Document:

EXHIBIT
10.9

[FORM
OF SERIES A WARRANT]

NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), 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.

JAVO BEVERAGE COMPANY, INC.

SERIES A WARRANT TO PURCHASE
COMMON STOCK

Warrant No.: A-               

Number of Shares
of Common Stock:                

Date of Issuance:
December 15, 2006 (“Issuance Date”)

Javo Beverage Company,
Inc., a Delaware corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, [CAPITAL VENTURES INTERNATIONAL]
[OTHER BUYERS], the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms
set forth below, to purchase from the Company, at the Exercise Price (as defined
below) then in effect, upon surrender of this Warrant to Purchase Common Stock
(including any Warrants to Purchase Common Stock issued in exchange, transfer
or replacement hereof, the “Warrant”),
at any time or times on or after June 15, 2007, but not after 11:59 p.m.,
New York time, on the Expiration Date (as defined below),                   
(                  )(1)
(the “Warrant Share Total”) fully paid
nonassessable shares of Common Stock (as defined below) (the “Warrant
Shares”).  Except as otherwise
defined herein, capitalized terms in this Warrant shall have the meanings set
forth in Section 15.  This Warrant is one
of the Warrants to purchase Common Stock (the “SPA Warrants”) issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of December 14, 2006 (the “Subscription Date”), by and among the

(1)           Insert a number of shares equal to
30% of the number Conversion Shares (as defined in the Securities Purchase
Agreement) issuable upon conversion of the Notes issued to the Holder pursuant
to the Securities Purchase Agreement.

 

Company and the
investors (the “Buyers”) referred
to therein (the “Securities Purchase
Agreement”).

1.             EXERCISE OF WARRANT.

(a)      Mechanics of Exercise.  Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)),
this Warrant may be exercised by the Holder on any day on or after June 15,
2007, in whole or in part, by (i) delivery of a written notice, in the
form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this
Warrant and (ii) (A) payment to the Company of an amount equal to the
applicable Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is being exercised (the “Aggregate
Exercise Price”) in cash or by wire transfer of immediately
available funds or (B) by notifying the Company that this Warrant is being
exercised pursuant to a Cashless Exercise (as defined in Section 1(d)).  The Holder shall not be required to deliver
the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise Notice
with respect to less than all of the Warrant Shares shall have the same effect
as cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares.  On or before the first (1st) Business Day following the
date on which the Company has received each of the Exercise Notice and the
Aggregate Exercise Price (or notice of a Cashless Exercise) (the “Exercise Delivery Documents”), the Company
shall transmit by facsimile an acknowledgment of confirmation of receipt of the
Exercise Delivery Documents to the Holder and the Company’s transfer agent (the
“Transfer Agent”).  On or before the third (3rd) Business Day following the date on
which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company shall
(X) provided that the Transfer Agent is participating in The Depository Trust
Company (“DTC”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account
with DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise.  Upon delivery of the Exercise
Notice and Aggregate Exercise Price referred to in clause (ii)(A) above or
notification to the Company of a Cashless Exercise referred to in Section 1(d),
the Holder shall be deemed for all corporate purposes to have become the holder
of record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of the certificates evidencing
such Warrant Shares.  If this Warrant is
submitted in connection with any exercise pursuant to this Section 1(a) and the
number of Warrant Shares represented by this Warrant submitted for exercise is
greater than the number of Warrant Shares being acquired upon an exercise, then
the Company shall as soon as practicable and in no event later than three Business
Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant
is exercised.  No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant, but rather the
number of shares of Common Stock to be issued shall be rounded up to the
nearest whole number.  The Company shall
pay any and all

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taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.

(b)   Exercise Price.  For
purposes of this Warrant, “Exercise
Price” means $1.95, subject to adjustment as provided herein.

(c)   Company’s Failure to Timely Deliver Securities.  If the Company shall fail for any reason or
for no reason to issue to the Holder within five (5) Business Days of receipt
of the Exercise Delivery Documents, a certificate for the number of shares of
Common Stock to which the Holder is entitled and register such shares of Common
Stock on the Company’s share register or to credit the Holder’s balance account
with DTC for such number of shares of Common Stock to which the Holder is
entitled upon the Holder’s exercise of this Warrant, then, in addition to all
other remedies available to the Holder, the Company shall pay in cash to the
Holder on each day after such fifth Business
Day that the issuance of such shares of Common Stock is not timely effected an
amount equal to 1.0% of the product of (A) the sum of the number of shares of
Common Stock not issued to the Holder on a timely basis and to which the Holder
is entitled and (B) the Weighted Average Price of the shares of Common Stock on
the Trading Day immediately preceding the last possible date which the Company
could have issued such shares of Common Stock to the Holder without violating
Section 1(a).  In addition to the foregoing,
if within five (5) Trading Days after the Company’s receipt of the facsimile
copy of a Exercise Notice the Company shall fail to issue and deliver a
certificate to the Holder and register such shares of Common Stock on the
Company’s share register or credit the Holder’s balance account with DTC for
the number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise hereunder, and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock
to deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the
Company (a “Buy-In”), then the Company shall,
within three (3) Business Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased (the “Buy-In Price”),
at which point the Company’s obligation to deliver such certificate (and to
issue such shares of Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing
such shares of Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Weighted Average Price on the date of
exercise.

(d)           Cashless Exercise.
 Notwithstanding
anything contained herein to the contrary, if a Registration Statement (as
defined in the Registration Rights Agreement) covering the Warrant Shares that
are the subject of an Exercise Notice (the “Unavailable
Warrant Shares”) is not available for the resale of such Unavailable
Warrant Shares, the Holder may, in its sole discretion, exercise this Warrant
in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of

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the Aggregate Exercise Price, elect instead
to receive upon such exercise the “Net Number” of shares of Common Stock
determined according to the following formula (a “Cashless Exercise”):

	
  

  	
  Net Number =

  	
  (A x B) - (A x C)

  	
   

  
	
   

  	
  B

  
					

 

For purposes of
the foregoing formula:

A= the total number of shares with respect to which
this Warrant is then being exercised.

B= the arithmetic average of the Weighted Average
Prices of the shares of Common Stock (as reported by Bloomberg) for the five
(5) consecutive Trading Days ending on the date immediately preceding the date
of the Exercise Notice.

C= the Exercise
Price then in effect for the applicable Warrant Shares at the time of such
exercise.

(e)   Disputes.  In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 12.

(f)    Limitations on Exercises. 

(1)           Beneficial
Ownership.  The Company shall not
effect the exercise of this Warrant, and the Holder shall not have the right to
exercise this Warrant, to the extent that after giving effect to such exercise,
such Person (together with such Person’s affiliates) would beneficially own in
excess of 4.99% of the shares of Common Stock outstanding immediately after giving
effect to such exercise (subject to change as described below, the “Maximum Percentage”).  For purposes of the foregoing sentence, the
aggregate number of shares of Common Stock beneficially owned by such Person
and its affiliates shall include the number of shares of Common Stock issuable
upon exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude shares of Common Stock which would be
issuable upon (i) exercise of the remaining, unexercised portion of this
Warrant beneficially owned by such Person and its affiliates and (ii) exercise
or conversion of the unexercised or unconverted portion of any other securities
of the Company beneficially owned by such Person and its affiliates (including,
without limitation, any convertible notes or convertible preferred stock or
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein.  Except as
set forth in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with

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Section 13(d)
of the Securities Exchange Act of 1934, as amended.  For purposes of this Warrant, in determining
the number of outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as reflected in (1) the Company’s
most recent Form 10-K, Form 10-KSB, Form 10-Q, Form 10-QSB, Current Report on
Form 8-K or other public filing with the Securities and Exchange Commission, as
the case may be, (2) a more recent public announcement by the Company or (3)
any other notice by the Company or the Transfer Agent setting forth the number
of shares of Common Stock outstanding. 
For any reason at any time, upon the written or oral request of the
Holder, the Company shall within one Business Day confirm orally and in writing
to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares
of Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including the SPA Securities and the SPA
Warrants, by the Holder and its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported.  By written notice to the Company, the Holder
may from time to time increase or decrease the Maximum Percentage to any other
percentage not in excess of 9.99% specified in such notice; provided that (i)
any such increase will not be effective until the sixty-first (61st) day after such notice is
delivered to the Company, and (ii) any such increase or decrease will apply
only to the Holder and not to any other holder of SPA Warrants.

(2)           Principal Market
Regulation.  The Company shall not be
obligated to issue any shares of Common Stock upon exercise of this Warrant or
conversion of SPA Securities and no Buyer shall be entitled to receive any
shares of Common Stock if the issuance of such shares of Common Stock would
exceed that number of shares of Common Stock which the Company may issue upon
exercise or conversion, as applicable, of the SPA Warrants and SPA Securities
or otherwise without breaching the Company’s obligations under the rules or
regulations of any applicable Eligible Market (the “Exchange Cap”), except that such limitation shall not apply
in the event that the Company (A) obtains the approval of its stockholders as
required by the applicable rules of the Eligible Market for issuances of shares
of Common Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required, which
opinion shall be reasonably satisfactory to the Required Holders.  Until such approval or written opinion is
obtained, no Buyer shall be issued in the aggregate, upon exercise or
conversion, as applicable, of any SPA Warrants or SPA Securities, shares of
Common Stock in an amount greater than the product of the Exchange Cap
multiplied by a fraction, the numerator of which is the total number of shares
of Common Stock underlying the SPA Warrants issued to such Buyer pursuant to
the Securities Purchase Agreement on the Issuance Date and the denominator of
which is the aggregate number of shares of Common Stock underlying the SPA
Warrants issued to the Buyers

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pursuant to
the Securities Purchase Agreement on the Issuance Date (with respect to each
Buyer, the “Exchange Cap Allocation”).  In the event that any Buyer shall sell or
otherwise transfer any of such Buyer’s SPA Warrants, the transferee shall be
allocated a pro rata portion of such Buyer’s Exchange Cap Allocation, and the
restrictions of the prior sentence shall apply to such transferee with respect
to the portion of the Exchange Cap Allocation allocated to such
transferee.  In the event that any holder
of SPA Warrants shall exercise all of such holder’s SPA Warrants into a number
of shares of Common Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such holder’s Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining holders of SPA Warrants on a pro rata basis in proportion to the
shares of Common Stock underlying the SPA Warrants then held by each such
holder.  In the event that the Company is
prohibited from issuing any Warrant Shares for which an Exercise Notice has
been received as a result of the operation of this Section 1(f)(2), the Company
shall pay cash in exchange for cancellation of such Warrant Shares, at a price
per Warrant Share equal to the difference between the Weighted Average Price
and the Exercise Price as of the date of the attempted exercise.

(g)           Insufficient
Authorized Shares.  If at any time
while any of the Warrants remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon exercise of the Warrants at
least a number of shares of Common Stock equal to 130% (the “Required
Reserve Amount”) of
the number of shares of Common Stock as shall from time to time be necessary to
effect the exercise of all of the Warrants then outstanding (an “Authorized
Share Failure”),
then the Company shall immediately take all action necessary to increase the
Company’s authorized shares of Common Stock to an amount sufficient to allow
the Company to reserve the Required Reserve Amount for the Warrants then
outstanding.  Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of
the occurrence of an Authorized Share Failure, but in no event later than sixty
(60) days after the occurrence of such Authorized Share Failure, the Company
shall hold a meeting of its stockholders for the approval of an increase in the
number of authorized shares of Common Stock. 
In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its best efforts to solicit
its stockholders’ approval of such increase in authorized shares of Common
Stock and to cause its board of directors to recommend to the stockholders that
they approve such proposal.

2.     ADJUSTMENT OF EXERCISE
PRICE AND NUMBER OF WARRANT SHARES. 
The Exercise Price and the number of Warrant Shares shall be adjusted
from time to time as follows:

(a)   Adjustment upon Issuance of shares of Common Stock.  If and whenever on or after the Subscription
Date the Company issues or sells, or in accordance with this Section 2 is
deemed to have issued or sold, any shares of Common Stock (including the

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issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding shares of
Common Stock deemed to have been issued by the Company in connection with any
Excluded Securities (as defined in the SPA Securities) for a consideration per
share less than a price (the “Applicable
Price”) equal to the Exercise Price in effect immediately prior to
such issue or sale or deemed issuance or sale (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal
to the product of (A) the Exercise Price in effect immediately prior to
such Dilutive Issuance and (B) the quotient determined by dividing
(1) the sum of (I) the product derived by multiplying the Exercise Price
in effect immediately prior to such Dilutive Issuance and the number of shares
of Common Stock Deemed Outstanding immediately prior to such Dilutive Issuance
plus (II) the consideration, if any, received (or deemed received as set
forth below) by the Company upon such Dilutive Issuance, by (2) the product
derived by multiplying (I) the Exercise Price in effect immediately prior
to such Dilutive Issuance by (II) the number of shares of Common Stock
Deemed Outstanding immediately after such Dilutive Issuance.  Upon each such adjustment of the Exercise
Price hereunder, the number of Warrant Shares shall be adjusted to the number
of shares of Common Stock determined by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Exercise Price resulting from such
adjustment.  For purposes of determining
the adjusted Exercise Price under this Section 2(a), the following shall be
applicable:

(i)            Issuance of
Options.  If the Company in any
manner grants any Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such Option for such
price per share.  For purposes of this
Section 2(a)(i), the “lowest price per share for which one share of Common
Stock is issuable upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option and upon conversion, exercise or exchange
of any Convertible Security issuable upon exercise of such Option.  No further adjustment of the Exercise Price
or number of Warrant Shares shall be made upon the actual issuance of such
shares of Common Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.

(ii)           Issuance of Convertible Securities.
 If the Company in any manner issues or
sells any Convertible Securities and the lowest price per share for

 7
 

 

which one
share of Common Stock is issuable upon the conversion, exercise or exchange
thereof is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for
such price per share.  For the purposes
of this Section 2(a)(ii), the “lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange” shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to one share of Common Stock upon the
issuance or sale of the Convertible Security and upon conversion, exercise or
exchange of such Convertible Security. 
No further adjustment of the Exercise Price or number of Warrant Shares
shall be made upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of this Warrant has been or is to be made pursuant
to other provisions of this Section 2(a), no further adjustment of the Exercise
Price or number of Warrant Shares shall be made by reason of such issue or
sale.

(iii)          Change in Option Price or Rate of
Conversion.  If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion, exercise or exchange of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases or decreases
at any time, the Exercise Price and the number of Warrant Shares in effect at
the time of such increase or decrease shall be adjusted to the Exercise Price
and the number of Warrant Shares which would have been in effect at such time had
such Options or Convertible Securities provided for such increased or decreased
purchase price, additional consideration or increased or decreased conversion
rate, as the case may be, at the time initially granted, issued or sold.  For purposes of this Section 2(a)(iii), if
the terms of any Option or Convertible Security that was outstanding as of the
date of issuance of this Warrant are increased or decreased in the manner
described in the immediately preceding sentence, then such Option or
Convertible Security and the shares of Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such increase or decrease. 
No adjustment pursuant to this Section 2(a) shall be made if such
adjustment would result in an increase of the Exercise Price then in effect or
a decrease in the number of Warrant Shares.

(iv)          Calculation of Consideration
Received.  In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction, the Options will be deemed to
have been issued for the difference of (x) the aggregate fair

 8
 

 

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

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

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

 9
 

 

subdivision will be proportionately reduced
and the number of Warrant Shares will be proportionately increased.  If the Company at any time on or after the
Subscription Date  combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares will be
proportionately decreased.  Any adjustment
under this Section 2(b) shall become effective at the close of business on the
date the subdivision or combination becomes effective.

(c)   Other Events.  If any
event occurs of the type contemplated by the provisions of this Section 2 but
not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company’s Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of Warrant Shares
so as to protect the rights of the Holder; provided that no such adjustment
pursuant to this Section 2(c) will increase the Exercise Price or decrease the
number of Warrant Shares as otherwise determined pursuant to this Section 2.

3.     RIGHTS UPON DISTRIBUTION
OF ASSETS.  If the Company shall
declare or make any dividend or other distribution of its assets (or rights to
acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash,
stock or other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”),
at any time after the issuance of this Warrant, then, in each such case:

(a)   any Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of shares of
Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Exercise Price by a fraction of which (i) the numerator shall
be the Weighted Average Price of the shares of Common Stock on the Trading Day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company’s Board of Directors) applicable to one
share of shares of Common Stock, and (ii) the denominator shall be the Weighted
Average Price of the shares of Common Stock on the Trading Day immediately
preceding such record date; and

(b)   the number of Warrant Shares shall be increased to a number of
shares equal to the number of shares of Common Stock obtainable immediately
prior to the close of business on the record date fixed for the determination
of holders of shares of Common Stock entitled to receive the Distribution
multiplied by the reciprocal of the fraction set forth in the immediately
preceding paragraph (a); provided that in the event that the Distribution is of
shares of Common Stock (or common stock) (“Other Shares of Common Stock”) of a company whose common
shares are traded on a national securities exchange or a national automated
quotation system, then the Holder may elect to receive a warrant to purchase
Other Shares of Common Stock in lieu of an increase in the number of Warrant
Shares, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the number of shares of Other
Shares of Common Stock that would have been payable to the Holder

 10
 

 

pursuant to the Distribution had the Holder
exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this paragraph
(b).

4.     PURCHASE RIGHTS;
FUNDAMENTAL TRANSACTIONS.

(a)   Purchase Rights.  In
addition to any adjustments pursuant to Section 2 above, if at any time the
Company grants, issues or sells any Options, Convertible Securities or rights
to purchase stock, warrants, securities or other property pro rata to the
record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.

(b)   Fundamental Transactions. 
The
Company shall not enter into or be party to a Fundamental Transaction unless
(i)  the Successor Entity assumes in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents in accordance
with the provisions of this Section (4)(b) pursuant to written agreements in
form and substance satisfactory to the Required Holders and approved by the
Required Holders prior to such Fundamental Transaction, including agreements to
deliver to each holder of Warrants
in exchange for such Warrants
a security of the
Successor Entity evidenced by a written instrument substantially similar
in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value
for the shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of shares of capital
stock equivalent to the shares of Common Stock acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of
this Warrant) prior to such Fundamental Transaction, and satisfactory to the
Required Holders; provided, however in the event the Successor Entity is not a
Public Successor Entity (as defined below) (a “Private Successor Entity”) such Fundamental Transaction must
be consummated for consideration consisting solely of cash.  Upon
the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant referring to the
“Company” shall refer instead to the Successor Entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under this Warrant with the same effect as if such Successor Entity had
been named as the Company herein.  Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property) purchasable
upon the exercise of the Warrant prior to such Fundamental Transaction, (i) if
the Successor Entity is a publicly traded corporation whose stock is traded on
an Eligible Market (a “Public Successor
Entity”), such shares of stock, securities, cash, assets or

 11
 

 

any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of such Fundamental
Transaction had this Warrant been converted immediately prior to such
Fundamental Transaction or (ii) if the Successor Entity is a Private Successor
Entity, cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the date of such Fundamental
Transaction, each as adjusted in accordance
with the provisions of this Warrant.  In addition to and not in substitution
for any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
Common Stock (a “Corporate Event”), the Company
shall make appropriate provision to insure that the Holder will thereafter have
the right to receive upon an exercise of this Warrant at any time after the consummation of the Fundamental Transaction but
prior to the Expiration Date, in lieu of the
shares of the Common Stock (or other securities, cash, assets or other
property) purchasable upon the exercise of the
Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property
whatsoever (including warrants or other purchase or subscription rights) which
the Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had the Warrant been exercised immediately prior to
such Fundamental Transaction.  Provision
made pursuant to the preceding sentence shall be in a form and substance
reasonably satisfactory to the Required Holders.  The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied without regard to any limitations on the exercise
of this Warrant.

(c)   Notwithstanding the foregoing, in the event of a Fundamental
Transaction where the Successor Entity is a Public Successor Entity, at the
request of the Holder delivered before the 90th day after such Fundamental
Transaction, the Company (or the Successor Entity) shall purchase
this Warrant from the Holder by paying to the Holder, within five Business Days
after such request (or, if later, on the effective date of the Fundamental
Transaction), cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the date of such Fundamental
Transaction.

5.     NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, and will at all times in good faith carry out all
the provisions of this Warrant and take all action as may be required to
protect the rights of the Holder.  Without
limiting the generality of the foregoing, the Company (i) shall not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect,
(ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all
action necessary to reserve and keep available out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting the
exercise of the SPA Warrants, 130% of the number of shares of Common Stock as
shall from time to time be necessary to effect the exercise of the SPA Warrants
then outstanding (without regard to any limitations on exercise).

 12

 

6.     WARRANT
HOLDER NOT DEEMED A STOCKHOLDER. 
Except as otherwise specifically provided herein, the Holder, solely in
such Person’s capacity as a holder of this Warrant, shall not be entitled to
vote or receive dividends or be deemed the holder of share capital of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in such Person’s capacity as the
Holder of this Warrant, any of the rights of a stockholder of the Company or
any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of
the Warrant Shares which such Person is then entitled to receive upon the due
exercise of this Warrant.  In addition,
nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.  Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders.  The
filing of any such information via EDGAR shall satisfy the requirements of the preceding
sentence.

7.     REISSUANCE OF WARRANTS.

(a)   Transfer of Warrant. 
If this Warrant is to be transferred, the Holder shall surrender this
Warrant to the Company, whereupon the Company will forthwith issue and deliver
upon the order of the Holder a new Warrant (in accordance with Section 7(d)),
registered as the Holder may request, representing the right to purchase the
number of Warrant Shares being transferred by the Holder and, if less then the
total number of Warrant Shares then underlying this Warrant is being
transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being
transferred.

(b)   Lost, Stolen or Mutilated Warrant.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

(c)   Exchangeable for Multiple Warrants.  This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.

(d)   Issuance of New Warrants. 
Whenever the Company is required to issue a new Warrant pursuant to the
terms of this Warrant, such new Warrant (i) shall be of like

 13
 

 

tenor with this Warrant, (ii) shall represent,
as indicated on the face of such new Warrant, the right to purchase the Warrant
Shares then underlying this Warrant (or in the case of a new Warrant being
issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated
by the Holder which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such issuance, does
not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same rights and
conditions as this Warrant.

8.     NOTICES.  Whenever notice is required to be given under
this Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason
therefore.  Without limiting the
generality of the foregoing, the Company will give written notice to the Holder
(i) immediately upon any adjustment of the Exercise Price, setting forth in
reasonable detail, and certifying, the calculation of such adjustment and (ii)
at least fifteen days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
shares of Common Stock, (B) with respect to any grants, issuances or sales of
any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall
be made known to the public prior to or in conjunction with such notice being
provided to the Holder.

9.     AMENDMENT AND WAIVER.  Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed
by it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any
SPA Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder.  No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then
outstanding.

10.   GOVERNING LAW.  This Warrant shall be governed by and
construed and enforced in accor­dance with, and all questions concerning the
construction, validity, interpretation and performance of this Warrant 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.

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

12.   DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the
Warrant Shares, the Company shall submit

 14
 

 

the disputed
determinations or arithmetic calculations via facsimile within two Business
Days of receipt of the Exercise Notice giving rise to such dispute, as the case
may be, to the Holder.  If the Holder and
the Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within three Business Days of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall, within two Business Days submit via facsimile (a) the
disputed determination of the Exercise Price to an independent, reputable
investment bank selected by the Company and approved by the Holder  or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside accountant.  The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten Business Days from the time it receives the disputed
determinations or calculations.  Such
investment bank’s or accountant’s determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.

13.   REMEDIES, OTHER
OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Warrant shall
be cumulative and in addition to all other remedies available under this
Warrant and the other Transaction Documents, at law or in equity (including a
decree of specific performance and/or other injunctive relief), and nothing
herein shall limit the right of the Holder right to pursue actual damages for
any failure by the Company to comply with the terms of this Warrant.  The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Holder and that
the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

14.   TRANSFER.  This Warrant may be offered for sale, sold,
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.

15.   CERTAIN DEFINITIONS.  For purposes of this Warrant, the following
terms shall have the following meanings:

(a)   “Black Scholes Value”
means the value of this Warrant based on the Black and Scholes Option Pricing
Model obtained from the “OV” function on Bloomberg determined as of the day
immediately following the public announcement of the applicable Fundamental
Transaction and reflecting (i) a risk-free interest rate corresponding to the
U.S. Treasury rate for a period equal to the remaining term of this Warrant as
of such date of request and (ii) an expected volatility equal to the greater of
(i) 70% and (ii) the 100 day volatility obtained from the HVT function on
Bloomberg, but in no event shall such expected volatility exceed 100%.

(b)   “Bloomberg”
means Bloomberg Financial Markets.

 15
 

 

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

(d)   “Common Stock”
means (i) the Company’s shares of Common Stock, par value $0.001 per
share, and (ii) any share capital into which such Common Stock shall have
been changed or any share capital resulting from a reclassification of such
Common Stock.

(e)   “Common Stock Deemed
Outstanding” means, at any given time, the number of shares of
Common Stock actually outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections 2(a)(i) and 2(a)(ii)
hereof regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock owned or held
by or for the account of the Company or issuable upon exercise of the SPA
Warrants.

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

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

(h)   “Expiration Date”
means the date sixty (60) months after the Issuance Date or, if such date falls
on a day other than a Business Day or on which trading does not take place on
the Principal Market (a “Holiday”), the
next date that is not a Holiday.

(i)    “Fundamental Transaction”
means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than the 50% of the
outstanding shares of Common Stock (not
including any shares of Common Stock held by the Person or Persons making or
party to, or associated or affiliated with the Persons making or party to, such
purchase, tender or exchange offer), or (iv) consummate a stock purchase
agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other
Person acquires more than the 50% of the outstanding shares of Common
Stock (not including any
shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party
to, such stock purchase agreement or other business combination), (v) reorganize, recapitalize or
reclassify its Common Stock, or (vi) any “person” or “group” (as these
terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is
or shall become the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting
power represented by issued and outstanding Common Stock.

 16
 

 

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

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

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

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

(n)   “Registration Rights
Agreement” means that certain registration rights agreement by and
among the Company and the Buyers.

(o)   “Required Holders”
means the holders of the SPA Warrants representing at least a majority of
shares of Common Stock underlying the SPA Warrants then outstanding.

(p)   “SPA Securities”
means the Notes issued pursuant to the Securities Purchase Agreement.

(q)   “Successor Entity”
means the Person (or, if so
elected by the Required Holders, the Parent Entity) formed by, resulting from
or surviving any Fundamental Transaction or the Person (or, if so elected by
the Required Holders, the Parent Entity) with which such Fundamental
Transaction shall have been entered into.

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

(s)   “Weighted Average Price”
means, for any security as of any date, the dollar volume-weighted average
price for such security on the Principal Market during the period beginning at
9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City
time, as reported by Bloomberg through its “Volume at Price” function or, if
the foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York City time,
and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg, or,
if no dollar volume-weighted average price is reported for such security by

 17
 

 

Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.).  If the
Weighted Average Price cannot be calculated for such security on such date on
any of the foregoing bases, the Weighted Average Price of such security on such
date shall be the fair market value as mutually determined by the Company and
the Required Holders.  If the Company and
the Required Holders are unable to agree upon the fair market value of the such
security, then such dispute shall be resolved pursuant to Section 12 with the
term “Weighted Average Price” being substituted for the term “Exercise Price.”
All such determinations shall be appropriately adjusted for any share dividend,
share split or other similar transaction during such period.

[Signature
Page Follows]

 18

 

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

	
   

  	
  JAVO BEVERAGE COMPANY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Cody C. Ashwell

  
	
   

  	
  Name:

  	
  Cody C. Ashwell

  
	
   

  	
  Title:

  	
  Chairman and Chief Executive Officer

  
				

 

 

EXHIBIT A

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 [Transfer Agent] 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 [Transfer
Agent].

	
  

  	
   

  	
  JAVO BEVERAGE COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:EXHIBIT
10.10

[FORM
OF SERIES B WARRANT]

NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), 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.

JAVO BEVERAGE COMPANY, INC.

SERIES B WARRANT TO PURCHASE
COMMON STOCK

Warrant No.: B-             

Number of Shares
of Common Stock:             

Date of Issuance:
December 15, 2006 (“Issuance Date”)

Javo Beverage Company,
Inc., a Delaware corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, [CAPITAL VENTURES INTERNATIONAL]
[OTHER BUYERS], the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms
set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after June 15,
2007, but not after 11:59 p.m., New York time, on the Expiration Date (as
defined below),                         (                        )(1)
(the “Warrant Share Total”) fully paid
nonassessable shares of Common Stock (as defined below) (the “Warrant
Shares”).  Except as otherwise
defined herein, capitalized terms in this Warrant shall have the meanings set
forth in Section 15.  This Warrant is one
of the Warrants to purchase Common Stock (the “SPA Warrants”) issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of December 14, 2006 (the “Subscription Date”), by and among the 

(1)                                  Insert
a number of shares equal to a pro rate portion of $7,000,000 divided by the
Exercise Price of the Series B Warrants.

 

Company
and the investors (the “Buyers”)
referred to therein (the “Securities Purchase
Agreement”).

1.     EXERCISE
OF WARRANT.

(a)   Mechanics of Exercise.  Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)),
this Warrant may be exercised by the Holder on any day on or after June 15,
2007, in whole or in part, by (i) delivery of a written notice, in the
form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this
Warrant and (ii) (A) payment to the Company of an amount equal to the
applicable Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is being exercised (the “Aggregate
Exercise Price”) in cash or by wire transfer of immediately
available funds or (B) by notifying the Company that this Warrant is being
exercised pursuant to a Cashless Exercise (as defined in Section 1(d)).  The Holder shall not be required to deliver
the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise Notice
with respect to less than all of the Warrant Shares shall have the same effect
as cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant Shares.  On or before the first (1st) Business Day following the date on
which the Company has received each of the Exercise Notice and the Aggregate
Exercise Price (or notice of a Cashless Exercise) (the “Exercise
Delivery Documents”), the Company shall transmit by facsimile an
acknowledgment of confirmation of receipt of the Exercise Delivery Documents to
the Holder and the Company’s transfer agent (the “Transfer
Agent”).  On or before the
third (3rd) Business
Day following the date on which the Company has received all of the Exercise
Delivery Documents (the “Share Delivery Date”),
the Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company (“DTC”) Fast
Automated Securities Transfer Program, upon the request of the Holder, credit
such aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account
with DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company’s share
register in the name of the Holder or its designee, for the number of shares of
Common Stock to which the Holder is entitled pursuant to such exercise.  Upon delivery of the Exercise Notice and
Aggregate Exercise Price referred to in clause (ii)(A) above or notification to
the Company of a Cashless Exercise referred to in Section 1(d), the Holder
shall be deemed for all corporate purposes to have become the holder of record
of the Warrant Shares with respect to which this Warrant has been exercised, irrespective
of the date of delivery of the certificates evidencing such Warrant
Shares.  If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than three Business
Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant
is exercised.  No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant, but rather the
number of shares of Common Stock to be issued shall be rounded up to the
nearest whole number.  The Company shall
pay any and all 

 2
 

 

taxes which may be payable with respect to
the issuance and delivery of Warrant Shares upon exercise of this Warrant.

(b)   Exercise Price.  For
purposes of this Warrant, “Exercise
Price” means $2.24, subject to adjustment as provided herein.

(c)   Company’s Failure to Timely Deliver Securities.  If the Company shall fail for any reason or
for no reason to issue to the Holder within five (5) Business Days of receipt
of the Exercise Delivery Documents, a certificate for the number of shares of
Common Stock to which the Holder is entitled and register such shares of Common
Stock on the Company’s share register or to credit the Holder’s balance account
with DTC for such number of shares of Common Stock to which the Holder is
entitled upon the Holder’s exercise of this Warrant, then, in addition to all
other remedies available to the Holder, the Company shall pay in cash to the
Holder on each day after such fifth Business
Day that the issuance of such shares of Common Stock is not timely effected an
amount equal to 1.0% of the product of (A) the sum of the number of shares of
Common Stock not issued to the Holder on a timely basis and to which the Holder
is entitled and (B) the Weighted Average Price of the shares of Common Stock on
the Trading Day immediately preceding the last possible date which the Company
could have issued such shares of Common Stock to the Holder without violating
Section 1(a).  In addition to the
foregoing, if within five (5) Trading Days after the Company’s receipt of the
facsimile copy of a Exercise Notice the Company shall fail to issue and deliver
a certificate to the Holder and register such shares of Common Stock on the
Company’s share register or credit the Holder’s balance account with DTC for
the number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise hereunder, and if on or after such Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock
to deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the
Company (a “Buy-In”), then the Company shall,
within three (3) Business Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased (the “Buy-In Price”),
at which point the Company’s obligation to deliver such certificate (and to
issue such shares of Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing
such shares of Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Weighted Average Price on the date of
exercise.

(d)           Cashless Exercise.
 Notwithstanding
anything contained herein to the contrary, if a Registration Statement (as
defined in the Registration Rights Agreement) covering the Warrant Shares that
are the subject of an Exercise Notice (the “Unavailable
Warrant Shares”) is not available for the resale of such Unavailable
Warrant Shares, the Holder may, in its sole discretion, exercise this Warrant
in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of 

 3
 

 

the Aggregate Exercise Price, elect instead
to receive upon such exercise the “Net Number” of shares of Common Stock
determined according to the following formula (a “Cashless Exercise”):

Net Number = (A
x B) - (A x C)

B

For
purposes of the foregoing formula:

A= the total number of
shares with respect to which this Warrant is then being exercised.

B= the arithmetic average
of the Weighted Average Prices of the shares of Common Stock (as reported by
Bloomberg) for the five (5) consecutive Trading Days ending on the date
immediately preceding the date of the Exercise Notice.

C= the
Exercise Price then in effect for the applicable Warrant Shares at the time of
such exercise.

(e)   Disputes.  In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve such
dispute in accordance with Section 12.

(f)    Limitations on Exercises. 

(1)           Beneficial
Ownership.  The Company shall not
effect the exercise of this Warrant, and the Holder shall not have the right to
exercise this Warrant, to the extent that after giving effect to such exercise,
such Person (together with such Person’s affiliates) would beneficially own in
excess of 4.99% of the shares of Common Stock outstanding immediately after
giving effect to such exercise (subject to change as described below, the “Maximum Percentage”).  For purposes of the foregoing sentence, the
aggregate number of shares of Common Stock beneficially owned by such Person
and its affiliates shall include the number of shares of Common Stock issuable
upon exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude shares of Common Stock which would be
issuable upon (i) exercise of the remaining, unexercised portion of this
Warrant beneficially owned by such Person and its affiliates and (ii) exercise
or conversion of the unexercised or unconverted portion of any other securities
of the Company beneficially owned by such Person and its affiliates (including,
without limitation, any convertible notes or convertible preferred stock or
warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein.  Except as
set forth in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with 

 4
 

 

Section 13(d)
of the Securities Exchange Act of 1934, as amended.  For purposes of this Warrant, in determining
the number of outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as reflected in (1) the Company’s
most recent Form 10-K, Form 10-KSB, Form 10-Q, Form 10-QSB, Current Report on
Form 8-K or other public filing with the Securities and Exchange Commission, as
the case may be, (2) a more recent public announcement by the Company or (3)
any other notice by the Company or the Transfer Agent setting forth the number
of shares of Common Stock outstanding. 
For any reason at any time, upon the written or oral request of the
Holder, the Company shall within one Business Day confirm orally and in writing
to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares
of Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including the SPA Securities and the SPA
Warrants, by the Holder and its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported.  By written notice to the Company, the Holder
may from time to time increase or decrease the Maximum Percentage to any other
percentage not in excess of 9.99% specified in such notice; provided that (i)
any such increase will not be effective until the sixty-first (61st) day after such notice is
delivered to the Company, and (ii) any such increase or decrease will apply
only to the Holder and not to any other holder of SPA Warrants.

(2)           Principal Market
Regulation.  The Company shall not be
obligated to issue any shares of Common Stock upon exercise of this Warrant or
conversion of SPA Securities and no Buyer shall be entitled to receive any
shares of Common Stock if the issuance of such shares of Common Stock would
exceed that number of shares of Common Stock which the Company may issue upon
exercise or conversion, as applicable, of the SPA Warrants and SPA Securities
or otherwise without breaching the Company’s obligations under the rules or
regulations of any applicable Eligible Market (the “Exchange Cap”), except that such limitation shall not apply
in the event that the Company (A) obtains the approval of its stockholders as
required by the applicable rules of the Eligible Market for issuances of shares
of Common Stock in excess of such amount or (B) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the Required Holders.  Until such approval or written opinion is
obtained, no Buyer shall be issued in the aggregate, upon exercise or
conversion, as applicable, of any SPA Warrants or SPA Securities, shares of
Common Stock in an amount greater than the product of the Exchange Cap
multiplied by a fraction, the numerator of which is the total number of shares
of Common Stock underlying the SPA Warrants issued to such Buyer pursuant to
the Securities Purchase Agreement on the Issuance Date and the denominator of
which is the aggregate number of shares of Common Stock underlying the SPA
Warrants issued to the Buyers 

 5
 

 

pursuant to
the Securities Purchase Agreement on the Issuance Date (with respect to each
Buyer, the “Exchange Cap Allocation”).  In the event that any Buyer shall sell or
otherwise transfer any of such Buyer’s SPA Warrants, the transferee shall be
allocated a pro rata portion of such Buyer’s Exchange Cap Allocation, and the
restrictions of the prior sentence shall apply to such transferee with respect
to the portion of the Exchange Cap Allocation allocated to such
transferee.  In the event that any holder
of SPA Warrants shall exercise all of such holder’s SPA Warrants into a number
of shares of Common Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such holder’s Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining holders of SPA Warrants on a pro rata basis in proportion to the
shares of Common Stock underlying the SPA Warrants then held by each such
holder.  In the event that the Company is
prohibited from issuing any Warrant Shares for which an Exercise Notice has
been received as a result of the operation of this Section 1(f)(2), the Company
shall pay cash in exchange for cancellation of such Warrant Shares, at a price
per Warrant Share equal to the difference between the Weighted Average Price
and the Exercise Price as of the date of the attempted exercise.

(g)           Insufficient
Authorized Shares.  If at any time
while any of the Warrants remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon exercise of the Warrants at
least a number of shares of Common Stock equal to 130% (the “Required
Reserve Amount”) of
the number of shares of Common Stock as shall from time to time be necessary to
effect the exercise of all of the Warrants then outstanding (an “Authorized
Share Failure”),
then the Company shall immediately take all action necessary to increase the
Company’s authorized shares of Common Stock to an amount sufficient to allow
the Company to reserve the Required Reserve Amount for the Warrants then
outstanding.  Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of
the occurrence of an Authorized Share Failure, but in no event later than sixty
(60) days after the occurrence of such Authorized Share Failure, the Company
shall hold a meeting of its stockholders for the approval of an increase in the
number of authorized shares of Common Stock. 
In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its best efforts to solicit
its stockholders’ approval of such increase in authorized shares of Common
Stock and to cause its board of directors to recommend to the stockholders that
they approve such proposal.

2.     ADJUSTMENT OF EXERCISE
PRICE AND NUMBER OF WARRANT SHARES. 
The Exercise Price and the number of Warrant Shares shall be adjusted
from time to time as follows:

(a)   Adjustment upon Issuance of shares of Common Stock.  If and whenever on or after the Subscription
Date the Company issues or sells, or in accordance with this Section 2 is
deemed to have issued or sold, any shares of Common Stock (including the 

 6
 

 

issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding shares of
Common Stock deemed to have been issued by the Company in connection with any
Excluded Securities (as defined in the SPA Securities) for a consideration per
share less than a price (the “Applicable
Price”) equal to the Exercise Price in effect immediately prior to
such issue or sale or deemed issuance or sale (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal
to the product of (A) the Exercise Price in effect immediately prior to
such Dilutive Issuance and (B) the quotient determined by dividing
(1) the sum of (I) the product derived by multiplying the Exercise Price
in effect immediately prior to such Dilutive Issuance and the number of shares
of Common Stock Deemed Outstanding immediately prior to such Dilutive Issuance
plus (II) the consideration, if any, received (or deemed received as set
forth below) by the Company upon such Dilutive Issuance, by (2) the product
derived by multiplying (I) the Exercise Price in effect immediately prior
to such Dilutive Issuance by (II) the number of shares of Common Stock
Deemed Outstanding immediately after such Dilutive Issuance.  Upon each such adjustment of the Exercise
Price hereunder, the number of Warrant Shares shall be adjusted to the number
of shares of Common Stock determined by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Exercise Price resulting from such
adjustment.  For purposes of determining
the adjusted Exercise Price under this Section 2(a), the following shall be
applicable:

(i)            Issuance of
Options.  If the Company in any
manner grants any Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such Option for such
price per share.  For purposes of this
Section 2(a)(i), the “lowest price per share for which one share of Common
Stock is issuable upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option and upon conversion, exercise or exchange of
any Convertible Security issuable upon exercise of such Option.  No further adjustment of the Exercise Price
or number of Warrant Shares shall be made upon the actual issuance of such
shares of Common Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.

(ii)           Issuance of Convertible Securities.  If the Company in any manner issues or sells
any Convertible Securities and the lowest price per share for 

 7
 

 

which one
share of Common Stock is issuable upon the conversion, exercise or exchange
thereof is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for
such price per share.  For the purposes
of this Section 2(a)(ii), the “lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange” shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to one share of Common Stock upon the
issuance or sale of the Convertible Security and upon conversion, exercise or
exchange of such Convertible Security. 
No further adjustment of the Exercise Price or number of Warrant Shares
shall be made upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of this Warrant has been or is to be made pursuant
to other provisions of this Section 2(a), no further adjustment of the Exercise
Price or number of Warrant Shares shall be made by reason of such issue or
sale.

(iii)          Change in Option Price or Rate of
Conversion.  If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion, exercise or exchange of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exercisable or exchangeable for shares of Common Stock increases or decreases
at any time, the Exercise Price and the number of Warrant Shares in effect at
the time of such increase or decrease shall be adjusted to the Exercise Price
and the number of Warrant Shares which would have been in effect at such time
had such Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased or decreased
conversion rate, as the case may be, at the time initially granted, issued or
sold.  For purposes of this Section
2(a)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are increased or
decreased in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the shares of Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease.  No adjustment pursuant to this Section 2(a)
shall be made if such adjustment would result in an increase of the Exercise
Price then in effect or a decrease in the number of Warrant Shares.

(iv)          Calculation of Consideration
Received.  In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction, the Options will be deemed to
have been issued for the difference of (x) the aggregate fair 

 8
 

 

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

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

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

 9
 

 

subdivision will be proportionately reduced
and the number of Warrant Shares will be proportionately increased.  If the Company at any time on or after the
Subscription Date  combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares will be
proportionately decreased.  Any
adjustment under this Section 2(b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

(c)   Other Events.  If any
event occurs of the type contemplated by the provisions of this Section 2 but
not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company’s Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of Warrant Shares
so as to protect the rights of the Holder; provided that no such adjustment
pursuant to this Section 2(c) will increase the Exercise Price or decrease the
number of Warrant Shares as otherwise determined pursuant to this Section 2.

3.     RIGHTS UPON DISTRIBUTION
OF ASSETS.  If the Company shall
declare or make any dividend or other distribution of its assets (or rights to
acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash,
stock or other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”),
at any time after the issuance of this Warrant, then, in each such case:

(a)   any Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of shares of
Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Exercise Price by a fraction of which (i) the numerator shall
be the Weighted Average Price of the shares of Common Stock on the Trading Day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company’s Board of Directors) applicable to one
share of shares of Common Stock, and (ii) the denominator shall be the Weighted
Average Price of the shares of Common Stock on the Trading Day immediately
preceding such record date; and

(b)   the number of Warrant Shares shall be increased to a number of
shares equal to the number of shares of Common Stock obtainable immediately
prior to the close of business on the record date fixed for the determination
of holders of shares of Common Stock entitled to receive the Distribution
multiplied by the reciprocal of the fraction set forth in the immediately
preceding paragraph (a); provided that in the event that the Distribution is of
shares of Common Stock (or common stock) (“Other Shares of Common Stock”) of a company whose common
shares are traded on a national securities exchange or a national automated
quotation system, then the Holder may elect to receive a warrant to purchase
Other Shares of Common Stock in lieu of an increase in the number of Warrant
Shares, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the number of shares of Other
Shares of Common Stock that would have been payable to the Holder 

 10
 

 

pursuant to the Distribution had the Holder
exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this
paragraph (b).

4.     PURCHASE RIGHTS;
FUNDAMENTAL TRANSACTIONS.

(a)   Purchase Rights.  In
addition to any adjustments pursuant to Section 2 above, if at any time the
Company grants, issues or sells any Options, Convertible Securities or rights
to purchase stock, warrants, securities or other property pro rata to the
record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.

(b)   Fundamental Transactions. 
The
Company shall not enter into or be party to a Fundamental Transaction unless
(i)  the Successor Entity assumes in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents in accordance
with the provisions of this Section (4)(b) pursuant to written agreements in
form and substance satisfactory to the Required Holders and approved by the
Required Holders prior to such Fundamental Transaction, including agreements to
deliver to each holder of Warrants
in exchange for such Warrants
a security of the
Successor Entity evidenced by a written instrument substantially similar
in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value
for the shares of Common Stock reflected by the terms of such Fundamental Transaction,
and exercisable for a corresponding number of shares of capital stock
equivalent to the shares of Common Stock acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of
this Warrant) prior to such Fundamental Transaction, and satisfactory to the
Required Holders; provided, however in the event the Successor Entity is not a
Public Successor Entity (as defined below) (a “Private Successor Entity”) such Fundamental Transaction must
be consummated for consideration consisting solely of cash.  Upon
the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant referring to the
“Company” shall refer instead to the Successor Entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under this Warrant with the same effect as if such Successor Entity had
been named as the Company herein.  Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of the Common Stock (or other
securities, cash, assets or other property) purchasable
upon the exercise of the Warrant prior to such Fundamental Transaction, (i) if
the Successor Entity is a publicly traded corporation whose stock is traded on
an Eligible Market (a “Public Successor
Entity”), such shares of stock, securities, cash, assets or 

 11
 

 

any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of such Fundamental
Transaction had this Warrant been converted immediately prior to such
Fundamental Transaction or (ii) if the Successor Entity is a Private Successor
Entity, cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the date of such Fundamental
Transaction, each as adjusted in accordance
with the provisions of this Warrant.  In addition to and not in substitution
for any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
Common Stock (a “Corporate Event”), the Company
shall make appropriate provision to insure that the Holder will thereafter have
the right to receive upon an exercise of this Warrant at any time after the consummation of the Fundamental Transaction but
prior to the Expiration Date, in lieu of the
shares of the Common Stock (or other securities, cash, assets or other
property) purchasable upon the exercise of the
Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property
whatsoever (including warrants or other purchase or subscription rights) which
the Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had the Warrant been exercised immediately prior to
such Fundamental Transaction.  Provision
made pursuant to the preceding sentence shall be in a form and substance
reasonably satisfactory to the Required Holders.  The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied without regard to any limitations on the exercise
of this Warrant.

(c)   Notwithstanding the foregoing, in the event of a Fundamental
Transaction where the Successor Entity is a Public Successor Entity, at the
request of the Holder delivered before the 90th day after such Fundamental
Transaction, the Company (or the Successor Entity) shall purchase
this Warrant from the Holder by paying to the Holder, within five Business Days
after such request (or, if later, on the effective date of the Fundamental
Transaction), cash in an amount equal to the Black Scholes Value of the
remaining unexercised portion of this Warrant on the date of such Fundamental
Transaction.

5.     NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, and will at all times in good faith carry out all
the provisions of this Warrant and take all action as may be required to
protect the rights of the Holder. 
Without limiting the generality of the foregoing, the Company (i) shall
not increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect,
(ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all
action necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, 130% of the number of shares of Common Stock as shall from time
to time be necessary to effect the exercise of the SPA Warrants then
outstanding (without regard to any limitations on exercise).

 12

 

6.     WARRANT
HOLDER NOT DEEMED A STOCKHOLDER. 
Except as otherwise specifically provided herein, the Holder, solely in
such Person’s capacity as a holder of this Warrant, shall not be entitled to
vote or receive dividends or be deemed the holder of share capital of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in such Person’s capacity as the
Holder of this Warrant, any of the rights of a stockholder of the Company or
any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of
the Warrant Shares which such Person is then entitled to receive upon the due
exercise of this Warrant.  In addition,
nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.  Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the stockholders of the Company generally, contemporaneously with the
giving thereof to the stockholders.  The
filing of any such information via EDGAR shall satisfy the requirements of the preceding
sentence.

7.     REISSUANCE OF WARRANTS.

(a)   Transfer of Warrant. 
If this Warrant is to be transferred, the Holder shall surrender this
Warrant to the Company, whereupon the Company will forthwith issue and deliver
upon the order of the Holder a new Warrant (in accordance with Section 7(d)),
registered as the Holder may request, representing the right to purchase the
number of Warrant Shares being transferred by the Holder and, if less then the
total number of Warrant Shares then underlying this Warrant is being
transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being
transferred.

(b)   Lost, Stolen or Mutilated Warrant.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

(c)   Exchangeable for Multiple Warrants.  This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.

(d)   Issuance of New Warrants. 
Whenever the Company is required to issue a new Warrant pursuant to the
terms of this Warrant, such new Warrant (i) shall be of like 

 13
 

 

tenor with this Warrant, (ii) shall represent,
as indicated on the face of such new Warrant, the right to purchase the Warrant
Shares then underlying this Warrant (or in the case of a new Warrant being
issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated
by the Holder which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such issuance, does
not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same rights and
conditions as this Warrant.

8.     NOTICES.  Whenever notice is required to be given under
this Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason
therefore.  Without limiting the
generality of the foregoing, the Company will give written notice to the Holder
(i) immediately upon any adjustment of the Exercise Price, setting forth in
reasonable detail, and certifying, the calculation of such adjustment and (ii)
at least fifteen days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
shares of Common Stock, (B) with respect to any grants, issuances or sales of
any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall
be made known to the public prior to or in conjunction with such notice being
provided to the Holder.

9.     AMENDMENT AND WAIVER.  Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed
by it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any
SPA Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder.  No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then
outstanding.

10.   GOVERNING LAW.  This Warrant shall be governed by and
construed and enforced in accor­dance with, and all questions concerning the
construction, validity, interpretation and performance of this Warrant 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.

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

12.   DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit 

 14
 

 

the disputed
determinations or arithmetic calculations via facsimile within two Business
Days of receipt of the Exercise Notice giving rise to such dispute, as the case
may be, to the Holder.  If the Holder and
the Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within three Business Days of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall, within two Business Days submit via facsimile (a) the
disputed determination of the Exercise Price to an independent, reputable
investment bank selected by the Company and approved by the Holder  or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside accountant.  The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten Business Days from the time it receives the disputed
determinations or calculations.  Such
investment bank’s or accountant’s determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.

13.   REMEDIES, OTHER
OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Warrant shall
be cumulative and in addition to all other remedies available under this
Warrant and the other Transaction Documents, at law or in equity (including a
decree of specific performance and/or other injunctive relief), and nothing
herein shall limit the right of the Holder right to pursue actual damages for
any failure by the Company to comply with the terms of this Warrant.  The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Holder and that
the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

14.   TRANSFER.  This Warrant may be offered for sale, sold,
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.

15.   CERTAIN DEFINITIONS.  For purposes of this Warrant, the following
terms shall have the following meanings:

(a)   “Black Scholes Value”
means the value of this Warrant based on the Black and Scholes Option Pricing
Model obtained from the “OV” function on Bloomberg determined as of the day
immediately following the public announcement of the applicable Fundamental
Transaction and reflecting (i) a risk-free interest rate corresponding to the
U.S. Treasury rate for a period equal to the remaining term of this Warrant as
of such date of request and (ii) an expected volatility equal to the greater of
(i) 70% and (ii) the 100 day volatility obtained from the HVT function on
Bloomberg, but in no event shall such expected volatility exceed 100%.

(b)   “Bloomberg”
means Bloomberg Financial Markets.

 15
 

 

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

(d)   “Common Stock”
means (i) the Company’s shares of Common Stock, par value $0.001 per
share, and (ii) any share capital into which such Common Stock shall have
been changed or any share capital resulting from a reclassification of such
Common Stock.

(e)   “Common Stock Deemed
Outstanding” means, at any given time, the number of shares of
Common Stock actually outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections 2(a)(i) and 2(a)(ii)
hereof regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock owned or held
by or for the account of the Company or issuable upon exercise of the SPA
Warrants.

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

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

(h)   “Expiration Date”
means the date sixty (60) months after the Issuance Date or, if such date falls
on a day other than a Business Day or on which trading does not take place on
the Principal Market (a “Holiday”), the
next date that is not a Holiday.

(i)    “Fundamental Transaction”
means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than the 50% of the
outstanding shares of Common Stock (not
including any shares of Common Stock held by the Person or Persons making or
party to, or associated or affiliated with the Persons making or party to, such
purchase, tender or exchange offer), or (iv) consummate a stock purchase
agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other
Person acquires more than the 50% of the outstanding shares of Common
Stock (not including any
shares of Common Stock held by the other Person or other Persons making or
party to, or associated or affiliated with the other Persons making or party
to, such stock purchase agreement or other business combination), (v) reorganize, recapitalize or
reclassify its Common Stock, or (vi) any “person” or “group” (as these
terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is
or shall become the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 50% of the aggregate ordinary voting
power represented by issued and outstanding Common Stock.

 16
 

 

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

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

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

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

(n)   “Registration Rights
Agreement” means that certain registration rights agreement by and
among the Company and the Buyers.

(o)   “Required Holders”
means the holders of the SPA Warrants representing at least a majority of
shares of Common Stock underlying the SPA Warrants then outstanding.

(p)   “SPA Securities”
means the Notes issued pursuant to the Securities Purchase Agreement.

(q)   “Successor Entity”
means the Person (or, if so
elected by the Required Holders, the Parent Entity) formed by, resulting from
or surviving any Fundamental Transaction or the Person (or, if so elected by
the Required Holders, the Parent Entity) with which such Fundamental
Transaction shall have been entered into.

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

(s)   “Weighted Average Price”
means, for any security as of any date, the dollar volume-weighted average
price for such security on the Principal Market during the period beginning at
9:30:01 a.m., New York City time, and ending at 4:00:00 p.m., New York City
time, as reported by Bloomberg through its “Volume at Price” function or, if
the foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York City time,
and ending at 4:00:00 p.m., New York City time, as reported by Bloomberg, or,
if no dollar volume-weighted average price is reported for such security by 

 17
 

 

Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.).  If the
Weighted Average Price cannot be calculated for such security on such date on
any of the foregoing bases, the Weighted Average Price of such security on such
date shall be the fair market value as mutually determined by the Company and
the Required Holders.  If the Company and
the Required Holders are unable to agree upon the fair market value of the such
security, then such dispute shall be resolved pursuant to Section 12 with the
term “Weighted Average Price” being substituted for the term “Exercise Price.”
All such determinations shall be appropriately adjusted for any share dividend,
share split or other similar transaction during such period.

[Signature
Page Follows]

 18

 

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

 

	
  

  	
  JAVO BEVERAGE COMPANY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Cody C. Ashwell

  	
   

  
	
   

  	
  Name: Cody C. Ashwell

  
	
   

  	
  Title:

  	
  Chairman and Chief Executive

  
	
   

  	
   

  	
  Officer

  
					

 

EXHIBIT A

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 [Transfer Agent] to issue the above
indicated number of shares of Common Stock in accordance with the Transfer
Agent Instructions dated December [    ], 2006 from
the Company and acknowledged and agreed to by [Transfer
Agent].

	
  

  	
  JAVO BEVERAGE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

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