Document:

Unassociated Document

    CERTIFICATE
      OF DESIGNATIONS,

    PREFERENCES,
      RIGHTS AND LIMITATIONS OF

    SERIES
      A CONVERTIBLE PREFERRED STOCK

    OF

    BLUE
      HOLDINGS, INC.

    

    Pursuant
      to Section 78.195 of the General Corporation Law 

    of
      the
      State of Nevada

     

    Blue
      Holdings, Inc., a Nevada corporation (hereinafter called the “Corporation”),
      hereby certifies that, pursuant to the authority expressly vested in the Board
      of Directors of the Corporation by the Articles of Incorporation, as amended
      (the “Articles
      of Incorporation”),
      and
      in accordance with the provisions of Section 78.195 of the General Corporation
      Law of the State of Nevada, the Board of Directors has duly adopted the
      following resolutions.

     

    RESOLVED,
      that, pursuant to the Articles of Incorporation (which authorizes 5,000,000
      shares of preferred stock, $0.001 par value per share (“Preferred
      Stock”)),
      the
      Board of Directors hereby fixes the powers, designations, preferences and
      relative, participating, optional and other special rights, and the
      qualifications, limitations and restrictions, of the Series A Convertible
      Preferred Stock.

     

    RESOLVED,
      that the Corporation is authorized to issue Series A Convertible Preferred
      Stock
      on the following terms and with the provisions herein set forth:

     

    (1)
       Designation
      and Number of Shares.
      Of the
      5,000,000 shares of Preferred Stock authorized pursuant to the Fourth Article
      of
      the Corporation's Articles of Incorporation, 1,000,000 shares are hereby
      designated as Series A Convertible Preferred Stock (the “Series
      A Preferred Stock”).

     

    (2)
       Stated
      Value.
      Each
      share of Series A Preferred stock will have stated value of $0.001 per share
      (the “Stated
      Value”).
      

     

    (3)
       Dividends.
      

     

    (a)
      Dividend
      Accrual.
      The
      holder of record of each share of Series A Preferred Stock of the Corporation
      (a
“Holder”)
      shall
      be entitled to receive a cumulative share dividend (a “Dividend”)
      equal
      to the Dividend Rate (as defined below), payable only when, as and if declared
      by the Board of Directors. Such dividends will accrue and accumulate annually
      whether or not they have been declared. The “Dividend
      Rate”
shall
      mean six percent (6%) of the Purchase Price. For purposes of this Certificate
      of
      Designations, the “Purchase
      Price”
for
      each share of Series A Preferred Stock shall be $2.556682 per
      share.

     

    (b)
      Further
      Dividends.
      After
      payment of any such Dividends, and subject to the rights of any series of
      Preferred Stock with preference or priority over or on a parity with the Common
      Stock or Series A Preferred Stock with respect to the right to receive any
      dividends, any additional dividends shall be distributed among all holders
      of
      Common Stock pro rata.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (c)
      Dividend
      Payment.

     

    (i) No
      Dividend distribution shall be made with respect to accrued or declared but
      unpaid dividends on any Series A Preferred Stock unless and until such shares
      are (i) converted to Common Stock pursuant to Section
      6,
      or (ii)
      delivered in a Liquidation Event.

     

    (ii) So
      long
      as any shares of Series A Preferred Stock are outstanding, the Corporation
      shall
      not declare, pay or set aside for payment any dividend or other distribution
      in
      respect of its Common Stock until all Dividends declared and unpaid with respect
      to the Series A Preferred Stock have been paid. 

     

    (ii) Notwithstanding
      any provision to the contrary set forth in this Certificate of Designations,
      no
      payment shall be made with respect to declared but unpaid Dividends on any
      Series A Preferred Stock that are converted into Common Stock.

     

    (4)
      Liquidation.
      

     

    (a)
       Liquidation
      Preference.
      In the
      event of any liquidation, dissolution or winding up of the Corporation, either
      voluntary or involuntary (a “Liquidation
      Event”),
      subject to the rights of any other series of Preferred Stock that are in
      existence or may, from time to time, come into existence, the cash and other
      assets of the Corporation available for distribution to shareholders shall
      be
      distributed among the holders of the Series A Preferred Stock, prior to any
      amount being distributed to or among the holders of common stock, $0.001 par
      value per share, of the Corporation (the “Common
      Stock”),
      such
      that for each share of Series A Preferred Stock, a holder of Series A Preferred
      Stock shall be entitled to receive an amount equal to the Purchase Price, as
      adjusted for any stock dividends, combinations or splits with respect to such
      shares, plus all accrued but unpaid Dividends on each such share (pursuant
      to
Section
      3(a))
      (the
“Liquidation
      Preference”).
      The
      cash value of any remaining cash and other distributable property that is
      available for distribution to the holders of equity of the Corporation (after
      payment of the Liquidation Preference to the Series A Preferred Stock and any
      other liquidation preference amount to any other class of equity securities
      of
      the Corporation) shall be distributed among among all holders of Common Stock
      pro rata.

     

    (b)
      Merger;
      Sale.
      The
      following events shall be deemed to constitute a Liquidation Event under this
      Section
      4:
      (i) the
      sale, lease, transfer, exclusive license or other disposition of all or
      substantially all of the assets of the Corporation, or (ii) the acquisition
      of
      the Corporation by another entity by means of merger, consolidation, share
      exchange, reorganization or otherwise pursuant to which shares of capital stock
      of the Corporation are converted into cash, securities or other property of
      the
      acquiring entity or any of its affiliates and which results in the holders
      of
      voting securities (excluding shares of the surviving entity held by holders
      of
      the capital stock of the Corporation acquired by means other than the exchange
      or conversion of the capital stock of the Corporation for shares of the
      surviving entity) of the Corporation immediately prior to such merger,
      consolidation, share exchange, reorganization or sale of assets beneficially
      owning, directly or indirectly, less than a majority of the combined voting
      power of the surviving entity resulting from such merger, consolidation, share
      exchange, reorganization or sale of assets (any of the foregoing transactions,
      a
“Deemed
      Liquidation Event ”).

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (c)
      Valuation
      of Consideration.
      If the
      consideration received by the Corporation is other than cash in connection
      with
      any of the events set forth above, its value shall be deemed its fair market
      value as determined in good faith by the Board; provided,
      however,
      that if
      the consideration consists of securities, the fair market value of such
      securities shall be valued as follows: 

     

    (i) if
      traded
      on a securities exchange or through the NASDAQ Stock Market, the value shall
      be
      deemed to be the average of the closing prices of the securities on such
      exchange or system over the thirty (30) day period ending three (3) days prior
      to the closing;

     

    (ii) if
      actively traded over-the-counter, the value shall be deemed to be the average
      of
      the closing bid or sale prices (whichever is applicable) over the thirty (30)
      day period ending three (3) days prior to the closing; and

     

    (iii) if
      there
      is no active public market, the value shall be the fair market value thereof,
      as
      determined in good faith by the Board.

     

    (d)
       Alternative
      Amount.
      Notwithstanding Section
      4(a)
      above,
      each holder of Series A Preferred Stock shall have the right to elect the
      conversion benefits of the provisions of Section 6
      or other
      applicable conversion provisions in lieu of receiving the Liquidation Preference
      pursuant to Section
      4(a).

     

    (5)
       Redemption.
      The
      Series A Preferred Stock does not have any redemption rights. 

     

    (6)
       Conversion.
      

     

    (a)
       Right
      to Convert.
      Each
      share of Series A Preferred Stock shall be convertible, at the option of the
      Holder, at any time after the date of issuance of such share, at the office
      of
      the Corporation or any transfer agent for such stock, into such number of fully
      paid and nonassessable shares of Common Stock as is determined by dividing
      (i)
      the Purchase Price plus all accrued but unpaid Dividends on each such share
      (pursuant to Section
      3(a),
      by (ii)
      the Conversion Price, determined as hereafter provided, in effect on the date
      the certificate is surrendered for conversion (such quotient is referred to
      as
      the “Conversion
      Rate”).
      The
      initial “Conversion
      Price”
per
      share for the Series A Preferred Stock shall be $0.7347 and shall be subject
      to
      adjustment as set forth in Section
      6(d).
      For the
      avoidance of doubt, the Conversion Price represents the average closing price
      of
      a share of the Common Stock, as quoted on the NASDAQ
      Capital
      Market, over the twenty (20) trading days immediately preceding November 13,
      2007, the closing date for the transaction pursuant to which each Holder
      acquired their shares of Series A Preferred Stock.

     

    (b)
      Automatic
      Conversion.
      Each
      share of Series A Preferred Stock shall automatically be converted into shares
      of Common Stock at the Conversion Rate at the time in effect immediately upon
      the date specified by written consent or agreement of the holders of a majority
      of the then outstanding Series A Preferred Stock.

     

    
      
         

      

      
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    (c)
      Mechanics
      of Conversion.
      Before
      any Holder of Series A Preferred Stock shall be entitled to convert the same
      into shares of Common Stock, the Holder shall surrender the certificate or
      certificates therefor, duly endorsed, at the office of the Corporation or of
      any
      transfer agent for the Series A Preferred Stock, and shall give written notice
      to the Corporation at its principal corporate office, of the election to convert
      the same and shall state therein the name or names in which the certificate
      or
      certificates for shares of Common Stock are to be issued. The Corporation shall,
      as soon as practicable thereafter, issue and deliver at such office to such
      Holder of Series A Preferred Stock, or to the nominee or nominees of such
      Holder, a certificate or certificates for the number of shares of Common Stock
      to which such Holder shall be entitled as aforesaid. Such conversion shall
      be
      deemed to have been made immediately prior to the close of business on the
      date
      of such surrender of the shares of Series A Preferred Stock to be converted,
      and
      the person or persons entitled to receive the shares of Common Stock issuable
      upon such conversion shall be treated for all purposes as the record holder
      or
      holders of such shares of Common Stock as of such date. If the conversion is
      in
      connection with an underwritten offering of securities, the conversion may,
      at
      the option of any holder tendering shares of Series A Preferred Stock for
      conversion, be conditioned upon the closing with the underwriters of the sale
      of
      securities pursuant to such offering, in which event the persons entitled to
      receive the Common Stock upon conversion of the shares of Series A Preferred
      Stock shall not be deemed to have converted such shares of Series A Preferred
      Stock until immediately prior to the closing of such sale of
      securities.

     

    (d)
       Adjustments
      to Conversion Rate and Reorganization.
      The
      Conversion Rate for the number of shares of Common Stock into which the Series
      A
      Preferred Stock shall be converted on a conversion shall be subject to
      adjustment from time to time as hereinafter set forth:

     

    (i) Stock
      Dividends - Recapitalization, Reclassification, Split-Ups.
      If,
      prior to the date of a conversion, the number of outstanding shares of Common
      Stock is increased by a stock dividend on the Common Stock payable in shares
      of
      Common Stock or by a stock split, recapitalization or reclassification of shares
      of Common Stock or other similar event, then, on the effective date thereof,
      the
      Conversion Rate will be adjusted so that the number of shares of Common Stock
      issuable on the conversion of the Series A Preferred Stock shall be increased
      in
      proportion to such increase in outstanding shares of Common Stock.

     

    (ii) Aggregation
      of Shares.
      If
      prior to the date of conversion, the number of outstanding shares of Common
      Stock is decreased by a consolidation, combination, reverse stock split or
      reclassification of shares of Common Stock or other similar event, then, upon
      the effective date thereof, the number of shares of Common Stock issuable on
      the
      conversion of the Series A Preferred Stock shall be decreased in proportion
      to
      such decrease in outstanding shares of Common Stock.

     

    (iii) Change
      Resulting from Reorganization or Change in Par Value, etc.
      In case
      of any reclassification or reorganization of the outstanding shares of Common
      Stock which solely affects the par value of the shares of Common Stock, or
      in
      the case of any merger or consolidation of the Corporation with or into another
      corporation (other than a consolidation or merger in which the Corporation
      is
      the continuing corporation and which does not result in any reclassification
      or
      reorganization of the outstanding shares of Common Stock), or in the case of
      any
      sale or conveyance to another corporation or entity of the property of the
      Corporation as an entirety or substantially as an entirety in connection with
      which the Corporation is dissolved, the holders of the Series A Preferred Stock
      shall have the right thereafter (unless otherwise converted) to receive upon
      the
      conversion of the Series A Preferred Stock the kind and amount of shares of
      stock or other securities or property (including cash) receivable upon such
      reclassification, reorganization, merger or consolidation, or upon a dissolution
      following any such sale or other transfer, by a holder of the number of shares
      of Common Stock into which the Series A Preferred Stock is convertible
      immediately prior to such event; and if any reclassification also results in
      a
      change in shares of Common Stock, then such adjustment also shall be
      made.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    (iv) Successive
      Changes.
      The
      provisions of this Section shall similarly apply to successive
      reclassifications, reorganizations, mergers or consolidations, sales or other
      transfers.

     

    (7)
       Voting
      Rights.
      The
      holders of record of shares of Series A Preferred Stock shall be entitled to
      the
      following voting rights: 

     

    (a)
        Those
      voting rights required by applicable law and as provided in Section (12)
      hereof;

     

    (b)
        The
      right
      to vote together with the holders of the Common Stock, as a single class, upon
      all matters submitted to holders of Common Stock for a vote. Each
      share of Series A Preferred Stock will carry a number of votes equal to the
      number of shares of Common Stock issuable in a conversion based on the then
      applicable Conversion Rate; and

     

    (c)
        Whenever
      holders of Series A Preferred Stock are required or permitted to take any action
      by vote, such action may be taken without a meeting on written consent, setting
      forth the action so taken and signed by the holders of the outstanding capital
      stock of the Corporation having not less than the minimum number of votes that
      would be necessary to authorize or take such action at a meeting at which all
      such shares entitled to vote thereon were present and voted. Each share of
      the
      Series A Preferred Stock shall entitle the holder thereof to one vote on all
      matters to be voted on by the holders of the Series A Preferred Stock, as set
      forth in this Section
      7(c).

     

    (8)
       No
      Impairment.
      The
      Corporation will not, by amendment of its Articles of Incorporation or through
      any reorganization, recapitalization, transfer of assets, consolidation, merger,
      dissolution, issue or sale of securities or any other voluntary action, avoid
      or
      seek to avoid the observance or performance of any of the terms to be observed
      or performed hereunder by the Corporation, but will at all times in good faith
      assist in the carrying out of all the provisions of this section and in the
      taking of all such action as may be necessary or appropriate in order to protect
      the conversion rights of the holders of Series A Preferred Stock against
      impairment.

     

    (9)
       No
      Fractional Shares and Certificate as to Adjustments.
      No
      fractional shares shall be issued upon the conversion of any share or shares
      of
      the Series A Preferred Stock, and the number of shares of Common Stock to be
      issued shall be rounded to the nearest whole share. The number of shares
      issuable upon conversion shall be determined on the basis of the total number
      of
      shares of Series A Preferred Stock the holder is at the time converting into
      Common Stock and the number of shares of Common Stock issuable upon such
      aggregate conversion.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    (10)
       Notices
      of Record Date.
      In the
      event of any taking by the Corporation of a record of the holders of any class
      of securities for the purpose of determining the holders thereof who are
      entitled to receive any dividend (other than a cash dividend) or other
      distribution, any right to subscribe for, purchase or otherwise acquire any
      shares of stock of any class or any other securities or property, or any other
      right, the Corporation shall mail to each holder of Series A Preferred Stock,
      at
      least ten (10) days prior to the date specified therein, a notice specifying
      the
      date on which any such record is to be taken for the purpose of such dividend,
      distribution or right, and the amount and character of such dividend,
      distribution or right.

     

    (11)
       Notices.
      Any
      notice required by the provisions of this Certificate of Designations to be
      given to the holders of shares of Series A Preferred Stock shall be deemed
      given
      if deposited in the United States mail, postage prepaid, and addressed to each
      holder of record at his address appearing on the books of the
      Corporation.

     

    (12)
       Protective
      Provisions.
      So long
      as any shares of Series A Preferred Stock are outstanding, the Corporation
      shall
      not without first obtaining the approval (by vote or written consent, as
      provided by law) of the holders of at least a majority of the then outstanding
      shares of Series A Preferred Stock, voting as a separate class: (i) amend,
      alter or repeal the preferences, privileges, special rights or other powers
      of
      the Series A Preferred Stock, as set forth herein, in a manner adverse to
      the holders thereof;
      (ii) create,
      issue, or obligate itself to issue any new class or series of stock or any
      other
      equity security (including any security convertible into or exercisable for
      any
      equity security) ranking senior to the Series A Preferred Stock as to
      dividend rights, redemption rights, conversion rights or liquidation
      preferences;
      (iii) reclassify
      any existing class or series of outstanding shares into a class or series of
      stock or any other equity security (including any security convertible into
      or
      exercisable for any equity security) ranking senior to, or on a parity with,
      the
      Series A Preferred Stock as to dividend rights, redemption rights, conversion
      rights or liquidation preferences;
      or
      (iv) amend
      its
      Certificate of Incorporation or Bylaws in any manner that adversely affects
      the
      preferences, privileges, restrictions or other rights of the holders of
      Series A Preferred Stock.

     

    (13)
       Return
      of Status as Authorized Shares.
      Upon a
      conversion or any other redemption or extinguishment of the Series A Preferred
      Stock, the shares converted, redeemed or extinguished will be automatically
      returned to the status of authorized and unissued shares of Preferred Stock,
      available for future designation and issuance pursuant to the terms of the
      Articles of Incorporation.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    FURTHER
      RESOLVED, that the statements contained in the foregoing resolutions creating
      and designating the said Series A Convertible Preferred Stock and fixing the
      number, powers, preferences and relative, optional, participating, and other
      special rights and the qualifications, limitations, restrictions, and other
      distinguishing characteristics thereof shall, upon the effective date of said
      series, be deemed to be included in and be a part of the Articles of
      Incorporation of the Corporation pursuant to the provisions of Sections 104
      and
      151 of the General Corporation Law of the State of Nevada.

    

    IN
      WITNESS WHEREOF,
      the
      undersigned has executed this Certificate of Designation of the Series A
      Convertible Preferred Stock on this 13th day of November, 2007.

     

    
      
        	
                BLUE
                  HOLDINGS, INC.

              
	 	 
	
                By:

              	
                /s/
                  Glenn Palmer

              
	
                Name:

              	
                Glenn
                  Palmer

              
	
                Title:

              	
                Chief
                  Executive
                  Officer

              

      

    

     

    
      
         

      

      
        7Unassociated Document

    
       

      BLUE
        HOLDINGS, INC.

       

      SERIES
        A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

       

      THIS
        SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”),
        is
        made as of November 13, 2007 (the “Effective
        Date”),
        by
        and among Blue Holdings, Inc., a Nevada corporation, (the “Company”),
        and
        each of the undersigned investors listed on the Schedule of Investors attached
        hereto as Exhibit
        A
        (individually, an “Investor,”
and
        collectively, the “Investors”).
        

       

      WHEREAS,
        the
        Company wishes to issue and sell to the Investors up to an aggregate of
        1,000,000 shares (the “Preferred
        Shares”)
        of the
        Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the
“Series
        A Preferred Stock”),
        in
        exchange for the cancellation of certain indebtedness due and owing to the
        Investors on the Effective Date; and

       

      WHEREAS,
        the
        Investors, severally and not jointly, wish to purchase the Preferred Shares
        on
        the terms and subject to the conditions set forth in this
        Agreement.

       

      NOW,
        THEREFORE,
        in
        consideration of the premises, representations, warranties and the mutual
        covenants contained in this Agreement, the parties agree as
        follows:

       

      
        	
                1.

              	
                
                  AUTHORIZATION
                    AND SALE OF PREFERRED
                    SHARES

                

              

      

       

      1.1 Issuance,
        Sale and Delivery of the Preferred Shares at the Closing.
        At the
        Closing (as defined in Section 1.2 hereof), on the terms and subject to the
        conditions of this Agreement, the Company shall issue and sell to each Investor,
        and each Investor shall, severally and not jointly, purchase from the Company,
        that number of Preferred Shares set forth opposite the name of such Investor
        under the heading “Number of Preferred Shares to be Purchased” on Exhibit
        A hereto, at a price of $2.556682 per share for the aggregate purchase
        price
        set forth opposite the name of such Investor under the heading “Aggregate
        Purchase Price for Preferred Shares” on Exhibit A hereto. 

       

      1.2 Closing.
        The
        Closing shall take place at the offices of Stubbs Alderton & Markiles, LLP,
        15260 Ventura Blvd., 20th
        Floor,
        Sherman Oaks, California 91403, at such date and time as may be agreed upon
        between the Company and the Investors (such closing being called the
“Closing” and
        such
        date and time being called the “Closing
        Date”).
        At the
        Closing, the Company shall issue and deliver to each Investor a stock
        certificate or certificates in definitive form, registered in the name of
        such
        Investor, representing the Preferred Shares being purchased by it at the
        Closing. As payment in full for the Preferred Shares being purchased by it
        under
        this Agreement, and against delivery of the stock certificate or certificates
        therefor as aforesaid, on the Closing Date, each Investor shall deliver to
        the
        Company by such method as may be reasonably acceptable to the Company a
        promissory note or other evidence of indebtedness for cancellation, as
        applicable, in the amount and as set forth opposite the name of such Investor
        under the heading “Aggregate Purchase Price for Preferred Shares” on Exhibit
        A. All amounts shall be paid to the account of the Company as shall have
        been designated in writing a reasonable time in advance to the Investors
        by the
        Company.

      
        
          
          

        

        
          
             

          

          
            

          

        

        
          
          

        

      

       

      1.3 Issuance,
        Sale and Delivery of the Preferred Shares at the
        Closings.
        The
        Company has authorized the number of Preferred Shares of Series A Preferred
        Stock having the rights, preferences, privileges and restrictions set forth
        in
        the Certificate of Designations, Preferences, Rights and Limitations of Series
        A
        Convertible Preferred Stock (the “Certificate”),
        which, in the form attached hereto as Exhibit B, shall be adopted and
        filed with the Secretary of State of the State of Nevada on or before the
        Closing. 

       

      1.4 Conversion
        Shares.
        Shares
        of Common Stock issuable upon conversion of the Preferred Shares are referred
        to
        herein as the “Conversion
        Shares.”
Each
        share of Series A Preferred Stock shall be convertible, at the option of
        the
        Investor, at any time after the date of issuance of such share, into such
        number
        of shares of Common Stock as is determined by dividing (i) the purchase price
        per share of Series A Preferred Stock, plus all accrued but unpaid Dividends
        (as
        defined in the Certificate) on each such share, by (ii) the Conversion Price
        in
        effect on the date the certificate is surrendered for conversion. The initial
        “Conversion
        Price”
per
        share for the Series A Preferred Stock shall be $0.7347 and shall be subject
        to
        adjustment as set forth in the Certificate. For the avoidance of doubt, the
        Conversion Price represents the average closing price of a share of the Common
        Stock, as quoted on the NASDAQ
        Capital
        Market, over the twenty (20) trading days immediately preceding the Closing
        Date.

       

      
        	
                2.

              	
                
                  REPRESENTATIONS
                    AND WARRANTIES OF THE
                    COMPANY

                

              

      

       

      The
        Company represents and warrants to each Investor that:

       

      2.1 Organization
        and Standing; Qualifications.
        The
        Company is a corporation validly existing and in good standing under the
        laws of
        the State of Nevada. The Company has all requisite power and authority to
        own
        and operate its properties and assets, and to carry on its business as conducted
        and as proposed to be conducted. The Company is duly qualified to transact
        business and is in good standing in each jurisdiction in which the failure
        to so
        qualify could, singly or in the aggregate, have a material adverse effect
        on the
        business, assets, liabilities, financial condition or results of operations
        of
        the Company as presently conducted or proposed to be conducted.

       

      2.2 Corporate
        Power.
        The
        Company has all requisite power and authority to execute and deliver this
        Agreement, to sell and issue the Preferred Shares hereunder, to issue the
        Conversion Shares and to carry out and perform its obligations under the
        terms
        of this Agreement.

       

      2.3 Authorization.

       

      2.3.1 All
        corporate action on the part of the Company, its officers, directors and
        stockholders, necessary for (i) the authorization, execution and delivery
        of the
        Agreement by the Company, (ii) the authorization, sale, issuance and delivery
        of
        the Preferred Shares and the Conversion Shares, (iii) the filing of the
        Certificate, and (iv) the performance of all of the Company’s obligations under
        the Agreement has been taken. The Agreement has been duly and validly executed
        and delivered by the Company and constitutes the valid and binding obligation
        of
        the Company, enforceable in accordance with its terms, except as limited
        by
        applicable bankruptcy, insolvency, reorganization, moratorium, and other
        laws of
        general application affecting enforcement of creditors’ rights
        generally.

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      2.3.2 The
        Preferred Shares, when sold, issued and delivered in compliance with the
        provisions of this Agreement, will be duly and validly issued, fully paid
        and
        nonassessable and shall have the rights, preferences, privileges and
        restrictions described in the Certificate, and shall be free of any liens,
        preemptive or similar rights, encumbrances or restrictions on transfer;
        provided, however, that the Preferred Shares may be subject to restrictions
        on
        transfer under state and/or federal securities laws. The Conversion Shares
        have
        been duly and validly reserved for issuance and, upon issuance in accordance
        with the terms of the Certificate, will be duly and validly issued, fully
        paid,
        and nonassessable and shall be free of any liens, preemptive or similar rights,
        encumbrances or restrictions on transfer; provided, however, that the Conversion
        Shares may be subject to restrictions on transfer under state and/or federal
        securities laws.

       

      
        	
                3.

              	
                
                  REPRESENTATIONS
                    AND WARRANTIES OF THE
                    INVESTORS

                

              

      

       

      Each
        Investor hereby represents and warrants to the Company with respect to the
        purchase of the Preferred Shares to be purchased by it as follows:

       

      3.1 Experience.
        Such Investor acknowledges that it is able to bear the economic risk of its
        investment, and has such knowledge and experience in financial or business
        matters that it is capable of evaluating the merits and risks of the investment
        in the Preferred Shares and the Conversion Shares and is able to bear the
        economic risk of its investment in the Preferred Shares and Conversion Shares
        for an indefinite period of time. 

       

      3.2 Disclosure
        of Information. Such Investor further represents that it has had an
        opportunity to ask questions of and receive answers from the Company regarding
        the terms and conditions of the offering of the Preferred Shares and the
        business, prospects, properties and financial condition of the
        Company.

       

      3.3 Investment.
        Such Investor is acquiring the Preferred Shares and the Conversion Shares
        for
        investment for its own account, not as a nominee or agent, and not with the
        view
        to, or for resale in connection with, any distribution thereof. It understands
        that the Preferred Shares have not been, and the Conversion Shares will not
        be,
        (except for specific registration rights granted to the Investors), registered
        under the Securities Act by reason of a specific exemption from the registration
        provisions of the Securities Act, the availability of which depends upon,
        among
        other things, the bona fide nature of the investment intent and the accuracy
        of
        such Investor’s representations as expressed herein.

       

      3.4 Accredited
        Investors. Such Investor is an “accredited investor” as defined in
        Rule 501(a) of Regulation D promulgated under the Securities Act.

       

      3.5 Legends.
        It is understood that the certificates evidencing the Preferred Shares and
        the
        Conversion Shares may bear one or all of the following legends:

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      “THESE
        SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
        AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
        IN THE
        ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
        UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
        THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144
        OF
        SUCH ACT.” 

       

      Any
        other
        legend required by the securities laws of the State of California.

       

      3.6 Authorization.
        The
        execution, delivery and performance by such Investor of the Agreements have
        been
        duly authorized by all requisite action of such Investor. The Agreements,
        when
        executed and delivered by such Investor, shall constitute valid and legally
        binding obligations of such Investor, enforceable in accordance with their
        terms
        except as limited by applicable bankruptcy, insolvency, reorganization,
        moratorium and other laws of general application affecting enforcement of
        creditors’ rights generally.

       

      
        	
                4.

              	
                
                  INVESTORS’
                    CONDITIONS TO EACH
                    CLOSING

                

              

      

       

      Each
        Investor’s obligation to purchase the Preferred Shares at the Closing is, at the
        option of such Investor, subject to the fulfillment of the following conditions
        on or before the Closing:

       

      4.1 Representations
        and Warranties True and Correct. The representations and warranties
        made by the Company in Section 2 hereof shall be true and correct as of
        the Closing, with the same effect as if made as of the Closing.

       

      4.2 Covenants.
        All covenants, agreements and conditions contained in this Agreement to be
        performed by the Company on or prior to the Closing shall have been performed
        or
        complied with.

       

      4.3 Certificate.
        Prior to the Closing, the Company shall have prepared and executed the
        Certificate in the form set forth in Exhibit B. The Certificate shall
        have been filed with and accepted by the Secretary of State of the State
        of
        Nevada and shall have become effective.

       

      
        	
                5.

              	
                
                  COMPANY’S
                    CONDITIONS TO EACH
                    CLOSING

                

              

      

       

      The
        Company’s obligation to sell and issue any Preferred Shares at the Closing to
        each Investor is, at the option of the Company, subject to the fulfillment
        of
        the following conditions as of the Closing:

       

      5.1 Representations
        and Warranties True and Correct.
        The
        representations and warranties made by such Investor in Section 3 hereof
        shall be true and correct when made, and shall be true and correct at the
        Closing. 

       

      5.2 Covenants.
        All covenants, agreements and conditions contained in this Agreement to be
        performed by such Investor on or prior to the Closing shall have been performed
        or complied with. 

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      5.3 Certificate.
        The Secretary of State of the State of Nevada shall have accepted the
        Certificate for filing. 

       

      5.4 Purchase
        Price Paid.
        Such
        Investor shall have delivered to the Company the purchase price for the
        Preferred Shares set forth in Exhibit A hereto.

       

      
        	
                6.

              	
                
                  COVENANTS

                

              

      

       

      6.1 Reserve
        for Conversion Shares. The Company shall at all times reserve and
        keep available out of its authorized but unissued shares of Common Stock,
        for
        the purpose of effecting the conversion of the Preferred Shares and otherwise
        complying with the terms of this Agreement, such number of its duly authorized
        shares of Common Stock as shall be sufficient to effect the conversion of
        the
        Preferred Shares from time to time outstanding or otherwise to comply with
        the
        terms of this Agreement. If at any time the number of authorized but unissued
        shares of Common Stock shall not be sufficient to effect the conversion of
        the
        Preferred Shares or otherwise to comply with the terms of this Agreement,
        the
        Company will forthwith take such corporate action as may be necessary to
        increase its authorized but unissued shares of Common Stock to such number
        of
        shares as shall be sufficient for such purposes. The Company will obtain
        any
        authorization, consent, approval or other action by or make any filing with
        any
        court or governmental authority that may be required under applicable state
        securities laws in connection with the issuance of shares of Common Stock
        upon
        conversion of the Preferred Shares.

       

      6.2 Further
        Assurances. The Company shall cure promptly any defects in the
        creation and issuance of the Preferred Shares and the Conversion Shares,
        and in
        the execution and delivery of the Agreements. The Company, at its expense,
        shall
        execute and deliver promptly to the Investor upon request all such other
        and
        further documents, agreements and instruments as may be reasonably necessary
        to
        permit the Company to comply with its covenants and agreements herein, and
        shall
        make any recordings, file any notices and obtain any consents as may be
        necessary or appropriate in connection therewith.

       

      6.3 Regulation
        D Filings. The Company shall file on a timely basis all notices of
        sale required to be filed with the Securities and Exchange Commission pursuant
        to Regulation D under the Securities Act of 1933, as amended (the “Securities
        Act”),
        with
        respect to the transactions contemplated by this Agreement.

       

      6.4 Piggyback
        Registrations.

       

      6.4.1 Right
        to Include Conversion Shares.
        Each
        time that the Company proposes for any reason to register any of its Common
        Stock under the Securities Act, either for its own account or for the account
        of
        a stockholder or stockholders, other than Registration Statements on Forms
        S-4
        or S-8 (or similar or successor forms) (a “Proposed
        Registration”),
        the
        Company shall promptly give written notice of such Proposed Registration
        to all
        of the Investors (which notice shall be given in no event less than ten (10)
        days prior to the expected filing date of the Proposed Registration) and
        shall
        offer such Investors the right to request inclusion of any of such Investor’s
        Conversion Shares in the Proposed Registration. The rights to piggyback
        registration may be exercised on an unlimited number of
        occasions.

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      6.4.2 Piggyback
        Procedure.
        Each
        Investor shall have twenty (20) days from the date of receipt of the Company’s
        notice referred to in Section 6.4.1 above to deliver to the Company a written
        request specifying the number of Conversion Shares such Investor intends
        to sell
        and such Investor’s intended method of disposition. Any Investor shall have the
        right to withdraw such Investor’s request for inclusion of such Investor’s
        Conversion Shares in any Proposed Registration pursuant to this Section 6.4
        by
        giving written notice to the Company of such withdrawal; provided,
        however,
        that
        the Company may ignore a notice of withdrawal made within less than one full
        business day prior to the date the Proposed Registration is scheduled to
        become
        effective. Subject to Section 6.4.4 below, the Company shall use its reasonable
        best efforts to include
        in such Proposed Registration all such Conversion Shares so requested to
        be
        included therein; provided,
        however,
        that
        the Company may at any time withdraw or cease proceeding with any such Proposed
        Registration if it shall at the same time withdraw or cease proceeding with
        the
        registration of all other shares of Common Stock originally proposed to be
        registered.

       

      6.4.3 Selection
        of Underwriters.
        The
        managing underwriter for any Proposed Registration that involves an underwritten
        public offering shall be one or more reputable nationally recognized investment
        banks selected by the Company.

       

      6.4.4 Priority
        for Piggyback Registration.
        

       

      6.4.4.1 Notwithstanding
        any other provision of this Section 6.4, if the managing underwriter of an
        underwritten public offering determines and advises the Company and the
        Investors in writing that the inclusion of all Conversion Shares proposed
        to be
        included by the Investors in the underwritten public offering would materially
        and adversely interfere with the successful marketing of the Company’s
        securities in the Proposed Registration, then the Investors shall not be
        permitted to include any Conversion Shares in excess of the amount, if any,
        of
        Conversion Shares which the managing underwriter of such underwritten public
        offering shall reasonably and in good faith agree in writing to include in
        such
        public offering in addition to the amount of securities to be registered
        for the
        Company. The Company will be obligated to include in such Proposed Registration,
        as to each Investor, only a portion of the Conversion Shares such Investor
        has
        requested be registered equal to the ratio which such Investor’s requested
        Conversion Shares bears to the total number of Conversion Shares requested
        to be
        included in such Proposed Registration by all Investors who have requested
        that
        their Conversion Shares be included in such Registration Statement, and no
        party, other than the Company and the Investors, shall be permitted to include
        their Conversion Shares in any such Proposed Registration unless such shares
        are
        also limited on a pro rata basis equal to the ratio which such party’s requested
        Conversion Shares bear to the total number of Conversion Shares requested
        to be
        included in such Proposed Registration by all Investors who have requested
        that
        their Conversion Shares be included in such Proposed Registration. The
        securities to be included in a Proposed Registration initiated by the Company
        shall be allocated:
        first,
        to the Company; second, pari
        passu
        to the
        Investors, and third, to any others requesting registration of securities
        of the
        Company.

       

      6.4.4.2 Notwithstanding
        any portion of the foregoing to the contrary, in no event shall the shares
        to be
        sold by the Investors be reduced below twenty percent (20%) of the total
        amount
        of securities included in the Proposed Registration. No stockholder of the
        Company shall be granted piggyback registration rights which would reduce
        the
        number of shares to be included by the Investors in such registration without
        the consent of the Investors of at least a majority of the Conversion
        Shares.

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      6.4.4.3 If
        as a
        result of the provisions of this Section 6.4, any Investor shall not be entitled
        to include more than 50% of its Conversion Shares in a registration that
        such
        Investor has requested to be so included, such Investor may withdraw such
        Investor’s request to include Conversion Shares in such Proposed
        Registration.

       

      6.4.5 Underwritten
        Offering.
        In the
        event that the Proposed Registration by the Company is, in whole or in part,
        an
        underwritten public offering of securities of the Company, any request under
        this Section 6.4 shall specify that the Conversion Shares be included in
        the
        underwriting on the same terms and conditions as the shares, if any, otherwise
        being sold through the underwriters under such registration.

       

      6.4.6 Transfer.
        The
        foregoing registration rights may be transferred to any transferee that acquires
        all of the Series A Preferred Stock.

       

      
        	
                7.

              	
                
                  MISCELLANEOUS

                

              

      

       

      7.1 Closing.
        Each
        Investor hereto expressly acknowledges and agrees that immediately following
        an
        applicable Closing, such Investor shall have deemed such Investor’s conditions
        to closing identified in Section 4 hereof to have been satisfied or
        waived.

       

      7.2 Governing
        Law. This Agreement shall be governed in all respects by the
        internal laws of the State of California, without giving effect to principles
        of
        conflicts of law, as applied to agreements entered into among California
        State
        residents to be performed entirely within California. Each party hereto
        irrevocably and unconditionally (i) agrees that any action, suit or claim
        brought hereunder must be brought in the courts of the United States in the
        State of California or the state courts of the State of California which
        shall
        serve as the exclusive jurisdiction and venue for any and all disputes arising
        out of and/or relating to this Agreement; (ii) consents to the jurisdiction
        of
        any such court in any such suit, action or proceeding; and (iii) waives any
        objection which such party may have to the laying of venue of any such suit,
        action or proceeding in any such court.

       

      7.3 Successors
        and Assigns. Except as otherwise provided herein, the provisions of
        this Agreement shall inure to the benefit of, and be binding upon, the
        successors, assigns, heirs, executors and administrators of the parties hereto
        (including to any transferee of any Preferred Shares or Conversion Shares
        that
        is an affiliate of the Investor). Nothing in this Agreement, express or implied,
        is intended to confer upon any party other than the parties hereto or their
        respective successors and assigns any rights, remedies, obligations or
        liabilities under or by reason of this Agreement, except as expressly provided
        in this Agreement.

       

      7.4 Amendment.
        Any provision of this Agreement may be amended, waived, modified, discharged
        or
        terminated only with the written consent of the Company and the holders of
        a
        majority of the Preferred Shares, voting together as a single class. Any
        amendment or waiver affected in accordance with this Section 7.4 shall be
        binding upon the Company and each holder of any securities subject to this
        Agreement (including securities into which such securities are convertible)
        and
        future holders of all such securities. Each Investor may waive his, her or
        its
        rights or the Company’s obligations with respect to its Preferred Shares
        hereunder without obtaining the consent of any other natural person or
        Person.

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      7.5 Notices.
        All notices required or permitted hereunder shall be in writing and shall
        be
        deemed effectively given (a) upon personal delivery to the party to be notified,
        (b) five (5) days after deposit in the United States mail, by registered
        or
        certified mail, postage prepaid and properly addressed to the party to be
        notified as set forth in the Company records, or (c) when received if
        transmitted by telecopy (to be followed by U.S. mail), electronic or digital
        transmission method. In each case notice shall be sent to the addresses set
        forth on the Company’s records or at such other address as a party may designate
        by ten (10) days’ advance written notice to the other parties
        hereto.

       

      7.6 Counterparts.
        This Agreement may be executed in any number of counterparts, each of which
        shall be enforceable against the parties actually executing such counterparts,
        and all of which together shall constitute one and the same
        instrument.

       

      7.7 Severability.
        In the event that any provision of this Agreement becomes or is declared
        by a
        court of competent jurisdiction to be illegal, unenforceable or void, this
        Agreement shall continue in full force and effect without said
        provision.

       

      7.8 Titles
        and Subtitles. The titles and subtitles used in this Agreement are
        used for convenience only and are not to be considered in construing or
        interpreting this Agreement.

       

      7.9 Survival
        of Agreement
        All
        covenants and agreements made in this Agreement shall survive the execution
        and
        delivery hereof and the issuance, sale and delivery of the Preferred Shares,
        and
        the issuance and delivery of the Conversion Shares. For the avoidance of
        doubt,
        the representations and warranties made in this Agreement shall not survive
        the
        execution and delivery hereof.

       

      7.11 Attorneys'
        Fees.
        If any
        action at law or in equity (including arbitration) is necessary to enforce
        or
        interpret the terms of any of the Agreements, the prevailing party shall
        be
        entitled to reasonable attorney’s fees, costs and necessary disbursements in
        addition to any other relief to which such party may be entitled.

       

      7.12 Facsimile
        Signatures.
        This
        Agreement may be executed and delivered by facsimile and, upon such delivery,
        the facsimile will be deemed to have the same effect as if the original
        signature had been delivered to the other party. Each Investor agrees to
        deliver
        to the Company the original signature copy by express overnight delivery.
        The
        failure to deliver the original signature copy and/or the nonreceipt of the
        original signature copy shall have no effect upon the binding and enforceable
        nature of this Agreement.

       

      7.13 Entire
        Agreement. This Agreement, together with the Exhibits hereto, the
        certificates, documents, instruments and writings that are delivered pursuant
        hereto and each of the other Agreements, constitutes the entire agreement
        and
        understanding of the parties hereto in respect of its subject matters and
        supersedes all prior understandings, agreements, or representations by or
        among
        the parties hereto, written or oral, to the extent they relate in any way
        to the
        subject matter hereof or the transactions contemplated hereby.

       

      [Signature
        Pages Follow]

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      Company
        Signature Page to Series A Convertible Preferred Stock Purchase
        Agreement

      

       

      IN
        WITNESS WHEREOF,
        the
        parties have executed this Series A Convertible Preferred Stock Purchase
        Agreement on the day and year first set forth above.

       

      
        
          	Blue
                  Holding, Inc
	 
	 
	 
	 /s/
                  Glenn Palmer
	
                  By:

                	
                  Glenn
                    Palmer

                

        

        
          	
                  Title:

                	
                   Chief
                    Executive Officer

                

        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Investors
        Signature Page to Series A Convertible Preferred Stock Purchase
        Agreement

      

        
          	
                  INVESTOR:

                
	 
	 
	 
	
                  /s/
                    Paul Guez

                
	
                  By:
                    Paul Guez

                
	 

        

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
        A

       

      Schedule
        of Investors

      

      
        	
                Closing

              
	
                Investor

              	
                Number
                  of Preferred Shares

                To
                  Be Purchased

              	
                Aggregate
                  Purchase Price

                For
                  Preferred Shares

              
	
                Paul
                  Guez*

              	
                1,000,000

              	
                $2,556,682**

              
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 

      

      

      *   
           Investor
        may be Paul Guez or any accredited investor designee thereof that executes
        a
        joinder hereto.

      **  
Represents
        the cancellation of that certain Promissory Note, in the aggregate principal
        and
        interest amount of $2,556,682, issued by the Company to Paul
        Guez.

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
        B

       

      Certificate
        of Designations, Preferences, Rights and Limitations

      of
        Series A Convertible Preferred Stock

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