Exhibit 10.1


 


SERIES A CONVERTIBLE PREFERRED
STOCK AND WARRANT


 


PURCHASE AGREEMENT


 


 


Dated as of July 3, 2007


 


 


among


 


 


NASCENT WINE COMPANY, INC.


 


 


and


 


 


THE PURCHASERS LISTED ON EXHIBIT
A


 
















 


TABLE OF CONTENTS


	
  

  	
   

  	
  PAGE

  
	
  ARTICLE I

  	
  Purchase and Sale of Preferred Stock and Warrants

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.1

  	
  Purchase and Sale of Stock

  	
  1

  
	
  Section 1.2

  	
  Warrants

  	
  1

  
	
  Section 1.3

  	
  Conversion Shares

  	
  2

  
	
  Section 1.4

  	
  Purchase Price and Closing

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  Representations and Warranties

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Representations and Warranties of the Company

  	
  2

  
	
  Section 2.2

  	
  Representations and Warranties of the Purchasers

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  Covenants

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Securities Compliance

  	
  15

  
	
  Section 3.2

  	
  Registration and Listing

  	
  15

  
	
  Section 3.3

  	
  Inspection Rights

  	
  15

  
	
  Section 3.4

  	
  Compliance with Laws

  	
  16

  
	
  Section 3.5

  	
  Keeping of Records and Books of Account

  	
  16

  
	
  Section 3.6

  	
  Reporting Requirements

  	
  16

  
	
  Section 3.7

  	
  Amendments

  	
  16

  
	
  Section 3.8

  	
  Other Agreements

  	
  16

  
	
  Section 3.9

  	
  Distributions

  	
  16

  
	
  Section 3.10

  	
  Status of Dividends

  	
  17

  
	
  Section 3.11

  	
  Use of Proceeds

  	
  17

  
	
  Section 3.12

  	
  Reservation of Shares

  	
  18

  
	
  Section 3.13

  	
  Transfer Agent Instructions

  	
  18

  
	
  Section 3.14

  	
  Disposition of Assets

  	
  18

  
	
  Section 3.15

  	
  Reporting Status

  	
  18

  
	
  Section 3.16

  	
  Disclosure of Transaction

  	
  19

  
	
  Section 3.17

  	
  Disclosure of Material Information

  	
  19

  
	
  Section 3.18

  	
  Pledge of Securities

  	
  19

  
	
  Section 3.19

  	
  Form SB-2 Eligibility

  	
  19

  
	
  Section 3.20

  	
  Stockholders Agreement

  	
  19

  
	
  Section 3.21

  	
  Right of First Refusal on Additional Financing

  	
  19

  
	
  Section 3.22

  	
  Board of Directors

  	
  20

  
	
  Section 3.23

  	
  Confidentiality, Non-Competition and
  Non-Solicitation Agreement

  	
  20

  
	
  Section 3.24

  	
  Comprehensive Operating Budget

  	
  20

  
	
  Section 3.25

  	
  Board Materials

  	
  20

  
	
  Section 3.26

  	
  Acquisitions

  	
  20

  
	
  Section 3.27

  	
  D&O Insurance

  	
  20

  




 i
 









 


	
  Section 3.28

  	
  Series B Certificate of Designation

  	
  20

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  CONDITIONS

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 4.1

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

  	
  22

  
	
  Section 4.2

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

  	
  22

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  Stock Certificate Legend

  	
  25

  
	
   

  	
   

  	
   

  
	
  Section 5.1

  	
  Legend

  	
  25

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  Indemnification

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 6.1

  	
  Company Indemnity

  	
  26

  
	
  Section 6.2

  	
  Indemnification Procedure

  	
  26

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  Miscellaneous

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 7.1

  	
  Fees and Expenses

  	
  27

  
	
  Section 7.2

  	
  Specific Enforcement, Consent to Jurisdiction.

  	
  28

  
	
  Section 7.3

  	
  Entire Agreement; Amendment

  	
  28

  
	
  Section 7.4

  	
  Notices

  	
  28

  
	
  Section 7.5

  	
  Waivers

  	
  29

  
	
  Section 7.6

  	
  Headings

  	
  29

  
	
  Section 7.7

  	
  Successors and Assigns

  	
  30

  
	
  Section 7.8

  	
  No Third Party Beneficiaries

  	
  30

  
	
  Section 7.9

  	
  Governing Law

  	
  30

  
	
  Section 7.10

  	
  Survival

  	
  30

  
	
  Section 7.11

  	
  Counterparts

  	
  30

  
	
  Section 7.12

  	
  Publicity

  	
  30

  
	
  Section 7.13

  	
  Severability

  	
  30

  
	
  Section 7.14

  	
  Further Assurances

  	
  30

  



 



 ii















SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT

PURCHASE AGREEMENT


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


The
parties hereto agree as follows:


ARTICLE I



Purchase and Sale of Preferred Stock and Warrants


Section 1.1             Purchase
and Sale of Stock.  Upon the
following terms and conditions, the Company shall issue and sell to the
Purchasers and each of the Purchasers shall purchase from the Company, the number
of shares of the Company’s Series A Convertible Preferred Stock, par value
$0.001 per share and at a purchase price of $8.00 per share (the “Preferred
Shares”), convertible into shares of the Company’s common stock, par value
$0.001 per share (the “Common Stock”), in the amounts set forth opposite
such Purchaser’s name on Exhibit A hereto.  The designation, rights, preferences and
other terms and provisions of the Series A Convertible Preferred Stock are set
forth in the Certificate of Designation of the Relative Rights and Preferences
of the Series A Convertible Preferred Stock attached hereto as Exhibit B
(the “Certificate of Designation”). 
The Company and the Purchasers are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded by Rule 506 of Regulation D (“Regulation D”) as
promulgated by the United States Securities and Exchange Commission (the “Commission”)
under the Securities Act of 1933, as amended (the “Securities Act”) or
Section 4(2) of the Securities Act.


Section 1.2             Warrants.  Upon the following terms and conditions and
for no additional consideration, each of the Purchasers shall be issued: (i)
Series A-1 Warrants, in substantially the form attached hereto as Exhibit
C-1 (the “Series A-1 Warrant”), to purchase an aggregate of 500,000
Preferred Shares, as set forth opposite such Purchaser’s name on Exhibit A
hereto; (ii) Series A-2 Warrants, in substantially the form attached hereto as Exhibit
C-2 (the “Series A-2 Warrant”), to purchase an aggregate of 375,000
Preferred Shares, as set forth opposite such Purchaser’s name on Exhibit A
hereto and (iii) Series B Warrants, in substantially the form attached hereto
as Exhibit C-3 (the “Series B Warrant” and together with the
Series A-1 Warrant and Series A-2 Warrant, the “Warrants”) to purchase
an aggregate of 375,000 Series B Preferred Convertible Stock (the “Series B
Preferred Shares”), as set forth opposite such Purchaser’s name on Exhibit
A hereto.  The Series A-1 Warrant
shall expire three (3) years following the Closing Date.  The Series A-2 Warrant shall expire seven (7)
years following the Closing Date.  The
Series B Warrant shall expire seven (7) years following the Closing Date.  Each of the Warrants shall have an exercise
price per share equal to the Warrant Price (as defined in the applicable
Warrant).


Section 1.3             Conversion
Shares.  The Company has authorized
and has reserved and covenants to continue to reserve, free of preemptive
rights and other similar contractual 













rights of stockholders, a number of shares of Common Stock equal to one
hundred twenty percent (120%) of the number of shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all of the
Preferred Shares, the Series B Preferred Shares and the conversion of the
Preferred Shares underlying the Warrants then outstanding.  Any shares of Preferred Shares or Series B
Preferred Shares issuable upon exercise of the Warrants are herein referred to
as the “Warrant Preferred Shares”. 
Any shares of Common Stock issuable upon conversion of the Preferred
Shares and issuable upon the conversion of the Warrant Preferred Shares (and
such shares when issued) are herein referred to as the “Conversion Shares”
and the “Warrant Shares”, respectively. 
The Preferred Shares, Warrant Preferred Shares, the Conversion Shares
and the Warrant Shares are sometimes collectively referred to as the “Shares”.


Section 1.4             Purchase
Price and Closing.  Subject to the
terms and conditions hereof, the Company agrees to issue and sell to the
Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase the Preferred
Shares and the Warrants for an aggregate purchase price of up to $8,000,000
(the “Purchase Price”).  The
Preferred Shares and the warrants shall be sold and funded in one or more
closings (each, a “Closing”).  The
closing of the purchase and sale of the Preferred Shares and the Warrants to be
acquired by the Purchasers from the Company under this Agreement shall take
place at the offices of Kramer Levin Naftalis & Frankel LLP, 1177 Avenue of
the Americas, New York, New York 10036 (the “Closing”) at 10:00 a.m.,
New York time on such date as the Purchasers and the Company may agree upon; provided,
that all of the conditions set forth in Article IV hereof and applicable to the
Closing shall have been fulfilled or waived in accordance herewith (the “Closing
Date”).  Subject to the terms and
conditions of this Agreement, at the Closing the Company shall deliver or cause
to be delivered to each Purchaser (x) a certificate for the number of Preferred
Shares set forth opposite the name of such Purchaser on Exhibit A hereto
and (y) its Warrants to purchase such number of Preferred Shares as is set
forth opposite the name of such Purchase on Exhibit A attached hereto and (z)
any other documents required to be delivered pursuant to Article IV hereof.  At the Closing, each Purchaser shall deliver
its Purchase Price by wire transfer to the Company.


ARTICLE II



Representations and Warranties


Section 2.1             Representations
and Warranties of the Company.  The
Company hereby represents and warrants to the Purchasers, as of the date hereof
and the Closing Date (except as set forth on the Schedule of Exceptions
attached hereto with each numbered Schedule corresponding to the section number
herein), as follows:


(a)           Organization,
Good Standing and Power.  The Company
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Nevada and has the requisite corporate power to own,
lease and operate its properties and assets and to conduct its business as it
is now being conducted.  The Company does
not have any subsidiaries except as set forth in the Company’s Form 10-KSB for
the year ended December 31, 2006, including the accompanying financial
statements (the “Form 10-KSB”), or in the Company’s 



 2
 









Form 10-QSB for the fiscal quarters ended March 31, 2007 (the “Form
10-QSB”), or on Schedule 2.1(g) hereto.  The Company and each such subsidiary is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary except for any jurisdiction(s)
(alone or in the aggregate) in which the failure to be so qualified would not
have a Material Adverse Effect (as defined in Section 2.1(c) hereof).


(b)           Authorization; Enforcement.  The Company has the requisite corporate power
and authority to enter into and perform this Agreement, the Registration Rights
Agreement in the form attached hereto as Exhibit D (the “Registration
Rights Agreement”), the Stockholders Agreement (as defined in Section 3.20
hereof) in the form attached hereto as Exhibit E, the Confidentiality,
Non-Competition and Non-Solicitation Agreement (as defined in Section 3.23
hereof) in the form attached hereto as Exhibit H, the Director
Indemnification Agreement (as defined in Section 3.29 hereof) in the form
attached hereto as Exhibit I, the Irrevocable Transfer Agent
Instructions (as defined in Section 3.13) and the Certificate of Designation
(collectively, the “Transaction Documents”) and to issue and sell the
Shares in accordance with the terms hereof. 
The execution, delivery and performance of the Transaction Documents by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary corporate
action, and no further consent or authorization of the Company or its Board of
Directors or stockholders is required. 
This Agreement has been duly executed and delivered by the Company.  The other Transaction Documents will have been
duly executed and delivered by the Company at the Closing.  Each of the Transaction Documents
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application.


(c)           Capitalization.  The authorized capital stock of the Company
and the shares thereof currently issued and outstanding immediately preceding
the Closing Date are set forth on Schedule 2.1(c) hereto.  All of the outstanding shares of the Common
Stock and the Preferred Shares have been duly and validly authorized.  Except as set forth on Schedule 2.1(c)
hereto, no shares of Common Stock are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company.  There are no
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of capital
stock of the Company.  Except as set forth
on Schedule 2.1(c) hereto, the Company is not a party to any agreement
granting registration or anti-dilution rights to any person with respect to any
of its equity or debt securities.  The
Company is not a party to, and it has no knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of the
Company.  The offer and sale of all
capital stock, convertible securities, rights, warrants, or options of the
Company issued prior to the Closing complied with all applicable Federal and
state securities laws, and no stockholder has a right of rescission or claim
for damages with respect thereto 



 3
 









which would have a Material Adverse Effect (as defined below).  The Company has furnished or made available
to the Purchasers true and correct copies of the Company’s Articles of
Incorporation as in effect on the date hereof (the “Articles”), and the
Company’s Bylaws as in effect on the date hereof (the “Bylaws”).  For the purposes of this Agreement, “Material
Adverse Effect” means any material adverse effect on the business,
operations, properties, prospects, or financial condition of the Company and
its subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement in any material respect.


(d)           Issuance of
Shares.  The Preferred Shares and the
Warrants to be issued at the Closing have been duly authorized by all necessary
corporate action and the Preferred Shares, when paid for or issued in
accordance with the terms hereof, shall be validly issued and outstanding,
fully paid and nonassessable and entitled to the rights and preferences set
forth in the Certificate of Designation. 
When the Warrant Preferred Shares are issued in accordance with the
terms of the Warrants, such shares will be duly authorized by all necessary
corporate action and validly issued and outstanding, fully paid and
nonassessable, and the holders shall be entitled to all rights accorded to a
holder of Preferred Shares or Series B Preferred Shares, as applicable.  When the Conversion Shares are issued in
accordance with the terms of the Certificate of Designation, such shares will
be duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled to
all rights accorded to a holder of Common Stock.  When the Warrant Shares are issued in
accordance with the terms of the Certificate of Designation or the Certificate
of Designation of the Relative Rights and Preferences of the Series B
Convertible Preferred Stock (the “Series B Certificate of Designation”),
as applicable, such shares will be duly authorized by all necessary corporate
action and validly issued and outstanding, fully paid and nonassessable, and
the holders shall be entitled to all rights accorded to a holder of Common
Stock.


(e)           No Conflicts.  The execution, delivery and performance of
the Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designation and the Series B Certificate
of Designation and the consummation by the Company of the transactions
contemplated herein and therein do not and will not (i) violate any provision
of the Company’s Articles or Bylaws, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, charge or
encumbrance of any nature on any property of the Company under any agreement or
any commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or
by which any property or asset of the Company or any of its subsidiaries are
bound or affected, except, in all cases other than violations pursuant to
clauses (i) and (iv) above, for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect.  The business of the Company and its
subsidiaries is not being conducted in 



 4
 









violation of any laws, ordinances or regulations of any governmental
entity, except for possible violations which singularly or in the aggregate do
not and will not have a Material Adverse Effect.  The Company is not required under Federal,
state or local law, rule or regulation to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under the Transaction Documents, or issue and sell the Preferred Shares, the
Warrants, the Warrant Preferred Shares, the Conversion Shares and the Warrant
Shares in accordance with the terms hereof or thereof (other than any filings
which may be required to be made by the Company with the Commission or state
securities administrators subsequent to the Closing, any registration statement
which may be filed pursuant hereto, and the Certificate of Designation); provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Purchasers herein.


(f)            Commission
Documents, Financial Statements.  The
Common Stock is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended the “Exchange Act”), the Company has
timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Commission pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
13(a) or 15(d) of the Exchange Act (all of the foregoing including filings
incorporated by reference therein being referred to herein as the “Commission
Documents”).  The Company has
delivered or made available to each of the Purchasers true and complete copies
of the Commission Documents.  The Company
has not provided to the Purchasers any material non-public information or other
information which, according to applicable law, rule or regulation, was
required to have been disclosed publicly by the Company but which has not been
so disclosed, other than with respect to the transactions contemplated by this
Agreement.  At the times of their
respective filings, the Form 10-KSB and the Form 10-QSB complied in all
material respects with the requirements of the Exchange Act and the rules and regulations
of the Commission promulgated thereunder and other federal, state and local
laws, rules and regulations applicable to such documents, and, as of their
respective dates, none of the Form 10-KSB and the Form 10-QSB contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  The financial statements of
the Company included in the Commission Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission or other applicable rules and
regulations with respect thereto.  Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles (“GAAP”) applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes
or may be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its subsidiaries as of the
dates thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal, immaterial
(individually or in the aggregate) year-end audit adjustments).


(g)           Subsidiaries.  Schedule 2.1(g) hereto sets forth each
subsidiary of the Company, showing the jurisdiction of its incorporation or
organization and showing the 



 5
 









percentage of each person’s ownership. 
For the purposes of this Agreement, “subsidiary” shall mean any
corporation or other entity of which at least a majority of the securities or
other ownership interest having ordinary voting power (absolutely or
contingently) for the election of directors or other persons performing similar
functions are at the time owned directly or indirectly by the Company and/or
any of its other subsidiaries.  All of
the outstanding shares of capital stock of each subsidiary have been duly
authorized and validly issued, and are fully paid and nonassessable.  There are no outstanding preemptive,
conversion or other rights, options, warrants or agreements granted or issued
by or binding upon any subsidiary for the purchase or acquisition of any shares
of capital stock of any subsidiary or any other securities convertible into,
exchangeable for or evidencing the rights to subscribe for any shares of such
capital stock.  Neither the Company nor
any subsidiary is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of the capital stock of
any subsidiary or any convertible securities, rights, warrants or options of
the type described in the preceding sentence. 
Neither the Company nor any subsidiary is party to, nor has any
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of any subsidiary.


(h)           No Material
Adverse Change.  Since December 31,
2006, the Company has not experienced or suffered any Material Adverse Effect.


(i)            No Undisclosed
Liabilities.  Neither the Company nor
any of its subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those incurred in the ordinary course of the Company’s
or its subsidiaries respective businesses since December 31, 2006 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its subsidiaries.


(j)            No Undisclosed
Events or Circumstances.  No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which, under applicable law, rule or regulation,
requires public disclosure or announcement by the Company but which has not
been so publicly announced or disclosed.


(k)           Indebtedness.  The Form 10-KSB, Form 10-QSB or Schedule
2.1(k) hereto sets forth as of a recent date all outstanding secured and
unsecured Indebtedness of the Company or any subsidiary, or for which the
Company or any subsidiary has commitments. 
For the purposes of this Agreement, “Indebtedness” shall mean (a)
any liabilities for borrowed money or amounts owed in excess of $50,000 (other
than trade accounts payable incurred in the ordinary course of business), (b)
all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. 
Except as set forth on Schedule 2.1(k), neither the Company nor any
subsidiary is in default with respect to any Indebtedness.



 6
 









(l)            Title to Assets.  Each of the Company and the subsidiaries has
good and marketable title to all of its real and personal property reflected in
the Form 10-KSB, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except for those disclosed in the
Form 10-KSB or such that, individually or in the aggregate, do not cause a
Material Adverse Effect.  All leases of
the Company and each of its subsidiaries are valid and subsisting and in full
force and effect.


(m)          Actions Pending.  There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or any
other proceeding pending or, to the knowledge of the Company, threatened
against the Company or any subsidiary which questions the validity of this
Agreement or any of the other Transaction Documents or the transactions
contemplated hereby or thereby or any action taken or to be taken pursuant
hereto or thereto.  There is no action,
suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or any other proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of their
respective properties or assets.  There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or any
subsidiary or any officers or directors of the Company or subsidiary in their
capacities as such.


(n)           Compliance with
Law.  The business of the Company and
the subsidiaries has been and is presently being conducted in accordance with
all applicable federal, state and local governmental laws, rules, regulations
and ordinances, except for such noncompliance that, individually or in the
aggregate, would not cause a Material Adverse Effect.  The Company and each of its subsidiaries have
all franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct of its
business as now being conducted by it unless the failure to possess such
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.


(o)           Taxes.  The Company and each of the subsidiaries has
accurately prepared and filed all federal, state and other tax returns required
by law to be filed by it, has paid or made provisions for the payment of all
taxes shown to be due and all additional assessments, and adequate provisions
have been and are reflected in the financial statements of the Company and the
subsidiaries for all current taxes and other charges to which the Company or
any subsidiary is subject and which are not currently due and payable.  None of the federal income tax returns of the
Company or any subsidiary have been audited by the Internal Revenue Service.  The Company has no knowledge of any
additional assessments, adjustments or contingent tax liability (whether
federal or state) of any nature whatsoever, whether pending or threatened
against the Company or any subsidiary for any period, nor of any basis for any
such assessment, adjustment or contingency.


(p)           Certain Fees.  Except as set forth on Schedule 2.1(p), the
Company has not employed any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders’ structuring fees,
financial advisory fees or other similar fees in connection with the
Transaction Documents.



 7
 









(q)           Disclosure.  Neither this Agreement or the Schedules
hereto nor any other documents, certificates or instruments furnished to the
Purchasers by or on behalf of the Company or any subsidiary in connection with
the transactions contemplated by this Agreement contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements made herein or therein, in the light of the circumstances under
which they were made herein or therein, not misleading.


(r)            Operation of
Business.  The Company and each of
the subsidiaries owns or possesses all patents, trademarks, domain names
(whether or not registered) and any patentable improvements or copyrightable
derivative works thereof, websites and intellectual property rights relating
thereto, service marks, trade names, copyrights, licenses and authorizations as
set forth in the Form 10-KSB, and all rights with respect to the foregoing,
which are necessary for the conduct of its business as now conducted without
any conflict with the rights of others.


(s)           Environmental
Compliance.  The Company and each of
its subsidiaries have obtained all material approvals, authorization,
certificates, consents, licenses, orders and permits or other similar
authorizations of all governmental authorities, or from any other person, that
are required under any  Environmental
Laws.  The Form 10-KSB or Form 10-QSB
describes all material permits, licenses and other authorizations issued under
any Environmental Laws to the Company or its subsidiaries.  “Environmental Laws” shall mean all
applicable laws relating to the protection of the environment including,
without limitation, all requirements pertaining to reporting, licensing,
permitting, controlling, investigating or remediating emissions, discharges,
releases or threatened releases of hazardous substances, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, into the air, surface water, groundwater or
land, or relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, material or wastes,
whether solid, liquid or gaseous in nature. 
The Company has all necessary governmental approvals required under all
Environmental Laws and used in its business or in the business of any of its subsidiaries.  The Company and each of its subsidiaries are
also in compliance with all other limitations, restrictions, conditions,
standards, requirements, schedules and timetables required or imposed under all
Environmental Laws.  Except for such
instances as would not individually or in the aggregate have a Material Adverse
Effect, there are no past or present events, conditions, circumstances,
incidents, actions or omissions relating to or in any way affecting the Company
or its subsidiaries that violate or may violate any Environmental Law after the
Closing Date or that may give rise to any environmental liability, or otherwise
form the basis of any claim, action, demand, suit, proceeding, hearing, study
or investigation (i) under any Environmental Law, or (ii) based on or related
to the manufacture, processing, distribution, use, treatment, storage
(including without limitation underground storage tanks), disposal, transport
or handling, or the emission, discharge, release or threatened release of any
hazardous substance.


(t)            Books and Record
Internal Accounting Controls.  The
books and records of the Company and its subsidiaries accurately reflect in all
material respects the information relating to the business of the Company and
the subsidiaries, the location and collection of their assets, and the nature
of all transactions giving rise to the obligations or accounts receivable of 



 8
 









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


(u)           Material
Agreements.  Neither the Company nor
any subsidiary is a party to any written or oral contract, instrument,
agreement, commitment, obligation, plan or arrangement, a copy of which would
be required to be filed with the Commission as an exhibit to a registration
statement on Form S-3 or applicable form (collectively, “Material Agreements”)
if the Company or any subsidiary were registering securities under the
Securities Act.  The Company and each of
its subsidiaries has in all material respects performed all the obligations
required to be performed by them to date under the foregoing agreements, have
received no notice of default and are not in default under any Material
Agreement now in effect, the result of which could cause a Material Adverse
Effect.  No written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement of the
Company or of any subsidiary limits or shall limit the payment of dividends on
the Company’s Preferred Shares, other preferred stock, if any, or its Common
Stock.


(v)           Transactions with
Affiliates.  Except as set forth in
the Commission Documents, there are no loans, leases, agreements, contracts,
royalty agreements, management contracts or arrangements or other continuing
transactions between (a) the Company or any subsidiary on the one hand, and (b)
on the other hand, any officer, employee, consultant or director of the
Company, or any of its subsidiaries, or any person owning any capital stock of
the Company or any subsidiary or any member of the immediate family of such
officer, employee, consultant, director or stockholder or any corporation or
other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee,
consultant, director or stockholder.


(w)          Securities Act of
1933.  Based in material part upon
the representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares and the Warrants hereunder.  Neither the Company nor anyone acting on its
behalf, directly or indirectly, has or will sell, offer to sell or solicit
offers to buy any of the Shares or similar securities to, or solicit offers
with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any person, or has taken or will take any
action so as to bring the issuance and sale of any of the Shares and the
Warrants under the registration provisions of the Securities Act and applicable
state securities laws, and neither the Company nor any of its affiliates, nor
any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of any of the Shares
and the Warrants.



 9
 









(x)            Governmental
Approvals.  Except for the filing of
any notice prior or subsequent to the Closing Date that may be required under
applicable state and/or Federal securities laws (which if required, shall be
filed on a timely basis), including the filing of a Form D and a registration
statement or statements pursuant to the Registration Rights Agreement, and the
filing of the Certificate of Designation with the Secretary of State for the
State of Nevada, no authorization, consent, approval, license, exemption of,
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary for, or in connection with, the execution or delivery of the
Preferred Shares and the Warrants, or for the performance by the Company of its
obligations under the Transaction Documents.


(y)           Employees.  Neither the Company nor any subsidiary has
any collective bargaining arrangements or agreements covering any of its
employees.  Neither the Company nor any
subsidiary has any employment contract, agreement regarding proprietary
information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such subsidiary.  No officer, consultant or key employee of the
Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.


(z)            Absence of
Certain Developments.  Since December
31, 2006, neither the Company nor any subsidiary has:


(i)            issued
any stock, bonds or other corporate securities or any rights, options or
warrants with respect thereto;


(ii)           borrowed
any amount or incurred or become subject to any liabilities (absolute or
contingent) except current liabilities incurred in the ordinary course of business
which are comparable in nature and amount to the current liabilities incurred
in the ordinary course of business during the comparable portion of its prior
fiscal year, as adjusted to reflect the current nature and volume of the
Company’s or such subsidiary’s business;


(iii)          discharged
or satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business;


(iv)          declared
or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements so
to purchase or redeem, any shares of its capital stock;


(v)           sold,
assigned or transferred any other tangible assets, or canceled any debts or
claims, except in the ordinary course of business;


 



 10















(vi)          sold,
assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights, or
disclosed any proprietary confidential information to any person except to
customers in the ordinary course of business or to the Purchasers or their
representatives;


(vii)         suffered
any substantial losses or waived any rights of material value, whether or not
in the ordinary course of business, or suffered the loss of any material amount
of prospective business;


(viii)        made
any changes in employee compensation except in the ordinary course of business
and consistent with past practices;


(ix)           made
capital expenditures or commitments therefor that aggregate in excess of
$100,000;


(x)            entered
into any other transaction other than in the ordinary course of business, or
entered into any other material transaction, whether or not in the ordinary
course of business;


(xi)           made
charitable contributions or pledges in excess of $25,000;


(xii)          suffered
any material damage, destruction or casualty loss, whether or not covered by
insurance;


(xiii)         experienced
any material problems with labor or management in connection with the terms and
conditions of their employment;


(xiv)        effected
any two or more events of the foregoing kind which in the aggregate would be
material to the Company or its subsidiaries; or


(xv)         entered
into an agreement, written or otherwise, to take any of the foregoing actions.


(aa)         Public Utility
Holding Company Act and Investment Company Act Status.  The Company is not a “holding company” or a “public
utility company” as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.  The
Company is not, and as a result of and immediately upon the Closing will not
be, an “investment company” or a company “controlled” by an “investment
company,” within the meaning of the Investment Company Act of 1940, as amended.


(bb)         ERISA.  No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan (as defined below) by
the Company or any of its subsidiaries which is or would be materially adverse
to the Company and its subsidiaries.  The
execution and delivery of this Agreement and the issuance and sale of the
Preferred Shares will not involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended, provided that, if any of the Purchasers, or any person or entity that 



 11
 









owns a beneficial interest in any of the Purchasers, is an “employee
pension benefit plan” (within the meaning of Section 3(2) of ERISA) with
respect to which the Company is a “party in interest” (within the meaning of
Section 3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of
ERISA, if applicable, are met.  As used
in this Section 2.1(bb), the term “Plan” shall mean an “employee pension
benefit plan” (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.


(cc)         Dilutive Effect.  The Company understands and acknowledges that
its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Designation and
its obligations to issue the Warrants Shares upon the conversion of the Warrant
Preferred Shares in accordance with this Agreement, the Certificate of
Designation and the Warrants, in each case, is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interest of other stockholders of the Company.


(dd)         No Integrated
Offering.  Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited
any offers to buy any security under circumstances that would cause the
offering of the Shares pursuant to this Agreement to be integrated with prior
offerings by the Company for purposes of the Securities Act which would prevent
the Company from selling the Shares pursuant to Rule 506 under the Securities
Act, or any applicable exchange-related stockholder approval provisions, nor
will the Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Shares to be integrated with other
offerings.  The Company does not have any
registration statement pending before the Commission or currently under the
Commission’s review and since  December
1, 2006, the Company has not offered or sold any of its equity securities or
debt securities convertible into shares of Common Stock.


(ee)         Sarbanes-Oxley Act.  The Company is in compliance with the
applicable provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”), and the rules and regulations promulgated thereunder, that are
effective, and intends to comply with other applicable provisions of the
Sarbanes-Oxley Act, and the rules and regulations promulgated thereunder, upon
the effectiveness of such provisions.


(ff)           Intentionally Omitted.


(gg)         DTC Status.  The Company’s transfer agent is a participant
in and the Common Stock is eligible for transfer pursuant to the Depository
Trust Company Automated Securities Transfer Program.  The name, address, telephone number, fax number,
contact person and email address of the Company’s transfer agent is set forth
on Schedule 2.1(gg) hereto.



 12
 









Section 2.2             Representations
and Warranties of the Purchasers. 
Each Purchaser hereby makes the following representations and warranties
to the Company with respect solely to itself and not with respect to any other
Purchaser:


(a)           Organization and
Standing of the Purchasers.  If the
Purchaser is an entity, such Purchaser is a corporation or partnership duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.


(b)           Authorization and
Power.  Each Purchaser has the
requisite power and authority to enter into and perform this Agreement and to
purchase the Preferred Shares and Warrants being sold to it hereunder.  The execution, delivery and performance of
this Agreement and the Registration Rights Agreement by such Purchaser and the
consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate or partnership action, and no
further consent or authorization of such Purchaser or its Board of Directors,
stockholders, or partners, as the case may be, is required.  Each of this Agreement and the Registration
Rights Agreement has been duly authorized, executed and delivered by such
Purchaser and constitutes, or shall constitute when executed and delivered, a
valid and binding obligation of the Purchaser enforceable against the Purchaser
in accordance with the terms thereof.


(c)           No Conflicts.  The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the consummation by
such Purchaser of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Purchaser’s
charter documents or bylaws or other organizational documents or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration, purchase or cancellation of any
agreement, indenture or instrument or obligation to which such Purchaser is a
party or by which its properties or assets are bound, or result in a violation
of any law, rule, or regulation, or any order, judgment or decree of any court
or governmental agency applicable to such Purchaser or its properties (except
for such conflicts, defaults and violations as would not, individually or in
the aggregate, have a material adverse effect on such Purchaser).  Such Purchaser is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or the Registration Rights
Agreement or to purchase the Preferred Shares or acquire the Warrants in
accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.


(d)           Acquisition for
Investment.  Each Purchaser is
acquiring the Preferred Shares and the Warrants solely for its own account for
the purpose of investment and not with a view to or for sale in connection with
distribution.  Each Purchaser does not
have a present intention to sell the Preferred Shares or the Warrants, nor a
present arrangement (whether or not legally binding) or intention to effect any
distribution of the Preferred Shares or the Warrants to or through any person
or entity; provided, however, that by making the representations
herein and subject to Section 2.2(h) below, such Purchaser does not agree to
hold the Shares or the 



 13
 









Warrants for any minimum or other specific term and reserves the right
to dispose of the Shares at any time in accordance with Federal and state
securities laws applicable to such disposition. 
Each Purchaser acknowledges that it is able to bear the financial risks
associated with an investment in the Preferred Shares and the Warrants and that
it has been given full access to such records of the Company and the
subsidiaries and to the officers of the Company and the subsidiaries and
received such information as it has deemed necessary or appropriate to conduct
its due diligence investigation and has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company’s stage
of development so as to be able to evaluate the risks and merits of its
investment in the Company.


(e)           Status of
Purchasers.  Each Purchaser is an “accredited
investor” as defined in Regulation D promulgated under the Securities Act.  Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act and such
Purchaser is not a broker-dealer.


(f)            Opportunities
for Additional Information.  Each
Purchaser acknowledges that such Purchaser has had the opportunity to ask
questions of and receive answers from, or obtain additional information from,
the executive officers of the Company concerning the financial and other
affairs of the Company, and to the extent deemed necessary in light of such
Purchaser’s personal knowledge of the Company’s affairs, such Purchaser has
asked such questions and received answers to the full satisfaction of such
Purchaser, and such Purchaser desires to invest in the Company.


(g)           No General
Solicitation.  Each Purchaser
acknowledges that the Preferred Shares and the Warrants were not offered to
such Purchaser by means of any form of general or public solicitation or
general advertising, or publicly disseminated advertisements or sales
literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which
such Purchaser was invited by any of the foregoing means of communications.


(h)           Rule 144.  Such Purchaser understands that the Shares
must be held indefinitely unless such Shares are registered under the
Securities Act or an exemption from registration is available.  Such Purchaser acknowledges that such
Purchaser is familiar with Rule 144 of the rules and regulations of the Commission,
as amended, promulgated pursuant to the Securities Act (“Rule 144”), and
that such person has been advised that Rule 144 permits resales only under
certain circumstances.  Such Purchaser
understands that to the extent that Rule 144 is not available, such Purchaser
will be unable to sell any Shares without either registration under the
Securities Act or the existence of another exemption from such registration
requirement.


(i)            General.  Such Purchaser understands that the Shares
are being offered and sold in reliance on a transactional exemption from the
registration requirement of Federal and state securities laws and the Company
is relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Shares.



 14
 









(j)            Independent
Investment.  Except as may be
disclosed in any filings with the Commission by the Purchasers under Section 13
and/or Section 16 of the Exchange Act, no Purchaser has agreed to act with any
other Purchaser for the purpose of acquiring, holding, voting or disposing of
the Shares purchased hereunder for purposes of Section 13(d) under the Exchange
Act, and each Purchaser is acting independently with respect to its investment
in the Shares.


ARTICLE III



Covenants


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


Section 3.1             Securities
Compliance.  The Company shall notify
the Commission in accordance with their rules and regulations, of the
transactions contemplated by any of the Transaction Documents, including filing
a Form D with respect to the Preferred Shares, Warrants, Warrant Preferred
Shares, Conversion Shares and Warrant Shares as required under Regulation D and
applicable “blue sky” laws, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Preferred Shares, the
Warrants, the Warrant Preferred Shares, the Conversion Shares and the Warrants
Shares to the Purchasers or subsequent holders.


Section 3.2             Registration
and Listing.  The Company shall cause
its Common Stock to continue to be registered under Sections 12(b) or 12(g) of
the Exchange Act, to comply in all respects with its reporting and filing
obligations under the Exchange Act, to comply with all requirements related to
any registration statement filed pursuant to this Agreement, and to not take
any action or file any document (whether or not permitted by the Securities Act
or the rules promulgated thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under the
Exchange Act or Securities Act, except as permitted herein.  The Company will take all action necessary to
continue the listing or trading of its Common Stock on the OTC Bulletin Board or
other exchange or market on which the Common Stock is trading or may be traded
in the future.  Subject to the terms of
the Transaction Documents, the Company further covenants that it will take such
further action as the Purchasers may reasonably request, all to the extent
required from time to time to enable the Purchasers to sell the Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act.  Upon the request of the Purchasers, the
Company shall deliver to the Purchasers a written certification of a duly
authorized officer as to whether it has complied with such requirements.


Section 3.3             Inspection
Rights.  The Company shall permit,
during normal business hours and upon reasonable request and reasonable notice,
each Purchaser or any employees, agents or representatives thereof, so long as
such Purchaser shall beneficially own any Preferred Shares, or shall own
Conversion Shares which, in the aggregate, represent more than 2% of the total
combined voting power of all voting securities then outstanding, for purposes
reasonably related to such Purchaser’s interests as a stockholder to examine
and make reasonable copies of and extracts from the records and books of
account of, and visit and inspect 



 15
 









the properties, assets, operations and business of the Company and any
subsidiary, and to discuss the affairs, finances and accounts of the Company
and any subsidiary with any of its officers, consultants, directors, and key
employees.


Section 3.4             Compliance
with Laws.  The Company shall comply,
and cause each subsidiary to comply, with all applicable laws, rules,
regulations and orders, noncompliance with which could have a Material Adverse
Effect.


Section 3.5             Keeping
of Records and Books of Account.  The
Company shall keep and cause each subsidiary to keep adequate records and books
of account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions of the Company and
its subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.


Section 3.6             Reporting
Requirements.  If the Commission
ceases making periodic reports filed under the Exchange Act available via the
Internet, then at a Purchaser’s request the Company shall furnish the following
to such Purchaser so long as such Purchaser shall beneficially own any Shares:


(a)           Quarterly Reports
filed with the Commission on Form 10-QSB as soon as practical after the
document is filed with the Commission, and in any event within five (5) days
after the document is filed with the Commission;


(b)           Annual Reports filed
with the Commission on Form 10-KSB as soon as practical after the document is
filed with the Commission, and in any event within five (5) days after the
document is filed with the Commission; and


(c)           Copies of all
notices and information, including without limitation notices and proxy
statements in connection with any meetings, that are provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices or
information to such holders of Common Stock.


Section 3.7             Amendments.  The Company shall not amend or waive any
provision of the Articles, including the Certificate of Designation or Bylaws
of the Company in any way that would adversely affect the liquidation
preferences, dividends rights, conversion rights, voting rights or redemption
rights of the Preferred Shares.


Section 3.8             Other
Agreements.  The Company shall not
enter into any agreement in which the terms of such agreement would restrict or
impair the right or ability to perform of the Company or any subsidiary under
any Transaction Document.


Section 3.9             Distributions.  So long as any Preferred Shares, Preferred
Warrant Shares or Warrants remain outstanding, the Company agrees that it shall
not (i) declare or pay any dividends or make any distributions to any holder(s)
of Common Stock or (ii) purchase or otherwise acquire for value, directly or
indirectly, any Common Stock or other equity security of the Company.



 16
 









Section 3.10           Status
of Dividends.  The Company covenants
and agrees that (i) no Federal income tax return or claim for refund of Federal
income tax or other submission to the Internal Revenue Service (the “Service”)
will adversely affect the Preferred Shares, any other series of its Preferred
Stock, or the Common Stock, and no deduction shall operate to jeopardize the
availability to Purchasers of the dividends received deduction provided by
Section 243(a)(1) of the Code or any successor provision, (ii) in no report to
shareholders or to any governmental body having jurisdiction over the Company
or otherwise will it treat the Preferred Shares other than as equity capital or
the dividends paid thereon other than as dividends paid on equity capital
unless required to do so by a governmental body having jurisdiction over the
accounts of the Company or by a change in generally accepted accounting
principles required as a result of action by an authoritative accounting
standards setting body, and (iii) it will take no action which would result in
the dividends paid by the Company on the Preferred Shares out of the Company’s
current or accumulated earnings and profits being ineligible for the dividends
received deduction provided by Section 243(a)(1) of the Code.  The preceding sentence shall not be deemed to
prevent the Company from designating the Preferred Stock as “Convertible
Preferred Stock” in its annual and quarterly financial statements in accordance
with its prior practice concerning other series of preferred stock of the
Company.  In the event that the
Purchasers have reasonable cause to believe that dividends paid by the Company
on the Preferred Shares out of the Company’s current or accumulated earnings
and profits will not be treated as eligible for the dividends received
deduction provided by Section 243(a)(1) of the Code, or any successor
provision, the Company will, at the reasonable request of the Purchasers of 51%
of the outstanding Preferred Shares, join with the Purchasers in the submission
to the Service of a request for a ruling that dividends paid on the Shares will
be so eligible for Federal income tax purposes, at the Purchasers expense.  In addition, the Company will reasonably
cooperate with the Purchasers (at Purchasers’ expense) in any litigation,
appeal or other proceeding challenging or contesting any ruling, technical
advice, finding or determination that earnings and profits are not eligible for
the dividends received deduction provided by Section 243(a)(1) of the Code, or
any successor provision to the extent that the position to be taken in any such
litigation, appeal, or other proceeding is not contrary to any provision of the
Code.  Notwithstanding the foregoing,
nothing herein contained shall be deemed to preclude the Company from claiming
a deduction with respect to such dividends if (i) the Code shall hereafter be
amended, or final Treasury regulations thereunder are issued or modified, to
provide that dividends on the Preferred Shares or Conversion Shares should not
be treated as dividends for Federal income tax purposes or that a deduction
with respect to all or a portion of the dividends on the Shares is allowable
for Federal income tax purposes, or (ii) in the absence of such an amendment,
issuance or modification and after a submission of a request for ruling or
technical advice, the Service shall issue a published ruling or advise that
dividends on the Shares should not be treated as dividends for Federal income
tax purposes.  If the Service
specifically determines that the Preferred Shares or Conversion Shares
constitute debt, the Company may file protective claims for refund.


Section 3.11           Use
of Proceeds.  The net proceeds from the
sale of the Shares hereunder shall be used by the Company to fund acquisitions and the balance
shall be used for working capital and general corporate purposes and not to
redeem any Common Stock or securities convertible, exercisable or exchangeable
into Common Stock or to settle any outstanding litigation.  The proceeds from the Closing shall be used
solely in accordance with the uses set forth in the Flow of Funds Memo attached
hereto as Schedule 3.11.



 17
 









Section 3.12           Reservation
of Shares.  So long as any of the
Preferred Shares, Preferred Warrant Shares or Warrants remain outstanding, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than one hundred twenty percent
(120%) of the aggregate number of shares of Common Stock needed to provide for
the issuance of the Conversion Shares and Warrant Shares.


Section 3.13           Transfer
Agent Instructions.  The Company
shall issue irrevocable instructions to its transfer agent, and any subsequent
transfer agent, to issue certificates, registered in the name of each Purchaser
or its respective nominee(s), for the Conversion Shares and the Warrant Shares
in such amounts as specified from time to time by each Purchaser to the Company
upon conversion of the Preferred Shares or conversion of the Preferred Warrant
Shares in the form of Exhibit F attached hereto (the “Irrevocable
Transfer Agent Instructions”).  Prior
to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. 
The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 3.13 will be given by
the Company to its transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement.  If a Purchaser provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of the Shares may be made without registration
under the Securities Act or the Purchaser provides the Company with reasonable
assurances that such Shares can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date
that can then be immediately sold, the Company shall permit the transfer, and,
in the case of the Conversion Shares and the Warrant Shares promptly instruct
its transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Purchaser and without any restrictive
legend.  The Company acknowledges that a
breach by it of its obligations under this Section 3.13 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the transaction
contemplated hereby.  Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.13 will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section
3.13, that the Purchasers shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.


Section 3.14           Disposition
of Assets.  So long as any Preferred
Shares remain outstanding, neither the Company nor any Subsidiary shall sell,
transfer or otherwise dispose of any of its properties, assets and rights
including, without limitation, its software and intellectual property, to any
person except for sales to customers in the ordinary course of business or with
the prior written consent of the holders of a majority of the Preferred Shares
then outstanding.


Section 3.15           Reporting Status.  So long as a Purchaser
beneficially owns any of the Shares, the Company shall timely file all reports
required to be filed with the Commission pursuant to the Exchange Act, and the
Company shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.



 18
 









Section 3.16           Disclosure
of Transaction.  The Company shall
issue a press release describing the material terms of the transactions
contemplated hereby (the “Press Release”) as soon as practicable after
the Closing but in no event later than 9:00 A.M. Eastern Time on the first
Trading Day following the Closing.  The
Company shall also file with the Commission a Current Report on Form 8-K (the “Form
8-K”) describing the material terms of the transactions contemplated hereby
(and attaching as exhibits thereto this Agreement, the Registration Rights
Agreement, the Certificate of Designation, the Stockholders Agreement, the form
of each series of Warrant and the Press Release) as soon as practicable
following the Closing Date but in no event more than two (2) Trading Days
following the Closing Date, which Press Release and Form 8-K shall be subject
to prior review and comment by the Purchasers. 
“Trading Day” means any day during which the OTC Bulletin Board
(or other quotation venue or principal exchange on which the Common Stock is
traded) shall be open for trading.


Section 3.17           Disclosure
of Material Information.  The Company
covenants and agrees that neither it nor any other person acting on its behalf
has provided or will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information (other than with respect to the transactions contemplated by this
Agreement), unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information.  Upon
the request of the Purchasers, the Company shall provide a written confirmation
when such Purchaser is no longer in possession of material non-public
information under any such agreement. 
The Company understands and confirms that each Purchaser shall be
relying on the foregoing representations in effecting transactions in
securities of the Company.


Section 3.18           Pledge
of Securities.  The Company
acknowledges and agrees that the Shares may be pledged by a Purchaser in
connection with a bona  fide margin agreement or other loan or
financing arrangement that is secured by the Common Stock.  The pledge of Common Stock shall not be
deemed to be a transfer, sale or assignment of the Common Stock hereunder, and
no Purchaser effecting a pledge of Common Stock shall be required to provide
the Company with any notice thereof or otherwise make any delivery to the
Company pursuant to this Agreement or any other Transaction Document; provided
that a Purchaser and its pledgee shall be required to comply with the
provisions of Article V hereof in order to effect a sale, transfer or
assignment of Common Stock to such pledgee. At the Purchasers’ expense, the
Company hereby agrees to execute and deliver such documentation as a pledgee of
the Common Stock may reasonably request in connection with a pledge of the
Common Stock to such pledgee by a Purchaser.


Section 3.19           Form
SB-2 Eligibility.  The Company
currently meets the “registrant eligibility” and transaction requirements set
forth in the general instructions to Form SB-2 applicable to “resale”
registrations on Form SB-2 and the Company shall file all reports required
to be filed by the Company with the Commission in a timely manner.


Section 3.20           Stockholders
Agreement.  The persons listed on Schedule
3.20 attached hereto shall be subject to the terms and provisions of a
Stockholders Agreement in substantially the form as Exhibit D hereto
(the “Stockholders Agreement”).


Section 3.21           Right of
First Refusal on Additional Financings.



 19
 









(a)           For a period of twelve (12)
months following the last Closing Date under this Agreement, the Company
covenants and agrees to give the Purchasers the right of first refusal to
provide any additional financing (“Additional Financing”) on the same
terms and conditions described herein. 
The Company shall promptly notify (in no event later than five (5) days
after making or receiving an applicable offer) in writing (a “Rights Notice”)
the Purchasers of the terms and conditions of any proposed offer or sale to, or
exchange with (or other type of distribution to) any third party (a “Third
Party Financing”), of Common Stock or any debt or equity securities
convertible, exercisable or exchangeable into Common Stock; provided, however,
prior to delivering to each Purchaser a Rights Notice, the Company shall first
deliver to each Purchaser a written notice of its intention to effect a Third
Party Financing (“Pre-Notice”) within three (3) Trading Days of
receiving an applicable offer, which Pre-Notice shall ask such Purchaser if it
wants to review the details of such financing. 
Upon the request of a Purchaser, and only upon a request by such
Purchaser within three (3) Trading Days of receipt of a Pre-Notice, the Company
shall promptly, but no later than two (2) Trading Days after such request,
deliver a Rights Notice to such Purchaser.  The Rights Notice shall
describe, in reasonable detail, the proposed Third Party Financing and all of
the terms and conditions thereof and proposed definitive documentation to be
entered into in connection therewith. 
The Rights Notice shall provide each Purchaser an option (the “Rights
Option”) to inform the Company during the ten (10) Trading Days following
delivery of the Rights Notice (the “Option Period”) whether such
Purchaser will provide Additional Financing in the amount being offered in the
Third Party Financing on the same, absolute terms and conditions described in
this Agreement.  If the Company does not
receive notice of exercise of the Rights Option from the Purchasers within the
Option Period, the Company shall have the right to close the Third Party
Financing on the scheduled closing date with a third party.  If the closing of the proposed Subsequent
Financing does not occur on that date, any closing of the contemplated Third
Party Financing or any other Third Party Financing shall be subject to all of
the provisions of this Section 3.21(a), including, without limitation, the
delivery of a new Rights Notice.


(b)           For purposes of this Agreement, a
Permitted Financing (as defined hereinafter) shall not be considered a Third
Party Financing.  A “Permitted
Financing” shall mean (i) securities issued (other than for cash) in
connection with a merger, acquisition, or consolidation, (ii) securities issued
pursuant to the conversion or exercise of convertible or exercisable securities
issued or outstanding on or prior to the date of this Agreement or issued
pursuant to this Agreement (so long as the conversion or exercise price in such
securities are not amended to lower such price and/or adversely affect the
Purchasers), (iii) securities issued in connection with bona fide strategic
license agreements or other partnering arrangements so long as such issuances
are not for the purpose of raising capital, (iv) Common Stock issued or the
issuance or grants of options to purchase Common Stock pursuant to the
Company’s stock option plans and employee stock purchase plans outstanding as
they exist on the date of this Agreement, and (v) any warrants issued to the
placement agent and its designees for the transactions contemplated by the
Purchase Agreement.


Section 3.22           Board of
Directors.  The Company covenants and
agrees that so long as the Purchasers hold Preferred Shares, the Purchasers
shall be entitled to designate two (2) individuals (the “Purchaser Designees”)
to serve as members of the Company’s Board of Directors pursuant to the terms
and provisions of the Stockholders Agreement; provided, 


 



 20















however, the Company shall have up to thirty
(30) days after the Closing to appoint the Purchaser Designees to the Board of
Directors in accordance with this Section 3.22; provided, further,
that in no event shall the number of Purchaser Designees be proportionately
less than the Investors’ aggregate equity interest of the Company.  The Company covenants and agrees that so long
as the Purchasers hold Preferred Shares, there shall be no greater than five
(5) members of the Board of Directors except as contemplated in this Section
3.22 without the prior written consent of the Purchasers.


Section 3.23           Confidentiality,
Non-Competition and Non-Solicitation Agreement.  The persons listed on Schedule 3.23
attached hereto shall be subject to the terms and provisions of a
Confidentiality, Non-Competition and Non-Solicitation Agreement (the “Non-Competition
Agreement”) in the form substantially attached hereto as Exhibit H.


Section 3.24           Comprehensive
Operating Budget.  The Company
covenants and agrees that as soon as available and in any event within thirty
(30) days prior to the end of each fiscal year of the Company, the Company
shall deliver to the Purchasers a comprehensive operating budget forecasting
the Company’s financial position on a month-to-month basis for the upcoming
fiscal year.


Section 3.25           Board
Materials.  The Company covenants and
agrees to deliver to each Purchaser copies of all materials provided to members
of the Board of Directors contemporaneously with the delivery of materials to
such members of the Board of Directors, including, without limitation, all
financial materials used in preparation of the Company’s financial statements.


Section 3.26           Acquisitions.  The Company covenants and agrees that it
shall not consummate any acquisitions by the Company without the consent of the
Board of Directors of the Company, including the consent of the majority of the
Investor Designees (as defined in the Stockholders Agreement).


Section 3.27           D&O
Insurance.  Promptly following the
Closing and as long as any Investor Designee (as defined in the Stockholders
Agreement) shall continue to serve as a director of the Company and thereafter
so long as the Investor Designee shall be subject to any possible Proceeding
(as defined in the Stockholders Agreement), the Company covenants and agrees
that it shall obtain and maintain in full force and effect directors’ and
officers’ liability insurance in the amount of $5,000,000 from established and
reputable insurers.


Section 3.28           Series
B Certificate of Designation. 
Immediately upon exercise of the Series B Warrant, the Company shall
file the Series B Certificate of Designation substantially in the form of Exhibit
B-2 attached hereto with the Secretary of State of Nevada.


Section 3.29           Director
Indemnification Agreement.  The Company
covenants and agrees to enter into the Director Indemnification Agreement
substantially in the form of Exhibit I attached hereto immediately upon
the appointment of the Purchaser Designees.



 21
 









ARTICLE IV



CONDITIONS


Section 4.1             Conditions
Precedent to the Obligation of the Company to Sell the Shares.  The obligation hereunder of the Company to
issue and sell the Preferred Shares and the Warrants to the Purchasers is
subject to the satisfaction or waiver, at or before the Closing, of each of the
conditions set forth below.  These
conditions are for the Company’s sole benefit and may be waived by the Company
at any time in its sole discretion.


(a)           Accuracy of Each
Purchaser’s Representations and Warranties. 
The representations and warranties of each Purchaser shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time, except for representations and warranties
that are expressly made as of a particular date, which shall be true and correct
in all material respects as of such date.


(b)           Performance by
the Purchasers.  Each Purchaser shall
have performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing.


(c)           No Injunction.  No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.


(d)           Delivery of
Purchase Price.  The Purchase Price
for the Preferred Shares has been delivered to the Company at the Closing Date.


(e)           Delivery of
Transaction Documents.  The
Transaction Documents have been duly executed and delivered by the Purchasers
to the Company.


Section 4.2             Conditions
Precedent to the Obligation of the Purchasers to Purchase the Shares.  The obligation hereunder of each Purchaser to
acquire and pay for the Preferred Shares and the Warrants is subject to the
satisfaction or waiver, at or before Closing, of each of the conditions set
forth below.  These conditions are for
each Purchaser’s sole benefit and may be waived by such Purchaser at any time
in its sole discretion.


(a)           Accuracy of the
Company’s Representations and Warranties. 
Each of the representations and warranties of the Company in this
Agreement and the Registration Rights Agreement shall be true and correct in
all respects as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that are expressly made
as of a particular date), which shall be true and correct in all respects as of
such date.



 22
 









(b)           Performance by
the Company.  The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing.


(c)           No Suspension,
Etc.  Trading in the Company’s Common
Stock shall not have been suspended by the Commission or the OTC Bulletin Board
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the applicable Closing),
and, at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets (“Bloomberg”) shall not have
been suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by Bloomberg, or on the New York Stock
Exchange, nor shall a banking moratorium have been declared either by the
United States or New York State authorities, nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of such Purchaser, makes it impracticable or inadvisable to purchase
the Preferred Shares.


(d)           No Injunction.  No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.


(e)           No Proceedings or
Litigation.  No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.


(f)            Certificate of
Designation of Rights and Preferences. 
Prior to the Closing, the Certificate of Designation in the form of Exhibit
B-1 attached hereto shall have been filed with the Secretary of State of
Nevada.


(g)           Opinion of
Counsel, Etc. At the Closing, the Purchasers shall have received an opinion
of counsel to the Company, dated the date of the Closing, in the form of Exhibit
G hereto, and such other certificates and documents as the Purchasers or
its counsel shall reasonably require incident to the Closing.


(h)           Registration
Rights Agreement.  At the Closing,
the Company shall have executed and delivered the Registration Rights Agreement
to each Purchaser.


(i)            Certificates.  The Company shall have executed and delivered
to the Purchasers the certificates (in such denominations as such Purchaser
shall request) for the 



 23
 









Preferred Shares and the Warrants being acquired by such Purchaser at
the Closing (in such denominations as such Purchaser shall request).


(j)            Resolutions.  The Board of Directors of the Company shall
have adopted resolutions consistent with Section 2.1(b) hereof in a form
reasonably acceptable to such Purchaser (the “Resolutions”).


(k)           Reservation of
Shares.  As of the Closing Date, the
Company shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Preferred Shares and
the conversion of the Warrant Preferred Shares, a number of shares of Common
Stock equal to one hundred twenty percent (120%) of the aggregate number of
Conversion Shares issuable upon conversion of the Preferred Shares issued or to
be issued pursuant to this Agreement and the number of Warrant Shares issuable
upon conversion of the Warrant Preferred Shares and exercise of the number of
Warrants issued pursuant to this Agreement.


(l)            Transfer Agent
Instructions.  As of the Closing
Date, the Irrevocable Transfer Agent Instructions, in the form of Exhibit E
attached hereto, shall have been delivered to and acknowledged in writing by
the Company’s transfer agent.


(m)          Stockholders
Agreement.  As of the Closing Date,
the persons listed on Schedule 3.20 hereto shall have delivered to the
Purchasers a fully executed Stockholders Agreement in the form of Exhibit D
attached hereto.


(n)           Confidentiality,
Non-Competition and Non-Solicitation Agreement.  As of the Closing Date, the persons listed on
Schedule 3.23 hereto shall have delivered to the Purchasers a fully
executed Confidentiality, Non-Competition and Non-Solicitation Agreement.


(o)           Secretary’s
Certificate.  The Company shall have
delivered to such Purchaser a secretary’s certificate, dated as of the Closing
Date, as to (i) the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the
Certificate of Designation, each as in effect at the Closing, and (iv) the
authority and incumbency of the officers of the Company executing the
Transaction Documents and any other documents required to be executed or
delivered in connection therewith.


(p)           Officer’s
Certificate.  The Company shall have
delivered to the Purchasers a certificate of an executive officer of the
Company, dated as of the Closing Date, confirming the accuracy of the Company’s
representations, warranties and covenants as of the Closing Date and confirming
the compliance by the Company with the conditions precedent set forth in this
Section 4.2 as of the Closing Date.


(q)           Material Adverse
Effect.  No Material Adverse Effect
shall have occurred at or before the Closing Date.



 24
 









ARTICLE V



Stock Certificate Legend


Section 5.1             Legend.  Each certificate representing the Preferred
Shares, the Warrant Preferred Shares and the Warrants, and, if appropriate,
securities issued upon conversion thereof, shall be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required by applicable state securities or “blue sky” laws):


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


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



 25
 









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


ARTICLE VI



Indemnification


Section 6.1             Company
Indemnity.  The Company agrees to
indemnify and hold harmless the Purchasers (and their respective directors,
officers, managers, partners, members, shareholders, affiliates, agents,
successors and assigns) from and against any and all claims, causes of action,
losses, liabilities, deficiencies, costs, damages, and expenses (including,
without limitation, reasonable attorneys’ fees, charges and disbursements) and
fees incurred by the Purchasers as a result of any inaccuracy in or breach of
the representations, warranties or covenants made by the Company herein.


Section 6.2             Indemnification
Procedure.  Any party entitled to
indemnification under this Article VI (an “indemnified party”) will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice.  In case any action,
proceeding or claim is brought against an indemnified party in respect of which
indemnification is sought hereunder, the indemnifying party shall be entitled
to participate in and, unless in the reasonable judgment of the indemnified
party a conflict of interest between it and the indemnifying party may exist
with respect of such action, proceeding or claim, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party.  In the event that the indemnifying party
advises an indemnified party that it will contest such a claim for
indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to
defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences
such defense), then the indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim.  In any event, unless and until the
indemnifying party elects in writing to assume and does so assume the defense
of any such 



 26
 









claim, proceeding or action, the indemnified party’s costs and expenses
arising out of the defense, settlement or compromise of any such action, claim
or proceeding shall be losses subject to indemnification hereunder.  The indemnified party shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of
any such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the indemnified
party which relates to such action or claim. 
The indemnifying party shall keep the indemnified party fully apprised
at all times as to the status of the defense or any settlement negotiations
with respect thereto.  If the
indemnifying party elects to defend any such action or claim, then the indemnified
party shall be entitled to participate in such defense with counsel of its
choice at its sole cost and expense.  The
indemnifying party shall not be liable for any settlement of any action, claim
or proceeding effected without its prior written consent.  Notwithstanding anything in this Article VI
to the contrary, the indemnifying party shall not, without the indemnified
party’s prior written consent, settle or compromise any claim or consent to
entry of any judgment in respect thereof which imposes any future obligation on
the indemnified party or which does not include, as an unconditional term
thereof, the giving by the claimant or the plaintiff to the indemnified party
of a release from all liability in respect of such claim.  The indemnification required by this Article
VI shall be made by periodic payments of the amount thereof during the course
of investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred, so long as the indemnified party irrevocably
agrees to refund such moneys if it is ultimately determined by a court of
competent jurisdiction that such party was not entitled to
indemnification.  The indemnity
agreements contained herein shall be in addition to (a) any cause of action or
similar rights of the indemnified party against the indemnifying party or
others, and (b) any liabilities the indemnifying party may be subject to
pursuant to the law.


ARTICLE VII



Miscellaneous


Section 7.1             Fees
and Expenses.  Except as otherwise
set forth in this Agreement and the other Transaction Documents, each party
shall pay the fees and expenses of its advisors, counsel, accountants and other
experts, if any, and all other expenses, incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this
Agreement, provided that the Company shall pay all actual attorneys’
fees and expenses (including disbursements and out-of-pocket expenses) incurred
by the Purchasers in connection with (i) the preparation, negotiation,
execution and delivery of this Agreement and the other Transaction Documents
and the transactions contemplated thereunder, which payment shall be made at
the Closing (plus disbursements and out-of-pocket expenses), (ii) the filing
and declaration of effectiveness by the Commission of the Registration
Statement and (iii) any amendments, modifications or waivers of this Agreement
or any of the other Transaction Documents. 
The Company shall also pay at the Closing to York Capital Management
expenses incurred by York Capital Management for due diligence in connection
with the transactions contemplated by this Agreement. The Company shall pay all
reasonable fees and expenses incurred by the Purchasers in connection with the
enforcement of this Agreement or any of the other Transaction Documents,
including, without limitation, all reasonable attorneys’ fees and expenses.



 27
 









Section 7.2             Specific
Enforcement, Consent to Jurisdiction.


(a)           The Company and the
Purchasers acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement or the other Transaction
Documents were not performed in accordance with their specific terms or were
otherwise breached.  It is accordingly
agreed that the parties shall be entitled to an injunction or injunctions to
prevent or cure breaches of the provisions of this Agreement or the
Registration Rights Agreement and to enforce specifically the terms and
provisions hereof or thereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity.


(b)           Each of the Company
and the Purchasers agree that venue for any dispute arising under this
Agreement or any of the other Transaction Documents or the transactions
contemplated hereby or thereby will lie exclusively in the state or federal
courts located in New York County, New York, and the parties irrevocably waive
any right to raise forum non conveniens
or any other argument that New York is not the proper venue.  The Company and the Purchasers irrevocably
consent to personal jurisdiction in the state and federal courts of the state
of New York.  The Company and the
Purchasers consent to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.  Nothing in this Section 7.2 shall affect or
limit any right to serve process in any other manner permitted by law.


Section 7.3             Entire
Agreement; Amendment.  This Agreement
and the Transaction Documents contains the entire understanding and agreement
of the parties with respect to the matters covered hereby and, except as
specifically set forth herein or in the Transaction Documents, neither the
Company nor any of the Purchasers makes any representations, warranty, covenant
or undertaking with respect to such matters and they supersede all prior
understandings and agreements with respect to said subject matter, all of which
are merged herein.  No provision of this
Agreement may be waived or amended other than by a written instrument signed by
the Company and the holders of at least seventy-five percent (75%) of the
Preferred Shares then outstanding, and no provision hereof may be waived other
than by an a written instrument signed by the party against whom enforcement of
any such amendment or waiver is sought. 
No such amendment shall be effective to the extent that it applies to less
than all of the holders of the Preferred Shares then outstanding.  No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents unless the same consideration is also offered
to all of the parties to the Transaction Documents or holders of Preferred
Shares, as the case may be.


Section 7.4             Notices.  Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer
back received), telecopy or facsimile at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by 



 28
 









express courier service, fully prepaid, addressed to such address, or
upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall
be:




	
  If to the Company:

  	
  Nascent Wine Company, Inc. 

  2355 Paseo de las
  Americas 

  San Diego, California 92154 
 Attention: Sandro Piancone 

  Tel. No.: (619) 661-0458  

  Fax No.: (619) 661-9735

  
	
   

  	
   

  
	
  with copies to:

  	
  The Law Offices of Gary A. Agron 

  5445 DTC Parkway Suite 520 

  Greenwood Village, CO 80111 

  Attention: Gary A. Agron 

  Tel. No.: (303) 770-7254 

  Fax No.: (303) 770-7257

  
	
   

  	
   

  
	
  If to any
  Purchaser:

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

  
	
   

  	
   

  
	
   

  	
  Kramer Levin Naftalis & Frankel LLP 

  1177 Avenue of the Americas 

  New York, New York 10036 

  
	
   

  	
  Attention: 

  	
  Howard T. Spilko 

  Christopher S. Auguste 

  
	
   

  	
  Tel No.: (212) 715-9100 

  Fax No.: (212) 715-8000

  






 


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


Section 7.5             Waivers.  No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.


Section 7.6             Headings.  The article, section and subsection headings
in this Agreement are for convenience only and shall not constitute a part of
this Agreement for any other purpose and shall not be deemed to limit or affect
any of the provisions hereof.



 29
 









Section 7.7             Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns.


Section 7.8             No
Third Party Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other person.


Section 7.9             Governing
Law.  This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, without giving effect to any of the conflicts of law principles which
would result in the application of the substantive law of another
jurisdiction.  This Agreement shall not
be interpreted or construed with any presumption against the party causing this
Agreement to be drafted.


Section 7.10           Survival.  The representations and warranties of the
Company and the Purchasers shall survive the execution and delivery hereof and
the Closings hereunder.


Section 7.11           Counterparts.  This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. 
In the event that any signature is delivered by facsimile transmission,
such signature shall create a valid binding obligation of the party executing
(or on whose behalf such signature is executed) the same with the same force
and effect as if such facsimile signature were the original thereof.


Section 7.12           Publicity.  The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchasers
without the consent of the Purchasers unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.


Section 7.13           Severability.  The provisions of this Agreement and the
Transaction Documents are severable and, in the event that any court of
competent jurisdiction shall determine that any one or more of the provisions
or part of the provisions contained in this Agreement or the Transaction
Documents shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement
or the Transaction Documents and such provision shall be reformed and construed
as if such invalid or illegal or unenforceable provision, or part of such
provision, had never been contained herein, so that such provisions would be
valid, legal and enforceable to the maximum extent possible.


Section 7.14           Further
Assurances.  From and after the date
of this Agreement, upon the request of any Purchaser or the Company, each of
the Company and the Purchasers shall execute and deliver such instrument, documents
and other writings as may be reasonably necessary or desirable to confirm and
carry out and to effectuate fully the intent and purposes of this Agreement,
the Preferred Shares, the Conversion Shares, the Warrant Preferred Shares, the
Warrants, the Warrant Shares, the Certificate of Designation, and the
Registration Rights Agreement.



 30
 









[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]



 31
 









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


	
  

  	
  NASCENT WINE COMPANY, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Sandro Piancone 

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PURCHASER

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  



 


 



 32














EXHIBIT A
to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


	
  Names and Addresses

  	
   

  	
  Number of Preferred Shares

  	
   

  	
  Dollar Amount of

  	
   

  
	
  of Purchasers

  	
   

  	
  and Warrants Purchased

  	
   

  	
  Investment

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 











EXHIBIT B-1 to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


FORM OF CERTIFICATE OF DESIGNATION











EXHIBIT B-1 to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


FORM OF CERTIFICATE OF DESIGNATION











EXHIBIT B-1 to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


FORM OF CERTIFICATE OF DESIGNATION











EXHIBIT B-2 to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


FORM OF SERIES B CERTIFICATE OF DESIGNATION











EXHIBIT C-1 to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


FORM OF SERIES A-1 WARRANT











EXHIBIT C-2 to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


FORM OF SERIES A-2 WARRANT











EXHIBIT C-3 to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


FORM OF
SERIES B WARRANT











EXHIBIT C-3 to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


FORM OF SERIES C WARRANT











EXHIBIT D to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


FORM OF REGISTRATION RIGHTS AGREEMENT











EXHIBIT E to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


FORM OF STOCKHOLDERS AGREEMENT


 















EXHIBIT F to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS


NASCENT WINE COMPANY, INC.


as of July 3, 2007


[Name and address
of Transfer Agent]


Attn:  


Ladies and Gentlemen:


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


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











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


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


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


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


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


	
  

  	
   

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  NASCENT WINE COMPANY, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
	
  ACKNOWLEDGED AND AGREED:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [TRANSFER AGENT]

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  	
   

  



 











EXHIBIT I


NASCENT WINE COMPANY, INC.

CONVERSION NOTICE


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


	
  Date of Conversion:

  	
   

  
	
   

  	
   

  	
   

  
	
  Number of Preferred Shares to be converted:

  	
   

  
	
   

  	
   

  	
   

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

  	
   

  
	
   

  	
   

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Please confirm
  the following information:

  	
   

  
	
   

  	
   

  	
   

  
	
  Conversion Price:

  	
   

  
	
   

  	
   

  	
   

  
	
  Number of shares of Common Stock

  	
   

  	
   

  
	
  to be issued:

  	
   

  
	
   

  	
   

  	
   

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

  	
   

  
	
   

  	
   

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Issue to:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Facsimile Number:

  	
   

  
	
   

  	
   

  	
   

  
	
  Authorization:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
  Dated:

  	
   

  



 











EXHIBIT II


FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT


[Name and address
of Transfer Agent]


Attn:  


Re:          Nascent Wine Company, Inc.  


Ladies and
Gentlemen:


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


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


	
  

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
  [COMPANY COUNSEL]

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  



 


cc:           [LIST NAMES OF PURCHASERS]











EXHIBIT G to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


FORM OF OPINION OF COUNSEL


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


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


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


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


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











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


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


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


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


Very truly yours,











EXHIBIT H to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


CONFIDENTIALITY, NON-COMPETITION AND NON-SOLICITATION AGREEMENT











EXHIBIT I to the

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

NASCENT WINE COMPANY, INC.


FORM OF DIRECTOR INDEMNIFICATION AGREEMENT