Document:

EXHIBIT
10.7

REGISTRATION
RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT
(this “Agreement”), dated as of
December 15, 2006, by and among Javo Beverage Company, Inc., a Delaware
corporation, with headquarters located at 1311 Specialty Drive, Vista, CA. 92081 (the “Company”), and the undersigned buyers
(each, a “Buyer”, and
collectively, the “Buyers”).

WHEREAS:

A.            In
connection with the Securities Purchase Agreement by and among the parties
hereto of even date herewith (the “Securities
Purchase Agreement”), the Company has agreed, upon the terms and
subject to the conditions set forth in the Securities Purchase Agreement, to
issue and sell to each Buyer (i) senior convertible notes of the Company (the “Notes”), which will, among other things, be
convertible into shares of the Company’s common stock, $0.001 par value per
share (the ”Common Stock”, as
converted, the “Conversion Shares”)
in accordance with the terms of the Notes, and (ii) three series of warrants
(the “Warrants”), which will be
exercisable to purchase shares of Common Stock (as exercised collectively, the
“Warrant Shares”).

B.            The
Notes bear interest, which at the option of the Company, subject to certain
conditions, may be paid in shares of Common Stock (the “Interest
Shares”).

C.            To induce the Buyers to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
“1933 Act”), and applicable state
securities laws.

NOW,
THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Buyers hereby agree as follows:

1.     Definitions.

Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.  As used in this
Agreement, the following terms shall have the following meanings:

a.     “Business Day”
means any day other than Saturday, Sunday or any other day on which commercial
banks in the City of New York are authorized or required by law to remain
closed.

b.     “Closing Date”
shall have the meaning set forth in the Securities Purchase Agreement.

c.     “Effective Date”
means the date the Registration Statement has been declared effective by the
SEC.

 

d.     “Effectiveness Deadline”
means the date (i) in the event that
the Registration Statement is not subject to a full review by the SEC, ninety
(90) calendar days after the Closing Date or (ii) in the event that the
Registration Statement is subject to a full review by the SEC, one-hundred and
fifty (150) calendar days after the Closing Date.

e.     “Filing Deadline”
means the date that is thirty (30) calendar days after the Closing Date.

f.      “Investor” means
a Buyer or any transferee or assignee thereof to whom a Buyer assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9 and any transferee or assignee
thereof to whom a transferee or assignee assigns its rights under this
Agreement and who agrees to become bound by the provisions of this Agreement in
accordance with Section 9.

g.     “Person” means
an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.

h.     “register,” “registered,” and “registration” refer
to a registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.

i.      “Registrable Securities”
means (i) the Conversion Shares issued or issuable upon conversion of the
Notes, (ii) all of the Series A Warrant Shares, Series B Warrant Shares,
and Series C Warrant Shares issued or issuable upon exercise of the Series A
Warrants, Series B Warrants, and Series C Warrants, respectively, (iii) the
Interest Shares issued or issuable with respect to the Notes and (iv) any
shares of capital stock of the Company issued or issuable with respect to the
Conversion Shares, the Notes, the Interest Shares, the Warrant Shares and the
Warrants as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise, without regard to any limitations on
conversions of the Notes or exercises of the Warrants.

j.      “Registration Statement”
means a registration statement or registration statements of the Company filed
under the 1933 Act covering the Registrable Securities.

k.     “Required Holders”
means the holders of at least a majority of the Registrable Securities.

l.      “Required Registration
Amount” for the Registration Statement means, solely for purposes of
calculating the number of shares of Common Stock covering the Registrable
Securities on the Registration Statement, 130% of the sum of (i) the aggregate
of the maximum number of Conversion Shares issued and issuable pursuant to the
Notes at the then applicable Conversion Price as of the Trading Day (as defined
in the Notes) immediately preceding the applicable date of determination (the “Required Conversion Shares Registration Amount”),
(ii) the number of Series A Warrant Shares and Series B Warrant Shares (each as
defined in the Securities Purchase Agreement) issued and issuable pursuant to
the Series A 

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Warrants and the Series B Warrants (each as
defined in the Securities Purchase Agreement), respectively, as of the Trading
Day immediately preceding the applicable date of determination and (iii) the
number of Interest Shares issued or issuable pursuant to the terms of the Notes
as of the trading date immediately preceding the applicable date of
determination assuming
that the Notes remain outstanding through the Maturity Date (as defined in the
Notes), all subject to adjustment as provided in Section 2(e) (without
regard to any limitations on conversion of the Notes or exercise of the Warrants); provided, however,
that with respect to the determination of the number of Interest Shares to be
initially registered on the Registration Statement as of the Filing Date (as
defined below) pursuant to clause (iii) hereof, the Interest Conversion Price
(as defined in the Notes) used to determine such number of shares shall equal a
price computed as 88% of the arithmetic average of the Weighted Average Price
(as defined in the Notes) of the Common Stock on each of the twenty (20)
consecutive Trading Days ending on the Trading Day immediately preceding the
date of filing of such Registration Statement (the “Interest Share Calculation”).

m.      “Rule 415” means
Rule 415 promulgated under the 1933 Act or any successor rule providing for
offering securities on a continuous or delayed basis.

n.     “SEC” means the
United States Securities and Exchange Commission.

2.     Registration.

a.     Mandatory Registration. 
The Company shall prepare, and, as soon as practicable but in no event
later than the Filing Deadline, file with the SEC the Registration Statement on
Form S-3 covering the resale of at least the number of shares of Common Stock
equal to the Required Registration Amount determined as of date the
Registration Statement is initially filed with the SEC (such date the “Filing Date”).  In the event that Form S-3 is unavailable for
such a registration, the Company shall use such other form as is available for
such a registration on another appropriate form reasonably acceptable to the
Required Holders, subject to the provisions of Section 2(d).  The Registration Statement shall contain
(except if otherwise directed by the Required Holders) the “Selling
Stockholders” and “Plan of Distribution” sections in substantially
the form attached hereto as Exhibit B. 
The Company shall use its best efforts to have the Registration
Statement declared effective by the SEC as soon as practicable, but in no event
later than the Effectiveness Deadline.  By 9:30 am on the Business Day following the
Effective Date, the Company shall file with the SEC in accordance with Rule 424
under the 1933 Act the final prospectus to be used in connection with sales
pursuant to such Registration Statement.

b.     Allocation of Registrable Securities.  The initial number of Registrable Securities
included in any Registration Statement and any increase in the number of
Registrable Securities included therein shall be allocated pro rata among the
Investors based on the number of Registrable Securities held by each Investor
at the time the Registration Statement covering such initial number of
Registrable Securities or increase thereof is declared effective by the
SEC.  In the event that an Investor sells
or otherwise transfers any of such Investor’s Registrable Securities, each
transferee shall be allocated a pro rata portion of the then remaining number
of Registrable Securities included in such Registration Statement for such
transferor.  Any shares of Common Stock
included in a Registration Statement and which remain allocated to any Person 

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which ceases to hold any Registrable
Securities covered by such Registration Statement shall be allocated to the
remaining Investors, pro rata based on the number of Registrable Securities
then held by such Investors which are covered by such Registration
Statement.  In no event shall the Company
include any securities other than Registrable Securities on any Registration
Statement without the prior written consent of the Required Holders.

c.     Legal Counsel. 
Subject to Section 5 hereof, the Required Holders shall have the right
to select one legal counsel to review and oversee any registration pursuant to
this Section 2 (“Legal Counsel”),
which shall be Schulte Roth & Zabel LLP or such other counsel as thereafter
designated by the Required Holders.  The
Company and Legal Counsel shall reasonably cooperate with each other in
performing the Company’s obligations under this Agreement.

d.     Ineligibility for Form S-3.  In the event that Form S-3 is not available
for the registration of the resale of Registrable Securities hereunder, the
Company shall (i) register the resale of the Registrable Securities on another
appropriate form reasonably acceptable to the Required Holders and (ii)
undertake to register the Registrable Securities on Form S-3 as soon as such
form is available, provided that the Company shall maintain the effectiveness
of the Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.

e.     Sufficient Number of Shares Registered.  In the event the number of shares available
under a Registration Statement filed pursuant to Section 2(a) is insufficient
to cover all of the Registrable Securities required to be covered by such
Registration Statement or an Investor’s allocated portion of the Registrable
Securities pursuant to Section 2(b), by virtue of (i) adjustment of the
Conversion Price or the Exercise Price pursuant to Section 7 of the Notes or
Section 2 of the Warrants, respectively, or (ii) the issuance of any
Pre-Installment Conversion Shares or Post-Installment Conversion Shares (each
as defined in the Notes), the Company shall amend the applicable Registration
Statement, or file a new Registration Statement (on the short form available
therefor, if applicable), or both, so as to cover at least the Required
Registration Amount as of the trading day immediately preceding the date of the
filing of such amendment or new Registration Statement, in each case, as soon
as practicable, but in any event not later than fifteen (15) days after the
necessity therefor arises.  The Company
shall use its best efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof.  For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed “insufficient to cover all of the Registrable Securities” if on any
Trading Day after the Filing Date and during the Registration Period (each a “Test Trading Day”), the number of shares of
Common Stock available for resale under the Registration Statement is less than
the product determined by multiplying (i) the Required Registration Amount
determined as of such Test Trading Day by (ii) 0.90.  The calculation set forth in the foregoing
sentence shall be made without regard to any limitations on the conversion of
the Notes or the exercise of the Warrants and such calculation shall assume (i)
that the Notes are then convertible into shares of Common Stock at the
prevailing Conversion Rate (as defined in the Notes) as of each Test Trading
Day (ii) that the Warrants are then exercisable for shares of Common Stock at
the prevailing Exercise Price (as defined in the Warrants) as of each Test Trading
Day and (iii) that the Interest Shares are issuable in 

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accordance with the Interest Share
Calculation based on the twenty (20) consecutive Trading Days ending on the
Trading Day immediately preceding each such applicable Test Trading Day.

f.      Effect of Failure to File and Obtain and Maintain
Effectiveness of Registration Statement. 
If (i) a Registration Statement covering all of the Registrable
Securities required to be covered thereby and required to be filed by the
Company pursuant to this Agreement is (A) not filed with the SEC on or before
the Filing Deadline (a “Filing
Failure”) or (B) not declared effective by the SEC on or before the
Effectiveness Deadline (an “Effectiveness Failure”)
or (ii) on any day after the Effective Date sales of all of the Registrable
Securities required to be included on such Registration Statement cannot be
made (other than during an Allowable Grace Period (as defined in Section 3(r))
pursuant to such Registration Statement (including, without limitation, because
of a failure to keep such Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to such Registration
Statement or to register a sufficient number of shares of Common Stock) (a “Maintenance Failure”) then, as partial relief for the
damages to any holder by reason of any such delay in or reduction of its
ability to sell the underlying shares of Common Stock (which remedy shall not
be exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of Registrable Securities relating to such
Registration Statement an amount in cash equal to one percent (1.0%) of the
aggregate Purchase Price (as such term is defined in the Securities Purchase
Agreement) of such Investor’s Registrable Securities included in such
Registration Statement on each of the following dates: (i) the day of a Filing
Failure and on every thirtieth day (pro rated for periods totaling less than
thirty (30) days) thereafter until such Filing Failure is cured; (ii) the day
of an Effectiveness Failure and on every thirtieth day (pro rated for periods
totaling less than thirty (30) days) thereafter until such Effectiveness
Failure is cured; and (iii) the initial day of a Maintenance Failure and on
every thirtieth day (pro rated for periods totaling less than thirty (30) days)
thereafter until such Maintenance Failure is cured.  The payments to which a holder shall be
entitled pursuant to this Section 2(f) are referred to herein as “Registration Delay Payments.”  The first such Registration Delay Payment
shall be paid on the date one hundred and twenty (120) days after the event or
failure giving rise to such Registraton Delay Payment occurred and all other
Registration Delay Payments shall be paid on the earlier of (I) the last day of
the calendar month during which such Registration Delay Payments are incurred
and (II) the third Business Day after the event or failure giving rise to the
Registration Delay Payments is cured.  In
the event the Company fails to make Registration Delay Payments in a timely
manner, such Registration Delay Payments shall bear interest at the rate of one
percent (1.0%) per month (prorated for partial months) until paid in full.  Notwithstanding
anything herein or in the Securities Purchase Agreement to the contrary, in no
event shall the aggregate amount of Registration Delay Payments (other than
Registration Delay Payments payable pursuant to events that are within the
control of the Company) exceed, in the aggregate, 10% of the aggregate Purchase
Price.

3.     Related Obligations.

At such time as the Company is obligated to file a
Registration Statement with the SEC pursuant to Section 2(a), 2(d) or 2(e), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:

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a.     The Company shall submit to the SEC, within two (2) Business
Days after the Company learns that no review of a particular Registration
Statement will be made by the staff of the SEC or that the staff has no further
comments on a particular Registration Statement, as the case may be, a request
for acceleration of effectiveness of such Registration Statement to a time and
date not later than two (2) Business Days after the submission of such
request.  The Company shall keep each
Registration Statement effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144(k) (or any successor thereto) promulgated
under the 1933 Act (without Cashless Exercise of the Notes or Warrants, as
applicable) or (ii) the date on which the Investors shall have sold all of the
Registrable Securities covered by such Registration Statement (the “Registration Period”). 
The Company shall ensure that each Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements therein
(in the case of prospectuses, in the light of the circumstances in which they
were made) not misleading.

b.     The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration Statement,
which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933
Act, as may be necessary to keep such Registration Statement effective at all
times during the Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by such Registration Statement until such
time as all of such Registrable Securities shall have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in such Registration Statement.  In the case of amendments and supplements to
a Registration Statement which are required to be filed pursuant to this
Agreement (including pursuant to this Section 3(b)) by reason of the Company
filing a report on Form 10-Q, Form 10-QSB, Form 10-K, Form 10-KSB or any
analogous report under the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have incorporated such report
by reference into such Registration Statement, if applicable, or shall file
such amendments or supplements with the SEC on the same day on which the 1934
Act report is filed which created the requirement for the Company to amend or
supplement such Registration Statement.

c.     The Company shall (A) permit Legal Counsel to review and comment
upon (i) a Registration Statement at least five (5) Business Days prior to its
filing with the SEC and (ii) all amendments and supplements to all Registration
Statements (except for Annual Reports on Form 10-K and Form 10-KSB, and Reports
on Form 10-Q and Form 10-QSB and any similar or successor reports) within a
reasonable number of days prior to their filing with the SEC, and (B) not file
any Registration Statement or amendment or supplement thereto in a form to
which Legal Counsel reasonably objects. 
The Company shall not submit a request for acceleration of the
effectiveness of a Registration Statement or any amendment or supplement
thereto without the prior approval of Legal Counsel, which consent shall not be
unreasonably withheld.  The Company shall
furnish to Legal Counsel, without charge, (i) copies of any correspondence from
the SEC or the staff of the SEC to the Company or its representatives relating
to any Registration Statement, (ii) promptly after the same is prepared and
filed with the 

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SEC, one copy of any Registration Statement
and any amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, and
all exhibits and (iii) upon the effectiveness of any Registration Statement,
one copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto.  The
Company shall reasonably cooperate with Legal Counsel in performing the
Company’s obligations pursuant to this Section 3.

d.     The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy
of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, if requested by an Investor, all exhibits and each preliminary
prospectus, (ii) upon the effectiveness of any Registration Statement, ten (10)
copies of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.

e.     The Company shall use its best efforts to (i) register and
qualify, unless an exemption from registration and qualification applies, the
resale by Investors of the Registrable Securities covered by a Registration
Statement under such other securities or “blue sky” laws of all applicable
jurisdictions in the United States, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however,
that the Company shall not be required in connection therewith or as a
condition thereto to (x) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(e), (y)
subject itself to general taxation in any such jurisdiction, or (z) file a
general consent to service of process in any such jurisdiction.  The Company shall promptly notify Legal
Counsel and each Investor who holds Registrable Securities of the receipt by
the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or “blue sky” laws of any jurisdiction in the United
States or its receipt of notice of the initiation or threatening of any
proceeding for such purpose.

f.      The Company shall notify Legal Counsel and each Investor in
writing of the happening of any event, as promptly as practicable after
becoming aware of such event, as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (provided that in no
event shall such notice contain any material, nonpublic information), and,
subject to Section 3(r), promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and
deliver ten (10) copies of such supplement or amendment to Legal Counsel and
each Investor (or 

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such other number of copies as Legal Counsel
or such Investor may reasonably request). 
The Company shall also promptly notify Legal Counsel and each Investor
in writing (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and when a Registration Statement or any post-effective
amendment has become effective (notification of such effectiveness shall be
delivered to Legal Counsel and each Investor by facsimile on the same day of
such effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.

g.     The Company shall use its best efforts to prevent the issuance
of any stop order or other suspension of effectiveness of a Registration
Statement, or the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction and, if such an order or suspension is
issued, to obtain the withdrawal of such order or suspension at the earliest
possible moment and to notify Legal Counsel and each Investor who holds
Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of notice of the initiation or threat of any
proceeding for such purpose.

h.     If any Investor is required under applicable securities law to
be described in the Registration Statement as an underwriter, at the reasonable
request of such  Investor, the Company shall
furnish to such Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as an Investor may
reasonably request (i) a letter, dated such date, from the Company’s
independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the Investors, and (ii) an
opinion, dated as of such date, of counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
Investors.

i.      If any Investor is required under applicable securities law to
be described in the Registration Statement as an underwriter, upon the written
request of any Investor in connection with any Investor’s due diligence
requirements, if any, the Company shall make available for inspection by (i)
any Investor, (ii) Legal Counsel and (iii) one firm of accountants or other
agents retained by the Investors (collectively, the “Inspectors”), all pertinent financial and other records, and
pertinent corporate documents and properties of the Company (collectively, the
“Records”), as shall be reasonably deemed
necessary by each Inspector, and cause the Company’s officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall agree to hold in strict confidence
and shall not make any disclosure (except to an Investor) or use of any Record
or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the 1933 Act, (b) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other Transaction Document.  Each
Investor agrees that it shall, upon learning that disclosure of such Records is
sought in or by 

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a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and
allow the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential.  Nothing herein (or in any
other confidentiality agreement between the Company and any Investor) shall be
deemed to limit the Investors’ ability to sell Registrable Securities in a
manner which is otherwise consistent with applicable laws and regulations.

j.      The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement.  The Company agrees that it
shall, upon learning that disclosure of such information concerning an Investor
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt written notice to such Investor and allow such
Investor, at the Investor’s expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.

k.     The Company shall use its best efforts either to (i) cause all
of the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all of the Registrable Securities
covered by a Registration Statement on The NASDAQ Global Market or (iii) if,
despite the Company’s best efforts to satisfy, the preceding clauses (i) and
(ii) the Company is unsuccessful in satisfying the preceding clauses (i) and
(ii), to secure the inclusion for quotation on the The New York Stock Exchange,
The NASDAQ Capital Market or the American Stock Exchange for such Registrable
Securities and, without limiting the generality of the foregoing, to use its
best efforts to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. (“NASD”) as such with respect to such Registrable
Securities.  The Company shall pay all
fees and expenses in connection with satisfying its obligation under this
Section 3(k).

l.      The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, facilitate
the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably
request and registered in such names as the Investors may request.

m.    If requested by an Investor, the Company shall (i) as soon as
practicable incorporate in a prospectus supplement or post-effective amendment
such information as an Investor reasonably requests to be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities being offered or sold, the purchase price being paid therefor and
any other terms of the offering of the Registrable Securities to be sold in
such offering; 

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(ii) as soon as practicable make all required
filings of such prospectus supplement or post-effective amendment after being
notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and (iii) as soon as practicable, supplement or make
amendments to any Registration Statement if reasonably requested by an Investor
holding any Registrable Securities.

n.     The Company shall use its best efforts to cause the Registrable
Securities covered by a Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to consummate the disposition of such Registrable Securities.

o.     The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.

p.     Within two (2) Business Days after a Registration Statement
which covers Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.

q.     Notwithstanding anything to the contrary herein, at any time
after the Effective Date, the Company may delay the disclosure of material,
non-public information concerning the Company the disclosure of which at the
time is not, in the good faith opinion of the Board of Directors of the Company
and its counsel, in the best interest of the Company and, in the opinion of
counsel to the Company, otherwise required (a “Grace Period”); provided, that the Company shall promptly
(i) notify the Investors in writing of the existence of material, non-public
information giving rise to a Grace Period (provided that in each notice the
Company will not disclose the content of such material, non-public information
to the Investors) and the date on which the Grace Period will begin, and (ii)
notify the Investors in writing of the date on which the Grace Period ends;
and, provided further, that the Grace Periods shall not exceed an aggregate of
twenty (20) days during any three hundred sixty five (365) day period and the
first day of any Grace Period must be at least five (5) trading days after the
last day of any prior Grace Period (each, an “Allowable
Grace Period”).  For purposes
of determining the length of a Grace Period above, the Grace Period shall begin
on and include the date the Investors receive the notice referred to in clause
(i) and shall end on and include the later of the date the Investors receive
the notice referred to in clause (ii) and the date referred to in such
notice.  The provisions of Section 3(g)
hereof shall not be applicable during the period of any Allowable Grace
Period.  Upon expiration of the Grace
Period, the Company shall again be bound by the first sentence of Section 3(f)
with respect to the information giving rise thereto unless such material,
non-public information is no longer applicable. 
Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement
in connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale, and delivered a copy of the
prospectus included as part of the applicable Registration Statement (unless an
exemption from such prospectus delivery requirement exists), prior to the
Investor’s receipt of the notice of a Grace Period and for which the Investor
has not yet settled.

 10

 

4.     Obligations of the Investors.

a.     At
least five (5) Business Days prior to the first anticipated filing date of a
Registration Statement, the Company shall notify each Investor in writing of
the information the Company requires from each such Investor if such Investor
elects to have any of such Investor’s Registrable Securities included in such
Registration Statement.  It shall be a
condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by
it as shall be reasonably required to effect the effectiveness of the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request.

b.     Each
Investor, by such Investor’s acceptance of the Registrable Securities, agrees
to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of any Registration Statement
hereunder, unless such Investor has notified the Company in writing of such
Investor’s election to exclude all of such Investor’s Registrable Securities
from such Registration Statement.

c.     Each
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until such Investor’s receipt of the copies of the supplemented
or amended prospectus contemplated by Section 3(g) or the first sentence of
3(f) or receipt of notice that no supplement or amendment is required.  Notwithstanding anything to the contrary, the
Company shall cause its transfer agent to deliver unlegended shares of Common
Stock to a transferee of an Investor in accordance with the terms of the
Securities Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale prior to the Investor’s receipt of a notice from the Company of the
happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f) and for which the Investor has not yet settled.

d.     Each
Investor covenants and agrees that it will comply with the prospectus delivery
requirements of the 1933 Act as applicable to it or an exemption therefrom in
connection with sales of Registrable Securities pursuant to the Registration
Statement.

5.     Expenses of Registration.

All reasonable expenses, other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees,
and fees and disbursements of counsel for the Company, shall be paid by the
Company.  The Company shall also
reimburse the Investors for the fees and disbursements of Legal Counsel in
connection with registration, filing or qualification pursuant to Sections 2
and 3 of this Agreement which amount shall be limited to $20,000.

 11
 

 

6.     Indemnification.

In the event any Registrable Securities are included
in a Registration Statement under this Agreement:

a.     To
the fullest extent permitted by law, the Company will, and hereby does,
indemnify, hold harmless and defend each Investor, the directors, officers,
members, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the 1933 Act or the 1934 Act
(each, an “Indemnified Person”),
against any losses, claims, damages, liabilities, judgments, fines, penalties,
charges, costs, reasonable attorneys’ fees, amounts paid in settlement or
expenses, joint or several, (collectively, “Claims”)
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto (“Indemnified Damages”),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon:  (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
“blue sky” laws of any jurisdiction in which Registrable Securities are offered
(“Blue Sky Filing”), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary
to make the statements made therein, in the light of the circumstances under
which the statements therein were made, not misleading, (iii) any violation or
alleged violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any violation of this
Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, “Violations”).  Subject to Section 6(c), the Company shall
reimburse the Indemnified Persons, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred
by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a):  (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person for such Indemnified Person expressly for
use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto, if such prospectus was timely
made available by the Company pursuant to Section 3(d) and (ii) shall not apply
to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld or delayed.  Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.

 12
 

 

b.     In
connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same manner
as is set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement and each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act (each,
an “Indemnified Party”),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
or Indemnified Damages arise out of or are based upon any Violation, in each
case to the extent, and only to the extent, that such Violation occurs in
reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and, subject to Section 6(c), such Investor will reimburse any legal
or other expenses reasonably incurred by an Indemnified Party in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld or delayed; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim or Indemnified
Damages as does not exceed the net proceeds to such Investor as a result of the
sale of Registrable Securities pursuant to such Registration Statement.  Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.

c.     Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section
6 of notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving a Claim, such Indemnified Person
or Indemnified Party shall, if a Claim in respect thereof is to be made against
any indemnifying party under this Section 6, deliver to the indemnifying party
a written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel with the fees
and expenses of not more than one counsel for such Indemnified Person or
Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion
of counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. 
In the case of an Indemnified Person, legal counsel referred to in the
immediately preceding sentence shall be selected by the Investors holding at
least a majority in interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates.  The Indemnified Party or
Indemnified Person 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 or Indemnified Person which
relates to such action or Claim.  The
indemnifying party shall keep the Indemnified Party or Indemnified Person
reasonably apprised at all times as to the status of the defense or any
settlement 

 13
 

 

negotiations with respect thereto. 
No indemnifying party shall be liable for any settlement of any action,
claim or proceeding effected without its prior written consent; provided,
however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent.  No
indemnifying party shall, without the prior written consent of the Indemnified
Party or Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such Claim or
litigation, and such settlement shall not include any admission as to fault on
the part of the Indemnified Party. 
Following indemnification as provided for hereunder, the indemnifying
party shall be subrogated to all rights of the Indemnified Party or Indemnified
Person with respect to all third parties, firms or corporations relating to the
matter for which indemnification has been made. 
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.

d.     The
indemnification required by this Section 6 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as and
when bills are received or Indemnified Damages are incurred.

e.     The
indemnity agreements contained herein shall be in addition to  (i) any cause of action or similar right of
the Indemnified Party or Indemnified Person against the indemnifying party or
others, and (ii) any liabilities the indemnifying party may be subject to
pursuant to the law.

7.     Contribution.

To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make
the maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by law; provided,
however, that: (i) no Person involved in the sale of Registrable
Securities, which Person is guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) in connection with such sale, shall
be entitled to contribution from any Person involved in such sale of
Registrable Securities who was not guilty of fraudulent misrepresentation; and
(ii) contribution by any seller of Registrable Securities shall be limited in
amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities pursuant to such Registration Statement.

8.     Reports Under the 1934 Act.

With a view to making available to the Investors the
benefits of Rule 144 promulgated under the 1933 Act or any other similar rule
or regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration (“Rule 144”), the Company agrees to:

 14
 

 

a.     make
and keep public information available, as those terms are understood and
defined in Rule 144;

b.     file
with the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains
subject to such requirements and the filing of such reports and other documents
is required for the applicable provisions of Rule 144; and

c.     furnish
to each Investor so long as such Investor owns Registrable Securities, promptly
upon request, (i) a written statement by the Company, if true, that it has
complied with the reporting requirements of Rule 144, the 1933 Act and the 1934
Act, (ii) a copy of the most recent annual or quarterly report of the Company
and such other reports and documents so filed by the Company and (iii) such
other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.

9.     Assignment of Registration Rights.

The rights under this Agreement shall be automatically
assignable by the Investors to any transferee of all or any portion of such
Investor’s Registrable Securities if: (i) the Investor agrees in writing with
the transferee or assignee to assign such rights and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment;
(ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such
transferee or assignee and (b) the securities with respect to which such
registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act or
applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.

10.   Amendment of Registration Rights.

Provisions of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of
the Company and the Required Holders. 
Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.  No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities.  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 this Agreement unless the same consideration also is
offered to all of the parties to this Agreement.

11.   Miscellaneous.

a.     A
Person is deemed to be a holder of Registrable Securities whenever such Person
owns or is deemed to own of record such Registrable Securities.  If the Company receives conflicting
instructions, notices or elections from two or more Persons with respect to 

 15
 

 

the same Registrable Securities, the Company shall act upon the basis
of instructions, notice or election received from the such record owner of such
Registrable Securities.

b.     Any
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed
to have been delivered:  (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such
communications shall be:

	
  If to the Company:

  
	
   

  
	
  Javo Beverage Company,
  Inc.

  
	
  1311 Specialty Drive

  
	
  Vista, CA. 92081

  
	
  Telephone:

  	
  (760) 560-5286

  
	
  Facsimile:

  	
  (760) 597 - 9793

  
	
  Attention:

  	
  CEO and General Counsel

  
	
   

  	
   

  
	
  Copy to:

  
	
   

  
	
  The Yocca Law Firm LLP

  
	
  19900 MacArthur
  Boulevard

  
	
  Suite 650

  
	
  Irvine, California
  92612

  
	
  Telephone:

  	
  (949) 253-0800

  
	
  Facsimile:

  	
  (949) 253-0870

  
	
  Attention:

  	
  Nicholas Yocca, Esq.

  
	
   

  	
   

  
	
  If to Legal Counsel:

  
	
   

  
	
  Schulte Roth &
  Zabel LLP

  
	
  919 Third Avenue

  
	
  New York, New York
  10022

  
	
  Telephone: (212)
  756-2000

  
	
  Facsimile: (212)
  593-5955

  
	
  Attention: Eleazer N.
  Klein, Esq.

  

 

If to a Buyer, to its
address and facsimile number set forth on the Schedule of Buyers attached
hereto, with copies to such Buyer’s representatives as set forth on the
Schedule of Buyers, or to such other address and/or facsimile number and/or to
the attention of such other Person as the recipient party has specified by
written notice given to each other party five (5) days prior to the
effectiveness of such change.  Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender’s facsimile machine containing the time, date, recipient facsimile
number and an 

 16
 

 

image of the first page
of such transmission or (C) provided by a courier or overnight courier service
shall be rebuttable evidence of personal service, receipt by facsimile or
receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

c.     Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as a
waiver thereof.

d.     All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of New York or any other jurisdictions) that
would cause the application of the laws of any jurisdictions other than the
State of New York.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. 
Each party hereby irrevocably waives personal service of process and consents
to process being served in any such suit, action or proceeding by mailing a
copy thereof to such party at the address for such notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. 
Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.  If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this
Agreement in that jurisdiction or the validity or enforceability of any
provision of this Agreement in any other jurisdiction.  EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

e.     This
Agreement, the other Transaction Documents (as defined in the Securities
Purchase Agreement) and the instruments referenced herein and therein
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof.  There
are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. 
This Agreement, the other Transaction Documents and the instruments
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.

f.      Subject
to the requirements of Section 9, this Agreement shall inure to the benefit of
and be binding upon the permitted successors and assigns of each of the parties
hereto.

 17
 

 

g.     The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.

h.     This
Agreement may be executed in identical counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same
agreement.  This Agreement, once executed
by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.

i.      Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as any other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.

j.      All
consents and other determinations required to be made by the Investors pursuant
to this Agreement shall be made, unless otherwise specified in this Agreement,
by the Required Holders.

k.     The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent and no rules of strict construction will
be applied against any party.

l.      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.

m.    The
obligations of each Investor hereunder are several and not joint with the
obligations of any other Investor, and no provision of this Agreement is
intended to confer any obligations on any Investor vis-à-vis any other
Investor.  Nothing contained herein, and
no action taken by any Investor pursuant hereto, shall be deemed to constitute
the Investors as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Investors are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated herein.

* * * * * *

 18

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

	
  

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  JAVO BEVERAGE COMPANY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Cody C. Ashwell

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Cody C. Ashwell 

  
	
   

  	
   

  	
  Title:

  	
  Chairman and Chief Executive 

  Officer

  
					

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  BUYERS:

  
	
   

  	
   

  
	
   

  	
  CAPITAL VENTURES INTERNATIONAL

  
	
   

  	
  By:

  	
  Heights Capital
  Management, Inc.,

  
	
   

  	
   

  	
  its authorized agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Martin Kobinger

  	
   

  
	
   

  	
   

  	
  By: Martin Kobinger

  
	
   

  	
   

  	
  Title: Investment Manager

  

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  [OTHER BUYERS:]  Fort Mason Master, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Dan German

  	
   

  
	
   

  	
   

  	
  By: Dan German

  
	
   

  	
   

  	
  Title: 
  Managing Member, Fort Mason

  Capital, LLC

  

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  [OTHER BUYERS:] Fort Mason Partners, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Dan German

  	
   

  
	
   

  	
   

  	
  By: Dan German

  
	
   

  	
   

  	
  Title: 
  Managing Member, Fort Mason

  Capital, LLC

  

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  [OTHER BUYERS:] JGB Capital LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Brett Cohen

  	
   

  
	
   

  	
   

  	
  By: Brett Cohen

  
	
   

  	
   

  	
  Title: 
  President 

  

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  [OTHER BUYERS:] JGB Capital Offshore Ltd.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Brett Cohen

  	
   

  
	
   

  	
   

  	
  By: Brett Cohen

  
	
   

  	
   

  	
  Title: 
  President

  

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  [OTHER BUYERS:]  Seneca Capital

  International, Ltd.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Michael Anastasio, Jr.

  	
   

  
	
   

  	
   

  	
  By: Michael Anastasio, Jr.

  
	
   

  	
   

  	
  Title: CFO 

  

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  [OTHER BUYERS:] Seneca Capital, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Michael Anastasio, Jr.

  	
   

  
	
   

  	
   

  	
  By: Michael Anastasio, Jr.

  
	
   

  	
   

  	
  Title: CFO

  

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  [OTHER BUYERS:]

  
	
   

  	
   

  
	
   

  	
  Guggenheim Portfolio
  Company XII, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Michael Anastasio, Jr.

  	
   

  
	
   

  	
   

  	
  By: Michael Anastasio, Jr.

  
	
   

  	
   

  	
  Title: CFO (for Investment Advisor)

  

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  [OTHER BUYERS:] Scoggin International 

  Fund, Ltd.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Craig Effron

  	
   

  
	
   

  	
   

  	
  By: Craig Effron

  
	
   

  	
   

  	
  Title: Scoggin LLC, Investment Manager,

  Managing Member

  

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  [OTHER BUYERS:] SCOGGIN CAPITAL

  MANAGEMENT, LPI

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Craig Effron

  	
   

  
	
   

  	
   

  	
  By:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  SCOGGIN CAPITAL
  MANAGEMENT, LP II

  
	
   

  	
  By:   S&E
  Partners, LP: its general partner

  
	
   

  	
  By:   Scoggin,
  Inc. its: general partner

  
	
   

  	
  By:

  	
  /S/ Craig Effron

  	
   

  
	
   

  	
        President

  
						

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  [OTHER BUYERS:]  Gracie Capital LP

  
	
   

  	
  By: S Capital Partners,
  LLC

  
	
   

  	
         Its General Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Greg Pearson

  	
   

  
	
   

  	
   

  	
  Name: Greg Pearson

  
	
   

  	
   

  	
  Title:   CFO

  

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  [OTHER BUYERS:]  Gracie Capital

  International

  
	
   

  	
  By: S Capital Partners,
  LLC,

  
	
   

  	
         Its Investment Advisor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Greg Pearson

  	
   

  
	
   

  	
   

  	
  Name: Greg Pearson

  
	
   

  	
   

  	
  Title:   CFO

  

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  Enable Growth Partners

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Brenda O’Neil

  	
   

  
	
   

  	
   

  	
  Name: Brenda O’Neil

  
	
   

  	
   

  	
  Title:  
  Principal and Portfolio Manager 

  

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  Enable Opportunity Partners LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Brenda O’Neil

  	
   

  
	
   

  	
   

  	
  Name: Brenda O’Neil

  
	
   

  	
   

  	
  Title:  
  Principal and Portfolio Manager 

  

 

 

IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Registration Rights Agreement to be duly executed as of the date first written
above.

 

	
  

  	
  Pierce Diversified Strategy Master
  Fund

  LLC, Ena

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ Brenda O’Neil

  	
   

  
	
   

  	
   

  	
  Name: Brenda O’Neil

  
	
   

  	
   

  	
  Title:  
  Principal and Portfolio Manager 

  

 

SCHEDULE OF BUYERS

	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  
	
  Investor

  	
   

  	
  Buyer

  	
   

  	
  Address and Facsimile Number

  	
   

  	
  Legal Representative’s Address

  and Facsimile Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Heights Capital

  	
   

  	
  Capital Ventures International LP

  	
   

  	
  c/o Heights Capital Management, Inc.

  101 California Street, Suite 3250

  San Francisco, CA 94111

  Attention: Martin Kobinger

  

  Facsimile: (415) 403-6525

  Telephone: (415) 403-6500

  Residence: Cayman Islands

  	
   

  	
  Schulte Roth & Zabel LLP

  919 Third Avenue

  New York, New York 10022

  Attention: Eleazer Klein, Esq.

  

  Facsimile: (212) 593-5955

  Telephone: (212) 756-2376

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fort Mason

  	
   

  	
  Fort Mason Master, LP

  	
   

  	
  “c/o Fort Mason Capital, LLC

  Four Embarcadero Center,

  Suite 2050

  San Francisco, CA  94111

  

  Telephone: 415-288-8100

  Fax:           415.288.8113

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fort Mason

  	
   

  	
  Fort Mason Partners. LP

  	
   

  	
  “ c/o Fort Mason Capital, LLC

  Four Embarcadero Center,

  Suite 2050

  San Francisco, CA  94111

  

  Telephone:  415-288-8100

  Facsimile:   415.288.8113

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JGB Capital

  	
   

  	
  JGB Capital Offshore, Ltd.

  	
   

  	
  c/o Appleby Corporate Services

  (Cayman) Limited

  Clifton House

  75 Fort Street

  George Town, Grand Cayman

  

  Additional copy to:

  

  JGB Capital Offshore, Ltd.

  c/o JGB Management Inc.

  660 Madison Avenue

  21st Floor`

  New York, NY 10021

  Attn: Brett Cohen

  

  Tel:    (212) 355-5771

  Residence: Cayman Islands

  	
   

  	
   

  

 

 

 

	
  JGB Capital

  	
   

  	
  JGB Capital, LP

  	
   

  	
  660 Madison Avenue

  21st Floor`

  New York, NY 10021

  

  Tel:            (212) 355-5771

  Facsimile:  (212) 253-4093

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JGB Capital

  	
   

  	
  Scoggin International Fund, Ltd.

  	
   

  	
  c/o Scoggin LLC

  660 Madison Avenue

  21st Floor

  New York, NY 10021

  Attn: Brett Cohen

  

  Tel:            (212) 355-7527

  Facsimile:  (212) 355-7480

  Facsimile:  (646) 514-3166

  Residence: Bahamas

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JGB Capital

  	
   

  	
  Scoggin Capital Management, LP II

  	
   

  	
  c/o Scoggin LLC

  660 Madison Avenue

  21st Floor

  New York, NY 10021

  Attn: Brett Cohen

  

  Tel:            (212) 355-7527

  Facsimile:  (212) 355-7480

  Facsimile:  (646) 514-3166

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JGB Capital

  	
   

  	
  Seneca Capital International, Ltd.

  	
   

  	
  590 Madison Avenue

  28th Floor

  New York, NY 10022

  

  Tel:            (212) 888-2999

  Facsimile:  (212) 826-1108

  Residence:  Cayman Islands

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JGB Capital

  	
   

  	
  Seneca Capital LP

  	
   

  	
  590 Madison Avenue

  28th Floor

  New York, NY 10022

  

  Tel:            (212) 888-2999

  Facsimile:  (212) 826-1108

  Residence:  Delaware

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JGB Capital

  	
   

  	
  Guggenheim Portfolio Company XII LLC

  	
   

  	
  590 Madison Avenue

  28th Floor

  New York, NY 10022

  

  Tel:             (212) 888-2999

  Facsimile:   (212) 826-1108

  Residence:  Delaware

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JGB Capital

  	
   

  	
  Gracie Capital International, Ltd.

  	
   

  	
  590 Madison Avenue

  28th Floor

  New York, NY 10022

  

  Tel:             (212) 527-8204

  Facsimile:   (212) 308-7180

  Residence:  Cayman Islands

  	
   

  	
   

  

 

 

 

	
  JGB Capital

  	
   

  	
  Gracie Capital LP

  	
   

  	
  590 Madison Avenue

  28th Floor

  New York, NY 10022

  

  Tel:            (212) 527-8204

  Facsimile:  (212) 308-7180

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Enable Capital

  	
   

  	
  Enable Growth Partners LP

  	
   

  	
  One Ferry Building,

  Suite 255

  San Francisco, CA 94111

  

  Tel:  415-677-1578

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Enable Capital

  	
   

  	
  Enable Opportunity Partners LP

  	
   

  	
  One Ferry Building,

  Suite 255

  San Francisco, CA 94111

  

  Tel:  415-677-1578

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Enable Capital

  	
   

  	
  Pierce Diversified Strategy Master Fund LLC

  	
   

  	
  One Ferry Building,

  Suite 255

  San Francisco, CA 94111

  

  Tel:  415-677-1578

  	
   

  	
   

  

 

 

 

EXHIBIT A

FORM OF NOTICE OF
EFFECTIVENESS

OF REGISTRATION STATEMENT

Corporate Stock Transfer, Inc.

3200 Cherry Creek Dr. South 

Suite 430

Denver, CO  80209

Attention:                         Carylyn Bell

Re:          Javo Beverage
Company, Inc.

Ladies and Gentlemen:

[We are][I am] counsel to
Javo Beverage Company, Inc., a Delaware corporation (the “Company”), and have represented the Company
in connection with that certain Securities Purchase Agreement (the “Securities Purchase
Agreement”) entered into by and among the Company and the buyers
named therein (collectively, the “Holders”)
pursuant to which the Company issued to the Holders senior convertible notes
(the “Notes”) convertible into the Company’s
common stock, $0.001 par value per share (the ”Common Stock”) and two series of warrants exercisable for
shares of Common Stock (the “Warrants”).  Pursuant to the Securities Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the “Registration Rights
Agreement”) 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 Common Stock issuable upon
conversion of the Notes and the shares of Common Stock issuable upon exercise
of the Warrants, under the Securities Act of 1933, as amended (the “1933 Act”). 
In connection with the Company’s obligations under the Registration
Rights Agreement, on                                           ,
200     , the Company filed a Registration Statement
on Form S-3 (File No. 333-                              )
(the “Registration Statement”)
with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names each
of the Holders as a selling stockholder thereunder.

In connection with the foregoing, [we][I] advise you
that a member of the SEC’s staff has advised [us][me] 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][I] 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 the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.

This letter shall serve as our standing instruction to
you that the shares of Common Stock are freely transferable by the Holders
pursuant to the Registration Statement. 
You need not require further letters from us to effect any future
legend-free issuance or reissuance of shares of Common Stock to the Holders as
contemplated by the Company’s 

 1
 

 

Irrevocable
Transfer Agent Instructions dated December      ,
2006, provided at the time of such reissuance, the Company has not otherwise
notified you that the Registration Statement is unavailable for the resale of
the Registrable Securities.

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  [ISSUER’S COUNSEL]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
  CC:    [LIST NAMES OF HOLDERS]

  	
   

  

 

 2

 

EXHIBIT B

SELLING STOCKHOLDERS

The
shares of Common Stock being offered by the selling stockholders are issuable
upon conversion of the convertible notes and upon exercise of the
warrants.  For additional information
regarding the issuance of those convertible notes and warrants, see “Private
Placement of Convertible Notes and Warrants” above.  We are registering the shares of Common Stock
in order to permit the selling stockholders to offer the shares for resale from
time to time.  Except for the ownership
of the convertible notes and the Warrants issued pursuant to the Securities
Purchase Agreement, the selling stockholders have not had any material
relationship with us within the past three years.

The
table below lists the selling stockholders and other information regarding the
beneficial ownership of the shares of Common Stock by each of the selling
stockholders.  The second column lists
the number of shares of Common Stock beneficially owned by each selling stockholder,
based on its ownership of the convertible notes and warrants, as of                  ,
200    , assuming conversion of all convertible notes and
exercise of the warrants held by the selling stockholders on that date, without
regard to any limitations on conversions or exercise.

The
third column lists the shares of Common Stock being offered by this prospectus
by each selling stockholder.

In
accordance with the terms of a registration rights agreement among the Company
and the selling stockholders, this prospectus generally covers the resale of at
least 130% of the sum of the number of shares of Common Stock issued or
issuable (i) upon conversion of the convertible notes as of the trading day
immediately preceding the date the registration statement is initially filed
with the SEC, (ii) as Interest Shares pursuant to the terms of the Notes as of
the trading day immediately preceding the date the registration statement is
initially filed with the SEC and (iii) upon exercise of the related warrants as
of the trading day immediately preceding the date the registration statement is
initially filed with the SEC.  Because the conversion price of
the convertible notes may be adjusted and the exercise price of the warrants
may be adjusted, the number of shares that will actually be issued may be more or
less than the number of shares being offered by this prospectus.  The fourth column assumes the sale of all of
the shares offered by the selling stockholders pursuant to this prospectus.

Under
the terms of the convertible notes and the warrants, a selling stockholder may
not convert the convertible notes or exercise the warrants to the extent such
conversion or exercise would cause such selling stockholder, together with its
affiliates, to beneficially own a number of shares of Common Stock which would
exceed 9.99% of our then outstanding shares of Common Stock following such
conversion or exercise, excluding for purposes of such determination shares of
Common Stock issuable upon conversion of the convertible notes which have not
been converted and upon exercise of the warrants that have not been
exercised.  The number of shares in the
second column does not reflect this limitation. 
The selling stockholders may sell all, some or none of their shares in
this offering.  See “Plan of
Distribution.”

 1
 

 

 

	
  Name of
  Selling Stockholder

  	
   

  	
  Number of Shares Owned

  Prior to Offering

  	
   

  	
  Maximum Number of Shares

  to be Sold Pursuant to this

  Prospectus

  	
   

  	
  Number of Shares Owned

  After Offering

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (1) Capital Ventures International

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  

 

(1)

 2

 

PLAN
OF DISTRIBUTION

We
are registering the shares of Common Stock issuable upon conversion of the
convertible notes and upon exercise of the warrants to permit the resale of
these shares of Common Stock by the holders of the convertible notes and
warrants from time to time after the date of this prospectus.  We will not receive any of the proceeds from
the sale by the selling stockholders of the shares of Common Stock.  We will bear all fees and expenses incident
to our obligation to register the shares of Common Stock.

The
selling stockholders may sell all or a portion of the shares of Common Stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents.  If the shares of Common Stock are sold
through underwriters or broker-dealers, the selling stockholders will be
responsible for underwriting discounts or commissions or agent’s
commissions.  The shares of Common Stock
may be sold in one or more transactions at fixed prices, at prevailing market
prices at the time of the sale, at varying prices determined at the time of
sale, or at negotiated prices.  These
sales may be effected in transactions, which may involve crosses or block
transactions,

·                  on
any national securities exchange or quotation service on which the securities
may be listed or quoted at the time of sale;

·                  in
the over-the-counter market;

·                  in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;

·                  through
the writing of options, whether such options are listed on an options exchange
or otherwise;

·                  ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

·                  block
trades in which the broker-dealer will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction;

·                  purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;

·                  an
exchange distribution in accordance with the rules of the applicable exchange;

·                  privately
negotiated transactions;

·                  short
sales;

·                  sales
pursuant to Rule 144;

 C-1
 

 

·                  broker-dealers
may agree with the selling securityholders to sell a specified number of such
shares at a stipulated price per share;

·                  a
combination of any such methods of sale; and

·                  any
other method permitted pursuant to applicable law.

If
the selling stockholders effect such transactions by selling shares of Common
Stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of Common Stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved).  In connection with sales of the shares of
Common Stock or otherwise, the selling stockholders may enter into hedging
transactions with broker-dealers, which may in turn engage in short sales of
the shares of Common Stock in the course of hedging in positions they
assume.  The selling stockholders may also
sell shares of Common Stock short and deliver shares of Common Stock covered by
this prospectus to close out short positions and to return borrowed shares in
connection with such short sales.  The
selling stockholders may also loan or pledge shares of Common Stock to
broker-dealers that in turn may sell such shares.

The
selling stockholders may pledge or grant a security interest in some or all of
the convertible notes, warrants or shares of Common Stock owned by them and, if
they default in the performance of their secured obligations, the pledgees or
secured parties may offer and sell the shares of Common Stock from time to time
pursuant to this prospectus or any amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933, as
amended, amending, if necessary, the list of selling stockholders to include
the pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.  The selling
stockholders also may transfer and donate the shares of Common Stock in other
circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.

The
selling stockholders and any broker-dealer participating in the distribution of
the shares of Common Stock may be deemed to be “underwriters” within the
meaning of the Securities Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act.  At the time a particular offering of the
shares of Common Stock is made, a prospectus supplement, if required, will be
distributed which will set forth the aggregate amount of shares of Common Stock
being offered and the terms of the offering, including the name or names of any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to broker-dealers.

Under
the securities laws of some states, the shares of Common Stock may be sold in
such states only through registered or licensed brokers or dealers.  In addition, in some states the shares of
Common Stock may not be sold unless such shares have been registered or
qualified 

 C-2
 

 

for sale in such
state or an exemption from registration or qualification is available and is
complied with.

There
can be no assurance that any selling stockholder will sell any or all of the
shares of Common Stock registered pursuant to the registration statement, of
which this prospectus forms a part.

The
selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of Common Stock by the selling
stockholders and any other participating person.  Regulation M may also restrict the ability of
any person engaged in the distribution of the shares of Common Stock to engage
in market-making activities with respect to the shares of Common Stock.  All of the foregoing may affect the
marketability of the shares of Common Stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
Common Stock.

We
will pay all expenses of the registration of the shares of Common Stock
pursuant to the registration rights agreement, estimated to be $[   ] in total, including, without limitation,
Securities and Exchange Commission filing fees and expenses of compliance with
state securities or “blue sky” laws; provided, however, that a selling
stockholder will pay all underwriting discounts and selling commissions, if
any.  We will indemnify the selling
stockholders against liabilities, including some liabilities under the
Securities Act, in accordance with the registration rights agreements, or the
selling stockholders will be entitled to contribution.  We may be indemnified by the selling
stockholders against civil liabilities, including liabilities under the
Securities Act, that may arise from any written information furnished to us by
the selling stockholder specifically for use in this prospectus, in accordance
with the related registration rights agreement, or we may be entitled to
contribution.

Once
sold under the registration statement, of which this prospectus forms a part,
the shares of Common Stock will be freely tradable in the hands of persons
other than our affiliates.

 C-3EXHIBIT 10.8

[FORM OF SENIOR
CONVERTIBLE NOTE]

NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO
RULE 144 OR RULE 144A UNDER SAID ACT. 
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES. 
ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS
NOTE, INCLUDING SECTIONS 3(c)(iii) AND 20(a) HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE
AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS
THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF
THIS NOTE.

Javo
Beverage Company

SENIOR
CONVERTIBLE NOTE

	
  Issuance Date: December 15, 2006

  	
  Original Principal
  Amount: U.S. $                    

  

 

FOR
VALUE RECEIVED, Javo Beverage Company, a Delaware corporation
(the “Company”), hereby promises
to pay to [CAPITAL VENTURES INTERNATIONAL][OTHER BUYERS] or registered assigns
(the “Holder”) the amount set out
above as the Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether upon the
Maturity Date (as defined below), on any Installment Date with respect to the
Installment Amount due on such Installment Date acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay
interest (“Interest”) on any
outstanding Principal at the applicable Interest Rate from the date set out
above as the Issuance Date (the “Issuance
Date”) until the same becomes due
and payable, whether upon an Interest Date (as defined below), any Installment
Date, the Maturity Date, acceleration, conversion, redemption or otherwise (in
each case in accordance with the terms hereof). 
This Senior Convertible Note (including all Senior Convertible Notes
issued in exchange, transfer or replacement hereof, this “Note”) is one of an issue of Senior
Convertible Notes issued pursuant to the Securities Purchase Agreement on the
Closing Date (collectively, the “Notes”
and such other Senior Convertible Notes, the “Other
Notes”).  Certain capitalized terms used herein are
defined in Section 30.

 

(1)           PAYMENTS
OF PRINCIPAL.  On each Installment
Date, the Company shall pay to the Holder an amount equal to the Installment
Amount due on such Installment Date in accordance with Section 8.  On the Maturity Date, the Company shall pay
to the Holder an amount in cash representing all outstanding Principal, accrued
and unpaid Interest and accrued and unpaid Late Charges on such Principal and
Interest.  The “Maturity  Date”
shall be December 15, 2011 as may be extended at the option of the Holder
(i) in the event that, and for so long as, an Event of Default (as defined in
Section 4(a)) shall have occurred and be continuing on the Maturity Date (as
may be extended pursuant to this Section 1) or any event shall have occurred
and be continuing on the Maturity Date (as may be extended pursuant to this
Section 1) that with the passage of time and the failure to cure would result
in an Event of Default and (ii) through the date that is ten (10) Business Days
after the consummation of a Change of Control in the event that a Change of
Control is publicly announced or a Change of Control Notice (as defined in
Section 5(b)) is delivered prior to the Maturity Date.  Other than as specifically permitted by this
Note, the Company may not prepay any portion of the outstanding Principal,
accrued and unpaid Interest or accrued and unpaid Late Charges on Principal and
Interest, if any.

(2)           INTEREST;
INTEREST RATE.  (a) Interest on this
Note shall commence accruing on the Issuance Date and shall be computed on the
basis of a 360-day year and twelve 30-day months and the actual number of days
elapsed and shall be payable in arrears for each Calendar Quarter on the first
day of the succeeding Calendar Quarter during the period beginning on the
Issuance Date and ending on, and including, the Maturity Date (each, an “Interest Date”) with the first Interest Date being
April 1, 2007.  Interest shall be payable
on each Interest Date, to the record holder of this Note on the applicable
Interest Date, in shares of Common Stock (“Interest
Shares”) so long as there is no Equity Conditions Failure; provided
however, that the Company may, at its option following notice to the Holder,
pay Interest on any Interest Date in cash (“Cash
Interest”) or in a combination of Cash Interest and Interest
Shares.  The Company shall deliver a
written notice (each, an “Interest Election
Notice”) to each holder of the Notes on or prior to the Interest
Notice Due Date (the date such notice is delivered to all of the holder, the “Interest Notice Date”) which notice (i)
either (A) confirms that Interest to be paid on such Interest Date shall be
paid entirely in Interest Shares or (B) elects to pay Interest as Cash Interest
or a combination of Cash Interest and Interest Shares and specifies the amount
of Interest that shall be paid as Cash Interest and the amount of Interest, if
any, that shall be paid in Interest Shares and (ii) certifies that there is no
Equity Conditions Failure.  If the Equity
Conditions are not satisfied as of the Interest Notice Date, then unless the
Company has elected to pay such Interest as Cash Interest, the Interest
Election Notice shall indicate that unless the Holder waives the Equity
Conditions, the Interest shall be paid as Cash Interest.  If the Equity Conditions were satisfied as of
the Interest Notice Date but the Equity Conditions are no longer satisfied at
any time prior to the Interest Date, the Company shall provide the Holder a
subsequent notice to that effect indicating that unless the Holder waives the
Equity Conditions, the Interest shall be paid in cash.  Interest to be paid on an Interest Date in
Interest Shares shall be paid in a number of fully paid and nonassessable
shares (rounded to the nearest whole share in accordance with Section 3(a)) of
Common Stock equal to the quotient of (1) the amount of Interest payable on
such Interest Date less any Cash Interest paid and (2) the Interest Conversion
Price in effect on the applicable Interest Date.

(b)           When any Interest
Shares are to be paid on an Interest Date, the Company shall (i) (X) provided
that the Company’s transfer agent (the “Transfer Agent”)
is 

 2
 

 

participating in the Depository
Trust Company (“DTC”) Fast
Automated Securities Transfer Program, credit such aggregate number of Interest
Shares to which the Holder shall be entitled to the Holder’s or its designee’s
balance account with DTC through its Deposit Withdrawal Agent Commission
system, or (Y) if the foregoing shall not apply, issue and deliver on the
applicable Interest Date, to the address set forth in the register maintained
by the Company for such purpose pursuant to the Securities Purchase Agreement
or to such address as specified by the Holder in writing to the Company at
least two (2) Business Days prior to the applicable Interest Date, a
certificate, registered in the name of the Holder or its designee, for the number
of Interest Shares to which the Holder shall be entitled and (ii) with respect
to each Interest Date, pay to the Holder, in cash by wire transfer of
immediately available funds, the amount of any Cash Interest.

(c)           Prior to the payment of
Interest on an Interest Date, Interest on this Note shall accrue at the
Interest Rate and be payable in cash on each Conversion Date in accordance with
Section 3(b)(i).  From and after the
occurrence and during the continuance of an Event of Default, the Interest Rate
shall be increased to fifteen percent (15.0%). 
In the event that such Event of Default is subsequently cured, the
adjustment referred to in the preceding sentence shall cease to be effective as
of the date of such cure; provided that the Interest as calculated and unpaid
at such increased rate during the continuance of such Event of Default shall
continue to apply to the extent relating to the days after the occurrence of
such Event of Default through and including the date of cure of such Event of
Default.  The Company shall pay any and
all taxes that may be payable with respect to the issuance and delivery of
Interest Shares; provided that the Company shall not be required to pay
any tax that may be payable in respect of any issuance of Interest Shares to
any Person other than the Holder or with respect to any income tax due by the
Holder with respect to such Interest Shares.

(3)           CONVERSION
OF NOTES.  This Note shall be
convertible into shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”), on the terms and
conditions set forth in this Section 3.

(a)           Conversion Right.  Subject to the provisions of Section 3(d), at
any time or times on or after the Issuance Date, the Holder shall be entitled
to convert any portion of the outstanding and unpaid Conversion Amount (as
defined below) into fully paid and nonassessable shares of Common Stock in
accordance with Section 3(c), at the Conversion Rate (as defined below).  The Company shall not issue any fraction of a
share of Common Stock upon any conversion. 
If the issuance would result in the issuance of a fraction of a share of
Common Stock, the Company shall round such fraction of a share of Common Stock
up to the nearest whole share.  The
Company shall pay any and all transfer, stamp and similar taxes that may be
payable with respect to the issuance and delivery of Common Stock upon
conversion of any Conversion Amount.

(b)           Conversion Rate.  The number of shares of Common Stock issuable
upon conversion of any Conversion Amount pursuant to Section 3(a) shall be
determined by dividing (x) such Conversion Amount by (y) the Conversion Price
(the “Conversion Rate”).

(i)            “Conversion
Amount” means the portion of the Principal to be converted, redeemed
or otherwise with respect to which this determination is being made.

 3
 

 

(ii)           “Conversion
Price” means, as of any Conversion Date (as defined below) or other
date of determination, $1.79, subject to adjustment as provided herein.

(c)           Mechanics of
Conversion.

(i)            Optional Conversion.  To convert any Conversion Amount into shares
of Common Stock on any date (a “Conversion Date”), the Holder shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., New York Time, on such date, a
copy of an executed notice of conversion in the form attached hereto as Exhibit
I (the “Conversion Notice”) to the Company and (B) if required by Section 3(c)(iii),
surrender this Note to a common carrier for delivery to the Company as soon as
practicable on or following such date (or an indemnification undertaking with
respect to this Note in the case of its loss, theft or destruction).  On or before the first (1st) Business Day following the date of
receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation
of receipt of such Conversion Notice to the Holder and the Transfer Agent.  On or before the third (3rd) Business Day following the date of
receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall (A) (1)
provided that the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, credit such aggregate number of shares of Common
Stock to which the Holder shall be entitled to the Holder’s or its designee’s
balance account with DTC through its Deposit Withdrawal Agent Commission system
or (2) if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver to the address as specified in
the Conversion Notice, a certificate, registered in the name of the Holder or
its designee, for the number of shares of Common Stock to which the Holder
shall be entitled and (B) pay to the Holder in cash, by wire transfer of
immediately available funds, an amount equal to the accrued and unpaid Interest
on the Conversion Amount and Late Charges, if any, on such Conversion Amount
and Interest.  If this Note is physically
surrendered for conversion as required by Section 3(c)(iii) and the outstanding
Principal of this Note is greater than the Principal portion of the Conversion
Amount being converted, then the Company shall as soon as practicable and in no
event later than three (3) Business Days after receipt of this Note and at its
own expense, issue and deliver to the holder a new Note (in accordance with
Section 20(d)) representing the outstanding Principal not converted.  The Person or Persons entitled to receive the
shares of Common Stock issuable upon a conversion of this Note shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on the Conversion Date.  In the event of
a partial conversion of this Note pursuant hereto, the principal amount
converted shall be deducted from the Installment Amounts relating to the
Installment Dates as set forth in the Conversion Notice.

(ii)           Company’s
Failure to Timely Convert.  If within three (3) Trading Days after
the Company’s receipt of the facsimile copy of a Conversion Notice the Company
shall fail to issue and deliver a certificate to the Holder or credit the
Holder’s balance account with DTC for the number of shares of Common Stock to
which the Holder is entitled 

 

 4
 

 

upon such holder’s conversion of any
Conversion Amount or on any date of the Company’s obligation to deliver shares
of common Stock as contemplated pursuant to clause (B) below, and if on or
after such Trading Day the Holder purchases (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of
Common Stock issuable upon such conversion that the Holder anticipated
receiving from the Company (a “Buy-In”),
then the Company shall, within three (3) Trading Days after the Holder’s
request and in the Holder’s discretion, either (A) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions and other out of pocket expenses, if any) for the shares of Common
Stock so purchased (the “Buy-In Price”),
at which point the Company’s obligation to deliver such certificate (and to
issue such Common Stock) shall terminate, or (B) promptly honor its obligation
to deliver to the Holder a certificate or certificates representing such Common
Stock and pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (1) such number of shares of Common Stock,
times (2) the Closing Bid Price on the Conversion Date.

(iii)          Registration;
Book-Entry.  The Company shall
maintain a register (the “Register”)
for the recordation of the names and addresses of the holders of each Note and
the principal amount of the Notes held by such holders (the “Registered Notes”).  The entries in the Register shall be
conclusive and binding for all purposes absent manifest error.  The Company and the holders of the Notes
shall treat each Person whose name is recorded in the Register as the owner of
a Note for all purposes, including, without limitation, the right to receive
payments of Principal and Interest hereunder, notwithstanding notice to the
contrary.  A Registered Note may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register.  Upon its receipt
of a request to assign or sell all or part of any Registered Note by a Holder,
the Company shall record the information contained therein in the Register and
issue one or more new Registered Notes in the same aggregate principal amount
as the principal amount of the surrendered Registered Note to the designated
assignee or transferee pursuant to Section 20. 
Notwithstanding anything to the contrary set forth herein, upon
conversion of any portion of this Note in accordance with the terms hereof, the
Holder shall not be required to physically surrender this Note to the Company
unless (A) the full Principal amount represented by this Note is being
converted or (B) the Holder has provided the Company with prior written notice
(which notice may be included in a Conversion Notice) requesting reissuance of
this Note upon physical surrender of this Note. 
The Holder and the Company shall maintain records showing the Principal,
Interest and Late Charges, if any, converted and the dates of such conversions
or shall use such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Note upon conversion.

(iv)          Pro Rata Conversion;
Disputes.  In the event that the
Company receives a Conversion Notice from more than one holder of Notes for the
same Conversion Date and the Company can convert some, but not all, of such
portions of the Notes submitted for conversion, the Company, subject to Section
3(d), shall convert from each holder of Notes electing to have Notes converted
on such date a pro rata amount of such holder’s portion of its Notes submitted
for conversion based on the principal amount of Notes submitted for conversion
on such date by such holder relative to the aggregate principal amount of all
Notes submitted for conversion on such date. 
In the event of a dispute as to the number of shares of Common Stock
issuable to the Holder in connection with a conversion of this Note, the 

 5
 

 

Company shall issue to the Holder the number
of shares of Common Stock not in dispute and resolve such dispute in accordance
with Section 25.

(d)           Limitations on
Conversions.

(i)            Beneficial
Ownership.  The Company shall not
effect any conversion of this Note, and the Holder of this Note shall not have
the right to convert any portion of this Note pursuant to Section 3(a), to the
extent that after giving effect to such conversion, the Holder (together with
the Holder’s affiliates) would beneficially own in excess of 4.99% (subject to
change as described below, the “Maximum Percentage”)
of the number of shares of Common Stock outstanding immediately after giving
effect to such conversion.  For purposes
of the foregoing sentence, the number of shares of Common Stock beneficially
owned by the Holder and its affiliates shall include the number of shares of
Common Stock issuable upon conversion of this Note with respect to which the
determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Note beneficially owned by the Holder
or any of its affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any Other Notes or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein beneficially owned by
the Holder or any of its affiliates. 
Except as set forth in the preceding sentence, for purposes of this
Section 3(d)(i), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”).  For
purposes of this Section 3(d)(i), in determining the number of outstanding
shares of Common Stock, the Holder may rely on the number of outstanding shares
of Common Stock as reflected in (x) the Company’s most recent Form 10-K, Form
10-KSB, Form 10-Q, Form 10-QSB, Form 8-K or other public filing with the
Securities Exchange Commission, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock
outstanding.  For any reason at any time,
upon the written or oral request of the Holder, the Company shall within one
(1) Business Day confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding. 
In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of
the Company, including this Note, by the Holder or its affiliates since the
date as of which such number of outstanding shares of Common Stock was
reported.  By written notice to the
Company, the Holder may increase or decrease the Maximum Percentage to any
other percentage not in excess of 9.99% specified in such notice; provided that
(i) any such increase or decrease will not be effective until the sixty-first
(61st) day after
such notice is delivered to the Company, and (ii) any such increase or decrease
will apply only to the Holder and not to any other holder of Notes.

(ii)           Eligible Market
Regulation.  The Company shall not be
obligated to issue any shares of Common Stock upon conversion of this Note if
the issuance of such shares of Common Stock would exceed the aggregate number
of shares of Common Stock that the Company may issue upon conversion or
exercise, as applicable, of the Notes and Warrants or as Interest Shares
without breaching the Company’s obligations under the rules or regulations of
the Principal Market and any applicable Eligible Market (the “Exchange
Cap”), except that
such limitation shall not apply in the event that the Company (A) obtains the
approval 

 6
 

 

of its stockholders as required by the
applicable rules of such Principal Market and any such Eligible Market for
issuances of Common Stock in excess of such amount or (B) obtains a written
opinion from outside counsel to the Company that such approval is not required,
which opinion shall be reasonably satisfactory to the Required Holders.  Until such approval or written opinion is
obtained, no purchaser of the Notes pursuant to the Securities Purchase
Agreement (the “Purchasers”) shall be issued in the aggregate, upon conversion or exercise
or otherwise, as applicable, of Notes or Warrants, or as Interest Shares,
shares of Common Stock in an amount greater than the product of the Exchange
Cap multiplied by a fraction, the numerator of which is the principal amount of
Notes issued to a Purchaser pursuant to the Securities Purchase Agreement on
the Closing Date and the denominator of which is the aggregate principal amount
of all Notes issued to the Purchasers pursuant to the Securities Purchase
Agreement on the Closing Date (with respect to each Purchaser, the “Exchange
Cap Allocation”).  In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser’s Notes, the transferee shall be
allocated a pro rata portion of such Purchaser’s Exchange Cap Allocation, and the
restrictions of the prior sentence shall apply to such transferee with respect
to the portion of the Exchange Cap Allocation allocated to such
transferee.  In the event that any holder
of Notes shall convert all of such holder’s Notes into a number of shares of
Common Stock which, in the aggregate, is less than such holder’s Exchange Cap
Allocation, then the difference between such holder’s Exchange Cap Allocation
and the number of shares of Common Stock actually issued to such holder shall
be allocated to the respective Exchange Cap Allocations of the remaining
holders of Notes on a pro rata basis in proportion to the aggregate principal
amount of the Notes then held by each such holder.

(4)           RIGHTS
UPON EVENT OF DEFAULT.

(a)           Event of Default.  Each of the following events shall constitute
an “Event of Default”:

(i)            the failure of the
applicable Registration Statement required to be filed pursuant to the
Registration Rights Agreement to be declared effective by the SEC on or prior
to the date that is sixty (60) days after the applicable Effectiveness Deadline
(as defined in the Registration Rights Agreement), or, while the applicable
Registration Statement is required to be maintained effective pursuant to the
terms of the Registration Rights Agreement, the effectiveness of the applicable
Registration Statement lapses for any reason (including, without limitation,
the issuance of a stop order) or is unavailable to any holder of the Notes for
sale of all of such holder’s Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of the Registration
Rights Agreement, and such lapse or unavailability continues for a period of
twenty (20) consecutive days or for more than an aggregate of forty-five (45)
days in any 365-day period (other than days during an Allowable Grace Period
(as defined in the Registration Rights Agreement));

(ii)           the suspension from
trading or failure of the Common Stock to be listed on an Eligible Market for a
period of ten (10) consecutive Trading Days or for more than an aggregate of
twenty (20) Trading Days in any 365-day period;

(iii)          the Company’s (A)
failure to cure a Conversion Failure by delivery of the required number of
shares of Common Stock within fifteen (15) Business Days 

 7
 

 

after the applicable Conversion Date or (B)
notice, written or oral, to any holder or to all holders of the Notes,
including by way of public announcement or through any of its agents, at any
time, of its intention not to comply with a request for conversion of any Notes
into shares of Common Stock that is tendered in accordance with the provisions
of the Notes, other than pursuant to Section 3(d);

(iv)          at any time following
the ninetieth (90th)
consecutive day that the Holder’s Authorized Share Allocation is less than the
number of shares of Common Stock that the Holder would be entitled to receive
upon a conversion of the full Conversion Amount of this Note (without regard to
any limitations on conversion set forth in Section 3(d) or otherwise);

(v)           the Company’s failure
to pay to the Holder any amount of Principal, Interest, Late Charges or other
amounts when and as due under this Note (including, without limitation, the
Company’s failure to pay any redemption payments or amounts hereunder) or any
other Transaction Document (as defined in the Securities Purchase Agreement) or
any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby and thereby to which the
Holder is a party, except, in the case of a failure to pay any Company
Redemption Amount, Interest and Late Charges when and as due, in which case
only if such failure continues for a period of at least five (5) Business Days;

(vi)          any default under, redemption of or
acceleration prior to maturity of any Indebtedness of the Company or any of its
Subsidiaries (as defined in Section 3(a) of the Securities Purchase Agreement)
which, individually or in the aggregate exceeds $500,000 other than with
respect to any Other Notes;

(vii)         the Company or any of its
Subsidiaries that would be deemed a “Significant Subsidiary” within the meaning
of Regulation S-X adopted by the Securities and Exchange Commission (a “Significant Subsidiary”), pursuant to or
within the meaning of Title 11, U.S. Code, or any similar Federal, foreign or
state law for the relief of debtors (collectively, “Bankruptcy Law”), (A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an involuntary
case, (C) consents to the appointment of a receiver, trustee, assignee,
liquidator or similar official (a “Custodian”), (D) makes a general assignment for the benefit of its
creditors or (E) admits in writing that it is generally unable to pay its debts
as they become due;

(viii)        a court of competent
jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for
relief against the Company or any of its Significant Subsidiaries in an
involuntary case, (B) appoints a Custodian of the Company or any of its
Significant Subsidiaries or (C) orders the liquidation of the Company or any of
its Significant Subsidiaries;

(ix)           a final judgment or
judgments for the payment of money aggregating in excess of $500,000 are
rendered against the Company or any of its Subsidiaries and which judgments are
not, within sixty (60) days after the entry thereof, bonded, discharged or
stayed pending appeal, or are not discharged within sixty (60) days after the
expiration of such 

 8
 

 

stay; provided, however, that any judgment
which is covered by insurance or an indemnity from a credit worthy party shall
not be included in calculating the $500,000 amount set forth above so long as
the Company provides the Holder a written statement from such insurer or
indemnity provider (which written statement shall be reasonably satisfactory to
the Holder) to the effect that such judgment is covered by insurance or an
indemnity and the Company will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such judgment;

(x)            the Company breaches
any representation, warranty, covenant or other term or condition of any
Transaction Document, except, in the case of a breach of a covenant or other
term or condition of any Transaction Document which is curable, only if such
breach continues for a period of at least ten (10) consecutive Business Days;

(xi)           any breach or failure
in any respect to comply with either of Sections 8 or 16 of this Note; or

(xii)          any Event of Default (as
defined in the Other Notes) occurs with respect to any Other Notes.

(b)           Redemption Right.  Upon the occurrence of an Event of Default
with respect to this Note, the Company, within one (1) Business Day of the date
on which the Company becomes aware of or reasonably should have become aware of
such Event of Default, shall deliver written notice thereof via facsimile and
overnight courier (an “Event of Default Notice”) to the Holder.  At any time after the earlier of the Holder’s
receipt of an Event of Default Notice and the Holder becoming aware of an Event
of Default, the Holder may require the Company to redeem all or any portion of
this Note by delivering written notice thereof (the “Event of Default Redemption
Notice”) to the
Company, which Event of Default Redemption Notice shall indicate the Conversion
Amount of this Note the Holder is electing to require the Company to
redeem.  Each portion of this Note
subject to redemption by the Company pursuant to this Section 4(b) shall be
redeemed by the Company at a price equal to the greater of (i) the product of (A) the Conversion
Amount to be redeemed together with any accrued and unpaid Interest and Late
Charges thereon, if any, on such Conversion Amount and Interest through the
redemption date and (B) the Redemption
Premium and (ii) the sum of (x) the product of (A) the Conversion Rate
with respect to such Conversion Amount in effect at such time as the Holder
delivers an Event of Default Redemption Notice and (B) the greater of (1) the
Closing Sale Price of the Common Stock on the date immediately preceding such
Event of Default, (2) the Closing Sale Price of the Common Stock on the date
immediately after such Event of Default and (3) the Closing Sale Price of the
Common Stock on the date the Holder delivers the Event of Default Redemption
Notice and (y) any accrued and unpaid Interest on the Conversion Amount and
Late Charges, if any, on such Conversion Amount and Interest through the
redemption date (the “Event of Default Redemption Price”). 
Redemptions required by this Section 4(b) shall be made in accordance
with the provisions of Section 14.  To
the extent redemptions required by this Section 4(b) are deemed or determined
by a court of competent jurisdiction to be prepayments of the Note by the
Company, such redemptions shall be deemed to be voluntary prepayments. In the
event of a partial redemption of this Note pursuant hereto, the principal
amount redeemed shall be deducted from the Installment Amounts relating to the
applicable Installment Dates as set forth in the Event of Default Redemption
Notice.  The parties hereto 

 9
 

 

agree that in the event of the Company’s
redemption of any portion of the Note under this Section 4(b), the Holder’s
damages would be uncertain and difficult to estimate because of the parties’
inability to predict future interest rates and the uncertainty of the availability
of a suitable substitute investment opportunity for the Holder.  Accordingly, any Redemption Premium due under
this Section 4(b) is intended by the parties to be, and shall be deemed, a
reasonable estimate of the Holder’s actual loss of its investment opportunity
and not as a penalty.

(5)           RIGHTS
UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

(a)           Assumption.  The
Company shall not enter into or be party to a Fundamental Transaction unless
the Successor Entity assumes in writing all of the obligations of the Company
under this Note and the other Transaction Documents in accordance with the
provisions of this Section 5(a) pursuant to written agreements in form
and substance reasonably satisfactory to the Required Holders and approved by
the Required Holders prior to such Fundamental Transaction, including
agreements to deliver to each holder of Notes in exchange for such Notes a
security of the Successor
Entity evidenced by a written instrument substantially similar in form
and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates
of the Notes then outstanding held by such holder, having similar conversion
rights and having similar ranking to the Notes, and satisfactory to the
Required Holders; provided, however, that in the event the Successor Entity is
not a publicly traded corporation whose stock is traded on an Eligible Market
(a “Private Successor Entity”),
such Fundamental Transaction must be consummated for consideration consisting
solely of cash.  Upon the occurrence of any Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the
date of such Fundamental Transaction, the provisions of this Note referring to
the “Company” shall refer instead to the Successor Entity), and may exercise
every right and power of the Company and shall assume all of the obligations of
the Company under this Note with the same effect as if such Successor Entity had
been named as the Company herein.  Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon conversion or
redemption of this Note at any time after the
consummation of the Fundamental Transaction, in lieu of the shares of the
Company’s Common Stock (or other securities, cash, assets or other
property) issuable upon the conversion or
redemption of the Notes prior to such Fundamental Transaction, (i) if the Successor Entity is a publicly traded
corporation whose stock is traded on an Eligible Market, such shares of the
publicly traded common stock (or their equivalent) of the Successor Entity
(including its Parent Entity) or (ii) if the Successor Entity is a Private
Successor Entity, such cash consideration which the Holder would have been
entitled to receive upon the happening of such Fundamental Transaction had this
Note been converted immediately prior to such Fundamental Transaction, in each
case, as adjusted in accordance with the provisions of this Note.  The provisions of this Section shall
apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion or redemption of
this Note.

(b)           Redemption Right.  No sooner than fifteen (15) days nor later
than ten (10) days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the
Holder (a “Change of Control Notice”). 
At any time 

 10
 

 

during the period beginning after the
Holder’s receipt of a Change of Control Notice and ending twenty (20) Trading
Days after the date of the consummation of such Change of Control, the Holder
may require the Company or Successor Entity, as applicable, to redeem all or
any portion of this Note by delivering written notice thereof (“Change
of Control Redemption Notice”)
to the Company, which Change of Control Redemption Notice shall indicate the
Conversion Amount the Holder is electing to require the Company to redeem.  The portion of this Note subject to
redemption pursuant to this Section 5 shall be redeemed by the Company in cash
at a price equal to the greater of (i) 120% of the Conversion Amount being
redeemed together with any accrued and unpaid Interest thereon and Late
Charges, if any, on such Conversion Amount and Interest through the redemption
date and (ii) the product of (A) the Conversion Amount being redeemed together
with any accrued and unpaid Interest thereon and Late Charges, if any, on such
Conversion Amount and Interest through the applicable redemption date
multiplied by (B) the quotient determined by dividing (1) the aggregate cash
consideration and the aggregate cash value of any non-cash consideration per
Common Share to be paid to the holders of the Common Shares upon consummation
of the Change of Control (any such non-cash consideration consisting of
marketable securities to be valued at the higher of the Closing Sale Price of
such securities as of the Trading Day immediately prior to the consummation of
such Change of Control, the Closing Sale Price as of the Trading Day
immediately following the public announcement of such proposed Change of
Control and the Closing Sale Price as of the Trading Day immediately prior to
the public announcement of such proposed Change of Control) by (2) the
Conversion Price (the “Change of Control
Redemption Price”). 
Redemptions required by this Section 5 shall be made in accordance with
the provisions of Section 14 and shall have priority to payments to
stockholders in connection with a Change of Control.  To the extent redemptions required by this
Section 5(b) are deemed or determined by a court of competent jurisdiction to be
prepayments of the Note by the Company, such redemptions shall be deemed to be
voluntary prepayments.  Notwithstanding
anything to the contrary in this Section 5, but subject to Section 3(d), until
the Change of Control Redemption Price (together with any interest thereon) is
paid in full, the Conversion Amount submitted for redemption under this Section
5(c) (together with any interest thereon) may be converted, in whole or in
part, by the Holder into Common Stock pursuant to Section 3.  In the event of a partial redemption of this
Note pursuant hereto, the principal amount redeemed shall be deducted from the
Installment Amounts relating to the applicable Installment Dates as set forth
in the Change of Control Redemption Notice. 
The parties hereto agree that in the event of the Company’s redemption
of any portion of the Note under this Section 5(b), the Holder’s damages would
be uncertain and difficult to estimate because of the parties’ inability to
predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder.  Accordingly, any Change of Control redemption
premium due under this Section 5(b) is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.

(6)           RIGHTS
UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

(a)           Purchase Rights.  If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, 

 11
 

 

the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of
Common Stock acquirable upon complete conversion of this Note (without taking
into account any limitations or restrictions on the convertibility of this Note)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.

(b)           Other Corporate
Events.  In addition to and not in
substitution for any other rights hereunder, prior to the consummation of any
Fundamental Transaction pursuant to which holders of shares of Common Stock are
entitled to receive securities or other assets with respect to or in exchange
for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that
the Holder will thereafter have the right to receive upon a conversion of this
Note, at the Holder’s option, (i) in addition to the shares of Common Stock
receivable upon such conversion, such securities or other assets to which the
Holder would have been entitled with respect to such shares of Common Stock had
such shares of Common Stock been held by the Holder upon the consummation of
such Corporate Event (without taking into account any limitations or
restrictions on the convertibility of this Note) or (ii) in lieu of the shares
of Common Stock otherwise receivable upon such conversion, such securities or
other assets received by the holders of shares of Common Stock in connection
with the consummation of such Corporate Event in such amounts as the Holder
would have been entitled to receive had this Note initially been issued with
conversion rights for the form of such consideration (as opposed to shares of
Common Stock) at a conversion rate for such consideration commensurate with the
Conversion Rate.  Provision made pursuant
to the preceding sentence shall be in a form and substance satisfactory to the
Required Holders.  The provisions of this
Section shall apply similarly and equally to successive Corporate Events and
shall be applied without regard to any limitations on the conversion or
redemption of this Note.

(7)           RIGHTS
UPON ISSUANCE OF OTHER SECURITIES.

(a)   Adjustment of Conversion
Price upon Issuance of Common Stock. 
If and whenever on or after the Subscription Date, the Company issues or
sells, or in accordance with this Section 7(a) is deemed to have issued or
sold, any shares of Common Stock (including the issuance or sale of shares of
Common Stock owned or held by or for the account of the Company, but excluding
shares of Common Stock deemed to have been issued or sold by the Company in
connection with any Excluded Security) for a consideration per share less than
a price (the “Applicable Price”)
equal to the Conversion Price in effect immediately prior to such issue or sale
(the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance the Conversion
Price then in effect shall be reduced to an amount equal to the product of
(A) the Conversion Price in effect immediately prior to such Dilutive
Issuance and (B) the quotient determined by dividing (1) the sum of
(I) the product derived by multiplying the Conversion Price in effect
immediately prior to such Dilutive Issuance and the number of shares of Common
Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus
(II) the consideration, if any, received by the Company upon such Dilutive
Issuance, by (2) the product derived by multiplying (I) the Applicable
Price in effect immediately prior to such Dilutive Issuance by (II) the
number of shares of Common Stock Deemed Outstanding immediately after such
Dilutive Issuance.  For purposes of
determining the adjusted Conversion Price under this Section 7(a), the
following shall be applicable:

 12

 

(i)            Issuance of Options.  If the Company in any manner grants or sells
any Options and the lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion or exchange
or exercise of any Convertible Securities issuable upon exercise of such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share.  For purposes of this Section 7(a)(i), the
“lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion or exchange or exercise of
any Convertible Securities issuable upon exercise of such Option” shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon
granting or sale of the Option, upon exercise of the Option and upon conversion
or exchange or exercise of any Convertible Security issuable upon exercise of
such Option.  No further adjustment of
the Conversion Price shall be made upon the actual issuance of such share of
Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange or exercise of such Convertible Securities.

(ii)           Issuance of
Convertible Securities.  If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise thereof is less than the Applicable Price,
then such share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share.  For the purposes of this Section 7(a)(ii),
the “lowest price per share for which one share of Common Stock is issuable upon
such conversion or exchange or exercise” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange or exercise of such
Convertible Security.  No further
adjustment of the Conversion Price shall be made upon the actual issuance of
such share of Common Stock upon conversion or exchange or exercise of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Conversion Price had been or are to be made pursuant to other provisions of
this Section 7(a), no further adjustment of the Conversion Price shall be made
by reason of such issue or sale.

(iii)          Change in Option Price or Rate of
Conversion.  If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion, exchange or exercise of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exchangeable or exercisable for Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.  For
purposes of this Section 7(a)(iii), if the terms of any Option or Convertible
Security that was outstanding as of the Subscription Date are changed in the
manner described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of 

 13
 

 

the date of such change.  No adjustment shall be made if such
adjustment would result in an increase of the Conversion Price then in effect.

(iv)          Calculation of
Consideration Received.  In case any
Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction, the Options will
be deemed to have been issued for the difference of (x) the aggregate fair
market value of such Options and other securities issued or sold in such
integrated transaction, less (y) the fair market value of the securities other
than such Option, issued or sold in such transaction and the other securities
issued or sold in such integrated transaction will be deemed to have been
issued or sold for the balance of the consideration received by the
Company.  If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Company therefor. 
If any Common Stock, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of the consideration other
than cash received by the Company will be the fair value of such consideration,
except where such consideration consists of securities, in which case the
amount of consideration received by the Company will be the Closing Sale Price
of such securities on the date of receipt. 
If any Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. 
The fair value of any consideration other than cash or securities will
be determined jointly by the Company and the Required Holders.  If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
“Valuation Event”), the fair value
of such consideration will be determined within five (5) Business Days after
the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders.  The determination of such appraiser shall be
deemed binding upon all parties absent manifest error and the fees and expenses
of such appraiser shall be borne by the Company.

(v)           Record Date.  If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed to be the date of
the issue or sale of the Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.

(b)           Adjustment
of Conversion Price upon Subdivision or Combination of Common Stock.  If the Company at any time on or after the
Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced.  If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number 

 14
 

 

of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.

(c)           Other Events.  If any event occurs of the type contemplated
by the provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company’s Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.

(8)           COMPANY
INSTALLMENT CONVERSION OR REDEMPTION.

(a)           General.  On each applicable Installment Date, provided
there is no Equity Conditions Failure as of such Installment Date, the Company
shall pay to the Holder of this Note the Installment Amount due on such date by
converting such Installment Amount, in accordance with this Section 8 (a “Company Conversion”); provided, however, that the Company
may, at its option following notice to the Holder, pay the Installment Amount
by redeeming such Installment Amount (a “Company Redemption”)
or by any combination of a Company Conversion and a Company Redemption so long
as all of the outstanding applicable Installment Amount shall be converted
and/or redeemed by the Company on the applicable Installment Date, subject to
the provisions of this Section 8.  Notwithstanding the foregoing, the Company
may not effect a Company Conversion of any Installment Amount under this
Section if the Weighted Average Price of the Common Stock during the ten
(10) consecutive Trading Day period ending two (2) Trading Days prior to the
Installment Date is not greater than
$0.60.  On or prior to the date
which is the third (3rd)
Trading Day prior to each Installment Date (each, an “Installment
Notice Due Date”), the Company shall deliver written notice (each, a
“Company Installment Notice” and the
date all of the holders receive such notice is referred to as to the “Company Installment Notice Date”), to each
holder of Notes which Company Installment Notice shall (i) either (A) confirm
that the applicable Installment Amount of such holder’s Note shall be converted
in whole pursuant to a Company Conversion (such amount to be converted, the “Company Conversion Amount”) or (B) (1) state that the
Company elects to redeem, or is required to redeem in accordance with the
provisions of the Notes, in whole or in part, the applicable Installment Amount
pursuant to a Company Redemption and (2) specify the portion which the Company
elects or is required to redeem pursuant to a Company Redemption (such amount
to be redeemed, the “Company Redemption Amount”)
and the portion, if any, that the Company elects to convert pursuant to a
Company Conversion (such amount also, a “Company Conversion Amount”)
which amounts when added together, must equal the applicable Installment Amount
and (ii) if the Installment Amount is to be paid, in whole or in part, pursuant
to a Company Conversion, certify that the
Equity Conditions have been satisfied as of the date of the Company Installment
Notice.  Each Company Installment Notice
shall be irrevocable.  If the Company
does not timely deliver a Company Installment Notice in accordance with this
Section 8, then the Company shall be deemed to have delivered an irrevocable
Company Installment Notice confirming a Company Conversion and shall be deemed
to have certified that the Equity Conditions in connection with any such
conversion have been satisfied.  In the
event that the Company shall pay any portion of an Installment Amount on any Installment
Date pursuant to a Company Conversion, the Holder shall confirm to the Company
prior to such Installment Date 

 15
 

 

that it can receive the full number of shares
to be issued on such date without violating the conversion limitation set forth
in Section 3(d)(i).  Except as expressly
provided in this Section 8(a), the Company shall convert and/or redeem the
applicable Installment Amount of this Note pursuant to this Section 8 and the
corresponding Installment Amounts of the Other Notes pursuant to the corresponding
provisions of the Other Notes in the same ratio of the Installment Amount being
converted and/or redeemed hereunder.  The
Company Conversion Amount (whether set forth in the Company Installment Notice
or by operation of this Section 8) shall be converted in accordance with
Section 8(b) and the Company Redemption Amount shall be redeemed in accordance
with Section 8(c).

(b)           Mechanics of Company
Conversion.  (i) If the Company
delivers a Company Installment Notice and confirms, or is deemed to have
confirmed, in whole or in part, a Company Conversion in accordance with Section
8(a), then on the Trading Day prior to the Installment Date the Company shall,
or shall direct the Transfer Agent to, deliver to the Holder’s account with
DTC, or issue the Holder a certificate for, a number of shares of Common Stock
equal to the quotient of (A) such Company Conversion Amount divided by (B) the
Initial Company Conversion Price (the “Pre-Installment Conversion
Shares”).  On the Trading Day
immediately after the end of the Company Conversion Measuring Period (the “Installment Settlement Date”), the Company shall, or shall
direct the Transfer Agent to, deliver to the Holder’s account with DTC, or
issue the Holder a certificate for, a number of additional shares of Common
Stock, if any, equal to the Installment Balance Conversion Shares.  If an Event of Default occurs during any
applicable Company Conversion Measuring Period and the Holder elects an Event
of Default Redemption in accordance with Section 4(b), then, at the Holder’s
option, either (1) the Holder, upon receipt of the Event of Default Redemption
Price (which Redemption Price includes redemption of any portion of a Company
Conversion Amount represented by Pre-Installment Conversion Shares that the
Holder shall return to the Company), shall return any Pre-Installment
Conversion Shares delivered in connection with the applicable Installment Date,
which the Holder has not otherwise sold, transferred or disposed of, to the
Company or (2) the Conversion Amount used to calculate the Event of Default
Redemption Price shall be reduced by the product of (x) the Company Conversion
Amount applicable to such Installment Date multiplied by (y) the Conversion
Share Ratio.

(ii)           If there is an Equity Conditions Failure as
of the Installment Date or the Installment Settlement Date, as applicable, then
at the option of the Holder designated in writing to the Company, the Holder
may require the Company to do either one or both of the following: (A) the
Company shall redeem all or any part designated by the Holder of the
unconverted Company Conversion Amount (such designated amount is referred to as
the “First Redemption Amount”) on such
Installment Date or Installment Settlement Date, as applicable, and the Company
shall pay to the Holder on such Installment Date, by wire transfer of
immediately available funds, an amount in cash equal to 125% of such First
Redemption Amount, and/or (B) the Company Conversion shall be null and void
with respect to all or any part designated by the Holder of the unconverted
Company Conversion Amount and the Holder shall be entitled to all the rights of
a holder of this Note with respect to such amount of the Company Conversion
Amount; provided, however, that the Conversion Price for such unconverted
Company Conversion Amount shall thereafter be adjusted to equal the lesser of
(1) the Company Conversion Price as in effect on the date on which the Holder
voided the Company Conversion and (2) the Company Conversion Price as in effect
on the date on which the Holder 

 16
 

 

delivers a Conversion Notice
relating thereto.  In the event the
Holder elects to require payment of the First Redemption Amount upon an Equity
Conditions Failure following the Installment Date, at the Holder’s option,
either (x) the Holder shall, upon receipt of a First Redemption Amount (which
amount includes redemption of any portion of a Company Conversion Amount
represented by Pre-Installment Conversion Shares that the Holder shall return
to the Company), return any Pre-Installment Conversion Shares delivered in
connection with the applicable Installment Date, which the Holder has not
otherwise sold, transferred or disposed of, to the Company or (y) any related
First Redemption Amount shall be reduced by the product of (I) the Company Conversion
Amount applicable to such Installment Date multiplied by (II) the Conversion
Share Ratio.  If the Company fails to
redeem any First Redemption Amount on or before the applicable Installment Date
or Installment Settlement Date, as applicable, by payment of such amount on the
applicable Installment Date or Installment Settlement Date, as applicable, then
the Holder shall have the rights set forth in Section 14(a) as if the Company
failed to pay the applicable Company Redemption Price and all other rights
under this Note (including, without limitation, such failure constituting an
Event of Default described in Section 4(a)(xi)).  Notwithstanding anything to the contrary in
this Section 8(b), but subject to 3(d), until the Company delivers Common Stock
representing the Company Conversion Amount to the Holder, the Company
Conversion Amount may be converted by the Holder into Common Stock pursuant to
Section 3.  In the event that the Holder
elects to convert the Company Conversion Amount prior to the applicable
Installment Date as set forth in the immediately preceding sentence, the
Company Conversion Amount so converted shall be deducted from the Installment
Amounts relating to the applicable Installment Dates as set forth in the
applicable Conversion Notice.

(c)           Mechanics of Company
Redemption.  If the Company elects a
Company Redemption in accordance with Section 8(a), then the Company Redemption
Amount which is to be paid to the Holder on the applicable Installment Date
shall be redeemed by the Company, and the Company shall pay to the Holder on
such Installment Date, by wire transfer of immediately available funds, an
amount in cash (the “Company Installment
Redemption Price”) equal to 100% of the Company Redemption
Amount.  If the Company fails to redeem
the Company Redemption Amount on the applicable Installment Date by payment of
the Company Installment Redemption Price on such date, then at the option of
the Holder designated in writing to the Company (any such designation shall be
deemed a “Conversion Notice”
pursuant to Section 3(c) for purposes of this Note), the Holder may require the
Company to convert all or any part of the Company Redemption Amount at 75% of
the Company Conversion Price. 
Conversions required by this Section 8(c) shall be made in accordance
with the provisions of Section 3(c). 
Notwithstanding anything to the contrary in this Section 8(c), but
subject to Section 3(d), until the Company Installment Redemption Price is paid
in full, the Company Redemption Amount may be converted, in whole or in part,
by the Holder into Common Stock pursuant to Section 3.  In the event the Holder elects to convert all
or any portion of the Company Redemption Amount prior to the applicable
Installment Date as set forth in the immediately preceding sentence, the
Company Redemption Amount so converted shall be deducted from the Installment
Amounts relating to the applicable Installment Dates as set forth in the
applicable Conversion Notice.

 17
 

 

(9)           OPTIONAL
REDEMPTION AT THE COMPANY’S ELECTION.

(a)           General.  At any time after the Effective Date (as
defined in the Registration Rights Agreement), so long as there is no Equity
Conditions Failure, the Company shall have the right to redeem all or any
portion of the Conversion Amount then remaining under this Note (the “Optional Redemption Amount”) as designated in the Optional
Redemption Notice on the Optional Redemption Date (each as defined below) (an “Optional Redemption”). 
The portion of this Note subject to redemption pursuant to this Section
9(a) shall be redeemed by the Company in cash at a price equal to the sum of
(i) the Conversion Amount being redeemed plus (ii) any accrued and unpaid
Interest on the Conversion Amount and Late Charges, if any, on such Conversion
Amount and Interest plus (iii) the applicable Make-Whole Amount (the “Optional Redemption Price”). 
The Company may exercise its right to require redemption under this
Section 9 by delivering a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of Notes (the “Optional Redemption Notice” and the date all of the holders
received such notice is referred to as the “Optional
Redemption Notice Date”). Each Optional Redemption Notice shall be
irrevocable.  The Optional Redemption
Notice shall state (1) the date on which the Optional Redemption shall occur
(the “Optional Redemption Date”) which date
shall not be less than five (5) Business Days following the Optional Redemption
Notice Date, (2) the aggregate Conversion Amount of the Notes which the Company
has elected to be subject to Optional Redemption from the Holder and all of the
other holders of the Notes pursuant to this Section 9(a) (and analogous
provisions under the Other Notes) on the Optional Redemption Date and (3) the
number of shares of Common Stock into which the Series C Warrants shall become
exercisable on the Optional Redemption Date thereof.  The Company may not effect more than three
(3) Optional Redemptions. 
Notwithstanding anything to the contrary in this Section 9, until the Optional
Redemption Price is paid, in full, the Optional Redemption Amount may be
converted, in whole or in part, by the Holders into shares of Common Stock
pursuant to Section 3.  All Conversion
Amounts converted by the Holder after the Optional Redemption Notice Date shall
reduce the Optional Redemption Amount of this Note required to be redeemed on
the Optional Redemption Date. 
Redemptions made pursuant to this Section 9 shall be made in accordance
with Section 14.

(b)           Pro
Rata Redemption Requirement.  If the
Company elects to cause an Optional Redemption pursuant to Section 9(a), then
it must simultaneously take the same action in the same proportion with respect
to the Other Notes.  If the Company
elects to cause an Optional Redemption pursuant to Section 9(a) (or similar
provisions under the Other Notes) with respect to less than all of the
Conversion Amounts of the Notes then outstanding, then the Company shall
require redemption of a Conversion Amount from each of the holders of the Notes
equal to the product of (i) the aggregate Conversion Amount of Notes which the
Company has elected to cause to be redeemed pursuant to Section 9(a),
multiplied by (ii) the fraction, the numerator of which is the sum of the
aggregate Original Principal Amount of the Notes purchased by such holder of
outstanding Notes and the denominator of which is the sum of the aggregate
Original Principal Amount of the Notes purchased by all holders holding
outstanding Notes (such fraction with respect to each holder is referred to as
its “Redemption Allocation Percentage”, and
such amount with respect to each holder is referred to as its “Pro Rata Redemption Amount”); provided, however that in the
event that any holder’s Pro Rata Redemption Amount exceeds the outstanding
Principal amount of such holder’s Note, then such excess Pro Rata Redemption
Amount shall be allocated amongst the remaining holders of Notes 

 18
 

 

in accordance with the foregoing
formula.  In the event that the initial
holder of any Notes shall sell or otherwise transfer any of such holder’s
Notes, the transferee shall be allocated a pro rata portion of such holder’s
Redemption Allocation Percentage and Pro Rata Redemption Amount.

(10)         HOLDER’S
RIGHT OF OPTIONAL CONVERSION/REDEMPTION. (a) General.  On January 1, 2010 through and including
March 1, 2010 (the “Holder Optional
Conversion/Redemption Period”), the
Holder shall have the right, in its sole discretion, to require that the
Company, provided there is no Equity Conditions Failure convert, or, at the
Company’s election, redeem all or any portion of the Conversion Amount then
remaining under the Note plus any accrued and unpaid Interest on such
Conversion Amount and Late Charges, if any, on such Conversion Amount and
Interest (the “Conversion/Redemption Amount”)
by delivering written notice thereof to the Company (a “Holder Optional Conversion/Redemption Notice”
and the date the Holder delivers such notice, the “Holder Optional Conversion/Redemption Notice Date”).  Within one (1) Business Day after the Holder
Optional Conversion/Redemption Notice Date, the Company shall deliver to the
Holder a written notice (a “Company
Conversion/Redemption Election Notice” and the date such Holder
receives such notice, the “Company
Conversion/Redemption Election Notice Date”) which notice shall (i)
either (A) confirm that the Conversion/Redemption Amount shall be converted (a
“Holder  Optional Conversion” and such amount to be converted, the “Holder Optional Conversion Amount”) or (B)(1) state that the
Company elects to redeem (a “Holder
Optional Redemption”), in whole or
in part, the Conversion/Redemption Amount and (2) specify the portion which the
Company elects to redeem pursuant to a Holder Optional Redemption (such amount
to be redeemed, the “Holder Optional Redemption
Amount”) convert pursuant to an Optional Redemption (such amount
also, a “ Holder Optional Conversion Amount”)
and the portion, if any, that the Company elects to convert pursuant to a
Holder Optional Conversion (such amount also, a “Holder Optional Conversion Amount”) and (ii) if the
Conversion/Redemption Amount is to be paid pursuant to a Holder Optional
Conversion, certify that there is no Equity Conditions Failure as of the
relevant date of determination; provided, however, that in no event shall the
Company be entitled to elect (A) a Holder Optional Conversion if the Weighted Average Price of the Common
Stock during the ten (10) consecutive Trading Day period ending two (2)
Trading Days prior to the Holder Optional Conversion/Redemption Date is not greater than $0.60. and (B) to convert more than 70% of
the Conversion/Redemption Amount on the Holder Optional Conversion/Redemption
Date.  The Company shall redeem and
convert any Holder Optional Redemption Amount and Holder Optional Conversion
Amount within three (3) Trading Days of the Holder Optional
Conversion/Redemption Notice Date (a “Holder Optional
Conversion/Redemption Date”).

(b)           Mechanics of Holder
Optional Conversion.  (i) If the
Company delivers a Company Conversion/Redemption Election Notice electing a
Holder Optional Conversion in accordance with Section 10(a), then, on the
Trading Day prior to the applicable Holder Optional Conversion/Redemption Date,
the Company shall, or shall direct the Transfer Agent to, deliver to the
Holder’s account with DTC, or issue the Holder a certificate for, a number of
shares of Common Stock equal to the quotient of (A) such Holder Optional
Conversion Amount divided by (B) the Initial Optional Conversion Price (the “Pre-Conversion Shares”). 
On the Trading Day immediately after the end of the applicable Initial
Optional Conversion Measuring Period (the “Holder
Conversion/Redemption Settlement Date”), the Company shall, or shall
direct the Transfer Agent to, deliver to the Holder’s account with DTC, 

 19
 

 

or issue the Holder a certificate
for, a number of additional shares of Common Stock, if any, equal to the Holder
Balance Conversion Shares.  If an Event
of Default occurs during any applicable Initial Optional Conversion Measuring
Period and the Holder elects an Event of Default Redemption in accordance with
Section 4(b), then, at the Holder’s option, either (1) the Holder, upon receipt
of the Event of Default Redemption Price (which Redemption Price includes
redemption of any portion of a Holder Optional Conversion Amount represented by
Pre-Conversion Shares that the Holder shall return to the Company), shall
return any Pre-Conversion Shares delivered in connection with the Holder
Optional Conversion/Redemption Date, which the Holder has not otherwise sold,
transferred or disposed of, to the Company or (2) the Conversion Amount used to
calculate the Event of Default Redemption Price shall be reduced by the product
of (x) the Holder Optional Conversion Amount applicable to such Holder Optional
Conversion/Redemption Date multiplied by (y) the Holder Conversion Share Ratio.

(ii)           If there is an Equity Conditions Failure as
of the applicable Holder Optional Conversion/Redemption Date or the Holder
Optional Conversion/Redemption Settlement Date, as applicable, then at the
option of the Holder designated in writing to the Company, the Holder may
require the Company to do either one or both of the following: (A) the Company
shall redeem all or any part designated by the Holder of the unconverted Holder
Optional Conversion Amount (such designated amount is referred to as the “Holder Designated Redemption Amount”) on
such Holder Optional Conversion/Redemption Date or Holder Conversion/Redemption
Settlement Date, as applicable, and the Company shall pay to the Holder on such
Holder Optional Conversion/Redemption Date or Holder Conversion/Redemption
Settlement Date, as applicable, by wire transfer of immediately available
funds, an amount in cash equal to 125% of such Holder Designated Redemption
Amount, and/or (B) the Holder Optional Conversion shall be null and void with
respect to all or any part designated by the Holder of the unconverted Holder
Optional Conversion Amount and the Holder shall be entitled to all the rights
of a holder of this Note with respect to such amount of the Holder Optional Conversion
Amount; provided, however, that the Conversion Price for such unconverted
Holder Optional Conversion Amount shall thereafter be adjusted to equal the
lesser of (1) the Optional Conversion Price as in effect on the date on which
the Holder voided the Holder Optional Conversion and (2) the Optional
Conversion Price as in effect on the date on which the Holder delivers a
Conversion Notice relating thereto.  In
the event the Holder elects to require payment of the Holder Designated
Redemption Amount upon an Equity Conditions Failure following the Holder
Optional Conversion/Redemption Date, at the Holder’s option, either (x) the
Holder shall, upon receipt of a Holder Designated Redemption Amount (which
amount includes redemption of any portion of a Holder Optional Conversion
Amount represented by Pre-Conversion Shares that the Holder shall return to the
Company), return any Pre-Conversion Shares delivered in connection with the
applicable Holder Optional Conversion/Redemption Date, which the Holder has not
otherwise sold, transferred or disposed of, to the Company or (y) any related
Holder Designated Redemption Amount shall be reduced by the product of (I) the
Holder Optional Conversion Amount applicable to such Holder Optional
Conversion/Redemption Date multiplied by (II) the Holder Conversion Share
Ratio.  If the Company fails to redeem
the Holder Designated Redemption Amount on or before the Holder Optional
Conversion/Redemption Date or Holder Conversion/Redemption Settlement Date, as
applicable, by payment of such amount on such Holder Optional
Conversion/Redemption Date or Holder Conversion/Redemption Settlement Date, as
applicable, then the Holder shall have the rights set forth in Section 14(a) as
if the Company failed to pay the applicable Holder Optional 

 20
 

 

Redemption Price and all other
rights under this Note (including, without limitation, such failure
constituting an Event of Default described in Section 4(a)(xi)).

(c)           Mechanics of Holder
Optional Redemption.  If the Company
elects a Holder Optional Redemption in accordance with Section 10(a), then the
Holder Optional Redemption Amount which is to be paid to the Holder on the
applicable Holder Optional Conversion/Redemption Date shall be redeemed by the
Company, and the Company shall pay to the Holder on such Holder Optional
Conversion/Redemption Date by wire transfer of immediately available funds, the
Holder Optional Redemption Price.  If the
Company fails to redeem the Holder Optional Redemption Amount on the Holder
Optional Conversion/Redemption Date by payment of the Holder Optional
Redemption Price on such date, then at the option of the Holder designated in
writing to the Company (any such designation shall be deemed a “Conversion Notice” pursuant to
Section 3(c) for purposes of this Note), the Holder may require the Company to
convert all or any part of the Holder Optional Redemption Amount at 75% of the
Optional Conversion Price.  Conversions
required by this Section 10(c) shall be made in accordance with the provisions
of Section 3(c).

(11)         [INTENTIONALLY OMITTED.]

(12)         NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, 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 of this Note, and will at all times in good faith carry out all of
the provisions of this Note and take all action as may be required to protect
the rights of the Holder of this Note.

(13)         RESERVATION
OF AUTHORIZED SHARES.

(a)           Reservation.  The Company shall initially reserve out of
its authorized and unissued Common Stock a number of shares of Common Stock for
each of the Notes equal to 130% of the Conversion Rate with respect to the
Conversion Amount of each such Note as of the Issuance Date.  So long as any of the Notes are outstanding,
the Company shall take all action necessary to reserve and keep available out
of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Notes, 130% of the number of shares of Common
Stock as shall from time to time be necessary to effect the conversion of all
of the Notes then outstanding; provided that at no time shall the number of
shares of Common Stock so reserved be less than the number of shares required
to be reserved by the previous sentence (without regard to any limitations on
conversions) (the “Required Reserve Amount”). 
The initial number of shares of Common Stock reserved for conversions of
the Notes and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Notes based on the principal amount
of the Notes held by each holder at the Closing (as defined in the Securities
Purchase Agreement) or increase in the number of reserved shares, as the case
may be (the “Authorized Share Allocation”). 
In the event that a holder shall sell or otherwise transfer any of such
holder’s Notes, each transferee shall be allocated a pro rata portion of such
holder’s Authorized Share Allocation. 
Any shares of Common Stock reserved and allocated to any Person which
ceases to hold any Notes shall be 

 21
 

 

allocated to the remaining holders of Notes,
pro rata based on the principal amount of the Notes then held by such holders.

(b)           Insufficient
Authorized Shares.  If at any time
while any of the Notes remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon conversion of the Notes at
least a number of shares of Common Stock equal to the Required Reserve Amount
(an “Authorized Share Failure”), then the Company shall
immediately take all action necessary to increase the Company’s authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for the Notes then outstanding.  Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock.  In
connection with such meeting, the Company shall provide each stockholder with a
proxy statement and shall use its best efforts to solicit its stockholders’
approval of such increase in authorized shares of Common Stock and to cause its
board of directors to recommend to the stockholders that they approve such
proposal.

(14)         REDEMPTIONS.

(a)           Mechanics.  The Company shall deliver the applicable
Event of Default Redemption Price to the Holder within five (5) Business Days
after the Company’s receipt of the Holder’s Event of Default Redemption
Notice.  If the Holder has submitted a
Change of Control Redemption Notice in accordance with Section 5(b), the
Company shall deliver the applicable Change of Control Redemption Price to the
Holder (i) concurrently with the consummation of such Change of Control if such
notice is received prior to the consummation of such Change of Control and (ii)
within five (5) Business Days after the Company’s receipt of such notice
otherwise.  The Company shall deliver the applicable Company Installment Redemption
Price to the Holder on the applicable Installment Date.  The Company shall deliver the applicable
Holder Optional Redemption Price on the applicable Holder Optional
Conversion/Redemption Date.  In
the event of a redemption of less than all of the Conversion Amount of this
Note, the Company shall promptly cause to be issued and delivered to the Holder
a new Note (in accordance with Section 20(d)) representing the outstanding
Principal which has not been redeemed. 
In the event that the Company does not pay the applicable Redemption
Price to the Holder within the time period required, at any time thereafter and
until the Company pays such unpaid Redemption Price in full, the Holder shall
have the option, in lieu of redemption, to require the Company to promptly
return to the Holder all or any portion of this Note representing the
Conversion Amount that was submitted for redemption and for which the applicable
Redemption Price (together with any Late Charges thereon) has not been
paid.  Upon the Company’s receipt of such
notice, (x) the applicable Redemption Notice shall be null and void with
respect to such Conversion Amount and (y) the Company shall immediately return
this Note, or issue a new Note (in accordance with Section 20(d)) to the Holder
representing such Conversion Amount to be redeemed.  The Holder’s delivery of a notice voiding a
Redemption Notice and exercise of its rights following such notice shall not
affect the Company’s obligations to make any payments of Late Charges which
have 

 22
 

 

accrued prior to the date of such notice with
respect to the Conversion Amount subject to such notice.

(b)           Redemption by Other
Holders.  Upon the Company’s receipt of
notice from any of the holders of the Other Notes for redemption or repayment
as a result of an event or occurrence substantially similar to the events or
occurrences described in Section 4(b), Section 5(b), Section 10 or Section 11
(each, an “Other Redemption Notice”), the Company shall immediately,
but no later than one (1) Business Day of its receipt thereof, forward to the
Holder by facsimile a copy of such notice. 
If the Company receives a Redemption Notice and one or more Other
Redemption Notices, during the seven (7) Business Day period beginning on and
including the date which is three (3) Business Days prior to the Company’s
receipt of the Holder’s Redemption Notice and ending on and including the date
which is three (3) Business Days after the Company’s receipt of the Holder’s
Redemption Notice and the Company is unable to redeem all principal, interest
and other amounts designated in such Redemption Notice and such Other
Redemption Notices received during such seven (7) Business Day period, then the
Company shall redeem a pro rata amount from each holder of the Notes (including
the Holder) based on the principal amount of the Notes submitted for redemption
pursuant to such Redemption Notice and such Other Redemption Notices received
by the Company during such seven Business Day period.

(15)         VOTING
RIGHTS.  The Holder shall have no
voting rights as the holder of this Note, except as required by law, including,
but not limited to, the General Corporation Law of the State of Delaware, and
as expressly provided in this Note.

(16)         COVENANTS.

(a)           Rank.      All payments due under this
Note (a) shall rank pari passu with
all Other Notes and (b) shall be senior to all other Indebtedness of the
Company and its Subsidiaries other than Permitted Senior Indebtedness.

(b)           Incurrence of
Indebtedness.  So long as this Note is outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, incur or guarantee, assume or suffer to exist any
Indebtedness, other than Permitted Indebtedness.

(c)           Existence of Liens.  So
long as this Note is outstanding, the Company shall not, and the Company
shall not permit any of its Subsidiaries to, directly or indirectly, allow or
suffer to exist any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any property
or assets (including accounts and contract rights) owned by the Company
or any of its Subsidiaries (collectively, “Liens”)
other than Permitted Liens.

(d)           Restricted Payments.  The
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, redeem, defease, repurchase, repay or make any payments
in respect of, by the payment of cash or cash equivalents (in whole or in part,
whether by way of open market purchases, tender offers, private transactions or
otherwise), all or any portion of any Permitted Indebtedness, other than any
Permitted Senior Indebtedness, whether by way of payment in respect of
principal of (or premium, if any) or 

 23
 

 

interest on, such Indebtedness if at the time
such payment is due or is otherwise made or, after giving effect to such
payment, an event constituting, or that with the passage of time and without
being cured would constitute, an Event of Default has occurred and is continuing.

(e)           Restriction on
Redemption and Cash Dividends.  Until
all of the Notes have been converted, redeemed or otherwise satisfied in
accordance with their terms, other than Permitted Dividends and Redemptions,
the Company shall not, directly or indirectly, redeem, repurchase or declare or
pay any cash dividend or distribution on its capital stock without the prior
express written consent of the Required Holders; provided that the Company may at any time in its
discretion redeem the rights to purchase attached to, or in the future
separated from, the Common Shares pursuant to the Corporation’s Shareholder
Rights Plan, as it may be amended from time to time, or any similar successor
plan.

(17)         PARTICIPATION.  The Holder, as the holder of this Note, shall
be entitled to receive such dividends paid and distributions made to the
holders of Common Stock to the same extent as if the Holder had converted this
Note into Common Stock (without regard to any limitations on conversion herein
or elsewhere) and had held such shares of Common Stock on the record date for
such dividends and distributions. 
Payments under the preceding sentence shall be made concurrently with
the dividend or distribution to the holders of Common Stock.

(18)         VOTE TO ISSUE, OR
CHANGE THE TERMS OF, NOTES.  The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting of the Required Holders shall be required for any
change or amendment to this Note or the Other Notes.

(19)         TRANSFER.  This Note and any shares of Common Stock
issued upon conversion of this Note may be offered, sold, assigned or
transferred by the Holder without the consent of the Company, subject only to
the provisions of Section 2(f) of the Securities Purchase Agreement.

(20)         REISSUANCE
OF THIS NOTE.

(a)           Transfer.  If this Note is to be transferred, the Holder
shall surrender this Note to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Note (in accordance with
Section 20(d)), registered as the Holder may request, representing the
outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Note (in accordance
with Section 20(d)) to the Holder representing the outstanding Principal not
being transferred.  The Holder and any
assignee, by acceptance of this Note, acknowledge and agree that, by reason of
the provisions of Section 3(c)(iii) following conversion or redemption of any
portion of this Note, the outstanding Principal represented by this Note may be
less than the Principal stated on the face of this Note.

(b)           Lost,
Stolen or Mutilated Note.  Upon
receipt by the Company of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Note, and, in the case of
loss, theft or destruction, of any indemnification undertaking by the 

 24
 

 

Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 20(d)) representing the outstanding Principal.

(c)           Note Exchangeable
for Different Denominations.  This
Note is exchangeable, upon the surrender hereof by the Holder at the principal
office of the Company, for a new Note or Notes (in accordance with Section
20(d) and in principal amounts of at least $100,000) representing in the
aggregate the outstanding Principal of this Note, and each such new Note will
represent such portion of such outstanding Principal as is designated by the
Holder at the time of such surrender.

(d)           Issuance of New
Notes.  Whenever the Company is
required to issue a new Note pursuant to the terms of this Note, such new Note
(i) shall be of like tenor with this Note, (ii) shall represent, as indicated
on the face of such new Note, the Principal remaining outstanding (or in the
case of a new Note being issued pursuant to Section 20(a) or Section 20(c), the
Principal designated by the Holder which, when added to the principal represented
by the other new Notes issued in connection with such issuance, does not exceed
the Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note, which is the same as the Issuance Date of this Note,
(iv) shall have the same rights and conditions as this Note, and (v) shall
represent accrued and unpaid Interest and Late Charges, if any, on the
Principal and Interest of this Note, from the Issuance Date.

(21)         REMEDIES,
CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Note shall be
cumulative and in addition to all other remedies available under this Note and
any of the other Transaction Documents at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit the Holder’s right to pursue actual and consequential damages for
any failure by the Company to comply with the terms of this Note.  Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the Holder and shall not, except as
expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof).  The
Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Holder and that the remedy at law for any such
breach may be inadequate.  The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.

(22)         PAYMENT OF COLLECTION,
ENFORCEMENT AND OTHER COSTS.  If (a)
this Note is placed in the hands of an attorney for collection or enforcement
or is collected or enforced through any legal proceeding or the Holder otherwise
takes action to collect amounts due under this Note or to enforce the
provisions of this Note or (b) there occurs any bankruptcy, reorganization,
receivership of the Company or other proceedings affecting Company creditors’
rights and involving a claim under this Note, then the Company shall pay the
costs incurred by the Holder for such collection, enforcement or action or in
connection with such bankruptcy, reorganization, receivership or other
proceeding, including, but not limited to, 

 25
 

 

attorneys’ fees and disbursements.

(23)         CONSTRUCTION;
HEADINGS.  This Note shall be deemed
to be jointly drafted by the Company and all the Purchasers and shall not be
construed against any person as the drafter hereof.  The headings of this Note are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Note.

(24)         FAILURE
OR INDULGENCE NOT WAIVER.  No failure
or delay on the part of the Holder in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.

(25)         DISPUTE
RESOLUTION.  In the case of a dispute
as to the determination of the Closing Bid Price, the Closing Sale Price or the
Weighted Average Price or the arithmetic calculation of the Conversion Rate,
the Conversion Price or any Redemption Price, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within one (1)
Business Day of receipt, or deemed receipt, of the Conversion Notice or
Redemption Notice or other event giving rise to such dispute, as the case may
be, to the Holder.  If the Holder and the
Company are unable to agree upon such determination or calculation within one
(1) Business Day of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within one Business Day submit
via facsimile (a) the disputed determination of the Closing Bid Price, the
Closing Sale Price or the Weighted Average Price to an independent, reputable
investment bank selected by the Company and approved by the Holder or (b) the
disputed arithmetic calculation of the Conversion Rate, Conversion Price or any
Redemption Price to the Company’s independent, outside accountant.  The Company, at the Company’s expense, shall
cause the investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than five (5) Business Days from the time it receives the
disputed determinations or calculations. 
Such investment bank’s or accountant’s determination or calculation, as
the case may be, shall be binding upon all parties absent demonstrable error.

(26)         NOTICES;
PAYMENTS.

(a)           Notices.  Whenever notice is required to be given under
this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 10(f) of the Securities Purchase Agreement.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Note, including in
reasonable detail a description of such action and the reason therefore.  Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable
detail, and certifying, the calculation of such adjustment and (ii) at least
twenty (20) days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.

 26

 

(b)           Payments.  Whenever any payment of cash is to be made by
the Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the Purchasers, shall initially be as set forth on the Schedule
of Buyers attached to the Securities Purchase Agreement); provided that the
Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder’s wire transfer instructions.  Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day and, in
the case of any Interest Date which is not the date on which this Note is paid
in full, the extension of the due date thereof shall not be taken into account
for purposes of determining the amount of Interest due on such date.  Any amount of Principal or other amounts due
under the Transaction Documents which is not paid when due shall result in a
late charge being incurred and payable by the Company in an amount equal to
interest on such amount at the rate of fifteen percent (15%) per annum from the
date such amount was due until the same is paid in full (“Late
Charge”).

(27)         CANCELLATION.  After all Principal, accrued Interest and
other amounts at any time owed on this Note have been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

(28)         WAIVER
OF NOTICE.  To the extent permitted
by law, the Company hereby waives demand, notice, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default
or enforcement of this Note and the Securities Purchase Agreement.

(29)         GOVERNING
LAW.  This Note shall be construed
and enforced in accor­dance with, and all questions concerning the
construction, validity, interpretation and performance of this Note shall be
governed by, the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.  The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.  In the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law.  Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of this Note. 
Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against the Company in any
other jurisdiction to collect on the Company’s obligations to the Holder, to 

 27
 

 

realize on any
collateral or any other security for such obligations, or to enforce a judgment
or other court ruling in favor of the Holder. 
THE COMPANY HEREBY IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

(30)         CERTAIN
DEFINITIONS.  For purposes of this
Note, the following terms shall have the following meanings:

(a)           “Approved Stock Plan” means any employee benefit plan
which has been or shall have been approved by the Board of Directors of the
Company, pursuant to which the Company’s securities may be issued to any
employee, consultant, officer or director for services provided to the Company.

(b)           “Bloomberg” means Bloomberg Financial
Markets.

(c)           “Business Day” means any day other than Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.

(d)           “Calendar Quarter” means each of: the period
beginning on and including January 1 and ending on and including March 31; the
period beginning on and including April 1 and ending on and including June 30;
the period beginning on and including July 1 and ending on and including
September 30; and the period beginning on and including October 1 and ending on
and including December 31.

(e)           “Change of
Control” means any Fundamental Transaction other than (i) any
reorganization, recapitalization or reclassification of the Common Stock in
which holders of the Company’s voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (ii) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Company.

(f)            “Closing
Bid Price” and “Closing
Sale Price” means,
for any security as of any date, the last closing bid price and last closing
trade price, respectively, for such security on the Principal Market, as
reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the
closing trade price, as the case may be, then the last bid price or last trade
price, respectively, of such security prior to 4:00:00 p.m., New York Time, as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price or last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price or last trade price, respectively, of such 

 28
 

 

security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or,
if no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the “pink
sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the Closing Bid Price or the Closing Sale
Price cannot be calculated for a security on a particular date on any of the
foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case
may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder.  If the Company and the Holder are unable to
agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 25.  All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

(g)           “Closing Date”
shall have the meaning set forth in the Securities Purchase Agreement, which
date is the date the Company initially issued Notes pursuant to the terms of
the Securities Purchase Agreement.

(h)           “Common Stock
Deemed Outstanding” means, at any given time, the number of shares
of Common Stock outstanding at such time, plus the number of shares of Common
Stock deemed to be outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof
regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any Common Stock owned or held by or
for the account of the Company or issuable upon conversion of the Notes.

(i)            “Company
Conversion Price” means, the
lower of (i) the applicable
Conversion Price and (ii) that price which shall be computed as 88% of the arithmetic average of the Weighted
Average Price of the Common Stock on each of the twenty (20) consecutive
Trading Days commencing on the Trading Day immediately following the applicable
Installment Date (each such period, a “Company Conversion Measuring Period”); provided, however, that if the arithmetic average of the
Weighted Average Price of the Common Stock during the Company Conversion
Measuring Period is $1.00 or less, then the Company Conversion Price shall be
computed as 85% of the arithmetic average of the Weighted Average Price of the
Common Stock during the Company Conversion Measuring Period.  All
such determinations to be appropriately adjusted for any stock split, stock
dividend, stock combination or other similar transaction that proportionately
decreases or increases the Common Stock during such Company Conversion Measuring Period.

(j)            “Contingent
Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the
primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto.

(k)           “Conversion
Share Ratio” means, as to any Installment Date, the quotient of (i)
the number of Pre-Installment Conversion Shares delivered in connection with 

 29
 

 

such Installment Date divided by (ii) the number of
Post-Installment Conversion Shares relating to such Installment Date.

(l)            “Convertible Securities” means any stock or
securities (other than Options) directly or indirectly convertible into or
exercisable or exchangeable for Common Stock.

(m)          “Eligible
Market” means the Principal Market, The New York Stock Exchange,
Inc., the American Stock Exchange, the Nasdaq Global Select, the Nasdaq Global
Market or The Nasdaq Capital Market.

(n)           “Equity Conditions” means that each of the following
conditions is satisfied:  (i) on each day
during the period beginning six (6) month prior to the applicable date of
determination and ending on and including the applicable date of determination
(the “Equity Conditions Measuring Period”),
either (x) the Registration Statement filed pursuant to the Registration Rights
Agreement shall be effective and available for the resale of all remaining
Registrable Securities in accordance with the terms of the Registration Rights
Agreement and there shall not have been any Grace Periods (as defined in the
Registration Rights Agreement) or (y) all shares of Common Stock issuable upon
conversion of the Notes, exercise of the Warrants and as Interest Shares shall
be eligible for sale without restriction and without the need for registration
under any applicable federal or state securities laws; (ii) on each day during
the Equity Conditions Measuring Period, the Common Stock is designated for
quotation on the Principal Market or any other Eligible Market and shall not
have been suspended from trading on such exchange or market (other than
suspensions of not more than two (2) days and occurring prior to the applicable
date of determination due to business announcements by the Company) nor shall
delisting or suspension by such exchange or market been threatened or pending
either (A) in writing by such exchange or market or (B) by falling below the
then effective minimum listing maintenance requirements of such exchange or
market; (iii) during the one (1) year period ending on and including the date
immediately preceding the applicable date of determination, the Company shall
have delivered shares of Common Stock upon conversion of the Notes and upon
exercise of the Warrants to the holders on a timely basis as set forth in
Section 3(c)(ii) hereof (and analogous provisions under the Other Notes) and
Section 1(a) of the Warrants; (iv) any applicable shares of Common Stock to be
issued in connection with the event requiring determination may be issued in
full without violating Section 3(d) hereof and the rules or regulations of the
Principal Market or any applicable Eligible Market; (v) during the one (1) year
period ending on and including the date immediately preceding the applicable
date of determination, the Company shall not have failed to timely make any
payments within five (5) Business Days of when such payment is due pursuant to
any Transaction Document; (vi) during the Equity Conditions Measuring Period,
there shall not have occurred either (A) the public announcement of a pending,
proposed or intended Fundamental Transaction which has not been abandoned,
terminated or consummated, or (B) an Event of Default or (C) an event that with
the passage of time or giving of notice would constitute an Event of Default;
(vii) the Company shall have no knowledge of any fact that would cause (x) the
Registration Statements required pursuant to the Registration Rights Agreement
not to be effective and available for the resale of all remaining Registrable
Securities in accordance with the terms of the Registration Rights Agreement or
(y) any shares of Common Stock issuable upon conversion of the Notes, shares of
Common Stock issuable upon exercise of the Warrants and issuable as Interest
Shares not to be 

 30
 

 

eligible for sale without restriction
pursuant to Rule 144(k) and any applicable state securities laws; (viii) the
Company otherwise shall have been in compliance with and shall not have
breached any provision, covenant, representation or warranty of any Transaction
Document and (ix) after the Stockholder Meeting Deadline, the Company shall
have obtained the Stockholder Approval.

(o)           “Equity
Conditions Failure” means that (i) on any day during the period
commencing ten (10) Trading Days prior to the applicable Interest Date through
the applicable Interest Date, (ii) on any day during the period commencing ten
(10) Trading Days prior to the applicable Company Installment Notice Date through
the applicable Installment Date, (iii) on any day during the period commencing
ten (10) Trading Days prior to the applicable Optional Redemption Notice Date
through the applicable Optional Redemption Date, (iv) on any day during the
period commencing ten (10) Trading Days prior to the applicable Holder Optional
Conversion/Redemption Notice Date through the applicable Holder Optional
Conversion/Redemption Date, or (v) on any day during the period commencing ten
(10) Trading Days prior to the applicable dividend date with respect to such
Permitted Cash Dividend through the applicable dividend date, the Equity
Conditions have not been satisfied (or waived in writing by the Holder).

(p)           “Excluded Securities” means any Common Stock issued or
issuable: (i) in connection with any existing or hereinafter established
Approved Stock Plan; (ii) upon conversion of the Notes or the exercise of the
Warrants; (iii) as Interest Shares or as payment of Installment Amounts
pursuant to Section 8; (iv) in connection with any strategic acquisition or
transaction by the Company, whether through an acquisition of stock or a merger
of any business, assets or technologies the primary purpose of which is not to
raise equity capital; and (v) upon exercise of any Options or Convertible
Securities which are outstanding on the day immediately preceding the
Subscription Date, provided that the terms of such Options or Convertible
Securities are not amended, modified or changed on or after the Subscription
Date.

(q)           “Existing Promissory Notes” means those
promissory notes as referred to in Schedule 3(s) to the Securities Purchase
Agreement as Promissory Notes.

(r)            “Fundamental
Transaction” means that the Company shall, directly or indirectly, in one or more related transactions, (i)
consolidate or merge with or into (whether or not the Company is the surviving
corporation) another Person or Persons, or (ii) sell, assign, transfer, convey
or otherwise dispose of all or substantially all of the properties or assets of
the Company to another Person, or (iii) allow another Person to make a
purchase, tender or exchange offer that is accepted by the holders of more than
50% of the outstanding shares of Voting Stock (not including any shares of Voting Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another
Person whereby such other Person acquires more than the 50% of the
outstanding shares of Voting Stock (not
including any shares of Voting Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making
or party to, such stock purchase agreement or other business combination), or (v) reorganize, recapitalize
or reclassify its Common Stock or (vi) any “person” or “group” (as these

 31
 

 

terms are used for purposes of Sections 13(d)
and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50%
of the aggregate Voting Stock of the Company.

(s)           “GAAP”
means United States generally accepted accounting principles, consistently
applied.

(t)            “Holder
Balance Conversion Shares” means, for any Holder Optional
Conversion/Redemption Date, a number of shares of Common Stock equal to (i) the
Post-Conversion Shares for such date minus (ii)
the amount of any Pre-Conversion Shares delivered before or on such date;
provided that in the event that the amount of Pre-Conversion Shares exceeds the
Post-Conversion Shares for such date (such excess, the “Holder
Conversion Shares Excess”), the outstanding Principal under this
Note shall be reduced by an amount equal to the product of (x) the Holder
Conversion Share Excess and (y) the Optional Conversion Price (the “Holder Conversion Shares Excess Amount”)
and the Holder Balance Conversion Shares shall equal zero (0); provided,
however, that in the event that on any Holder Optional Conversion/Redemption
Date the entire outstanding Principal under this Note is being converted and/or
redeemed and, with respect to such date, there is a Holder Conversion Shares
Excess pursuant to the foregoing, the Holder shall pay to the Company in cash
an amount equal to the Holder Conversion Shares Excess Amount on the applicable
Holder Optional Conversion/Redemption Settlement Date.

(u)           “Holder
Conversion Share Ratio” means, as to the Holder Optional
Conversion/Redemption Date, the quotient of (i) the number of Pre-Conversion
Shares delivered in connection with such Holder Optional Conversion/Redemption
Date divided by (ii) the number of
Post-Conversion Shares relating to such Holder Optional Conversion/Redemption
Date.

(v)           “Holder Pro
Rata Amount” means a fraction (i) the numerator of which is the
Principal amount of this Note on the Closing Date and (ii) the denominator of
which is the aggregate principal amount of all Notes issued to the initial
purchasers pursuant to the Securities Purchase Agreement on the Closing Date.

(w)          “Indebtedness”
of any Person means, without duplication (i) all indebtedness for borrowed
money, (ii) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services, including (without limitation) “capital
leases” in accordance with GAAP (other than trade payables entered into in the
ordinary course of business), (iii) all reimbursement or payment obligations
with respect to letters of credit, surety bonds and other similar instruments,
(iv) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (v) all indebtedness created or
arising under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to any property or assets
acquired with the proceeds of such indebtedness (even though the rights and
remedies of the seller or bank under such agreement in the event of default are
limited to repossession or sale of such property), (vi) all monetary
obligations under any leasing or similar arrangement which, in connection with
GAAP, consistently applied for the periods covered thereby, is classified as a
capital lease, (vii) all indebtedness referred to in clauses (i) 

 32
 

 

through (vi) above secured by (or for which
the holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any mortgage, lien, pledge, charge, security interest or
other encumbrance upon or in any property or assets (including accounts and
contract rights) owned by any Person, even though the Person which owns such
assets or property has not assumed or become liable for the payment of such
indebtedness, and (viii) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (i) through (vii)
above.

(x)            “Initial
Company Conversion Price” means, as of any date of determination,
that price which shall be the lower of (i) the applicable Conversion Price and
(ii) that price computed as 90% of the lowest Weighted Average Price of the
Common Stock during the ten (10) consecutive Trading Day period ending two (2)
Trading Days prior to the Installment Date (such period, the “Initial Company Conversion Measuring Period”).  All
such determinations to be appropriately adjusted for any stock split, stock
dividend, stock combination or other similar transaction that proportionately
decreases or increases the Common Stock during such Initial Company Conversion
Measuring Period.

(y)           “Initial
Optional Conversion Price” means, as of any date of determination,
that price which shall be the lower of (i) the applicable Conversion Price and
(ii) that price computed as 90% of the lowest Weighted Average Price of the
Common Stock during the ten (10) consecutive Trading Day period ending two (2)
Trading Days prior to the Holder Optional Conversion/Redemption Date (such
period, the “Initial Optional Conversion Measuring Period”).  All such determinations to be appropriately
adjusted for any stock split, stock dividend, stock combination or other
similar transaction that proportionately decreases or increases the Common
Stock during such Initial Optional Conversion Measuring Period.

(z)            “Installment
Amount” means as to an Installment Date, an amount equal to the
lesser of (i) the product of (A) $388,889 multiplied
by (B) the Holder Pro Rata Amount and (ii) the Principal amount
under this Note as of such Installment Date, as any such Installment Amount may
be reduced pursuant to the terms of this Note, whether upon conversion,
redemption or otherwise.  In the event
the Holder shall sell or otherwise transfer any portion of this Note, the
transferee shall be allocated a pro rata portion of the each unpaid Installment
Amount hereunder.

(aa)         “Installment
Balance Conversion Shares” means, for any Installment Date, a number
of shares of Common Stock equal to (i) the Post-Installment Conversion Shares
for such date minus (ii) the amount of any
Pre-Installment Conversion Shares delivered before or on such date; provided
that in the event that the amount of Pre-Installment Conversion Shares exceeds
the Post-Installment Conversion Shares for such date (such excess, the “Installment Conversion Shares Excess”), the outstanding
Principal under this Note shall be reduced by, but not in an amount in excess
of the outstanding Principal of this Note at such time, an amount equal to the
product of (x) the Installment Conversion Share Excess and (y) the Company
Conversion Price and the Installment Balance Conversion Shares shall equal zero
(0).

(bb)         “Installment
Date” means, May 1, 2007 and, thereafter, the first (1st) day of each calendar month through
October 1, 2011.

 33
 

 

(cc)         “Interest Notice Due Date” means the
twenty-fifth (25th)
Trading Day prior to the applicable Interest Date.

(dd)         “Interest
Conversion Price” means, with respect to any Interest Date that
price which shall be the lower of (i) the applicable Conversion Price and (ii)
the price computed as 88% of the arithmetic average of the Weighted Average
Price of the Common Stock on each of the twenty (20) consecutive Trading Days
ending on the Trading Day immediately preceding the applicable Interest Date
(each, an “Interest Measuring Period”);
provided, however, that if such arithmetic average of the Weighted Average
Price during the Interest Measuring Period shall yield a price that is $1.00 or
less, then the Company Conversion Price shall be computed as 85% of the
arithmetic average of the Weighted Average Price of the Common Stock during the
Interest Measuring Period.  All such
determinations to be appropriately adjusted for any stock split, stock
dividend, stock combination or other similar transaction during such Interest
Measuring Period.

(ee)         “Interest
Rate” means, 6.95% per annum, subject
to adjustment as set forth in Section 2.

(ff)           “Make-Whole
Amount” means, as to any Conversion Amount being redeemed pursuant
to Section 9, an amount equal to the difference between (i) the present value
of Interest that, but for the applicable redemption, would have been paid to
the Holder on such Conversion Amount from the Optional Redemption Date through
the third (3rd) anniversary
of the Issuance Date and (ii) the amount of Interest already paid to the Holder
through the Optional Redemption Date.

(gg)         “Optional
Conversion Price” means, the lower of (i) the applicable Conversion
Price and (ii) that price which shall be computed as 85% of the arithmetic
average of the Weighted Average Price of the Common Stock for the sixty (60)
consecutive Trading Day period immediately following the applicable Holder
Optional Conversion/Redemption Date (each such period, an “Optional
Conversion/Redemption Measuring Period”).  All such determinations to be appropriately
adjusted for any stock split, stock dividend, stock combination during or other
similar transaction that proportionately decreases or increases the Common
Stock the applicable such Optional Conversion/Redemption Measuring Period.

(hh)         “Options”
means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.

(ii)           “Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more than one such
Person or Parent Entity, the Person or Parent Entity with the largest public
market capitalization as of the date of consummation of the Fundamental
Transaction.

(jj)           “Permitted
Dividends and Redemptions” means (i) such cash dividends payable
pursuant to Article 9(a) of the Certificate of Designations of the Series B
Preferred Stock of the Company (the “Series B
Preferred Stock”) which are outstanding on the 

 34
 

 

day immediately preceding the Subscription
Date and which may be issued pursuant to (iii) below in this subsection (jj),
(ii) such Liquidity Event Payments as defined in and pursuant to Article
9(c)(1) of the Certificate of Designations of the Series B Preferred Stock and
(iii) such additional shares of Series B Preferred Stock as may be issued in
the future as stock dividends pursuant to Article 9(a) of the Certificate of
Designations of the Series B Preferred Stock, provided, that, other than with
respect to clause (ii), no Equity Conditions Failure has occurred as of the
applicable dividend date; provided, further, that the terms of such Series B
Preferred Stock are not amended, modified or changed on or after the
Subscription Date.

(kk)         “Permitted
Indebtedness” means (i) the Indebtedness evidenced by this Note and
the Other Notes, (ii) Permitted Senior Indebtedness and (iii) other unsecured
Indebtedness incurred by the Company and/or any of its Subsidiaries that is
made expressly subordinate in right of payment to the Indebtedness evidenced by
this Note, as reflected in a written agreement acceptable to the Required
Holders and approved by the Required Holders in writing, and which Indebtedness
does not provide at any time for (A) the payment, prepayment, repayment,
repurchase or defeasance, directly or indirectly, of any principal or premium,
if any, thereon until ninety-one (91) days after the Maturity Date or later and
(B) total interest and fees at a rate in excess of the Interest Rate per annum.

(ll)           “Permitted Liens” means (i) any
Lien for taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a liability that is not yet due or
delinquent, (iii) any Lien created by operation of law, such as materialmen’s
liens, mechanics’ liens and other similar liens, arising in the ordinary course
of business with respect to a liability that is not yet due or delinquent or
that are being contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or held by the
Company or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition or lease of such equipment, or (B) existing on such equipment at
the time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
equipment, (v) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (i) and (iv) above, provided that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the existing Lien and the
principal amount of the Indebtedness being extended, renewed or refinanced does
not increase, (vi) leases or subleases and licenses and sublicenses granted to
others in the ordinary course of the Company’s business, not interfering in any
material respect with the business of the Company and its Subsidiaries taken as
a whole, (vii) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payments of custom duties in connection with the
importation of goods, (viii) Liens arising from judgments, decrees or
attachments in circumstances not constituting an Event of Default under Section
4(a)(ix) and (ix) Liens securing Permitted Senior Indebtedness.

(mm)       “Permitted
Senior Indebtedness” means (i) the principal of (and premium, if
any), interest on, and all fees and other amounts (including, without limitation,
any reasonable out-of-pocket costs, enforcement expenses (including reasonable
out-of-pocket legal fees and disbursements), collateral protection expenses and
other reimbursement or indemnity 

 35
 

 

obligations relating thereto) payable by
Company and/or its Subsidiaries under or in connection with any credit facility
or other loan or financing presently outstanding to or from time to time to be
entered into by the Company and/or its Subsidiaries with one or more financial
institutions (and on terms and conditions) or other, which, in the case of
future facilities, loans or financing, are in form and substance reasonably
satisfactory to the Required Holders, including without limitation any Existing
Promissory Notes, so long as such Existing Promissory Notes are not amended,
modified or changes on or after the Subscription Date; provided, however,
that the aggregate outstanding amount of such Indebtedness permitted hereunder
(taking into account the maximum amounts which may be advanced under the loan
documents evidencing such Permitted Senior Indebtedness) does not at any time
exceed $5,000,000 and (ii) Indebtedness incurred in connection with the
financing of dispensing equipment.

(nn)         “Person” means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any
department or agency thereof.

(oo)         “Post-Conversion
Shares” means, for the Holder Optional Conversion/Redemption Date,
that number of shares of Common Stock equal to the applicable Holder Optional
Conversion Amount for such Holder Optional Conversion/Redemption Date divided by the Optional Conversion
Price (without taking into account the delivery of any Pre-Conversion Shares).

(pp)         “Post-Installment
Conversion Shares” means, for any Installment Date, that number of
shares of Common Stock equal to the applicable Company Conversion Amount for
such Installment Date divided by
the Company Conversion Price (without taking into account the delivery of any
Pre-Installment Conversion Shares).

(qq)         “Principal Market” means the OTC Bulletin
Board.

(rr)           “Redemption
Notices” means, collectively, the Event of Default Redemption
Notices, the Change of Control Redemption Notices, the Company Installment Notice
(if a Company Redemption has been elected), the Company Optional Redemption
Notice and the Company Conversion/Redemption Election Notices (if a Holder
Optional Redemption has been elected), each of the foregoing, individually, a
Redemption Notice.

(ss)         “Redemption
Premium” means (i) in the case of the Events of Default described in
Section 4(a)(i) - (vi) and (ix) - (xii), 125% or (ii) in the case of the Events
of Default described in Section 4(a)(vii) - (viii), 100%.

(tt)           “Redemption
Prices” means, collectively, the Event of Default Redemption Price,
Change of Control Redemption Price, the Company Installment Redemption Price,
the Company Optional Redemption Price and the Holder Optional Redemption Price,
each of the foregoing, individually, a Redemption Price.

(uu)         “Registration Rights Agreement” means that certain registration
rights agreement dated as of the Subscription Date by and among the Company and
the initial holders of the Notes relating to, among other things, the
registration of the resale of the Common Stock issuable upon conversion of the
Notes and exercise of the Warrants.

 36
 

 

(vv)         “Required
Holders” means the holders of Notes representing at least two-thirds
(2/3rds) of the aggregate principal amount of the Notes then outstanding.

(ww)       “SEC” means the United States Securities
and Exchange Commission.

(xx)          “Securities Purchase Agreement” means that certain securities
purchase agreement dated as of the Subscription Date by and among the Company
and the initial holders of the Notes pursuant to which the Company issued the
Notes and Warrants.

(yy)         “Series B
Warrants” has the meaning ascribed to such term in the Securities
Purchase Agreement, and shall include all warrants issued in exchange therefor
or replacement thereof.

(zz)          “Subscription
Date” means December 14, 2006.

(aaa)       “Successor Entity” means the Person, which may be the Company, formed by, resulting from or
surviving any Fundamental Transaction or the Person with which such Fundamental
Transaction shall have been made, provided that if such Person is not a publicly
traded entity whose common stock or equivalent equity security is quoted or
listed for trading on an Eligible Market, Successor Entity shall mean such
Person’s Parent Entity.

(bbb)      “Trading Day” means any day on which the Common
Stock is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock is then traded;
provided that “Trading Day” shall not include any day on which the Common Stock
is scheduled to trade on such exchange or market for less than 4.5 hours or any
day that the Common Stock is suspended from trading during the final hour of
trading on such exchange or market (or if such exchange or market does not
designate in advance the closing time of trading on such exchange or market,
then during the hour ending at 4:00:00 p.m., New York Time).

(ccc)       “Voting Stock” of a Person means capital stock of such Person
of the class or classes pursuant to which the holders thereof have the general
voting power to elect, or the general power to appoint, at least a majority of
the board of directors, managers or trustees of such Person (irrespective of
whether or not at the time capital stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency).

(ddd)      “Warrants” has the meaning ascribed to such
term in the Securities Purchase Agreement, and shall include all warrants
issued in exchange therefor or replacement thereof.

(eee)       “Weighted Average Price” means, for any security as of any
date, the dollar volume-weighted average price for such security on the
Principal Market during the period beginning at 9:30:01 a.m., New York Time (or
such other time as the Principal Market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other time as
the Principal Market publicly announces is the official close of trading) as
reported by Bloomberg through its “Volume at Price” functions, or, if the
foregoing does not 

 37
 

 

apply, the dollar volume-weighted average
price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30:01 a.m.,
New York Time (or such other time as such market publicly announces is the
official open of trading), and ending at 4:00:00 p.m., New York Time (or such
other time as such market publicly announces is the official close of trading)
as reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the “pink sheets” by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.). 
If the Weighted Average Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Weighted Average Price of
such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. 
If the Company and the Holder are unable to agree upon the fair market
value of such security, then such dispute shall be resolved pursuant to Section
25.  All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during the applicable calculation period.

(31)         DISCLOSURE.
Upon receipt or delivery by the Company of any notice in accordance with the
terms of this Note, unless the Company has in good faith determined that the
matters relating to such notice do not constitute material, nonpublic
information relating to the Company or its Subsidiaries, the Company shall
within one (1) Business Day after any such receipt or delivery publicly
disclose such material, nonpublic information on a Current Report on Form 8-K
or otherwise.  In the event that the
Company believes that a notice contains material, nonpublic information
relating to the Company or its Subsidiaries, the Company so shall indicate to
such Holder contemporaneously with delivery of such notice, and in the absence
of any such indication, the Holder shall be allowed to presume that all matters
relating to such notice do not constitute material, nonpublic information
relating to the Company or its Subsidiaries.

[Signature Page
Follows]

 38

 

IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the Issuance Date set out above.

	
  

  	
  Javo Beverage Company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Cody C. Ashwell

  	
   

  
	
   

  	
   

  	
   Name: Cody C. Ashwell

  
	
   

  	
   

  	
   Title:

  	
  Chairman and Chief Executive 

  Officer

  
					

 

 

EXHIBIT I

JAVO BEVERAGE COMPANY

CONVERSION NOTICE

Reference is made to the
Senior Convertible Note (the “Note”) issued
to the undersigned by Javo Beverage Company (the “Company”).  In accordance with and
pursuant to the Note, the undersigned hereby elects to convert the Conversion
Amount (as defined in the Note) of the Note indicated below into shares of
Common Stock par value $0.001 per share (the “Common Stock”) of the Company, as of the date
specified below.

	
   

  	
  Date of Conversion:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Aggregate Conversion Amount to be converted:

  	
   

  
	
   

  	
   

  
	
  Please confirm the following information:

  
	
   

  
	
   

  	
  Conversion Price:

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of shares of Common Stock to be issued:

  	
   

  
	
   

  	
   

  
	
  Please issue the Common Stock into which the Note is
  being converted in the following name and to the following address:

  
	
   

  
	
   

  	
  Issue to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Facsimile Number:

  	
   

  
	
   

  	
   

  
	
   

  	
  Authorization:

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  
	
   

  	
   

  
	
   

  	
  Account Number:

  	
   

  
	
   

  	
    (if electronic book entry transfer)

  
	
   

  	
   

  
	
   

  	
  Transaction Code Number:

  	
   

  
	
   

  	
    (if electronic book entry transfer)

  
	
   

  
	
  Installment Amounts to be reduced and amount of
  reduction:

  	
   

  
														

 

 

Notwithstanding
anything to the contrary contained herein, this Conversion Notice shall
constitute a representation by the holder of the Note submitting this
Conversion Notice that, after giving effect to the conversion provided for in
this Conversion Notice, such holder (together with its affiliates) will not
have beneficial ownership (together with the beneficial ownership of such
Person’s affiliates) of a number of shares of Common Stock which exceeds the
Maximum Percentage of the total outstanding shares of Company Common Stock as
determined pursuant to the provisions of Section 3(d)(i) of the Note.

 

ACKNOWLEDGMENT

The Company hereby
acknowledges this Conversion Notice and hereby directs Corporate Stock Transfer, Inc. to issue the
above indicated number of shares of Common Stock in accordance with the
Transfer Agent Instructions dated December 15, 2006 from the Company and
acknowledged and agreed to by Corporate Stock
Transfer, Inc.

	
   

  	
  JAVO BEVERAGE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   Name:

  
	
   

  	
   

  	
   Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}]]