Exhibit 10.1

JAVO BEVERAGE COMPANY, INC.
SECURITIES PURCHASE AGREEMENT
 
 
This Securities Purchase Agreement (this “Agreement”) is made as of this 6th day
of April, 2009, by and between Javo Beverage Company, Inc., a Delaware
corporation (the “Company”) and Coffee Holdings LLC, a Delaware limited
liability company (the “Investor”).
 
RECITALS
 
WHEREAS, the Company has authorized the issuance and sale to the Investor, in
accordance with the terms hereof, of (i) one or more senior subordinated
promissory notes in the aggregate original principal amount of $12,000,000, in
the form set forth as Exhibit A hereto (together the “Notes” and each a “Note”),
and (ii) an aggregate of 50,000,000 shares (the “Shares”) of the Company’s
Common Stock, par value $0.001 per share (the “Common Stock”);
 
WHEREAS, the Company desires to issue and sell, and the Investor desires to
purchase, the Notes and the Shares on the terms and subject to the conditions
set forth herein; and
 
WHEREAS, the Notes and the Shares are collectively referred to herein as the
“Securities.”
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the foregoing recitals and mutual promises,
representations, warranties and covenants hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
 
1. 
Transaction.

 
1.1           Sale and Issuance of the Securities.  Subject to the terms and
conditions of this Agreement, the Investor agrees to purchase at the closing
(the “Closing”), and the Company agrees to issue and sell to the Investor at the
Closing, the Securities for an aggregate purchase price of $12,500,000 (the
“Purchase Price”).
 
1.2           Closing Date.  The purchase and sale of the Securities to the
Investor shall take place at the offices of the Company located at 1311
Specialty Drive, Vista, California at 10:00 a.m. (local time), on the date of
this Agreement, or at such other time and place as the Company and the Investor
mutually agree upon in writing (such date, the “Closing Date”).
 
1.3           Payment; Delivery.  On the Closing Date, the Company shall deliver
to the Investor the Notes and certificates representing the Shares against
payment of the Purchase Price by the Investor by wire transfer of immediately
available funds to an account designated by the Company.  Such respective Notes
and certificates shall be in the denominations directed by the Investor.
 
1.4           Allocation of Purchase Price.  For federal income tax purposes,
the Purchase Price, net of the transaction fee payable pursuant to Professional
Services Agreement (which shall reduce the “issue price”) shall be allocated
$500,000 to the Shares and $12,000,000 to the Notes, and the parties hereto
agree to report consistent with such allocation.
 

 
 

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2. 
Certain Defined Terms.  As used in this Agreement, the following terms shall
have the meanings specified below:

 
“2006 Notes” means those certain Senior Convertible Notes in an original
aggregate principal amount of $21,000,000 issued by the Company on December 15,
2006 pursuant to the 2006 Purchase Agreement.
 
“2006 Purchase Agreement” means that certain Securities Purchase Agreement dated
December 14, 2006, by and among the Company and parties identified therein, as
amended by the Amendment Agreement.
 
“2006 Warrants” means (i) those certain Series A Warrants to purchase Common
Stock dated December 15, 2006, (ii) those certain Series B Warrants to purchase
Common Stock dated December 15, 2006 and (iii) those certain Series C Warrants
to purchase Common Stock dated December 15, 2006, in each case, issued by the
Company pursuant to the 2006 Purchase Agreement.
 
“8-K Filing” shall have the meaning assigned to such term in Section 5.5.
 
“Affiliate” means, with respect to any Person, another Person that directly or
indirectly, through one or more intermediaries, controls or is controlled by or
is under common control with the Person specified.  With respect to the
Investor, the term Affiliate shall not include the Company or any of its
Subsidiaries or any portfolio company of Falconhead Capital, LLC or any of their
respective Subsidiaries.
 
“Amendment Agreement” means that certain Amendment Agreement dated December 17,
2008, by and among the Company and certain holders of the 2006 Notes and 2006
Warrants, as amended by those certain Letter Agreements, dated as of February
25, 2009, by and between the Company and such holders.
 
“Beneficial Owner” shall have the meaning ascribed to such term in the Exchange
Act and the rules and regulations promulgated thereunder, but without regard to
the 60-day time limit on the right to acquire shares (e.g., a Person who shall
have the right to acquire shares no sooner than 61 days from a given time shall
be deemed the Beneficial Owner of such shares for purposes of this Agreement).
 
“Board of Directors” means the Company’s board of directors, as constituted from
time to time.
 
“Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.
 
“Bylaws” means the Company’s bylaws, as amended and as in effect on the date
hereof.
 

 
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“Cause” means cause as defined in any written agreement with any applicable
officer or employee of the Company, as determined in good faith by a majority of
the disinterested members of the Board of Directors, or any failure by the
Company to renew any such agreement upon the expiration thereof.
 
“Certificate of Incorporation” means the Company’s certificate of incorporation,
as amended and as in effect on the date hereof.
 
“Closing” shall have the meaning assigned to such term in Section 1.1.
 
“Closing Date” shall have the meaning assigned to such term in Section 1.2.
 
“Common Stock” shall have the meaning assigned to such term in the recitals to
this Agreement.
 
“Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, agreement or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.
 
“Debt Termination Date” means the first date upon which the Investor holds less
than $6,000,000 of aggregate principal amount outstanding under the Notes.
 
“Environmental Laws” means all federal, state, local or foreign laws relating to
pollution or protection of human health and safety or the environment
(including, without limitation, ambient air, surface water, groundwater, stream
sediments, land surface or subsurface strata or natural resources), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, toxic or hazardous
substances or wastes or terms of similar import (collectively, “Hazardous
Materials”) into the environment, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials, as well as all authorizations, codes, decrees,
demands or demand letters, injunctions, judgments, licenses, notices or notice
letters, orders, permits, plans or regulations issued, entered, promulgated or
approved thereunder.
 
“Equity Termination Date” means the first date upon which the Investor
beneficially owns less than 25,000,000 of the Shares (as adjusted for stock
splits, combinations, reorganizations and the like) issued pursuant to this
Agreement.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
“Executive Officer” means any officer the hiring of which would result in a
disclosure obligation for the Company pursuant to Item 5.02(c) of Form 8-K under
the Exchange Act.
 

 
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“GAAP” means United States generally accepted accounting principles,
consistently applied.
 
“Governance Period” means the period from the Closing Date to the Governance
Termination Date.
 
“Governance Termination Date” means the earlier of (i) the tenth anniversary of
the Closing Date and (ii) the first date upon which both of the following have
occurred: (A) the Debt Termination Date and (B) the Equity Termination Date.
 
“Indebtedness” of any Person means, without duplication (i) all indebtedness for
borrowed money, (ii) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
“capital leases” in accordance with GAAP) (other than trade payables entered
into in the ordinary course of business on customary terms), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (iv) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(v) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (vi) all
indebtedness referred to in clauses (i) through (v) above secured by (or for
which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (vii) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (i)
through (vi) above.
 
“Intellectual Property Rights” shall have the meaning assigned to such term in
Section 3.22.
 
“Investor Nominee” shall have the meaning assigned to such term in Section 5.6.
 
“Investor Observer” shall have the meaning assigned to such term in Section 5.7.
 
“Investor Registration Statement” shall have the meaning assigned to such term
in Section 7.1.
 
“Material Adverse Effect” means any material adverse effect on the business,
properties, assets, results of operations, condition (financial or otherwise) of
the Company and its Subsidiaries, taken as a whole.
 
“New Debt Securities” means any indebtedness for borrowed money of the Company
(including any notes, bonds, debentures or similar instruments) in excess of
$500,000 as a single issuance or a series of related issuances that is not a New
Equity Security.
 

 
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“New Equity Securities” means any equity securities of the Company, whether or
not currently authorized, and any securities convertible into or exercisable or
exchangeable for equity securities of the Company, provided, however, that “New
Equity Securities” shall not include, in each case to the extent such issuances
(other than as described clause (vii)) are not for capital raising purposes, (i)
securities issued upon conversion, exercise or exchange of any securities of the
Company outstanding as of the date hereof; (ii) securities issued upon
conversion or exercise of any New Equity Securities issued in compliance with
this Agreement, (iii) securities issued to employees or directors of, or
consultants or advisors to, the Company or any of its Subsidiaries pursuant to
any equity compensation plans or any other similar arrangement; (iv) securities
issued pursuant to the acquisition by the Company of another corporation or
entity by consolidation, reorganization, merger or purchase of all or
substantially all of the assets of such corporation; (v) securities issued to
equipment lessors or other financial institutions, or to real property lessors,
pursuant to an equipment leasing or real property leasing transaction; (vi)
securities issued in connection with license, development, marketing or similar
agreements or strategic partnerships; (vii) securities offered to the public
pursuant to a registration statement filed under the Securities Act; and (viii)
securities issued pursuant to a stock dividend, stock split, split up or similar
transaction.
 
“New Securities” means any New Debt Securities and/or any New Equity Securities.
 
“Note” and “Notes” shall have the meaning assigned to such term in the recitals
to this Agreement.
 
“Offer Notice” shall have the meaning assigned to such term in Section 8.1(a).
 
“Permitted Indebtedness” shall have the meaning assigned to such term in the
Notes as in effect immediately following the Closing.
 
“Permitted Transferee” shall have the meaning assigned to such term in Section
9.
 
 “Person” means any natural person, corporation, business trust, joint venture,
association, company, limited liability company, partnership, governmental
authority or other entity.
 
“Preemptive Period” means (i) with respect to any offering of New Debt
Securities, the period from the Closing Date to the earlier of (A) the Debt
Termination Date and (B) the seventh anniversary of the Closing Date and (ii)
with respect to any offering of New Equity Securities, the period from the
Closing Date to the earlier of (X) the Equity Termination Date and (Y) the
seventh anniversary of the Closing Date.
 
“Principal Market” means the NASDAQ Over-the-Counter Bulletin Board.
 
“Professional Services Agreement” means the Professional Services Agreement by
and between the Company and Falconhead Capital, LLC, dated as of the date
hereof.
 

 
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“Purchase Price” shall have the meaning assigned to such term in Section 1.1.
 
“Reporting Period” shall have the meaning assigned to such term in Section 5.1.
 
“Rights Period” means the period from the Closing Date to the Rights Termination
Date.
 
“Rights Termination Date” means the earliest of (i) the eighth anniversary of
the Closing Date, (ii) the first date upon which both of the following have
occurred: (A) the Debt Termination Date and (B) the Equity Termination Date and
(iii) the repayment in full of all amounts outstanding under the Notes,
including all principal and any accrued and unpaid interest thereon.
 
“Rule 144” shall have the meaning assigned to such term in Section 4.6.
 
“SEC” means the Securities and Exchange Commission.
 
“SEC Documents” shall have the meaning assigned to such term in Section 3.9.
 
“Securities” shall have the meaning assigned to such term in the recitals to
this Agreement.
 
“Securities Act” means the Securities Act of 1933, as amended.
 
“Shares” shall have the meaning assigned to such term in the recitals to this
Agreement.
 
“Short Sales” means all “short sales” as defined in Rule 200 promulgated under
Regulation SHO under the Exchange Act, whether or not against the box, and all
types of direct and indirect stock pledges, forward sale contracts, options,
puts, calls, short sales, swaps, “put equivalent positions” (as defined in Rule
16a-1(h) under the Exchange Act) and similar arrangements (including on a total
return basis), whether effected through domestic or non-U.S. broker dealers or
foreign regulated brokers, with respect to any securities not owned by the party
undertaking any such arrangement.
 
“Subsidiary” means, with respect to any Person, any corporation, partnership,
association or other business entity in which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or more than 50% of the general partnership interests are,
at the time any determination is being made, owned, controlled or held by such
Person.
 
“Termination Event” shall have the meaning assigned to such term in Section 5.8.
 
“Trading Affiliates” shall have the meaning assigned to such term in Section
4.11(a).
 
“Transaction Documents” means, collectively, this Agreement, the Notes, the
Professional Services Agreement and each of the other agreements entered into by
the parties hereto in connection with the transactions contemplated by this
Agreement.
 

 
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3. 
Representations and Warranties of the Company.  The Company hereby represents
and warrants to the Investor as of the date of this Agreement as follows.

 
3.1           Organization and Qualification.  The Company and each of its
Subsidiaries are entities duly organized and validly existing and, to the extent
legally applicable, in good standing under the laws of the jurisdiction in which
they are formed, and have the requisite power and authorization to own their
properties and to carry on their business as now being conducted.  Each of the
Company and its Subsidiaries is duly qualified as a foreign entity to do
business and, to the extent legally applicable, is in good standing in every
jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not reasonably be
expected to have a Material Adverse Effect.
 
3.2           Authorization; Enforcement; Validity.  The Company has the
requisite power and authority to enter into and perform its obligations under
the Transaction Documents and to issue the Securities in accordance with the
terms hereof and thereof.  The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Securities, have been duly authorized by the Board of Directors and no
further filing, consent, or authorization is required by the Company, the Board
of Directors or the Company’s stockholders.  This Agreement and the other
Transaction Documents of even date herewith have been duly executed and
delivered by the Company, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.
 
3.3           Issuance of Equity Securities.  The issuance of the Shares has
been duly authorized and, when issued and delivered against consideration
therefor as provided herein, the Shares will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof, with the Investor being entitled to
all rights accorded to a holder of Common Stock.  Assuming the accuracy of each
of the representations and warranties of the Investor set forth in Section 4 of
this Agreement, the offer and issuance by the Company of the Securities is
exempt from registration under the Securities Act and any applicable state
securities laws.
 
3.4           No Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Notes and the Shares) will not (i) result in a violation of any
certificate of incorporation, certificate of formation, any certificate of
designations or other constituent documents of the Company or any of its
Subsidiaries, any capital stock of the Company or any of its Subsidiaries or
bylaws of the Company or any of its Subsidiaries, (ii) result in a violation of
any law, rule, regulation, order, judgment or decree (including foreign, federal
and state securities laws and regulations and the rules and regulations of the
Principal Market applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected), or (iii) 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, indenture or instrument to which the Company or any of
its Subsidiaries is a party.
 

 
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3.5           Consents.  Neither the Company nor any of its Subsidiaries is
required to obtain any consent, authorization or order of, make any filing or
registration with, or provide any notice to, any court, governmental agency or
any regulatory or self-regulatory agency (including the Principal Market) in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents, in each case in accordance with the
terms hereof or thereof, except for the 8-K Filing.
 
3.6           No General Solicitation; Broker Fees.  Neither the Company, nor
any of its Subsidiaries or affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection with
the offer or sale of the Securities.  The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or brokers’
commissions (other than for persons engaged by the Investor or its investment
advisor) relating to or arising out of the transactions contemplated
hereby.  The Company shall pay, and hold the Investor harmless against, any
liability, loss or expense (including, without limitation, attorney’s fees and
out-of-pocket expenses) arising in connection with any such claim.
 
3.7           No Integrated Offering.  None of the Company, its Subsidiaries,
any of their affiliates, and any Person acting on 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 require registration of any of
the Securities under the Securities Act or cause this offering of the Securities
to be integrated with prior offerings by the Company for purposes of the
Securities Act where such integration would cause the loss of the availability
of an offering exemption under the Securities Act.  None of the Company, its
Subsidiaries, their affiliates and any Person acting on their behalf will take
any action or steps referred to in the preceding sentence that would require
registration of any of the Securities under the Securities Act or cause the
offering of the Securities to be integrated with other offerings where such
integration would cause the loss of the availability of an offering exemption
under the Securities Act.
 
3.8           Application of Takeover Protections; Rights Agreement.  The
Company and its Board of Directors have taken all necessary action in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under the Shareholder Rights Agreement, dated
July 1, 2002, by and between the Company and Corporate Stock Transfer, Inc.) or
other similar anti-takeover provision under the Certificate of Incorporation or
the laws of the state of its incorporation which is or could become applicable
to the Investor as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company’s issuance of the Securities and the
Investor’s ownership of the Securities.  The Company and the Board of Directors
have taken all necessary action, if any, in order to render inapplicable any
stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.
 

 
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3.9           SEC Documents; Financial Statements.  During the two (2) years
prior to the date hereof, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Exchange Act (all of the foregoing filed
prior to the date hereof and all exhibits included therein and financial
statements, notes and schedules thereto and documents incorporated by reference
therein being hereinafter referred to as the “SEC Documents”).  Except as set
forth on Schedule 3.9, the Company has no SEC Documents that are not available
on the EDGAR system.  Except as set forth on Schedule 3.9, as of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of the
SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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 the
light of the circumstances under which they were made, not misleading.  As of
their respective filing dates, the financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto.  Such financial statements have been prepared in
accordance with GAAP, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).  No other documents or information provided in writing by or on
behalf of the Company to the Investor which are not included in the SEC
Documents, including, without limitation, information referred to in Section 4.4
of this Agreement or in any disclosure schedules, contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make the statements therein, in the light of the circumstance under which they
are or were made, not misleading; provided, however, that the Company makes no
representations or warranties with respect to any projections, forecasts or
other forward-looking information.
 
3.10          Absence of Certain Changes.  Since December 31, 2008, except as
specifically disclosed in the SEC Documents, there has been no Material Adverse
Effect.  Except as disclosed in Schedule 3.10, since December 31, 2008, the
Company has not (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, in excess of $100,000 outside of the ordinary
course of business, (iii) had capital expenditures, individually or in the
aggregate, in excess of $500,000, (iv) made or suffered any amendment to any
material contract or cancelled, modified or waived any material debts or claims
held by it or waived any rights, or (v) entered into any material transaction
other than in the ordinary course of business consistent with past practice.
 
3.11          No Undisclosed Events, Liabilities, Developments or
Circumstances.  No event, liability, development or circumstance has occurred or
exists with respect to the Company, its Subsidiaries or their respective
business, properties, prospects, operations or financial condition, that would
be required to be disclosed by the Company under the Exchange Act and which has
not been publicly announced.
 

 
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3.12          Conduct of Business; Regulatory Permits.  Neither the Company nor
any of its Subsidiaries is in violation of any term of or in default under its
certificate of incorporation, any certificate of designations of any outstanding
series of preferred stock of the Company or the bylaws or their organizational
charter or bylaws, respectively.  Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or its Subsidiaries, and
neither the Company nor any of its Subsidiaries will conduct its business in
violation of any of the foregoing, except for possible violations which could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.  During the two (2) years prior to the date hereof, (i) the
Common Stock has been designated for quotation on the Principal Market, (ii)
trading in the Common Stock has not been suspended by the SEC or the Principal
Market and (iii) the Company has received no communication, written or oral,
from the SEC or the Principal Market regarding the suspension or delisting of
the Common Stock from the Principal Market.  The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
 
3.13          Foreign Corrupt Practices.  Neither the Company nor any of its
Subsidiaries nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
 
3.14          Sarbanes-Oxley Act.  The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002, as amended, that are
effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the date
hereof.
 
3.15          Transactions With Affiliates.  Except as set forth in the SEC
Documents and other than the grant of stock options disclosed on Schedule 3.16,
none of the officers, directors or employees of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for ordinary course compensation for services as
employees, officers or directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any such officer, director or employee or, to the knowledge of the
Company or any of its Subsidiaries, any Person in which any such officer,
director, or employee has a substantial interest or is an officer, director,
trustee or partner.
 

 
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3.16          Equity Capitalization.  As March 13, 2009, the authorized capital
stock of the Company consists of (a) 300,000,000 shares of Common Stock, of
which as of the date hereof, 193,753,343 are issued and outstanding, 14,100,000
shares are reserved for issuance pursuant to the Company’s stock option and
purchase plans and 12,373,598 shares are reserved for issuance pursuant to
securities (other than the aforementioned options) exercisable or exchangeable
for, or convertible into, shares of Common Stock, (b) 5,850,000 shares of
undesignated preferred stock, of which as of the date hereof, none are issued
and outstanding, (c) 150,000 shares of Series A Junior Participating Preferred
Stock, par value $0.001 per share, of which as of the date hereof, none are
issued and outstanding, and (d) 4,000,000 shares of Series B Preferred Stock,
par value $0.001 per share, of which as of the date hereof, 2,147,952 shares are
issued and outstanding.  All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable and were
not issued in violation of any preemptive rights.  Except as disclosed in
Schedule 3.16 or pursuant to this Agreement: (i) none of the Company’s capital
stock is subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company; (ii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any of its Subsidiaries; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness of the Company or any of its
Subsidiaries or by which the Company or any of its Subsidiaries is or may become
bound; (iv) there are no financing statements securing obligations in any
material amounts, either singly or in the aggregate, filed in connection with
the Company or any of its Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the Securities Act; (vi)
there are no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (vii) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities; (viii) the Company does not have any stock
appreciation rights or “phantom stock” plans or agreements or any similar plan
or agreement; and (ix) the Company and its Subsidiaries have no liabilities or
obligations required to be disclosed in the SEC Documents but not so disclosed
in the SEC Documents, other than, with respect to this clause (ix), those
incurred in the ordinary course of the Company’s or its Subsidiaries’ respective
businesses and which, individually or in the aggregate, do not or would not have
a Material Adverse Effect.  The Company has furnished to the Investor true,
correct and complete copies of the Certificate of Incorporation and the Bylaws,
and the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof in
respect thereto.
 
3.17          Indebtedness and Other Contracts.  Except for Permitted
Indebtedness and as disclosed in Schedule 3.17, neither the Company nor any of
its Subsidiaries (i) has any outstanding Indebtedness, (ii) is in default under
any contract, agreement or instrument, except where such defaults would not
reasonably result, individually or in the aggregate, in a Material Adverse
Effect, (iii) is in violation of any term of or in default under any contract,
agreement or instrument relating to any Indebtedness, except where such
violations and defaults would not result, individually or in the aggregate, in a
Material Adverse Effect, or (iv) is a party to any contract, agreement or
instrument relating to any Indebtedness, the performance of which, in the
judgment of the Company’s officers, has or is expected to have a Material
Adverse Effect.
 

 
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3.18           Absence of Litigation.  Except as set forth in Schedule 3.18,
there is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries or any of the
Company’s or its Subsidiaries’ officers or directors except where such would not
be, individually or in the aggregate, material to the Company or any of its
Subsidiaries.
 
3.19          Insurance.  The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged.
 
3.20          Employee Relations.
 
 (a)           Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union, and the
Company is not aware of any activities involving the organization of a
collective bargaining agreement or a union by employees of the Company or any of
its Subsidiaries.  The Company and its Subsidiaries believe that their relations
with their employees are good.  No executive officer of the Company or any of
its Subsidiaries (as defined in Rule 501(f) of the Securities Act) has notified
the Company or any such Subsidiary that such officer intends to leave the
Company or any such Subsidiary or otherwise terminate such officer’s employment
with the Company or any such Subsidiary.  No executive officer of the Company or
any of its Subsidiaries is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing matters.
 
 (b)           The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.
 
3.21          Property.  The Company and its Subsidiaries (i) own or have valid
leasehold interests in all of their leased real property and (ii) have title to,
or valid leasehold interests in, all of their personal property and assets that
are material to its business.  As of the Closing Date, none of the real property
or assets of the Company or any of its Subsidiaries are subject to any liens
other than liens arising from Permitted Indebtedness, except, in each case, such
liens or encumbrances that do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such property
by the Company and any of its Subsidiaries.  The leased real property and
personal property and assets used in the business of the Company and its
Subsidiaries are in good operating condition, ordinary wear and tear excepted,
and constitute all assets, properties, interests in properties and rights
necessary to permit the Company and its Subsidiaries to carry on their business
consistent with past practice.  Neither the Company nor any of its Subsidiaries
owns or has ever owned any real property.
 

 
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3.22          Intellectual Property Rights.  The Company and its Subsidiaries
own, is licensed to use or otherwise has the valid and enforceable right to use
all trademarks, service marks and all applications and registrations therefor,
trade names, patents, patent rights, copyrights, original works of authorship,
inventions, trade secrets and other intellectual property rights (“Intellectual
Property Rights”) necessary for the conduct of its business as currently
conducted that is material to the condition (financial or other), business or
operations of such Person and all such Intellectual Property is fully protected
and/or duly and properly registered, filed or issued in the appropriate office
and jurisdictions for such registrations, filings or issuances.  Except as set
forth on Schedule 3.22, the use of such Intellectual Property by the Company and
its Subsidiaries and the conduct of their businesses does not and has not been
alleged by any Person to infringe on the material rights of any Person.  The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their Intellectual Property
Rights.
 
3.23          Environmental Laws.  The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws, (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses, and (iii) are in compliance with all
terms and conditions of any such permit, license or approval except where, in
each of the foregoing clauses (i), (ii) and (iii), the failure to so comply
would be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect.
 
3.24          Subsidiaries.  The Company has no Subsidiaries except as set forth
on Schedule 3.24.  Schedule 3.24 sets forth the authorized and outstanding
capital stock of each Subsidiary of the Company.  All the outstanding shares of
capital stock of, or other equity interests in, each Subsidiary of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable and are owned directly or indirectly by the Company free and clear
of all liens, pledges, charges, mortgages, encumbrances, adverse rights or
claims and security interests of any kind or nature whatsoever (including any
restriction on the right to vote or transfer the same, except for such transfer
restrictions of general applicability as may be provided under the Securities
Act, and the “blue sky” laws of the various States of the United States).  The
Company or one of its Subsidiaries has the unrestricted right to receive
dividends and distributions on, all capital securities of its Subsidiaries.
 
3.25          Tax Status.  The Company and each of its Subsidiaries (i) has made
or filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply.  There are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and the officers of the Company know
of no basis for any such claim.
 

 
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3.26          Internal Accounting and Disclosure Controls.  The Company and each
of its Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference.  The
Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-14 under the Exchange Act) that are effective in ensuring that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms of the SEC,
including, without limitation, controls and procedures designed in to ensure
that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the
Company’s management, including its principal executive officer or officers and
its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure.  Other than as disclosed in the SEC
Documents, during the twelve months prior to the date hereof neither the Company
nor any of its Subsidiaries have received any notice or correspondence from any
accountant relating to any potential material weakness in any part of the system
of internal accounting controls of the Company or any of its Subsidiaries.
 
3.27          Off Balance Sheet Arrangements.  There is no transaction,
arrangement, or other relationship between the Company and an unconsolidated or
other off balance sheet entity that is required to be disclosed by the Company
in the SEC Documents and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.
 
3.28          Investment Company Status.  The Company is not, and upon
consummation of the sale of the Securities will not be, an “investment company”
as such term is defined in the Investment Company Act of 1940, as amended.
 
3.29          Transfer Taxes.  On the Closing Date, all stock transfer or other
taxes (other than income or similar taxes) that are required to be paid in
connection with the sale and transfer of the Securities to be sold to the
Investor hereunder will be, or will have been, fully paid or provided for by the
Company, and all laws imposing such taxes will be or will have been complied
with.
 
3.30          Manipulation of Price.  The Company has not, and to its knowledge
no one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result, or that could reasonably be expected to cause or
result, in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii) sold,
bid for, purchased, or paid any compensation for soliciting purchases of, any of
the Securities or (iii) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
 
3.31          U.S. Real Property Holding Corporation.  The Company is not, nor
has ever been, a U.S. real property holding corporation within the meaning of
Section 897 of the Internal Revenue Code of 1986, as amended.
 
3.32          Disclosure.  No event or circumstance has occurred or information
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, 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.
 

 
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3.33          Material Customers, Distributors and Suppliers.  Since December
31, 2008, no material customer, distributor or supplier of the Company or its
Subsidiaries has given the Company or its Subsidiaries any notice terminating,
suspending, or reducing in any material respect, or specifying an intention to
terminate, suspend, or reduce in any material respect in the future, or
otherwise reflecting an adverse change in, the business relationship between
such customer, distributor or supplier and the Company or its Subsidiaries,
there has not been any materially adverse change in the business relationship of
the Company or its Subsidiaries with any such customer, distributor or supplier,
and the Company has no reason to believe that there will be any such adverse
change in the future either as a result of the consummation of the transactions
contemplated hereby or otherwise.
 
4. 
Representations and Warranties of the Investor.  The Investor hereby represents,
warrants and covenants to the Company as of the date of this Agreement as
follows:

 
4.1           No Sale or Distribution.  The Investor is acquiring the Securities
for its own account and not with a view towards, or for resale in connection
with, the public sale or distribution thereof in violation of any securities
laws.  The Investor is acquiring the Securities hereunder in the ordinary course
of its business.  The Investor does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.
 
4.2           Accredited Investor Status.  The Investor is an “accredited
investor” as that term is defined in Rule 501(a) of Regulation D under the
Securities Act.
 
4.3           Reliance on Exemptions.  The Investor understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
the Investor’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Investor to acquire the Securities.
 
4.4           Information.  The Investor and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
that have been requested by the Investor.  The Investor and its advisors, if
any, have been afforded the opportunity to ask questions of the
Company.  Neither such inquiries nor any other due diligence investigations
conducted by the Investor or its advisors, if any, or its representatives shall
modify, amend or affect the Investor’s right to rely on the Company’s
representations and warranties contained herein.  The Investor understands that
its investment in the Securities involves a high degree of risk and is able to
afford a complete loss of such investment.  The Investor understands that
nothing in this Agreement or any other materials presented to the Investor in
connection with the purchase and sale of the Securities constitutes legal, tax
or investment advice.  The Investor has sought such accounting, legal and tax
advice as it has considered necessary to make an informed investment decision
with respect to its acquisition of the Securities.
 

 
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4.5           No Governmental Review.  The Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
 
4.6           Transfer or Resale.  The Investor understands that except as
provided herein: (i) the Securities have not been and are not being registered
under the Securities Act or any state securities laws, and may not be offered
for sale, sold, assigned or transferred unless (A) subsequently registered
thereunder, (B) the Investor shall have delivered to the Company an opinion of
counsel, in a form reasonably acceptable to the Company, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) the Investor
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the Securities
Act, as amended (or a successor rule thereto) (collectively, “Rule 144”)
(provided, however, that in the event any transfer agent or similar third party
shall require an opinion of counsel in connection with a transfer made pursuant
to Rule 144, the Company’s counsel shall be asked to issue such opinion, at the
Company’s expense and the Investor making such transfer shall provide any and
all documentation and/or back-up certificates reasonably necessary for such
counsel to issue such opinion); (ii) any sale of the Securities made in reliance
on Rule 144 may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the Person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other Person is under any obligation to register the Securities
under the Securities Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.
 
4.7           Legends.  The Investor understands that the certificates or other
instruments representing the Shares shall bear any legend as required by the
“blue sky” laws of any state and one or more restrictive legends in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
 
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THESE SECURITIES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
 
The legend set forth above shall be removed and the Company shall issue
certificates without such legend to the holder of the Shares upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such Shares
are registered for resale under the Securities Act, (ii) in connection with a
sale, assignment or other transfer, such holder provides the Company with an
opinion of a law firm reasonably acceptable to the Company, in form reasonably
acceptable to the Company, to the effect that such sale, assignment or transfer
of the Shares may be made without registration under the applicable requirements
of the Securities Act, or (iii) such holder provides the Company with reasonable
assurance that the Shares can be sold, assigned or transferred pursuant to Rule
144.
 

 
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4.8           Validity; Enforcement.  The Investor has full power and authority
and has taken all required action necessary to permit it to execute and deliver
and to carry out the terms of each of the Transaction Documents to which it is a
party.  The Transaction Documents to which the Investor is a party have been
duly authorized, executed and delivered on behalf of the Investor and constitute
the legal, valid and binding obligations of the Investor enforceable against the
Investor in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.
 
4.9           No Conflicts.  The execution, delivery and performance by the
Investor of the Transaction Documents to which the Investor is a party and the
consummation by the Investor of the transactions contemplated hereby and thereby
will not (i) result in a violation of the organizational documents of the
Investor or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument to which the Investor is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws) applicable to the Investor,
except in the case of clauses (ii) and (iii) above, for such conflicts,
defaults, rights or violations which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of the Investor to perform its obligations hereunder.
 
4.10          Residency.  The Investor’s principal place of business is that
jurisdiction specified below its signature on the signature pages to this
Agreement.
 
4.11          Certain Trading Activities.
 
 (a)           Other than with respect to the transactions contemplated herein,
since the time that the Investor was first contacted by the Company or any other
Person regarding the transactions contemplated hereby, neither the Investor nor
any Affiliate of the Investor which (x) had knowledge of the transactions
contemplated hereby, (y) has or shares discretion relating to the Investor’s
investments or trading or information concerning the Investor’s investments,
including in respect of the Shares and (z) is subject to the Investor’s review
or input concerning such Affiliate’s investments or trading (collectively,
“Trading Affiliates”) has directly or indirectly, nor has any Person acting on
behalf of or pursuant to any understanding with the Investor or Trading
Affiliate, effected or agreed to effect any transactions in the securities of
the Company (including without limitation, any Short Sales involving the
Company’s securities).
 
 (b)           The Investor shall not, and shall cause its Trading Affiliates
not to, engage, directly or indirectly, in any Short Sales involving the
Company’s securities at any time during the period from the Closing Date to the
eighth anniversary of the Closing Date.
 

 
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 (c)           The Investor hereby covenants and agrees that, unless the Company
shall otherwise expressly consent in writing, it will not, and it will cause its
Trading Affiliates not to, directly or indirectly, offer, sell, contract to sell
or otherwise dispose of any of the Shares to any Person that the Investors
actually knows to be a direct competitor of the Company, provided, however, that
the foregoing restriction shall not apply in connection with any underwritten
public offering of Shares in which the Investor participates pursuant to the
rights set forth in Section 7 below or otherwise.
 
 (d)           The Investor hereby covenants and agrees that, in the event that
an Investor Registration Statement filed pursuant to Section 7.1 below is
declared effective by the SEC, the Investor will not, pursuant to such Investor
Registration Statement, sell or otherwise dispose of Shares that in the
aggregate constitute more than fifty percent (50%) of the total number of Shares
registered under the Investor Registration Statement during the six (6) month
period following the date such Investor Registration Statement is declared
effective by the SEC.
 
 (e)           Except as set forth on Schedule 4.11(e), the Investor is not the
Beneficial Owner of any shares of the Company’s Common Stock, including
securities exercisable for or convertible into shares of Common Stock.
 
 (f)           The Investor agrees that for so long as the Investor Nominee
serves on the Board of Directors or the Investor Observer exercises his/her
rights under Section 5.7, the Investor will be bound by the terms of the
Company’s insider trading policy and that any transactions effected in the
Company’s securities will be made in compliance with this policy.
 

4.12          Confidentiality.  The Investor covenants that until such time as
the transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 5.5, the Investor will maintain the
confidentiality of the existence and terms of this transaction and the
information included in the Transaction Documents except to the extent the
Investor is required by law or legal or regulatory process to make a disclosure
with respect to such matters.
 
5. 
Affirmative Covenants.  The Company covenants and agrees with the Investor that
it will take the following actions:

 
5.1           Reporting Status.  Until the earlier of (i) the date on which the
Investor shall have sold all the Shares, or (ii) the Investor is eligible to
sell all of the Shares without any limitation or restriction under Rule 144 and
the Investor owns less than 2% of the issued and outstanding Common Stock  (the
“Reporting Period”), the Company shall timely file all reports required to be
filed with the SEC 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 no
longer require or otherwise permit such termination.
 
5.2           Use of Proceeds.  The proceeds from transactions contemplated by
this Agreement (net of the expenses directly incurred in connection with the
transactions contemplated by this Agreement) shall be used exclusively (a) for
general corporate uses, including working capital and capital expenditures for
dispensing equipment and other capital items, (b) to redeem the 2006 Notes and
the 2006 Warrants in accordance with Section 5.10 and (c) to repay and
extinguish the working capital loan in the amount of $5,000,000 with Wells Fargo
Bank, N.A. in accordance with Section 5.10.
 

 
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5.3           Information Rights.  The Company will send the following to the
Investor during the Reporting Period (i) unless the following are filed with the
SEC through EDGAR and are available to the public through the EDGAR system,
within one (1) Business Day after the filing thereof with the SEC, a copy of its
Annual Reports and Quarterly Reports on Form 10-K and 10-Q, any interim reports
or any consolidated balance sheets, income statements, stockholders’ equity
statements and/or cash flow statements for any period other than annual, any
Current Reports on Form 8-K and any registration statements (other than on Form
S-8) or amendments filed pursuant to the Securities Act, (ii) unless the
following are publicly released via a newswire service, within one (1) Business
Day after the release thereof, facsimile or e-mailed copies of all press
releases issued by the Company or any of its Subsidiaries, and (iii) copies of
any notices and other information made available or given to the stockholders of
the Company generally, contemporaneously with the making available or giving
thereof to the stockholders.  For so long as the Investor holds any Note, within
thirty (30) days after the end of each month, the Company shall provide the
Investor with an unaudited consolidated balance sheet, statement of operations
and statement of cash flow of the Company and its Subsidiaries for such month
ended.  At any time, and from time to time, the Investor may, at its sole
election, notify the Company that it does not desire to receive any or some of
the information referenced in the immediately preceding sentence, and in such
event, the Company shall not provide the Investor such information during the
period specified by the Investor.  
 
5.4           Fees.  Each of the Company and the Investor shall indemnify the
other against all liabilities incurred by the indemnified party with respect to
claims related to any placement agent’s fees, financial advisory fees, or
broker’s commissions relating to or arising out of the transactions contemplated
hereby, arising out of arrangements between the party asserting such claims and
the indemnifying party, and all costs and expenses (including without limitation
reasonable fees of counsel) of investigating and defending such claims.
 
5.5           Disclosure of Transactions and Other Material Information.  On or
before 5:30 p.m., New York City time, on the fourth Business Day following the
date of this Agreement, the Company shall issue a press release and file a
Current Report on Form 8-K describing the terms of the transactions contemplated
by the Transaction Documents in the form required by the Exchange Act (the “8-K
Filing”); provided that the Company shall provide a copy of the proposed 8-K
Filing (including the press release) to the Investor as promptly as practicable
in advance, and in any event at least forty-eight (48) hours in advance, of the
release or filing the 8-K Filing and shall not include any items in such 8-K
Filing (including the press release) to which the Investor or its counsel
reasonably object.  In the event the Investor or the Company proposes to issue
any future press release referencing the other party by name, the party
proposing to make issue such press release shall provide a copy of the proposed
press release to the other party as promptly as practicable in advance of the
issuance of such press release and shall not include any items in such press
release to which the other party or its counsel reasonably object.
 
5.6           Board Nominee.  The Company covenants and agrees to take any and
all actions as may be required to nominate one representative designated by the
Investor (the “Investor Nominee”) to be elected to the Board of Directors at
each annual meeting of the Company’s stockholders occurring during the
Governance Period.  As compensation for service on the Company’s Board of
Directors, the Investor Nominee shall be entitled to receive (and direct payment
if requested) the same amount and type of compensation as may be paid by the
Company to other non-employee directors, as well as reimbursement for his or her
reasonable out-of-pocket expenses (including travel expenses) incurred in
attending in-person board meetings, subject to reimbursement policies generally
applicable to the Board of Directors.  Prior to the first meeting of the Board
of Directors following the Closing, Scott Dickey shall be appointed to the Board
of Directors as the Investor Nominee, and the Company shall enter into a
director and officer indemnification agreement with such Investor Nominee, which
shall be substantially in the same form that the Company provides to its current
directors.
 

 
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5.7           Board Observer.  During the Governance Period, the Company will
permit one observer selected by the Investor (the “Investor Observer”) to attend
all meetings of the Board of Directors of the Company held during the Governance
Period in a nonvoting capacity.  The Company shall give the Investor Observer
copies of all notices, minutes, consents and other materials that it provides to
its directors at the same time as such materials are provided to the directors
of the Company, except that the Investor Observer may be excluded from access to
any material or meeting or portion thereof if the Board of Directors determines
in good faith, upon advice of counsel, that such exclusion is reasonably
necessary to preserve the attorney-client privilege.  The Company shall
reimburse the Investor Observer for his or her reasonable out-of-pocket expenses
(including reasonable travel expenses) incurred in connection with attending any
meeting of the Board of Directors in accordance with Company policy.  The
Investor covenants and agrees, and by exercising any of the rights contained in
this Section 5.7 the Investor Observer will be deemed to covenant and agree,
that it will not use or disclose any confidential information made known solely
pursuant to the operation of this Section 5.7 except to the extent disclosure of
such information is required by law or legal or regulatory process.
 
5.8           Chief Executive Officer.  The Company covenants and agrees that in
the event that the Board of Directors terminates the employment of Cody C.
Ashwell after the date hereof and prior to the Rights Termination Date (a
“Termination Event”), and such termination is either (i) without Cause, or (ii)
without obtaining the Investor’s prior written consent, then the Company, at its
sole discretion upon action of the Board of Directors shall either (X) take any
and all actions as may be required to nominate a second representative
designated by the Investor (in addition to the Investor Nominee) to be elected
to the Board of Directors at each annual meeting of the Company’s stockholders
occurring during the Governance Period (with such additional Investor Nominee
being elected to the Board of Directors prior to the first meeting of the Board
of Directors after the occurrence of a Termination Event and with such Investor
Nominee having the same rights under this Agreement as the Investor Nominee
appointed pursuant to Section 5.6) or (Y) within 180 days of the effective date
of the Termination Event, prepay the Investor’s Notes in an amount equal to the
lesser of (1) the aggregate principal amounts then outstanding under such Notes
and (2) $6,000,000.
 
5.9           Executive Officers.  The Company covenants and agrees that it will
consult with and allow the Investor Nominee the opportunity to participate in
the interviewing and the hiring of any Executive Officer of the Company during
the Rights Period.
 
5.10          Repayment of Existing Indebtedness.  TheCompany will take all
actions necessary to fully redeem and extinguish the 2006 Notes and the 2006
Warrants on or prior to April 8, 2009 on the terms set forth in the Amendment
Agreement.  Within (5) five Business Days following the Closing Date, the
Company shall repay and extinguish the working capital loan in the amount of
$5,000,000 with Wells Fargo Bank, N.A., and obtain a release of any remaining
restricted cash on the Company’s balance sheet that secures such working capital
loan, except to the extent necessary to collateralize the Company’s credit card
line, not to exceed $150,000.
 

 
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6. 
Negative Covenants.

 
6.1           Approval Rights.  The Company covenants and agrees with the
Investor that from and after the Closing Date, unless the Investor shall
otherwise expressly consent in writing, the Company will not, or permit any of
its Subsidiaries to, as applicable, take any of the following actions:
 
 (a)           declare or pay any dividend or other distribution on its capital
stock (except as required on the Company’s existing Series B Preferred Stock);
or
 
 (b)           authorize or issue, by reclassification or otherwise, any capital
stock of the Company that has any rights, preferences or privileges senior to
the Common Stock (or in the case of any Subsidiary, issue any capital stock to
any Person other than the Company or another Subsidiary); or
 
 (c)           incur any Indebtedness (other than Permitted Indebtedness); or
 
 (d)           sell all or substantially all its assets; or
 
 (e)           amend or modify the Certificate of Incorporation or Bylaws in a
manner that is adverse to the Investor; or
 
 (f)            liquidate, dissolve or wind up; or
 
 (g)           make any material change in its line of business or enter into
any new line of business outside of the manufacturing and marketing of beverage
and ingredient systems; or
 
 (h)           increase the size of the Board of Directors to more than nine (9)
directors; or
 
 (i)            enter into any agreement with any Affiliate other than
agreements entered into on commercially reasonable, arms-length terms and
conditions.
 
6.2           Stock Splits and Changes in Authorized Shares.  Notwithstanding
anything to the contrary contained in Section 6.1, the Investor’s prior written
consent pursuant to this Agreement shall not be required in connection with the
effectuation by the Company of any stock split, reverse stock split or other
change in the Company’s authorized capital stock, including an increase in the
authorized capital stock.
 

 
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6.3           Termination of Approval Rights.  The negative covenants contained
in Section 6.1 above, and the obligation of the Company to obtain the prior
written approval of the Investor in connection therewith, shall terminate and be
of no further force and effect as of the Rights Termination Date.
 
7. 
Registration Rights.

 
7.1           Piggy-Back Registrations.  If at any time the Company shall
determine to prepare and file with the SEC a registration statement relating to
an offering, either for the Company’s own account or the account of others,
under the Securities Act of any of its equity securities, other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act) or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall promptly send to the Investor written notice of such determination and, if
within ten (10) Business Days after receipt of such notice, the Investor shall
so request in writing, the Company shall include in such registration statement
all or any part of the Shares the Investor requests to be registered, subject to
(i) any limitations that may be imposed by the SEC regarding the number of
Shares that may be included in the registration statement and (ii) customary
underwriter or placement agent pro-rata cutbacks applicable to all Persons
registering shares pursuant to such registration statement, if any, due to a
reasonable objection from the underwriters or placement agents that the
inclusion of such Shares would materially adversely affect the contemplated
offering; provided, however, that if, after the application of any such
limitations or cutbacks (but excluding cutbacks made pursuant to SEC rules,
regulations or policies), the number of Shares requested to be registered on
behalf of the Investor constitutes less than 25% of the aggregate amount of the
securities to be registered on such registration statement, and if the Investor
so requests, then the Company shall, within 180 days following the effective
date of the registration statement to which cutback applied, prepare and file an
additional registration statement (the “Investor Registration Statement”)
covering the resale by the Investor of all of the Shares then held by the
Investor, subject to any limitations that may be imposed by the SEC regarding
the number of Shares that may be included in such Investor Registration
Statement, and use reasonable best efforts to have such Investor Registration
Statement declared effective within such 180 day period and kept effective until
the earlier of (i) such time as when all of the Shares are sold thereunder, or
(ii) the end of the Reporting Period.  If the Company becomes obligated to
prepare and file an Investor Registration Statement, the Company and the
Investor shall enter into a customary registration rights agreement covering the
obligations of the Company and the Investor in connection therewith.
 
7.2           Notice of Underwriting in Piggy-Back Registration.  If the
registration of which the Company gives notice pursuant to Section 7.1 is for a
registered public offering involving an underwriting or a placement by a
placement agent, the Company shall so advise the Investor as part of the written
notice given pursuant to Section 7.1.  In such event, the right of the Investor
to include any Shares in such registration statement shall be conditioned upon
the Investor (together with the Company and any other holders registering their
securities through such offering) entering into an underwriting agreement or
placement agent agreement, as applicable, with the underwriters or placement
agents for such offering.  The Investor shall have no right to participate in
the selection of the underwriters for an offering pursuant to this Section 7.
 

 
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7.3           Information Furnished by Investor.  It shall be a condition
precedent of the Company’s obligations to include any Shares in a registration
statement under this Section 7 that the Investor furnish to the Company such
information regarding the Investor and the distribution proposed by the Investor
as the Company may reasonably request.
 
7.4           Expenses.  All expenses incurred by the Company in complying with
this Section 7, including without limitation, all federal and state
registration, qualification and filing fees, printing expenses, fees and
disbursements of counsel for the Company, “blue sky” fees, fees of transfer
agents and registrars, expenses and the expenses of special audits incident to
or required by any such registration and the fees and disbursements of counsel
to the Investor (not to exceed $25,000) shall be borne by the Company.  Any
underwriting discounts and selling commissions applicable to the sale of the
Shares pursuant to a registration statement under this Section 7 shall be borne
by the Investor.
 
7.5           Termination of Registration Rights.  The rights contained in this
Section 7 shall terminate at the end of the Reporting Period; provided, however,
that the rights in Section 7.1 with respect to an Investor Registration
Statement shall terminate upon such time as the Investor is eligible to sell all
of the Shares held by the Investor under Rule 144 without any restriction or
limitation and the Shares held by the Investor represent less than five percent
(5%) of the Company’s outstanding Common Stock at such time.
 
8. 
Preemptive Rights.

 
8.1           Right of First Offer.  Subject to the terms and conditions of this
Section 8.1 and applicable securities laws, if at any time during the Preemptive
Period the Company proposes to offer, sell or issue any New Securities, the
Company shall first offer such New Securities to the Investor.
 
 (a)           The Company shall give the Investor notice that has a bona fide
intention to offer New Securities (the “Offer Notice”) and that the Investor
may, within five (5) Business Days following the delivery of the Offer Notice,
request additional written information relating to the proposed offering,
including the number of New Securities to be offered and the price and terms on
which it proposes to offer such New Securities. If the Investor requests such
additional information, the Company shall provide that information promptly, and
in any event, within 24 hours.
 
 (b)           By notification to the Company within ten (10) Business Days
after the Offer Notice is given, the Investor may elect to purchase or otherwise
acquire, at the price and on the terms specified in the Offer Notice, up to that
portion of such New Securities which equals (i) in the case of an offer of New
Equity Securities, the proportion that the Shares held by the Investor bears to
the total Common Stock of the Company then outstanding or (ii) in the case of an
offer of New Debt Securities, the proportion that the aggregate unpaid principal
amount, accrued interest and other amounts (if any) owing to the Investor under
the Notes or any other Indebtedness held by the Investor bears to the total
outstanding Indebtedness of the Company, in each case measured as of the date
the Offer Notice is given.  The closing of any sale pursuant to this Section
8.1(b) shall occur within the later of twenty (20) Business Days of the date
that the Offer Notice is given and the date of initial sale of New Securities
pursuant to Section 8.1(c); provided that such closing may be delayed with
respect to the Investor pending receipt of any necessary government approvals.
 

 
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 (c)           At the expiration of the ten (10) Business Day period following
the giving of the Offer Notice, the Company may, during the ninety (90) day
period thereafter, offer and sell the remaining unsubscribed portion of such New
Securities to any Person or Persons at a price not less than, and upon terms no
more favorable to the offeree than, those specified in the Offer Notice.  If the
Company does not enter into an agreement for the sale of the New Securities
within such period, the right provided hereunder shall be deemed to be revived
and such New Securities shall not be offered unless first reoffered to the
Investor in accordance with this Section 8.1.
 
8.2           Alternative Procedure.  Notwithstanding any provision hereof to
the contrary, if the Board of Directors determines in good faith that complying
with the time periods required by Section 8.1 would materially and adversely
impact the Company’s liquidity or immediate cash needs, then in lieu of
complying with the provisions of Section 8.1, the Company may elect to give
notice to the Investor within five (5) Business Days after the issuance of New
Securities.  Such notice shall describe the type, price, and terms of the New
Securities.  The Investor shall have ten (10) Business Days from the date notice
is given to elect to purchase up to the number of New Securities that would, if
purchased by the Investor, maintain the Investor’s percentage-ownership
position, calculated as set forth in Section 8.1(b) before giving effect to the
issuance of such New Securities.  The closing of such sale shall occur within
twenty (20) Business Days of the date notice is given to the Investor; provided
that such closing may be delayed with respect to the Investor pending receipt of
any necessary government approvals.  Notwithstanding the foregoing, in no event
shall the Company issue New Securities without complying with Section 8.1 if the
terms of such New Securities do not expressly permit application of this Section
8.2.
 
9.           Non-Transferability of Rights.  Notwithstanding anything to the
contrary contained in this Agreement or any other Transaction Document, the
rights granted to the Investor pursuant to this Agreement, including without
limitation, the rights contained in Sections 5, 6, 7 and 8 hereof, may not be
assigned, transferred, delegated or otherwise disposed of by the Investor to any
other Person in connection with any sale, pledge, transfer or other disposition
of the Securities or otherwise without the prior written consent of the Company;
provided, however, that the Investor may (without such prior written consent but
with notice to the Company) assign or transfer any of the Shares or Notes and
the rights under this Agreement or any other Transaction Document (including,
without limitation, the rights contained in Section 5, 6, 7 and 8 hereof) to any
Affiliate of the Investor (each, a “Permitted Transferee”).  Upon any such
assignment or transfer, the Permitted Transferee shall agree in writing to be
bound by terms and conditions of this Agreement, and the Company shall issue
(upon exchange of the Note and/or certificate representing the Shares held by
the assigning or transferring Investor) a Note and/or certificate representing
the Shares in the amounts assigned or transferred to such Permitted Transferee
and a replacement Note and/or certificate representing the Shares to the
assigning or transferring Investor for the balance not so assigned or
transferred.  As used herein, “Investor” shall include the Investor and any and
all Permitted Transferees, and all Notes and Shares held or acquired by any
Investor and any and all Permitted Transferees shall be aggregated together for
the purpose of implementing or determining the availability of any rights under
this Agreement.
 

 
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10. 
Investor Deliveries on the Closing Date.  At the Closing, the Investor shall
make the following deliveries to the Company:

 
10.1          Transaction Documents.  The Investor shall have executed each of
the Transaction Documents to which it is a party and shall deliver the same to
the Company.
 
10.2          Purchase Price.  The Investor shall deliver to the Company the
Purchase Price for the Securities being purchased by the Investor at the Closing
by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
 
11. 
Company Deliveries on the Closing Date.  At the Closing, the Company shall make
the following deliveries to the Investor:

 
11.1          Transaction Documents.  The Company shall have duly executed and
shall deliver to the Investor each of the Transaction Documents (including the
Notes) and certificates representing the Shares being purchased by the Investor
at the Closing.
 
11.2          Good Standings.  The Company shall deliver to the Investor a
certificate evidencing the formation and good standing of the Company and each
of its Subsidiaries in such entity’s jurisdiction of formation issued by the
Secretary of State (or comparable office) of such jurisdiction, as of a date
within ten (10) days of the Closing Date.
 
11.3          Certified Charter.  The Company shall deliver to the Investor a
certified copy of the Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten (10) days of the Closing Date.
 
11.4          Secretary’s Certificate.  The Company shall deliver to the
Investor a certificate, executed by the Secretary of the Company and dated as of
the Closing Date, as to (i) the resolutions consistent with Section 3.2 as
adopted by the Company’s Board of Directors, (ii) the Certificate of
Incorporation and (iii) the Bylaws, each as in effect at the Closing.
 
11.5          Opinion of Counsel.  The Company shall deliver to the Investor an
opinion letter, dated as of the Closing Date, from Goodwin Procter LLP, counsel
to the Company, in the form attached as Exhibit B.
 
11.6          Fees.  The Company shall pay to Falconhead Capital, LLC the fees
required to be paid by the Professional Services Agreement.
 

 
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12. 
Miscellaneous.

 
12.1          Survival of Warranties.  The representations, warranties and
covenants of the Company and the Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery hereof or thereof.
 
12.2          Successors and Assigns.  Except as set forth in Section 9, neither
party may assign this Agreement or any rights or obligations hereunder without
the prior written consent of the other party hereto.  The terms and provisions
of this Agreement shall be binding upon and inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of the parties
hereto.  This Agreement shall not run to the benefit of or be enforceable by any
person other than a party to this Agreement and its successors and permitted
assigns.
 
12.3          Expenses.  The Company shall reimburse the Investor for (a) fifty
percent (50%) of all reasonable and documented fees and expenses of the
Investor’s accountants and legal counsel in connection with the transactions
contemplated by the Transaction Documents, subject to a maximum aggregate
reimbursement under this clause (a) of $100,000; and (b) all reasonable and
documented fees and expenses of Kurt Salmon Associates in connection with the
transactions contemplated by the Transaction Documents; provided that the
maximum aggregate reimbursement under this Section 12.3 shall not exceed
$400,000.
 
12.4          Choice of Law and Venue; Jury Trial Waiver.  The provisions of
this Agreement and all of the documents delivered pursuant hereto, their
execution, performance or nonperformance, interpretation, termination,
construction and all matters based upon, arising out of or related to this
Agreement or the negotiation, execution or performance of this Agreement
(whether in equity, law or statute) shall be governed by, and construed in
accordance with, the laws, both procedural and substantive, of the State of New
York without regard to its conflicts of laws provisions that if applied might
require the application of the laws of another jurisdiction.  All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in the state or federal courts of the State of New York, and each of
the Company and the Investor hereby irrevocably submits to the exclusive
jurisdiction of such courts (and, in the case of appeals, appropriate appellate
courts therefrom) in any such action or proceeding and irrevocably waive the
defense of an inconvenient forum to the maintenance of any such action or
proceeding.  THE INVESTOR AND THE COMPANY EACH ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.  EACH OF THEM,
AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL OF THEIR
CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM
MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY RELATED INSTRUMENT OR TRANSACTION DOCUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION
DOCUMENTS OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN), OR ACTION OF ANY OF THEM.  THESE PROVISIONS SHALL NOT BE DEEMED TO
HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE INVESTOR OR THE
COMPANY, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.
 

 
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12.5          Counterparts.  This Agreement may be executed in two or more
counterparts (including by facsimile or other electronic transmission), each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
 
12.6          Titles and Subtitles.  The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
 
12.7          Notices.  All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed effectively given:  (i)
upon personal delivery to the party to be notified, (ii) when sent by confirmed
electronic mail or facsimile if sent during normal business hours of the
recipient; if not, then on the next Business Day, (iii) five (5) days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt.  All communications shall be sent to the party at the address set forth
on the signature pages attached hereto (or at such other addresses as shall be
specified by notice given in accordance with this Section 12.7).
 
12.8          Amendments and Waivers.  This Agreement and the Notes issued
pursuant to this Agreement may be amended and any provision hereof or thereof
may be waived (either generally or in a particular instance and either
retroactive or prospectively) only with the written consent of both the Company
and the Investor (or other holder as the case may be).  Any waiver or amendment
effected in accordance with this Section 12.8 shall be binding upon any holder
of the Notes.
 
12.9          Severability.  If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
 
12.10        Entire Agreement.  This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements (including any
term sheets or letters of intent) between the Investor, the Company, their
affiliates and Persons acting on their behalf with respect to the matters
discussed herein, and this Agreement, the other Transaction Documents and the
instruments referenced herein and therein contain the entire understanding of
the parties with respect to the matters covered herein and therein and, except
as specifically set forth herein or therein, neither the Company nor the
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters.
 
12.11        Further Assurances.  Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
 

 
[Remainder of Page Intentionally Left Blank]
 

 
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
 

 
JAVO BEVERAGE COMPANY, INC.
         
By:
/s/ Cody C. Ashwell

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

   
Cody C. Ashwell
   
Chairman and Chief Executive Officer

 
Address:
1311 Specialty Drive
   
Vista, CA  92081

 

 
COFFEE HOLDINGS LLC
             
By:
/s/ David Gubbay

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

 
Name:
David Gubbay  
Title:
General Partner

 
Address:
c/o Falconhead Capital, LLC
   
450 Park Avenue, 3rd Floor
   
New York, NY  10022
   
Attention:  Dave Gubbay and Zuher Ladak

 

 
Signature Page to Securities Purchase Agreement
 

 
28

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EXHIBIT A
 
Form of Senior Subordinated Promissory Note
 

 
THIS SENIOR SUBORDINATED NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THIS SENIOR
SUBORDINATED NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
 
THE INDEBTEDNESS EVIDENCED BY THIS SENIOR SUBORDINATED NOTE IS SUBORDINATED TO
THE PRIOR PAYMENT AND SATISFACTION OF CERTAIN SENIOR INDEBTEDNESS AS DESCRIBED
MORE FULLY HEREIN.
 
THESE NOTES HAVE BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (“OID”) FOR UNITED
STATES FEDERAL INCOME TAX PURPOSES.  THE ISSUE PRICE, AMOUNT OF OID, ISSUE DATE
AND YIELD TO MATURITY OF THIS NOTE MAY BE OBTAINED BY WRITING TO JAVO BEVERAGE
COMPANY, INC. AT 1311 SPECIALTY DRIVE, VISTA, CA 92081.

JAVO BEVERAGE COMPANY, INC.
 

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

 
SENIOR SUBORDINATED 10% NOTE
 
Original Principal Amount:  U.S. $______________
Issuance Date:  April 6, 2009

 
FOR VALUE RECEIVED, Javo Beverage Company, Inc., a Delaware corporation
(the “Company”), hereby promises to pay to the order of ___________________, and
its successors and assigns (the “Holder”) the amount set forth above as the
Original Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, repayment or otherwise, the “Principal Amount”) when due, whether
upon the Maturity Date (as defined below), on any amortization with respect to
required repayments, acceleration, redemption or otherwise (in each case in
accordance with the terms hereof) and to pay simple interest (“Interest”) on any
outstanding Principal Amount at the rate of ten percent (10%) per annum (the
“Interest Rate”) from the date set out above as the Issuance Date (“Issuance
Date”) until the same is repaid.
 
This Senior Subordinated Note (this “Note”) has been issued by the Company
pursuant to the Securities Purchase Agreement dated April 6, 2009 by and between
the Company and Coffee Holdings LLC (as the same may be amended, supplemented or
otherwise modified from time to time, the “Purchase Agreement”).  Certain
capitalized terms used herein are defined in Section 8 below.
 

 
A-1

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1. 
Payments of Interest and Principal.

 
(a)           Accrued and unpaid Interest shall be payable quarterly in arrears
on the first Business Day of each calendar quarter until such entire Principal
Amount outstanding shall be paid in full (whether upon maturity, acceleration or
otherwise), with the first such payment due on July 1, 2009.  Interest shall be
calculated on the basis of a 365 day year for the actual number of days elapsed.
 
(b)           The Principal Amount shall amortize and be payable in nineteen
(19) consecutive quarterly installments of $[___] Hundred Thousand Dollars
($___,000) beginning on April 2, 2012, and continuing thereafter on the first
Business Day of each calendar quarter, with any outstanding balance of this not
due and payable, in full, on the January 1, 2017 (the “Maturity Date”).
 
(c)           This Note may be prepaid in whole or in part from time to time and
at any time prior to the Maturity Date without penalty or premium; provided,
however, that any partial prepayment shall be applied first to accrued but
unpaid Interest and then to quarterly installments of Principal Amount, pro rata
across all such remaining installments.
 
(d)           All payments (whether of Principal Amount, Interest or otherwise)
under this Note shall be made in lawful money of the United States and in
immediately available funds by wire transfer pursuant to instructions provided
by the Holder in writing from time to time to the Company.  All payments shall
be applied first to accrued and unpaid Interest and then to quarterly
installments of Principal Amount.  All payments of Principal Amount shall be
accompanied by accrued and unpaid Interest thereon.  All payments of Principal
Amount and Interest shall be due on or before 2:00 p.m., New York City time and
if received later will be deemed to have been received on the next calendar
day.  If a payment of Principal Amount or Interest is due on a day that is not a
Business Day, such due date shall be deemed to be extended to the next Business
Day, but Interest shall accrue until such payment is made.
 
2. 
Covenants.  So long as this Note is outstanding:

 
(a)           Operating Covenant.  The Company shall have, on each Dispenser
Base Measurement Date occurring during the Operating Covenant Period, a
Dispenser Base of at least seven thousand five hundred (7,500).
 
(b)           Rank.  The Company shall cause the Principal Amount, Interest and
all other obligations under this Note to rank (i) senior to all Indebtedness of
the Company incurred after the Issuance Date and (ii) pari passu with the 2008
Notes.  The Principal Amount, Interest and all other obligations under this Note
shall be subordinated to any Permitted Senior Indebtedness as set forth in
Section 4 below.
 
(c)           Insurance.  The Company shall obtain and maintain, and cause each
of its Subsidiaries to obtain and maintain, insurance with responsible and
reputable insurance companies or associations in such amounts and covering such
risks as are usually carried by companies engaged in similar businesses and
owning similar properties in the same general area in which the Company and such
Subsidiary operate.
 

 
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(d)           Taxes.  The Company shall pay, and cause each of its Subsidiaries
to pay, prior to delinquency, all material taxes, assessments and governmental
levies except those contested in good faith and by appropriate proceedings.
 
(e)           Corporate Existence, Etc.  The Company shall do or cause to be
done, and cause each Subsidiary of the Company to do or cause to be done, all
things necessary to preserve and keep in full force and effect its corporate
existence in accordance with its organizational documents and the rights
(charter and statutory), licenses and franchises of the Company and such
Subsidiary; provided, however, that Subsidiaries of the Company shall not be
required to preserve any such right, license or franchise if its Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the such Subsidiary and that the loss thereof
is not adverse in any material respect to the Holder.
 
(f)            Compliance with Laws, etc.  The Company shall, and shall cause
each of its Subsidiaries to, comply (i) in all material respects with all
applicable laws, rules, regulations and orders and (ii) with all indentures, or
loan or credit agreements or any other agreement, lease or instrument to which
it is a party or by which it or its properties may be bound or affected, except,
in each case, where the failure to so comply would not have a Material Adverse
Effect.
 
(g)           2008 Notes.  The Company shall not and shall cause its
Subsidiaries and any other obligor not to pay cash interest or principal in
respect of 2008 Notes except a Pro Rata Payment.  The Company shall not amend or
modify the terms of the 2008 Notes in any manner adverse to the interests of the
Holder without the prior written consent of the Holder.
 
(h)           Indebtedness.  The Company will not and will cause its
Subsidiaries not to create, incur, assume or suffer to exist any Indebtedness
except Permitted Indebtedness.
 
(i)            Restricted Payments.  The Company shall not make any Restricted
Payment.
 
(j)           Use of Proceeds.  The Company will use the proceeds of this Note
(net of the expenses directly incurred in connection with the transactions
contemplated by the Purchase Agreement) exclusively (i) for general corporate
uses, including working capital and capital expenditures for dispensing
equipment and other capital items, (ii) to redeem the 2006 Notes and the 2006
Warrants (as defined in the Purchase Agreement) in accordance with Section 5.10
of the Purchase Agreement and (iii) to repay and extinguish the working capital
loan in the amount of $5,000,000 with Wells Fargo Bank, N.A. in accordance with
Section 5.10 of the Purchase Agreement.
 
3.           Representations and Warranties.  The Company represents and
warrants to the Holder that each of the representations and warranties of the
Company set forth in the Purchase Agreement, are true and correct, as of the
date hereof (unless such representation or warranty speaks as of an earlier
date, in which case it is true and correct as of such earlier date).
 
4.           Subordination.  The Holder hereby agrees in the event of any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property, or securities in any Insolvency Proceeding:  (i) the
Permitted Senior Indebtedness shall first be paid in full before any payment is
made in respect of this Note; and (ii) any payment in respect of this Note to
which the Holder would be entitled except for the provisions hereof, shall be
paid or delivered by the trustee in bankruptcy, receiver, assignee for the
benefit of creditors, or other liquidating lender making such payment or
distribution directly to holders of the Permitted Senior Indebtedness for
application to the payment of the Permitted Senior Indebtedness in accordance
with the terms thereof, giving effect to any concurrent payment or distribution
to Lender in respect of such Senior Permitted Indebtedness.
 

 
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5. 
Events of Default; Remedies.

 
(a)           Events of Default. The occurrence or existence of any one or more
of the following events (regardless of the reason therefor) shall constitute an
“Event of Default” hereunder:
 
(i)             failure to pay any Principal Amount when due (whether by reason
of amortization, redemption, maturity, acceleration or otherwise) within five
(5) Business Days after it is due;
 
(ii)            failure to pay any Interest or other amount due under this Note
within five (5) Business Days after it is due;
 
(iii)           a breach of any obligation under Section 2 (a), (g), (h), (i) or
(j)(ii);
 
(iv)          a material breach of any representation, warranty, covenant or
other term or condition of the this Note (other than those described in clause
(iii) above) by the Company or any of its Subsidiaries, except, in the case of a
breach or failure to perform which is curable, only if such breach or failure
continues for a period of at least ten (10) consecutive Business Days;
 
(v)           a material breach of or failure by the Company or any of its
Subsidiaries to perform in any material respect any covenant or other term or
condition of any other Transaction Document and such default is not remedied or
waived within ten (10) Business Days (or such longer cure period as provided in
such Transaction Document);
 
(vi)          a default or event of default under any Indebtedness of the
Company or any Subsidiary of the Company (other than this Note) occurs and as a
result thereof the holder or holders of Indebtedness of the Company or its
Subsidiaries in a principal amount, individually or collectively, in excess of
One Million Dollars ($1,000,000) have declared, or have the right to declare,
the principal thereof due and payable prior to its scheduled maturity or the
Company or any Subsidiary of the Company fails to fully pay Indebtedness in a
principal amount, individually or collectively, in excess of One Million Dollars
($1,000,000) at its maturity;
 
(vii)         a final judgment or judgments for the payment of money in an
amount (individually or collectively) that exceeds One Million Dollars
($1,000,000) (exclusive of amount covered by insurance from a credit worthy
insurer that has admitted in writing its obligation to pay such excluded
amounts) is rendered, entered or filed against the Company or any of its
Subsidiaries and remains undischarged, unvacated, unbonded or unstayed for a
period of thirty (30) days or any action is taken to execute on or enforce the
same.
 
(viii)        the suspension of trading of the Common Stock on the Principal
Market resulting from any action or omission by the Company or any of its
Subsidiaries;
 

 
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(ix)           the Company or any of its Subsidiaries shall commence or
acquiesce in the commencement of any Insolvency Proceeding; or
 
(x)            a court of competent jurisdiction shall enter a decree or order
for relief with respect to the Company or any Subsidiary in any Insolvency
Proceeding, which decree or order is not stayed or other similar relief is not
granted under any applicable law or the continuance of any of the following
events for sixty (60) days unless dismissed, bonded or discharged.
 
(b)           Default Rate of Interest.  From the date of such Event of Default
occurs until the date such Event of Default is cured or waived in writing by the
Holder, the Principal Amount shall bear interest at a rate two percent (2%) in
excess of the Interest Rate.
 
(c)           Acceleration.  Upon the occurrence of any Event of Default
described in Section 5(a)(ix) and 5(a)(x) the Principal Amount and all accrued
and unpaid Interest and all other amounts due in respect of this Note shall
automatically become immediately due and payable and upon the occurrence and
continuance of any other Event of Default,  the Holder may declare the Principal
Amount and all accrued and unpaid Interest and all other amounts due in respect
of this Note immediately due and payable and in such event the same shall
immediately be due and payable, in each case without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by the Company. The Holder may also exercise any rights and remedies
provided to hereunder or at law or equity.
 
6.           Fundamental Transaction.  The Company shall promptly, but in no
event later than ten (10) Business Days prior to the expected closing date
thereof, upon entering into a binding agreement to engage in a Fundamental
Transaction, deliver a written redemption offer to Holder setting forth the
details of such Fundamental Transaction, including the expected closing date and
offering to redeem this Note (the “Redemption Offer”).  If the Holder accepts
the Redemption Offer by delivering a written notice to the Company not later
than five (5) Business Days prior to the expected closing date set forth in the
Redemption Offer, then the entire outstanding Principal Amount, all accrued and
unpaid Interest and all other amount owing in respect of this Note shall become
due and payable on the date such Fundamental Transaction is consummated.
 
7.           Highest Lawful Rate.  Notwithstanding any other provisions herein,
if during any period for which interest is computed hereunder, the amount of
interest computed on the basis provided for in this Note, together with all
fees, charges and other payments or rights which are treated as interest under
applicable law, as provided for herein or in any other document executed in
connection herewith, would exceed the Highest Lawful Rate, the Company shall not
be obligated to pay, and the Holder shall not be entitled to charge, collect,
receive, reserve or take, interest in excess of the Highest Lawful Rate, and
during any such period the obligations hereunder shall bear interest at the
Highest Lawful Rate.  In accordance with this Section 7, any amounts received in
excess of the Highest Lawful Rate shall be applied towards the prepayment of
Principal Amount then outstanding until fully paid with any remaining balance to
be returned to the Company.
 

 
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8.           Certain Defined Terms.  As used in this Note, the following terms
shall have the meanings specified below:
 
“2006 Notes” means those certain Senior Convertible Notes in an original
aggregate principal amount of $21,000,000 issued by the Company on December 15,
2006 pursuant to the 2006 Purchase Agreement.
 
“2006 Purchase Agreement” means that certain Securities Purchase Agreement dated
December 14, 2006, by and among the Company and parties identified therein, as
amended by the Amendment Agreement.
 
“2006 Warrants” means (i) those certain Series A Warrants to purchase Common
Stock dated December 15, 2006, (ii) those certain Series B Warrants to purchase
Common Stock dated December 15, 2006 and (iii) those certain Series C Warrants
to purchase Common Stock dated December 15, 2006, in each case, issued by the
Company pursuant to the 2006 Purchase Agreement.
 
“2008 Notes” means those certain Senior Subordinated Notes in the aggregate
principal amount of up to $11,000,000 issued by the Company in accordance with
the Company’s confidential private placement memorandum dated December 9, 2008
and pursuant to the terms and conditions of related Securities Purchase
Agreements previously provided to the Holder.
 
“Affiliate” means, with respect to any Person, another Person that directly or
indirectly, through one or more intermediaries, controls or is controlled by or
is under common control with the Person specified.  With respect to the Holder,
the term Affiliate shall not include the Company or any of its Subsidiaries or
any portfolio company of Falconhead Capital, LLC or any of their respective
Subsidiaries.
 
“Amendment Agreement” means that certain Amendment Agreement dated December 17,
2008, by and among the Company and certain holders of the 2006 Notes and 2006
Warrants, as amended by those certain Letter Agreements, dated as of February
25, 2009, by and between the Company and such holders.
 
“Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.
 
“Certificate of Incorporation” means the Company’s certificate of incorporation,
as amended and as in effect on the date hereof.
 
“Common Stock” means the Company’s Common Stock, par value $0.001 per share.
 

 
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“Consolidated EBITDA” means as of any date of determination and with respect to
the Company and its Subsidiaries, the (a) consolidated net income of the Company
and its Subsidiaries for the twelve full calendar month period immediately
preceding such date plus (b) the sum of, in each case to the extent included in
the calculation of such consolidated net income but without duplication, (i) any
provision for income taxes, (ii) interest expense, (iii) loss from extraordinary
items, (iv) any aggregate net loss from the sale, exchange or other disposition
of capital assets by the Company or any Subsidiary, (v) depreciation, depletion
and amortization expenses and (vi) all other non-cash charges and non-cash
losses for such period, minus (c) the sum of, in each case to the extent
included in the calculation of such consolidated net income but without
duplication, (i) any credit for income tax, (ii) interest income, (iii) gains
from extraordinary items for such period, (iv) any aggregate net gain (but not
any aggregate net loss) from the sale, exchange or other disposition of capital
assets by the Company or any Subsidiary and (v) any other non-cash gains or
other items which have been added in determining consolidated net income,
including any reversal of a charge referred to in clause (b)(vi) above.  To the
extent any items set forth in this definition of Consolidated EBITDA are defined
under GAAP, such items shall be calculated in accordance with GAAP consistently
applied using the accounting principles, polices, procedures, practices,
applications and methodologies used in preparing the Company’s financial
statements and the Company shall not take any actions that do or would
artificially reduce EBITDA for any measurement period.
 
“Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, agreement or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.
 
“Dispenser Base” means, as of any Dispenser Base Measurement Date, the aggregate
number of beverage dispensers installed and operating in customer locations on
behalf of the Company, whether or not owned by the Company.
 
“Dispenser Base Measurement Date” means July 1, 2010, and each January 1st and
July 1st of each calendar year thereafter.
 
“Event of Default” shall have the meaning assigned to such term in Section 5(a).
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
“Fundamental Transaction” means that the Company shall, directly or indirectly,
in one or more related transactions (i) consolidate or merge with or into
(whether of not the Company is the surviving corporation) another person or
persons or (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person
or Persons or (iii) allow another Person to make a purchase, tender or exchange
offer that is accepted by the holders of more than 50% of the outstanding Voting
Stock (not including any shares of Voting stock held by the Person or Persons
making or party to, or associated or affiliated with any of the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including without
limitation, a reorganization, recapitalization, spin off or scheme or
arrangement) with another Person whereby such other Person acquires more than
50% of the outstanding shares of Voting Stock (not including any shares of
Voting Stock held by the Person or Person making or party to, or associated or
affiliated with the Persons, making or party to such stock purchase or business
combination), or (v) any “person” or ‘group” (as these terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of 50% or more of the aggregate Voting Stock of the Company.
 

 
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“Group Senior Subordinated Note” means this Note, all other Senior Subordinated
Notes issued under the Purchase Agreement and all 2008 Notes.
 
“Highest Lawful Rate” means the maximum non-usurious rate of interest, as in
effect from time to time, which may be charged, contracted for, reserved,
received or collected by the Holder in connection with this Note under
applicable law.
 
“Holder” has the meaning ascribed to it in the first paragraph of this Note.
 
“Indebtedness” of any Person means, without duplication (i) all indebtedness for
borrowed money, (ii) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
“capital leases” in accordance with generally accepted accounting principles)
(other than trade payables entered into in the ordinary course of business on
customary terms), (iii) all reimbursement or payment obligations with respect to
letters of credit, surety bonds and other similar instruments, (iv) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (v) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all indebtedness referred to in
clauses (i) through (v) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any mortgage, lien, pledge, charge, security interest or other encumbrance upon
or in any property or assets (including accounts and contract rights) owned by
any Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (vii) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (i) through (vi) above.
 
“Insolvency Proceeding” means, with respect to any Person, the dissolution,
winding up, or total or partial liquidation or reorganization, readjustment,
arrangement, or similar proceeding relating to such Person or its property,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership,
arrangement, or similar proceedings or upon an assignment for the benefit of
creditors, or upon any other marshaling or composition of the assets and
liabilities of such Person.
 

 
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“Interest Rate” shall have the meaning assigned to such term in first paragraph
of this Note.
 
“Material Adverse Effect” means any material adverse effect on the business,
properties, assets, results of operations, condition (financial or otherwise) of
the Company and its Subsidiaries, taken as a whole.
 
“Maturity Date” shall have the meaning assigned to such term in Section 1.
 
“Operating Covenant Period” means the period commencing on the Issuance Date and
ending on the first date Consolidated EBITDA is equal to or greater than
$15,000,000.
 
“Permitted Indebtedness” means, without duplication (i) any Indebtedness arising
under the Notes issued pursuant to the Purchase Agreement; (ii) any Indebtedness
outstanding as of the Issuance Date that is described in the SEC Documents and
any extension, renewal or refinancing thereof, provided that the amount of such
Indebtedness (including the maximum commitments thereunder) is not increased at
the time of such refinancing, refunding, renewal or extension except by the sum
of (A) the amount of unpaid accrued interest and premiums, penalties and fees
required by the terms thereof to be paid and (B) reasonable and documented fees
and expenses incurred in connection therewith and not paid to an Affiliate,
(iii) the 2008 Notes; (iv) any Permitted Senior Indebtedness; (v) Indebtedness
arising in connection with endorsement of checks, drafts or similar instruments
of payment for deposit in the ordinary course of business; (vi) Indebtedness
incurred in the ordinary course of business owed to any Person providing
workers’ compensation, health disability or other employee benefits or property,
casualty or liability insurance, pursuant to reimbursement or indemnification
obligations to such Person, (vii) Indebtedness incurred in the ordinary course
of business in the form of bids, tenders, statutory obligations, customary
reimbursement obligations for surety bonds, performance bonds and appeal and
other similar bonds which are not overdue and not involving borrowed money;
(viii) Indebtedness owing to insurance carriers or finance companies and
incurred to finance insurance premiums in an aggregate amount outstanding at any
time not exceeding $300,000; and (ix) any other Indebtedness incurred after the
Issuance Date in the original principal amount not exceeding $300,000
individually or in the aggregate.
 
“Permitted Senior Indebtedness” means, without duplication (i) any Indebtedness
incurred prior to or following the Issuance Date hereof for the purpose of
funding the purchase and placement of beverage dispensing equipment and
accessories thereto, (ii) any Indebtedness incurred prior to or following the
date hereof for the purpose of funding the addition of facility equipment or
infrastructure and (iii) any other Indebtedness incurred prior to or following
the date hereof in an aggregate principal amount not to exceed $5,000,000
outstanding at any time, provided, however, prior to the date that Consolidated
EBITDA is equal to or greater than $7,500,000, the aggregate principal amount of
all Permitted Senior Indebtedness shall not exceed $30,000,000 outstanding at
any one time.
 
“Person” any natural person, corporation, business trust, joint venture,
association, company, limited liability company, partnership, governmental
authority or other entity.
 
“Principal Market” means the NASDAQ Over-the-Counter Bulletin Board.
 

 
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“Pro Rata Payment” means, with respect to any Group Senior Subordinated Note,
any payment (whether principal, interest or otherwise) made in respect of such
Group Senior Subordinated Note that is: (i) made substantially simultaneously
with a payment on each other Group Senior Subordinated Note and (ii) is in an
amount that represents such Group Senior Subordinated Note’s Pro Rata Share of
the aggregate of such payment and all such substantially simultaneous payments.
 
“Pro Rata Share” means, with respect to any Group Senior Subordinated Note and
as of any date of determination, a fraction, expressed as a percentage, the
numerator of which is the then outstanding principal amount of such Group Senior
Subordinated Note and the denominator of which is the then aggregate outstanding
principal amount of all Group Senior Subordinated Notes.
 
“Professional Services Agreement” means the Professional Services Agreement by
and between the Company and Falconhead Capital, LLC, dated as of the date
hereof.
 
“Restricted Payment” means (i) any dividend or other distribution, direct or
indirect, on account of any class of equity securities or equivalent, now or
hereafter outstanding; (ii) any redemption, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect, of any
class of equity securities or equivalent, now or hereafter outstanding from the
holders thereof; and (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire any
class of equity securities or equivalent, now or hereafter outstanding;
provided, however, that Restricted Payment shall not include (x) payments made
with respect to the 2006 Notes or the 2006 Warrants pursuant to and in
accordance with Section 5.10 of the Purchase Agreement, (y) payments required to
be made to the holders of the Company’s Series B Preferred Stock pursuant to the
Certificate of Designation for such Series B Preferred Stock in effect as of the
Issuance Date (provided that the Company agrees that if any such payments may be
made in cash or in additional shares of Series B Preferred Stock, then such
payments shall be made in additional shares of Series B Preferred Stock) or (z)
any other payments referred to in clauses (ii) or (iii) above not exceeding
$300,000 individually or in the aggregate.
 
“SEC” means the Securities and Exchange Commission.
 
“SEC Documents” means all reports, schedules, forms, statements and other
documents required to be filed by the Company with the SEC pursuant to the
reporting requirements of the Exchange Act filed prior to the date hereof and
all exhibits included therein and financial statements, notes and schedules
thereto and documents incorporated by reference therein.
 
“Securities Act” means the Securities Act of 1933, as amended.
 
“Shares” means the 50,000,000 shares of Common Stock issued to the Holder
pursuant to the Purchase Agreement.
 
“Subsidiary” means, with respect to any Person, any corporation, partnership,
association or other business entity in which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or more than 50% of the general partnership interests are,
at the time any determination is being made, owned, controlled or held by such
Person.
 

 
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“Transaction Documents” means, collectively, the Purchase Agreement, this Note,
the other Notes issued pursuant to the Purchase Agreement, the Professional
Services Agreement and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by the Purchase
Agreement.
 
“Voting Stock” of a Person means capital stock of, or other equity interest in,
such Person of the class or classes pursuant to which the holders thereof have
the general voting power to elect, or the general power to appoint, at least a
majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital stock of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency).
 
9.           Notice.  All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed effectively
given:  (i) upon personal delivery to the party to be notified, (ii) when sent
by confirmed electronic mail or facsimile if sent during normal business hours
of the recipient; if not, then on the next Business Day, (iii) five (5) days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (iv) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt.  All communications shall be sent to the party at the
address set forth on the signature pages attached hereto (or at such other
addresses as shall be specified by notice given in accordance with this
Section 9).
 
If to the Company, at
 
Javo Beverage Company, Inc.
Attn:  William Marshall
1311 Specialty Drive
Vista, CA 92081
Fax: (760) 597-9793
 
email address: wmarshall@javobeverage.com
 
If to the Holder, at the most recent address provided to the Company by the
Holder for such purpose; or, in each case, to the most recent address, specified
by written notice, given to the sender pursuant to this paragraph.
 
10.           Entire Agreement; Waiver; Amendment.  This Note constitutes the
full and entire understanding and agreement between the parties with regard to
the Indebtedness evidenced hereby.  This Note may be amended and the observance
of any term of this Note may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of both the Company and the Holder.  Any waiver or amendment effected in
accordance with this Section 10 shall be binding upon any Holder of this Note.
 
11.           Successors and Assigns.  This Note applies to, inures to the
benefit of, and binds the successors and assigns of the parties hereto.
 

 
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12. 
Governing Law; Jurisdiction, Waiver of Jury.

 
(a)            The provisions of this Note and all of the documents delivered
pursuant hereto, their execution, performance or nonperformance, interpretation,
termination, construction and all matters based upon, arising out of or related
to this Note or the negotiation, execution or performance of this Note (whether
in equity, law or statute) shall be governed by, and construed in accordance
with, the laws, both procedural and substantive, of the State of New York
without regard to its conflicts of laws provisions that if applied might require
the application of the laws of another jurisdiction.
 
(b)            All actions and proceedings arising out of or relating to this
Note shall be heard and determined in the state or federal courts of the State
of New York, and the Company hereby irrevocably submits to the exclusive
jurisdiction of such courts (and, in the case of appeals, appropriate appellate
courts therefrom) in any such action or proceeding and irrevocably waive the
defense of an inconvenient forum to the maintenance of any such action or
proceeding.

(c)            THE HOLDER AND THE COMPANY EACH ACKNOWLEDGE THAT THE RIGHT TO
TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED.  EACH OF THEM,
AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL OF THEIR
CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM
MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS
NOTE OR ANY RELATED INSTRUMENT OR TRANSACTION DOCUMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED BY THIS NOTE OR ANY OF THE OTHER TRANSACTION DOCUMENTS
OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR
ACTION OF ANY OF THEM.  THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN
MODIFIED IN ANY RESPECT OR RELINQUISHED BY THE HOLDER OR THE COMPANY, EXCEPT BY
A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM.

13.           Replacement Note.  Upon receipt of a lost note affidavit
containing indemnity provisions reasonably satisfactory to the Company
indicating the loss, theft, destruction or mutilation of this Note, the Company
shall issue a replacement Note, of like tenor and amount,
 
14. 
Severability; Reinstatement.

 
(a)           If any one or more of the provisions of this Note is
unenforceable, in whole or in part or in any respect it shall not affect any
other provision of this Note and the remaining provisions of this Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
 
(b)           If any payment in respect of this Note or any part thereof is
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party, then to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied and all right and remedies in respect thereof, shall be revived and
continued in full force and effect as if such payment had not been made.
 

 
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15. 
Waivers.

 
(a)           No failure on the part of the Holder to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right.  The remedies herein
provided are cumulative and not exclusive of any remedies provided by law, in
equity or otherwise.
 
(b)           Presentment, demand, protest or notice of any kind are hereby
expressly waived by the Company.
 
16.           Costs and Expenses.  The Company agrees upon demand to pay, or
reimburse the Holder for all of the Holder’s reasonable and documented
out-of-pocket costs and expenses of every type and nature (including the
reasonable fees, expenses and disbursements of counsel) incurred by the Holder
in connection with any collection or enforcement of any obligation in respect of
this Note or any exercising or enforcing any right or remedy available by reason
of an Event of Default.
 
17.           Limitation of Liability.  The Company agrees that the Holder and
each of its Affiliates, and each of the directors, officers, employees, agents,
trustees, representatives, attorneys, consultants and advisors of or to any of
the foregoing (collectively, the “Released Parties”) shall not have any
liability (whether in contract, tort or otherwise) to any the Company or any of
its Subsidiaries or any of its equity holders or creditors for or in connection
with this Note, except to the extent such liability is determined in a final
non-appealable judgment by a court of competent jurisdiction to have resulted
primarily from such Released Party’s gross negligence or willful misconduct.  In
no event, however, shall any of the Released Parties be liable on any theory of
liability for any special, indirect, consequential or punitive damages
(including, without limitation, any loss of profits, business or anticipated
savings) for or in connection with this Note.  The Company hereby waives,
releases and agrees (each for itself and on behalf of its Subsidiaries) not to
sue upon any such claim for any special, indirect, consequential or punitive
damages, whether or not accrued and whether or not known or suspected to exist
in its favor for or in connection with this Note.
 
18.           Section Titles.  The section titles contained in this Note are and
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties hereto, except when used to
reference a section.
 

 
[Remainder of Page Intentionally Left Blank]
 

 
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IN WITNESS WHEREOF, the undersigned have caused this Note to be executed by its
duly authorized officers as of the date first above written.
 
 

 
JAVO BEVERAGE COMPANY, INC.
             
By:
 

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Name:
 

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Title:
 

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EXHIBIT B
 
Form of Opinion of Counsel
 

 
 

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[gplogo.jpg] 

Goodwin Procter LLP
Counselors at Law
4365 Executive Drive
San Diego, CA 92121
 
T: 858.202.2700
F: 858.457.1255

April 6, 2009
 
Coffee Holdings LLC
c/o Falconhead Capital, LLC
450 Park Avenue, 3rd Floor
New York, NY  10022
 
Re:           Javo Beverage Company, Inc.
 
Ladies and Gentlemen:
 
We have acted as counsel for Javo Beverage Company, Inc., a Delaware corporation
(the “Company”), in connection with the sale to you today of (i) 50,000,000
shares (the “Shares”) of Common Stock of the Company, $0.001 par value per share
(the “Common Stock”) and (ii) one or more senior subordinated promissory notes
in the aggregate original principal amount of $12,000,000 (the “Notes,” and
together with the Shares, the “Securities”).  We are furnishing this opinion
letter to you pursuant to Section 11.5 of that certain Securities Purchase
Agreement, dated as of April 6, 2009 (the “Purchase Agreement”), by and among
the Company and you (the “Investor”).  Capitalized terms used, but not otherwise
defined herein, shall have the meanings given to them in the Purchase Agreement.
 
We have reviewed such documents and made such examination of law as we have
deemed appropriate to give the opinions expressed below.  We have relied,
without independent verification, on certificates of public officials and, as to
matters of fact material to the opinions set forth below, on representations in
the Purchase Agreement and certificates and other inquiries of officers of the
Company and, with respect to our opinion in numbered paragraph 5, a certificate
from the transfer agent and registrar of the Company’s common stock.
 
Our opinion regarding valid existence and good standing in numbered paragraph 1
is based solely on a certificate of the Secretary of State of Delaware and, in
the case of valid existence, a review of the Company’s certificate of
incorporation and an officer’s certificate confirming that the Company has taken
no action looking to its dissolution.  Our opinion in numbered paragraph 3
regarding the due qualification and good standing of the Company as a foreign
corporation is based solely on a certificate of the Secretary of State of
California.  We express no opinion as to the tax good standing of the Company in
any jurisdiction.
 
Our opinion in numbered paragraph 6 is based on (i) the assumption that the
Company and any person acting on its behalf have complied and will comply with
the limitations on manner of offering and sale set forth in Rule 502(c) under
the Securities Act of 1933, as amended (the “Securities Act”), with respect to
all offers and sales of the Company’s securities, including the Securities, and
(ii) certain factual representations made by the Company with respect to offers
and sales of the Company’s securities in the past six months.
 

 
 
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Coffee Holdings LLC
April 6, 2009
Page 2

Our opinions set forth below are limited to the laws of the State of California,
the Delaware General Corporation Law and the federal law of the United
States.  Our opinion in numbered paragraph 6 is the only opinion in this opinion
letter that addresses securities laws.  Without limiting the generality of the
foregoing, we express no opinion with respect to (i) state securities or “Blue
Sky” laws, or (ii) state or federal antifraud laws.
 
Based upon the foregoing, and subject to the additional qualifications set forth
below, we are of the opinion that:
 
1. The Company is validly existing as a corporation in good standing under
Delaware law.
 
2. The Company has the corporate power to execute and deliver the Purchase
Agreement, the Note and the Professional Services Agreement and perform its
obligations thereunder.
 
3. The Company is duly qualified to do business and is in good standing as a
foreign corporation in California.
 
4. The Purchase Agreement, the Note and the Professional Services Agreement have
been duly authorized, executed and delivered by the Company.
 
5. The Shares have been duly authorized and, when issued, delivered and paid for
in accordance with the Purchase Agreement, will be validly issued, fully paid
and nonassessable.
 
6. Based in part on, and assuming the accuracy of, the representations of the
Investor in the Purchase Agreement, the sale of the Securities pursuant to the
Purchase Agreement does not require registration under the Securities Act.
 
7. The execution and delivery by the Company of the Purchase Agreement, the Note
and the Professional Services Agreement and the performance by the Company of
its obligations thereunder do not and will not violate the Company’s certificate
of incorporation or by-laws.
 
This opinion letter and the opinions it contains shall be interpreted in
accordance with the Legal Opinion Principles issued by the Committee on Legal
Opinions of the American Bar Association’s Business Law Section as published in
53 Business Lawyer 831 (May 1998).
 
This opinion letter is being furnished only to you for your use in connection
with the Purchase Agreement and the transactions contemplated thereby, and
neither it nor the opinions it contains may be relied on for any other purpose
or by anyone else.
 
Very truly yours,

 
GOODWIN PROCTER LLP
 
 

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