONE
HUNDRED TWENTY PERCENT (120%) OF THE AGGREGATE NUMBER OF CONVERSION SHARES
ISSUABLE UPON CONVERSION OF THE PREFERRED SHARES ISSUED OR TO BE ISSUED PURSUANT
TO THIS AGREEMENT AND THE NUMBER OF WARRANT SHARES ISSUABLE UPON CONVERSION OF
THE WARRANT PREFERRED SHARES AND EXERCISE OF THE NUMBER OF WARRANTS ISSUED
PURSUANT TO THIS AGREEMENT.

(L)            TRANSFER AGENT INSTRUCTIONS.  AS OF THE CLOSING DATE, THE
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS, IN THE FORM OF EXHIBIT E ATTACHED
HERETO, SHALL HAVE BEEN DELIVERED TO AND ACKNOWLEDGED IN WRITING BY THE
COMPANY’S TRANSFER AGENT.

(M)          STOCKHOLDERS AGREEMENT.  AS OF THE CLOSING DATE, THE PERSONS LISTED
ON SCHEDULE 3.20 HERETO SHALL HAVE DELIVERED TO THE PURCHASERS A FULLY EXECUTED
STOCKHOLDERS AGREEMENT IN THE FORM OF EXHIBIT D ATTACHED HERETO.

(N)           CONFIDENTIALITY, NON-COMPETITION AND NON-SOLICITATION AGREEMENT. 
AS OF THE CLOSING DATE, THE PERSONS LISTED ON SCHEDULE 3.23 HERETO SHALL HAVE
DELIVERED TO THE PURCHASERS A FULLY EXECUTED CONFIDENTIALITY, NON-COMPETITION
AND NON-SOLICITATION AGREEMENT.

(O)           SECRETARY’S CERTIFICATE.  THE COMPANY SHALL HAVE DELIVERED TO SUCH
PURCHASER A SECRETARY’S CERTIFICATE, DATED AS OF THE CLOSING DATE, AS TO (I) THE
RESOLUTIONS, (II) THE ARTICLES, (III) THE BYLAWS, (IV) THE CERTIFICATE OF
DESIGNATION, EACH AS IN EFFECT AT THE CLOSING, AND (IV) THE AUTHORITY AND
INCUMBENCY OF THE OFFICERS OF THE COMPANY EXECUTING THE TRANSACTION DOCUMENTS
AND ANY OTHER DOCUMENTS REQUIRED TO BE EXECUTED OR DELIVERED IN CONNECTION
THEREWITH.

(P)           OFFICER’S CERTIFICATE.  THE COMPANY SHALL HAVE DELIVERED TO THE
PURCHASERS A CERTIFICATE OF AN EXECUTIVE OFFICER OF THE COMPANY, DATED AS OF THE
CLOSING DATE, CONFIRMING THE ACCURACY OF THE COMPANY’S REPRESENTATIONS,
WARRANTIES AND COVENANTS AS OF THE CLOSING DATE AND CONFIRMING THE COMPLIANCE BY
THE COMPANY WITH THE CONDITIONS PRECEDENT SET FORTH IN THIS SECTION 4.2 AS OF
THE CLOSING DATE.

(Q)           MATERIAL ADVERSE EFFECT.  NO MATERIAL ADVERSE EFFECT SHALL HAVE
OCCURRED AT OR BEFORE THE CLOSING DATE.

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ARTICLE V

Stock Certificate Legend

SECTION 5.1             LEGEND.  EACH CERTIFICATE REPRESENTING THE PREFERRED
SHARES, THE WARRANT PREFERRED SHARES AND THE WARRANTS, AND, IF APPROPRIATE,
SECURITIES ISSUED UPON CONVERSION THEREOF, SHALL BE STAMPED OR OTHERWISE
IMPRINTED WITH A LEGEND SUBSTANTIALLY IN THE FOLLOWING FORM (IN ADDITION TO ANY
LEGEND REQUIRED BY APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF
ANY STATE.  THESE SECURITIES ARE RESTRICTED SECURITIES AS DEFINED IN RULE 144
PROMULGATED UNDER THE ACT AND MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
DISTRIBUTED EXCEPT (A) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, (B) IN COMPLIANCE WITH RULE
144 AND AN EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS, OR (C) PURSUANT TO
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH
REGISTRATION OR COMPLIANCE IS NOT REQUIRED.”

The Company agrees to reissue certificates representing any of the Conversion
Shares, and the Warrant Shares, without the legend set forth above if at such
time, prior to making any transfer of any such securities, such holder thereof
shall give written notice to the Company describing the manner and terms of such
transfer and removal as the Company may reasonably request.  Such proposed
transfer and removal will not be effected until: (a) either (i) the Company has
received an opinion of counsel reasonably satisfactory to the Company, to the
effect that the registration of the Conversion Shares or the Warrant Shares
under the Securities Act is not required in connection with such proposed
transfer, (ii) a registration statement under the Securities Act covering such
proposed disposition has been filed by the Company with the Commission and has
become effective under the Securities Act, (iii) the Company has received other
evidence reasonably satisfactory to the Company that such registration and
qualification under the Securities Act and state securities laws are not
required, or (iv) the holder provides the Company with reasonable assurances
that such security can be sold pursuant to Rule 144 under the Securities Act;
and (b) either (i) the Company has received an opinion of counsel reasonably
satisfactory to the Company, to the effect that registration or qualification
under the securities or “blue sky” laws of any state is not required in
connection with such proposed disposition, or (ii) compliance with applicable
state securities or

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“blue sky” laws has been effected or a valid exemption exists with respect
thereto.  The Company will respond to any such notice from a holder within five
(5) business days.  In the case of any proposed transfer under this Section 5.1,
the Company will use reasonable efforts to comply with any such applicable state
securities or “blue sky” laws, but shall in no event be required, (x) to qualify
to do business in any state where it is not then qualified, (y) to take any
action that would subject it to tax or to the general service of process in any
state where it is not then subject, or (z) to comply with state securities or
“blue sky” laws of any state for which registration by coordination is
unavailable to the Company.  The restrictions on transfer contained in this
Section 5.1 shall be in addition to, and not by way of limitation of, any other
restrictions on transfer contained in any other section of this Agreement. 
Whenever a certificate representing the Conversion Shares or Warrant Shares  is
required to be issued to a Purchaser without a legend, in lieu of delivering
physical certificates representing the Conversion Shares or Warrant Shares
(provided that a registration statement under the Securities Act providing for
the resale of the Warrant Shares and Conversion Shares is then in effect), the
Company shall cause its transfer agent to electronically transmit the Conversion
Shares or Warrant Shares to a Purchaser by crediting the account of such
Purchaser or such Purchaser’s Prime Broker with the Depository Trust Company
(“DTC”) through its Deposit Withdrawal Agent Commission (“DWAC”) system (to the
extent not inconsistent with any provisions of this Agreement).

ARTICLE VI

Indemnification

SECTION 6.1             COMPANY INDEMNITY.  THE COMPANY AGREES TO INDEMNIFY AND
HOLD HARMLESS THE PURCHASERS (AND THEIR RESPECTIVE DIRECTORS, OFFICERS,
MANAGERS, PARTNERS, MEMBERS, SHAREHOLDERS, AFFILIATES, AGENTS, SUCCESSORS AND
ASSIGNS) FROM AND AGAINST ANY AND ALL CLAIMS, CAUSES OF ACTION, LOSSES,
LIABILITIES, DEFICIENCIES, COSTS, DAMAGES, AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS’ FEES, CHARGES AND DISBURSEMENTS) AND FEES
INCURRED BY THE PURCHASERS AS A RESULT OF ANY INACCURACY IN OR BREACH OF THE
REPRESENTATIONS, WARRANTIES OR COVENANTS MADE BY THE COMPANY HEREIN.

SECTION 6.2             INDEMNIFICATION PROCEDURE.  ANY PARTY ENTITLED TO
INDEMNIFICATION UNDER THIS ARTICLE VI (AN “INDEMNIFIED PARTY”) WILL GIVE WRITTEN
NOTICE TO THE INDEMNIFYING PARTY OF ANY MATTERS GIVING RISE TO A CLAIM FOR
INDEMNIFICATION; PROVIDED, THAT THE FAILURE OF ANY PARTY ENTITLED TO
INDEMNIFICATION HEREUNDER TO GIVE NOTICE AS PROVIDED HEREIN SHALL NOT RELIEVE
THE INDEMNIFYING PARTY OF ITS OBLIGATIONS UNDER THIS ARTICLE VI EXCEPT TO THE
EXTENT THAT THE INDEMNIFYING PARTY IS ACTUALLY PREJUDICED BY SUCH FAILURE TO
GIVE NOTICE.  IN CASE ANY ACTION, PROCEEDING OR CLAIM IS BROUGHT AGAINST AN
INDEMNIFIED PARTY IN RESPECT OF WHICH INDEMNIFICATION IS SOUGHT HEREUNDER, THE
INDEMNIFYING PARTY SHALL BE ENTITLED TO PARTICIPATE IN AND, UNLESS IN THE
REASONABLE JUDGMENT OF THE INDEMNIFIED PARTY A CONFLICT OF INTEREST BETWEEN IT
AND THE INDEMNIFYING PARTY MAY EXIST WITH RESPECT OF SUCH ACTION, PROCEEDING OR
CLAIM, TO ASSUME THE DEFENSE THEREOF WITH COUNSEL REASONABLY SATISFACTORY TO THE
INDEMNIFIED PARTY.  IN THE EVENT THAT THE INDEMNIFYING PARTY ADVISES AN
INDEMNIFIED PARTY THAT IT WILL CONTEST SUCH A CLAIM FOR INDEMNIFICATION
HEREUNDER, OR FAILS, WITHIN THIRTY (30) DAYS OF RECEIPT OF ANY INDEMNIFICATION
NOTICE TO NOTIFY, IN WRITING, SUCH PERSON OF ITS ELECTION TO DEFEND, SETTLE OR
COMPROMISE, AT ITS SOLE COST AND EXPENSE, ANY ACTION, PROCEEDING OR CLAIM (OR
DISCONTINUES ITS DEFENSE AT ANY TIME AFTER IT COMMENCES SUCH DEFENSE), THEN THE
INDEMNIFIED PARTY MAY, AT ITS OPTION, DEFEND, SETTLE OR OTHERWISE COMPROMISE OR
PAY SUCH ACTION OR CLAIM.  IN ANY EVENT, UNLESS AND UNTIL THE INDEMNIFYING PARTY
ELECTS IN WRITING TO ASSUME AND DOES SO ASSUME THE DEFENSE OF ANY SUCH

26

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CLAIM, PROCEEDING OR ACTION, THE INDEMNIFIED PARTY’S COSTS AND EXPENSES ARISING
OUT OF THE DEFENSE, SETTLEMENT OR COMPROMISE OF ANY SUCH ACTION, CLAIM OR
PROCEEDING SHALL BE LOSSES SUBJECT TO INDEMNIFICATION HEREUNDER.  THE
INDEMNIFIED PARTY SHALL COOPERATE FULLY WITH THE INDEMNIFYING PARTY IN
CONNECTION WITH ANY NEGOTIATION OR DEFENSE OF ANY SUCH ACTION OR CLAIM BY THE
INDEMNIFYING PARTY AND SHALL FURNISH TO THE INDEMNIFYING PARTY ALL INFORMATION
REASONABLY AVAILABLE TO THE INDEMNIFIED PARTY WHICH RELATES TO SUCH ACTION OR
CLAIM.  THE INDEMNIFYING PARTY SHALL KEEP THE INDEMNIFIED PARTY FULLY APPRISED
AT ALL TIMES AS TO THE STATUS OF THE DEFENSE OR ANY SETTLEMENT NEGOTIATIONS WITH
RESPECT THERETO.  IF THE INDEMNIFYING PARTY ELECTS TO DEFEND ANY SUCH ACTION OR
CLAIM, THEN THE INDEMNIFIED PARTY SHALL BE ENTITLED TO PARTICIPATE IN SUCH
DEFENSE WITH COUNSEL OF ITS CHOICE AT ITS SOLE COST AND EXPENSE.  THE
INDEMNIFYING PARTY SHALL NOT BE LIABLE FOR ANY SETTLEMENT OF ANY ACTION, CLAIM
OR PROCEEDING EFFECTED WITHOUT ITS PRIOR WRITTEN CONSENT.  NOTWITHSTANDING
ANYTHING IN THIS ARTICLE VI TO THE CONTRARY, THE INDEMNIFYING PARTY SHALL NOT,
WITHOUT THE INDEMNIFIED PARTY’S PRIOR WRITTEN CONSENT, SETTLE OR COMPROMISE ANY
CLAIM OR CONSENT TO ENTRY OF ANY JUDGMENT IN RESPECT THEREOF WHICH IMPOSES ANY
FUTURE OBLIGATION ON THE INDEMNIFIED PARTY OR WHICH DOES NOT INCLUDE, AS AN
UNCONDITIONAL TERM THEREOF, THE GIVING BY THE CLAIMANT OR THE PLAINTIFF TO THE
INDEMNIFIED PARTY OF A RELEASE FROM ALL LIABILITY IN RESPECT OF SUCH CLAIM.  THE
INDEMNIFICATION REQUIRED BY THIS ARTICLE VI SHALL BE MADE BY PERIODIC PAYMENTS
OF THE AMOUNT THEREOF DURING THE COURSE OF INVESTIGATION OR DEFENSE, AS AND WHEN
BILLS ARE RECEIVED OR EXPENSE, LOSS, DAMAGE OR LIABILITY IS INCURRED, SO LONG AS
THE INDEMNIFIED PARTY IRREVOCABLY AGREES TO REFUND SUCH MONEYS IF IT IS
ULTIMATELY DETERMINED BY A COURT OF COMPETENT JURISDICTION THAT SUCH PARTY WAS
NOT ENTITLED TO INDEMNIFICATION.  THE INDEMNITY AGREEMENTS CONTAINED HEREIN
SHALL BE IN ADDITION TO (A) ANY CAUSE OF ACTION OR SIMILAR RIGHTS OF THE
INDEMNIFIED PARTY AGAINST THE INDEMNIFYING PARTY OR OTHERS, AND (B) ANY
LIABILITIES THE INDEMNIFYING PARTY MAY BE SUBJECT TO PURSUANT TO THE LAW.

ARTICLE VII

Miscellaneous

SECTION 7.1             FEES AND EXPENSES.  EXCEPT AS OTHERWISE SET FORTH IN
THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, EACH PARTY SHALL PAY THE
FEES AND EXPENSES OF ITS ADVISORS, 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, PROVIDED
THAT THE COMPANY SHALL PAY ALL ACTUAL ATTORNEYS’ FEES AND EXPENSES (INCLUDING
DISBURSEMENTS AND OUT-OF-POCKET EXPENSES) INCURRED BY THE PURCHASERS IN
CONNECTION WITH (I) THE PREPARATION, NEGOTIATION, EXECUTION AND DELIVERY OF THIS
AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED
THEREUNDER, WHICH PAYMENT SHALL BE MADE AT THE CLOSING (PLUS DISBURSEMENTS AND
OUT-OF-POCKET EXPENSES), (II) THE FILING AND DECLARATION OF EFFECTIVENESS BY THE
COMMISSION OF THE REGISTRATION STATEMENT AND (III) ANY AMENDMENTS, MODIFICATIONS
OR WAIVERS OF THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS.  THE
COMPANY SHALL ALSO PAY AT THE CLOSING TO YORK CAPITAL MANAGEMENT EXPENSES
INCURRED BY YORK CAPITAL MANAGEMENT FOR DUE DILIGENCE IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE COMPANY SHALL PAY ALL
REASONABLE FEES AND EXPENSES INCURRED BY THE PURCHASERS IN CONNECTION WITH THE
ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, ALL REASONABLE ATTORNEYS’ FEES AND EXPENSES.

27

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SECTION 7.2             SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.

(A)           THE COMPANY AND THE PURCHASERS ACKNOWLEDGE AND AGREE THAT
IRREPARABLE DAMAGE WOULD OCCUR IN THE EVENT THAT ANY OF THE PROVISIONS OF THIS
AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS WERE NOT PERFORMED IN ACCORDANCE
WITH THEIR SPECIFIC TERMS OR WERE OTHERWISE BREACHED.  IT IS ACCORDINGLY AGREED
THAT THE PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR INJUNCTIONS TO PREVENT OR
CURE BREACHES OF THE PROVISIONS OF THIS AGREEMENT OR THE REGISTRATION RIGHTS
AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS HEREOF OR
THEREOF, THIS BEING IN ADDITION TO ANY OTHER REMEDY TO WHICH ANY OF THEM MAY BE
ENTITLED BY LAW OR EQUITY.

(B)           EACH OF THE COMPANY AND THE PURCHASERS AGREE THAT VENUE FOR ANY
DISPUTE ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY WILL LIE EXCLUSIVELY IN THE
STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, NEW YORK, AND THE PARTIES
IRREVOCABLY WAIVE ANY RIGHT TO RAISE FORUM NON CONVENIENS OR ANY OTHER ARGUMENT
THAT NEW YORK IS NOT THE PROPER VENUE.  THE COMPANY AND THE PURCHASERS
IRREVOCABLY CONSENT TO PERSONAL JURISDICTION IN THE STATE AND FEDERAL COURTS OF
THE STATE OF NEW YORK.  THE COMPANY AND THE PURCHASERS CONSENT TO PROCESS BEING
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH
PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES
THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND
NOTICE THEREOF.  NOTHING IN THIS SECTION 7.2 SHALL AFFECT OR LIMIT ANY RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

SECTION 7.3             ENTIRE AGREEMENT; AMENDMENT.  THIS AGREEMENT AND THE
TRANSACTION DOCUMENTS CONTAINS THE ENTIRE UNDERSTANDING AND AGREEMENT OF THE
PARTIES WITH RESPECT TO THE MATTERS COVERED HEREBY AND, EXCEPT AS SPECIFICALLY
SET FORTH HEREIN OR IN THE TRANSACTION DOCUMENTS, NEITHER THE COMPANY NOR ANY OF
THE PURCHASERS MAKES ANY REPRESENTATIONS, WARRANTY, COVENANT OR UNDERTAKING WITH
RESPECT TO SUCH MATTERS AND THEY SUPERSEDE ALL PRIOR UNDERSTANDINGS AND
AGREEMENTS WITH RESPECT TO SAID SUBJECT MATTER, ALL OF WHICH ARE MERGED HEREIN. 
NO PROVISION OF THIS AGREEMENT MAY BE WAIVED OR AMENDED OTHER THAN BY A WRITTEN
INSTRUMENT SIGNED BY THE COMPANY AND THE HOLDERS OF AT LEAST SEVENTY-FIVE
PERCENT (75%) OF THE PREFERRED SHARES THEN OUTSTANDING, AND NO PROVISION HEREOF
MAY BE WAIVED OTHER THAN BY AN A WRITTEN INSTRUMENT SIGNED BY THE PARTY AGAINST
WHOM ENFORCEMENT OF ANY SUCH AMENDMENT OR WAIVER IS SOUGHT.  NO SUCH AMENDMENT
SHALL BE EFFECTIVE TO THE EXTENT THAT IT APPLIES TO LESS THAN ALL OF THE HOLDERS
OF THE PREFERRED SHARES THEN OUTSTANDING.  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 OR HOLDERS OF
PREFERRED SHARES, AS THE CASE MAY BE.

SECTION 7.4             NOTICES.  ANY NOTICE, DEMAND, REQUEST, WAIVER OR OTHER
COMMUNICATION REQUIRED OR PERMITTED TO BE GIVEN HEREUNDER SHALL BE IN WRITING
AND SHALL BE EFFECTIVE (A) UPON HAND DELIVERY BY TELEX (WITH CORRECT ANSWER BACK
RECEIVED), TELECOPY OR FACSIMILE AT THE ADDRESS OR NUMBER DESIGNATED BELOW (IF
DELIVERED ON A BUSINESS DAY DURING NORMAL BUSINESS HOURS WHERE SUCH NOTICE IS TO
BE RECEIVED), OR THE FIRST BUSINESS DAY FOLLOWING SUCH DELIVERY (IF DELIVERED
OTHER THAN ON A BUSINESS DAY DURING NORMAL BUSINESS HOURS WHERE SUCH NOTICE IS
TO BE RECEIVED) OR (B) ON THE SECOND BUSINESS DAY FOLLOWING THE DATE OF MAILING
BY

28

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EXPRESS COURIER SERVICE, FULLY PREPAID, ADDRESSED TO SUCH ADDRESS, OR UPON
ACTUAL RECEIPT OF SUCH MAILING, WHICHEVER SHALL FIRST OCCUR.  THE ADDRESSES FOR
SUCH COMMUNICATIONS SHALL BE:

If to the Company:

Nascent Wine Company, Inc.
2355 Paseo de las Americas
San Diego, California 92154
Attention: Sandro Piancone
Tel. No.: (619) 661-0458
Fax No.: (619) 661-9735

 

 

with copies to:

The Law Offices of Gary A. Agron
5445 DTC Parkway Suite 520
Greenwood Village, CO 80111
Attention: Gary A. Agron
Tel. No.: (303) 770-7254
Fax No.: (303) 770-7257

 

 

If to any Purchaser:

At the address of such Purchaser set forth on Exhibit A to this Agreement, with
copies to Purchaser’s counsel as set forth on Exhibit A or as specified in
writing by such Purchaser with copies to:

 

 

 

Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036

 

Attention:

Howard T. Spilko
Christopher S. Auguste

 

Tel No.: (212) 715-9100
Fax No.: (212) 715-8000

 

Any party hereto may from time to time change its address for notices by giving
at least ten (10) days written notice of such changed address to the other party
hereto.

SECTION 7.5             WAIVERS.  NO WAIVER BY EITHER PARTY 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 OTHER
PROVISIONS, 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 ACCRUING TO IT THEREAFTER.

SECTION 7.6             HEADINGS.  THE ARTICLE, SECTION AND SUBSECTION HEADINGS
IN THIS AGREEMENT ARE FOR CONVENIENCE ONLY AND SHALL NOT CONSTITUTE A PART OF
THIS AGREEMENT FOR ANY OTHER PURPOSE AND SHALL NOT BE DEEMED TO LIMIT OR AFFECT
ANY OF THE PROVISIONS HEREOF.

29

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SECTION 7.7             SUCCESSORS AND ASSIGNS.  THIS AGREEMENT SHALL BE BINDING
UPON AND INURE TO THE BENEFIT OF THE PARTIES AND THEIR SUCCESSORS AND ASSIGNS.

SECTION 7.8             NO THIRD PARTY BENEFICIARIES.  THIS AGREEMENT IS
INTENDED FOR THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE PERMITTED
SUCCESSORS AND ASSIGNS AND IS NOT FOR THE BENEFIT OF, NOR MAY ANY PROVISION
HEREOF BE ENFORCED BY, ANY OTHER PERSON.

SECTION 7.9             GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY OF THE CONFLICTS OF LAW PRINCIPLES WHICH WOULD RESULT IN
THE APPLICATION OF THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION.  THIS AGREEMENT
SHALL NOT BE INTERPRETED OR CONSTRUED WITH ANY PRESUMPTION AGAINST THE PARTY
CAUSING THIS AGREEMENT TO BE DRAFTED.

SECTION 7.10           SURVIVAL.  THE REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE PURCHASERS SHALL SURVIVE THE EXECUTION AND DELIVERY HEREOF AND
THE CLOSINGS HEREUNDER.

SECTION 7.11           COUNTERPARTS.  THIS AGREEMENT MAY BE EXECUTED IN ANY
NUMBER OF COUNTERPARTS, EACH OF WHICH WHEN SO EXECUTED SHALL BE DEEMED TO BE AN
ORIGINAL AND, ALL OF WHICH TAKEN TOGETHER SHALL CONSTITUTE ONE AND THE SAME
AGREEMENT AND SHALL BECOME EFFECTIVE WHEN COUNTERPARTS HAVE BEEN SIGNED BY EACH
PARTY AND DELIVERED TO THE OTHER PARTIES HERETO, IT BEING UNDERSTOOD THAT ALL
PARTIES NEED NOT SIGN THE SAME COUNTERPART.  IN THE EVENT THAT ANY SIGNATURE IS
DELIVERED BY FACSIMILE TRANSMISSION, SUCH SIGNATURE SHALL CREATE A VALID BINDING
OBLIGATION OF THE PARTY EXECUTING (OR ON WHOSE BEHALF SUCH SIGNATURE IS
EXECUTED) THE SAME WITH THE SAME FORCE AND EFFECT AS IF SUCH FACSIMILE SIGNATURE
WERE THE ORIGINAL THEREOF.

SECTION 7.12           PUBLICITY.  THE COMPANY AGREES THAT IT WILL NOT DISCLOSE,
AND WILL NOT INCLUDE IN ANY PUBLIC ANNOUNCEMENT, THE NAME OF THE PURCHASERS
WITHOUT THE CONSENT OF THE PURCHASERS UNLESS AND UNTIL SUCH DISCLOSURE IS
REQUIRED BY LAW OR APPLICABLE REGULATION, AND THEN ONLY TO THE EXTENT OF SUCH
REQUIREMENT.

SECTION 7.13           SEVERABILITY.  THE PROVISIONS OF THIS AGREEMENT AND THE
TRANSACTION DOCUMENTS ARE SEVERABLE AND, IN THE EVENT THAT ANY COURT OF
COMPETENT JURISDICTION SHALL DETERMINE THAT ANY ONE OR MORE OF THE PROVISIONS OR
PART OF THE PROVISIONS CONTAINED IN THIS AGREEMENT OR THE TRANSACTION DOCUMENTS
SHALL, FOR ANY REASON, BE HELD TO BE INVALID, ILLEGAL OR UNENFORCEABLE IN ANY
RESPECT, SUCH INVALIDITY, ILLEGALITY OR UNENFORCEABILITY SHALL NOT AFFECT ANY
OTHER PROVISION OR PART OF A PROVISION OF THIS AGREEMENT OR THE TRANSACTION
DOCUMENTS AND SUCH PROVISION SHALL BE REFORMED AND CONSTRUED AS IF SUCH INVALID
OR ILLEGAL OR UNENFORCEABLE PROVISION, OR PART OF SUCH PROVISION, HAD NEVER BEEN
CONTAINED HEREIN, SO THAT SUCH PROVISIONS WOULD BE VALID, LEGAL AND ENFORCEABLE
TO THE MAXIMUM EXTENT POSSIBLE.

SECTION 7.14           FURTHER ASSURANCES.  FROM AND AFTER THE DATE OF THIS
AGREEMENT, UPON THE REQUEST OF ANY PURCHASER OR THE COMPANY, EACH OF THE COMPANY
AND THE PURCHASERS SHALL EXECUTE AND DELIVER SUCH INSTRUMENT, DOCUMENTS AND
OTHER WRITINGS AS MAY BE REASONABLY NECESSARY OR DESIRABLE TO CONFIRM AND CARRY
OUT AND TO EFFECTUATE FULLY THE INTENT AND PURPOSES OF THIS AGREEMENT, THE
PREFERRED SHARES, THE CONVERSION SHARES, THE WARRANT PREFERRED SHARES, THE
WARRANTS, THE WARRANT SHARES, THE CERTIFICATE OF DESIGNATION, AND THE
REGISTRATION RIGHTS AGREEMENT.

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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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

NASCENT WINE COMPANY, INC.

 

 

 

 

 

By:

 

 

 

Name:

Sandro Piancone

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

 

 

 

PURCHASER

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

32

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EXHIBIT A to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

Names and Addresses

 

Number of Preferred Shares

 

Dollar Amount of

 

of Purchasers

 

and Warrants Purchased

 

Investment

 

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

EXHIBIT B-1 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

FORM OF CERTIFICATE OF DESIGNATION

--------------------------------------------------------------------------------

EXHIBIT B-1 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

FORM OF CERTIFICATE OF DESIGNATION

--------------------------------------------------------------------------------

EXHIBIT B-1 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

FORM OF CERTIFICATE OF DESIGNATION

--------------------------------------------------------------------------------

EXHIBIT B-2 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

FORM OF SERIES B CERTIFICATE OF DESIGNATION

--------------------------------------------------------------------------------

EXHIBIT C-1 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

FORM OF SERIES A-1 WARRANT

--------------------------------------------------------------------------------

EXHIBIT C-2 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

FORM OF SERIES A-2 WARRANT

--------------------------------------------------------------------------------

EXHIBIT C-3 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

FORM OF SERIES B WARRANT

--------------------------------------------------------------------------------

EXHIBIT C-3 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

FORM OF SERIES C WARRANT

--------------------------------------------------------------------------------

EXHIBIT D to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

FORM OF REGISTRATION RIGHTS AGREEMENT

--------------------------------------------------------------------------------

EXHIBIT E to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

FORM OF STOCKHOLDERS AGREEMENT

 

--------------------------------------------------------------------------------

EXHIBIT F to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

NASCENT WINE COMPANY, INC.

as of July 3, 2007

[Name and address of Transfer Agent]

Attn: 

Ladies and Gentlemen:

Reference is made to that certain Series A Convertible Preferred Stock Purchase
Agreement (the “Purchase Agreement”), dated as of July 3, 2007, by and among
Nascent Wine Company, Inc., a Nevada corporation (the “Company”), and the
purchasers named therein (collectively, the “Purchasers”) pursuant to which the
Company is issuing to the Purchasers shares of its Series A Convertible
Preferred Stock, par value $0.001 per share, (the “Preferred Shares”) and
warrants (the “Warrants”) to purchase Preferred Shares (the “Warrant Preferred
Shares”) which are convertible into shares of the Company’s common stock, par
value $0.001 per share (the “Common Stock”).  This letter shall serve as our
irrevocable authorization and direction to you provided that you are the
transfer agent of the Company at such time) to issue shares of Common Stock upon
conversion of the Preferred Shares (the “Conversion Shares”) and conversion of
the Warrant Preferred Shares (the “Warrant Shares”) to or upon the order of a
Purchaser from time to time upon (i) surrender to you of a properly completed
and duly executed Conversion Notice in the form attached hereto as Exhibit I
(ii) a copy of the certificates (with the original certificates delivered to the
Company) representing Preferred Shares or Warrant Preferred Shares being
converted (or an indemnification undertaking with respect to such share
certificates in the case of their loss, theft or destruction), and (iii)
delivery of a treasury order or other appropriate order duly executed by a duly
authorized officer of the Company.  So long as you have previously received (x)
written confirmation from counsel to the Company that a registration statement
covering resales of the Conversion Shares or Warrant Shares, as applicable, has
been declared effective by the Securities and Exchange Commission (the “SEC”)
under the Securities Act of 1933, as amended (the “1933 Act”), and no subsequent
notice by the Company or its counsel of the suspension or termination of its
effectiveness and (y) a copy of such registration statement, and if the
Purchaser represents in writing that the Conversion Shares or the Warrant
Shares, as the case may be, were sold pursuant to the Registration Statement,
then certificates representing the Conversion Shares and the Warrant Shares, as
the case may be, shall not bear any legend restricting transfer of the
Conversion Shares and the Warrant Shares, as the case may be, thereby and should
not be subject to any stop-transfer restriction.  Provided, however, that if you
have not previously received those items and representations listed above, then
the certificates for the Conversion Shares and the Warrant Shares shall bear the
following legend:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF
ANY STATE. 

--------------------------------------------------------------------------------

THESE SECURITIES ARE RESTRICTED SECURITIES AS DEFINED IN RULE 144 PROMULGATED
UNDER THE ACT AND MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED
EXCEPT (A) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, (B) IN COMPLIANCE WITH RULE 144 AND AN
EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS, OR (C) PURSUANT TO AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION OR
COMPLIANCE IS NOT REQUIRED.”

and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
and the Warrant Shares in the event a registration statement covering the
Conversion Shares and the Warrant Shares is subject to amendment for events then
current.

A form of written confirmation from counsel to the Company that a registration
statement covering resales of the Conversion Shares and the Warrant Shares has
been declared effective by the SEC under the 1933 Act is attached hereto as
Exhibit III.

Please be advised that the Purchasers are relying upon this letter as an
inducement to enter into the Purchase Agreement and, accordingly, each Purchaser
is a third party beneficiary to these instructions.

Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions.  Should you have any questions
concerning this matter, please contact me at               .

 

 

Very truly yours,

 

 

 

 

 

 

 

 

NASCENT WINE COMPANY, INC.

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

ACKNOWLEDGED AND AGREED:

 

 

 

 

 

 

 

 

[TRANSFER AGENT]

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

Date:

 

 

 

 

 

--------------------------------------------------------------------------------

EXHIBIT I

NASCENT WINE COMPANY, INC.
CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series A Preferred Stock of Nascent Wine Company, Inc. (the
“Certificate of Designation”).  In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series A Preferred Stock, par value $0.001 per share (the
“Preferred Shares”), of Nascent Wine Company, Inc., a Nevada corporation (the
“Company”), indicated below into shares of Common Stock, par value $0.001 per
share (the “Common Stock”), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below as
of the date specified below.

Date of Conversion:

 

 

 

 

Number of Preferred Shares to be converted:

 

 

 

 

Stock certificate no(s). of Preferred Shares to be converted:

 

 

 

 

The Common Stock have been sold pursuant to the Demand Registration Statement
(as defined in the Registration Rights Agreement): YES o   NO o

 

 

 

Please confirm the following information:

 

 

 

 

Conversion Price:

 

 

 

 

Number of shares of Common Stock

 

 

to be issued:

 

 

 

 

Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion:

 

 

 

 

Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:

 

 

 

Issue to:

 

 

 

 

 

 

Facsimile Number:

 

 

 

 

Authorization:

 

 

 

 

 

By:

 

 

Title:

 

Dated:

 

 

--------------------------------------------------------------------------------

EXHIBIT II

FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

[Name and address of Transfer Agent]

Attn: 

Re:          Nascent Wine Company, Inc. 

Ladies and Gentlemen:

We are counsel to Nascent Wine Company, Inc., a Nevada corporation (the
“Company”), and have represented the Company in connection with that certain
Series A Convertible Preferred Stock Purchase Agreement (the “Purchase
Agreement”), dated as of January    , 2007, by and among the Company and the
purchasers named therein (collectively, the “Purchasers”) pursuant to which the
Company issued to the Purchasers shares of its Series A Convertible Preferred
Stock, par value $0.001 per share, (the “Preferred Shares”) and warrants (the
“Warrants”) to purchase Preferred Shares (the “Warrant Preferred Shares”) which
are convertible into shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”).  Pursuant to the Purchase Agreement, the Company has
also entered into a Registration Rights Agreement with the Purchasers (the
“Registration Rights Agreement”), dated as of July 3, 2007, pursuant to which
the Company agreed, among other things, to register the Registrable Securities
(as defined in the Registration Rights Agreement), including the shares of the
Company’s Common Stock issuable upon conversion of the Preferred Shares, under
the Securities Act of 1933, as amended (the “1933 Act”).  In connection with the
Company’s obligations under the Registration Rights Agreement, on             ,
2007, the Company filed a Registration Statement on Form SB-2 (File No.
333-            ) (the “Registration Statement”) with the Securities and
Exchange Commission (the “SEC”) relating to the resale of the Registrable
Securities which names each of the present Purchasers as a selling stockholder
thereunder.

In connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC’s staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.

Very truly yours,

 

 

 

 

[COMPANY COUNSEL]

 

 

 

 

By:

 

 

cc:           [LIST NAMES OF PURCHASERS]

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EXHIBIT G to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

FORM OF OPINION OF COUNSEL

1.             The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Nevada and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted.  The Company is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary.

2.             The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Transaction Documents and to
issue the Preferred Stock and the Common Stock issuable upon conversion of the
Preferred Stock.  The execution, delivery and performance of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required.  Each of the
Transaction Documents have been duly executed and delivered, and the Preferred
Stock and the Warrants have been duly executed, issued and delivered by the
Company and each of the Transaction Documents constitutes a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its respective terms.  The Common Stock issuable upon conversion of the
Preferred Stock and the Warrant Preferred Stock are not subject to any
preemptive rights under the Articles of Incorporation or the Bylaws.

3.             The Preferred Stock and the Warrants have been duly authorized
and, when delivered against payment in full as provided in the Purchase
Agreement, will be validly issued, fully paid and nonassessable.  The shares of
Common Stock issuable upon conversion of the Preferred Stock and Warrant
Preferred Stock have been duly authorized and reserved for issuance, and, when
delivered upon conversion or against payment in full as provided in the
Certificate of Designation will be validly issued, fully paid and nonassessable.

4.             The execution, delivery and performance of and compliance with
the terms of the Transaction Documents and the issuance of the Preferred Stock,
the Warrants and the Common Stock issuable upon conversion of the Preferred
Stock and Warrant Preferred Stock do not (i) violate any provision of the
Articles of Incorporation or Bylaws, (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party, (iii) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment,
injunction or decree (including Federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company is bound or affected, except, in all cases other than violations
pursuant to clauses (i) and (iv) above, for such conflicts, default,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect.

5.             No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the Company
is required under Federal, state or local law, rule

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or regulation in connection with the valid execution and delivery of the
Transaction Documents, or the offer, sale or issuance of the Preferred Stock,
the Warrants or the Common Stock issuable upon conversion of the Preferred Stock
and Warrant Preferred Stock other than the Certificate of Designation and the
Registration Statement.

6.             There is no action, suit, claim, investigation or proceeding
pending or threatened against the Company which questions the validity of this
Agreement or the transactions contemplated hereby or any action taken or to be
taken pursuant hereto or thereto.  There is no action, suit, claim,
investigation or proceeding pending, or to our knowledge, threatened, against or
involving the Company or any of its properties or assets and which, if adversely
determined, is reasonably likely to result in a Material Adverse Effect.  There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.

7.             The offer, issuance and sale of the Preferred Stock and the
offer, issuance and sale of the shares of Common Stock issuable upon conversion
of the Preferred Stock pursuant to the Purchase Agreement, the Certificate of
Designation, as applicable, are exempt from the registration requirements of the
Securities Act.

8.             The Company is not, and as a result of and immediately upon
Closing will not be, an “investment company” or a company “controlled” by an
“investment company,” within the meaning of the Investment Company Act of 1940,
as amended.

Very truly yours,

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EXHIBIT H to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

CONFIDENTIALITY, NON-COMPETITION AND NON-SOLICITATION AGREEMENT

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EXHIBIT I to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
NASCENT WINE COMPANY, INC.

FORM OF DIRECTOR INDEMNIFICATION AGREEMENT

 

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