Document:

Exhibit
10.1

CONFIDENTIAL TREATMENT

 

Portions of this
exhibit have been omitted pursuant to a request for confidential treatment
filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under
the Securities Exchange Act of 1934. Such Portions are marked "[*]"
in this document; they have been filed separately with the Commission.

 

CONTRACT

BETWEEN

GLOBALSTAR,
INC.

AND

ALCATEL
ALENIA SPACE FRANCE

FOR THE CONSTRUCTION OF

THE GLOBALSTAR SATELLITE

FOR THE
SECOND GENERATION CONSTELLATION

CONTRACT NUMBER GINC-C-06- 0300

(as amended through December 12, 2006)

 

TABLE OF
CONTENTS

	
  

  	
   

  	
  Article

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
   

  	
  Definitions

  	
   

  	
  3

  
	
  2.

  	
   

  	
  Scope and Exhibits

  	
   

  	
  9

  
	
  3.

  	
   

  	
  Purchaser’s Undertakings

  	
   

  	
  11

  
	
  4.

  	
   

  	
  Total Price

  	
   

  	
  13

  
	
  5.

  	
   

  	
  Bonus Payments

  	
   

  	
  14

  
	
  6.

  	
   

  	
  Delivery and Delivery Schedule

  	
   

  	
  18

  
	
  7.

  	
   

  	
  Payment

  	
   

  	
  19

  
	
  8.

  	
   

  	
  Inspection and Acceptance

  	
   

  	
  23

  
	
  9.

  	
   

  	
  Title and Risk of Loss

  	
   

  	
  25

  
	
  10.

  	
   

  	
  Access to Work in Progress

  	
   

  	
  26

  
	
  11.

  	
   

  	
  Progress Meeting, Presentations and Reports

  	
   

  	
  26

  
	
  12.

  	
   

  	
  Intellectual Property Rights

  	
   

  	
  27

  
	
  13.

  	
   

  	
  Public Release of Information

  	
   

  	
  28

  
	
  14.

  	
   

  	
  Confidentiality

  	
   

  	
  29

  
	
  15.

  	
   

  	
  Intellectual Property Rights Indemnity

  	
   

  	
  29

  
	
  16.

  	
   

  	
  Limitation of Liability

  	
   

  	
  30

  
	
  17.

  	
   

  	
  Excusable Delays

  	
   

  	
  32

  
	
  18.

  	
   

  	
  Liquidated Damages for Late Delivery

  	
   

  	
  33

  
	
  19.

  	
   

  	
  Request For Deviation (RFD)/Request For Waivers
  (RFW) and Changes

  	
   

  	
  36

  
	
  20.

  	
   

  	
  Termination for Default

  	
   

  	
  36

  
	
  21.

  	
   

  	
  Termination for Convenience

  	
   

  	
  38

  
	
  22.

  	
   

  	
  Stop Work

  	
   

  	
  39

  
	
  23.

  	
   

  	
  Arbitration

  	
   

  	
  42

  
	
  24.

  	
   

  	
  Warranty

  	
   

  	
  43

  
	
  25.

  	
   

  	
  Communication and Authority

  	
   

  	
  45

  
	
  26.

  	
   

  	
  RESERVED

  	
   

  	
  46

  
	
  27.

  	
   

  	
  Licenses for Export and Launch

  	
   

  	
  46

  
	
  28.

  	
   

  	
  Spacecraft Storage

  	
   

  	
  47

  
	
  29.

  	
   

  	
  Options

  	
   

  	
  48

  
	
  30.

  	
   

  	
  Key Personnel

  	
   

  	
  50

  
	
  31.

  	
   

  	
  Indemnification and Insurance

  	
   

  	
  51

  
	
  32.

  	
   

  	
  Effective Date of Contract

  	
   

  	
  53

  
	
  33.

  	
   

  	
  Representations

  	
   

  	
  53

  
	
  34.

  	
   

  	
  General Provisions

  	
   

  	
  54

  

 

 2

 

This Contract dated as of
the 30th day of
November 2006, made between Alcatel Alenia
Space France, a company organized under the laws of France and
having its registered office at 12, rue de la Baume 75008 Paris, France (“Contractor”)
and Globalstar, Inc., a Delaware
corporation with offices at 461 South Milpitas Blvd., Milpitas, California
95035, U.S.A. (“Purchaser”).

Recitals

Whereas, Purchaser desires to procure forty eight (48) satellites and
other Deliverable Items and related services ; and

Whereas, Contractor desires to provide such satellites and other
Deliverable Items and related services, all in accordance with the terms and
conditions of this Contract ; and

Whereas, Purchaser may create an Irish General Partnership (“NEWCO”)
to be a party to the Escrow Agreement (as defined below) ; and

Now
therefore, the
Parties hereto, in consideration of the mutual covenants herein expressed,
agree with each other as follows:

Terms and
Conditions

Article 1.  Definitions

As
used in this Contract, the following terms have the meanings indicated :

“Accelerated Delivery” shall mean the
accelerated delivery of the Spacecraft which may be delivered under Phase 3 as
set forth in Exhibit F2.

“Accelerated Scenario” shall mean
both the scenario as set forth in Exhibit F2 for an Accelerated Delivery or in
Exhibit F3 for an Aggressively Accelerated Delivery or any other mutually
agreed upon accelerated scenario.

“Aggressively
Accelerated
Delivery”
shall mean the aggressively accelerated delivery of the Spacecraft which may be
delivered under Phase 3 as set forth in Exhibit F3.

“Anomaly Support” shall mean the support provided by
Contractor to Purchaser for the first year after the date of the first
successful launch of Spacecraft, as described in greater detail in Exhibit A.

“Authorization To Proceed”
or “ATP” shall mean the document executed by Purchaser and Contractor dated
October 4th, 2006, as amended from time to time,
authorizing Contractor to proceed with certain Work prior to entry into force
of this Contract.

 3
 

 

“Available for Shipment” means that a Satellite has successfully
undergone a Pre-Shipment Review in accordance with section 5.8 of Exhibit A and has been declared ready
to be shipped either to the Launch Site or to the storage location as set
forth in Article 29.

“Background IP” shall mean Intellectual Property
developed and owned by Contractor prior to entering into this Contract or
outside the scope of this Contract which will be utilized or incorporated by
Contractor into any Deliverable Item under this Contract.

“Batch” shall mean each group of Spacecraft to be
installed on the same Launch Vehicle dispenser and to be launched on such
Launch Vehicle.

“Bonus Payments” shall mean the payments which may
be made pursuant to the provisions of Article 5.

“Business
Day” means a day which Purchaser and Contractor are both open for business,
other than a Saturday, Sunday or other day on which commercial banks in New
York City, France, or the State of California are authorized or required by law
to close.

“Contract”
shall mean this Contract between Purchaser and Contractor, including all
Exhibits and Appendices referenced herein, and all amendments that may be made hereto
and thereto.

“Contractor”
shall mean Alcatel Alenia Space France.

“Contractor
Indemnitees” shall have the meaning ascribed to it in Article 31(B).

“Day”
shall mean, whether or not capitalized, a calendar day.

“Deliverable
Items” shall mean those
items set forth in Article 2(C).

“Delivery” shall mean the delivery of Deliverable
Items as set forth in Article 6.

“Delivery Schedule” shall mean the timetables for
Delivery of the Deliverable Items as set forth in Article 6.

“Documentation” shall mean the documentation to be
supplied by Contractor to Purchaser as listed in Exhibit A.

“DSS” shall mean Dynamic Satellite Simulator
software in executable form, including updated versions, as described in
Exhibit E.

“EDC” shall mean the effective date of this Contract
as set forth in Article 32.

 4
 

 

“Escrow Account” shall mean the escrow
account to be opened by Purchaser and/or NEWCO with the Escrow Agent pursuant
to the Escrow Agreement, as set forth in Article 7(I).

“Escrow Agent” shall mean UBS AG, Bahnhofstrasse 45, 8098 Zurich, Switzerland,
or such other banking institution that the Parties shall agree upon.

“Escrow
Agreement” shall mean the escrow agreement to be entered into among Contractor,
Escrow Agent and Purchaser and/or NEWCO.

“Factory Acceptance Test Review” shall have the
meaning set forth in section 5.16 of Exhibit A.

“Final Acceptance” shall be as described in Article
8(A) with respect to Spacecraft and as described in Article 8(B) with respect
to DSSs.

“Flight
Readiness Review”
or “FRR”
shall mean the review described in section 5.10 of Exhibit A.

“Foreground IP” shall mean Intellectual Property
developed, conceived or first actually reduced to practice by the Contractor in
the performance of Work under this Contract.

“Globalstar
System” shall mean the system consisting of the Satellites, Ground Control Network, network control centers and
user terminals for the provision of communications services.

“Ground Control Network” shall mean the items to be
provided by Purchaser composed of the following : (i) Satellite Control Network,
(ii) the gateway RF terminals and (iii) the Globalstar data network.

“Ground
Support Equipment” or “GSE” shall mean all equipment used or necessary to
permit the transportation, handling, integration and test of the Spacecraft
during factory validation testing and pre-Launch operations.

“Intellectual Property” or “IP” shall mean all intellectual
property, including without limitation, inventions, patents, copyrights, trade
secrets, DSS, Satellite OBPE Software, Documentation including Technical Data,
discoveries, technical know-how, techniques, procedures, methods, designs,
improvements or innovations.

“Intentional Ignition” shall mean the moment in time, as indicated in the
automatic sequence control equipment, when the intentional ignition of
the first stage engine occurs.  This
definition will be adjusted as necessary to be consistent with the Launch
Services Agreement and the Launch Insurance.

 5
 

 

“Interest
Rate” shall mean the One Month EURIBOR as established by the European Financial
Markets Association (ACI) and European Banking Federation (EBF) and as
published on their joint website at
http://www.euribor.org/html/content/euribor_data.html on the payment due date
plus [*] basis points (such one-month EURIBOR rate to “float” by being
re-determined on the first day of each calendar month).

“Key
Person” shall have the meaning ascribed to it in Article 30(A).

“Key
Personnel” shall have the meaning ascribed to it in Article 30(A).

“Launch
Date”
shall mean each date
scheduled for Launch of one or more Satellites.

“Launch
Insurance” means, with respect to the Satellites, insurance that covers such
Satellites from the period beginning at Intentional Ignition, at coverage
levels determined at sole discretion of Purchaser.

“Launch
Readiness Review”
or “LRR”
shall mean the review described in section 5.11 of Exhibit A.

“Launch Services” shall mean the services provided
by a Launch Services Provider pursuant to a Launch Services Agreement.

“Launch Services Agreement” shall mean each
agreement between a Launch Services Provider and Purchaser for the launch of
one or more Spacecraft.

“Launch Services Provider” shall mean each company with whom Purchaser
contracts for the launch of one or more Spacecraft.

“Launch Site” shall mean each launch facility
provided by a Launch Services Provider, including all buildings and testing,
storage and other facilities thereon.

“Launch Support Services” shall mean the services
Contractor shall provide pursuant to this Contract in support of the launch of
the Spacecraft, as more fully set forth in section 3.4 of Exhibit A.

“Launch Vehicle” shall mean each vehicle provided by
the Launch Services Providers on which one or more Spacecraft are to be
launched. The list of possible Launch Vehicles is included in section 1.1 of
Exhibit A.

“Licensed Items” shall mean any Deliverable Items
being furnished pursuant to, or to be utilized in connection with, this
Contract which require the approval, permission or license from a government
with respect to export control laws of such government.

“Milestone
Events” shall mean those milestones which are eligible for payment as set forth
in the column entitled “Milestone Events” in Exhibit F1, F2 or F3, as
applicable.

 6
 

 

“Mission Operations Support Services”  or “MOSS” shall
mean the services Contractor shall provide pursuant to this Contract as more
fully set forth in section 3.5 of Exhibit A.

“NEWCO”
shall have the meaning ascribed to it in the third paragraph of the Recitals.

“Party”
or “Parties” shall mean one or both of Contractor and Purchaser.

“Phase”
shall mean each of the phases according to which the Contract shall be
performed as set forth in Article 2(D) and Exhibit F.

“Preliminary
Design Review” or “PDR” shall mean the review described in section 5.4.1 of Exhibit A.

“Pre-Shipment
Review” or “PSR” shall mean the review described in section 5.8 of Exhibit A.

“Pre-Shipment Review Acceptance Certificate” shall
mean the certification as set forth in Article 8, provided by Contractor to
Purchaser upon successful completion of a Pre-Shipment Review.

“Program
Readiness Review” or “PRR” shall mean the review described in section 5.2 of Exhibit A.

“Proto-Flight Model Spacecraft” or “PFM” shall mean the Spacecraft which
shall be tested at qualification levels and acceptance duration as a proto
flight model.

“Purchaser”
shall mean Globalstar, Inc.

“Purchaser
Indemnitees” shall have the meaning ascribed to it in Article 31(A).

“Purchaser
Residents” shall mean the employees or representatives of Purchaser located in
the Contractor’s facilities for the purpose of technical management of the
Contract.

“Regular Delivery” shall mean the
delivery of the Spacecraft to be delivered under Phase 3 as set forth in
Exhibit F1.

“Satellite”
or “Spacecraft” shall mean any spacecraft to
be constructed and delivered pursuant to this Contract, as generally described
in Exhibit A and Exhibit B.

“Satellite Control Network” shall mean the items to
be provided by Purchaser composed of the following : (i) Satellite
Operations Control Centers (SOCCs) (Main, Development and Back Up SOCCs), (ii)
the Telemetry Command Units (TCUs) and (iii) the In Orbit Test Equipment (MCE and
CMA), as set forth in section 6.5 of Exhibit A.

 7
 

 

“Satellite OBPE Software” shall mean the
software in executable form and source code form, including updated versions,
to be delivered as set forth in section 3.1 of Exhibit A.

“Satellite Post-Shipment Verification Review” shall
mean a visual inspection by Contractor of a Satellite after delivery to the
Launch Site, to verify that the Satellite has not been degraded during
transportation from Contractor’s facility, as set forth in section 5.9 of
Exhibit A.

“Simulator Completion Review” shall mean
verification of a DSS performance in stand-alone mode, similar to the Factory
Acceptance Test Review, but after installation at Purchaser’s designated DSS
installation site, as set forth in section 1.1 and section 5.16 of Exhibit A.

“Stop Work Order” shall mean a written order from
Purchaser to Contractor requesting that Contractor cease, and cause
Subcontractors (as applicable) to cease, performance of all or part of the Work
for the period specified in such order, as such period may be extended in
accordance with the Contract, as set forth in Article 22(A).

“Storage Plan” shall mean a plan for the storage of
one or more Spacecraft at a site designated in the plan, as set forth in
section 3.6.1 of Exhibit A.

“Subcontractors”
shall mean all subcontractors of Contractor at any tier.

“Technical Data” shall mean information which is required for the
design, development, production, manufacture, assembly, operation, repair,
testing, maintenance or modification of the Spacecraft and the DSS, including
documentation.

“Total
Price” shall mean the firm fixed price payable for the Work as defined in
Article 4(A).

“US
Dollar” or “USD” shall mean a dollar of United States currency.

“WIP” shall mean all Work in progress.

“Work”
shall mean all design, development, construction, manufacturing, labor,
services, and acts
of Contractor, including
tests to be performed, required under Exhibit A (except section 6
thereof), and including all
equipment, materials, articles, matters, services and things to be furnished by
Contractor under this Contract.

 8
 

 

Article
2.  Scope and Exhibits

(A)      Contractor
shall provide the necessary personnel, material, services and facilities to
perform the Work in accordance with the provisions of this Contract, including
the Exhibits and Appendices listed below, which are attached hereto or
incorporated by reference and made a part hereof, and to make delivery to
Purchaser in accordance with the Delivery Schedule as provided in Article 6 :

	
  Exhibit A

  	
   

  	
  GBS2 Space Segment Globalstar Statement of Work

  
	
   

  	
   

  	
  Ref GS-06-1130 dated October 1, 2006 – Issue 01

  
	
  Exhibit B

  	
   

  	
  Globalstar II LEO Satellite Requirements Document

  
	
   

  	
   

  	
  Ref 3474-05-0016 issue 3.4 dated November 28, 2006

  
	
  Exhibit C

  	
   

  	
  Program Test Plan (as set forth in Exhibit A)

  
	
  Exhibit D

  	
   

  	
  Globalstar 2 Product Assurance Plan

  
	
   

  	
   

  	
  Ref 200217065 S, Version 03 dated November 24,
  2006

  
	
  Exhibit E

  	
   

  	
  Globalstar Dynamic Satellite Simulator Requirements
  Document

  
	
   

  	
   

  	
  Ref 3474-05-0023 Rev 1_V2, dated November 20, 2006

  
	
  Exhibit F

  	
   

  	
  Payment Plans

  
	
  Exhibit G

  	
   

  	
  Form of Escrow Agreement

  
	
  Exhibit H

  	
   

  	
  Bonus Payments Criteria (EBITDA and satisfactory
  operation)

  
	
  Exhibit I

  	
   

  	
  Globalstar Patent Portfolio

  
	
   

  	
   

  	
   

  
	
  Appendix 1

  	
   

  	
  Mutual Nondisclosure Agreement between Globalstar,
  Inc and Alcatel Alenia Space France, dated November 2nd 2006.

  
	
   

  	
   

  	
   

  
	
  Appendix 2

  	
   

  	
  Technical Assistance Agreement (DTC Case TA
  3474-05), dated December 14, 2005; approved by U.S. Dept. State, March 22,
  2006 and subsequent amendments.

  
	
   

  	
   

  	
   

  
	
  Appendix 3

  	
   

  	
  Technical Assistance Agreements for Launch Services
  (to be entered into)

  

 

The Parties agree that Exhibit B shall be replaced by a Satellite
Performance Specification, CDRL SYS-01, defined in Exhibit A, on or before one
(1) month following conduct of the Program Readiness Review.

The Parties agree that Exhibit C shall be replaced by a Satellite
Program Test Plan, CDRL SYS-11, defined in Exhibit A, on or before one (1)
month following conduct of the Program Readiness Review.

(B)       In
case of any inconsistencies among the articles of this Contract and any of the
Exhibits, the following order of precedence shall apply :

 9
 

 

 

	
  Appendix 2

  	
   

  
	
  Terms and Conditions of Contract

  	
   

  
	
  All other Appendices

  	
   

  
	
  Exhibit F

  	
  Payment Plans

  
	
  Exhibit A

  	
  GBS2 Space Segment Globalstar Statement of Work

  
	
   

  	
  Ref GS-06-1130 dated October 1, 2006 — Issue 01

  
	
  Exhibit B

  	
  Globalstar II LEO Satellite Requirements Document

  
	
   

  	
  Ref 3474-05-0016 issue 3.4 dated November 28, 2006

  
	
  Exhibit C

  	
  Program Test Plan (as set forth in Exhibit A)

  
	
  Exhibit D

  	
  Globalstar 2 Product Assurance Plan

  
	
   

  	
  Ref 200217065 S, Version 03 dated November 24, 2006

  
	
  Exhibit E

  	
  Globalstar Dynamic Satellite Simulator Requirements
  Document

  
	
   

  	
  Ref 3474-05-0023 Rev 1_V2, dated November 20, 2006

  
	
  Exhibit G

  	
  Form of Escrow Agreement

  
	
  Exhibit H

  	
  Bonus Payments Criteria (EBITDA and satisfactory
  operation)

  
	
  Exhibit I

  	
  Globalstar Patent Portfolio

  
			

 

(C)       The scope of this
Contract is the design, production, testing, and delivery of the equipment and
services, as summarized in this Article 2(C), and represents a firm commitment
by Contractor and a firm order by Purchaser for all equipment and
services.  The following constitute the
Deliverable Items :

(i)            Forty
eight (48) low earth-orbiting communications Spacecraft, one of which shall be
a PFM. The Spacecraft shall be manufactured to meet all requirements of this
Contract (including Exhibits A and B), tested in accordance with Exhibit C,
delivered and processed at the selected Launch Site, or delivered to storage at
Purchaser’s direction, in accordance with Article 29.

(ii)           Two
(2) DSSs, as described in Exhibit E.

(iii)          Launch
Support Services for the Spacecraft, including launch vehicle integration, as
generally described in section 3.4 of Exhibit A.

(iv)          Mission
Operations Support Services (including training of Purchaser’s personnel and
in-orbit testing of the Spacecraft), as described in section 3.5 of Exhibit A.

(v)           Anomaly
Support as described in section 3.5.4 of Exhibit A.

(vi)          Documentation
as described in section 4 of Exhibit A.

(vii)         Satellite
OBPE Software for the Spacecraft as described in section 3.1 of Exhibit A.

(viii)        On-board
propellant for each Spacecraft.

 10
 

 

In
addition to delivering the Deliverable Items set forth herein, Contractor will provide all
Ground Support Equipment, which shall be used by Contractor and remain its
property.

(D)       The Work shall be performed pursuant to the following Phases :

(i)         Phase 1 and 2 include non-recurring engineering and
manufacture of a PFM and the manufacture and delivery of twenty-four (24)
Spacecraft with associated Launch Support Services and MOSS ; and

(ii)        Phase 3 includes the manufacture and delivery of twenty-three
(23) Spacecraft and the PFM with associated Launch Support Services. For the
first successful launch of Satellites delivered under Phase 3 Regular Delivery,
Contractor shall assign satellite specialists (including payload, thermal,
AOCS, power, data handling, mission analysis) to support Purchaser for the
early operations (spacecraft acquisition, stabilization, initialization and
orbit raising).

Article 3. Purchaser’s Undertakings

(A)       Purchaser’s
undertakings are contained in or identified in this Contract and Exhibit
A.  In particular, Purchaser shall
perform the following :

(i)         Purchaser will procure the Launch Services to perform the
launch mission including the Satellite(s) dispenser in accordance with one or
more Launch Services Agreements with one or more Launch Services Providers. As
promptly as practicable, and in any event no later than three (3) months after
PDR as set forth in section 3.4.2 of Exhibit A, Purchaser will designate in
writing to Contractor the selected Launch Services Provider(s) (with a maximum
of two (2)), the Launch Sites and the targeted launch periods. Purchaser will
also promptly notify Contractor in the event of any changes in any launch
schedule after Purchaser learns of such changes. Purchaser shall use its
reasonable best efforts to cause each selected Launch Services Provider to name
Contractor and its Subcontractors as additional insureds under each such Launch
Services Provider’s launch risk third-party liability insurance policy.

(ii)        Purchaser will furnish to Contractor decryptor cards and
documentation for each Spacecraft as set forth in section 6.3 of Exhibit A. The
decryptor cards and documentation shall
be transported at Purchaser’s risk and expense Delivered Duty Unpaid, Incoterms
2000, to the place and at the date as set forth in section 6.3 of Exhibit A.
Any defect on such items or part thereof delivered by Purchaser to Contractor
shall be corrected or replaced at Purchaser’s expense and any costs incurred by
Contractor as a result of such defect and documented to Purchaser shall be
borne by Purchaser.

 11
 

 

(iii)       Purchaser shall provide, at
Purchaser’s Satellite Operations Control Center (“SOCC”) facilities, two (2)
computers and a Satellite OBPE Software development workstation to host the
software for the DSS as set forth in section 6.6 of Exhibit A.

(iv)       Subject to government requirements, Purchaser will arrange
with the Launch Services Provider to provide to Contractor and its
Subcontractors free of charge access to the Launch Sites, utilities (including
without limitation power, phone and data lines) and services (including without
limitation transportation) at the Launch Sites necessary to permit Contractor
to (i) support the launch schedule; (ii) conduct testing and (iii) provide the
Launch Support Services.

(v)        Subject to government requirements, Purchaser will provide
access to Contractor and its Subcontractors at each of Purchaser’s SOCC
facilities and In Orbit Test Equipment, on a timely basis, as necessary to
permit Contractor to (i) deliver, install and test the DSSs, and (ii) perform
the MOSS.

(vi)       Purchaser shall obtain Launch Insurance prior to Launch, at
coverage levels to be determined at the sole discretion of Purchaser. In
addition, Purchaser shall obtain from its insurer providing Launch Insurance
waivers of any subrogation rights against Contractor or its Subcontractors, and
shall provide evidence of such waivers to Contractor sixty (60) Days prior to
the launch of any Satellite and shall provide Contractor a certificate of such
insurance coverage at Contractor’s request.

(vii)      Purchaser
shall be responsible for obtaining all necessary approvals, authorizations and/or licenses to launch, test, control and operate the
Satellites.

(viii)     Purchaser shall be responsible for
providing in a timely manner the Satellite Control Network as set forth in
Exhibit A.

(B)       Contractor
shall promptly notify Purchaser of any failure by Purchaser to perform any of its obligations under this Contract
which may cause Contractor to be
delayed, to incur additional costs, or both. In addition, Purchaser
shall promptly notify Contractor in writing of any event which may delay or
prevent the performance by Purchaser of
any of its obligations under this
Contract which may cause
Contractor to be delayed, to incur additional costs, or both.

Any failure by Purchaser to perform any of its
obligations under this Contract which causes Contractor to be delayed, to incur additional costs, or both,
shall cause (i) in case of delay, an extension of the Delivery Schedule to
reflect the actual delay incurred by Contractor in the performance of the Work
as a result of such failure (such delay to be documented to Purchaser)
and (ii) in case of additional costs, payment to Contractor by Purchaser of
reasonable costs incurred by Contractor as a result of such failure (such costs to be documented to Purchaser).

 12
 

 

Article 4. 
Total Price

(A)      Purchaser
shall pay to Contractor for the Work to be performed the Total Price as set
forth in the Table below in accordance with the payment plans as set forth in
Exhibit F, as such Total Price may be adjusted in accordance with the
provisions of this Contract.

Unless Purchaser gives written notice to Contractor
to accelerate delivery dates as set forth in Article 6(B), the Total Price
shall be as set forth in the second column (Regular Delivery) of the Table
below. If Purchaser does give such written notice to Contractor in accordance
with Article 6(B), the Total Price shall be either as set forth in the third
column (Accelerated Scenario) of the Table or such other Total Price as may be
agreed by the Parties pursuant to Article 6(B).

The Total Price shall be deemed to include all
transportation and insurance charges for delivery of each Deliverable Item as
set forth in Article 6 and Exhibit A.

	
  Item

  	
   

  	
  Description

  	
   

  	
  Price in Euro for

  Regular Delivery

  	
   

  	
  Price in Euro for

  Accelerated Scenario

  	
   

  
	
  1

  	
   

  	
  Spacecraft
  for Phase 1 and Phase 2

  	
   

  	
  351,953,549

  	
   

  	
  351,953,549

  	
   

  
	
  2

  	
   

  	
  Spacecraft
  for Phase 3

  	
   

  	
  268,046,761

  	
  *

  	
  240,141,045

  	
   

  
	
  3

  	
   

  	
  Launch
  Support Services and MOSS

  	
   

  	
  40,185,471

  	
   

  	
  40,185,471

  	
   

  
	
  4

  	
   

  	
  Delta
  MOSS**

  	
   

  	
  500,000

  	
   

  	
  500,000

  	
   

  
	
  5

  	
   

  	
  OBPE
  Software Access

  	
   

  	
  350,000

  	
   

  	
  350,000

  	
   

  
	
   

  	
   

  	
  Total Price

  	
   

  	
  661,035,781

  	
   

  	
  633,130,065

  	
   

  

 

* the price for each Spacecraft in Phase 3 for Regular Delivery shall be
the price for a Spacecraft in Phase 2 (total for all Spacecraft in Phase 3
equals 240,141,045 Euro), increased by the lesser of 10% of the price per
Spacecraft or the actual expenses incurred by Contractor resulting from the
hiatus between Phase 2 and Phase 3 production and the extension of the duration
of the program. The maximum price for Item 2, Regular Delivery would be 268,046,761
Euros. Contractor shall provide to Purchaser the price increase justifications
on or before July 1, 2007.

** to be deducted from the Total Price if the
Ground Control Network is awarded to Contractor no later than six (6) months
after PDR.

(B)       In addition to the Total
Price that Purchaser shall pay in accordance with Article 4(A), Purchaser shall
also be responsible for paying all custom duties, VAT, import taxes, sales
taxes or charges, taxes, fees or duties of similar nature whatsoever levied in
the U.S.A. or any political division thereof or in the country where the Launch
Site is located or the services under this Contract are performed (except for
services rendered in France or Italy or by the Subcontractors in their
countries) or in the country where the Spacecraft is placed in storage as set
forth in Article 29.

 13

 

Such payments will
be made by Purchaser in compliance with the regulations in force at that time
and will not be deducted from any payment of price called for pursuant to
Article 4(A) of this Contract. Purchaser shall reimburse Contractor for any
payment to be made by Purchaser pursuant to this Article 4(B) but made by
Contractor within thirty (30) Days of receipt by Purchaser of the electronic
invoice with all relevant documentation evidencing liability for and payment of
such tax, fees or duties.

(C)       All payments by Purchaser pursuant to
this Contract shall be made without deduction or offset of any income taxes,
withholding or similar taxes, if any, of any nature whatsoever levied by
Purchaser’s country, any political division thereof or any other country where
the Work is performed or by the country from which payment is made, unless
Purchaser shall be compelled to make such deduction by government regulation,
in which case Purchaser shall pay, within thirty (30) Days of receipt by
Purchaser of the relating electronic invoice, any additional amount necessary
in order that the net amount of payments received by the Contractor shall be
equal to the amount of payments agreed to be paid pursuant to this Contract.

(D)      Contractor shall be entirely responsible for all present and future taxes,
levies and duties whatsoever imposed under this Contract in (i) France and (ii)
any of the Subcontractors’ countries (including Italy), to the extent relating
to the performance of the Work, which taxes shall be paid by the Contractor or
the Subcontractors when they become due.

Article 5.  Bonus Payments

(A)       Purchaser and Contractor agree that, at
the end of the first quarter of the calendar year following the later to occur
of the delivery of forty-eight (48) Spacecraft and the successful launch of the
twenty-fourth Spacecraft (the “Bonus Payment Start Date”), and continuing for a
period of up to fifteen (15) years thereafter, Contractor shall annually be
eligible to receive from Purchaser a Bonus Payment payable in arrears and
determined as set forth in this Article 5. The total of such Bonus Payments
shall not be more than Seventy-Five Million (75,000,000) US Dollars.

(B)       Purchaser shall provide to Contractor, by
the end of the first quarter of each year following the date of PSR of the
twenty-fourth (24th) Spacecraft, a written statement of
Bonus Payment amount and eligibility comprising of Cumulative EBITDA as defined
below, status of satisfactory operation of the Spacecraft and timeliness of
delivery of Spacecraft. Payment of Bonus Payments shall be due and payable
within thirty (30) Days after the date of receipt by Purchaser of the emailed
invoice from Contractor.

 14
 

 

(C)           Bonus Payments shall only be made to
the extent that the financial performance of Purchaser’s business for the
period from January 1, 2007 to December 31 of each year is equal to or better
than the financial projections for the business for the same period of time as
set forth in Exhibit H1. Financial performance shall be measured in accordance
with GAAP, using the earnings before interest, taxes, depreciation and
amortization of Purchaser for the total periods in question (“Cumulative EBITDA”).  The annual Bonus Payment shall be further
limited and conditioned as a result of (a) the failure of Satellites to be
delivered on time or to meet the requirements of Exhibit B (as set forth in
Article 5(E) and Article 5(F) below) and (b) the failure of Satellites to
operate successfully in orbit (as set forth in Article 5(E) and Article 5(F)
below).

(i)      No Bonus Payment shall be made to
Contractor whenever Purchaser’s Cumulative EBITDA for the period from January
1, 2007 to December 31 of the year for which payment of a Bonus Payment would
be due is less than the projected Cumulative EBITDA for the identical period as
set forth on Exhibit H1.

(ii)     Whenever Purchaser’s Cumulative EBITDA for
the period from January 1, 2007 to December 31 of the year for which payment of
a Bonus Payment would be due is equal to or greater than the projected
Cumulative EBITDA for the identical period, Purchaser shall make the maximum
Bonus Payment permissible pursuant to the terms of this Article 5. Each year
Purchaser’s Cumulative EBITDA exceeds the projected Cumulative EBITDA for the
identical period and the conditions of Article 5(E) and Article 5(F) are met,
the annual Bonus Payment of [*] US Dollars shall be paid.

(iii)    For so long as Purchaser may be obligated to
pay Bonus Payments to Contractor pursuant to this Article 5, Purchaser shall
calculate Cumulative EBITDA using the same methodology as is used in Exhibit
H1. Nothing in this Article 5 shall prohibit Purchaser from changing its
accounting methodology for other purposes, so long as Purchaser is able and
does continue to use the same methodology to calculate Cumulative EBITDA.

(D)       In each of the fifteen (15) years that a
Bonus Payment may be made, as well as during the years prior to the Bonus
Payment Start Date when Contractor may earn the right to receive Bonus Payment
after the Bonus Payment Start Date, [*] of each such payment or earned right
shall be further conditioned upon the delivery schedule as set forth in
paragraphs (E)(i) and (F)(i) of this Article 5, and [*]of each such payment or
earned right shall be further conditioned upon satisfactory operation of
Satellites as set forth in paragraphs (E)(ii) and (F)(ii) of this Article 5.

 15
 

 

(E)           Each year after the delivery of the
first twenty-four (24) of Satellites and prior to the Bonus Payment Start Date,
Contractor shall earn the right to receive a Bonus Payment to be calculated in
accordance with this Article 5(E). Such Bonus Payments shall not be paid by
Purchaser until the first payment date after the Bonus Payment Start Date. The
Bonus Payment earned for each year after the delivery of the first twenty-four
(24) Satellites until the Bonus Payment Start Date shall be paid at the same
time in addition to the first annual Bonus Payment to be paid pursuant to this
Article 5(E).

(i)         The [*] portion of such Bonus Payment
related to timely delivery shall be earned for each Batch of Spacecraft
delivered thirty (30) Days or less after the scheduled PSR date for the last
Spacecraft of that Batch. Calculation of the Bonus Payment payable for each
year of this period shall be equal to [*] US Dollars times the number of
Spacecrafts delivered in each Batch through the year for which the calculation
of the Bonus Payment earned is made.

(ii)        The remaining [*] portion of the Bonus
Payment shall be earned for each Satellite operating satisfactorily in space according to the criteria defined in Exhibit
H2. Calculation of the Bonus Payment payable for each year of
this period shall be made by multiplying [*] US Dollars times the number of
Satellites operating successfully as of December 31 of each year for which the
calculation is being made.

(F)        During the period from the Bonus Payment
Start Date to the end of the fifteen (15) year thereafter, Contractor shall be
entitled to receive annual Bonus Payments to be calculated in accordance with
this Article 5(F).

(i)         The [*] portion of the annual Bonus
Payments related to timely delivery shall be calculated by multiplying [*] US
Dollars times the number of Spacecraft delivered before or within at least
thirty (30) Days after its scheduled PSR date. The amount shall be the portion
of each annual Bonus Payment related to timely delivery for each year during
this period.

(ii)        The remaining [*] portion of the annual
Bonus Payments shall be earned if the number of satisfactorily operating satellites
is equal to or greater than the number given in Table 1 for a given year for a
given Delivery Schedule.  Satellites are
deemed to be satisfactorily operating if the criteria defined in Exhibit H2 is met.
If the number of satisfactorily operating satellites is less than the number
given in Table 1 for a given year but greater than or equal to forty (40), a
reduced Bonus Payment may be made.

 16
 

 

For each satellite less
than the number in Table 1, the Bonus Payment portion shall be reduced by [*]
as long as the total number of operating satellites is greater than or equal to
forty (40). For example, in 2020 if there are only forty-two (42)
satisfactorily operating satellites, only [*] of the possible [*] portion of
the annual Bonus Payment shall be paid; if forty-one (41) satisfactorily
operating satellites, only [*] of the possible [*] portion of the annual Bonus
Payment shall be paid; if forty (40) satisfactorily operating satellites, only [*]
of the possible [*] portion of the annual Bonus Payment shall be paid; however,
if only thirty-nine (39) satisfactorily operating satellites, no portion of the
possible [*] portion of the annual Bonus Payment shall be paid.

Table 1

Minimum Number of
Operating

Satellites In a Given Year for

each Delivery Schedule

	
  

  	
   

  	
  Regular

  Delivery

  	
   

  	
  Accelerated

  Scenario

  	
   

  	
  Aggressively

  Accelerated

  Scenario

  	
   

  
	
  2011

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  46

  	
   

  
	
  2012

  	
   

  	
   

  	
   

  	
  46

  	
   

  	
  46

  	
   

  
	
  2013

  	
   

  	
  46

  	
   

  	
  46

  	
   

  	
  46

  	
   

  
	
  2014

  	
   

  	
  46

  	
   

  	
  46

  	
   

  	
  45

  	
   

  
	
  2015

  	
   

  	
  46

  	
   

  	
  45

  	
   

  	
  45

  	
   

  
	
  2016

  	
   

  	
  45

  	
   

  	
  45

  	
   

  	
  44

  	
   

  
	
  2017

  	
   

  	
  45

  	
   

  	
  44

  	
   

  	
  44

  	
   

  
	
  2018

  	
   

  	
  44

  	
   

  	
  44

  	
   

  	
  43

  	
   

  
	
  2019

  	
   

  	
  44

  	
   

  	
  43

  	
   

  	
  43

  	
   

  
	
  2020

  	
   

  	
  43

  	
   

  	
  43

  	
   

  	
  43

  	
   

  
	
  2021

  	
   

  	
  43

  	
   

  	
  42

  	
   

  	
  42

  	
   

  
	
  2022

  	
   

  	
  42

  	
   

  	
  42

  	
   

  	
  42

  	
   

  
	
  2023

  	
   

  	
  42

  	
   

  	
  41

  	
   

  	
  41

  	
   

  
	
  2024

  	
   

  	
  41

  	
   

  	
  41

  	
   

  	
  41

  	
   

  
	
  2025

  	
   

  	
  40

  	
   

  	
  40

  	
   

  	
  40

  	
   

  
	
  2026

  	
   

  	
  12

  	
   

  	
  12

  	
   

  	
   

  	
   

  
	
  2027

  	
   

  	
  4

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

(G)       For the purpose of this Article 5, a
Spacecraft placed in storage pursuant to Article 29 or a Spacecraft which is a
total loss as a result of a launch failure shall be deemed to be operating in
orbit satisfactorily. In addition, the conditions of Articles 5(E)(i) and
5(F)(i) relating to late delivery shall apply to a Spacecraft put into storage.

 17
 

 

Article
6.  Delivery and Delivery Schedule

(A)      The Delivery Schedule is identified in the
Table below. Delivery of a Spacecraft (other than Spacecraft delivered for
storage as directed by Purchaser in accordance with Article 29) shall be deemed
to have occurred at Pre-Shipment Review. Delivery of a DSS shall be deemed to
have occurred upon completion of the Simulator Completion Review.

	
  Item

  	
   

  	
  Description

  	
   

  	
  Delivery Date or

  date of performance

  	
   

  	
  Delivery Place

  
	
  1

  	
   

  	
  Spacecraft

  	
   

  	
  Per Exhibit F

  	
   

  	
  Contractor’s
  facilities

  
	
  2

  	
   

  	
  Satellite
  propellant

  	
   

  	
  Per Exhibit A

  	
   

  	
  Per Article 6(C)

  
	
  3

  	
   

  	
  DSS

  	
   

  	
  Per Exhibit A

  	
   

  	
  Milpitas, CA

  El Dorado Hills, CA

  
	
  4

  	
   

  	
  Satellite OBPE
  Software

  	
   

  	
  Per Exhibit A

  	
   

  	
  Milpitas, CA

  
	
  5

  	
   

  	
  Launch Support
  Services

  	
   

  	
  Per Exhibit A

  	
   

  	
  Launch Site

  
	
  6

  	
   

  	
  MOSS

  	
   

  	
  Per Exhibit A

  	
   

  	
  Milpitas, CA

  
	
  7

  	
   

  	
  Documentation

  	
   

  	
  Per Exhibit A

  	
   

  	
  Milpitas, CA

  

 

(B)       On or before July 1, 2008, Purchaser
shall have the right to accelerate the delivery dates for Spacecraft to be
delivered under Phase 3, as set forth in Article 2(D), by giving written notice
to Contractor. The notification shall include which Accelerated Scenario has
been selected by Purchaser. If delivery were accelerated for some but less than
all of the Satellites in Phase 3, or for less than a twenty-one (21) month hiatus
in production, the Parties shall enter into good faith negotiation on price
reduction of the price for Phase 3 prorated on the basis of the number of
Satellites accelerated and the timing of their delivery.

In
such case, the payment plan to be considered will be the one corresponding to
the selected Accelerated Scenario as set forth in Exhibit F and Purchaser shall
increase, or shall cause NEWCO to increase, at the time of Purchaser’s written
notice, the amount of the Escrow Account in order to cover the aggregate amount
of payments due for the two (2) following quarters under the selected
Accelerated Scenario. Such increase of the amount of the Escrow Account is a
condition for the start of the Accelerated Scenario.

Failing
any notification by Purchaser on or before July 1, 2008, then the delivery
dates for Spacecraft to be delivered under Phase 3 shall be made pursuant to
the Regular Delivery as set forth in Exhibit F and the payment plan to be
considered will be the one corresponding to the Regular Delivery as set forth
in Exhibit F.

(C)
      Each Spacecraft which is Available
for Shipment shall be transported along with associated Ground Support
Equipment at Contractor’s risk and expense Delivered Duty Unpaid, Incoterms
2000, to the airport nearest to the Launch Site selected for the launch of the
respective Spacecraft, unless Purchaser directs Contractor to deliver the
Spacecraft to storage in accordance with Article 29.

 18
 

 

The
propellant shall be transported at Contractor’s risk and expense Delivered Duty
Unpaid, Incoterms 2000, to the harbour agreed with the Launch Service Provider.
The Launch Service Provider shall be responsible at its own costs to transport
(i) the Spacecraft from the airport to the Launch Site, (ii) the propellant
from the harbour to the Launch Site, and (iii) the Satellites and the
propellant within the Launch Site.

If
the Spacecraft requires repair after delivery to the Launch Site, all
transportation from the Launch Site to the repair facility and back shall be at
the expense of Contractor. Contractor shall be responsible at its risk and
expense for removing or disposing all of its Ground Support Equipment
and remaining Satellite propellant, if any, used on or brought to the Launch
Site from the Launch Site after completion of launches.

The
DSSs and the Satellite OBPE Software shall be transported at Contractor’s risk
and expense Delivered Duty Unpaid, Incoterms 2000, to the required destination
as specified in the Table above.

(D)      The Contractor shall promptly notify
Purchaser in writing of any event which may delay or prevent the performance by
Contractor of any of its obligations under this Contract.

Article 7.  Payment

(A)       Payment
terms shall be in accordance with this Article 7 and Exhibit F to this
Contract. Purchaser shall pay all invoices within thirty (30) Days after the
date of receipt of an emailed invoice confirmed electronically.

(i)         Starting
January 1, 2007 and until the Contract is paid in full, Contractor shall on the
first Day of each quarter provide Purchaser with one (1) original of the
invoice for the total amount of payments due during that quarter, including
both calendar payments and payments for Milestone Events, in accordance with
Exhibit F. So there is no misunderstanding, the Parties agree that the invoice
for and payment of the first payment (fourth quarter of 2006) shall be handled
as set forth in Article 32.

(ii)        Beginning with the quarter that starts April
1, 2007, Contractor shall deliver to Purchaser, along with each quarterly
invoice, supporting documentation confirming completion of the Milestone Events
which were to have been achieved during the quarter prior to the quarter in
which the invoice is delivered.

(B)       Should Contractor fail to achieve during a given quarter one or more
Milestone Events for which payment has already been made, then Contractor shall
deduct the amount relating to each such unachieved Milestone Event from the
invoice Contractor delivers at the beginning of the following quarter.

 19
 

 

Except as set forth in the preceding sentence, any delay
in the achievement of a particular Milestone Event will have no impact on the
amount invoiced at the beginning of the subsequent quarter.  Any amount deducted in accordance with this
Article 7(B) will be re-invoiced with supporting documentation submitted with
the invoice for the quarter following completion of such Milestone Event, and
Purchaser shall make payment to Contractor in accordance with such invoice
after such completion.

(i)         If after five (5) Business Days from
the date of receipt of an invoice, Purchaser has not notified Contractor of a
dispute of the invoice, stating the reason for such dispute, then all Milestone
Events scheduled to occur during the preceding quarter shall be deemed
complete, and payment shall be due and payable within thirty (30) Days of
receipt of the emailed invoice. For purposes of Exhibit F, a Milestone Event
shall be deemed to have been completed by Contractor when all requirements
associated with the particular Milestone Event shall have been completed in
accordance with the provisions of the Contract.

(ii)        If Purchaser disputes only part of a
Milestone Event, then Purchaser shall pay to the Contractor the amount
corresponding to the undisputed portion of such Milestone Event.

The
Parties agree to negotiate in good faith the settlement of the disputed portion
and the agreed upon amount shall be paid by Purchaser after such settlement. No
dispute with respect to the payment of any amount under this Contract shall
relieve the disputing Party of its obligation to pay all other amounts due and
owing under this Contract. The Parties agree that in no event shall there be a
dispute about a calendar payment, and that a dispute over a Milestone Event
payment shall not relieve Purchaser of its obligation to make subsequent payments.

(C)       The Parties agree that a portion of the
Total Price as set forth in Article 4 amounting to one hundred forty six
million eight hundred thirty one thousand five hundred thirty Euros
(146,831,530 Euros) shall be invoiced in Euros and paid by Purchaser to
Contractor in US Dollars based on the fixed EUR/USD exchange rate of 1 Euro =
US Dollar 1.2940. This amount will not be subject to increase or decrease due
to changes in exchange rates between the Euro and the US Dollar. The payment
schedule for this amount payable in US Dollars is as set forth in Exhibit F.
All other payments set forth in the Contract will be invoiced by and paid to
Contractor in Euros.

(D)      Contractor may, from time to time, submit
an invoice requesting partial payment for a partially completed Milestone
Event. If Purchaser, in Purchaser’s reasonable judgment, determines such
partial payment to be appropriate under the circumstances, then Purchaser shall
make such partial payment, and the remainder of the Milestone Event payment
shall be paid at such time as the Milestone Event is completed.

 20
 

 

(E)           In the event that Contractor achieves
any Milestone Event in advance of the scheduled achievement date provided for
in Exhibit F and provided that the cumulative amount of payments shall not exceed
the schedule set forth in Exhibit F, then, subject to Purchaser’s agreement,
the Contractor shall be entitled to invoice the Purchaser for such achieved
Milestone Event. Purchaser shall pay for any such Milestone Event, subject to
having received the required supporting documentation.

(F)       Unless otherwise agreed in writing by the
Party entitled to payment, all transfers of funds in accordance with this
Contract from one Party to the other Party shall be sent to the receiving Party
by wire transfer of immediately available funds to the following bank accounts
:

Alcatel Alenia Space France

For payments in Euros :

Alcatel Alenia Space
France

Société Générale
Toulouse

Address : Innopole
Voie 8 - BP 500 - 31316 Labège Cedex, France

Swift Code : [*]

Account n° [*]

For payments in US
Dollars :

Alcatel Alenia Space
France

ABN AMRO BANK

New-York Branch

Address : 55 East 52 Street, New York, New York
10055,U.S.A.

Swift Code : [*]

Routing Number : [*]

Account n° [*]

Globalstar, Inc.

For payments in US
Dollars :

Union Bank of California

Address : 350 California
Street, 10th Floor, San Francisco, CA 94104, U.S.A.

Routing Number : [*]

Account n° [*]

or such other account as the relevant Party may
specify from time to time in writing.

Any
payment due by Purchaser shall be deemed to have been made when the Contractor’s
bank account has been credited of the amount of such payment.

 21
 

 

If any payment would
otherwise be due under this Contract on any Day that is not a Business Day,
such payment shall be due on the succeeding Business Day.

(G)       Payments required to be made by either
Party to this Contract and not received within the due date plus ten (10) Days
shall bear interest at the Interest Rate for each Day from the tenth (10th) Day following the due date
until the date of actual payment. Such interest due pursuant to this Article
7(G) will be included in the next quarterly invoice. In the event the
Contractor elects to draw from the Escrow Account as set forth in Article
22(B), then the provisions of this Article 7(G) shall not apply.

(H)       The Contractor shall send one (1) copy of
each invoice to Purchaser by email to [*] with confirming email to [*].

The Contractor may
request status of payment by calling [*] in Accounts Payable at [*].

The address
reference to be put on the invoice is :

Globalstar, Inc.

461 South Milpitas
Boulevard

Milpitas,
California 95035, U.S.A.

The
Contractor may send one (1) hard copy of each invoice to Purchaser at address
referenced above to the attention of [*].

(I)        All payments due and payable under the
Contract shall be secured by an Escrow Account which Purchaser shall cause to
be funded directly or by NEWCO in accordance with the Escrow Agreement. The
amount in the Escrow Account shall at any time be equal to the aggregate amount
of payments due for the two (2) following quarters as identified in Exhibit F.
The funding of such Escrow Account shall be of an initial amount of forty
million (40,000,000) Euros.

In
the event that NEWCO is a party to the Escrow Agreement, Purchaser shall be
obligated to cause NEWCO duly to perform all of its obligations under the
Escrow Agreement. To the extent (if any) NEWCO does not have sufficient funds
duly to perform its obligations under the Escrow Agreement, Purchaser shall be
obligated to lend such funds to NEWCO as a contribution to its capital.

The
Parties may mutually agree to replace the Escrow Agreement with some other form
of security. In addition, upon request by Purchaser and provided Purchaser has
made consistent timely payments as required, Contractor may determine if
continued Escrow Agreement or security may be revisited.

 22
 

 

Article
8.  Inspection and Acceptance

Contractor
shall perform the following tests and reviews:

(A)      Spacecraft

(i)        Each
Spacecraft shall undergo a Pre-Shipment Review, as described in section 5.8 of
Exhibit A. Purchaser shall notify Contractor of its acceptance or objection of
the Pre-Shipment Review within one (1) Day following performance of the PSR.
Failure of Purchaser to so notify Contractor shall be deemed to constitute
acceptance of said PSR. Upon successful completion of the Pre-Shipment Review
(i.e Pre-Shipment Review complies with the provisions of section 5.8 of Exhibit
A), the Parties shall sign a Pre-Shipment Review Acceptance Certificate. If
Purchaser objects, it shall provide detailed reasons for such objection to
Contractor within two (2) Days of performance of such Pre-Shipment Review.

Contractor
shall then proceed to resolve the reason for the objection and upon resolution
the Parties shall sign the Pre-Shipment Review Acceptance Certificate. After
completion of the PSR, the Spacecraft shall be deemed Available for Shipment
and Purchaser will provide to Contractor shipment directions.

(ii)       Upon
arrival of a Spacecraft at the Launch Site, Contractor shall promptly conduct a
Satellite Post-Shipment Verification Review for each Spacecraft. Thereafter,
Contractor shall perform tests in accordance with the Launch Site Test Plan and
relevant portions of Exhibit C, in the presence of Purchaser unless Purchaser
advises Contractor that such tests can be performed in its absence.

(iii)      Contractor
shall then conduct a Flight Readiness Review as set forth in section 5.10 of
Exhibit A, whereupon Contractor shall either certify Spacecraft compliance or
notify Purchaser of those items which fail to meet the requirements of Exhibits
B and C.  Upon Contractor certification
of Spacecraft compliance, or upon satisfactory completion by Contractor of
other conditions sufficient to remedy those items that failed to meet the requirements of
Exhibits B and C, mutually acceptable to Purchaser and
Contractor, FRR shall be deemed successfully completed and Contractor shall be
authorized to proceed to the Launch Readiness Review.

(iv)     Each
Spacecraft shall undergo a LRR, as described in section 5.11 of Exhibit A. If
the LRR complies with the provisions of section 5.11 of Exhibit A, Purchaser
shall notify Contractor of its acceptance of the LRR following completion. Upon
such notification, a Spacecraft shall be ready for launch unless, at any time
prior to Intentional Ignition, Contractor shall notify Purchaser if a
Spacecraft is not ready for launch.  Upon
such notification and prior to launch, Contractor shall remedy such particulars
or satisfactorily complete other conditions mutually acceptable to Purchaser
and Contractor.

 23
 

 

(v)      Final
Acceptance of a Spacecraft not being delivered into storage shall occur upon
Intentional Ignition, except that in case of occurrence of an event as set
forth in Article 9(C), Final Acceptance shall be deemed not to have occurred.
Final Acceptance of a Spacecraft being delivered into storage shall be made
upon delivery of the Spacecraft to the storage site, in accordance with the
provisions of Article 29.

(B)       DSSs

(i)         Contractor shall conduct a Factory
Acceptance Test Review on the DSSs at Contractor’s facilities. Upon successful
completion of the Factory Acceptance Test Review, Contractor shall so certify
to Purchaser. Purchaser shall have two (2) Days from receipt of such
certification to notify Contractor in writing of those particulars which do not
meet the requirements of the Contract.

Upon
such notification by Purchaser, Contractor shall remedy such particulars or
satisfactorily complete other conditions mutually acceptable to Purchaser and
Contractor after which Contractor shall proceed to ship each DSS to the
designated DSS site. If Purchaser does not so notify Contractor within two (2)
Days, Contractor shall proceed to ship each DSS to the designated DSS site.

(ii)        A Simulator Completion Review shall be
conducted following full and complete installation and testing of the DSS at
the designated DSS Site in accordance with Exhibit A.  Contractor and Purchaser shall, within two
(2) Days after the successful completion of Simulator Completion Review,
certify in writing on a form, mutually agreed, that Final Acceptance of the
DSSs has occurred. If Purchaser fails to reject or certify acceptance within
such two (2) Days after the successful completion of Simulator Completion
Review, Final Acceptance of the DSSs shall be deemed to have occurred.

(iii)       If a DSS is non-conforming to the
specifications defined in Exhibit E, Purchaser shall so notify Contractor (with
detailed reasons for such non-compliance given in the notification), and such
non-compliance shall be corrected by Contractor.  Upon such correction, followed by a delta
Simulator Completion Review, if necessary, acceptable to Purchaser, Final
Acceptance shall be deemed to have occurred.

(C)       Upon
completion of a Milestone Event other than for PSRs as set forth in Article 8
(A), Contractor shall issue and send to Purchaser a Milestone Event acceptance
certificate. Purchaser shall notify Contractor of its acceptance or rejection
of a Milestone Event within five (5) Business Days from the date of receipt of
the Milestone Event acceptance certificate, failing which such Milestone Event
shall be deemed successfully completed. In case of acceptance, the Parties
shall sign the Milestone Event acceptance certificate. In case of rejection,
Purchaser shall state in writing the reasons for such rejection and Contractor
shall implement necessary corrective measures. After such correction to the
satisfaction of Purchaser, such Milestone Event shall be deemed successfully
completed and the Parties shall sign the Milestone Event acceptance
certificate.

 24

 

Article
9.  Title and Risk of Loss

(A)                              Subject to the provisions of this Contract:

(i)    title to and risk of loss for a Spacecraft and propellant on
board such Spacecraft shall pass from Contractor to Purchaser upon Intentional Ignition, except as
provided in Articles 9(C) and 9(E).

(ii)   risk of loss for DSSs shall pass from Contractor to Purchaser upon
Delivery to the place set forth in Article 6. Title to DSS shall pass from
Contractor to Purchaser upon Final Acceptance thereof.

(iii)  risk of
loss and title to for the Satellite OBPE Software shall pass from Contractor to
Purchaser upon Delivery to the place set forth in Article 6.

Any loss or damage to such items prior to Purchaser’s
assumption of risk of loss shall be at Contractor’s risk, unless such loss or
damage is caused by the negligent acts or omissions or willful misconduct of
Purchaser.

(B)       Title
to Spacecraft, propellant on board the Spacecraft, Satellite OBPE Software and
DSSs shall pass to Purchaser free and clear of any claims, liens, encumbrances
and security interests of any nature. Contractor shall not grant to third
parties any lien, encumbrance or security interest of any nature on Spacecraft,
propellant on board the Spacecraft, Satellite OBPE Software and DSSs.

(C)       Contractor
hereby agrees following Intentional Ignition, should the launch sequence be
successfully terminated prior to lift-off of the Launch Vehicle, then at the
subsequent time the launch pad is declared safe by the Launch Services
Provider, title, care, custody and control and risk of loss to Spacecraft and
propellant shall revert to Contractor. 
In the event of such an occurrence, Contractor shall be paid by
Purchaser for additional documented costs, if any, incurred by Contractor in relation
to additional premium due directly as the result of an extension by it of any
insurance policy it may have relating to the Spacecraft. This paragraph may be adjusted as necessary to be consistent with
the Launch Services Agreement and the Launch Insurance policy.

(D)      Should
the subsequent launch following an aborted launch as set forth in Article 9(C)
above, be delayed through no fault of Contractor, and any Spacecraft has to be
removed from the Launch Vehicle and has to be returned to Contractor’s facility
or a designated storage site at Launch Site, all costs resulting from extension
of the period for the launch campaign (including costs associated with on-orbit
support personnel already deployed to other locations) shipping costs, costs
for re-testing and restoring the Spacecraft to flight-worthy condition,
off-site storage charges (if any) and insurance coverage for return to the
Launch Site and subsequent launch will be at Purchaser’s expense, as determined
pursuant to Article 19(C).

 25
 

 

(E)       In the event a Spacecraft is placed in
storage as set forth in Article 29(A), title and risk of loss to such
Spacecraft shall pass to Purchaser upon both completion of the tasks specified
for placement into storage as required by the Storage Plan and payment to
Contractor of all outstanding amounts as set forth in Exhibit F less an amount
of [*] Euros per Spacecraft stored corresponding to the portion of the Launch
Support Services and MOSS not yet performed. This amount will be
paid to Contractor at the time of removal of the Spacecraft from storage.

Prior to storage, Contractor shall file (or
shall cause a Subcontractor to file), on behalf of Purchaser and at Purchaser’s
expense, necessary application with custom authorities for the issuance of an
active job processing, or any other adequate instrument, with respect to a
stored Spacecraft in order to get an exemption of taxes and duties.

Article
10.  Access to Work in Progress

(A)      Subject
to applicable government regulations, Contractor shall afford Purchaser access
to all WIP, including without limitation Technical Data and information, test
data, documentation (not containing cost information), testing and hardware,
being performed at Contractor’s facilities pursuant to this Contract during the
period of Contract performance as set forth in section 1.5 of Exhibit A,
provided that such access does not unreasonably interfere with such WIP or any
other work.

(B)       Contractor
shall afford Purchaser access to WIP being performed pursuant to this Contract
in Subcontractor’s facilities to the extent Contractor obtains such access,
subject to the right of Contractor to accompany Purchaser on any such visit and
subject further to the execution by Purchaser of such non-disclosure or similar
agreements as may be required by Subcontractors. Contractor shall use its best
efforts to obtain access to the WIP being performed in Subcontractor’s
facilities.

Article
11.  Progress Meeting, Presentations and
Reports

(A)      In
addition to any other meetings called for under the provisions of this
Contract, Contractor shall provide the personnel, facilities, materials and
support to conduct the following meetings and presentations with Purchaser,
provided that such meetings and presentations do not unreasonably interfere
with Contractor’s performance : (i) informal Program Manager meetings ; (ii)
informal project level technical review meetings ; and (iii) management level
presentations as deemed appropriate by Contractor or Purchaser’s management and
subject to reasonable prior notice by Purchaser.

(B)       Contractor
shall deliver to Purchaser all reports as described in Exhibit A. The Parties
agree to utilize a secure, electronic-based system for delivery of reports and
documents (which may include exceptions on its use for certain documents).

 26
 

 

Article
12.  Intellectual Property Rights

(A)      Purchaser
shall protect all Intellectual Property to which Purchaser has a right of
access pursuant to Article 10, or that is or may be disclosed by Contractor to
Purchaser, from disclosure to third parties in the same manner in which
Purchaser protects its own IP, in accordance with and subject to Article 14.

(B)       Notwithstanding
any other provision of this Contract, the ownership in and title to Background
IP delivered to Purchaser by Contractor in accordance with this Contract shall
remain in Contractor or its licensors. 
Contractor hereby grants to Purchaser a fully paid up, non-exclusive,
perpetual, irrevocable (except as set forth herein), world-wide and non-transferable
(except as part of a sale of the business or by operation of law) license (with
right to sublicense to third parties) to use, duplicate, adapt, make
derivatives and disclose its Background IP (and its related documentation) and
other Deliverable Items for the the use, operation, enhancement and maintenance of the Globalstar
System pursuant to this Contract and the existing Globalstar network.

(C)       Title to all Foreground IP shall remain with Contractor, provided, that Contractor shall not
use or have, or permit others to use, Foreground IP related to the payload of
the Spacecraft for the purpose of engaging in business activity that would be
in direct competition with the Globalstar System. Contractor hereby grants to Purchaser a fully paid up, non-exclusive,
perpetual, irrevocable (except as set forth herein), world-wide and non-transferable (except as
part of a sale of the business or by operation of law) license (with right to
sublicense to third parties) to use, duplicate, adapt, make derivatives and
disclose its Foreground IP (and its related documentation) and other
Deliverable Items for the use, operation, enhancement and maintenance of the Globalstar
System pursuant to this Contract, the existing Globalstar network and future
similar contracts and such Globalstar network as it will exist under such
future similar contracts.

(D)      Purchaser
hereby grants to Contractor a fully paid up, non-exclusive, perpetual,
irrevocable (except as set forth herein), world-wide and non-transferable
(except as part of a sale of the business or by operation of law) license (with
right to disclose to Subcontractors who are signatories of the TAA as set forth
in Appendix 2) to use, adapt and disclose the patents identified as being “granted”
as set forth in Exhibit I for the purpose of performance of the Work under this
Contract. In addition, Contractor reserves the right to request and receive
copies of Technical Data which are owned by Purchaser for use for the
performance of the Work.  Purchaser
grants to Contractor a license to use such Technical Data under the same type
of license as Purchaser grants to Contractor in this Article 12(D), subject to
the TAA.

 27
 

 

Article
13.  Public Release of Information

(A)      During
the term of this Contract, neither Party, nor its affiliates, subcontractors,
employees, agents and consultants, shall release items of publicity of any kind
including, without limitation, news releases, articles, brochures,
advertisements, prepared speeches, company reports or other information
releases related to the work performed hereunder, including the denial or
confirmation thereof, without the other Party’s prior written consent.

(B)       Notwithstanding
the foregoing, it is understood by the Parties that Contractor is authorized to
release information relative to the Work as may be required to notify its other
customers as to satellite performance issues, provided that such information
shall contain no identification of Purchaser or Purchaser’s designation of
Work, subject to government requirements.

(C)       Nothing contained herein or in the Mutual
Nondisclosure Agreement between Purchaser and Contractor, dated November 2,
2006 shall be deemed to prohibit either Party from disclosing this Contract, in
whole or in part, or information relating thereto (i) as may be required by the
rules and regulations of a government agency with jurisdiction over the
disclosing Party or a stock exchange on which the disclosing Party’s shares are
then listed, (ii) as may be required by a subpoena or other legal process (iii)
in any action to enforce its rights under this Agreement, (iv) to its lenders
under appropriate assurances of confidentiality for the benefit of the
disclosing Party or (v) to its auditors, attorneys and other professional
advisors in the ordinary course, provided that such auditors, attorney and advisors
have contractual or professional obligations to maintain the confidentiality of
the disclosed material. The disclosing Party shall use reasonable commercial
efforts to disclose only such information as it believes in good faith it is
legally required to disclose pursuant to clauses (i) or (ii), above, and will
seek, to the extent reasonably available under applicable rules, to obtain
confidential treatment for any information either Party reasonably considers
trade secrets and that is required to be disclosed. To the extent practicable,
the disclosing Party shall provide the other Party with a reasonable
opportunity in advance of disclosure to request redactions or deletions of
specific terms and provisions of the Contract and shall accommodate those requests
to the extent reasonably consistent with applicable confidential treatment
rules.

(D)       Within a reasonable time prior to a
proposed issuance of news releases, articles, brochures, advertisements,
prepared speeches, and other such information releases concerning the Work
performed hereunder, the Party desiring to release such information shall
request the written approval of the other Party concerning the content and
timing of such releases.  The Parties
anticipate the issuance of press releases in connection with the execution of
the Contract, which press releases shall be subject to approval by both Parties
prior to release.

 28
 

 

Article 14. 
Confidentiality

The Parties agree that all exchanges of proprietary
information shall be governed by the Mutual Nondisclosure Agreement between
Purchaser and Contractor, dated November 2, 2006 as set forth in Appendix 1, as
such Agreement may be amended.

Article
15.  Intellectual Property Rights
Indemnity

(A)      Contractor
shall indemnify, defend and hold harmless Purchaser and its affiliates and
their respective directors, officers, agents and employees, against any claims,
damages, losses, costs (including attorneys’ fees) incurred in connection with
any claim, suit, or proceeding asserted or filed against Purchaser relating to
infringement of any patent, copyright, trade secret, trademark or other
proprietary right based on the laws of the United States and EU, or a country
where Contractor or any Subcontractor is located (except that such
indemnification shall not apply to any patent identified as being “granted” as
set forth in Exhibit I), by any Spacecraft or DSS to be delivered hereunder, or
any part thereof or arising out of Contractor’s performance of its obligations
under the Contract.  Purchaser shall
notify Contractor promptly in writing of any such claim, suit or proceeding,
and give Contractor proper and full information, of which it is aware, and
reasonable assistance to settle and/or to defend any such claim, suit, or
proceeding. At its option and expense, Purchaser may participate in the defense
of such claim, suit or proceeding with counsel of its own choosing. In
addition, the indemnification shall also apply if in the reasonable opinion of
Contractor’s outside intellectual property counsel, any Spacecraft or DSS to be
delivered hereunder or any part thereof may become the subject of any claim,
suit, or proceeding for infringement of any such patent, copyright, trade
secret, trademark or other proprietary right.

(B)       In
case of such a claim as set forth in Article 15(A), Contractor shall, at its
option and expense, either (i) procure for Purchaser the right under such
patent, copyright, trade secret, trademark or other proprietary right, to use,
lease, or sell, as appropriate, such Spacecraft or DSS, or part thereof, or
(ii) replace or modify such Spacecraft or DSS, or part thereof, so that it
becomes non-infringing but continues to meet the requirements of the Contract.

(C)       Contractor
shall have no liability for and the provisions of Article 15(A) shall not apply
for any infringement arising from (i) the combination of such Spacecraft or
DSS, part thereof or process practiced therein with any other Spacecraft or DSS
or part not furnished to Purchaser by Contractor unless such Spacecraft or DSS,
part or process furnished by Contractor contributorily infringes, or (ii) the
modification of such Spacecraft or DSS, part thereof or process practiced
therein, unless such modification was made or authorized by Contractor, or
(iii) the use of any patent identified as being “granted” as set forth in
Exhibit I.

 29
 

 

(D)      Contractor’s
total liability to Purchaser under this Article 15 shall not exceed [*] of the Total
Price. This Article 15 states the entire obligation of Contractor and the
exclusive remedy of Purchaser, with respect to any alleged patent, copyright,
trade secret or trademark infringement by such product or part or process.

Article
16.  Limitation of Liability

(A)      THE
PARTIES EXPRESSLY RECOGNIZE THAT COMMERCIAL SPACE VENTURES INVOLVE SUBSTANTIAL
RISKS AND RECOGNIZE THE COMMERCIAL NEED TO DEFINE, APPORTION AND LIMIT
CONTRACTUALLY ALL OF THE RISKS ASSOCIATED WITH THIS COMMERCIAL SPACE
VENTURE.  THE PAYMENTS AND OTHER REMEDIES
EXPRESSLY SET FORTH IN THIS CONTRACT FULLY REFLECT THE PARTIES’ NEGOTIATIONS,
INTENTIONS AND BARGAINED-FOR ALLOCATION OF THE RISKS ASSOCIATED WITH COMMERCIAL
SPACE VENTURES.

EXCEPT
AS SPECIFICALLY PROVIDED IN THIS CONTRACT, CONTRACTOR MAKES NO WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO THE CONTRACT OR THE
PERFORMANCE OF THE CONTRACTOR OR THE WORK HEREUNDER, WHETHER ARISING AT LAW OR
IN EQUITY AND ALL SUCH WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED, AT
LAW OR IN EQUITY ARE, TO THE EXTENT PERMITTED BY LAW, EXCLUDED.

(B)       IN NO
EVENT SHALL CONTRACTOR OR ITS SUBCONTRACTORS BE LIABLE TO PURCHASER FOR
INCIDENTAL, INDIRECT, CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES (INCLUDING ANY
LOSS OF PROFIT OR ANY OTHER SIMILAR LOSS) WHETHER ARISING IN CONTRACT, TORT,
STRICT LIABILITY, OR UNDER ANY OTHER THEORY OF LIABILITY RESULTING FROM ANY
BREACH OF THIS CONTRACT OR WITH RESPECT TO ANY DEFECT, NON-CONFORMANCE OR
DEFICIENCY IN ANY INFORMATION, INSTRUCTIONS, SERVICES OR OTHER THINGS PROVIDED
PURSUANT TO THIS CONTRACT.  THE FOREGOING
EXCLUSION SHALL APPLY WHETHER OR NOT FORESEEABLE OR EVEN IF CONTRACTOR HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 
SPECIFICALLY, BUT WITHOUT LIMITATION TO THE FOREGOING, CONTRACTOR AND
ITS SUBCONTRACTORS SHALL NOT BE LIABLE TO PURCHASER FOR ANY SUCH DAMAGES
RESULTING FROM ANY LOSS OR DESTRUCTION OF A SPACECRAFT OR FAILURE OF A
SPACECRAFT OR ITS SUBSYSTEMS TO OPERATE SATISFACTORILY.

 30
 

 

(C)       IN NO
EVENT SHALL PURCHASER BE LIABLE TO CONTRACTOR OR ITS SUBCONTRACTORS FOR
INCIDENTAL, INDIRECT, ONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES (INCLUDING ANY
LOSS OF PROFIT OR ANY OTHER SIMILAR LOSS) WHETHER ARISING IN CONTRACT, TORT,
STRICT LIABILITY, OR UNDER ANY OTHER THEORY OF LIABILITY RESULTING FROM ANY
BREACH OF THIS CONTRACT.  THE FOREGOING
EXCLUSION SHALL APPLY WHETHER OR NOT FORESEEABLE OR EVEN IF PURCHASER HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

(D)      PURCHASER
AND CONTRACTOR SHALL BE BOUND TO THE FLOW-DOWN REQUIREMENTS OF THE LAUNCH
SERVICES AGREEMENT APPLICABLE TO CONTRACTOR REGARDING ALLOCATIONS OF RISK,
WAIVERS OF SUBROGATION, INDEMNIFICATIONS AND INTER-PARTY WAIVERS OF LIABILITY
INVOLVED IN LAUNCH OPERATIONS.  SUCH
FLOW-DOWN SHALL BE INCLUDED IN AN AMENDMENT TO THIS CONTRACT TO BE ENTERED INTO
AND CONFIRMED BETWEEN THE PARTIES PRIOR TO THE COMMENCEMENT OF LAUNCH SUPPORT
SERVICES.

(E)       PURCHASER
AGREES TO ENTER INTO AGREEMENTS WITH THE LAUNCH SERVICES PROVIDER TO DISCLAIM
ANY LIABILITY OF CONTRACTOR TO THE LAUNCH SERVICES PROVIDER FOR INCIDENTAL,
INDIRECT, CONSEQUENTIAL OR SPECIAL DAMAGES. PURCHASER ALSO AGREES TO CAUSE ITS
LAUNCH RISK INSURERS TO WAIVE ALL RIGHTS OF SUBROGATION AGAINST CONTRACTOR AND
SUBCONTRACTORS.

(F)        BOTH
PARTIES’ SOLE AND EXCLUSIVE REMEDIES AND OBLIGATIONS FOR ANY BREACH OF THIS
CONTRACT OR WITH RESPECT TO ANY DEFECT, NON-CONFORMANCE OR DEFICIENCY IN ANY
INFORMATION, INSTRUCTIONS, GOODS, SERVICES OR OTHER THINGS PROVIDED PURSUANT TO
THIS CONTRACT ARE LIMITED TO THOSE SET FORTH IN THIS CONTRACT, AND ALL OTHER
REMEDIES OR RECOURSE AGAINST THE OTHER PARTY OF ANY KIND ARE EXPRESSLY
DISCLAIMED AND FOREVER WAIVED.

(G)       NOTWITHSTANDING
ANY OTHER LANGUAGE IN THIS CONTRACT TO THE CONTRARY, CONTRACTOR’S TOTAL
LIABILITY TO PURCHASER SHALL NOT EXCEED (i) [*] OF THE TOTAL
PRICE IN CASE OF REGULAR DELIVERY AND (ii) [*] OF THE TOTAL
PRICE IN CASE OF ACCELERATED SCENARIO. NOTWITHSTANDING ANY OTHER LANGUAGE IN
THIS CONTRACT TO THE CONTRARY, PURCHASER’S TOTAL LIABILITY TO CONTRACTOR SHALL
NOT EXCEED [*]
LESS ANY PAYMENTS MADE.

 31
 

 

Article 17. 
Excusable Delays

(A)      Any delay or failure in the performance of
a Party’s obligations under this Contract (other than payment obligations)
shall be excused, and such Party will not be liable for, or be in default for,
such delay or non-performance, if the cause of the delay or non-performance is,
in whole or in part, beyond such Party’s reasonable control and without the
negligence of such Party (or its Subcontractors at any tier).

Purchaser
acknowledges that following the end of an excusable delay event, Contractor
shall resume full performance as soon as commercially practicable after the end
of an excusable delay event, and the schedule of performance shall be deemed
modified to reflect such recommencement of performance. Payments obligations of
Purchaser shall be suspended only for the portion of Contractor’s performance
of Work affected by the excusable delay.

(B)       Excusable delays shall be conclusively
deemed to include, but are not limited to Acts of God or of the public enemy;
acts or omissions of governmental bodies, including the FCC, in their sovereign
capacities or contractual capacities (including the inability to obtain and/or
the suspension, withdrawal, or non-renewal of export or import licenses
required for the performance of the Contract); acts of war (declared or
undeclared), fires, earthquakes, floods, other unusually severe weather
conditions such as hurricanes, tornadoes and typhoons, epidemics, quarantine
restrictions, strikes, component or parts alerts, labor and other industrial disputes, terrorist acts and
freight embargoes sabotage, riots, theft; introduction of malicious code;
failures or interruptions in essential services or equipment (e.g., electrical
power, telecommunications, fuels, water); embargoes and other transportation
failures.

(C)       The Party whose performance is delayed
under Section 17(A) shall give notice in writing to the other Party within
seven (7) Business Days after an excusable delay shall have occurred or such
notifying Party knows of an excusable delay, whichever is later.  Notwithstanding the foregoing, a Party’s
failure to provide such notice shall not prevent such an event from qualifying
as an excusable delay, except to the extent the failure to so notify prejudices
the other Party’s ability to mitigate the impact of the delay or non
performance.  Such notice shall also be
given at the termination of the excusable delay. The delivery requirements
shall only be extended, upon mutual agreement of the Parties, by such period of
time as is justified by the evidence forwarded in the notice, but in any event
not less than one (1) Day for one (1) Day of excusable delay.

(D)      Should excusable delays total, or be
likely to total, six (6) consecutive months or more, Purchaser, at its option,
may terminate this Contract with respect to unlaunched Spacecraft by written
notice to Contractor and the conditions of Article 21 shall apply. Purchaser’s
right to terminate pursuant to this Article 17(D) shall not apply to the extent
that excusable delays do not affect Contractor’s ability to perform (i.e., such excusable delays affect
Purchaser only).

 32
 

 

Article 18. 
Liquidated Damages for Late Delivery

(A)      Contractor understands that delays in
Delivery of Satellites required herein may cause Purchaser to incur additional
cost, loss of revenues and other damages, which damages are difficult to
estimate but the Parties acknowledge are likely to be significant.  Accordingly, the Parties agree to fixed and
liquidated damages for late Delivery of Satellites which damages are intended
to be compensatory, not a penalty and are in lieu of actual damages incurred by
the Purchaser.

(B)       The required Delivery Dates for
Spacecraft under this Contract are the following :

	
  Satellites
  completed PSR

  	
   

  	
  Date of PSR

  (Regular)

  	
   

  	
  Date of PSR

  (Accelerated)

  	
   

  	
  Date of PSR

  (Aggressively Accelerated)

  
	
  TOTAL: 5
  Satellites (FM 2,3,4,5,6)

  	
   

  	
  Sep 30, 2009

  	
   

  	
  Sep 30, 2009

  	
   

  	
  Sep 30, 2009

  
	
  TOTAL: 9
  Satellites (FM 7,8,9,10)

  	
   

  	
  Nov 13, 2009

  	
   

  	
  Nov 13, 2009

  	
   

  	
  Nov 13, 2009

  
	
  TOTAL:13
  Satellites (FM 11,12,13,14)

  	
   

  	
  Dec 11, 2009

  	
   

  	
  Dec 11, 2009

  	
   

  	
  Dec 11, 2009

  
	
  TOTAL: 17
  Satellites (FM 15,16,17,18)

  	
   

  	
  Jan 8, 2010

  	
   

  	
  Jan 8, 2010

  	
   

  	
  Jan 8, 2010

  
	
  TOTAL: 21
  Satellites (FM 19,20,21,22)

  	
   

  	
  Feb 5, 2010

  	
   

  	
  Feb 5, 2010

  	
   

  	
  Feb 5, 2010

  
	
  TOTAL: 24
  Satellites (FM 23,24,25)

  	
   

  	
  Feb 26, 2010

  	
   

  	
  N/A

  	
   

  	
  N/A

  
	
  TOTAL: 29
  Satellites (FM 26,27,28,29,30)

  	
   

  	
  Mar 26, 2012

  	
   

  	
  N/A

  	
   

  	
  N/A

  
	
  TOTAL: 33
  Satellites (FM 31,32,33,34)

  	
   

  	
  Jul 24, 2012

  	
   

  	
  N/A

  	
   

  	
  N/A

  
	
  TOTAL: 37
  Satellites (FM 35,36,37,38)

  	
   

  	
  Nov 21, 2012

  	
   

  	
  N/A

  	
   

  	
  N/A

  
	
  TOTAL: 41
  Satellites (FM 39, 40, 41, 42)

  	
   

  	
  Mar 21, 2013

  	
   

  	
  N/A

  	
   

  	
  N/A

  
	
  TOTAL: 45
  Satellites (FM 43,44,45,46)

  	
   

  	
  Jul 19, 2013

  	
   

  	
  N/A

  	
   

  	
  N/A

  
	
  TOTAL: 48
  Satellites (FM 47,48, PFM1)

  	
   

  	
  Sep 17, 2013

  	
   

  	
  N/A

  	
   

  	
  N/A

  
	
  TOTAL: 25
  Satellites (FM 23,24,25,26)

  	
   

  	
  N/A

  	
   

  	
  Feb 26, 2010

  	
   

  	
  Mar 5, 2010

  
	
  TOTAL: 29
  Satellites (FM 27,28,29,30)

  	
   

  	
  N/A

  	
   

  	
  Jun 26, 2010

  	
   

  	
  Apr 2, 2010

  
	
  TOTAL: 33
  Satellites (FM 31,32,33,34)

  	
   

  	
  N/A

  	
   

  	
  Oct 24, 2010

  	
   

  	
  Apr 30, 2010

  
	
  TOTAL: 37
  Satellites (FM 35,36,37,38)

  	
   

  	
  N/A

  	
   

  	
  Feb 21, 2011

  	
   

  	
  May 28, 2010

  
	
  TOTAL: 41
  Satellites (FM 39,40,41,42)

  	
   

  	
  N/A

  	
   

  	
  Jun 21, 2011

  	
   

  	
  Jun 25, 2010

  
	
  TOTAL: 45
  Satellites (FM 43, 44,45,46)

  	
   

  	
  N/A

  	
   

  	
  Oct 18, 2011

  	
   

  	
  Jul 23, 2010

  
	
  TOTAL: 48
  Satellites (FM 47,48, PFM1)

  	
   

  	
  N/A

  	
   

  	
  Dec 18, 2011

  	
   

  	
  Aug 6, 2010

  

 

 33
 

 

The Parties agree
that they will negotiate in good faith to create a Table, to substitute for the
above Table, reflecting the actual number of Spacecraft per Batch (the first
Batch to include appropriate spare Spacecraft(s)) in alignment with Purchaser’s
selected Launch Services Agreement commitments for the numbers of Spacecraft
per launch.

(C)       In the event Contractor has not
successfully completed PSR for the last Spacecraft of each Batch as set forth in
the Table in Article 18(B) on or before the sixtieth (60th) Day (90th Day for the first Batch) after each respective
date set forth in such Table, then for each Day thereafter that the PSR of such
Spacecraft has not been successfully completed beyond such sixty (60) Days
period (90 Days for the first Batch) until completion of the PSR for the last
Spacecraft of each Batch, Contractor agrees to pay Purchaser, as liquidated
damages, the following amount :

	
  Maximum
  liquidated

  damages per Spacecraft

  	
   

  	
  Regular Delivery

  	
   

  	
  Accelerated Scenario

  
	
  Phase 2 – First Batch

  Maximum liquidated damages per Spacecraft per Day

  	
   

  	
  [*]

  	
   

  	
  [*]

  
	
  Phase 2 – First Batch

  Maximum aggregate liquidated damages per Spacecraft

  	
   

  	
  [*]

  	
   

  	
  [*]

  
	
  Phase 2 – other Batches

  Maximum liquidated damages per Spacecraft per Day

  	
   

  	
  [*]

  	
   

  	
  [*]

  
	
  Phase 2 – other Batches

  Maximum aggregate liquidated damages per Spacecraft

  	
   

  	
  [*]

  	
   

  	
  [*]

  
	
  Phase 3 – all Batches

  Maximum liquidated damages per Spacecraft and per Day

  	
   

  	
  [*]

  	
   

  	
  [*]

  
	
  Phase 3 – all Batches

  Maximum aggregate liquidated damages per Spacecraft

  	
   

  	
  [*]

  	
   

  	
  [*]

  
	
  TOTAL

  	
   

  	
  [*]

  	
   

  	
  [*]

  

 

 34
 

 

For
the sake of clarification, the liquidated damages to be paid for a Batch shall
be calculated by multiplying the appropriate amount set forth in the Table
above for liquidated damages per Spacecraft per Day, times the number of
Satellites in the Batch, times the number of Days’ delay after the grace period
as set forth above.

In the event of occurrence of an unforeseen technical
event which is demonstrated by Contractor to be the cause of delays on
subsequent Spacecraft deliveries, Contractor and Purchaser shall endeavour, in
good faith, to define the best solution allowing to minimize the impacts of
Spacecraft delivery for Purchaser and the cumulative amount of liquidated
damages for Contractor.

The maximum
payment to Purchaser for liquidated damages under this Article 18 for each
Satellite shall be limited as defined in the Table above. The maximum overall
aggregate payment to Purchaser for liquidated damages under this Article 18
shall be limited as defined in the Table above.

(D)       Payment of liquidated damages due to
Purchaser shall be made within thirty (30) Days after receipt of an emailed
invoice by Contractor from Purchaser.

(E)        Delays in delivery shall be excused and
the delivery date(s) shall be extended, as appropriate, to reflect the
following conditions :

(i)         if
delay in PSR is due to any cause referred to in Article 17 ; or

(ii)        in
the event the TRB of the PFM is not successfully completed, then as a result
thereof Contractor shall not be liable for liquidated damages for each
Spacecraft for which PSR has been successfully completed prior to the time of
such TRB completion ; or

(iii)       the
execution of a Stop Work pursuant to Article 22 which results in an extension
of the Delivery Schedule ; or

(iv)       if the
delay is due to a cause or causes attributable to the Purchaser ; or

(v)        if
Purchaser elects to store a Spacecraft as set forth in Article 29 which
election was not based on Contractor’s delay ; or

(vi)       if a
concurrent delay exists which prevents Purchaser from commencing launch of the
Satellites that are independent of Contractor’s obligation pursuant to this
Contract (i.e the launch is delayed for reasons not attributable to the
Satellites).

(F)        The liquidated damages set forth herein
reflect the mutual agreement of the Parties as fair and reasonable compensation
for a delay in Delivery.

 35

 

Article
19.  Request For Deviation (RFD)/Request
For Waivers (RFW) and Changes

(A)       Should
Contractor desire to deviate from the requirements of a specific item of the
Work, it shall submit to Purchaser an RFD/RFW, as set forth in section 2.9.2 of
Exhibit A.

Contractor shall submit RFD/RFWs to the Purchaser promptly as and when
they occur.  Before Purchaser shall grant
a deviation or waiver, it may negotiate in good faith with Contractor a
mutually acceptable consideration therefor.

(B)       Purchaser
may from time to time between the EDC and completion of this Contract, by
written change order issued by Purchaser, make changes within the general scope
of this Contract regarding the Spacecraft or DSSs, the services or in any
drawings, designs, specifications, methods of shipment or packing, quantities
of items, places of delivery, additional Work, or the omission of Work.
Procedures for implementing such changes may be similar to RFD/RFWs submitted
by Contractor pursuant to Article 19(A), with the Parties negotiating the terms
of the change order, including the price therefor, before the change order
becomes effective, or Purchaser may issue the change order without such
negotiation, as set forth in Article 19(C).

(C)       If any change order causes an increase or decrease in the
costs of, or the time required for, Contractor’s obligations under this
Contract, and the Parties do not negotiate such terms before the change order
becomes effective, in accordance with Article 19(B), an equitable adjustment in
the price or Delivery Schedule or both shall thereafter be negotiated by the
Parties and this Contract shall be modified in writing accordingly provided
that Contractor shall begin the work related to the change if and when
Contractor has received from Purchaser a financial commitment acceptable to
Contractor to begin such work. Any claim for adjustment under this Article
shall be deemed waived unless asserted in writing (with the amount of the
claim) within forty-five (45) Days from the date of receipt by Contractor of the
change order.

Article
20.  Termination for Default

(A)       Purchaser may, by written notice to
Contractor, issue a written notice of Default (the “Default Notice”) to
Contractor, if :

(i)         there
is a material breach by Contractor in the technical compliance during the PFM
Payload assembly, integration and test, in accordance with the Contract ; or

(ii)        there
is a material breach by Contractor in the technical compliance during the PFM
Spacecraft assembly, integration and test, in accordance with the Contract ; or

 36
 

 

(iii)       as to
each PSR date set forth in Article 18(B), Contractor fails to satisfactorily
complete the required PSR twelve (12) months after such date for the last
Satellite of the first Batch and nine (9) months after such date for the last
Satellite of the subsequent Batches.

After
Purchaser issues a Default Notice in connection with any of the circumstances
in Article 20(A)(i) or (ii), Contractor shall within ninety (90) Days of such
notice submit to Purchaser a plan (“Plan”) for remedying such Default. If the
Plan demonstrates to the mutual agreement of the Parties that the PSR for the
last Satellite of the first Batch of Satellites to be launched will be
completed within the time specified in Article 18(B) plus twelve (12) months,
then such Plan shall be implemented by Contractor and the Delivery Schedule
shall be adjusted as the Parties shall mutually agree. Contractor may also
suggest a Plan that does not result in the PSR for the last Satellite of the
first Batch being completed within the time specified in Article 18(B) plus
twelve (12) months, provided that Purchaser shall in its sole discretion either
accept or reject such a Plan by written notice sent to Contractor within ten
(10) Business Days. In case of rejection, Purchaser may terminate the Contract
by written notice of termination as set forth in Article 20(B).

(B)       If Purchaser gives Contractor a Default
Notice and Contractor fails to respond to within the time period (if any)
specified above in Article 20(A), Purchaser may terminate this Contract upon
notice (the “Termination Notice”) to Contractor and without further period for
cure.

In the event of a
termination pursuant to this Article 20(B), then, on demand from Purchaser,
Contractor will refund all payments made by Purchaser less any amounts due
under Article 18. Except as provided in Article 9(C), no refund shall be made
with respect to Spacecraft already launched at the time of termination and for
Spacecraft or DSSs for which Final Acceptance has occurred at the time of
termination.  Contractor shall make this
refund within thirty (30) Days of receipt of Purchaser’s written notice of
termination of this Contract.  In the
event that Purchaser demands the refund as described above, then such refund
shall be Purchaser’s sole and exclusive remedy for such termination.

Contractor
shall keep title and ownership to all terminated WIP. Purchaser shall take all
reasonable necessary action for the protection and preservation of the Work in
possession of Purchaser in which Contractor has an interest under this
Contract, and Purchaser shall deliver to Contractor such work in its possession
at Contractor’s expense.

(C)       If, after notice of termination under the
provisions of this Article, it is determined that Contractor was not in default
under the provisions of this Article or that the delay was excusable under the
provisions of Article 17, the rights and obligations of the Parties shall be
the same as if notice of termination had been issued pursuant to Article 21.

 37
 

 

(D)       So there is no misunderstanding, it is agreed
that Purchaser shall not be entitled to terminate the Contract for default with
respect to any Deliverable Item after delivery of such Deliverable Item. In
addition, termination of the Contract shall not affect Contractor’s obligations
as set forth in the Contract with respect to Spacecraft and other Deliverable
Items already delivered.

Article 21. 
Termination for Convenience

(A)      Purchaser,
by written notice to Contractor to be effective six (6) months following the
date of such notice, may terminate this Contract in whole or in part for its
convenience in accordance with the terms of this Article 21. In such case,
Contractor shall immediately stop Work as directed in the termination notice
and make its reasonable best efforts to mitigate costs.

(B)       In
case of termination for convenience, Contractor shall be entitled to be paid
the lesser of (i) all actual costs, direct and indirect, incurred by Contractor
(Value Added Tax payable by Contractor on such costs as a result of such
termination shall be documented to Purchaser, added to such costs and paid by
Purchaser)
for all Work performed plus actual termination costs incurred by Contractor and
its Subcontractors and to receive, in addition, an amount representing [*] profit, before taxes, on such costs less
amounts previously paid by Purchaser to Contractor pursuant to this Contract or
(ii) the maximum aggregate payments to be made as set forth in Exhibit F for
the two (2) quarters following the date of notice as set forth in Article
21(A). The costs will include the impact (either gain or loss) of cancellation
of hedging in place at the time of termination with respect to the portion of
the Total Price referred to in Article 7(C) for which corresponding payments
have not been received from Purchaser. A claim for such costs shall be
submitted by Contractor to Purchaser within sixty (60) Days from the date of
notice of termination. The Parties shall agree upon the final termination
charges to be paid to Contractor within thirty (30) Days after the date of
submission by Contractor of its claim.

(C)       Purchaser
shall pay Contractor the termination charges within thirty (30) Days following
the date of receipt of an invoice from Contractor. Final payment shall be the
amount of the total termination charges less amounts previously paid by
Purchaser to Contractor pursuant to this Contract.  In the event the amount of these credits
exceeds the amount of the total termination charges, Contractor will refund the
excess to Purchaser within thirty (30) Days following the date of receipt of an
invoice from Purchaser.

Subject to the prior approval of Purchaser and subject
to restrictions that may be imposed under applicable Governmental
authorizations, title to all WIP
shall transfer to Purchaser after payment. The license granted to Purchaser
under Article 12 shall continue for the period of use of any Deliverable Items
not terminated.

 38
 

 

If requested by Purchaser and to the extent reasonably
practicable, Contractor shall use commercially reasonable efforts
to re-sell or re-use on other programs all WIP (or parts thereof) for the
benefit of Purchaser.  In such case, the
fair market value of such WIP that Contractor re-uses or re-sells, as
negotiated in good faith by the Parties, less the reasonable and demonstrable
costs of storage and the reasonable costs incurred by Contractor for reusing
and/or reselling such items, shall be deducted from the termination charges or
added to the termination credit.

(D)      Notwithstanding the provisions of this
Article 21, Purchaser shall not be entitled to terminate the Contract for
convenience with respect to a Spacecraft after its Intentional Ignition.

Article 22. 
Stop Work

(A)      Stop
Work by Purchaser

(i)        Purchaser
may, at any time, by written notice to Contractor (“the Stop Work Order”),
direct Contractor to suspend performance of the Work for a maximum cumulative
duration of six (6) months and with a maximum number of suspensions of two (2).
Said Stop Work Order shall specify the date of suspension and the estimated duration
of the suspension. Upon receiving any such Stop Work Order, Contractor shall
promptly suspend further performance of the Work to the extent specified, and
during the period of such suspension shall properly care for and protect all
WIP and materials, supplies, and equipment Contractor has on hand for
performance of the Work.

(ii)       Purchaser may, at any time during the stop Work, either (a)
direct Contractor to resume performance of the Work by written notice to
Contractor, and Contractor shall resume diligent performance of the Work,
provided that (x) the Delivery Schedule is adjusted to reflect the stop Work
and the time required by Contractor to recommence performance, (y) other
affected provisions of the Contract shall be adjusted, and (z) Contractor is
compensated for its costs as defined in Article 22(A)(iii) below; or (b)
terminate the Contract pursuant to Article 21, in which case the costs incurred
by Contractor and its Subcontractors as a result of the stop Work as defined in
Article 22(A)(iii) shall be added to the termination charges to be paid
pursuant to Article 21.

(iii)      Contractor shall be compensated for any additional, direct,
out-of-pocket costs reasonably incurred by Contractor or the Subcontractors as
a result of such suspension and resumption of Work. Contractor shall invoice
Purchaser for such costs, and Purchaser shall pay such invoice within thirty
(30) Days from the date of invoice. Invoices will not be issued more frequently
than one (1) per month during a stop Work.

 39
 

 

(B)           Stop Work by Contractor

(i)    In the event Purchaser fails to make any payment in due time as
required pursuant to this Contract, Contractor shall notify Purchaser in
writing of such failure. If such failure is not cured by Purchaser within ten
(10) Days after the date of such notification made by Contractor, Contractor
shall be entitled to draw immediately the unpaid amount from the Escrow
Account.

In such case, Purchaser shall replenish, or cause NEWCO to replenish,
the Escrow Account so that the amount of such Escrow Account shall equal the
aggregate amount of payments due for the two (2) following quarters as
identified in Exhibit F. In the event that NEWCO is a party to the
Escrow Agreement and to the
extent NEWCO does not have sufficient funds to replenish, Purchaser shall lend
such funds to NEWCO. In the event Purchaser or NEWCO fails to replenish the
Escrow Account within thirty (30) Days from the date of notification of the
failure made by Contractor as defined above, Contractor shall be entitled to
immediately stop the Work under this Contract.

If Purchaser or NEWCO fails to replenish the Escrow Account within
thirty (30) Days from the date Contractor has stopped the Work as defined
above, Contractor shall be entitled to immediately terminate the Contract by
written notice sent to Purchaser and the provisions of Article 22(B)(iv) shall
apply.

If Purchaser or NEWCO replenishes the Escrow Account on or before
thirty (30) Days from the date Contractor has stopped the Work as defined
above, Contractor shall resume any Work suspended as reasonably and promptly as
possible provided that (a) Purchaser has paid to Contractor all costs and
expenses incurred as a result of the stop Work hereunder and (b) the schedule
of the Contract shall be adjusted (provided such schedule adjustment shall not
be less than one Day for each Day of Work stoppage).

(ii)   In the event Purchaser or NEWCO fails at any time during the
performance of the Contract to maintain the Escrow Account so that the amount
of such Escrow Account shall equal the aggregate amount of payments due for the
two (2) following quarters as identified in Exhibit F with a validity of six
(6) months, Contractor shall notify Purchaser and NEWCO (as appropriate) in
writing of such failure. If such failure is not cured by Purchaser or NEWCO
within thirty (30) Days after the date of such notification made by Contractor,
Contractor shall be entitled to immediately stop the Work under this Contract.
In the event that NEWCO is a party to the Escrow Agreement and to the extent NEWCO does not have sufficient
funds to maintain the required amount in the Escrow Account, Purchaser shall
lend such funds to NEWCO.

If Purchaser or NEWCO fails to replenish the Escrow Account within
thirty (30) Days from the date Contractor has stopped the Work as defined
above, Contractor shall be entitled to immediately terminate the Contract by
written notice sent to Purchaser and NEWCO (as appropriate) and the provisions
of Article 22(B)(iv) shall apply.

 40
 

 

If Purchaser or NEWCO replenishes the Escrow Account on or before
thirty (30) Days from the date Contractor has stopped the Work as defined
above, Contractor shall resume any Work suspended as reasonably and promptly as
possible provided that (a) Purchaser has paid to Contractor all costs and expenses
incurred as a result of the stop Work hereunder and (b) the schedule of the
Contract shall be adjusted (provided such schedule adjustment shall not be less
than one Day for each Day of Work stoppage).

(iii)  In the event Purchaser fails to
perform any material obligations (other than those expressed in Article
22(B)(i) and Article 22(B)(ii)), Contractor shall notify Purchaser in writing
of such failure. If such failure is not cured by Purchaser within thirty (30)
Days after the date of such notification made by Contractor, Contractor shall
be entitled to immediately stop the Work under this Contract.

If Purchaser fails to cure the material breach within thirty (30) Days
from the date Contractor has stopped the Work as defined above, Contractor
shall be entitled to immediately terminate the Contract by written notice sent
to Purchaser and the provisions of Article 22(B)(iv) shall apply.

If Purchaser cures the material breach on or before thirty (30) Days
from the date Contractor has stopped the Work as defined above, Contractor
shall resume any Work suspended as reasonably and promptly as possible provided
that (a) Purchaser has paid to Contractor all costs and expenses incurred as a
result of the stop Work hereunder and (b) the schedule of the Contract shall be
adjusted (provided such schedule adjustment shall not be less than one Day for
each Day of Work stoppage).

(iv)       In
the event of termination of the Contract by Contractor pursuant to this Article
22(B), Purchaser shall be liable to Contractor for the charges payable pursuant
to Article 21(B) which shall include all costs and expenses incurred as a
result of the stop Work hereunder, but in no event to exceed the maximum
aggregate payments to be made as set forth in Exhibit F for two (2) quarters
following the date of termination notice. Contractor shall be entitled to draw
immediately such amounts under the Escrow Account within thirty (30) Days after
the date of termination. In case the amounts drawn under the Escrow Account do
not cover the full amount due and payable to Contractor, Purchaser shall pay
the balance to Contractor.

(v)        In
the event of a bankruptcy filing by or against Purchaser, and the occurrence of
a post-bankruptcy default by Purchaser including, but not limited to, a default
under Article 34(F), Purchaser consents to a modification of the stays of
proceedings to permit the Contractor to exercise such rights and remedies as
may be available to it under the Contract or applicable law, including, but not
limited to, the right to suspend performance, terminate the Contract and
exercise rights under other agreements with the Purchaser.

 41
 

 

Further, Purchaser
consents that any preliminary hearing on a request under U.S. Bankruptcy Code
section 362(d) (or under any successor statute or rule) by Contractor for a
modification of the stays of proceedings (a “Modification of the Stays Motion”)
shall be combined with a final hearing so that such hearing may be concluded
not less than thirty (30) days after the filing of the Contractors’
Modification of the Stays Motion.

Purchaser acknowledges that the provisions of this Article 22(b)(v) are
critical elements of the transaction to Contractor. The Parties have consulted
legal counsel experienced in such issues, and agree that a provision of this
type is beneficial in these circumstances.

Article
23.  Arbitration

(A)      Any
dispute or disagreement arising between the Parties in connection with any
interpretation of any provision of the Contract, or the compliance or
non-compliance therewith, or the validity or enforceability thereof, or any
other dispute under any Article hereof which is not settled to the mutual
satisfaction of the Parties within thirty (30) Days (or such longer period as
may be mutually agreed) from the date that either Party informs the other in
writing that such dispute or disagreement exists, shall be settled by
arbitration administered by the American Arbitration Association under its
Commercial Arbitration Rules and the Supplementary Procedures for Large,
Complex Disputes in effect on the date that such notice is given, except as
otherwise specified herein.

(B)       The
Party which demands arbitration of the controversy shall in writing specify the
matter to be submitted to arbitration, and at the same time, choose and
nominate an arbitrator; thereupon, within fifteen (15) Days after receipt of
such written notice, the other Party shall in writing choose and nominate a
second arbitrator.

The two arbitrators so chosen shall forthwith
select a third arbitrator, giving written notice to both Parties of the choice
so made and fixing a time and place in New York City, at which both Parties may
appear and be heard with respect to such controversy.  In case the two arbitrators shall fail to
agree upon a third arbitrator within a period of seven (7) Days, or if for any
other reason there shall be a lapse in the naming of an arbitrator or
arbitrators, or in the filling of a vacancy, or in the failure or refusal of
any arbitrator or arbitrators to attend or fulfill his or their duties, then
upon application by either Party to the controversy, arbitrators shall be named
by the American Arbitration Association in accordance with its Arbitration
Rules.

The arbitrators shall control discovery as they
shall determine is appropriate in the circumstances, taking into account the
needs of the Parties and the desirability of having the discovery take place in
an expeditious and cost-effective manner. Any discovery shall be limited to
information directly relevant to the controversy or claim in arbitration and
shall be concluded within ninety (90) Days after the arbitrators are appointed,
unless good cause for an extension of such deadline is shown.

(C)       The
arbitrators shall not alter or modify the terms and conditions of this Contract
but shall consider the pertinent facts and circumstances and be guided by the
terms and

 42
 

 

conditions of this Contract.  If a solution is not found in the terms and
conditions of this Contract, the arbitrators shall be guided by the substantive
laws of the State of New York, excluding all conflict of law rules.  The arbitration award made shall be final and
binding upon the Parties, their successors and assignees, and judgment may be
entered thereon, upon the application of either Party, by any court having
jurisdiction. Each Party shall bear the cost of preparing and presenting its
case including its own attorneys’ fees; and the cost of arbitration, including
the fees and expenses of the arbitrator or arbitrators, will be shared equally
by the Parties.

(D)      The
relief that may be awarded by the arbitrators under any arbitration arising
from this Contract may not exceed actual compensatory damages.  In no event may the arbitrators award
punitive damages or otherwise disregard the limitations of liability set forth
in this Contract.

Article
24.  Warranty

(A)      Contractor
warrants that each Spacecraft shall be free from material defects in materials
and workmanship and will conform to the requirements in Exhibit B. This
warranty shall start upon the date of the Pre-Shipment Review and shall run for
a period of one (1) year, or until Intentional Ignition, whichever is earlier.

In
case of storage pursuant to Article 29(A), the warranty will be extended for a
period of two (2) years or up to the Intentional Ignition of the stored
Spacecraft, whichever occurs earlier. After Intentional Ignition, the
obligations of Contractor in case of defects identified on a Spacecraft shall
be limited to the performance of the Anomaly Support.

(B)       Contractor
warrants that the Satellite OBPE Software shall be free from material defects
in materials and workmanship and will conform to the requirements in Exhibit B.
This warranty shall start upon the date of Intentional Ignition of the first
successful launch and shall run for a period of one (1) year. The scope of this
warranty is as set forth in Exhibit A.

(C)       Subject
to the provisions of Article 16, Contractor warrants that the DSS shall be free
from material defects in materials and workmanship and will conform to the
requirements in Exhibit E. This warranty shall start upon the date of Final
Acceptance thereof and shall run for a period of two (2) years.

(D)      Without
waiver of its right to terminate this Contract for default, Purchaser shall
have the right, at any time during the period of this warranty and irrespective
of prior inspections or acceptance, to require that any Deliverable Item not
conforming to the material requirements of the Contract by written notice sent
to Contractor (detailing to which extent the Contract requirements are not met)
be corrected or replaced, at Contractor’s expense and option.

(E)       The
remedy under this Article 24 shall not apply, as far as the DSS and
the Satellite OBPE Software are concerned, if repair or parts replacement is required because of

 43
 

 

accident, unusual physical or electrical stress,
negligence, misuse, failure of environmental control prescribed in operations
and maintenance manuals, repair or alterations by Purchaser, its officers,
directors, employees, consultants, representatives or agents, or causes other
than ordinary use. Furthermore, the warranty is contingent upon
Contractor being given access to delivered Deliverable Items in order to effect
any correction or replacement.

(F)       In
addition to the rights, duties and obligations of Contractor under other
provisions of this Contract, Contractor shall regularly and diligently review
and assess the generic design of each Spacecraft and related equipment, and the
performance data available from any Spacecraft which has been launched or is to
be launched and the performance of any equipment (other than Spacecraft)
supplied, operated or installed or to be so supplied, operated or installed by
Contractor up to the time of launch for a Spacecraft.  If such review and assessment shows that a
material defect exists which affects adversely or is reasonably likely to
affect adversely the operation or performance of a Spacecraft or other
equipment, Contractor shall notify Purchaser of any changes required thereto
and, upon the written agreement of Purchaser, take prompt and appropriate measures
at Contractor’s sole cost to correct a Spacecraft and other equipment before
launch, so as to eliminate the defect therefrom.

Purchaser
shall provide to Contractor for the purpose of the investigation all available
data and information related to the operation of the Spacecraft in orbit. In the event that corrective measures taken
pursuant to this Article 24 cause a delay, such delay shall be treated like an
excusable delay and there shall be an equitable adjustment to the schedule and
other terms for performance for the affected Work.

(G)       Purchaser
authorizes Contractor to disclose material deficiencies about Spacecraft to
third parties (customers, consultants and insurers) if problems are discovered
either during production or on orbit and if such problems are likely to affect
other spacecrafts. This disclosure is subject to US export control restrictions
and execution of a confidentiality agreement and shall not identify Globalstar
System, unless Purchaser otherwise agrees.

(H)      EXCEPT
AS IS OTHERWISE EXPRESSLY PROVIDED IN THIS CONTRACT, NO OTHER WARRANTIES,
WHETHER STATUTORY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THOSE OF
MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE, SHALL APPLY TO THE
GOODS AND SERVICES HEREUNDER AND THE REMEDIES PROVIDED HEREIN ARE THE SOLE
REMEDIES FOR FAILURE BY CONTRACTOR TO FURNISH WORK THAT IS FREE FROM DEFECTS IN
MATERIAL OR WORKMANSHIP AND CONFORMANCE WITH REQUIREMENTS AS SET FORTH IN THIS
ARTICLE 24.

 44
 

 

IN
NO EVENT SHALL CONTRACTOR BE LIABLE FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL,
PUNITIVE OR SPECIAL DAMAGES. ALL OTHER WARRANTIES OR CONDITIONS IMPLIED BY ANY
OTHER STATUTORY ENACTMENT OR RULE OF LAW WHATSOEVER ARE EXPRESSLY EXCLUDED AND
DISCLAIMED.

Article 25. 
Communication and Authority

(A)          [*]
is assigned as Purchaser’s Program Manager with authority to issue technical
direction within the scope of this Contract. 
[*] is assigned as Contractor’s Program Manager with authority
to accept such direction. 
Notwithstanding Article 25(A), the foregoing Program Managers are
authorized (i) to initial the Exhibits and any modifications thereto (except
Exhibit F), and (ii) to execute the waivers of technical compliance with the
specifications in the Exhibits.

(B)                                All contractual correspondence to Purchaser
will be addressed to (with copy to the Program Manager) :

[*]

Globalstar, Inc.

461 South Milpitas Blvd.

Milpitas, California 95035, U.S.A.

Tel : [*]

Email: [*]

All technical correspondence to Purchaser will be addressed to:

[*]

Globalstar, Inc.

461 South Milpitas Blvd.

Milpitas, California 95035, U.S.A.

Tel : [*]

Email: [*]

All contractual correspondence to Contractor will be
addressed to (with copy to the Program Manager) :

[*]

Alcatel Alenia Space France

100, Boulevard du midi - B.P 99

06156 Cannes la Bocca Cedex – France

Email: [*]

 45
 

 

All
technical correspondence to Contractor will be addressed to:

[*]

Alcatel
Alenia Space France

100
Boulevard du midi - B.P 99

06156
Cannes la Bocca Cedex – France

Email: [*]

(C)       In a
time critical situation, such as in the case of failures or suspected failures
of transponders or other operational or technical matters requiring immediate
attention, notice may be given by telephone. Any notice given verbally will be
confirmed in writing as soon as practicable thereafter in accordance with Article
25(D).

(D)      Except
as provided in Article 25(C), all notices, demands, reports, orders and
requests hereunder by one Party to the other shall be in writing and deemed to
be duly given on the same Business Day if sent by electronic means (i.e., electronic mail) or delivered by
hand during the receiving Party’s regular business hours, or on the date of
actual receipt if sent by pre-paid overnight, registered or certified mail.

(E)       The
Parties agree to cooperate in implementing the use of electronic signatures,
provided that such use is consistent with applicable law.

Article 26.  
RESERVED

Article
27.  Licenses for Export and Launch

(A)      This
Contract is subject to all applicable United States laws and regulations
relating to the export of Licensed Items and to all applicable laws and
regulations of the country or countries to which such Licensed Items are
exported or are sought to be exported. 
Contractor and Purchaser shall fully comply with all requirements of any
Technical Assistance Agreement related to the substance of this Contract,
whether included as an Appendix hereto or not.

(B)       Without
limiting the scope of Article 27(A), Contractor shall use its reasonable best
efforts to obtain all approvals and licenses required by the laws and
regulations of the country or countries to which the Licensed Items are
exported or are sought to be exported. Purchaser shall use its reasonable best
efforts to obtain all US government approvals and licenses to export Licensed
Items.

 46

 

(C)       If
a government refuses to grant a required approval or license to export the
Licensed Items, or to launch a Spacecraft, or revokes or suspends an approval
or license subsequent to its grant, or grants a license or approval subject to
conditions, then (i) this Contract shall, nevertheless, remain in full force
and effect unless terminated for convenience pursuant to Article 21, and (ii)
the Delivery Schedule shall be adjusted on a day-for-day basis for each day
that Contractor is impacted by such action or inaction of the United States
government.  Such government action or
inaction shall not modify in any way the rights and obligations of the Parties
under this Contract except to relieve Contractor of any obligations which
cannot be performed without such an approval or license.

(D)      The
Parties confirm that their performance of, and obligations under, this Contract
is in all matters subject to the provisions of this Article 27, notwithstanding
that (i) other Articles (including without limitation those paragraphs in
Articles 8 and 9) and Exhibits may not specifically reference Article 27, and
(ii) other Articles and Exhibits may state that they are subject to compliance
with other Articles of this Contract.

(E)       Contractor and Purchaser shall cooperate in amending as
necessary the existing Technical Assistance Agreement set forth in Appendix 2
and in the establishment of Appendix 3, which will allow Purchaser to be
directly involved in matters related to some or all Licensed Items.

Article
28.  Spacecraft Storage

(A)      In the
event of a delay or failure to launch which is attributable to Contractor,
Contractor, at its expense, shall provide for all transportation, storage (if
needed), testing and refurbishment and any Work and expense of maintenance to
prevent deterioration of a Spacecraft required before and until such time as a
rescheduled launch can reasonably be effected.

(B)       If
Purchaser has not secured a firm launch commitment for Spacecraft having
completed PSR, then Purchaser shall direct Contractor to store such Spacecraft
and the provisions of Article 29(A) and of the Storage Plan shall apply.

(C)       Title
and risk of loss for a Spacecraft to be stored in accordance with this Article
28 shall remain with, and the associated cost of insurance shall be borne by
Contractor.

 47
 

 

Article 29. 
Options

(A)                              Option for extended storage

(i)    If, for any reason other than the fault of Contractor, Purchaser
so requests of Contractor, after successful completion of Pre-Shipment Review,
Contractor shall place a Spacecraft in storage, in accordance with a Storage
Plan, for a maximum period of twelve (12) years. Unless otherwise set forth in
the Storage Plan, title and risk of loss for a Spacecraft in storage in
accordance with this Article 29(A)(i) shall pass to Purchaser in accordance
with Article 9. In addition, Purchaser shall be responsible for all
transportation costs in transit, (a) from Contractor’s facility to storage, (b)
if necessary, from the storage site to a refurbishment site, and (c) if
applicable, from the Launch Site to the storage site and return.  Assuming a storage location within a 150-mile
radius of Contractor’s facility, Contractor shall be responsible for all
transportation costs from the storage site, or the refurbishment site if
applicable, to the Launch Site and for the risk of loss and the expense of any
insurance to cover such risk while in transit.

(ii)       If storage of a Spacecraft is effected pursuant to Article
29(A), upon the request of Purchaser, Contractor shall provide periodic
testing, necessary equipment, and environmental maintenance suitable for
prevention of deterioration to the Spacecraft during the period of storage.
Unless such environmental services are provided by Contractor, any
deterioration to a Spacecraft while in storage shall be at Purchaser’s risk and
shall be corrected at Purchaser’s expense. If such services are provided by
Contractor, correction of such deterioration shall be at Contractor’s expense.

(iii)       The price for storage activities will be negotiated in good
faith between the Parties upon request from Purchaser.

(iv)       If, at any time after storage effected pursuant to Article
29(A) begins, Purchaser elects to launch a stored Spacecraft, Contractor shall
inspect, test and refurbish as necessary such Spacecraft to a launch-ready
condition and arrange for transit to the Launch Site as directed by
Purchaser.  The price for such activities
will be negotiated in good faith between the Parties.

(v)        If the Spacecraft is placed in storage pursuant to Article
29(A), then the provisions of Article 18 and Article 20 shall no longer apply
with respect to such Spacecraft.

 48
 

 

(B)           Additional Spacecraft

Purchaser shall have the option to order from
Contractor up to eighteen (18) additional recurring Spacecraft under the
following conditions :

(i)      Each order shall be for a minimum of six (6) additional
Spacecraft.

(ii)     If the order is exercised on or before July 1, 2008, then the
firm fixed price for each additional Spacecraft shall be [*] Euros.

(iii)    If
the order is exercised on or after July 2, 2008 for delivery of Satellites
before December 31, 2013, then the firm fixed price for each additional
Spacecraft shall be [*] Euros.

(iv)   If
the order is exercised after July 2, 2008 for delivery after December 31, 2013,
then the firm fixed price for each additional Spacecraft shall be [*] Euros plus a [*] annual increase for each year after 2013.

(v)    The Delivery schedule
for each additional Spacecraft ordered on or before April 1, 2013 (under the
Regular Delivery) shall be :

·  the first Spacecraft ordered will be
delivered twenty two (22) months after the date of receipt of the order by
Contractor ; and

·  the subsequent Spacecraft will be delivered
at a rate of one (1) per month after the first one of that Batch (the minimum
size of the order being of 6 to 8 satellites per Batch).

The Delivery schedule for each additional
Spacecraft ordered after April 1, 2013 (under the Regular Delivery) shall be :

·  the first Spacecraft ordered will be
delivered thirty (30) months after the date of receipt of the order by
Contractor ; and

·  the subsequent Spacecraft will be delivered
at a rate of one (1) per month after the first one of that Batch (the minimum
size of the order being of 6 to 8 satellites per Batch).

In any case, in case of
obsolescence of components, Contractor reserves the right to renegotiate in
good faith with Purchaser the price and schedule for these additional
satellites.

 49
 

 

(C)           Satellite OBPE Software enhancement

Purchaser shall have the option to order from Contractor
OBPE Software enhancement activities to be defined on a case-by-case basis. The
scope and price for such activities will be negotiated in good faith between
the Parties on time and material basis.

(D)      Extended
Anomaly Support

Purchaser shall have the option to order from
Contractor extended Anomaly Support activities to be defined on a case-by-case
basis. The scope and price for such activities will be negotiated in good faith
between the Parties on time and material basis.

(E)       Mass
simulators

Purchaser shall have the option to order from
Contractor eight (8) mass simulators as set forth in Exhibit A. The scope and
price for such simulators will be negotiated in good faith between the Parties.
Alternatively, Purchaser may elect to order such eight (8) mass simulators from
third parties and Contractor shall cooperate in allowing Purchaser to release
to such third parties engineering information as needed.

Article
30.  Key Personnel

(A)      At
EDC, Contractor shall identify the Key Personnel for the following positions to
perform the services and staff the Work, working dedicated until successful
completion of the Work performed hereunder (individually a “Key Person” and
collectively the “Key Personnel”).  No
person can serve the role of more than one Key Person.

	
  Position

  	
   

  	
  Name

  
	
  Program Manager

  	
   

  	
  [*]

  

 

(B)       Key
Personnel shall not be removed from performance of the Work under this Contract
unless replaced with personnel of substantially equal qualifications and
ability.  Purchaser shall have the right
to review the qualifications of any proposed replacements.  If Purchaser deems, in its reasonable
judgment, the proposed replacements to be unsuitable, Purchaser may require
Contractor to offer alternative candidates. 
Notwithstanding its role in reviewing Key Personnel and their
replacements, Purchaser shall have no supervisory control over their
performance, and nothing in this Article shall relieve Contractor of any of its
obligations under this Contract, or of its responsibility for any acts or
omissions of its personnel.

 50
 

 

Article
31.  Indemnification and Insurance

(A)      Contractor
shall indemnify and hold harmless Purchaser, and its subsidiaries and
affiliates, and its subcontractors (if any), their respective officers,
employees, agents, servants and assignees, or any of them (collectively “Purchaser
Indemnitees”), from any direct or indirect loss, damage, liability and expense
(including reasonable attorneys fees), on account of loss or damage to property
and injuries, including death, to all persons, including but not limited to
employees or agents of Contractor, the Subcontractors and the Purchaser
Indemnitees, and to all other persons, arising from any occurrence caused by
any negligent act or omission or willful misconduct of Contractor, the
Subcontractors or any of them.

At Contractor’s expense, Contractor shall defend any
suits or other proceedings brought against the Purchaser Indemnitees on account
thereof, and shall pay all expenses and satisfy all judgments which may be
incurred by or rendered against them, or any of them, in connection therewith.

Contractor shall have the right to settle any claim
or litigation against which it indemnifies hereunder. Further, the Purchaser
Indemnitees shall provide to Contractor such reasonable cooperation and
assistance as Contractor may request to perform its obligations hereunder.

(B)       Purchaser
shall indemnify and hold harmless Contractor, and its subsidiaries and
affiliates, its Subcontractors, their respective officers, employees, agents,
servants and assignees , or any of them (collectively “Contractor Indemnitees”),
from any direct or indirect loss, damage (including damage to property and injuries,
including death), liability and
expense (including reasonable attorneys fees) incurred by any third party (including
employees or agents of Purchaser and Contractor Indemnitees) and arising from any occurrence caused by any
negligent act or omission or willful misconduct of Purchaser, its officers,
employees, agents, consultants, servants and assignees.

In addition, Purchaser shall waive any claim
against and shall indemnify and hold harmless Contractor Indemnitees from any
direct or indirect loss, damage (including damage to property and injuries,
including death), liability and expense incurred by any third party and arising
from use, operation or performance of the DSSs, the Satellite OBPE Software and
any Spacecraft after Intentional Ignition, including as a result of modification or
improvements made by Purchaser.

Purchaser shall, at Purchaser’s expense, defend any suits brought
against the Contractor Indemnitees referred to above and shall pay all expenses
and satisfy all judgments which may be incurred by or rendered against them, or
any of them, in connection therewith. 
Purchaser shall have the right to settle any claim or litigation against
which it indemnifies hereunder. Further, the Contractor Indemnitees shall
provide to Purchaser such reasonable cooperation and assistance as Purchaser may
request to perform its obligations hereunder. 

 51
 

 

(C)           Contractor shall, at
its own expense, provide and maintain insurance which shall cover all WIP
(including all Purchaser’s property while in Contractor’s custody) against
physical loss or damage on an “all risks” property insurance basis, including
coverage for the perils of flood or earthquake while in or about Contractor’s
and its Subcontractors’ premises, while at other premises which may be used or
operated by Contractor for construction or storage purposes, and while in
transit, or while at the Launch Site until Intentional Ignition for a Satellite
or upon placing a Satellite into storage.

The amount of insurance shall be sufficient to cover
the full replacement value of all Work. Upon request by Purchaser, Contractor
will provide certificate of insurance to Purchaser. Additionally, Contractor
will add Purchaser as an additional insured under the All Risks insurance as
far as Purchaser’s interests may appear.

The insurance may be issued with deductibles, which
are consistent with Contractor’s current insurance policies.  The amount of any loss up to the value of the
deductible level, or not otherwise covered by the insurance, shall be borne by
Contractor.

In addition, Contractor shall, at its
own expense, provide and maintain a Commercial General Liability Insurance
Policy (“CGL Policy”) which shall cover property damage and injuries, including
death, caused to third parties. Upon written request by Purchaser, Contractor
will provide a certificate of insurance to Purchaser. Contractor shall use its reasonable best efforts to add
Purchaser as additional insured under such CGL Policy.

(D)       Contractor
shall provide to Purchaser, prior to Intentional Ignition, a written statement
containing the following :

·  the
Satellites to be launched have passed qualification and acceptance tests,
including the FRR, under the Contract, subject to written waivers that have
been issued and approved by Purchaser ; and

·  any and
all known defects or anomalies observed on (i) already launched or on ground
similar satellites manufactured by Contractor, or (ii) on the Satellites to be
launched during their development, which came to Contractor’s knowledge prior
to the Flight Readiness Review, have been recorded and investigated and that
all required remedy measures have been implemented in accordance with the
applicable quality procedures as far as applicable and in so far as they would
adversely affect the performance of the Satellites to be launched, such
information provided to Purchaser.

 52
 

 

Article
32.  Effective Date of Contract

(A)       The
effective date of this contract (the “EDC”) shall be October 1, 2006 provided
that all the following conditions are fulfilled :

(i)                                    signature of the
Contract by both Parties ; and

(ii)                                  the first payment
referred to in Exhibit F has been credited to the Contractor’s bank account ;
and

(iii)                               entry into force
of the Escrow Agreement between Contractor, Purchaser (and/or NEWCO) and the
Escrow Agent and deposit in the Escrow Account of the amount referred to in
Article 7(I).

(B)           If by December 22,
2006, the conditions under Article 32(A) are not fulfilled, Contractor or
Purchaser shall have the following options :

(i)                                    to notify the
other Party that this Contract shall not become effective. In such a case, the
notified Party shall not be entitled to claim any damages whatsoever from the
notifying Party; or

(ii)                                  be entitled to enter into negotiation with
the other Party if agreed by such Party to adjust the Total Price and the
schedule of Work. The Contract shall be amended to reflect these adjustments.

Article 33. 
Representations

(A)                              Contractor represents, covenants and warrants
that :

(i)    Contractor’s execution of and performance under this Contract
will not result in a breach of, or constitute a default under, any contract,
instrument or other agreement to which Contractor is a party or is bound ; and

(ii)   Contractor has full power, authority and legal right to execute,
deliver and perform this Contract, that the execution, delivery and performance
by Contractor of this Contract have been duly authorized by all necessary
action on the part of Contractor and do not require any further approval or
consent of any person or entity (whether governmental or otherwise), and that
once executed by Contractor this Contract shall constitute a legal, valid and
binding obligation of Contractor enforceable against Contractor in accordance
with its terms.

 53
 

 

(B)                      Purchaser
represents, covenants and warrants that :

(i)         Purchaser has full power, authority and legal right to
execute, deliver and perform this Contract, that the execution, delivery and
performance by Purchaser of this Contract have been duly authorized by all
necessary action on the part of Purchaser and do not require any further
approval or consent of any person or entity (whether governmental or
otherwise), and that once executed by Purchaser this Contract shall constitute
a legal, valid and binding obligation of Purchaser enforceable against
Purchaser in accordance with its terms.

(ii)        Purchaser’s execution of and performance under this Contract
does not result in a breach of, or constitute a default under, any contract,
instrument or other agreement to which Purchaser is a party or is bound.

Article 34. 
General Provisions

(A)      Each
Party hereby agrees that it will not, without the prior written approval of the
other Party (such approval not to be unreasonably withheld or unduly delayed),
assign or delegate any of their rights, duties, and obligations under this
Contract, except to a wholly-owned subsidiary of such Party (which assignment
or delegation shall not relieve the assignor or delegator of liability). In case of assignment by Purchaser, Purchaser shall demonstrate to
Contractor’s satisfaction that
its successor or assignee possesses the financial resources to fulfill
Purchaser’s obligations under this Contract. Upon such assignment, the assignee shall assume all rights and
obligations of the assignor existing under this Contract at the time of such
assignment. This Article 34(A) shall not preclude the granting of a security
interest by a Party to a lender.

(B)       Nothing
contained in this Contract shall be deemed or construed by the Parties or by
any third party to create any rights, obligations or interests in third
parties, or to create the relationship of principal and agent, partnership or
joint venture or any other fiduciary relationship or association between the
Parties and the rights and obligations of the Parties shall be limited to those
expressly set forth herein.

(C)       No failure on the part of either Party to notify the other
Party of any noncompliance hereunder, and no failure on the part of either
Party to exercise its rights hereunder, shall prejudice any remedy for any
subsequent noncompliance with any term or condition of this Contract and shall
be limited to the particular instance and shall not operate or be deemed to
waive any future breaches or noncompliance with any term or condition.  Except as otherwise expressly provided
herein, all remedies and rights hereunder shall be exclusive and in lieu of all
other rights and remedies available by law or in equity.

 54
 

 

(D)      The Parties shall comply with the United States Foreign Corrupt
Practices Act, the OECD Antibribery Convention and all other laws of any
country dealing with improper or illegal payments, gifts or gratuities.
Contractor agrees not to pay, promise to pay or authorize the payment of any
money or anything of value, directly or indirectly to any person for the
purpose of illegally or improperly inducing a decision or obtaining or retaining
business in connection with this Contract.

(E)       This Contract (including all Exhibits and Appendices)
constitutes the entire agreement between the Parties and supersedes all prior
understandings, commitments and representations between the Parties with
respect to the subject matter hereof. In particular, this Contract supersedes
the ATP entered into by and between the Parties. The Work performed by
Contractor pursuant to the ATP and any amounts paid by the Purchaser to
Contractor under the ATP are considered as Work performed and costs incurred
and paid in the performance of this Contract.

The Escrow Agreement is
separate and independent from this Contract. The Parties do not intend for this
Contract and the Escrow Agreement to constitute a single agreement.

This Contract may not be amended or modified and
none of its provisions may be waived, except by a writing signed by an
authorized representative of the Party against which the amendment,
modification or waiver is sought to be enforced.

In the event any one or more of the provisions of
this Contract shall for any reason be held to be invalid or unenforceable, the
remaining provisions of this Contract shall be unimpaired, and the invalid or
unenforceable provision shall be replaced by a provision which, being valid and
enforceable, comes closest to the intention of the Parties underlying the
invalid or unenforceable provisions. The Parties shall negotiate in good faith
to attempt to agree upon any such replacement provision.

The paragraph headings herein shall not be
considered in interpreting the text of this Contract.

All oral and written communications between the
Parties shall be conducted in English.

This Contract shall be governed by and interpreted
in accordance with the laws of the State of New York, U.S.A., excluding its
conflict of laws rules. The U.N. Convention on Contracts for the International
Sales of Goods is not applicable to this Contract.

 55
 

 

(F)       In
view of a number of factors, including the substantial payments to
Subcontractors that Contractor will be making in connection with its
performance under this Contract, the Parties acknowledge and agree that if
Purchaser should become a debtor in a case under the United States Bankruptcy
Code, Contractor would be severely and irreparably damaged unless Purchaser
continues uninterrupted and timely performance of its obligations under the
Contract and promptly assumes or rejects this Contract.  In continuing to perform this Contract
following a bankruptcy filing by the Purchaser, Contractor would incur millions
of Euros of expense (including commitments to Subcontractors) that Contractor
could avoid incurring through termination clauses if the Contract ultimately is
to be rejected in a bankruptcy proceeding. Accordingly, if Purchaser should
become a debtor in a case (the “Bankruptcy Case”) under the United States
Bankruptcy Code, Purchaser shall, within thirty (30) days after the
commencement of the Bankruptcy Case, (i) promptly advise Contractor of such,
(ii) file a motion (the “Motion”) with the bankruptcy court presiding over the
Bankruptcy Case seeking an order approving Purchaser’s assumption or rejection
of this Contract within such thirty day period, and (iii) obtain a final and
non-appealable order (the “Order”) approving the assumption or rejection of
this Contract. Purchaser agrees that it shall not, without the prior written
consent of Contractor, withdraw the Motion or adjourn any hearing on the
Motion.  Purchaser further agrees that it
will promptly take and diligently pursue any and all actions necessary and/or
appropriate, including such actions as may be reasonably requested by
Contractor, to obtain the Order within the thirty (30) day period set forth
above.  In the event Purchaser does not
file the Motion and obtain the Order within thirty (30) days after the
commencement of the Bankruptcy Case, Contractor shall, in addition to any other
rights and/or remedies it has or may have, be entitled to stop the Work under
this Contract.  Following such Work
stoppage, if Purchaser still has not filed the Motion and obtained the Order
within thirty (30) days after Contractor has stopped the Work then, Contractor
shall be entitled to terminate the Contract by written notice sent to Purchaser
and the provisions of Article 22(B)(iv) shall apply.

Purchaser
acknowledges that the provisions of this Article 34(F) are critical elements of the transaction to
Contractor. The Parties have consulted legal counsel experienced in such
issues, and agree that a provision of this type is beneficial in these circumstances.

 56
 

 

Execution

In witness
whereof, the Parties
have duly executed this Contract.

	
  Globalstar, Inc.

  	
   

  	
  Alcatel Alenia Space France

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ James Monroe III

  	
   

  	
   

  	
  By:

  	
  /s/ Pascale Sourisse

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  James Monroe III

  	
   

  	
  Name:

  	
  Pascale Sourisse

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  Chief Executive Officer

  	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  November 30, 2006

  	
   

  	
  Date:

  	
  November 30, 2006

  
							

 

 57EXHIBIT 10.6

SECURITIES PURCHASE
AGREEMENT

SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of December 14, 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 investors listed on the Schedule of Buyers attached hereto
(individually, a “Buyer” and
collectively, the “Buyers”).

WHEREAS:

A.            The Company and each Buyer is executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.

B.            The Company has authorized a new series of senior
convertible notes of the Company, in the form attached hereto as Exhibit A
(the “Notes”), which Notes shall be
convertible into the Company’s common stock, par value $0.001 per share
(the ”Common Stock”) (as
converted, the “Conversion Shares”), in accordance
with the terms of the Notes.

C.            Each Buyer wishes to purchase, and the Company wishes to
sell, upon the terms and conditions stated in this Agreement, (i) that
aggregate principal amount of the Notes set forth opposite such Buyer’s name in
column (3) on the Schedule of Buyers attached hereto (which aggregate amount
for all Buyers shall be $21,000,000); (ii) warrants, in substantially the form
attached hereto as Exhibit B-1 (the “Series A Warrants”), to acquire up to that
number of additional shares of Common Stock set forth opposite such Buyer’s
name in column (4) of the Schedule of Buyers (as exercised, collectively, the “Series A Warrant Shares”);
(iii) warrants, in substantially the form attached hereto as Exhibit B-2
(the “Series B Warrants”), to acquire up to that number of additional shares
of Common Stock set forth opposite such Buyer’s name in column (5) of the
Schedule of Buyers (as exercised, collectively, the “Series B Warrant Shares”); and (iv)
warrants, in substantially the form attached hereto as Exhibit B-3 (the “Series C Warrants”,
and together with the Series A Warrants and the Series B Warrants, the “Warrants”), to acquire, upon an Optional Redemption (as set
forth in Section 9 of each of the Notes) additional shares of Common Stock, up
to that number of additional shares of Common Stock set forth opposite such
Buyer’s name in column (6) of the Schedule of Buyers (as exercised,
collectively, the “Series C Warrant Shares”, and together with
the Series A Warrant Shares and the Series B Warrant Shares, the “Warrant Shares”).

D.            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”).

E.             Contemporaneously with the execution and delivery of
this Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement, substantially in the form attached hereto as Exhibit C
(the “Registration Rights Agreement”),
pursuant to which the Company will agree to provide certain registration rights
with respect to the Registrable 

 

Securities (as defined in the Registration Rights
Agreement) under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.

F.             The Notes, the Conversion Shares, the Interest Shares,
the Warrants and the Warrant Shares collectively are referred to herein as the “Securities”.

G.            The Notes will rank senior to all outstanding and future
indebtedness of the Company, other than Permitted Senior Indebtedness (as
defined in the Notes).

NOW,
THEREFORE, the Company and each Buyer hereby agree as
follows:

1.             PURCHASE AND
SALE OF NOTES AND WARRANTS.

(a)           Purchase of Notes
and Warrants.

(i)            Notes and
Warrants.  Subject to the satisfaction (or waiver) of the conditions set forth in
Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and
each Buyer severally, but not jointly, agrees to purchase from the Company on
the Closing Date (as defined below), (w) a principal amount of Notes as is set
forth opposite such Buyer’s name in column (3) on the Schedule of Buyers, (x)
the Series A Warrants to acquire up to that number of Series A Warrant Shares
as is set forth opposite such Buyer’s name in column (4) on the Schedule of
Buyers, (y) the Series B Warrants to acquire up to that number of Series B
Warrant Shares as is set forth opposite such Buyer’s name in column (5) on the
Schedule of Buyers and (z) the Series C Warrants to acquire up to that number
of Series C Warrant Shares as is set forth opposite such Buyer’s name in column
(6) on the Schedule of Buyers (the “Closing”).

(ii)           Closing.  The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m., New York City time,
on the date hereof (or such later date as is mutually agreed to by the Company
and each Buyer) after notification of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 6 and 7 below at the offices of
Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022.

(iii)          Purchase Price.  The aggregate purchase price for the Notes
and the Warrants to be purchased by each such Buyer at the Closing (the “Purchase Price”) shall be the amount set forth opposite
each Buyer’s name in column (7) of the Schedule of Buyers.  Each Buyer shall pay $1,000 for each $1,000
of principal amount of Notes and related Warrants to be purchased by such Buyer
at the Closing.

(b)           Form of Payment.  On the Closing Date, (i) each Buyer shall pay
its Purchase Price to the Company for the Notes and the Warrants to be issued
and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company’s written wire instructions and
(ii) the Company shall deliver to each Buyer the Notes (allocated in the
principal amounts as such Buyer shall request) which such Buyer is then
purchasing hereunder along with the Warrants (allocated in the amounts as such
Buyer shall request) which such Buyer is purchasing, in each case duly executed
on behalf of the Company and registered in the name of such Buyer or its
designee.

 2
 

 

2.             BUYER’S REPRESENTATIONS AND
WARRANTIES.  Each Buyer, severally
and not jointly, represents and warrants with respect to only itself that:

(a)           No Sale or Distribution.  Such Buyer is acquiring the Notes, and the
Warrants, and upon conversion of the Notes and exercise of the Warrants (other
than pursuant to a Cashless Exercise (as defined in the Warrants)) will acquire
the Conversion Shares issuable upon conversion of the Notes and the Warrant
Shares issuable upon exercise of the Warrants, for its own account and not with
a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
1933 Act; provided, however, that by making the representations herein, such
Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time
in accordance with or pursuant to a registration statement or an exemption
under the 1933 Act and pursuant to the applicable terms of the Transaction
Documents (as defined in Section 3(b)). 
Such Buyer is acquiring the Securities hereunder in the ordinary course
of its business.  Such Buyer does not
presently have any agreement or understanding, directly or indirectly, with any
Person to distribute any of the Securities.

(b)           Accredited Investor Status.  Such Buyer is and at all times since the
Company or its Agent first contacted the Buyer(s) regarding an investment
opportunity with the Company until the Closing was an “accredited investor” as
that term is defined in Rule 501(a) of Regulation D.

(c)           Reliance on Exemptions.  Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Company is relying in part upon the truth and accuracy of, and
such Buyer’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

(d)           Information.  Such Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities that have been requested by such Buyer.  Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company.  Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors, if any, or
its representatives shall modify, amend or affect such Buyer’s right to rely on
the Company’s representations and warranties contained herein.  Such Buyer understands that its investment in
the Securities involves a high degree of risk and is able to afford a complete
loss of such investment.  Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.

(e)           No Governmental Review.  Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 3
 

 

(f)            Transfer or Resale.  Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can
be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated
under the 1933 Act, as amended (or a successor rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the Person (as defined in Section 3(s))
through whom the sale is made) may be deemed to be an underwriter (as that term
is defined in the 1933 Act) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and
(iii) neither the Company nor any other Person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.  The Securities may be pledged in connection
with a bona fide margin account or other loan or financing arrangement secured
by the Securities and such pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Buyer effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document (as defined in Section 3(b)), including, without
limitation, this Section 2(f).

(g)           Legends.  Such Buyer understands that the certificates
or other instruments representing the Notes and the Warrants and, until such
time as the resale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear any legend as required by
the “blue sky” laws of any state and a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of
such stock certificates):

[NEITHER THE
ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE]  [EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT 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 

 4
 

 

BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

The legend set forth above shall be removed and the
Company shall issue a certificate without such legend to the holder of the
Securities upon which it is stamped, if, unless otherwise required by state
securities laws, (i) such Securities are registered for resale under the 1933
Act, (ii) in connection with a sale, assignment or other transfer, such holder
provides the Company with an opinion of a law firm reasonably acceptable to the
Company (with Schulte Roth & Zabel LLP being deemed acceptable), in a
generally acceptable form, to the effect that such sale, assignment or transfer
of the Securities may be made without registration under the applicable
requirements of the 1933 Act, or (iii) such holder provides the Company with
reasonable assurance that the Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A.

(h)           Validity; Enforcement.  This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Buyer and shall constitute the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights and remedies.

(i)            No Conflicts.  The execution, delivery and performance by
such Buyer of this Agreement and the Registration Rights Agreement and the
consummation by such Buyer of the transactions contemplated hereby and thereby
will not (i) result in a violation of the organizational documents of such
Buyer or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which such Buyer is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment  or decree (including federal and state
securities laws) applicable to such Buyer, except in the case of clauses (ii)
and (iii) above, for such conflicts, defaults, rights or violations which would
not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the ability of such Buyer to perform its obligations
hereunder.

(j)            Residency.  Such Buyer is a resident of that jurisdiction
specified below its address on the Schedule of Buyers.

(k)           Certain Trading Activities.  Other than with respect to the transactions
contemplated herein, since the time that such Buyer was first contacted by the
Company, the Agent (as defined below) or any other Person regarding the
investment in the Company set forth herein neither the Buyer nor any Affiliate
of such Buyer which (x) had knowledge of the transactions contemplated hereby,
(y) has or shares discretion relating to such Buyer’s investments or trading or
information concerning such Buyer’s investments and (z) is subject to such
Buyer’s review or input concerning such Affiliate’s investments or trading
(collectively, “Trading Affiliates”) has directly or indirectly, nor has any
Person acting on behalf of or pursuant to any understanding with such Buyer or
Trading Affiliate, effected or agreed to effect any transactions in the
securities of the Company.  Such Buyer
hereby covenants and agrees not 

 5
 

 

to, and shall cause its
Trading Affiliates not to, engage, directly or indirectly, in any transactions
in the securities of the Company or involving the Company’s securities during
the period from the date hereof until such time as (i) the transactions contemplated
by this Agreement are first publicly announced as described in Section 4(i)
hereof or (ii) this Agreement is terminated pursuant to Section 8 hereof.

3.             REPRESENTATIONS AND WARRANTIES
OF THE COMPANY.

The Company represents and warrants to each of the
Buyers that:

(a)           Organization and
Qualification.  The Company and its “Subsidiaries” (which for purposes of this Agreement means
any joint venture or any entity in which the Company, directly or indirectly,
owns any of the capital stock or holds an equity or similar interest) are
entities duly organized and validly existing and, to the extent legally
applicable, in good standing under the laws of the jurisdiction in which they
are formed, and have the requisite power and authorization to own their properties
and to carry on their business as now being conducted.  Each of the Company and its Subsidiaries is
duly qualified as a foreign entity to do business and, to the extent legally
applicable, is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not reasonably be expected to have a Material Adverse
Effect.  As used in this Agreement, “Material Adverse Effect” means any material adverse effect on the
business, properties, assets, operations, results of operations, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries,
individually or taken as a whole, or on the transactions contemplated hereby or
in the other Transaction Documents or by the agreements and instruments to be
entered into in connection herewith or therewith, or on the authority or
ability of the Company to perform its obligations under the Transaction
Documents (as defined below).  The
Company has no Subsidiaries except as set forth on Schedule 3(a).

(b)           Authorization;
Enforcement; Validity.  The Company
has the requisite power and authority to enter into and perform its obligations
under this Agreement, the Notes, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), the
Warrants and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the “Transaction
Documents”) and to issue the
Securities in accordance with the terms hereof and thereof.  The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation,
the issuance of the Notes and the Warrants, the reservation for issuance and
the issuance of the Conversion Shares issuable upon
conversion of the Notes, and the reservation for issuance and issuance of
Warrant Shares issuable upon exercise of the Warrants have been duly authorized
by the Company’s Board of Directors and no further filing, consent, or
authorization is required by the Company, its Board of Directors or its
stockholders.  This Agreement and the
other Transaction Documents of even date herewith have been duly executed and
delivered by the Company, and constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, 

 6
 

 

reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally,
the enforcement of applicable creditors’ rights and remedies.

(c)           Issuance of
Securities.  The issuance of the
Notes and the Warrants are duly authorized and are free from all taxes, liens
and charges with respect to the issue thereof. 
As of the Closing, a number of shares of Common Stock shall have been
duly authorized and reserved for issuance which equals or exceeds 130% of the
aggregate of the maximum number of shares of Common Stock issuable (i) upon
conversion of the Notes, (ii) as Interest Shares pursuant to the terms of the
Notes and (iii) upon exercise of the Series A Warrants and Series B Warrants.  Upon conversion or exercise in accordance
with the Notes or the Warrants, as the case may be, the Conversion Shares, the
Interest Shares and the Warrant Shares, respectively, will be validly issued,
fully paid and nonassessable and free from all preemptive or similar rights,
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock.  Assuming the accuracy of each of the
representations and warranties set forth in Section 2 of this Agreement, the
offer and issuance by the Company of the Securities is exempt from registration
under the 1933 Act.

(d)           No Conflicts.  The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Notes and Warrants and reservation for issuance
and issuance of the Conversion Shares, the Interest Shares and the Warrant
Shares) will not (i) result in a violation of any certificate of incorporation,
certificate of formation, any certificate of designations or other constituent
documents of the Company or any of its Subsidiaries, any capital stock of the
Company or any of its Subsidiaries or bylaws of the Company or any of its
Subsidiaries or (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) in any respect
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including foreign, federal and
state securities laws and regulations and the rules and regulations of the
NASDAQ Over-the-Counter Bulletin Board (the “Principal Market”)
applicable to the Company or any of its Subsidiaries or by which any property
or asset of the Company or any of its Subsidiaries is bound or affected.

(e)           Consents.  Neither the Company nor any of its
Subsidiaries is required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency or any
regulatory or self-regulatory agency or any other Person in order for it to
execute, deliver or perform any of its obligations under or contemplated by the
Transaction Documents, in each case in accordance with the terms hereof or
thereof, except for the following consents, authorizations, orders, filings and
registrations (none of which is required to be filed or obtained before the
Closing): (i) the filing with the SEC of one or more Registration Statements in
accordance with the requirements of the Registration Rights Agreement and the
8-K Filing (as defined below) and (ii) the filing of a listing application for
the Conversion Shares, the Interest Shares and Warrant Shares with the
Principal Market, which shall be done pursuant to the rules of the Principal
Market.  The Company and its Subsidiaries
are unaware of any facts or circumstances that might prevent the Company from
obtaining or effecting any of the registration, application or filings pursuant
to the preceding sentence.  The Company
is not in 

 7
 

 

violation
of the listing requirements of the Principal Market and has no knowledge of any
facts that would reasonably lead to delisting or suspension of the Common Stock
in the foreseeable future.  The issuance
by the Company of the Securities shall not have the effect of delisting or
suspending the Common Stock from the Principal Market.

(f)            Acknowledgment
Regarding Buyer’s Purchase of Securities. 
The Company acknowledges and agrees that each Buyer is acting solely in
the capacity of an arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby and that no
Buyer is (i) an officer or director of the Company, (ii) an “affiliate” of the
Company or any of its Subsidiaries (as defined in Rule 144) or (iii) to the
knowledge of the Company, a “beneficial owner” of more than 10% of the shares
of Common Stock (as defined for purposes of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the “1934 Act”)).  The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company or any of
its Subsidiaries (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer’s purchase of the Securities.  The Company further represents to each Buyer
that the Company’s decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.

(g)           No General
Solicitation; Placement Agent’s Fees. 
Neither the Company, nor any of its Subsidiaries or affiliates, nor any
Person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D) in
connection with the offer or sale of the Securities.  The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or brokers’
commissions (other than for persons engaged by any Buyer or its investment
advisor) relating to or arising out of the transactions contemplated hereby,
including, without limitation, placement agent fees payable to Cowen &
Company as placement agent (the “Agent”) in
connection with the sale of the Securities. 
The Company shall pay, and hold each Buyer harmless against, any
liability, loss or expense (including, without limitation, attorney’s fees and
out-of-pocket expenses) arising in connection with any such claim.  The Company acknowledges that it has engaged
the Agent in connection with the sale of the Securities.  Other than the Agent, neither the Company nor
any of its Subsidiaries has engaged any placement agent or other agent in
connection with the sale of the Securities.

(h)           No Integrated
Offering.  None of the Company, its
Subsidiaries, any of their affiliates, and any Person acting on their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would
require registration of any of the Securities under the 1933 Act or cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated.  None of the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.

 8
 

 

(i)            Dilutive Effect.  The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances.  The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Notes in accordance with this Agreement and the Notes and its obligation to issue the Warrant
Shares upon exercise of the Warrants in accordance with this Agreement and the
Warrants is, in each case, absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.

(j)            Application of
Takeover Protections; Rights Agreement. 
The Company and its board of directors have taken all necessary action,
if any, in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of Incorporation
(as defined in Section 3(r)) or the laws of the state of its incorporation
which is or could become applicable to any Buyer as a result of the
transactions contemplated by this Agreement, including, without limitation, the
Company’s issuance of the Securities and any Buyer’s ownership of the
Securities.  The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.

(k)           SEC Documents;
Financial Statements.  During the two
(2) years prior to the date hereof, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the 1934 Act (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements, notes and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the “SEC Documents”). 
The Company has delivered to the Buyers or their respective
representatives true, correct and complete copies of the SEC Documents not
available on the EDGAR system.  Except as
set forth on Schedule 3(k), as of their respective filing dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were
filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.  As
of their respective filing dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto.  Such
financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto, or (ii) in the case of unaudited interim statements, to the
extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). 
No other information provided by or on behalf of the Company to the
Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement or in any
disclosure schedules, contains 

 9
 

 

any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.

(l)            Absence of
Certain Changes.  Since December 31,
2005, there has been no material adverse change and no material adverse
development in the business, properties, operations, condition (financial or
otherwise), results of operations or prospects of the Company or its
Subsidiaries.  Except as disclosed in Schedule
3(l), since December 31, 2005, the Company has not (i) declared or paid any
dividends, (ii) sold any assets, individually or in the aggregate, in excess of
$100,000 outside of the ordinary course of business or (iii) had capital
expenditures, individually or in the aggregate, in excess of $500,000.  Neither the Company nor any of its
Subsidiaries has taken any steps to seek protection pursuant to any bankruptcy
law nor does the Company have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact that would reasonably lead a creditor to do so.  The Company and its Subsidiaries,
individually and on a consolidated basis, are not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
Closing, will not be Insolvent (as defined below).  For purposes of this Section 3(l), “Insolvent” means, with respect to any Person (as
defined in Section 3(s)), (i) the present fair saleable value of such Person’s
assets is less than the amount required to pay such Person’s total Indebtedness
(as defined in Section 3(s)), (ii) such Person is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now
conducted and is proposed to be conducted.

(m)          No Undisclosed
Events, Liabilities, Developments or Circumstances.  No event, liability, development or
circumstance has occurred or exists, or is contemplated to occur with respect
to the Company, its Subsidiaries or their respective business, properties,
prospects, operations or financial condition, that would be required to be
disclosed by the Company under applicable securities laws on a registration
statement on Form S-1 filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly announced.

(n)           Conduct of
Business; Regulatory Permits. 
Neither the Company nor any of its Subsidiaries is in violation of any
term of or in default under its Certificate of Incorporation, any certificate of
designations of any outstanding series of preferred stock of the Company or the
Bylaws or their organizational charter or bylaws, respectively.  Neither the Company nor any of its
Subsidiaries is in violation of any judgment, decree or order or any statute,
ordinance, rule or regulation applicable to the Company or its Subsidiaries,
and neither the Company nor any of its Subsidiaries will conduct its business
in violation of any of the foregoing, except for possible violations which
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.  Without
limiting the generality of the foregoing, the Company is not in violation of
any of the rules, regulations or requirements of the Principal Market and has
no knowledge of any facts or circumstances that would reasonably lead to
delisting or suspension of the Common Stock by the Principal Market in the
foreseeable future.  During the two (2)
years prior to the date hereof, (i) the Common Stock has been 

 10
 

 

designated
for quotation on the Principal Market, (ii) trading in the Common Stock has not
been suspended by the SEC or the Principal Market and (iii) the Company has
received no communication, written or oral, from the SEC or the Principal
Market regarding the suspension or delisting of the Common Stock from the
Principal Market.  The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate regulatory authorities necessary to conduct their respective
businesses, except where the failure to possess such certificates,
authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification
of any such certificate, authorization or permit.

(o)           Foreign Corrupt
Practices.  Neither the Company nor
any of its Subsidiaries nor any director, officer, agent, employee or other
Person acting on behalf of the Company or any of its Subsidiaries has, in the
course of its actions for, or on behalf of, the Company or any of its
Subsidiaries (i) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expenses relating to political activity; (ii) made
any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; (iii) violated or is in violation of
any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
(iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.

(p)           Sarbanes-Oxley
Act.  The Company is in compliance
with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that
are effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the date
hereof.

(q)           Transactions With
Affiliates.  Except as set forth in
the SEC Documents filed at least ten (10) days prior to the date hereof and
other than the grant of stock options disclosed on Schedule 3(q), none
of the officers, directors or employees of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for ordinary course services as employees,
officers or directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the knowledge of the Company or any
of its Subsidiaries, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.

(r)            Equity
Capitalization.  As of December 7,
2006, the authorized capital stock of the Company consists of (w) 300,000,000
shares of Common Stock, of which as of the date hereof, 149,504,927 are issued and outstanding, no shares are
reserved for issuance pursuant to the Company’s stock option and purchase plans
and 384,031 shares are reserved for issuance pursuant to
securities (other than the aforementioned options, the Notes and the Warrants)
exercisable or exchangeable for, or convertible into, shares of Common Stock,
(x) 5,850,000 shares of undesignated preferred stock, of which as of the date hereof, none
are issued and outstanding, (y) 150,000 shares of Series A Junior Participating
Preferred Stock, par value 

 11
 

 

$0.001 per share, of which as of the date hereof, none are issued and
outstanding, and (z) 4,000,000 shares of Series B Preferred Stock, par value
$0.001 per share, of which as of the date hereof, 1,775,166 shares are issued
and outstanding.  All of such outstanding shares have been, or
upon issuance will be, validly issued and are fully paid and
nonassessable.  Except as disclosed in Schedule
3(r): (i) none of the Company’s capital stock is subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company; (ii) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries,
or contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to issue additional capital
stock of the Company or any of its Subsidiaries or options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any capital stock of the Company or any of its Subsidiaries;
(iii) there are no outstanding debt securities, notes, credit agreements,
credit facilities or other agreements, documents or instruments evidencing
Indebtedness of the Company or any of its Subsidiaries or by which the Company
or any of its Subsidiaries is or may become bound; (iv) there are no financing
statements securing obligations in any material amounts, either singly or in
the aggregate, filed in connection with the Company or any of its Subsidiaries;
(v) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of their securities
under the 1933 Act (except pursuant to the Registration Rights Agreement); (vi)
there are no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (vii) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities; (viii) the Company does not have
any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement; and (ix) the Company and its Subsidiaries have no
liabilities or obligations required to be disclosed in the SEC Documents but
not so disclosed in the SEC Documents, other than those incurred in the
ordinary course of the Company’s or its Subsidiaries’ respective businesses and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect.  The Company has
furnished to the Buyers true, correct and complete copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the date hereof
(the “Certificate of
Incorporation”), and the
Company’s Bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all securities
convertible into, or exercisable or exchangeable for, shares of Common Stock
and the material rights of the holders thereof in respect thereto.

(s)           Indebtedness and
Other Contracts.  Except as disclosed
in Schedule 3(s), neither the Company nor any of its Subsidiaries (i)
has any outstanding Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or default under
which, by the other party(ies) to such contract, agreement or instrument could
reasonably be expected to result in a Material Adverse Effect, (iii) is in
violation of any term of or in default under any contract, agreement or
instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of the
Company’s officers, has or is expected to have 

 12
 

 

a
Material Adverse Effect.  Schedule
3(s) provides a detailed description of the material terms of any such
outstanding Indebtedness.  For purposes
of this Agreement:  (x) “Indebtedness” of any Person means, without duplication
(A) all indebtedness for borrowed money, (B) all obligations issued, undertaken
or assumed as the deferred purchase price of property or services (including,
without limitation, “capital leases” in accordance with generally accepted
accounting principles) (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (D) 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, (E) 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), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) 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 (H) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (A) through (G) above; (y) “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; and (z) “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.

(t)            Absence of
Litigation.  Except as set forth in Schedule
3(t), there is no action, suit, proceeding, inquiry or investigation before
or by the Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its
Subsidiaries, the Common Stock or any of the Company’s Subsidiaries or any of
the Company’s or its Subsidiaries’ officers or directors.

(u)           Insurance.  The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged.  Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers 

 13
 

 

as
may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.

(v)           Employee
Relations.  (i)  Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or employs any
member of a union.  The Company and its
Subsidiaries believe that their relations with their employees are good.  No executive officer of the Company or any of
its Subsidiaries (as defined in Rule 501(f) of the 1933 Act) has notified the
Company or any such Subsidiary that such officer intends to leave the Company
or any such Subsidiary or otherwise terminate such officer’s employment with
the Company or any such Subsidiary.  No
executive officer of the Company or any of its Subsidiaries is, or is now
expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters.

(ii)           The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.

(w)          Title.  The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company and any of its Subsidiaries.   Any real property and facilities held under
lease by the Company or any of its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.

(x)            Intellectual
Property Rights.  The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
service marks and all applications and registrations therefor, trade names,
patents, patent rights, copyrights, original works of authorship, inventions,
trade secrets and other intellectual property rights (“Intellectual Property Rights”) necessary to conduct their respective
businesses as now conducted.  None of the
Company’s registered, or applied for, Intellectual Property Rights have expired
or terminated or have been abandoned, or are expected to expire or terminate or
expected to be abandoned, within three years from the date of this
Agreement.  The Company does not have any
knowledge of any infringement by the Company or its Subsidiaries of
Intellectual Property Rights of others. 
There is no claim, action or proceeding being made or brought, or to the
knowledge of the Company, being threatened, against the Company or its
Subsidiaries regarding its Intellectual Property Rights.  Neither the Company nor any of its
Subsidiaries is aware of any facts or circumstances which might give rise to
any of the foregoing infringements or claims, actions or proceedings.  The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights.

 14

 

(y)           Environmental Laws.  The
Company and its Subsidiaries (i) are in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in compliance with
all terms and conditions of any such permit, license or approval where, in each
of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect.  The term “Environmental Laws” means all federal, state, local or foreign
laws relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, or toxic or hazardous substances or wastes (collectively,
“Hazardous Materials”) into the environment, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials, as
well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

(z)            Subsidiary Rights.  The
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.

(aa)         Tax Status.  The Company and each of its
Subsidiaries (i) has made or filed all foreign, federal and state income and
all other tax returns, reports and declarations required by any jurisdiction to
which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and (iii) has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. 
There are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and the officers of the Company know
of no basis for any such claim.

(bb)         Internal Accounting and Disclosure Controls.  The
Company and each of its Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or incurrence
of liabilities is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference.  The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-14 under the 1934 Act) that are
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act 

 15
 

 

is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms of the SEC, including, without limitation, controls and
procedures designed in to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company’s management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.  During the twelve months
prior to the date hereof neither the Company nor any of its Subsidiaries have
received any notice or correspondence from any accountant relating to any
potential material weakness in any part of the system of internal accounting
controls of the Company or any of its Subsidiaries.

(cc)         Ranking of Notes. 
Except as set forth on Schedule 3(cc), no Indebtedness of the
Company is senior to or ranks pari
passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.

(dd)         Off Balance Sheet Arrangements. 
There is no transaction, arrangement, or other relationship between the
Company and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its 1934 Act filings and is not so
disclosed or that otherwise would be reasonably likely to have a Material Adverse
Effect.

(ee)         Investment Company Status.  The
Company is not, and upon consummation of the sale of the Securities will not
be, an “investment company,” a company controlled by an “investment company” or
an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment
company” as such terms are defined in the Investment Company Act of  1940, as amended.

(ff)           Form S-3 Eligibility.  The
Company is eligible to register the Conversion Shares, the Interest Shares and
the Warrant Shares for resale by the Buyers using Form S-3 promulgated under
the 1933 Act.

(gg)         Transfer Taxes.  On
the Closing Date, all stock transfer or other taxes (other than income or
similar taxes) which are required to be paid in connection with the sale and
transfer of the Securities to be sold to each Buyer hereunder will be, or will
have been, fully paid or provided for by the Company, and all laws imposing
such taxes will be or will have been complied with.

(hh)         Manipulation of Price.  The
Company has not, and to its knowledge no one acting on its behalf has, (i)
taken, directly or indirectly, any action designed to cause or to result, or
that could reasonably be expected to cause or result, in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of any of the Securities, (ii) other than the Agent, sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
Securities or (iii) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.

(ii)           Acknowledgement Regarding Buyers’ Trading
Activity.  Anything in this Agreement or elsewhere
herein to the contrary notwithstanding, but subject to compliance by the Buyers
with applicable law and the provisions of Section 4(t) hereto, it is understood
and acknowledged by the Company (i) that none of the Buyers have been asked by
the Company or its Subsidiaries to agree, nor has any Buyer agreed with the
Company or its Subsidiaries, to desist from purchasing or selling, long and/or
short, securities of the Company, or “derivative” 

 16
 

 

securities
based on securities issued by the Company or to hold the Securities for any
specified term; (ii) that past or future open market or other transactions by
any Buyer, including, without limitation, short sales or “derivative”
transactions, before or after the closing of this or future private placement
transactions, may negatively impact the market price of the Company’s
publicly-traded securities; (iii) that any Buyer, and counter parties in “derivative”
transactions to which any such Buyer is a party, directly or indirectly,
presently may have a “short” position in the Common Stock, and (iv) that each
Buyer shall not be deemed to have any affiliation with or control over any arm’s
length counter-party in any “derivative” transaction.  The Company further understands and
acknowledges that (a) one or more Buyers may engage in hedging and/or trading
activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value
of the Conversion Shares, Interest Shares and the Warrant Shares deliverable
with respect to Securities are being determined and (b) such hedging and/or trading
activities, if any, can reduce the value of the existing stockholders’ equity
interest in the Company both at and after the time the hedging and/or trading
activities are being conducted.  The
Company acknowledges that such aforementioned hedging and/or trading activities
do not constitute a breach of this Agreement, the Notes, the Warrants or any of
the documents executed in connection herewith.

(jj)           U.S. Real Property Holding Corporation.  The
Company is not, nor has ever been, a U.S. real property holding corporation
within the meaning of Section 897 of the Internal Revenue Code of 1986, as
amended, and the Company shall so certify upon Buyer’s request.

(kk)         Disclosure.  The Company confirms that
neither it nor any other Person acting on its behalf has provided any of the
Buyers or their agents or counsel with any information that constitutes or
could reasonably be expected to constitute material, nonpublic
information.  The Company understands and
confirms that each of the Buyers will rely on the foregoing representations in
effecting transactions in securities of the Company.  All disclosure provided to the Buyers
regarding the Company or any of its Subsidiaries, their business and the
transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company is true and correct and does not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of
the circumstances under which they were made, not misleading.  Each press release issued by the Company or
any of its Subsidiaries during the twelve (12) months preceding the date of
this Agreement did not at the time of release contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.  No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or
its or their business, properties, prospects, operations or financial
conditions, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed.

4.             COVENANTS.

(a)           Best Efforts.  Each
party shall use its best efforts timely to satisfy each of the conditions to be
satisfied by it as provided in Sections 6 and 7 of this Agreement.

 17
 

 

(b)           Form D and Blue Sky.  The
Company agrees to file a Form D with respect to the Securities as required
under Regulation D and to provide a copy thereof to each Buyer promptly after
such filing.  The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or “Blue Sky” laws of the states of the United States
(or to obtain an exemption from such qualification), and shall provide evidence
of any such action so taken to the Buyers on or prior to the Closing Date.  The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or “Blue Sky” laws of the states of the United States
following the Closing Date.

(c)           Reporting Status. 
Until the date on which the Investors (as defined in the Registration
Rights Agreement) shall have sold all the Conversion Shares, the Interest
Shares and Warrant Shares and none of the Notes or Warrants is outstanding (the “Reporting Period”), the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would no
longer require or otherwise permit such termination, and the Company shall take
all actions necessary to maintain its eligibility to register the Conversion
Shares and Warrant Shares for resale by the Buyers on Form S-3.

(d)           Use of Proceeds.  The
Company will use the proceeds from the sale of the Securities for general
corporate purposes, including sales, marketing, working capital, general and
administrative expenses and not for (i) except as set forth on Schedule 4(d),
the repayment of any outstanding Indebtedness of the Company or any of its
Subsidiaries or (ii) the redemption or repurchase of any of its or its
Subsidiaries’ equity securities.

(e)           Financial Information.  As
long as any Notes or Warrants are outstanding, the Company agrees to send the
following to each Investor (as defined in the Registration Rights Agreement)
during the Reporting Period (i) unless the following are filed with the SEC
through EDGAR and are available to the public through the EDGAR system, within
one (1) Business Day after the filing thereof with the SEC, a copy of its
Annual Reports and Quarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB, any
interim reports or any consolidated balance sheets, income statements,
stockholders’ equity statements and/or cash flow statements for any period
other than annual, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the
1933 Act, (ii) on the same day as the release thereof, facsimile or e-mailed
copies of all press releases issued by the Company or any of its Subsidiaries,
and (iii) copies of any notices and other information made available or given
to the stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders; provided, that each
such Investor provides to the Company an email address on the Schedule of Buyers
for the provision of such information. 
As used herein, “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.

(f)            Listing.  The Company shall promptly
secure the listing of all of the Registrable Securities (as defined in the
Registration Rights Agreement) upon each national securities exchange and
automated quotation system, if any, upon which the Common Stock is 

 18
 

 

then
listed (subject to official notice of issuance) and shall maintain, in
accordance with the Notes and Warrants, such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents.  The Company shall maintain
the Common Stocks’ authorization for quotation on the Principal Market.  Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal
Market.  The Company shall pay all fees
and expenses in connection with satisfying its obligations under this Section
4(f).

(g)           Fees.  Subject to Section 8 below, at
Closing, the Company shall pay an expense allowance to Capital Ventures
International (a Buyer) or its designee(s) (in addition to any other expense
amounts paid to any Buyer prior to the date of this Agreement) for all
reasonable costs and expenses incurred in connection with the transactions
contemplated by the Transaction Documents (including all reasonable legal fees
and disbursements in connection therewith, documentation and implementation of
the transactions contemplated by the Transaction Documents and due diligence in
connection therewith), in an amount not to exceed $120,000  (in addition to any other expense amounts
paid to any Buyer prior to the date of this Agreement), which amount shall be
withheld by such Buyer from its Purchase Price at the Closing.  The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or broker’s
commissions relating to or arising out of the transactions contemplated hereby,
including, without limitation, any fees payable to the Agent.  The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney’s fees and out-of-pocket expenses) arising in
connection with any claim relating to any such payment.

(h)           Pledge of Securities.  The
Company acknowledges and agrees that the Securities may be pledged by an
Investor (as defined in the Registration Rights Agreement) in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Securities.  The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) hereof; provided that an
Investor and its pledgee shall be required to comply with the provisions of
Section 2(f) hereof in order to effect a sale, transfer or assignment of
Securities to such pledgee.  The Company
hereby agrees to execute and deliver such documentation as a pledgee of the
Securities may reasonably request in connection with a pledge of the Securities
to such pledgee by an Investor.

(i)            Disclosure of Transactions and Other Material
Information.  On or before 8:30 a.m., New York City time,
on the second Business Day following the date of this Agreement, the Company
shall issue a press release and file a Current Report on Form 8-K describing
the terms of the transactions contemplated by the Transaction Documents in the
form required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement (and all schedules to this
Agreement), the form of the Notes, the form of Warrant, and the form of the
Registration Rights Agreement) as exhibits to such filing (including all
attachments, the “8-K
Filing”).  From and after the filing of the 8-K Filing
with the SEC, no Buyer shall be in possession of any material, nonpublic
information received from the Company, any of its Subsidiaries or any of their
respective officers, directors, employees or agents, that is 

 19
 

 

not
disclosed in the 8-K Filing.  The Company
shall not, and shall cause each of its Subsidiaries and its and each of their
respective officers, directors, employees and agents, not to, provide any Buyer
with any material, nonpublic information regarding the Company or any of its
Subsidiaries from and after the filing of the 8-K Filing with the SEC without
the express prior written consent of such Buyer.  If a Buyer has, or believes it has, received
any such material, nonpublic information regarding the Company or any of its
Subsidiaries, it shall provide the Company with written notice thereof.  The Company shall, within five (5) Trading
Days (as defined in the Notes) of receipt of such notice, make public
disclosure of such material, nonpublic information.  In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, in addition to any other
remedy provided herein or in the Transaction Documents, a Buyer shall have the
right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without the
prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents.  No Buyer shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents for any such disclosure.  Subject to the foregoing, neither the
Company, its Subsidiaries nor any Buyer shall issue any press releases or any
other public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of any Buyer, to make any press release or other public disclosure
with respect to such transactions (i) in substantial conformity with the 8-K
Filing and contemporaneously therewith and (ii) as is required by applicable
law and regulations (provided that in the case of clause (i) each Buyer shall
be consulted by the Company in connection with any such press release or other
public disclosure prior to its release). 
Without the prior written consent of any applicable Buyer, neither the
Company nor any of its Subsidiaries or affiliates shall disclose the name of
such Buyer in any filing, announcement, release or otherwise.

(j)            Additional Notes; Variable Securities;
Dilutive Issuances.  So long as any Buyer beneficially owns any
Notes or Warrants, the Company will not issue any Notes (other than to the
Buyers as contemplated hereby) and the Company shall not issue any other
securities that would cause a breach or default under the Notes.  For so long as any Notes or Warrants remain
outstanding, the Company shall not, in any manner, issue or sell any rights,
warrants or options to subscribe for or purchase Common Stock or directly or
indirectly convertible into or exchangeable or exercisable for Common Stock at
a price which varies or may vary with the market price of the Common Stock,
including by way of one or more reset(s) to any fixed price unless the
conversion, exchange or exercise price of any such security cannot be less than
the then applicable Conversion Price (as defined in the Notes) with respect to
the Common Stock into which any Note is convertible or the then applicable
Exercise Price (as defined in the Warrants) with respect to the Common Stock
into which any Warrant is exercisable. 
For so long as any Notes or Warrants remain outstanding, the Company
shall not, in any manner, enter into or affect any Dilutive Issuance (as
defined in the Notes) if the effect of such Dilutive Issuance is to cause the Company
to be required to issue upon conversion of any Note or exercise of any Warrant
any shares of Common Stock in excess of that number of shares of Common Stock
which the Company may issue upon conversion of the Notes and exercise of the
Warrants without breaching the Company’s obligations under the rules or
regulations of the Principal Market.

 20
 

 

(k)           Corporate Existence.  So
long as any Buyer beneficially owns any Securities, the Company shall not be
party to any Fundamental Transaction (as defined in the Notes) unless the
Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Notes and the Warrants.

(l)            Reservation of Shares.  The
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 130% of the sum of  the number of shares of Common Stock issuable
(i) upon conversion of the Notes issued at the Closing, (ii) as Interest Shares
pursuant to the terms of the Notes and (iii) upon exercise of the Warrants
issued at the Closing (without taking into account any limitations on the
Conversion of the Notes or exercise of the Warrants set forth in the Notes and
Warrants, respectively).

(m)          Conduct of Business.  The
business of the Company and its Subsidiaries shall not be conducted in
violation of any law, ordinance or regulation of any governmental entity,
except where such violations would not result, either individually or in the
aggregate, in a Material Adverse Effect.

(n)           Additional Issuances of Securities.

(i)            For
purposes of this Section 4(n), the following definitions shall apply.

(1)           “Convertible Securities”
means any stock or securities (other than Options) convertible into or
exercisable or exchangeable for shares of Common Stock.

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

(3)           “Common Stock Equivalents”
means, collectively, Options and Convertible Securities.

(ii)           From the date hereof until the date that is
sixty (60) Trading Days (as defined in the Notes) following the Effective Date
(as defined in the Registration Rights Agreement) (the “Trigger Date”),
the Company will not, directly or indirectly, file any registration statement
with the SEC other than the Registration statement (as defined in the
Registration Rights Agreement).  From the
date hereof until the Trigger Date, the Company will not, directly or
indirectly, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition of) any of its or its Subsidiaries’ equity or equity equivalent
securities, including without limitation any debt, preferred stock or other
instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for shares of Common Stock or Common Stock Equivalents (any such
offer, sale, grant, disposition or announcement being referred to as a “Subsequent Placement”).

 21
 

 

(iii)          From
the Trigger Date until the second anniversary of the Closing Date, the Company
will not, directly or indirectly, effect any Subsequent Placement unless the
Company shall have first complied with this Section 4(n)(iii).

(1)           The Company shall deliver to each Buyer an irrevocable  written notice (the ”Offer Notice”) of any proposed or intended issuance or
sale or exchange (the ”Offer”) of the securities being offered (the “Offered Securities”) in a Subsequent Placement, which Offer
Notice shall (w) identify and describe the Offered Securities,
(x) describe the price and other terms upon which they are to be issued,
sold or exchanged, and the number or amount of the Offered Securities to be
issued, sold or exchanged, (y) identify the persons or entities (if known)
to which or with which the Offered Securities are to be offered, issued, sold
or exchanged and (z) offer to issue and sell to or exchange with such Buyers at
least forty percent (40%) of the Offered
Securities, allocated among such Buyers (a) based on such Buyer’s pro rata
portion of the aggregate principal amount of Notes purchased hereunder (the “Basic
Amount”), and (b) with
respect to each Buyer that elects to purchase its Basic Amount, any additional
portion of the Offered Securities attributable to the Basic Amounts of other
Buyers as such Buyer shall indicate it will purchase or acquire should the
other Buyers subscribe for less than their Basic Amounts (the “Undersubscription Amount”), which process shall be repeated until the
Buyers shall have an opportunity to subscribe for any remaining
Undersubscription Amount.

(2)           To accept an Offer, in whole or in part, such Buyer must deliver a
written notice to the Company prior to the end of the second (2nd) Business Day after such Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion
of such Buyer’s Basic Amount that such Buyer elects to purchase and, if such
Buyer shall elect to purchase all of its Basic Amount, the Undersubscription
Amount, if any, that such Buyer elects to purchase (in either case, the “Notice of Acceptance”).  If
the Basic Amounts subscribed for by all Buyers are less than the total of all
of the Basic Amounts, then each Buyer who has set forth an Undersubscription
Amount in its Notice of Acceptance shall be entitled to purchase, in addition
to the Basic Amounts subscribed for, the Undersubscription Amount it has
subscribed for; provided, however, that if the Undersubscription
Amounts subscribed for exceed the difference between the total of all the Basic
Amounts and the Basic Amounts subscribed for (the “Available Undersubscription Amount”), each Buyer who has subscribed for any Undersubscription Amount
shall be entitled to purchase only that portion of the Available
Undersubscription Amount as the Basic Amount of such Buyer bears to the total
Basic Amounts of all Buyers that have subscribed for Undersubscription Amounts,
subject to rounding by the Company to the extent its deems reasonably
necessary.  Notwithstanding the
foregoing, if the Company desires to modify or amend the terms and conditions
of the Offer prior to the expiration of the Offer Period, the Company may
deliver to the Buyers a new Offer Notice and the Offer Period shall expire on
the third (3rd) Business Day after such Buyer’s receipt of
such new Offer Notice.

(3)           The Company shall have fifteen (15) Business Days from the expiration
of the Offer Period above (i) to offer, issue, sell or exchange all or any part
of such Offered Securities as to which a Notice of Acceptance has not been given
by the 

 22
 

 

Buyers (the “Refused Securities”) pursuant to a definitive agreement(s) (the
“Subsequent Placement Agreement”),
but only to the offerees described in the Offer Notice (if so described
therein) and only upon terms and conditions (including, without limitation,
unit prices and interest rates) that are not more favorable to the acquiring
person or persons or less favorable to the Company than those set forth in the
Offer Notice and (ii) to publicly announce (a) the execution of such Subsequent
Placement Agreement, and (b) either (x) the consummation of the transactions
contemplated by such Subsequent Placement Agreement or (y) the termination of
such Subsequent Placement Agreement, which shall be filed with the SEC on a
Current Report on Form 8-K with such Subsequent Placement Agreement and any
documents contemplated therein filed as exhibits thereto.

(4)           In the event the Company shall propose to sell less than all the
Refused Securities (any such sale to be in the manner and on the terms
specified in Section 4(n)(iii)(3) above), then each Buyer may, at its sole
option and in its sole discretion, reduce the number or amount of the Offered
Securities specified in its Notice of Acceptance to an amount that shall be not
less than the number or amount of the Offered Securities that such Buyer
elected to purchase pursuant to Section 4(n)(iii)(2) above multiplied by a
fraction, (i) the numerator of which shall be the number or amount of Offered
Securities the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Buyers pursuant to Section
4(n)(iii)(3) above prior to such reduction) and (ii) the denominator of which
shall be the original amount of the Offered Securities.  In the event that any Buyer so elects to
reduce the number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such securities
have again been offered to the Buyers in accordance with
Section 4(n)(iii)(1) above.

(5)           Upon the closing of the issuance, sale or exchange of all or less than
all of the Refused Securities, the Buyers shall acquire from the Company, and
the Company shall issue to the Buyers, the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 4(n)(iii)(3) above if the Buyers have so elected, upon the terms and
conditions specified in the Offer.  If
the Company does not consummate the closing of the issuance, sale or exchange
of all or less than all of the Refused Securities, within fifteen (15) Business
Days of the expiration of the Offer Period, the Company shall issue to the
Buyers, the number or amount of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 4(n)(iii)(3) above if the Buyers
have so elected, upon the terms and conditions specified in the Offer.  The purchase by the Buyers of any Offered Securities
is subject in all cases to the preparation, execution and delivery by the
Company and the Buyers of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Buyers and
their respective counsel.

(6)           Any Offered Securities not acquired by the Buyers or other persons in
accordance with Section 4(n)(iii)(3) above may not be issued, sold or exchanged
until they are again offered to the Buyers under the procedures specified in
this Agreement.

 23
 

 

(7)           The Company and the Buyers agree that if any Buyer elects to
participate in the Offer, (x) neither the Subsequent Placement Agreement with
respect to such Offer nor any other transaction documents related thereto
(collectively, the “Subsequent Placement
Documents”) shall include any term or provisions whereby any Buyer
shall be required to agree to any restrictions in trading as to any securities
of the Company owned by such Buyer prior to such Subsequent Placement, and (y)
any registration rights set forth in such Subsequent Placement Documents shall
be similar in all material respects to the registration rights contained in the
Registration Rights Agreement.

(8)           Notwithstanding anything to the contrary in this Section 4(n) and
unless otherwise agreed to by the Buyers, the Company shall either confirm in
writing to the Buyers that the transaction with respect to the Subsequent
Placement has been abandoned or shall publicly disclose its intention to issue
the Offered Securities, in either case in such a manner such that the Buyers
will not be in possession of material non-public information, by the fifteen
(15th) Business Day following delivery of the
Offer Notice.  If by the fifteen (15th) following delivery of the Offer Notice no public disclosure regarding
a transaction with respect to the Offered Securities has been made, and no
notice regarding the abandonment of such transaction has been received by the
Buyers, such transaction shall be deemed to have been abandoned and the Buyers
shall not be deemed to be in possession of any material, non-public information
with respect to the Company.  Should the
Company decide to pursue such transaction with respect to the Offered
Securities, the Company shall provide each Buyer with another Offer Notice and
each Buyer will again have the right of participation set forth in this Section
4(n)(iii).  The Company shall not be
permitted to deliver more than one such Offer Notice to the Buyers in any 60
day period.

(iv)          The
restrictions contained in subsections (ii) and (iii) of this Section 4(n) shall
not apply in connection with (x) the issuance of any Excluded Securities (as
defined in the Notes) or (y) a bona fide firm commitment underwritten
public offering with a nationally recognized underwriter which generates gross
proceeds to the Company in excess of $30,000,000 (other than an “at-the-market
offering” as defined in Rule 415(a)(4) under the 1933 Act and “equity lines”).

(o)           Stockholder Approval. The Company shall provide each stockholder
entitled to vote at a special or annual meeting of stockholders of the Company
(the “Stockholder Meeting”), which shall be called and held not later
than one year following the Closing Date (the “Stockholder Meeting Deadline”), a proxy statement, substantially in the form which has been
previously reviewed by the Buyers and Schulte Roth & Zabel LLP at the
expense of the Company, soliciting each such stockholder’s affirmative vote at
the Stockholder Meeting for approval of resolutions (the “Resolutions”) providing for the issuance of all of the
Securities as described in the Transaction Documents in accordance with
applicable law and the rules and regulations of the Principal Market or if not
required by the Principal Market, in accordance with NASDAQ Marketplace Rule
4350(i) (such affirmative approval being referred to herein as the “Stockholder Approval” and the date such approval is obtained, the
“Stockholder Approval Date”), and the Company shall use its reasonable
best efforts to solicit its stockholders’ approval of the Resolutions and to
cause the Board of Directors of the Company to recommend to the 

 24
 

 

stockholders
that they approve the Resolutions.  The
Company shall be obligated to seek to obtain the Stockholder Approval by the
Stockholder Meeting Deadline.  If,
despite the Company’s reasonable best efforts, the Stockholder Approval is not
obtained at the Stockholder Meeting, the Company shall cause an additional
Stockholder Meeting to be held each twelve month period thereafter until such
Stockholder Approval is obtained, provided that if the Board of Directors of
the Company does not recommend to the stockholders that they approve the
Resolutions at any such Stockholder Meeting and the Stockholder Approval is not
obtained, or the Notes are no longer outstanding, the Company shall cause an
additional Stockholder Meeting to be held each calendar quarter thereafter
until such Stockholder Approval is obtained.

(p)           Financing
Through Javo Dispenser, LLC.  The
Company agrees to not increase the maximum available financing limit, currently
at $2,000,000.00, available to the Company through Javo Dispenser, LLC nor
shall it modify the terms or conditions of its agreement with Javo Dispenser,
LLC in a manner that, as amended, would make such agreement inconsistent with
reasonable and customary commercial lending terms and conditions.

5.             REGISTER; TRANSFER AGENT INSTRUCTIONS.

(a)           Register.  The Company shall maintain at
its principal executive offices (or such other office or agency of the Company
as it may designate by notice to each holder of Securities), a register for the
Notes and the Warrants in which the Company shall record the name and address
of the Person in whose name the Notes and the Warrants have
been issued (including the name and address of each transferee), the principal
amount of Notes held by such Person, the number of Conversion Shares issuable
upon conversion of the Notes and the number of Warrant Shares issuable upon
exercise of the Warrants held by such Person. 
The Company shall keep the register open and available at all times
during business hours for inspection of any Buyer or its legal representatives.

(b)           Transfer Agent Instructions.  The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates or credit shares to the
applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name of each Buyer or
its respective nominee(s), for the Conversion Shares, the Interest Shares and
the Warrant Shares issued at the Closing or upon conversion of the Notes or
exercise of the Warrants in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Notes or exercise of the Warrants
in the form of Exhibit D attached hereto (the “Irrevocable Transfer Agent
Instructions”).  The Company warrants that no instruction
other than the Irrevocable Transfer Agent Instructions referred to in this
Section 5(b), and stop transfer instructions to give effect to Section 2(g)
hereof, will be given by the Company to its transfer agent, and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the other
Transaction Documents.  If a Buyer
effects a sale, assignment or transfer of the Securities in accordance with
Section 2(f), the Company shall permit the transfer and shall promptly instruct
its transfer agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment.  In the event that such sale, assignment or
transfer involves Conversion Shares, the Interest Shares or Warrant Shares
sold, assigned or transferred pursuant to an effective registration statement
or pursuant to Rule 144, the transfer agent shall issue such Securities to the
Buyer, assignee or transferee, as the case may be, without any restrictive
legend.  The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to a
Buyer.  Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5(b) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5(b), that a
Buyer shall be entitled, in addition to all other available remedies, to an
order and/or injunction 

 25
 

 

restraining
any breach and requiring immediate issuance and transfer, without the necessity
of showing economic loss and without any bond or other security being required.

6.             CONDITIONS TO THE COMPANY’S OBLIGATION TO
SELL.

The obligation of the Company hereunder to issue and
sell the Notes and the related Warrants to each Buyer at the Closing is subject
to the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company’s sole benefit
and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:

(i)            Such
Buyer shall have executed each of the Transaction Documents to which it is a
party and delivered the same to the Company.

(ii)           Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price (less, in the case of Capital Ventures International the amounts withheld
pursuant to Section 4(g)) for the Notes and the related Warrants being
purchased by such Buyer at the Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company.

(iii)          The
representations and warranties of such Buyer shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date, which shall be true and correct as of such specified
date), and such Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by such Buyer at or
prior to the Closing Date.

7.             CONDITIONS TO EACH BUYER’S OBLIGATION TO
PURCHASE.

The obligation of each Buyer hereunder to purchase the
Notes and the related Warrants at
the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for each
Buyer’s sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:

(i)            The
Company shall have duly executed and delivered to such Buyer (i) each of the
Transaction Documents and (ii) the Notes (allocated in such principal amounts
as such Buyer shall request), being purchased by such Buyer at the Closing
pursuant to this Agreement, and (iii) the related Series A Warrants (allocated
in such amounts as such Buyer shall request) being purchased by such Buyer at
the Closing pursuant to this Agreement and (iv) the related Series B Warrants
(allocated in such amounts as such Buyer shall request) being purchased by such
Buyer at the Closing pursuant to this Agreement and (v) the related Series C
Warrants (allocated in such amounts as such Buyer shall request) being
purchased by such Buyer at the Closing pursuant to this Agreement.

 26

 

(ii)           Such Buyer shall
have received the opinion of The Yocca Law Firm LLP, the Company’s outside counsel, dated as of
the Closing Date, in substantially the form of Exhibit E attached
hereto.

(iii)          The Company shall
have delivered to such Buyer a copy of the Irrevocable Transfer Agent
Instructions, in the form of Exhibit D attached hereto, which
instructions shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.

(iv)          The Company shall
have delivered to such Buyer a certificate evidencing the formation and good
standing of the Company and each of its Subsidiaries in such entity’s
jurisdiction of formation issued by the Secretary of State (or comparable
office) of such jurisdiction, as of a date within 10 days of the Closing Date.

(v)           The Company shall
have delivered to such Buyer a certificate evidencing the Company’s
qualification as a foreign corporation and good standing issued by the
Secretary of State (or comparable office) of each jurisdiction in which the
Company conducts business, as of a date within 10 days of the Closing Date.

(vi)          The Company shall
have delivered to such Buyer a certified copy of the Certificate of
Incorporation as certified by the Secretary of State of the State of Delaware
within ten (10) days of the Closing Date.

(vii)         The Company shall
have delivered to such Buyer a certificate, executed by the Secretary of the
Company and dated as of the Closing Date, as to (i) the resolutions consistent
with Section 3(b) as adopted by the Company’s Board of Directors in a form
reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation and
(iii) the Bylaws, each as in effect at the Closing, in the form attached hereto
as Exhibit F.

(viii)        The representations
and warranties of the Company shall be true and correct in all material
respects (except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all
respects) as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a
specific date, which shall be true and correct as of such specified date) and
the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. 
Such Buyer shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
such Buyer in the form attached hereto as Exhibit G.

(ix)           The Company shall
have delivered to such Buyer a letter from the Company’s transfer agent
certifying the number of shares of Common Stock outstanding as of a date within
five days of the Closing Date.

(x)            The Common Stock
(I) shall be designated for quotation or listed on the Principal Market and
(II) shall not have been suspended, as of the Closing Date, by the 

 27
 

 

SEC
or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B)
by falling below the minimum listing maintenance requirements of the Principal
Market.

(xi)           The Company shall
have obtained all governmental, regulatory or third party consents and
approvals, if any, necessary for the sale of the Securities.

(xii)          The Company shall
have delivered to such Buyer such other documents relating to the transactions
contemplated by this Agreement as such Buyer or its counsel may reasonably
request.

8.             TERMINATION.  In the event that the Closing shall not have
occurred with respect to a Buyer on or before five (5) Business Days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any party to
any other party; provided, however, that if this Agreement is
terminated pursuant to this Section 8, the Company shall remain obligated to
reimburse the non-breaching Buyers for the expenses described in Section 4(g)
above.

9.             MISCELLANEOUS.

(a)           Governing Law; Jurisdiction; Jury
Trial.  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.  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 WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

 28
 

 

(b)           Counterparts.  This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original,
not a facsimile signature.

(c)           Headings.  The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the interpretation
of, this Agreement.

(d)           Severability.  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.

(e)           Entire Agreement; Amendments.  This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. 
No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the holders of at least a
majority of the aggregate number of Registrable Securities issued and issuable
hereunder and under the Notes, and any amendment to this Agreement made in
conformity with the provisions of this Section 9(e) shall be binding on all
Buyers and holders of Securities as applicable. 
No provision hereof may be waived other than by an instrument in writing
signed by the party against whom enforcement is sought.  No such amendment shall be effective to the
extent that it applies to less than all of the holders of the applicable
Securities then outstanding.  No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents, holders of Notes or holders of the Warrants, as the case
may be.  The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents. 
Without limiting the foregoing, the Company confirms that, except as set
forth in this Agreement, no Buyer has made any commitment or promise or has any
other obligation to provide any financing to the Company or otherwise.

(f)            Notices.  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 Business Day after deposit with an overnight courier
service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such
communications shall be:

 29
 

 

 

	
  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 the Transfer
  Agent:

  
	
   

  
	
  Corporate Stock
  Transfer, Inc.

  
	
  3200 Cherry Creek Dr.
  South

  
	
  Suite 430

  
	
  Denver, CO 80209

  
	
  Telephone:

  	
  (303) 282-4800

  
	
  Facsimile:

  	
  (303) 282-5800

  
	
  Attention:

  	
  Carylyn Bell

  

 

If to a Buyer, to its address and facsimile number set
forth on the Schedule of Buyers, with copies to such Buyer’s representatives as
set forth on the Schedule of Buyers,

	
  with a copy (for
  informational purposes only) to:

  
	
   

  
	
  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.

  

 

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 image of the first page of such
transmission or (C) provided by an overnight courier 

 30
 

 

service shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from an overnight courier service in
accordance with clause (i), (ii) or (iii) above, respectively.

(g)           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Notes or the Warrants.  The Company shall not assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
holders of at least a majority of the aggregate number of Registrable
Securities issued and issuable hereunder and under the Notes, including by way
of a Fundamental Transaction (unless the Company is in compliance with the
applicable provisions governing Fundamental Transactions set forth in the Notes
and the Warrants).  A Buyer may assign
some or all of its rights hereunder without the consent of the Company, in
which event such assignee shall be deemed to be a Buyer hereunder with respect
to such assigned rights.

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

(i)            Survival.  Unless this Agreement is terminated under
Section 8, the representations and warranties of the Company and the Buyers
contained in Sections 2 and 3 and the agreements and covenants set forth in
Sections 4, 5 and 9 shall survive the Closing and the delivery and exercise of
Securities, as applicable.  Each Buyer
shall be responsible only for its own representations, warranties, agreements
and covenants hereunder.

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

(k)           Indemnification.  In consideration of each Buyer’s execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company’s other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing Persons’ agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions,
causes of action, suits, claims, losses, costs, penalties, fees, liabilities
and damages, and expenses in connection therewith (irrespective of whether any
such Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result
of, or arising out of, or relating to (a) any misrepresentation or breach of
any representation or warranty made by the Company in the Transaction Documents
or any other certificate, instrument or document contemplated hereby or
thereby, (b) any breach of any covenant, agreement or obligation of the Company
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby or (c) any cause of action, suit or
claim brought or 

 31
 

 

made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant
to the transactions contemplated by the Transaction Documents.  To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities that is permissible under applicable law.  Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under this
Section 9(k) shall be the same as those set forth in Section 6 of the
Registration Rights Agreement.

(l)            No Strict Construction.  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.

(m)          Remedies.  Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law.  Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. 
Furthermore, the Company recognizes that in the event that it fails to
perform, observe, or discharge any or all of its obligations under the
Transaction Documents, any remedy at law may prove to be inadequate relief to
the Buyers.  The Company therefore agrees
that the Buyers shall be entitled to seek temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages and
without posting a bond or other security.

(n)           Rescission and Withdrawal Right.  Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Buyer exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.

(o)           Payment Set Aside.  To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights hereunder
or thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a
trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, foreign, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the 

 32
 

 

obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force and effect as if such payment had not been made or such enforcement or
setoff had not occurred.

(p)           Independent Nature of Buyers’
Obligations and Rights.  The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any other
Buyer under any Transaction Document.  Nothing
contained herein or in any other Transaction Document, and no action taken by
any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers
as, and the Company acknowledges that the Buyers do not so constitute, a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Buyers are in any way acting in concert or as a
group, and the Company will not assert any such claim with respect to such
obligations or the transactions contemplated by the Transaction Documents and
the Company acknowledges that the Buyers are not acting in concert or as a
group with respect to such obligations or the transactions contemplated by the
Transaction Documents.  The Company
acknowledges and each Buyer confirms that it has independently participated in
the negotiation of the transaction contemplated hereby with the advice of its
own counsel and advisors.  Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any
other Transaction Documents, and it shall not be necessary for any other Buyer
to be joined as an additional party in any proceeding for such purpose.

[Signature Page Follows]

 33

 

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

 

	
  

  	
  OTHER BUYERS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  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
Securities Purchase 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
Securities Purchase 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
Securities Purchase 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
Securities Purchase 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
Securities Purchase 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)

  	
   

  	
  (5)

  	
   

  	
  (6)

  	
   

  	
  (7)

  	
   

  	
  (8)

  	
   

  	
  (9)

  
	
  Investor

  	
   

  	
  Buyer

  	
   

  	
  Address and

  Facsimile Number

  	
   

  	
  Aggregate

  Principal

  Amount of

  Notes

  	
   

  	
  Number of

  Series A

  Warrant Shares

  	
   

  	
  Number of

  Series B

  Warrant Shares

  	
   

  	
  Number of

  Series C

  Warrant

  Shares

  	
   

  	
  Purchase Price

  	
   

  	
  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

  	
   

  	
  $

  	
  6,000,006.61

  	
   

  	
  1,005,588

  	
   

  	
  892,858

  	
   

  	
  3,351,959

  	
   

  	
  $

  	
  6,000,006.6

  	
   

  	
  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, CA94111

  

  Telephone: 415-288-8100 

  Fax:415.288.8113

  Residence: California

  	
   

  	
  $

  	
  5,165,048.58

  	
   

  	
  865,651

  	
   

  	
  768,608

  	
   

  	
  2,885,502

  	
   

  	
  $

  	
  5,165,048.58

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fort Mason

  	
   

  	
  Fort Mason Partners. LP

  	
   

  	
  c/o Fort Mason Capital, LLC

  Four Embarcadero Center,

  Suite 2050

  San Francisco, CA94111

  

  Telephone: 415-288-8100

  Fax:415.288.8113

  Residence: California

  	
   

  	
  $

  	
  334,948.38

  	
   

  	
  56,137

  	
   

  	
  49,844

  	
   

  	
  187,122

  	
   

  	
  $

  	
  334,948.38

  	
   

  	
   

  

 

 

 

	
  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

  	
   

  	
  $

  	
  249,998.56

  	
   

  	
  41,899

  	
   

  	
  37,202

  	
   

  	
  139,664

  	
   

  	
  $

  	
  249,998.56

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JGB Capital

  	
   

  	
  JGB Capital, LP

  	
   

  	
  660 Madison Avenue

  21st Floor

  New York, NY 10021

  Attn: Brett Cohen

  

  Fax:(212) 253-4093

  Tel:(212)355-5771

  Residence: Delaware

  	
   

  	
  $

  	
  1,000,004.98

  	
   

  	
  167,599

  	
   

  	
  148,810

  	
   

  	
  558,662

  	
   

  	
  $

  	
  1,000,004.98

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JGB Capital

  	
   

  	
  Scoggin International Fund, Ltd.

  	
   

  	
  c/o Scoggin LLC.

  660 Madison Avenue

  20th Floor`

  New York, NY 10021

  

  Fax: (212) 355-7480

  Tel:(212) 355-5771

  Residence: Bahamas

  	
   

  	
  $

  	
  624,999.98

  	
   

  	
  104,749

  	
   

  	
  93,006

  	
   

  	
  349,162

  	
   

  	
  $

  	
  624,999.98

  	
   

  	
   

  

 

 

 

	
  JGB Capital

  	
   

  	
  Scoggin Capital Management, LP II

  	
   

  	
  c/o Scoggin LLC

  660 Madison Avenue

  20th Floor`

  New York, NY 10021

  

  Fax:(212) 355-7480

  Tel:(212) 355-7527

  Residence: Delaware

  	
   

  	
  $

  	
  624,999.98

  	
   

  	
  104,749

  	
   

  	
  93,006

  	
   

  	
  349,162

  	
   

  	
  $

  	
  624,999.98

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JGB Capital

  	
   

  	
  Seneca Capital International, Ltd.

  	
   

  	
  590 Madison Avenue

  28th Floor`

  New York, NY 10022

  

  Fax:(212) 826-1108

  Tel:(212) 888-2999

  Residence: Cayman Islands

  	
   

  	
  $

  	
  787,499.76

  	
   

  	
  131,983

  	
   

  	
  117,187

  	
   

  	
  439,944

  	
   

  	
  $

  	
  787,499.76

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JGB Capital

  	
   

  	
  Seneca Capital LP

  	
   

  	
  590 Madison Avenue

  21st Floor

  New York, NY 10021

  

  Fax:(826)-1108

  Tel:(212) 888-2999

  Residence: Delaware

  	
   

  	
  $

  	
  399,998.77

  	
   

  	
  67,039

  	
   

  	
  59,524

  	
   

  	
  223,463

  	
   

  	
  $

  	
  399,998.77

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JGB Capital

  	
   

  	
  Guggenheim Portfolio Company XII LLC

  	
   

  	
  590 Madison Avenue

  28th Floor

  New York, NY 10021

  

  Fax: (212) 826-1108

  Tel:(212) 355-5771

  Residence: Delaware

  	
   

  	
  $

  	
  62,499.64

  	
   

  	
  10,475

  	
   

  	
  9,301

  	
   

  	
  34,916

  	
   

  	
  $

  	
  62,499.64

  	
   

  	
   

  

 

 

 

	
  JGB Capital

  	
   

  	
  Gracie Capital International, Ltd.

  	
   

  	
  590 Madison Avenue

  28thFloor`

  New York, NY 10021

  

  Fax: (212) 308-7180

  Tel:(212) 355-5771

  Residence: Cayman Islands

  	
   

  	
  $

  	
  462,498.41

  	
   

  	
  77,514

  	
   

  	
  68,824

  	
   

  	
  258,379

  	
   

  	
  $

  	
  462,498.41

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JGB Capital

  	
   

  	
  Gracie Capital LP

  	
   

  	
  590 Madison Avenue

  28thFloor`

  New York, NY 10021

  

  Tel:(212) 355-5771

  Residence: Delaware

  	
   

  	
  $

  	
  787,499.76

  	
   

  	
  131,983

  	
   

  	
  117,187

  	
   

  	
  439,944

  	
   

  	
  $

  	
  787,499.76

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Enable Capital

  	
   

  	
  Enable Growth Partners LP

  	
   

  	
  One Ferry Building,

  Suite 255

  San Francisco, CA 94111

  

  Tel: 415-677-1578

  Residence: California

  	
   

  	
  $

  	
  3,824,999.09

  	
   

  	
  641,061

  	
   

  	
  569,196

  	
   

  	
  2,136,871

  	
   

  	
  $

  	
  3,824,999.09

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Enable Capital

  	
   

  	
  Enable Opportunity Partners LP

  	
   

  	
  One Ferry Building,

  Suite 255

  San Francisco, CA 94111

  

  Tel: 415-677-1578

  Residence: California

  	
   

  	
  $

  	
  449,998.84

  	
   

  	
  75,419

  	
   

  	
  66,964

  	
   

  	
  251,396

  	
   

  	
  $

  	
  449,998.84

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Enable Capital

  	
   

  	
  Pierce Diversified Strategy Master Fund LLC

  	
   

  	
  One Ferry Building,

  Suite 255

  San Francisco, CA 94111

  

  Tel: 415-677-1578

  Residence: California

  	
   

  	
  $

  	
  224,999.42

  	
   

  	
  37,709

  	
   

  	
  33,482

  	
   

  	
  125,698

  	
   

  	
  $

  	
  224,999.42

  	
   

  	
   

  

 

 

EXHIBITS

 

	
  Exhibit A

  	
  Form of Notes

  
	
  Exhibit B-1

  	
  Form of Series A Warrants

  
	
  Exhibit B-2

  	
  Form of Series B Warrants

  
	
  Exhibit B-3

  	
  Form of Series B Warrants

  
	
  Exhibit C

  	
  Registration Rights Agreement

  
	
  Exhibit D

  	
  Irrevocable Transfer Agent Instructions

  
	
  Exhibit E

  	
  Form of Outside Company Counsel Opinion

  
	
  Exhibit F

  	
  Form of Secretary’s Certificate

  
	
  Exhibit G

  	
  Form of Officer’s Certificate

  

 

SCHEDULES

	
  Schedule 3(a)

  	
  Subsidiaries

  
	
  Schedule 3(k)

  	
  SEC Documents; Financial Statements

  
	
  Schedule 3(l)

  	
  Absence of Certain Changes

  
	
  Schedule 3(q)

  	
  Transactions with Affiliates

  
	
  Schedule 3(r)

  	
  Capitalization

  
	
  Schedule 3(s)

  	
  Indebtedness and Other Contracts

  
	
  Schedule 3(t)

  	
  Litigation

  
	
  Schedule 3(cc)

  	
  Ranking of Notes

  
	
  Schedule 4(d)

  	
  Use of Proceeds

  

 

 

Exhibit D

JAVO BEVERAGE COMPANY

December 15, 2006

Corporate Stock Transfer, Inc.

3200 Cherry Creek Dr. South 

Suite 430

Denver, CO  80209

Attention: Carylyn Bell

Ladies and Gentlemen:

Reference is made to that
certain Securities Purchase Agreement, dated as of December 14, 2006 (the “Agreement”), by and among Javo Beverage
Company, a Delaware corporation (the “Company”),
and the investors named on the Schedule of Buyers attached thereto
(collectively, the “Holders”),
pursuant to which the Company is issuing to the Holders (i) senior convertible
notes of the Company (the “Notes”),
which will be convertible into shares of the Company’s common stock, $0.001 par
value per share (the ”Common Stock”),
and (ii) two series of warrants (the “Warrants”),
which are exercisable to purchase shares of Common Stock.

This letter shall serve as our authorization and
direction to you (provided that you are the transfer agent of the Company at
such time):

(i)            to issue shares of
Common Stock upon conversion of the Notes (the “Conversion Shares”) to or upon the order of a Holder from
time to time upon delivery to you of a properly completed and duly executed
Conversion Notice, in the form attached hereto as Exhibit I, which has
been acknowledged by the Company as indicated by the signature of a duly
authorized officer of the Company thereon;

(ii)           to issue shares of
Common Stock upon exercise of the Warrants (the “Warrant Shares”) to or upon the order of a Holder from time
to time upon delivery to you of a properly completed and duly executed Exercise
Notice, in the form attached hereto as Exhibit II, which has been
acknowledged by the Company as indicated by the signature of a duly authorized
officer of the Company thereon.

You acknowledge and agree
that so long as you have previously received (a) written confirmation from the
General Counsel of the Company (or its outside legal counsel) that either (i) a
registration statement covering resales of the Conversion Shares or the Warrant
Shares has been declared effective by the Securities and Exchange Commission
(the “SEC”) under the Securities
Act of 1933, as amended (the “1933 Act”),
or (ii) that sales of the after your receipt of a notice of transfer,
Conversion Notice or the Exercise Notice, you shall issue the certificates
representing the Conversion Shares and/or the Warrant Shares, as applicable,
and such certificates shall not bear any legend restricting transfer of the
Conversion Shares or the Warrant Shares thereby and should not be subject to
any stop-transfer restriction; provided, however, that if such
Conversion Shares and Warrant Shares are not registered for 

 

resale under the
1933 Act or able to be sold under Rule 144, then the certificates for such
Conversion Shares and/or Warrant Shares shall bear the following legend:

THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, 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.

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

Please execute this
letter in the space indicated to acknowledge your agreement to act in
accordance with these instructions. 
Should you have any questions concerning this matter, please contact me
at (760) 560-5286.

	
  

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  JAVO BEVERAGE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: William Marshall

  
	
   

  	
   

  	
  Title: General Counsel, Exec. Vice President

  

 

 

THE FOREGOING
INSTRUCTIONS ARE

ACKNOWLEDGED AND AGREED TO

this 15th day of
December, 2006

CORPORATE STOCK TRANSFER, INC.

	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					

 

Enclosures

cc:       Parties as listed on Schedule of Buyers to
the Securities Purchase Agreement dated December 14, 2006.

 

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:

  

 

 

EXHIBIT II

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE
THIS

WARRANT TO PURCHASE COMMON STOCK

JAVO BEVERAGE COMPANY

The undersigned holder hereby exercises the right to
purchase _________________ of the shares of Common Stock (“Warrant Shares”) of Javo Beverage Company,
a Delaware corporation (the “Company”),
evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”). 
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.

1.  Form of
Exercise Price.  The Holder intends that
payment of the Exercise Price shall be made as:

____________    a “Cash Exercise” with respect to
_________________ Warrant Shares; and/or

____________    a “Cashless Exercise” with respect to
_______________ Warrant Shares.

2.  Payment of
Exercise Price.  In the event that the
holder has elected a Cash Exercise with respect to some or all of the Warrant
Shares to be issued pursuant hereto, the holder shall pay the Aggregate
Exercise Price in the sum of $___________________ to the Company in accordance
with the terms of the Warrant.

3.  Delivery
of Warrant Shares.  The Company shall
deliver to the holder __________ Warrant Shares in accordance with the terms of
the Warrant.

4.  Notwithstanding anything to the contrary
contained herein, this Exercise Notice shall constitute a representation by the
holder of the Warrant submitting this Exercise Notice that, after giving effect
to the exercise provided for in this Exercise 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 1(f) of the Warrant.

Date: _______________ __, ______

	
  

  	
   

  
	
     Name of Registered Holder

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

ACKNOWLEDGMENT

The Company hereby
acknowledges this Exercise 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:

  

 

 

EXHIBIT III

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 Irrevocable Transfer Agent Instructions dated
December 15, 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]

Exhibit E

	
  

  	
  The Yocca Law Firm LLP
Lawyers

  19900 MacArthur Boulevard

  Suite 650 Irvine, California 92612

  	
  TELEPHONE (949)
  253-0800 FACSIMILE (949) 253-0870

  

 

December 15, 2006

DRAFT

VIA FEDERAL EXPRESS

Investors Listed on
the Attached List of Investors

Re:                               Issuance and sale by Javo Beverage Company,
Inc., a Delaware corporation, of Senior Convertible Notes in an aggregate
principal amount of $21,000,000 and Warrants to purchase up to an aggregate of
18,376,396 shares of Common Stock

Ladies
and Gentlemen:

We have acted as outside counsel to Javo Beverage Company, a Delaware
corporation (the “Corporation”),
in connection with an issuance and sale by the Corporation of (i) Senior
Convertible Notes in an aggregate principal amount of $21,000,000 (“Notes”); and (ii) Warrants to purchase up to an aggregate of
18,376,396 shares of the Corporation’s Common Stock, par value $0.001 per
share, (“Warrants”) pursuant to the Securities
Purchase Agreement dated as of December 14, 2006, by and among the Corporation
and the investors listed on the Schedule of Buyers attached thereto (“Securities Purchase Agreement”).  This opinion is being furnished to you as a
supporting document at the request of the Corporation pursuant to Section 7(ii)
of the Securities Purchase Agreement. 
Unless specifically defined herein or the context requires otherwise,
capitalized terms used herein shall have the meanings ascribed to them in the
Securities Purchase Agreement.

In furnishing this opinion, we have examined and relied upon: (a) the
Securities Purchase Agreement; (b) the Notes; (c) the Registration Rights
Agreement; (d) the Irrevocable Transfer Agent Instructions; (e) the Warrants;
(f) the Corporation’s Certificate of Incorporation, as amended; (g) the
Corporation’s Bylaws as certified to us by an officer of the Company; (h)
certain records of the Corporation’s corporate proceedings certified to be as
reflected in its minute books; and (i) such statutes, records and other
documents as we have deemed relevant. We have assumed that, except for (a)
through (e) above (“Transaction Documents”),
there are no other documents or agreements between the Company and any Buyer
which would expand or otherwise modify the respective rights and obligations of
the Company and each Buyer as set forth in the Transaction Documents.

We have assumed the authenticity of all documents submitted to us as
originals and the conformity with originals of all documents submitted to us as
copies and the genuineness of all signatures. 
We have also assumed the legal capacity of all natural persons and that,
with respect to all parties to agreements or instruments relevant hereto other
than the Company, such parties had the requisite power and authority to
execute, deliver and perform such agreements or 

        
 

 

instruments, that such agreements or instruments have
been duly authorized by all requisite action and have been duly executed and
delivered by such parties and that such agreements or instruments are the
valid, binding and enforceable obligations of such parties.

As to questions of fact material to our opinions, we have relied upon
the representations of each party made in the Transaction Documents and the
other documents and certificates delivered in connection therewith,
certificates of officers of the Company, and certificates and advices of public
officials.

Whenever a statement herein is qualified by “known to us,” “to our
current actual knowledge,” or similar phrase, it is intended to indicate that,
during the course of our representation of the Company, no information that
would give us current actual knowledge of the inaccuracy of such statement has
come to the attention of those attorneys in this firm principally responsible
for handling current matters for the Company. 
However, except as otherwise expressly indicated, we have not undertaken
any independent investigation to determine the accuracy of such statement, and
any limited inquiry undertaken by us during the preparation of this opinion
letter should not be regarded as such an investigation; no inference as to our
knowledge of any matters bearing on the accuracy of any such statement should
be drawn from the fact of our representation of the Company.

On the basis of the foregoing, subject to the assumptions, exceptions,
qualifications and limitations herein, it is our opinion that:

1.             The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation.  The Company has the
requisite corporate power to own, lease and operate its properties and to
conduct its business as presently conducted. 
The Company is duly qualified as a foreign corporation to do business
and is in good standing in each jurisdiction in which its ownership
of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not reasonably be expected to have a
Material Adverse Effect.

2.             The Company has the requisite corporate power and
authority to execute, deliver and perform all of its obligations under the
Transaction Documents, including the issuance of the Notes, the Conversion
Shares, the Interest Shares, the Warrants and the Warrant Shares in accordance
with the terms thereof.  The execution and
delivery of the Transaction Documents by the Company and the consummation of
the transactions contemplated therein (including without limitation, the
issuance and sale of the Notes and Warrants) have been duly authorized by all
necessary corporate action.  The
Transaction Documents have been duly executed and delivered by the
Company.  The Transaction Documents
constitute valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity (whether in a
proceeding at law or in equity) or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation 

 2
 

 

or similar laws relating to, or affecting generally,
the enforcement of applicable creditors’ rights and remedies.

3.             The execution, delivery and performance by the Company
of its obligations as contemplated in the Transaction Documents, including
without limitation, the issuance of the Notes and the Warrants, the Conversion
Shares, the Interest Shares and the Warrant Shares, and the consummation by the
Company of the transactions contemplated by the Transaction Documents and the
compliance by the Company with the terms thereof (a) do not and will not
violate, conflict with or constitute a default (or an event which, with the
giving of notice or lapse of time or both, constitutes or would constitute a
default), give rise to any right of termination, cancellation or acceleration
under (i) the Certificate of Incorporation or Bylaws of the Company; (ii) any
agreement, note, lease, mortgage, deed or other instrument to which the Company
is a party or by which the Company is bound or affected that was publicly filed
as an exhibit by the Company on the Edgar filing system (the “Publicly Filed Exhibits”); or (iii) to our
knowledge any statute, law, rule or regulation of the United States, the
Principal Market or the Delaware General Corporation Laws (the “DGCL”) applicable to the Company as of immediately prior to
the Closing or, to our knowledge, any order, writ, injunction or decree binding
on the Company; and (b) to our knowledge do not and will not result in or
require the creation of any lien, security interest or other charge or
encumbrance (other than pursuant to the Transactions Documents) upon or with
respect to any of the Company’s properties.

4.             When so issued in accordance with and in exchange for
payment as contemplated by the Transaction Documents, the Notes, the Warrants,
the Conversion Shares, the Interest Shares and the Warrant Shares will be duly
authorized and validly issued, fully paid and nonassessable, and free of any
and all liens and charges (but not free of restrictions on transfer as may
exist pursuant to federal and applicable state securities laws) and preemptive
or similar rights contained in the Company’s Certificate of Incorporation or
Bylaws or any agreement, note, lease, mortgage deed or other instrument to
which the Company is a party or by which the Company is bound that is a
Publicly Filed Exhibit.  The Conversion
Shares, the Interest Shares and the Warrant Shares have been duly and validly
authorized and reserved for issuance by all necessary corporate action.

5.             As of the date hereof, to our knowledge, the authorized
capital stock of the Company consists of (i) three hundred million
(300,000,000) shares of Common Stock with a par value of $0.001 per share and
(ii) ten million (10,000,000) shares of Preferred Stock with a par value of
$0.001 per share.  None of the
outstanding Common Stock is subject to preemptive rights or other rights of the
stockholders of the Company pursuant to the Certificate of Incorporation or the
Bylaws or under the DGCL or pursuant to any Publicly Filed Exhibits.  Except as set forth in the Disclosure
Schedule, there are no outstanding securities or instruments of the Company
that are Publicly Filed Exhibits containing anti-dilution or similar provisions
that will be triggered by the issuance of the Notes, the Conversion Shares, the
Interest Shares, the Warrants or the Warrant Shares as contemplated pursuant to
the Transaction Documents.

 3
 

 

6.             The offer and sale of the Notes and the Warrants in
accordance with the Securities Purchase Agreement and the issuance of the
Conversion Shares, the Interest Shares and the Warrant Shares in accordance
with the Transaction Documents constitute transactions exempt from the
registration requirements of the Securities Act of 1933, as amended, assuming
that the representations and warranties of each Buyer made pursuant to Sections
2(a), 2(b), and 2(d) of the Securities Purchase Agreement are true and correct,
and assuming further that the appropriate restrictive legends will be placed on
the certificates or other instruments representing the Notes, the Warrants, the
Conversion Shares, the Interest Shares and the Warrant Shares.

7.             No authorization, approval, consent, filing, or other
order of any federal or state governmental body, regulatory agency,
self-regulatory organization or stock exchange or market, or the stockholders
of the Company, or any court, or to our knowledge, any third party is required
to be obtained by the Company to enter into the Transaction Documents or for
the issuance and sale of the Notes, the Conversion Shares, the Interest Shares,
the Warrants or the Warrant Shares in accordance with the Transaction
Documents, or for the exercise of any rights and remedies under any Transaction
Documents, except for the Stockholder Approval as contemplated to be obtained
pursuant to the Securities Purchase Agreement and any approvals, authorizations,
designations, declarations or filings as have been made or obtained on or
before the date hereof or which are not required to be made or obtained until
after the date hereof, including (i) filings on Form D under
Regulation D of the Securities Act of 1933, as amended, and each
applicable state securities law’s corresponding notice requirement, and
(ii) filings on Form 8-K pursuant to the Securities Exchange Act of 1934,
as amended.

8.             To our knowledge, no action, suit, proceeding, inquiry
or investigation before or by any court, public board or body or any
governmental agency or self-regulatory organization is pending or threatened
against the Company or any of the properties or assets of the Company.

9.             The Company and its Board of Directors have taken
necessary action to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s Certificate of
Incorporation or provisions of the DGCL applicable to the Buyers and their
affiliates as a result of the Buyers and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including without limitation, the Company’s issuance of Notes on the date
hereof and Warrants (and the shares of Common Stock issuable upon conversion or
exercise thereof) and the Buyers’ and their affiliates’ ownership of such
securities or any other securities of the Company acquired by the Buyer or their
affiliates.

10.           To our knowledge, the Company is not
an “investment company” or any entity controlled by an “investment company,” as
such term is defined in the Investment Company Act of 1940, as amended.

We express no opinion as to your compliance with any federal or state
law pertaining to your legal or regulatory status or the nature of your
business.

 4
 

 

We express no opinion as to the Company’s compliance or non-compliance
with (i) antifraud provisions of applicable federal or state securities laws;
(ii) applicable federal or state antitrust laws and regulations; (iii) unfair
competition or trade practice laws and regulations; (iv) pension and employee
benefit laws and regulations; (v) SEC staff policies; or (vi) any law,
regulation or rule applicable solely to the Company’s industry.

We express no opinion with respect to the enforceability of provisions
releasing or indemnifying a party against liability for its own wrongful or
negligent acts, or where indemnification is contrary to public policy, provisions
to the effect that failure to exercise or delay in exercising any right or
remedy will not operate as a waiver of that right or remedy, or provisions to
the effect that failure to exercise or delay in exercising any right or remedy
will not operate as a waiver of that right or remedy.

We express no opinion as to the effect of judicial decisions which may
permit the introduction of extrinsic evidence to modify the terms or the
interpretation of the Transaction Documents.

We express no opinion with respect to the limitations on the exercise
of certain contractual rights and remedies if the defaults are not material or
the penalties bear no reasonable relation to the damages suffered by the
aggrieved party as a result of the delinquencies or defaults, on strict
enforcement of certain covenants in debt instruments absent a showing of damage
to the lender, impairment of value of collateral or impairment of the debtor’s
ability to pay or otherwise under circumstances which would violate the
lender’s covenant of good faith and fair dealing.

We express no opinion with respect to the unenforceability under
certain circumstances of provisions requiring arbitration, waiving jury trials,
or selecting venue; provisions permitting various self help or summary remedies
without adequate notice or opportunity for hearing or cure; or provisions
having the effect of requiring the Company to repurchase, redeem or make a
distribution on any of its shares of capital stock.

We express no opinion as to (a) the enforceability of the choice of law
provisions of the Transaction Documents, (b) California laws relating to usury
or permissible rates of interest upon the transactions contemplated by the
Transaction Documents, (c) California Civil Code Section 1670.5 which provides
that a court may refuse to enforce, or may limit the application of, a contract
or any clause thereof which the court finds as a matter of law to have been
unconscionable at the time it was made, (d) California Civil Code Section 1671
which provides in part that a contractual provision liquidating the damages for
breach of contract in a commercial transaction will be invalid if it is
established that the provision was “unreasonable” under the circumstances
existing at the time the contract was made, and (e) Section 1698 of the
California Civil Code which provides, in part, that provisions of any
instrument or agreement may only be waived in writing will not be enforced to
the extent that an oral agreement has been executed modifying provisions of
such instrument or agreement.

 5
 

 

We are members of the Bar of the State of California and, accordingly,
do not express any opinions herein concerning the laws of any jurisdiction
other than the Delaware General Corporation Law, the laws of the State of
California and the federal laws of the United States of America, and we express
no opinion herein as to the effect of any other laws.  For purposes of our opinions, we have assumed
that applicable New York law is the same as the California law.

This opinion is being rendered solely as of this date for your benefit
in connection with the issuance and sale to the Buyers of the Notes and
Warrants at the Closing and may not be relied upon by any other person without
our prior written consent.  We expressly
decline any undertaking to advise you of any matters arising subsequent to the
date hereof which would cause us to amend any portion of the foregoing in whole
or in part.

	
  

  	
  Very truly yours,

  
	
   

  	
  UNSIGNED DRAFT

  

 

 6
 

 

Address List of
Investors

Capital Ventures International LP

c/o Heights Capital Management

101 California Street, Suite 3250

San Francisco, CA 94111

Attn.: Martin Kobinger, Investment Manager

 

Fort Mason Master, LP

c/o Fort Mason Capital, LLC

Four Embarcadero Center, Suite 2050

San Francisco, CA 94111

 

JGB Capital Offshore, Ltd.

c/o Appleby Corporate Services (Cayman)

Limited

Clifton House

75 Fort Street

George Town, Grand Cayman

 

Courtesy copy to:

JGB Capital Offshore, Ltd.

c/o JGB Management Inc.

660 Madison Avenue, 21st Floor

New York, NY 10021

Attn.: Brett Cohen

 

Enable Capital

One Ferry Building, Suite 255

San Francisco, CA 94111

 7

 

Exhibit F

JAVO BEVERAGE COMPANY

SECRETARY’S
CERTIFICATE

The undersigned hereby
certifies that he is the duly elected, qualified and acting Secretary of Javo
Beverage Company, a Delaware corporation (the “Company”), and that as such he is authorized to execute and
deliver this certificate in the name and on behalf of the Company and in
connection with the Securities Purchase Agreement, dated as of December 14,
2006, by and among the Company and the investors listed on the Schedule of
Buyers attached thereto (the “Securities
Purchase Agreement”), and
further certifies in his official capacity, in the name and on behalf of the
Company, the items set forth below. 
Capitalized terms used but not otherwise defined herein shall have the
meaning set forth in the Securities Purchase Agreement.

1.                                       Attached
hereto as Exhibit A is a true, correct and complete copy of the
resolutions duly adopted by the Board of Directors of the Company at a meeting
of the Board of Directors held on November 1, 2006.  Such resolutions have not in any way been
amended, modified, revoked or rescinded, have been in full force and effect
since their adoption to and including the date hereof and are now in full force
and effect.

2.                                       Attached
hereto as Exhibit B is a true, correct and complete copy of the
Certificate of Incorporation of the Company, together with any and all
amendments thereto currently in effect, and no action has been taken to further
amend, modify or repeal such Certificate of Incorporation, the same being in
full force and effect in the attached form as of the date hereof.

3.                                       Attached
hereto as Exhibit C is a true, correct and complete copy of the Bylaws
of the Company and any and all amendments thereto currently in effect, and no
action has been taken to further amend, modify or repeal such Bylaws, the same
being in full force and effect in the attached form as of the date hereof.

 1
 

 

4.                                       Each
person listed below has been duly elected or appointed to the position(s)
indicated opposite his name and is duly authorized to sign the Securities
Purchase Agreement and each of the Transaction Documents on behalf of the
Company, and the signature appearing opposite such person’s name below is such
person’s genuine signature.

	
  Name

  	
   

  	
   

  	
   

  	
   

  	
  Position

  	
   

  	
   

  	
   

  	
  Signature

  	
   

  
	
  Cody C. Ashwell

  	
   

  	
  Chief Executive Officer

  	
   

  	
   

  

 

IN WITNESS
WHEREOF, the undersigned has hereunto set his hand as of this 15th day of
December, 2006.

	
  

  	
   

  
	
  

  	
  William Marshall

  
	
   

  	
  Secretary

  

 

I, Cody C.
Ashwell, hereby certify that William Marshall is the duly elected, qualified
and acting Secretary of the Company and that the signature set forth above is
his true signature.

	
  

  	
   

  
	
  

  	
  Cody C. Ashwell

  
	
   

  	
  Chief Executive Officer

  

 

 2
 

 

EXHIBIT A

Resolutions

 

 3
 

 

MINUTES OF THE SPECIAL MEETING

OF THE BOARD OF DIRECTORS

OF

JAVO BEVERAGE COMPANY, INC.

November 1, 2006

(9:00 A.M., PACIFIC STANDARD TIME)

A meeting of the
Board of Directors of Javo Beverage Company, Inc., a Delaware corporation (the “Corporation”)
was held at the executive office of the Corporation at 1311 Specialty Drive,
Vista, California 92081 and by telephone conference call on Wednesday,
November 1, 2006, commencing at 9:00 a.m.

The following
directors were present in person at the meeting:

Cody C. Ashwell,
Chair

The following
directors were present by telephone at the meeting:

William C. Baker

Ronald S. Beard

Terry C. Hackett

James R. Knapp

Thomas J. Rielly

Stanley A. Solomon

The following
directors were absent, and each such director has executed a waiver of notice
that has been attached to these minutes:

Jerry W. Carlton

Richard B. Specter

Also present at
the meeting were Gary Lillian, President; Richard Gartrell, CFO; and William E.
Marshall, General Counsel and Secretary. 
Mr. Marshall acted as Secretary of the Meeting and is responsible for
these minutes.

It was first
confirmed that all of the directors present could hear one another on the
conference call, and then the Chairman of the Board then called the meeting to
order.

 4
 

 

The first and only
order of business was a proposal to review and discuss the Term Sheet attached
hereto as Exhibit “A” (“Term Sheet”), which contemplates a private placement by
the Corporation of Senior Convertible Notes and Warrants (the “Private
Placement”).

Mr. Ashwell
explained that the principal purpose of the financing was for expansion and
growth, and he described several growth opportunities for the Corporation.  Mr. Ashwell reiterated his belief that
certain of the Company’s significant sales opportunities have been and will be
hindered by the Corporation’s lack of a strong balance sheet and cash reserves
and that a cash infusion was vital to capturing these larger account
opportunities.  Mr. Ashwell then made a
presentation concerning efforts made to seek funding on the most favorable
terms, the negotiation of the Term Sheet, the Term Sheet itself and the
proposed Private Placement.

Mr. Marshall made
a presentation concerning the details of the Term Sheet and the transactions
contemplated thereby, including the registration of shares of Common Stock for
resale.

Mr. Gartrell made
a presentation concerning the financial impacts of the proposed transaction and
projections concerning the operating cash flow and debt coverage.

A discussion of
the Term Sheet and the Private Placement followed.  The Board of Directors asked questions of
management and discussed the answers. 
The Board also considered and evaluated various factors, including the
Corporation’s financial condition, prospects for growth, the Corporation’s
capital structure and the results of stockholder voting on a proposal to amend
the Certificate of Incorporation to authorize additional shares of Common
Stock.  Management noted its belief and
the belief of its placement agent that, as compared to a typical direct sale of
common stock, the structured convertible debt described in the term sheet would
provide the opportunity to achieve significantly higher valuations in issuing
common stock so as to potentially lessen dilution to the common stockholders.

Upon motion duly
made and seconded, the following resolutions were unanimously approved.

WHEREAS, there has been
submitted to and considered by this Board of Directors a Term Sheet, in the
form attached hereto as Exhibit A (“Term Sheet”), and other information,
documents, and drafts, in connection with a proposed agreement for the purchase
and sale of the Corporation’s securities (collectively, the “Securities”),
which would consist of (i) Senior Convertible Notes (“Senior Convertible Notes”)
that shall be convertible into previously authorized but unissued shares of the
Corporation’s Common Stock, par value $0.001 per share (“Common Stock”), and
(ii) Warrants 

 5
 

 

(“Warrants”) to purchase previously authorized but
unissued shares of Common Stock; and

WHEREAS,
it is deemed in the best interests of the Corporation and its stockholders that
this Board of Directors ratify and adopt the terms and provisions of the Term
Sheet and authorize the negotiation, execution, delivery and performance of
definitive agreements; and

WHEREAS,
the Term Sheet contemplates that the Corporation shall register shares of the
Corporation’s Common Stock (the “Shares”) for resale by the investors in the
private placement, in an amount sufficient to cover the potential future
conversion of the Senior Convertible Notes and future exercise of the Warrants;

NOW, THEREFORE, BE IT
RESOLVED, that the terms and provisions of the Term Sheet be, and they hereby
are, approved, adopted, authorized and ratified, in the form attached hereto or
in substantially such form with such modifications or supplements as any
officer of the Corporation may approve, in the discretion of the officer acting
in the matter; and

RESOLVED FURTHER, that
the officers of the Corporation be, and each of them hereby is, authorized and
directed to proceed to negotiate a private placement of the Securities and to
execute, deliver and perform on behalf of the Corporation or in its name, any
and all definitive agreements, certificates, documents or instruments related
thereto, on substantially the terms contemplated in the Term Sheet; and

RESOLVED
FURTHER, that the officers of the Corporation be, and each of them hereby is,
authorized, directed and empowered on behalf of the Corporation and in its name,
to execute any applications, certificates, agreements or any other instruments
or documents or amendments or supplements thereto, or to do and to cause to be
done any and all other acts and things as such 

 6
 

 

officers
may in their discretion deem necessary or appropriate to conduct the private
placement in accordance with the exemption from registration under the
Securities Act of 1933 for transactions not involving a public offering as
provided by Section 4(2) of the Securities Act and Rule 506 of Regulation D as
promulgated thereunder; and

RESOLVED
FURTHER, that this Board of Directors deems it in the best interests of the
Corporation and its stockholders that the Corporation register the Shares for
resale under the Securities Act of 1933, as amended, on Form S-3, or on such
other form or forms as may be required or permitted, and that the Board of
Directors hereby authorizes and approves the registration of the Shares and the
taking of any and all other actions as may be necessary or appropriate to register
the Shares for resale; and

RESOLVED
FURTHER, that the officers of the Corporation be, and each of them hereby is,
authorized at any time and from time to time to do and perform any and all acts
or things, including, without limitation, the execution and delivery of any and
all agreements, documents, instruments or papers of whatever kind or nature,
modifications or supplements thereto, all filings necessary or desirable for
obtaining qualifications, permits or licenses, in each case as such officers or
any of them may consider necessary or desirable to effect the intent of any and
all of the foregoing resolutions; and

RESOLVED
FURTHER, that the execution and delivery of any documents, or their filing in
the books and records of the Corporation, or the performance of such other acts
and things by any of officer of the Corporation, shall in each case evidence
conclusively and for all purposes that such officer or officers considered the
same to be necessary or desirable as aforesaid and that such act or thing so
done or performed was hereby authorized; and that all such acts or things
heretofore performed by the officers of this Corporation are hereby authorized,
adopted, ratified and approved; and

RESOLVED
FURTHER, that this Board of Directors hereby authorizes, ratifies, approves and
adopts such resolutions as may be deemed necessary or 

 7
 

 

appropriate
by the officer acting in the matter in order to satisfy the requests or
requirements of any governmental authorities in connection with the
transactions contemplated by these resolutions, and the Secretary shall attach
any such resolutions hereto and the same shall be deemed incorporated and
approved herein.

There being no
further business the meeting was adjourned at approximately 12:00 a.m.

	
  

  	
   

  
	
  

  	
  William E. Marshall, Secretary

  
	
  Attest:

  	
   

  	
   

  
	
   

  	
  Cody A. Ashwell, Chairman

  
				

 

 

 8

 

 

EXHIBIT “A”

JAVO
BEVERAGE COMPANY

Senior Convertible Notes

DRAFT SUMMARY OF TERMS AND CONDITIONS

For
Discussion Purposes Only

October 27, 2006

	
  Issuer:

  	
   

  	
  Javo Beverage Company (the “Issuer” or the
  “Company”).

  
	
   

  	
   

  	
   

  
	
  Purchaser:

  	
   

  	
  Heights Capital Management, Inc. or an affiliated
  entity (the “Lead”) and other investors selected by the Company and Cowen and
  Company (collectively with the Lead, the “Purchasers”). The Purchasers and
  any subsequent transferees are referred to herein as Holders.

   

  The Lead will purchase a minimum of $6,000,000.

  
	
   

  	
   

  	
   

  
	
  Security:

  	
   

  	
  Senior Convertible Notes (the “Notes”).

  
	
   

  	
   

  	
   

  
	
  Amount:

  	
   

  	
  $22,500,000.00 (the “Amount”).

  
	
   

  	
   

  	
   

  
	
  Additional Notes:

  	
   

  	
  The Purchasers would have the right to subscribe for
  an additional $7,500,000 of Notes (the “Additional Notes”) until 12 months
  from closing which will be convertible at 150% of the 5-day average volume
  weighted average price (“VWAP”) prior to the initial closing.

  
	
   

  	
   

  	
   

  
	
  Maturity:

  	
   

  	
  5 years from the date of issue (the “Maturity
  Date”).

  
	
   

  	
   

  	
   

  
	
  Coupon:

  	
   

  	
  6.95% per annum in cash or registered shares of
  common stock, payable quarterly in arrears and calculated on the basis of a
  360-day year consisting of twelve 30-day months.

  
	
   

  	
   

  	
   

  
	
  Conversion Price:

  	
   

  	
  The Notes will be convertible at 120% of the VWAP of
  the Company’s common stock over the five (5) trading days prior to the
  announcement of the transaction (the “Conversion Price”) into a fixed number
  of shares (the “Conversion Shares”). 

   

  The Notes and Additional Notes are convertible at
  the 

  
	
   

  	
   

  	
   

  

 

 

 

	
  

  	
   

  	
  Holders option, in whole or in part, at any time
  after Closing. The Conversion Price will be subject to adjustment for stock
  dividends, stock splits, dilutive securities issuances and other customary
  adjustment events.

  
	
   

  	
   

  	
   

  
	
  Principal

  Amortization

  Schedule:

  	
   

  	
  The Company shall repay the principal amount of the
  Notes in 57 equal monthly installments of $394K in cash and/or registered
  shares of common stock (each, a “Principal Repayment”) beginning on the four
  month anniversary of the Closing (See: Appendix A).

   

  The Holders will have the right to convert each
  Principal Repayment into shares of common stock at or prior to the payment
  date in lieu of receiving cash.

   

  The Company may, at its sole option, use registered
  shares of common stock as consideration for the Principal Repayments only if
  the stock is trading above $0.60 per share and the “standard equity
  conditions” have been met (as defined in the closing documents).

   

  The shares used would be valued at 88% of the
  average of the VWAPs for the 20 days following the payment date, if such
  amount is greater than $1.00, and 85% of the average of the VWAPs for the 20
  days following the payment date if such amount is $1.00 or less (the
  “Amortization Price”).

  
	
   

  	
   

  	
   

  
	
  Investor Put:

  	
   

  	
  The Purchasers may require the Issuer to repurchase
  the Notes and Additional Notes for cash at the third anniversary of the
  Closing at a price equal to their face amount plus any accrued and unpaid
  interest. The Company may use registered shares of common stock to satisfy up
  to 70% of the redemption.

   

  The shares would be valued at 85% of the average
  VWAP for 60 days following the redemption. The Company may, at its sole
  option, use registered shares of common stock as consideration for this
  redemption payment only if the stock is trading above $0.60 per share and the
  “standard equity conditions” have been met (as defined in the closing
  documents).

  
	
   

  	
   

  	
   

  
	
  Conversion

  	
   

  	
  The Notes and Additional Notes will include a 

  

 

 

 

	
  Limitation:

  	
   

  	
  conversion limitation providing that the Issuer will
  not effect any conversion of the Notes or Additional Notes, and no Holder
  shall have the right to convert any portion of the Notes or Additional Notes,
  to the extent that after giving effect to such conversion, the Holder
  (together with the Holder’s affiliates) would beneficially own in excess of
  9.9% of the number of shares of the Company’s common stock outstanding
  immediately after giving effect to such conversion (the “Conversion
  Limitation”).

  
	
   

  	
   

  	
   

  
	
  Company

  Repurchase

  Right:

  	
   

  	
  The Company may repurchase the Notes and Additional
  Notes at anytime after closing at par plus accrued interest, plus: i) a make-whole interest payment equal to the
  present value of three years of interest less any interest paid, plus ii) a number of warrants (the “Series B Warrants”)
  to purchase the number of shares that the Notes are convertible into. The
  Series B Warrants shall have an exercise price equal to the Conversion Price
  and an expiration date three years from the date of issuance.

  
	
   

  	
   

  	
   

  
	
  Warrants:

  	
   

  	
  The Company will issue to the Purchasers warrants
  equal to 30% of the total number of Conversion Shares (the “Warrants”) for
  the Notes and Additional Notes (when and if issued).

   

  The Warrants will be exercisable at any time
  beginning six (6) months from Closing into common shares of the Company at
  125% of the VWAP for the day prior to announcement of the deal and will
  expire five (5) years from the applicable Closing.

   

  The Warrants will be documented separately from the
  Notes and Additional Notes and may be exercised or sold by the Holders at any
  time after Closing. The Warrants may only be exercised on a cashless exercise
  basis if there is not an effective registration statement covering the resale
  of the underlying shares.

  
	
   

  	
   

  	
   

  
	
  Redemption at

  Maturity:

  	
   

  	
  The Issuer will redeem the Notes and Additional
  Notes (if issued) at their face amount plus any accrued and unpaid interest
  in respect thereof in cash. Under no circumstances shall the Notes or
  Additional Notes maturity extend beyond the Maturity Date.

  

 

 

 

	
  Permitted Senior Indebtedness

  	
   

  	
  After effectiveness, the Company may incur 1) up to
  an additional $5 million of a senior bank debt facility, and 2) may incur
  additional debt for new customer equipment purchases of machines.

   

  The Company intends and will covenant that it will
  use the markup on its dispensed products attributed to amortization of
  equipment to pay debt and interest payments for new dispensers financed as
  Permitted Senior Indebtedness with the term of the amortization of principal
  being no more then sixty (60) months.

  
	
   

  	
   

  	
   

  
	
  Change of

  Control:

  	
   

  	
  Upon a Change of Control of the Issuer involving the
  acquisition of voting control or direction over 50% or more of the Company’s
  outstanding common stock, Holders will have the right to cause the Issuer to
  repurchase the Notes and Additional Notes in cash or shares for the greater
  of: A) the equity value or B) 120%, plus accrued but unpaid interest, if any,
  up to but excluding the date of the Change of Control date.

  
	
   

  	
   

  	
   

  
	
  Stock Payment

  Procedures for

  Principal

  Repayments:

  	
   

  	
  The Company must notify the investors of its
  intention to make each applicable Principal Repayment in cash or common stock
  or any combination thereof on the third (3rd) trading day prior to the
  date of the Principal Repayment. On the trading day prior to the applicable
  Principal Repayment date, the Company will deliver to the Holders via DTC an
  amount of shares equal to the stock portion of the applicable Principal
  Repayment divided by 90% of the lowest VWAP of the common stock during the
  ten trading days ending on the trading day prior to such delivery date (the
  “Stock Calculation Price”).

   

  Immediately following the calculation of the
  Amortization Price on the 21st day following the payment date, the Company will
  deliver an amount of shares on that day to the Holders (“Net Share Settlement
  Amount”) equal to the stock portion of the applicable Principal Repayment,
  divided by the Amortization Price, less any shares previously delivered. If
  the Amortization Price is greater than the Stock Calculation Price, the Net
  Share Settlement Amount will be zero and any excess over the principal due
  shall be offset against the remaining principal.

  

 

 

 

	
  Anti-Dilution

  Protection:

  	
   

  	
  There shall be weighted-average anti-dilution
  protection on the Notes, Additional Notes and the Warrants. Any anti-dilution
  adjustment(s) shall not be triggered by any issuances by the Company of any
  equity or equity-linked securities in connection with: (i) strategic transactions
  or acquisitions, (ii) board approved stock or option plans, (iii) issuances
  of any securities having to do with any exercise/exchange/adjustment/

  redemption of the Notes.

  
	
   

  	
   

  	
   

  
	
  Use of Proceeds:

  	
   

  	
  Sales and marketing, working capital and general
  corporate purposes.

  
	
   

  	
   

  	
   

  
	
  Registration:

  	
   

  	
  The Company will file a registration statement with
  the SEC to register the resale of the shares underlying the Notes and
  Additional Notes, the Warrants and Series B Warrants within 30 days of
  closing.

   

  If either the Company does not meet the filing
  deadline or the SEC does not declare this effective within 90 days of closing
  (or 120 days if reviewed) or if registration lapses then penalties will be
  paid at the rate of 1.0% per month with the first such payment due at day 120
  and continuing thereafter on a pro-rated basis for each 30 day period.

  
	
   

  	
   

  	
   

  
	
  Conditions

  Precedent:

  	
   

  	
  The transaction shall be subject to conditions
  precedent customary for agreements of this nature and satisfactory to the
  Purchasers including:

  ·     Due diligence satisfactory to the
  Purchasers in their sole discretion, based on  publicly available
  information;

  ·     Documentation satisfactory to the
  Purchasers in their sole discretion;

  ·     Absence of material adverse change;

  ·     Issuer board approval;

  ·     Any required securities and stock
  exchange regulatory approvals; and

  ·     Documentation satisfactory to Issuer in
  its sole discretion.

  
	
   

  	
   

  	
   

  
	
  Covenants:

  	
   

  	
  Affirmative Covenants — The Notes and Additional
  Notes will contain affirmative covenants customary for securities of this nature.
  

  

 

 

 

	
  

  	
   

  	
  Negative Covenants — Neither the Issuer nor any
  subsidiary shall incur any debt that is senior to or pari passu with the
  Notes or Additional Notes.

  
	
   

  	
   

  	
   

  
	
  Purchaser

  Trading

  Restriction:

  	
   

  	
  The Purchasers will represent that they have not
  traded in the Company’s securities or derivatives relating to the Company’s
  securities or engaged in any short sales of the Company’s securities since
  learning of the transaction from Cowen and Company.

  
	
   

  	
   

  	
   

  
	
  Shareholder

  Approval:

  	
   

  	
  The Company shall use its reasonable best efforts to
  obtain shareholder approval at its next annual meeting to issue over 19.9% of
  their current shares outstanding as part of this transaction.

  
	
   

  	
   

  	
   

  
	
  Expenses:

  	
   

  	
  The Issuer shall reimburse the Lead for its
  out-of-pocket diligence and legal expenses not to exceed $150,000. The
  Company shall advance $30,000 as a non-refundable deposit against actual
  legal expenses upon signing.

  
	
   

  	
   

  	
   

  

 

This
term sheet is not binding except as to the provisions above concerning Expenses.

Agreed to and
Accepted by:

	
  JAVO BEVERAGE COMPANY

  	
   

  	
  HEIGHTS CAPITAL MANAGEMENT, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Name: Cody Ashwell

  	
   

  	
  Name: Martin Kobinger

  	
   

  
	
  Title: Chief Executive Officer

  	
   

  	
  Title: Authorized Signatory

  	
   

  

 

Appendix
A

Amortization Schedule 

	
  Month

  	
   

  	
   

  	
   

  	
  Year 1

  	
   

  	
  Year 2

  	
   

  	
  Year 3

  	
   

  	
  Year 4

  	
   

  	
  Year 5

  	
   

  
	
  1

  	
   

  	
  $

  	
  0

  	
   

  	
  $

  	
  395

  	
   

  	
  $

  	
  395

  	
   

  	
  $

  	
  395

  	
   

  	
  $

  	
  395

  	
   

  
	
  2

  	
   

  	
  0

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  
	
  3

  	
   

  	
  0

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  
	
  4

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  
	
  5

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  
	
  6

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  
	
  7

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  
	
  8

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  
	
  9

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  
	
  10

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  
	
  11

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  
	
  12

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  	
  395

  	
   

  
	
  Year Total

  	
   

  	
  $

  	
  3,553

  	
   

  	
  $

  	
  4,737

  	
   

  	
  $

  	
  4,737

  	
   

  	
  $

  	
  4,737

  	
   

  	
  $

  	
  4,737

  	
   

  
	
  Cum. Total

  	
   

  	
  $

  	
  3,553

  	
   

  	
  $

  	
  8,289

  	
   

  	
  $

  	
  13,026

  	
   

  	
  $

  	
  17,763

  	
   

  	
  $

  	
  22,500

  	
   

  

 

 

EXHIBIT B

Certificate of Incorporation

 

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

JAVO BEVERAGE COMPANY, INC.

Javo Beverage Company, Inc.,
a corporation organized and existing under the laws of the State of Delaware
(the “Corporation”), certifies that:

A.             The name of the Corporation is Javo Beverage Company,
Inc.  The Corporation’s original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on June 21, 2002.

B.            This Amended and
Restated Certificate of Incorporation was duly adopted in accordance with
Sections 242 and 245 of the General Corporation Law of the State of Delaware,
and restates, integrates and further amends the provisions of the Corporation’s
Certificate of Incorporation such that the total number of shares of all
classes of capital stock which the Corporation is authorized to issue shall
hereafter be three hundred ten million (310,000,000) shares and the total
number of shares of common stock which the Corporation is authorized to issue
shall hereafter be three hundred million (300,000,000) shares of common stock
with a par value of $0.001 per share designated as the “Common Stock” of the
Corporation.

C.            The
text of the Certificate of Incorporation as hereby amended or supplemented
reads as set forth in EXHIBIT A attached hereto.

IN WITNESS WHEREOF, Javo Beverage Company, Inc. has caused this Amended
and Restated Certificate of Incorporation to be signed by William E. Marshall,
a duly authorized officer of the Corporation, on November 3, 2006.

	
  

  	
  JAVO BEVERAGE COMPANY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  William E. Marshall

  
	
   

  	
  General Counsel, Senior Executive Vice

  
	
   

  	
  President of Operations, and Secretary

  
			

 

 

 

 

EXHIBIT A

ARTICLE 1

The
name of this corporation (herein called the “Corporation”) is as follows:

JAVO BEVERAGE COMPANY, INC.

ARTICLE 2

The
address of the registered office of the Corporation in the State of Delaware is
2711 Centerville Rd, Wilmington, County of New Castle, Delaware 19808. The name
of the Corporation’s registered agent at that address is Corporation Service
Company.

ARTICLE 3

The
purpose of the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.

ARTICLE 4

SECTION
1. AUTHORIZED SHARES. The total number of shares of all classes of capital
stock which the Corporation is authorized to issue is three hundred ten million
(310,000,000) shares which shall be divided into two classes as follows:

a) three hundred million (300,000,000) shares of Common Stock, with a
par value of $0.001 per share (the “Common Stock”), and

b) ten million (10,000,000) shares of Preferred Stock, with a par value
of $0.001 per share (the “Preferred Stock”).

SECTION
2. COMMON STOCK. The Common Stock shall have one (1) vote per share. The Common
Stock shall not be subject to redemption by the Corporation at its option, at
the option of the holders of Common Stock, or upon the happening of a specified
event.

SECTION
3. PREFERRED STOCK. The Corporation’s Preferred Stock may be issued in one or
more series, any or all of such series may have such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, which are permitted by Section 151 of the
General Corporation Law of the State of Delaware in respect of such series.
This Certificate of Incorporation, or any amendment hereto, to the extent
desired, may set forth a statement of such powers, designations or rights of
any such series of shares; or, to the extent not fixed by the Certificate of
Incorporation or any amendment hereto, the resolution or resolutions adopted by
the Board of Directors providing for the issue of stock of such series shall
set forth a statement of such powers, designations and rights of any such
series of shares. Any and all voting powers, designations, rights, preferences,
powers, qualifications, limitations or restrictions of such series may be made
dependent upon facts ascertainable outside the Certificate of Incorporation, or
any amendment, or the resolution or resolutions adopted by the Board of
Directors providing for the issue of stock of such series,

 

provided
that the manner in which such facts will operate on the series is clearly and
expressly set forth. For this purpose, the term “facts” is meant to include,
but is not limited to, the occurrence of any event, including a determination
or action by any person or body, including the Corporation.

SECTION
4. AUTHORITY EXPRESSLY VESTED IN BOARD. The Board of Directors of the Corporation
is hereby expressly granted and vested with the fullest possible authority to
fix from time to time by resolution or resolutions any voting powers, full or
limited, or no voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, which are permitted by Section 151 of the
General Corporation Law of the State of Delaware in respect of such series. The
authority of the Board with respect to each series shall include, but not be
limited to, determination from time to time of the following:

(i)
The number of shares constituting that series, an increase in such number (but
not above the total number of shares of Preferred Stock), a decrease in such
number (but not below the number of shares of such series then outstanding), and
the distinctive designation of that series;

(ii)
The dividend rates, conditions, and times on the shares of that series, whether
dividends shall be cumulative or noncumulative, and, if cumulative, from which
date or dates, and the relative rights of priority, if any, of payment of
dividends on shares of that series;

(iii)
Whether that series shall have voting powers, full or limited, and if so, the
terms, qualifications, limitations or restrictions of such voting powers, or no
voting powers;

(iv)
Whether that series shall have conversion privileges and/or exchange
privileges, and, if so, the terms and conditions of such conversion or
exchange, including provision for adjustment of the conversion or exchange rate
in such events as the Board of Directors shall state in the resolutions
providing for the issue of the stock of such series;

(v)
Whether or not the shares of that series shall be redeemable, and, if so, the
terms and conditions of such redemption, including the date or dates upon or
after which they shall be redeemable, and the amount per share payable in case
of redemption, which amount may vary under different conditions and at
different redemption dates;

(vi)
Whether that series shall have a sinking fund for the redemption or purchase of
shares of that series, and, if so, the terms and amount of such sinking fund;

(vii)
The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series; and

(viii)
Any other relative rights, preferences, powers, qualifications, limitations or
restrictions thereof.

SECTION
5. ADJUSTMENT OF NUMBER CONSTITUTING SERIES. The Board of Directors is
expressly authorized as to any wholly unissued series of Preferred Stock, to

 

determine
the number of shares thereof and the dividend rights, dividend rates,
conversion rights (if any), redemption prices, liquidation preferences, voting
rights (if any), the rights and terms of redemption (including sinking fund
provisions) and all other rights, preferences and privileges thereof. The Board
of Directors may increase or decrease the number of shares of any series
subsequent to the issue of shares of that series, but not below the number of
shares of that series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting that decrease shall
resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of that series.

SECTION
6. NO VOTING RIGHTS BY IMPLICATION. The Common Stock and any series of Preferred
Stock with full voting rights, shall all vote together as one class, and none
of the Common Stock or such series of Preferred Stock shall have any other or
special voting rights except as otherwise required by the laws then applicable,
the Corporation’s Certificate of Incorporation, or any amendments hereto, or
any resolution or resolutions of the Board of Directors providing for the issue
of shares of such series of Preferred Stock.

SECTION
7. NO ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. The holders of Common Stock
shall not have power to authorize by consent in writing, without a meeting and
a vote, any action permitted or required to be taken at an annual or special
meeting of stockholders.

ARTICLE 5

SECTION
1. The business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors and elections of directors need not be by
written ballot unless otherwise provided in the Bylaws. The number of directors
of the Corporation shall be fixed from time to time by the Board of Directors
either by a resolution or Bylaw adopted by the affirmative vote of a majority
of the entire Board of Directors.

SECTION
2. Meetings of the stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the Delaware Statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or by the Bylaws of the Corporation.

ARTICLE 6

A
director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this provision shall not eliminate or limit the
liability of a director (i) for any breach of the director’s duty of loyalty to
the Corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the
law; (iii) under Section 174 of the General Corporation Law of the State of
Delaware; or (iv) for any transaction from which the director derived an
improper personal benefit. If from time to time hereafter any provision in the
General Corporation Law of the State of Delaware is amended to authorize
corporate action further limiting or eliminating the personal liability of
directors, then the liability of the directors of the Corporation shall be
limited or eliminated to the fullest additional extent permitted by such
provision, as so amended; provided, however,

 

no
such amendment shall further eliminate or limit liability of a director for any
act before such amendment becomes effective. Any repeal or modification of this
Article 6 by the stockholders of the Corporation shall be prospective only, and
shall not adversely affect any elimination or limitation on the personal
liability of a director of the Corporation for acts prior to the time of such
repeal or modification. The Corporation shall have the authority to indemnify,
by bylaw, agreement or otherwise, any person to the fullest extent permissible
under law and in excess of that which may be expressly authorized.

ARTICLE 7

The
Board of Directors of the Corporation shall have the power to make, alter,
amend, change, add to or repeal the Bylaws of the Corporation.

ARTICLE 8

There
shall be a series of Preferred Stock, par value $0.001 per share, of the
Corporation, to be designated “Series A Junior Participating Preferred Stock,”
initially consisting of 150,000 shares.

SECTION
1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as “Series
A Junior Participating Preferred Stock,” with a par value $0.001 per share, and
the number of shares constituting such series shall be 150,000.

SECTION
2. DIVIDENDS AND DISTRIBUTIONS.

(a)
Subject to the prior and superior right of the holders of any shares of any
series of Preferred Stock ranking prior and superior to the shares of Series A
Junior Participating Preferred Stock with respect to dividends, the holders of
shares of Series A Junior Participating Preferred Stock shall be entitled to
receive when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the last day
of September, December, March and June in each year (each such date being
referred to herein as a “Quarterly Dividend Payment Date”), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to, subject to the
provision for adjustment hereinafter set forth, 10,000 times the aggregate per
share amount of all cash dividends, and 10,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions other
than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock of the Corporation (the “Common Stock”) since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Junior Participating Preferred Stock. In the
event the Corporation shall at any time after the close of business on July 4,
2002 (the “Rights Declaration Date”) (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case, the amount to which holders of shares of Series A
Junior Participating Preferred Stock were entitled immediately prior to such
event under the preceding sentence shall be adjusted by

 

multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.

(b)
The Corporation shall declare a dividend or distribution on the Series A Junior
Participating Preferred Stock as provided in paragraph (a) above immediately
after it declares a dividend payable in shares of Common Stock.

(c)
Dividends shall begin to accrue and be cumulative on outstanding shares of
Series A Junior Participating Preferred Stock from the Quarterly Dividend
Payment Date preceding the date of issue of such shares of Series A Junior
Participating Preferred Stock, unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is
a date after the record date for the determination of holders of shares of
Series A Participating Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Junior Participating Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Junior
Participating Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than thirty
(30) days prior to the date fixed for the payment thereof.

SECTION
3. VOTING RIGHTS. The holders of shares of Series A Junior Participating
Preferred Stock shall have the following voting rights:

(a)
Subject to the provision for adjustment hereinafter set forth, each share of
Series A Junior Participating Preferred Stock shall entitle the holder thereof
to 10,000 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the number of votes per share to which holders of shares of Series A
Junior Participating Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.

(b)
Except as otherwise provided herein or by law, the holders of shares of Series
A Junior Participating Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.

(c)
Except as required by law, holders of Series A Junior Participating Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they

 

are
entitled to vote with holders of Common stock as set forth herein) for taking
any corporate action.

SECTION
4. CERTAIN RESTRICTIONS.

 (a) The Corporation shall not declare any
dividend on, make any distribution on, or redeem or purchase or otherwise
acquire for consideration any shares of Common Stock after the first issuance
of a share or fraction of a share of Series A Junior Participating Preferred
Stock unless concurrently therewith it shall declare a dividend on the Series A
Junior Participating Preferred Stock as required by Section 2 hereof.

(b)
Whenever quarterly dividends or other dividends or distributions payable on the
Series A Junior Participating Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Junior Participating
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not:

(i)
declare or pay dividends on, make any other distributions on, or redeem or
purchase or otherwise acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Junior Participating Preferred Stock;

(ii)
declare or pay dividends on, make any other distributions on any shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with Series A Junior Participating Preferred Stock,
except dividends paid ratably on the Series A Junior Participating Preferred
stock and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are
then entitled;

(iii)
redeem or purchase or otherwise acquire for consideration shares of any stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Junior Participating Preferred Stock, provided
that the Corporation may at any time redeem purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Junior Participating Preferred
Stock; or

(iv)
purchase or otherwise acquire for consideration any shares of Series A Junior
Participating Preferred Stock, or any shares of stock ranking on a parity with
the Series A Junior Participating Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith that such purchase or acquisition will result in
fair and equitable treatment among the respective series or classes.

(c)
The Corporation shall not permit any subsidiary of the Corporation to purchase
or otherwise acquire for consideration any shares of stock of the Corporation
unless the Corporation could, under paragraph (a) of this Section 4, purchase
or otherwise acquire such shares at such time and in such manner.

 

SECTION
5. REACQUIRED SHARES. Any shares of Series A Junior Participating Preferred
Stock purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject
to the conditions and restrictions on issuance set forth herein.

SECTION
6. LIQUIDATION, DISSOLUTION OR WINDING UP.

(a)
Upon any liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment,
plus an amount equal to the greater of (1) $50,000 per share, provided that in
the event the Corporation does not have sufficient assets, after payment of its
liabilities and distribution to holders of Preferred Stock ranking prior to the
Series A Participating Preferred Stock, available to permit payment in full of
the $50,000 per share amount, the amount required to be paid under this Section
6(a)(1) shall, subject to Section 6(b) hereof, equal the value of the amount of
available assets divided by the number of outstanding shares of Series A Participating
Preferred Stock or (2) subject to the provisions for adjustment hereinafter set
forth, 10,000 times the aggregate per share amount to be distributed to the
holders of Common Stock (the greater of (1) or (2), the “Series A Liquidation
Preference”). In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event under clause (2)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock that
were outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

(b)
In the event, however, that there are not sufficient assets available to permit
payment in full of the Series A Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any, which rank on a
parity with the Series A Junior Participant Preferred Stock, then such
remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences.

SECTION
7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case the shares of Series A
Participating Preferred Stock shall at the same time be similarly exchanged or
changed in amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 10,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into

 

which
or for which each share of Common Stock is changed or exchanged. In the event
the Corporation shall at any time after the Rights Declaration Date (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of shares of
Series A Junior Participating Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding immediately prior
to such event.

SECTION
8. NO REDEMPTION. The shares of Series A Junior Participating Preferred Stock
shall not be redeemable.

SECTION
9. RANKING. The Series A Junior Participating Preferred Stock shall rank junior
to all other series of the Corporation’s Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.

SECTION
10. AMENDMENT. The Certificate of Incorporation, as from time to time amended,
of the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preference or special rights of the
Series A Junior Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more of the
outstanding shares, if any, of Series A Junior Participating Preferred Stock,
voting separately as a class.

SECTION
11. FRACTIONAL SHARES. Series A Junior Participating Preferred Stock may be
issued in fractions that are integral multiples of one one-millionth of one
share, which shall entitle the holder, in proportion to such holder’s
fractional shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of Series
A Junior Participating Preferred Stock.

ARTICLE 9

There
shall be a series of the authorized preferred shares of this Corporation having
a par value of $0.001 per share, which series (this “Series”) shall be
designated “Series B Preferred Stock” and shall consist of 4,000,000 shares having
the following rights, preferences and privileges:

(a) Dividend Rights.

(1)  Dividends on shares of this
Series shall accrue and be cumulative from and including the Deemed Initial
Issue Date to and including the date on which such shares shall have been paid
the Liquidation Preference pursuant to section (b) below or been redeemed
pursuant to section (c) below. Such dividends shall accrue whether or not there
shall be (at the time such dividend becomes payable or at any other time)
profits, surplus or other funds of the Corporation legally available for the
payment of dividends.  Dividends on
shares of this Series shall be in an amount calculated at a rate per share per
annum (the “Dividend Rate”) equal to 10% of the Liquidation Preference (as
defined below, but including only dividends unpaid on the previous Dividend
Payment Dates and excluding

 

dividends
payable at that Dividend Payment Date itself) per share of this Series, which
is initially equal to one dollar ($1.00) per share per year.  Dividends on the shares of this Series shall
be paid either (i) in fully paid and nonassessable shares of this Series valued
at the Liquidation Preference per share (such dividends paid in kind (including
any dividends payable in kind pursuant to this section) being herein called “PIK
Dividends”) or (ii) in cash (such dividends being referred to as the “Cash Dividends”).
The PIK Dividends shall be declared and paid, unless Cash Dividends are
declared and paid, to the extent there is either a surplus or net profits in
the current year or preceding year at least equal to the aggregate par value of
the dividend shares, and whether or not there are profits, surplus or other
funds of the Corporation legally available for payment of cash dividends.  The Cash Dividends shall be payable only
when, as and if declared by the Board of Directors of the Corporation out of
funds legally available for the payment of dividends, and otherwise the
dividends shall be deemed declared and paid as PIK Dividends.  The amount of PIK Dividends shall be
determined by dividing (i) the total amount of the aggregate dollar amount of
dividends accrued and unpaid with respect to such record holder of shares
during the applicable Dividend Period (rounded to the nearest whole cent) by
(ii) the Liquidation Preference.  The
Corporation shall not issue fractional shares of this Series, but in lieu of
any fractional shares to which holders may otherwise become entitled pursuant
to any provision hereof, the Corporation shall from time to time do any of the
following, independently or in any combination: 
(i) deliver its check in an amount equal to the applicable fraction of
the Liquidation Preference, (ii) issue script representing a right to combine
script into whole shares that expires at a time determined by the Board of
Directors, or (iii) arrange to sell to third parties a number of whole shares
approximately equal to the combined amount of fractional shares and divide the
proceeds ratably among those otherwise entitled to fractional shares.  Any additional shares of this Series issued
as PIK Dividends shall be governed by this resolution and shall be subject in
all respects, except as to the date of issuance and the date from which
dividends accrue and cumulate as set forth below, to the same terms as the
shares of  this Series originally issued
hereunder.  Dividends shall be payable on
shares issued as PIK Dividends commencing on the first Dividend Payment Date
after such shares are issued.

(2)  If PIK Dividends are paid,
the PIK Dividends shall be paid by recording a book entry of the shares and
script for fractional shares of this Series in the Corporation’s stock ledger
for this Series.  From and after the second
Dividend Payment Date, PIK Dividends paid theretofore or thereafter shall, upon
written notice from the record holder of this Series to the Corporation’s
Secretary, be delivered to the record holder as stock certificates.

(3)  Dividends shall be payable
for the period from and including the Deemed Initial Issue Date (as defined below)
to and including June 30, 2007 (the “Initial Dividend Period”), and for each
annual dividend period thereafter (the Initial Dividend Period and each annual
dividend period being hereinafter individually referred to as a “Dividend
Period” and collectively referred to as “Dividend Periods”), which annual Dividend
Periods shall commence on and include July 1 of each year (each, a “Dividend
Period Commencement Date”), and shall end on and include the succeeding June
30.  In the event of a liquidation or
redemption not occurring on a June 30, a Dividend Period shall be from the
Dividend Period Commencement Date to and including the date payment is
made.  All dividends shall be paid on or
before the 31st calendar day immediately after the Dividend Period;
provided, that if any such day shall be a Saturday, Sunday, or a day on
which banking institutions in the State

 

of
New York or the State of California are authorized or obligated by law to
close, or a day which is or is declared a national or a New York or California
state holiday (any of the foregoing a “Non-Business Day”), then the payment
date shall be the next succeeding day which is not a Non-Business Day (“Dividend
Payment Date”). The record date shall be the last day of the Dividend
Period.  Each such dividend shall be paid
to the holders of record of shares of this Series as they appear on the stock
register of the Corporation on such record date.  “Deemed Initial Issue Date” means
(a) July 1, 2006 in the case of any share that is part of any issuance of
shares of this Series on or prior to June 30, 2007 and (b) in the case of
any share which is part of any issuance of shares of this Series subsequent to
June 30, 2007, the latest Dividend Period Commencement Date which precedes the
date of issuance of such share.

(4)  After dividends on this
Series have been paid or declared and funds or shares therefor set aside for
payment, including for the then current Dividend Period, the holders of shares
of this Series will not be entitled to any further dividends with respect to
that Dividend Period.

(5) Dividends payable on shares of this Series for any period greater
or less than a full Dividend Period, including the Initial Dividend Period,
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months.

(b) Liquidation.

In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of the Corporation, the holders of shares of this Series are
entitled to receive out of the assets of the Corporation available for
distribution to shareholders, as a preference and before any distribution of
assets is made to holders of Common Shares or any other class or series of
shares ranking junior to the shares of this Series upon liquidation,
liquidating distributions in an amount per share equal to an initial amount of
ten dollars  ($10.00) per share
Preference plus an amount equal to all accumulated and unpaid dividends
(whether or not earned or declared) to the date of the distribution (the “Liquidation
Preference”). If, upon any voluntary or involuntary liquidation, dissolution,
or winding up of the Corporation the amounts payable with respect to the shares
of this Series and any other shares of the Corporation ranking as to any such
distribution on a parity with the shares of this Series are not paid in full,
the holders of shares of this Series and of such other shares will share
ratably in any such distribution of assets of the Corporation in proportion to
the full respective preferential amounts to which they are entitled. After
payment of the full amount of the liquidating distribution to which they are
entitled, the holders of shares of this Series will not be entitled to any
further participation in any distribution of assets by the Corporation.  Written notice of any such liquidation,
dissolution or winding up of the Corporation, stating the payment date or dates
when, and the place or places where the amounts distributable in such circumstances
shall be payable, shall be given by first class mail, postage pre-paid, not
less than 30 nor more than 60 days prior to the payment date stated therein, to
each record holder of the shares of this Series at the respective addresses of
such holders as the same shall appear on the stock transfer records of the Corporation.  For purposes of liquidation rights, a
reorganization or consolidation or merger of the Corporation with or into any
other corporation or corporations or a sale of all or substantially all of the
assets of the Corporation shall be deemed not to be a liquidation, dissolution
or winding up of the Corporation.

 

 

(c) Redemption.

(1) Mandatory Redemption upon Liquidity Event.

(A)  Within 30 days following any
Liquidity Event, the Corporation shall mail a notice to each holder of shares
of this Series describing the transaction or transactions that constitute the
Liquidity Event and offering to repurchase the shares of this Series on the
date specified in such notice, which date shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the “Liquidity Event
Payment Date”), pursuant to the procedures required by this Certificate of Designation
and described in such notice. This paragraph shall be applicable regardless of
whether any other provisions of this Certificate of Designation are applicable.

(B)  Each holder of shares of this
Series shall have the right to require the Corporation to repurchase all or any
part of that holder’s shares of this Series pursuant to the offer described
below (the “Liquidity Event Offer”). In the Liquidity Event Offer, the
Corporation shall offer a payment in cash for each outstanding share of this
Series equal to the Liquidation Preference per share of this Series (the “Liquidity
Event Payment”).

(C)  On the Liquidity Event
Payment Date, the Corporation shall, to the extent lawful:

(i) accept for payment all shares of this Series or portions thereof
properly tendered pursuant to the Liquidity Event Offer;

(ii) promptly mail to each holder of shares of this Series so tendered
the Liquidity Event Payment for each share of this Series so tendered and promptly
authenticate and mail to each such holder a new certificate representing the
shares of this Series equal in Liquidation Preference to any unpurchased
portion of the shares of this Series surrendered, if any.

(D)  “Liquidity
Event” means the occurrence of any of the following:

(i) the direct or indirect sale, transfer,
conveyance or other disposition (other than by way of merger, consolidation or
transfer of the Corporation’s common stock or other stock with rights to vote
for directors (“Voting Stock”)), in one or a series of related transactions, of
all or substantially all of the properties or assets of the Corporation and its
Subsidiaries, taken as a whole, to any “person” (as that terms is used in
Section 13(d)(3) of the Exchange Act) other than the Corporation or a
wholly-owned Subsidiary of the Corporation;

(ii) the consummation of any transaction or series of related
transactions (including, without limitation, any merger or consolidation) the
result of which is that any “person” (as defined above), other than the holders
of the shares of this Series, becomes the Beneficial Owner, directly or
indirectly, of more than fifty percent (50%) of the Voting Stock of the Corporation,
measured by voting power rather than number of shares;

(iii) during any period of twelve (12) consecutive months after the
Initial Issue Date, the individuals who at the beginning of any such 12-month
period

 

constituted
the Board of Directors (the “Incumbent Board”) cease for any reason to
constitute at least a majority of such Board; provided that (i) any individual
becoming a director whose election, or nomination for election by the
Corporation’s stockholders, was approved by a vote of the stockholders having
the specific right to designate such director and (ii) any director whose
election to the Board of Directors or whose nomination for election by the
stockholders of the Corporation was approved by majority vote of the Board of
Directors, shall, in each such case, be considered as though such individual
were a member of the Incumbent Board, but excluding, as a member of the Incumbent
Board, any such individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
directors of the Corporation (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (“Exchange Act”)) and further excluding any person who is an affiliate
or associate (as those terms are defined in the General Rules and Regulations
under the Exchange Act) of any Person having or proposing to acquire beneficial
ownership of fifty percent (50%) or more of the Voting Stock of the
Corporation; or

(iv) the approval by the stockholders of the Corporation of a
reorganization, merger or consolidation, in each case, with respect to which
all or substantially all of the individuals and entities who were the
respective beneficial owners (as defined in the Exchange Act) of the Voting
Stock immediately prior to such reorganization, merger or consolidation do not,
following such reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than fifty percent (50%) of the Voting Stock
resulting from such reorganization, merger or consolidation;

provided that the occurrence of any event identified in subparagraphs
(i) through (iv) above that would otherwise be treated as a Liquidity Event
shall not constitute a Liquidity Event hereunder if and only if (A) the Board
of Directors, by vote duly taken, and (B) the holders of a majority of the
outstanding shares of this Series, by written consent, shall so determine.

(2)  Redemption at the
Corporation’s Option.  The shares of
this Series are not redeemable at the Corporation’s option prior to June 30,
2008. On or after such date, the shares of this Series are redeemable at the
option of the Corporation, in whole or in part, from time to time, by
resolution of the Board of Directors, upon not less than 30 nor more than 60
days’ notice, at a cash redemption price per share equal to the Liquidation
Preference plus an amount equal to all accumulated and unpaid dividends
(whether or not earned or declared) to the date of redemption. If fewer than
all the outstanding shares of this Series are to be redeemed, the number of
shares to be redeemed will be determined by the Board of Directors, and such
shares shall be redeemed pro rata from the holders of record of such shares in
proportion to the number of such shares held by such holders (with adjustments
to avoid redemption of fractional shares) in a manner determined by the Board
of Directors.  Notwithstanding the
foregoing, if any dividends, including any accumulation, on the shares of this
Series are in arrears, no shares of this Series shall be redeemed unless all
outstanding shares of this Series are simultaneously redeemed, and the
Corporation shall not purchase or otherwise acquire, directly or indirectly,
any shares of this Series; provided, however, that the foregoing
shall not prevent the purchase or acquisition of shares of this Series pursuant
to a purchase or exchange offer provided such offer is made on the same terms
to all holders of shares of this Series.

 

(3) Terms Applicable to any Redemption.

(A) Immediately prior to any redemption of shares of this Series, the
Corporation shall pay, in cash, any accumulated and unpaid dividends through
the redemption date, unless a redemption date falls after a dividend payment
record date and prior to the corresponding dividend payment date, in which case
each holder of shares of this Series at the close of business on such dividend
payment record date shall be entitled to the dividend payable on such shares on
the corresponding dividend payment date notwithstanding the redemption of such
shares before such dividend payment date. Except as expressly provided herein
above, the Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on shares of this Series called for redemption.

(B) Notice of redemption shall be mailed by the Company by first class
mail, postage pre-paid, to each record holder of the shares of this Series to
be redeemed, not less than 30 nor more than 60 days prior to such redemption
date, to the respective addresses of such holders as the same shall appear on
the stock transfer records of the Corporation. Each notice shall state:
(i) the redemption date; (ii) the number of shares of this Series to
be redeemed; (iii) the redemption price; (iv) the place or places
where certificates for such shares are to be surrendered for payment of the
redemption price; and (v) that dividends on the shares to be redeemed will
cease to accumulate on such redemption date. If fewer than all the shares of
this Series held by any holder are to be redeemed, the notice mailed to such
holder shall also specify the number of shares of this Series to be redeemed
from such holder.

(C) In order to facilitate the redemption of shares of this Series, the
Board of Directors may fix a record date for the determination of the shares to
be redeemed, such record date to be not less than 30 or more than 60 days prior
to the date fixed for such redemption.

(D) Notice having been given as provided above, from and after the date
fixed for the redemption of shares of this Series by the Corporation (unless
the Corporation shall fail to make available the money necessary to effect such
redemption), the holders of shares selected for redemption shall cease to be
shareholders with respect to such shares and shall have no interest in or claim
against the Corporation by virtue thereof and shall have no voting or other
rights with respect to such shares, except the right to receive the moneys
payable upon such redemption from the Corporation, less any required tax
withholding amount, without interest thereon, upon surrender (and endorsement
or assignment of transfer, if required by the Corporation and so stated in the
notice) of their certificates, and the shares represented thereby shall no
longer be deemed to be outstanding. If fewer than all the shares represented by
a certificate are redeemed, a new certificate shall be issued, without cost to
the holder thereof, representing the unredeemed shares. The Corporation may, at
its option, at any time after a notice of redemption has been given, deposit
the redemption price for the shares of this Series designated for redemption
and not yet redeemed, plus any accumulated and unpaid dividends thereon to the
date fixed for redemption, with the transfer agent or agents for this Series,
as a trust fund for the benefit of the holders of the shares of this Series
designated for redemption, together with irrevocable instructions and authority
to such transfer agent or agents that such funds be delivered upon redemption
of such shares and to pay, on and after the date fixed for redemption or prior
thereto, the redemption price of the shares to their respective holders upon
the surrender of

 

their
share certificates. From and after the making of such deposit, the holders of
the shares designated for redemption shall cease to be shareholders with respect
to such shares and shall have no interest in or claim against the Corporation
by virtue thereof and shall have no voting or other rights with respect to such
shares, except the right to receive from such trust fund the moneys payable
upon such redemption, without interest thereon, upon surrender (and
endorsement, if required by the Corporation) of their certificates, and the
shares represented thereby shall no longer be deemed to be outstanding. Any
balance of such moneys remaining unclaimed at the end of the five-year period
commencing on the date fixed for redemption shall be repaid to the Corporation
upon its request expressed in a resolution of its Board of Directors.

(4)  Status of Redeemed Shares
of this Series.  Any shares of this
Series that shall at any time have been redeemed shall, after such redemption,
have the status of authorized but unissued preferred shares, without designation
as to series until such shares are once more designated as part of a particular
series by the Board of Directors.

(d) Voting Rights. The shares of this Series shall not have any
voting powers either general or special, except as required by law.

(e) Ranking and Protective Provisions.  The shares of this Series shall rank senior
to the Common Shares and the Series A Junior Participating Preferred Stock as
to liquidation and as to dividends.  The
affirmative vote or consent of the holders of at least a majority of the
outstanding shares of this Series, voting separately as a class, will be
required for any amendment to the Certificate of Incorporation of the
Corporation that will adversely alter or change the powers, preferences,
privileges or rights of the shares of this Series, except the Corporation may,
without the vote of the holders of outstanding shares of this Series, from time
to time merge, reorganize, combine, or consolidate the Corporation, designate,
authorize, issue, or increase the designated authorized amount of, any class or
series of shares of preferred stock of the Corporation ranking prior, on a parity
with or junior to this Series as to dividends or upon liquidation or otherwise
or authorize any obligation or security convertible into or evidencing a right
to purchase any such security.  The
amount of the Corporation’s capital on account of the outstanding shares of
this Series shall equal their aggregate par value.

(f) Conversion. The shares of this Series are not convertible
into shares of any other class or series of the capital stock of the
Corporation.

(g) Shareholder Rights Plan. 
Notwithstanding the foregoing, the Corporation 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.

 

EXHIBIT C

Bylaws

 

BYLAWS

OF

JAVO BEVERAGE COMPANY, INC.

A DELAWARE CORPORATION

AS ADOPTED THE 21ST DAY OF JUNE, 2002

ARTICLE I

---------
OFFICES

SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.

SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.

SECTION 3. BOOKS. The books of the Corporation may be kept within or
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.

ARTICLE II

----------
MEETINGS OF STOCKHOLDERS

SECTION 1. PLACE OF MEETINGS. All meetings of stockholders for the
election of directors shall be held at such place either within or without the
State of Delaware as may be fixed from time to time by the Board of Directors,
or at such other place either within or without the State of Delaware as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be held
at such time and place, within or without the State of Delaware, as shall be
stated in the notice of the meeting or in a duly executed waiver of notice thereof.

SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be held
at a time and date designated by the Board of Directors for the purpose of
electing directors and transacting such other business as may properly be
brought before the meeting.

SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called at any time by a majority of the
Board of Directors, the Chairman of the Board or the Chief Executive Officer.

SECTION 4. NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING. To be
properly brought before a meeting, business must be (a) specified in the notice
of meeting (or any supplement thereto) given by or at the direction of the
Board of Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting by a stockholder entitled to vote at the meeting.

 

         SECTION 5. NOTICE; WAIVER OF NOTICE.
Whenever stockholders are required  or permitted to take any action at a meeting, a written notice of the
meeting shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise required by law, such notice
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the Corporation. A written waiver of any such notice
signed by the person entitled thereto, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.

         SECTION 6. QUORUM; ADJOURNMENT. Except
as otherwise required by law, or provided by the Certificate of Incorporation
or these Bylaws, the holders of a majority of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at all
meetings of the stockholders. A meeting at which a quorum is initially present
may continue to transact business, notwithstanding the withdrawal of enough
votes to leave less than a quorum, if any action taken is approved by at least
a majority of the required quorum to conduct that meeting. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the Chairman of the meeting or the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting of the time and place of the adjourned meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder entitled to vote at the meeting.

         SECTION 7. VOTING. Except as otherwise
required by law, or provided by the Certificate of Incorporation or these
Bylaws, any question brought before any meeting of stockholders at which a
quorum is present shall be decided by the vote of the holders of a majority in
voting interest of the stock represented and entitled to vote thereat and
voting thereon. Unless otherwise provided in the Certificate of Incorporation,
each stockholder represented at a meeting of stockholders shall be entitled to
cast one vote for each share of the capital stock entitled to vote thereat held
by such stockholder. Such votes may be cast in person or by proxy, but no proxy
shall be voted on or after three (3) years from its date, unless such proxy
provides for a longer period. The vote at any meeting of the stockholders on
any question need not be by ballot, unless so directed by the Chairman of the
meeting or required by the certificate of incorporation. On a vote by ballot,
each ballot shall be signed by the stockholder voting, or by his proxy, if
there be such proxy, and shall state the number of shares voted. Elections of
directors need not be by ballot unless the Chairman of the meeting so directs
or unless a stockholder demands election by ballot at the meeting and before the
voting begins.

SECTION 8. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING.  Except as otherwise provided in
the Certificate of Incorporation, any action which may be taken at any annual
or special meeting of stockholders, may be taken without a meeting and without
prior notice, if a consent in writing, setting forth the action so taken, is

 

signed
by the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. All such
consents shall be filed with the Secretary of the Corporation and shall be
maintained in the corporate records. Prompt notice of the taking of corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.

         SECTION 9. LIST OF STOCKHOLDERS
ENTITLED TO VOTE. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the lace where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present.

         SECTION 10. STOCK LEDGER. The stock
ledger of the Corporation shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by Section
9 of this Article II or the books of the Corporation, or to vote in person or
by proxy at any meeting of stockholders.

         SECTION 11. INSPECTORS OF ELECTION. In
advance of any meeting of stockholders, the Board of Directors may appoint one
or more persons (who shall not be candidates for office) as inspectors of
election to act at the meeting or any adjournment thereof. If an inspector or
inspectors are not so appointed, or if an appointed inspector fails to appear or
fails or refuses to act at a meeting, the Chairman of any meeting of
stockholders may, and on the request of any stockholder or his proxy shall,
appoint an inspector or inspectors of election at the meeting. The duties of
such inspector(s) shall include: determining the number of shares outstanding
and the voting power of each; the shares represented at the meeting; the
existence of a quorum; the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges
and questions in any way arising in connection with the right to vote; counting
and tabulating all votes or consents; determining the result; and such acts as
may be proper to conduct the election or vote with fairness to all
stockholders. In the event of any dispute between or among the inspectors, the
determination of the majority of the inspectors shall be binding.

         SECTION 12. ORGANIZATION. At each
meeting of stockholders the Chairman of the Board of Directors, if one shall
have been elected, (or in his absence or if one shall not have been elected,
the Chief Executive Officer) shall act as Chairman of the meeting. The
Secretary (or in his absence or inability to act, the person whom the Chairman
of the meeting shall appoint secretary of the meeting) shall act as secretary
of the meeting and keep the minutes thereof.

         SECTION 13. ORDER OF BUSINESS. The
order and manner of transacting business at all meetings of stockholders shall
be determined by the Chairman of the meeting.

 

SECTION
14. STOCKHOLDER PROPOSALS AT MEETINGS OF THE STOCKHOLDERS.

         (a) At an annual or special meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before a
stockholders’ annual or special meeting, business must be (i) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board; (ii) otherwise properly brought before the meeting by or at the
direction of the Board; or (iii) otherwise properly brought before the meeting
by a stockholder. In addition to any other applicable requirements, and subject
to any limitations on business which may be proposed or transacted at such
meeting, including the provisions of Article II, Section 3 of these Bylaws, for
business to be properly brought before an annual or special meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely with respect to an annual
meeting, a stockholder’s notice must be received at the principal executive
officer of the Corporation not less than sixty (60) days nor more than ninety
(90) days prior to the date of such annual meeting; provided, however, that in
the event that the first public disclosure (whether by mailing of a notice to
stockholders or by press release or otherwise) of the date of the annual
meeting is made less than seventy (70) days prior to the date of the meeting,
notice by the stockholder will be timely received not later than the close of
business on the tenth (10th) day following the day on which such public
disclosure was first made. To be timely with respect to a special meeting, a
stockholder’s notice must be received at the principal executive office of the
Corporation not later than the close of business on the tenth (10th ) day
following the day on which the first public disclosure (whether by mailing of a
notice to stockholders or by press release or otherwise) of the date of the
special meeting is made.

         (b) A stockholder’s notice to the
Secretary shall set forth, as to each matter the stockholder proposes to bring
before the annual or special meeting: (i) a reasonably detailed description of
any proposal to be made at such meeting; (ii) the name and address, as they
appear on the Corporation’s stock register, of the stockholder proposing such
business; (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the stockholder; (iv) any material interest
of the stockholder in such business; and (v) such other information relating to
the stockholder or the proposal as is required to be disclosed under the rules
of the Securities and Exchange Commission governing the solicitation of proxies
whether or not such proxies are in fact solicited by the stockholder.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at an annual or special stockholders’ meeting except in accordance
with the procedures set forth in this Section 14; provided, however, that
nothing in this Section 14 shall be deemed to preclude discussion by any
stockholder of any business properly brought before the annual or special
meeting in accordance with said procedures. The chairman of an annual or special
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 14, and if he should so determine any such business
not properly brought before the meeting shall not be transacted.

SECTION
15. NOTICE OF STOCKHOLDER NOMINEES.

         (a) Only persons who are nominated in
accordance with the procedures set forth in this Section 15 shall be eligible
for election as Directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors or by any stockholder of the
Corporation entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section 15. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation.

 

To
be timely, a stockholder’s notice shall be delivered to or mailed and received
at the principal executive offices of the Corporation not less than sixty (60)
days nor more than ninety (90) days prior to the date of the meeting; provided,
however, that in the event that the first public disclosure (whether by mailing
of a notice to stockholders or by press release or otherwise) of the date of
the meeting is made less than seventy (70) days prior to the date of the
meeting, notice by the stockholder will be timely received not later than the
close of business on the tenth (10th) day following the day on which such
public disclosure was first made.

         (b) A stockholder’s notice to the
Secretary shall set forth (a) as to each person whom the stockholder proposes
to nominate for election or re-election as a Director, (i) the name, age,
business address and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the class and number of shares
of the Corporation which are beneficially owned by such person, and (iv) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including without limitation such persons’ written consent to
being named in the proxy statement as a nominee and to serving as a Director if
elected); and (b) as to the stockholder giving notice, (i) the name and
address, as they appear on the Corporation’s books, of such stockholder, and
(ii) the class and number of shares of the Corporation which are beneficially
owned by such stockholder. At the request of the Board of Directors any person
nominated for election as a Director shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder’s notice
of nomination which pertains to the nominee and such other information as may
reasonably be required by the Corporation to determine the eligibility for
election as a Director of the Corporation. No person shall be eligible for
election as a Director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 15. The Chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination
was not made in accordance with the procedures prescribed by the Bylaws, and if
he should so determine, he shall so declare to the meeting and the defective nomination
shall be disregarded.

ARTICLE III

-----------
DIRECTORS

         SECTION 1. POWERS. Except as otherwise
required by law or provided by the Certificate of Incorporation, the business
and affairs of the Corporation shall be managed by or under the direction of
the Board of Directors.

         SECTION 2. NUMBER AND ELECTION OF
DIRECTORS. Subject to any limitations in the Certificate of Incorporation, the
Board of Directors shall consist of one (1) director so long as there is only
one stockholder of the Corporation, and shall thereafter consist of not less
than three (3) nor more than nine (9) members. Immediately after the
Corporation first has more than one stockholder, the number of directors shall
initially be three (3) and thereafter shall be fixed from time to time, within
the foregoing limits, by resolution of the Board of Directors. Directors shall
be elected at each annual meeting of stockholders to replace directors whose
terms then expire, and each director elected shall hold office until his successor
is duly elected and qualified, or until his earlier death, resignation or
removal. Any director may resign at any time effective upon giving written
notice to the Board of Directors, unless the notice specifies a later time for
such resignation to become effective. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. If
the resignation of a director is

 

effective
at a future time, the Board of Directors may elect a successor prior to such
effective time to take office when such resignation becomes effective.
Directors need not be stockholders.

         SECTION 3. VACANCIES. Subject to the
limitations in the Certificate of Incorporation, vacancies in the Board of
Directors resulting from death, resignation, removal or otherwise and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. Each director so selected
shall hold office for the remainder of the full term of office of the former
director which such director replaces and until his successor is duly elected
and qualified, or until his earlier death, resignation or removal. No decrease
in the authorized number of directors constituting the Board of Directors shall
shorten the term of any incumbent directors.

         SECTION 4. TIME AND PLACE OF MEETINGS.
The Board of Directors shall hold its meetings at such place, either within or
without the State of Delaware, and at such time as may be determined from time
to time by the Board of Directors.

         SECTION 5. ANNUAL MEETING. The Board
of Directors shall meet for the purpose of organization, the election of
officers and the transaction of other business, as soon as practicable after
each annual meeting of stockholders, on the same day and at the same place
where such annual meeting shall be held. Notice of such meeting need not be
given. In the event such annual meeting is not so held, the annual meeting of
the Board of Directors may be held at such place, either within or without the
State of Delaware, on such date and at such time as shall be specified in a
notice thereof given as hereinafter provided in Section 7 of this Article III
or in a waiver of notice thereof.

         SECTION 6. REGULAR MEETINGS. Regular
meetings of the Board of Directors may be held at such places within or without
the State of Delaware at such date and time as the Board of Directors may from
time to time determine and, if so determined by the Board of Directors, notices
thereof need not be given.

         SECTION 7. SPECIAL MEETINGS. Special
meetings of the Board of Directors may be called by the Chairman of the Board,
the Chief Executive Officer, the Secretary or by any director. Notice of the
date, time and place of special meetings shall be delivered personally or by
telephone to each director or sent by first-class mail or telegram, charges
prepaid, addressed to each director at the director’s address as it is shown on
the records of the Corporation. In case the notice is mailed, it shall be
deposited in the United States mail at least four (4) days before the time of
the holding of the meeting. In case the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. The notice need not specify the purpose of the meeting.
A written waiver of any such notice signed by the person entitled thereto,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened.

         SECTION 8. QUORUM; VOTE REQUIRED FOR
ACTION; ADJOURNMENT. Except as otherwise required by law, or provided in the
Certificate of Incorporation or these Bylaws, a majority of the directors shall
constitute a quorum for the transaction of business at all meetings

 

of
the Board of Directors and the affirmative vote of not less than a majority of
the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors. If a quorum shall not be present at any meeting
of the Board of Directors, the directors present thereat may adjourn the
meeting, from time to time, without notice other than announcement at the
meeting, until a quorum shall be present. A meeting at which a quorum is
initially present may continue to transact business, notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum to conduct that meeting. When a meeting is adjourned to
another time or place (whether or not a quorum is present), notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting, the
Board of Directors may transact any business which might have been transacted
at the original meeting.

         SECTION 9. ACTION BY WRITTEN CONSENT.
Unless otherwise restricted by the Certificate of Incorporation, any action
required or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting if all the members of
the Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or committee.

         SECTION 10. TELEPHONE MEETINGS. Unless
otherwise restricted by the Certificate of Incorporation, members of the Board
of Directors of the Corporation, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors or such
committee, as the case may be, by conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation in a meeting pursuant to this Section 10 shall
constitute presence in person at such meeting.

SECTION 11. COMMITTEES. The Board of Directors may, by resolution passed
unanimously by the entire Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any such committee, who may replace any absent or disqualified member at any
meeting of the committee. In the event of absence or disqualification of a
member of a committee, and in the absence of a designation by the Board of Directors
of an alternate member to replace the absent or disqualified member, the
committee member or members present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
the absent or disqualified member. Any committee, to the extent allowed by law
and as provided in the resolution establishing such committee, shall have and
may exercise all the power and authority of the Board of Directors in the management
of the business and affairs of the Corporation, and may authorize the seal of
the Corporation to be affixed to all papers which may require it, but no such
committee shall have the power or authority in reference to (i) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by the Delaware General Corporation Law to be submitted to
stockholders for approval or (ii) adopting, amending or repealing any bylaw of
the Corporation. Each committee shall keep regular minutes of its meetings and
report to the Board of Directors when required.

         SECTION 12. COMPENSATION. The
directors may be paid such compensation for their services as the Board of
Directors shall from time to time determine.

         SECTION 13. INTERESTED DIRECTORS. No
contract or transaction between

 

the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or the committee thereof
which authorizes the contract or transaction, or solely because his of their
votes are counted for such purpose if: (i) the material facts as to his or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.

ARTICLE IV

----------
OFFICERS

         SECTION 1. OFFICERS. The officers of
the Corporation shall be a President, a Secretary and a Chief Financial
Officer. The Corporation may also have, at the discretion of the Board of
Directors, a Chairman of the Board, a Vice Chairman of the Board, a Chief
Executive Officer, a Chief Operating Officer, one or more Vice Presidents, one
or more Assistant Financial Officers and Treasurers, one or more Assistant
Secretaries and such other officers as may be appointed in accordance with the
provisions of Section 3 of this Article IV.

         SECTION 2. APPOINTMENT OF OFFICERS.
The officers of the Corporation, except such officers as may be appointed in
accordance with the provisions of Section 3 or Section 5 of this Article IV,
shall be appointed by the Board of Directors, and each shall serve at the
pleasure of the Board, subject to the rights, if any, of an officer under any
contract of employment.

         SECTION 3. SUBORDINATE OFFICERS. The
Board of Directors may appoint, and may empower the Chief Executive Officer to
appoint such other officers as the business of the Corporation may require,
each of whom shall hold office for such period, have such authority and perform
such duties as are provided in the Bylaws or as the Board of Directors may from
time to time determine.

         SECTION 4. REMOVAL AND RESIGNATION OF
OFFICERS. Subject to the rights of an officer under any contract, any officer
may be removed at any time, with or without cause, by the Board of Directors
or, except in case of an officer chosen by the Board of Directors, by any
officer upon whom such power of removal may be conferred by the Board of
Directors. 

         Any officer may resign at any time by
giving written notice to the Corporation. Any resignation shall take effect at
the date of the receipt of that notice or at any later time specified in that
notice; and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights of the Corporation under any contract to which
the officer is a party.

 

         SECTION 5. VACANCIES IN OFFICES. A
vacancy in any office because of death, resignation, removal, disqualification
or any other cause shall be filled in the manner prescribed in these Bylaws for
regular appointments to that office.

         SECTION 6. CHAIRMAN OF THE BOARD. The
Chairman of the Board, if such an officer is elected, shall, if present,
preside at meetings of the stockholders and of the Board of Directors. He
shall, in addition, perform such other functions (if any) as may be prescribed
by the Bylaws or the Board of Directors.

         SECTION 7. VICE CHAIRMAN OF THE BOARD.
The Vice Chairman of the Board, if such an officer is elected, shall, in the
absence or disability of the Chairman of the Board, perform all duties of the
Chairman of the Board and when so acting shall have all the powers of and be
subject to all of the restrictions upon the Chairman of the Board. The Vice
Chairman of the Board shall have such other powers and duties as may be
prescribed by the Board of Directors or the Bylaws.

        SECTION 8. CHIEF EXECUTIVE OFFICER. The
Chief Executive Officer of the Corporation shall, subject to the control of the
Board of Directors, have general supervision, direction and control of the
business and the officers of the Corporation. He shall exercise the duties
usually vested in the chief executive officer of a corporation and perform such
other powers and duties as may be assigned to him from time to time by the
Board of Directors or prescribed by the Bylaws. In the absence of the Chairman
of the Board and any Vice Chairman of the Board, the Chief Executive Officer
shall preside at all meetings of the stockholders and of the Board of
Directors.

         SECTION 9. PRESIDENT. The President of
the Corporation shall, subject to the control of the Board of Directors and the
Chief Executive Officer of the Corporation, if there be such an officer, have
general powers and duties of management usually vested in the office of
president of a corporation and shall have such other powers and duties as may
be prescribed by the Board of Directors or the Bylaws or the Chief Executive
Officer of the Corporation.

         SECTION 10. CHIEF OPERATING OFFICER.
The Chief Operating Officer of the Corporation shall, subject to the control of
the Board of Directors and the Chief Executive Officer of the Corporation, if
there be such an officer, have general powers and duties of management usually
vested in the office of chief operating officer of a corporation and shall have
such other powers and duties as may be prescribed by the Board of Directors or
the Bylaws or the Chief Executive Officer of the Corporation.

         SECTION 11. VICE PRESIDENT. In the
absence or disability of the President, the Vice Presidents, if any, in order
of their rank as fixed by the Board of Directors or, if not ranked, a Vice
President designated by the Board of Directors, shall perform all the duties of
the President, and when so acting shall have all the powers of, and subject to
all the restrictions upon, the President. The Vice Presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors or the Bylaws, and
the Chief Executive Officer, or the Chairman of the Board.

         SECTION 12. SECRETARY. The Secretary
shall keep or cause to be kept, at the principal executive office or such other
place as the Board of Directors may direct, a book of minutes of all meetings
and actions of Directors, committees of Directors, and stockholders, with the
time and place of holding, whether regular or special, and, if special, how
authorized, the

 

notice
given, the names of those present at Directors’ meetings or committee meetings,
the number of shares present or represented at stockholders’ meetings, and a
summary of the proceedings. In the absence of the Chairman of the Board, Vice
Chairman of the Board and Chief Executive Officer, the Secretary shall preside
at all meetings of the Board of Directors and stockholders.

        
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the Corporation’s transfer agent or
registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all stockholders and
their addresses, the number and classes of shares held by each, the number and
date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.

        The Secretary shall give, or cause to
be given, notice of all meetings of the stockholders and of the Board of
Directors required by the Bylaws or by law to be given, and he shall keep or
cause to be kept the seal of the Corporation if one be adopted, in safe
custody, and shall have such powers and perform such other duties as may be
prescribed by the Board of Directors or by the Bylaws.

         SECTION 13. CHIEF FINANCIAL OFFICER.
The Chief Financial Officer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation. The Chief Financial
Officer shall deposit all moneys and other valuables in the name and to the
credit of the Corporation with such depositories as may be designated by the
Board of Directors. He shall make such disbursements of the funds of the
Corporation as are authorized and shall render from time to time an account of
all of his transactions as Chief Financial Officer and of the financial
condition of the Corporation. The Chief Financial Officer shall also have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or the Bylaws.

ARTICLE V

---------
STOCK

         SECTION 1. FORM OF CERTIFICATES. Every
holder of stock in the Corporation shall be entitled to have a certificate
signed by, or in the name of the Corporation (i) by the Chairman or Vice
Chairman of the Board of Directors, or the President or a Vice President and
(ii) by the Chief Financial Officer or the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary of the Corporation, certifying the
number of shares owned by such stockholder in the Corporation.

         SECTION 2. SIGNATURES. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.

         SECTION 3. LOST CERTIFICATES. The
Corporation may issue a new certificate to be issued in place of any
certificate theretofore issued by the Corporation, alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person

 

claiming
the certificate to be lost, stolen or destroyed. The Corporation may, in the
discretion of the Board of Directors and as a condition precedent to the
issuance of such new certificate,  require the owner of such lost, stolen, or destroyed certificate, or
his legal representative, to give the Corporation a bond (or other security)
sufficient to indemnify it against any claim that may be made against the
Corporation (including any expense or liability) on account of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate.

         SECTION 4. TRANSFERS. Stock of the
Corporation shall be transferable in the manner prescribed by law and in these
Bylaws or in any agreement with the stockholder making the transfer. Transfers
of stock shall be made on the books of the Corporation only by the person named
in the certificate or by his attorney lawfully constituted in writing and upon
the surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.

       SECTION 5. RECORD HOLDERS. The Corporation
shall be entitled to recognize the exclusive right of a person registered on
its books as the record holder of shares to receive dividends, and to vote as
such record holder, and to hold liable for calls and assessments a person
registered on its books as the record holder of shares, and shall not be bound
to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise required by law.

ARTICLE VI

----------
INDEMNIFICATION

         SECTION 1. RIGHT TO INDEMNIFICATION.
Each person who was or is made a party or is threatened to be made a party to
or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a “proceeding”), by
reason of the fact that he or she is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director or officer of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans (hereinafter an “indemnitee”), whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving as a director or officer, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably incurred
or suffered by such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a director or officer
and shall inure to the benefit of the indemnitee’s heirs, executors and
administrators; provided, however, that, except as provided in Section 2 of
this Article VI with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance
of its final disposition (hereinafter an “advancement of expenses”); provided,
however, that, if the Delaware General Corporation Law requires, an advancement
of expenses incurred by

 

an
indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this Article VI or otherwise (hereinafter an “undertaking”).

         SECTION 2. RIGHT OF INDEMNITEE TO
BRING SUIT. If a claim under Section 1 of this Article VI is not paid in full
by the Corporation within forty-five (45) days after a written claim has been
received by the Corporation, the indemnitee may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim. If
successful in whole or part in any such suit or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) any suit by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met the applicable standard of conduct set forth in the
Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by indemnitee, be a
defense to such suit. In any suit brought by the indemnitee to enforce a right
hereunder, or by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the burden of proving that the indemnitee is
not entitled to be indemnified or to such advancement of expenses under this
Article VI or otherwise shall be on the Corporation.

         SECTION 3. NON-EXCLUSIVITY OF RIGHTS.
The rights of indemnification and to the advancement of expenses conferred in
this Article VI shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.

         SECTION 4. INSURANCE. The Corporation
may maintain insurance, at its expense, to protect itself and any director,
officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.

         SECTION 5. INDEMNIFICATION OF
EMPLOYEES OR AGENTS OF THE CORPORATION. The Corporation may, to the extent
authorized from time to time by the Board of Directors, grant rights to
indemnification and to the advancement of expenses, to any employee or agent of
the Corporation to the fullest extent of the provisions of this Article VI with
respect to the indemnification and advancement of expenses of directors or
officers of the Corporation.

 

         SECTION 6. INDEMNIFICATION CONTRACTS.
The Board of Directors is authorized to enter into a contract with any
director, officer, employee or agent of the Corporation, or any person serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including employee benefit plans, providing for indemnification rights
equivalent to or, if the Board of Directors so determines, greater than, those
provided for in this Article VI.

        SECTION 7. EFFECT OF AMENDMENT. Any
amendment, repeal or modification of any provision of this Article VI by the
stockholders or the directors of the Corporation shall not adversely affect any
right or protection of a director or officer of the Corporation existing at the
time of such amendment, repeal or modification.

ARTICLE VII

-----------
GENERAL PROVISIONS

         SECTION 1. DIVIDENDS. Subject to
limitations contained in the General Corporation Law of the State of Delaware
and the Certificate of Incorporation, the Board of Directors may declare and
pay dividends upon the shares of capital stock of the Corporation, which
dividends may be paid either in cash, securities of the Corporation or other
property.

         SECTION 2. DISBURSEMENTS. All checks
or demands for money and notes of the Corporation shall be signed by such
officer or officers or such other person or persons as the Board of Directors
may from time to time designate.

         SECTION 3. FISCAL YEAR. The fiscal
year of the Corporation shall be fixed by resolution of the Board of Directors.

         SECTION 4. CORPORATE SEAL. The
Corporation shall have a corporate seal in such form as shall be prescribed by
the Board of Directors.

         SECTION 5. RECORD DATE. In order that
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock, or for the purpose of any other lawful action, the Board
of Directors may fix, in advance, a record date, which shall not be more than
sixty (60) days nor less than ten (10) days before the date of such meeting,
nor more than sixty (60) days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting. Stockholders on the record date are entitled to notice and to vote or
to receive the dividend, distribution or allotment of rights or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the Corporation after the record date, except as otherwise provided by
agreement or by applicable law.

         SECTION 6. VOTING OF STOCK OWNED BY
THE CORPORATION. The Chairman of the Board, the Chief Executive Officer, the
Secretary and any other officer of the Corporation authorized by the Board of
Directors shall have power, on behalf of the Corporation, to attend, vote and
grant proxies to be used at any meeting of stockholders of any corporation
(except this Corporation) in which the Corporation may hold stock.

 

         SECTION 7. CONSTRUCTION AND
DEFINITIONS. Unless the context requires otherwise, the general provisions,
rules of construction and definitions in the General Corporation Law of the
State of Delaware shall govern the construction of these Bylaws.

         SECTION 8. AMENDMENTS. Subject to the
General Corporation Law of the State of Delaware, the Certificate of
Incorporation and these Bylaws, the Board of Directors may by the affirmative
vote of a majority of the entire Board of Directors amend or repeal these
Bylaws, or adopt other Bylaws as in their judgment may be advisable for the
regulation of the conduct of the affairs of the Corporation. Unless otherwise
restricted by the Certificate of Incorporation, these Bylaws may be altered,
amended or repealed, and new Bylaws may be adopted, at any annual meeting of
the stockholders (or at any special meeting thereof duly called for that
purpose) by a majority of the combined voting power of the then outstanding
shares of capital stock of all classes and series of the Corporation entitled
to vote generally in the election of directors, voting as a single class,
provided that, in the notice of any such special meeting, notice of such
purpose shall be given.

 

Exhibit
G

JAVO
BEVERAGE COMPANY

OFFICER’S
CERTIFICATE

The
undersigned, Javo Beverage Company, a Delaware corporation (the “Company”), pursuant to Section 7(viii) of
the Securities Purchase Agreement, dated as of December 14, 2006, by and among
the Company and the investors identified on the Schedule of Buyers attached
thereto (the “Securities Purchase Agreement”),
hereby represents, warrants and certifies to the Buyers as follows (capitalized
terms used but not otherwise defined herein shall have the meaning set forth in
the Securities Purchase Agreement):

1.                                       The
representations and warranties made by the Company as set forth in Section 3 of
the Securities Purchase Agreement are true and correct in all material respects
(except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all
respects) as of the date hereof (except for representations and warranties that
speak as of a specific date, which shall be true and correct as of such
specified date which shall be true and correct as of such specified date).

2.                                       The
Company has, in all respects, performed or complied with all covenants,
agreements and conditions required to be performed or complied with by it at or
prior to the date hereof under the Transaction Documents.

IN
WITNESS WHEREOF, the undersigned has executed this
certificate this 15th day of December 2006.

 

	
  

  	
   

  	
   

  
	
   

  	
  Cody Ashwell

  
	
   

  	
  Chief Executive Officer

  

 

 

 

 

 

COMPANY  DISCLOSURE SCHEDULES

pursuant
to the

SECURITIES
PURCHASE AGREEMENT

by and
among

JAVO
BEVERAGE COMPANY, INC.

a  Delaware Corporation

(“Company”)

and

the
INVESTORS party thereto

(collectively, the “Investors”)

December
14, 2006

 

 

 

 

 

COMPANY
DISCLOSURE SCHEDULES

These
Company Disclosure Schedules are made and furnished by Javo Beverage Company,
Inc., a Delaware corporation (the “Company”), pursuant to the Securities
Purchase Agreement (the “Agreement”) dated December 14, 2006, by and among the
Company and the Investors identified therein (each individually, an “Investor”
and collectively, the “Investors”). 
These Company Disclosure Schedules relate to the representations and
warranties of the Company as set forth in Article III of the Agreement (“Article
III”).  The Section numbers contained
herein have been organized to correspond with the Section numbers contained in
Article III; however, any information disclosed herein under any section number
shall be deemed to be disclosed and incorporated into any other Section number
under the Agreement where specifically cross-referenced.  Capitalized terms used herein, unless
otherwise defined herein, shall have the meaning ascribed to them in the
Agreement.

Certain
matters are listed in these Company Disclosure Schedules for informational
purposes notwithstanding the possibility that, because they do not rise above
applicable materiality or other thresholds, they are not required to be listed
herein by the terms of the Agreement.  In
no event shall the inclusion of any such matters herein be deemed or
interpreted to broaden or otherwise amplify the representations and warranties
of the Company contained in the Agreement or to be an admission of materiality.

The
Company does not assume any responsibility to any person that is not a party to
the Agreement for the form or accuracy of any information herein.

 2
 

 

Index

	
  1.

  	
   

  	
  Schedule 3(a)

  	
   

  	
  Organization and Qualification

  
	
  2.

  	
   

  	
  Schedule 3(k)

  	
   

  	
  SEC Documents;
  Financial Statements

  
	
  3.

  	
   

  	
  Schedule 3(l)

  	
   

  	
  Absence of Certain
  Changes

  
	
   

  	
   

  	
   

  	
   

  	
  Circumstances

  
	
  4.

  	
   

  	
  Schedule 3(q)

  	
   

  	
  Transactions With
  Affiliates

  
	
  5.

  	
   

  	
  Schedule 3(r)

  	
   

  	
  Equity Capitalization

  
	
  6.

  	
   

  	
  Schedule 3(s)

  	
   

  	
  Indebtedness and Other
  Contracts

  
	
  7.

  	
   

  	
  Schedule 3(t)

  	
   

  	
  Absence of Litigation

  
	
  8.

  	
   

  	
  Schedule 3(z)

  	
   

  	
  Subsidiary Rights

  
	
  9.

  	
   

  	
  Schedule 3(cc)

  	
   

  	
  Ranking of Notes

  
	
  10.

  	
   

  	
  Schedule 3(kk)

  	
   

  	
  Disclosure

  
	
  11.

  	
   

  	
  Schedule 4(d)

  	
   

  	
  Use of Proceeds

  

 

 3
 

 

Schedule 3(a)

ORGANIZATION
AND QUALIFICATION

Sorisole
Acquisition Corporation, organized in Delaware, is a wholly owned, non-operating,
subsidiary of the Company.

Javo Dispenser LLC is not
owned by the Company; however; Richard Gartrell, the Company’s CFO, is the
Manager of Javo Dispenser, LLC, a Delaware limited liability company.

 4
 

 

Schedule
3(k)

SEC
DOCUMENTS; FINANCIAL STATEMENTS

Please note that the
following filings restated previous filings:

1.                                       The
Company filed an amended quarterly report on Form 10-Q/A on April 10, 2006, for
the quarterly period ending on September 30, 2005, which contained restated
financial statements.

2.                                       The
Company filed an amended quarterly report on Form 10-Q/A on April 10, 2006, for
the quarterly period ending on June 30, 2005, which contained restated
financial statements.

3.                                       The
Company filed an amended quarterly report on Form 10-Q/A on April 6, 2006, for
the quarterly period ending on March 31, 2005, which contained restated
financial statements.

4.                                       The
Company filed an amended annual report on Form 10KSB/A on April 3, 2006, for
the fiscal year ending on December 31, 2004, which contained restated financial
statements.

 5
 

 

Schedule 3(l)

ABSENCE
OF CERTAIN CHANGES

During 2006, the Company
leased an additional $764,000 in liquid dispensers from Javo Dispenser LLC.

 6
 

 

Schedule
3(q)

TRANSACTIONS
WITH AFFILIATES

Javo Dispenser LLC, which
leases dispensing equipment to the Company, is owned by certain directors and
stockholders of the Company.  The
directors are: William C. Baker, Terry C. Hackett, James R. Knapp, Thomas J.
Rielly, and Stanley A. Solomon.  There
are three other non-affiliate owners who are private individual investors.

 7
 

 

Schedule
3(r)

EQUITY
CAPITALIZATION

	
   

  	
   

  	
  Authorized

  	
   

  	
  Issued and Outstanding

  
	
  Common Stock

  	
   

  	
  300,000,000

  	
   

  	
  149,504,927

  
	
  Preferred Stock (All
  Series)

  	
   

  	
  10,000,000

  	
   

  	
  1,775,166

  
	
  Series A Junior
  Participating Preferred Stock(1)

  	
   

  	
  150,000

  	
   

  	
  None

  
	
  Series B Preferred
  Stock(2)

  	
   

  	
  4,000,000

  	
   

  	
  1,775,166

  
	
  Common Stock Warrants

  	
   

  	
  384,031 shares of
  Common Stock are reserved for issuance

  	
   

  	
  warrant rights
  exercisable for up to 384,031 shares of Common Stock are currently
  outstanding

  
	
  Unsecured Promissory
  Notes

  	
   

  	
  $950,000 balance as of 11-30-06

  
	
  Working Capital Line of
  Credit

  	
   

  	
  $513,000 balance as of 11-30-06

  
	
  Shareholder Rights
  Plan(3)

  	
   

  	
   

  

(1)             See
Article 8 the Certificate of Incorporation, which is incorporated herein by
this reference.

(2)             See
Article 9 the Certificate of Incorporation, which is incorporated herein by
this reference.  The Company has a
redemption obligation as to the Series B Preferred Stock upon a “Liquidity
Event.”

(3)             The
Company has adopted a Shareholder Rights Plan which is incorporated herein by
reference to the Shareholder Rights Agreement between the Company and Corporate
Stock Transfer, Inc., as Rights Agent, dated July 1, 2002, including the
exhibits thereto, as filed with Securities and Exchange Commission as Exhibit
4.2 to the Company’s Current Report on Form 8-K on August 19, 2002.

 8
 

 

Schedule
3(s)

INDEBTEDNESS
AND OTHER CONTRACTS

JAVO BEVERAGE COMPANY, INC.

Corporate Indebtedness

Revolving Working Capital
Line of Credit

The Company entered into a working capital line of credit
agreement on September 26, 2006, with Comerica Bank to provide a loan of
up to $3,000,000, secured by the Company’s accounts receivable and inventory.
The term of the loan is one year and carries an annual interest rate of
Comerica prime rate or 8.25% as of November 30, 2006.

The available working capital loan amount is based on 75% of
eligible accounts receivable and 40% of eligible inventories. Eligible accounts
receivables are generally described as those due within thirty days or less
from the date of invoice for products sales that have been validly assigned to
the bank. Eligible accounts receivable specifically exclude foreign sales,
receivables for sales that are not final and related party receivables.
Eligible inventories are generally described as raw materials in saleable form
and finished goods inventory that have been validly assigned to the bank.
Eligible inventory specifically excludes supplies, packaging and
work-in-process.

The bank retains the discretion from time-to-time to define what
qualifies as eligible accounts receivable and inventories. As of December 13,
2006, the Company had a $713,000 loan balance. The working capital line of
credit matures on September 25, 2007, unless renewed.  The balance of the line of credit will move
up and down a part of normal operations.

 9

 

 

JAVO BEVERAGE
COMPANY, INC.

Corporate
Indebtedness

DETAIL BREAKDOWN OF OTHER
INDEBTEDNESS

Long-term debt at
November 30, 2006, consisted of the following:

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Notes payable, unsecured
  promissory notes, payable in a balloon payment on Maturity Date, including
  interest at 10%. Mature in 2007. These are held by various private
  investors.

  	
   

  	
  $500,000

  
	
   

  	
   

  	
   

  
	
  Notes payable, unsecured
  promissory notes, payable in a balloon payment on Maturity Date, including
  interest at 10%. Mature in 2008. These are held by various private
  investors.

  	
   

  	
  225,000

  
	
   

  	
   

  	
   

  
	
  Notes payable, unsecured
  promissory notes, payable in a balloon payment on Maturity Date, including
  interest at 10%. Mature in 2009. These are held by various private
  investors.

  	
   

  	
  200,000

  
	
   

  	
   

  	
   

  
	
  Lease payable to Ford Financial, secured by
  equipment (Coffee Granulizer), payable in monthly installments of $1,460,
  including interest at 16.642% per annum. Matures 2011.

  	
   

  	
  53,825

  
	
   

  	
   

  	
   

  
	
  Lease payable to Ford Financial, secured by
  equipment (Puratec Water Softener), payable in monthly installments of
  $1,312, including interest at 23.38% per annum. Matures 2008.

  	
   

  	
  24,131

  
	
   

  	
   

  	
   

  
	
  Note payable, unsecured promissory note, payable in
  a balloon payment on Maturity Date, including interest at 10%. Matures in
  2010.

  	
   

  	
  25,000

  
	
   

  	
   

  	
   

  
	
  Lease payable to De Lage Landen Financial, secured
  by equipment (Great Plains Accounting Software), payable in monthly
  installments of $1,174, including interest at 6.090%. Matures 2008.

  	
   

  	
  22,430

  
	
   

  	
   

  	
   

  
	
  Lease payable to Ford Financial, secured by
  equipment (Agtron) payable in monthly installments of $498 at an annual
  interest rate of 10.741%. Matures in 2011.

  	
   

  	
  21,575

  
	
   

  	
   

  	
   

  
	
  Lease payable to Parker Industrial Boiler, secured
  by equipment (Boiler), payable in monthly installments of $1,150, including
  interest at 14.677%. Matures 2007.

  	
   

  	
  13,745

  
	
   

  	
   

  	
   

  
	
  Lease payable to Ford Financial, secured by
  equipment (Vicinity Manufacturing Software, in monthly installments of
  $1,701, including interest at 27.663% per annum. Matures 2007.

  	
   

  	
  12,300

  

 

 10
 

 

 

	
   

  	
   

  	
   

  
	
  Lease payable to Kaeser Leasing, secured by equipment
  (Air Compressor), payable in monthly installments of $485, including interest
  at 6.168%. Matures 2008.

  	
   

  	
  9,655

  
	
   

  	
   

  	
   

  
	
  Lease payable to Ford Financial, secured by
  equipment (Fixed Asset Accounting Software), payable in monthly installments
  of $159, including interest at 49.273% per annum. Matures 2007

  	
   

  	
  948

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1,108,609

  
	
  Less current
  portion

  	
   

  	
  563,766

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $544,843

  

 

Summary of Maturities

 

	
  

  	
   

  	
   

  	
   

  	
  Amount

  	
   

  
	
  Year ended
  November 30,

  	
   

  	
  2007

  	
   

  	
  $

  	
  558,910

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  248,601

  	
   

  
	
   

  	
   

  	
  2009

  	
   

  	
  43,484

  	
   

  
	
   

  	
   

  	
  2010

  	
   

  	
  244,974

  	
   

  
	
   

  	
   

  	
  2011

  	
   

  	
  12,640

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
  1,108,609

  	
   

  

 

As to the representation
in Section 3(s)(ii), if any of the material contracts were violated in any
material respect, the Company could be materially and adversely affected.

The Series B Preferred
Stock becomes an Indebtedness according to its terms upon a “Liquidity Event”.  See the Certificate of Determination of
Series B Preferred Stock, which is incorporated herein by reference.

 11
 

 

 

Schedule
3(cc)

RANKING
OF NOTES

The existing Indebtedness
listed in Schedule 3(s) ranks senior to or pari passu with
the Notes.

 12
 

 

 

Schedule
3(kk)

DISCLOSURE

See Schedule (k).

 13
 

 

 

Schedule
4(d)

USE OF
PROCEEDS

The proceeds may be used
to repay existing Indebtedness as is described in Schedule 3(s) as follows: (1)
repayment of the unsecured promissory notes, (2) to from time to time pay down
in whole or in part the Revolving Working Capital Line of Credit, and (3) to
make ordinary installments payments on existing lease related Indebtedness as
is described in Schedule 3(s).

 

 14

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