Document:

Exhibit
10.3

CERTIFICATE
OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES

OF THE

SERIES B CONVERTIBLE PREFERRED STOCK

OF

NASCENT WINE COMPANY, INC.

The
undersigned, the Chief Executive Officer of Nascent Wine Company, Inc., a
Nevada corporation (the “Company”), in accordance with the provisions of the
Nevada Revised Statutes, does hereby certify that, pursuant to the authority
conferred upon the Board of Directors by the Articles of Incorporation of the
Company, the following resolution creating a series of preferred stock,
designated as Series B Convertible Preferred Stock, was duly adopted on June
29, 2007, as follows:

RESOLVED, that pursuant
to the authority expressly granted to and vested in the Board of Directors of
the Company by provisions of the Articles of Incorporation of the Company (the “Articles
of Incorporation”), there hereby is created out of the shares of the Company’s
preferred stock, par value $0.001 per share, of the Company authorized in
Article IV of the Articles of Incorporation (the “Preferred Stock”), a series
of Preferred Stock of the Company, to be named “Series B Convertible Preferred
Stock,” consisting of Three Hundred Seventy Five Thousand (375,000) shares,
which series shall have the following designations, powers, preferences and
relative and other special rights and the following qualifications, limitations
and restrictions:

1.             ­Designation and Rank.  The designation of such series of the
Preferred Stock shall be the Series B Convertible Preferred Stock, par value
$0.001 per share (the “Series B Preferred Stock”).  The maximum number of shares of Series B
Preferred Stock shall be Three Hundred Seventy Five Thousand (375,000)
shares.  The Series B Preferred Stock
shall rank senior to the Company’s common stock, par value $0.001 per share
(the “Common Stock”), and to all other classes and series of equity securities
of the Company which by their terms do not rank senior to the Series B
Preferred Stock (“Junior Stock”).  The
Series B Preferred Stock shall be subordinate to and rank junior to all
indebtedness of the Company now or hereafter outstanding.  The Series B Preferred Stock shall be issued
only upon the exercise of Series B Warrants (the “Series B Warrants”) of the
Company issued on July 3, 2007 (the “Original Issue Date”).

2.             ­Dividends.

(a)           Payment of
Dividends.  Commencing on the date of
the initial issuance (the “Issuance Date”) of the Series B Preferred Stock and
continuing for a period of three (3) years following the Issuance Date, the
holders of record of shares of Series B Preferred Stock shall be entitled to
receive, out of any assets at the time legally available therefor and as
declared by the Board of Directors, dividends at the rate of fifteen percent  (15%) of the stated Liquidation Preference
Amount (as defined in Section 4 hereof) per share per annum (the “Dividend
Payment”), payable quarterly (unless converted by the holder pursuant to
Section 5(a) hereof prior to the date the applicable Dividend Payment is due)
on the first business day of March, June, September and December  of each year in additional shares of
Series B Preferred Stock.  The number of
shares of Series B Preferred Stock to be issued to the holder shall be an
amount 

equal to the quotient of (i) the Dividend Payment divided by (ii) the
Liquidation Preference Amount (as defined in Section 4 below) per share of the
Series B Preferred Stock.  Any shares of
Series B Preferred Stock issued as a Dividend Payment shall have piggyback
registration rights if not otherwise registered pursuant to an effective
registration statement.  In the case of shares of Series B
Preferred Stock outstanding for less than a full quarter, dividends shall be
pro rated based on the portion of each quarter during which such shares are
outstanding.  Dividends on the Series B
Preferred Stock shall be cumulative, shall accrue and be payable
quarterly.  Dividends on the Series B
Preferred Stock are prior and in preference to any declaration or payment of
any distribution (as defined below) on any outstanding shares of Junior Stock.  Such dividends shall accrue on each share of
Series B Preferred Stock from day to day whether or not earned or declared so
that if such dividends with respect to any previous dividend period at the rate
provided for herein have not been paid on, or declared and set apart for, all
shares of Series B Preferred Stock at the time outstanding, the deficiency
shall be fully paid on, or declared and set apart for, such shares on a pro
rata basis with all other equity securities of the Company ranking pari passu
with the Series B Preferred Stock as to the payment of dividends before any
distribution shall be paid on, or declared and set apart for Junior Stock.

(b)           So long as any
shares of Series B Preferred Stock are outstanding, the Company shall not
declare, pay or set apart for payment any dividend or make any distribution on
any Junior Stock (other than dividends or distributions payable in additional
shares of Junior Stock), unless at the time of such dividend or distribution
the Company shall have paid all accrued and unpaid dividends on the outstanding
shares of Series B Preferred Stock.

(c)           In the event of a
dissolution, liquidation or winding up of the Company pursuant to Section 4
hereof, all accrued and unpaid dividends on the Series B Preferred Stock shall
be payable on the date of payment of the preferential amount to the holders of
Series B Preferred Stock. In the event of (i) a mandatory redemption pursuant
to Section 9 hereof or (ii) a redemption upon the occurrence of a Major
Transaction (as defined in Section 8(c) hereof) or a Triggering Event (as
defined in Section 8(d) hereof), all accrued and unpaid dividends on the Series
B Preferred Stock shall be payable on the date of such redemption.  In the event of a voluntary conversion
pursuant to Section 5(a) hereof, all accrued and unpaid dividends on the Series
B Preferred Stock being converted shall be payable on the Voluntary Conversion
Date (as defined in Section 5(b)(i) hereof).

(d)           For purposes hereof,
unless the context otherwise requires, “distribution” shall mean the transfer
of cash or property without consideration, whether by way of dividend or
otherwise, payable other than in shares of Common Stock or other equity
securities of the Company, or the purchase or redemption of shares of the Company
(other than redemptions set forth in Section 8 below or repurchases of Common
Stock held by employees or consultants of the Company upon termination of their
employment or services pursuant to agreements providing for such repurchase or
upon the cashless exercise of options held by employees or consultants) for
cash or property.

(e)           The
Company shall not declare, pay or set aside any dividends on shares of any
other class or series of capital stock of the Company (other than dividends on
shares of Common Stock payable in shares of Common Stock in each case subject
to adjustment as 

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provided in Section 4(e)(ii)) unless (in addition to the obtaining of
any consents required elsewhere in this Certificate of Designation and the
Articles of Incorporation) the holders of the Series B Preferred Stock then
outstanding shall first receive, or simultaneously receive, a dividend on each
outstanding share of Series B Preferred Stock in an amount at least equal to
(i) in the case of a dividend on Common Stock or any class or series that is
convertible into Common Stock, that dividend per share of Series B Preferred
Stock as would equal the product of (A) the dividend payable on each share of
such class or series determined, if applicable, as if all shares of such class
or series had been converted into Common Stock and (B) the number of shares of
Common Stock issuable upon conversion of a share of Series B Preferred Stock,
in each case calculated on the record date for determination of holders
entitled to receive such dividend (the “Record Date”) or (ii) in the case of a
dividend on any class or series that is not convertible into Common Stock, at a
rate per share of Series B Preferred Stock determined by (A) dividing the
amount of the dividend payable on each share of such class or series of capital
stock by the original issuance price of such class or series of capital stock
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization with respect to such class or series) and (B)
multiplying such fraction by an amount equal to the Series B Original Issue
Price (as defined below); provided that, if the Corporation declares, pays or
sets aside, on the same date, a dividend on shares of more than one class or
series of capital stock of the Corporation, the dividend payable to the holders
of Series B Preferred Stock pursuant to this Section 2 shall be
calculated based upon the dividend on the class or series of capital stock that
would result in the highest Series B Preferred Stock dividend.  For purposes hereof, the term “dividends”
includes any pro rata distribution by the Company, out of funds of the Company
legally available therefore, of cash, property, securities (including, but not
limited to rights, warrants or options) or other property or assets to the
holders of Common Stock, whether or not paid out of capital, surplus or
earnings.  The “Series B Original Issue Price” shall mean $[      ]
per share, subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization with
respect to the Series B Preferred Stock.

3.             Voting Rights.

(a)           ­Class Voting
Rights.  The Series B Preferred Stock
shall have the following class voting rights (in addition to the voting rights
set forth in Section 3(b) hereof).  So
long as any shares of the Series B Preferred Stock remain outstanding, the
Company shall not, without the affirmative vote or consent of the holders of at
least seventy-five percent (75%) of the shares of the Series B Preferred Stock
outstanding at the time, given in person or by proxy, either in writing or at a
meeting, in which the holders of the Series B Preferred Stock vote separately
as a class: (i) authorize, create, issue or increase the authorized or issued
amount of any class or series of stock, including but not limited to the
issuance of any more shares of Preferred Stock, ranking pari passu or senior to
the Series B Preferred Stock, with respect to the distribution of assets on liquidation,
dissolution or winding up of the Company, the payment of dividends and
redemption rights; (ii) amend, alter, change or repeal (or cause to be amended,
altered, changed or repealed) the provisions of the Series B Preferred Stock,
whether by merger, consolidation or otherwise, so as to adversely affect any
right, preference, privilege or voting power of the Series B Preferred Stock;
(iii) declare, pay
dividends or make any other distribution to holders of shares of capital stock
or redeem or repurchase or otherwise acquire any shares of 

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capital
stock, other than as required by law or by agreements in existence on the date
hereof with employees or consultants of the Company requiring or permitting the
redemption or repurchase of shares of capital stock; (iv) amend, alter,
change or repeal (or cause to be amended, altered, changed or repealed) the
Articles of Incorporation or By-Laws of the Company, whether by merger,
consolidation or otherwise, so as to adversely affect any right, preference,
privilege or voting power of the Series B Preferred Stock; (v) effect any
distribution with respect to Junior Stock other than as permitted hereby; (vi)
reclassify the Company’s outstanding securities; (vii) voluntarily file for
bankruptcy, liquidate the Company’s assets or make an assignment for the
benefit of the Company’s creditors or wind-up the affairs of the Company;
(viii) materially change the nature of the Company’s business; (ix) increase the number of shares to be reserved
for issuance under any compensation plan of the Company; (x) make any loan
or enter into any agreements, arrangements or other continuing transactions
between (a) the Company or any subsidiary on the one hand, and (b) on the other
hand, any officer, employee, consultant or director of the Company, or any of
its subsidiaries, or any person owning any capital stock of the Company or any
subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity controlled
by such officer, employee, consultant, director or stockholder, or a member of
the immediate family of such officer, employee, consultant, director or
stockholder; incur, assume or guarantee any indebtedness for borrowed money; (xi) create, or authorize the creation of, or
issue or purchase, or authorize the issuance or purchase of, any equity or debt
securities; (xii) enter into any merger, reorganization, consolidation
or sale of substantially all of the assets of the Company with another
corporation or other entity or other acquisition of the Company; or (xiii) create any subsidiary of the Company; and
(xiv) alter or change in any way the compensation of the Company’s senior
management.

(b)           ­General Voting
Rights.  The holder of each share of
Series B Preferred Stock shall be entitled to the number of votes equal to the
number of shares of Common Stock into which such share of Series B Preferred
Stock could be converted for purposes of determining the shares entitled to
vote at any regular, annual or special meeting of stockholders of the Company,
and shall have voting rights and powers equal to the voting rights and powers
of the Common Stock (except as otherwise expressly provided herein or as
required by law, voting together with the Common Stock as a single class) and
shall be entitled to notice of any stockholders’ meeting in accordance with the
bylaws of the Company.  Fractional votes
shall not, however, be permitted and any fractional voting rights resulting
from the above formula (after aggregating all shares into which shares of
Series B Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).

4.             ­Liquidation Preference.

(a)           In
the event of the liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled to receive, out of the
assets of the Company available for distribution to its stockholders, an amount
equal to the Series B Original Issue Price per share (the “Liquidation
Preference Amount”) of the Series B Preferred Stock plus any accrued and unpaid
dividends before any payment shall be made or any assets distributed to the
holders of the Common Stock or any other Junior Stock.  If the assets of the Company are not
sufficient to pay in full the Liquidation Preference Amount payable to the
holders of outstanding shares of the 

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Series B Preferred Stock and any series of Preferred Stock or any other
class of stock ranking pari passu, as to rights on liquidation, dissolution or
winding up, with the Series B Preferred Stock, then all of said assets will be
distributed among the holders of the Series B Preferred Stock and the other
classes of stock ranking pari passu with the Series B Preferred Stock, if any,
ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full.  The liquidation payment with respect to each
outstanding fractional share of Series B Preferred Stock shall be equal to a
ratably proportionate amount of the liquidation payment with respect to each
outstanding share of Series B Preferred Stock. 
All payments for which this Section 4(a) provides shall be in cash,
property (valued at its fair market value as determined by an independent
appraiser reasonably acceptable to the holders of a majority of the Series B
Preferred Stock) or a combination thereof; provided, however,
that no cash shall be paid to holders of Junior Stock unless each holder of the
outstanding shares of Series B Preferred Stock has been paid in cash the full
Liquidation Preference Amount to which such holder is entitled as provided
herein.  After payment of the full
Liquidation Preference Amount to which each holder is entitled, such holders of
shares of Series B Preferred Stock will not be entitled to any further
participation as such in any distribution of the assets of the Company.

(b)           A
consolidation or merger of the Company with or into any other corporation or
corporations, or a sale of all or substantially all of the assets of the
Company, or the effectuation by the Company of a transaction or series of
related transactions in which more than 50% of the voting shares of the Company
is disposed of or conveyed, shall not be deemed to be a liquidation,
dissolution, or winding up within the meaning of this Section 4.  In the event of the merger or consolidation
of the Company with or into another corporation, the Series B Preferred Stock
shall maintain its designations, relative powers, preferences and relative and
other special rights provided for herein and no merger shall result which is
inconsistent therewith.

(c)           Written
notice of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, stating a payment date and the place where the
distributable amounts shall be payable, shall be given by mail, postage
prepaid, no less than forty-five (45) days prior to the payment date stated
therein, to the holders of record of the Series B Preferred Stock at their
respective addresses as the same shall appear on the books of the Company.

5.             ­Conversion. 
The holder of Series B Preferred Stock shall have the following
conversion rights (the “Conversion Rights”):

(a)           ­Right to Convert.  At any time and from time to time on or after
the Issuance Date, the holder of any such shares of Series B Preferred Stock
may, at such holder’s option and without the payment of additional
consideration by the holder thereof elect to convert (a “Conversion”) all or
any portion of the shares of Series B Preferred Stock held by such person into
a number of fully paid and nonassessable shares of Common Stock equal to the
quotient of (i) the Liquidation Preference Amount of the shares of Series B
Preferred Stock being converted by (ii) the Conversion Price (as defined in
Section 5(d) below) then in effect as of the date of the delivery by such
holder of its notice of election to convert. 
In the event of a notice of redemption 

 5
 

of any shares of Series B Preferred Stock pursuant to Section 8 hereof,
the Conversion Rights of the shares designated for redemption shall terminate
at the close of business on the last full day preceding the date fixed for
redemption, unless the redemption price is not paid on such redemption date, in
which case the Conversion Rights for such shares shall continue until such
price is paid in full.  In the event of a
liquidation, dissolution or winding up of the Company, the Conversion Rights
shall terminate at the close of business on the last full day preceding the
date fixed for the payment of any such amounts distributable on such event to
the holders of Series B Preferred Stock. 
In the event of such a redemption or liquidation, dissolution or winding
up, the Company shall provide to each holder of shares of Series B Preferred
Stock notice of such redemption or liquidation, dissolution or winding up,
which notice shall (i) be sent at least fifteen (15) days prior to the
termination of the Conversion Rights (or, if the Company obtains lesser notice
thereof, then as promptly as possible after the date that it has obtained
notice thereof) and (ii) state the amount per share of Series B Preferred Stock
that will be paid or distributed on such redemption or liquidation, dissolution
or winding up, as the case may be.

(b)           ­Mechanics of
Conversion.  The Conversion of Series
B Preferred Stock shall be conducted in the following manner:

(i)            ­Holder’s
Delivery Requirements.  To convert
Series B Preferred Stock into full shares of Common Stock on any date (the “Conversion
Date”), the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 5:00 p.m., New York time on such date, a
copy of a fully executed notice of conversion in the form attached hereto as Exhibit
I (the “Conversion Notice”), to the Company at (619) 661-9735, Attention: Sandro
Piancone or to The Law Offices of Gary Agron at (303) 770-7257, Attention: Gary
Agron, and (B) surrender to a common carrier for delivery to the Company as
soon as practicable following such Conversion Date the original certificates
representing the shares of Series B Preferred Stock being converted (or an
indemnification undertaking with respect to such shares in the case of their
loss, theft or destruction) (the “Preferred Stock Certificates”) and the
originally executed Conversion Notice.

(ii)           ­Company’s
Response.  Upon receipt by the
Company of a facsimile copy of a Conversion Notice, the Company shall
immediately send, via facsimile, a confirmation of receipt of such Conversion
Notice to such holder followed by a mailing by certified or registered mail,
postage prepaid, return-receipt requested. 
Upon receipt by the Company of a copy of the fully executed Conversion
Notice, the Company or its designated transfer agent (the “Transfer Agent”), as
applicable, shall, within three (3) business days following the date of receipt
by the Company of the fully executed Conversion Notice, issue and deliver to
the Depository Trust Company (“DTC”) account on the Holder’s behalf via the
Deposit Withdrawal Agent Commission System (“DWAC”) as specified in the
Conversion Notice, registered in the name of the holder or its designee, for
the number of shares of Common Stock to which the holder shall be
entitled.  Notwithstanding the foregoing
to the contrary, the Company or its Transfer Agent shall only be obligated to
issue and deliver the shares to the DTC on a holder’s behalf via DWAC if a
registration statement providing for the resale of the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock is effective.  If the number of shares of Preferred Stock
represented by the Preferred Stock Certificate(s) submitted for conversion is
greater than the number of shares of Series B Preferred Stock being converted, 

 6
 

then the Company shall, as soon as practicable and in no event later
than three (3) business days after receipt of the Preferred Stock
Certificate(s) and at the Company’s expense, issue and deliver to the holder a
new Preferred Stock Certificate representing the number of shares of Series B
Preferred Stock not converted.

(iii)          ­Dispute
Resolution.  In the case of a dispute
as to the arithmetic calculation of the number of shares of Common Stock to be
issued upon conversion, the Company shall cause its Transfer Agent to promptly
issue to the holder the number of shares of Common Stock that is not disputed
and shall submit the arithmetic calculations to the holder via facsimile as
soon as possible, but in no event later than two (2) business days after
receipt of such holder’s Conversion Notice. 
If such holder and the Company are unable to agree upon the arithmetic
calculation of the number of shares of Common Stock to be issued upon such
conversion within one (1) business day of such disputed arithmetic calculation
being submitted to the holder, then the Company shall within one (1) business
day submit via facsimile the disputed arithmetic calculation of the number of
shares of Common Stock to be issued upon such conversion to the Company’s
independent, outside accountant.  The
Company shall cause the accountant to perform the calculations and notify the
Company and the holder of the results no later than seventy-two (72) hours from
the time it receives the disputed calculations. 
Such accountant’s calculation shall be binding upon all parties absent
manifest error.  The reasonable expenses
of such accountant in making such determination shall be paid by the Company,
in the event the holder’s calculation was correct, or by the holder, in the
event the Company’s calculation was correct, or equally by the Company and the
holder in the event that neither the Company’s or the holder’s calculation was
correct.  The period of time in which the
Company is required to effect conversions or redemptions under this Certificate
of Designation shall be tolled with respect to the subject conversion or
redemption pending resolution of any dispute by the Company made in good faith
and in accordance with this Section 5(b)(iii).

(iv)          ­Record
Holder.  The person or persons
entitled to receive the shares of Common Stock issuable upon a conversion of
the Series B Preferred Stock shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on the Conversion Date.

(v)           ­Company’s
Failure to Timely Convert.  If within
three (3) business days of the Company’s receipt of an executed copy of the
Conversion Notice (so long as the applicable Preferred Stock Certificates and
original Conversion Notice are received by the Company on or before such third
business day) (the “Delivery Date”) the Transfer Agent shall fail to issue and
deliver to a holder the number of shares of Common Stock to which such holder
is entitled upon such holder’s conversion of the Series B Preferred Stock or to
issue a new Preferred Stock Certificate representing the number of shares of
Series B Preferred Stock to which such holder is entitled pursuant to Section
5(b)(ii) (a “Conversion Failure”), in addition to all other available remedies
which such holder may pursue hereunder and under the Series A Convertible
Preferred Stock Purchase Agreement (the “Purchase Agreement”) among the Company
and the initial holders of the Series B Preferred Stock (including, without
limitation, indemnification pursuant to Section 6 thereof), the Company shall
pay additional damages to such holder on each business day after such third (3rd) business day that such
conversion is not timely effected in an amount equal to 0.5% of the product of
(A) the sum of the number of shares 

 7
 

of Common Stock not issued to the holder on a timely basis pursuant to
Section 5(b)(ii) and to which such holder is entitled and, in the event the
Company has failed to deliver a Preferred Stock Certificate to the holder on a
timely basis pursuant to Section 5(b)(ii), the number of shares of Common Stock
issuable upon conversion of the shares of Series B Preferred Stock represented
by such Preferred Stock Certificate, as of the last possible date which the
Company could have issued such Preferred Stock Certificate to such holder
without violating Section 5(b)(ii) and (B) the Closing Bid Price (as defined
below) of the Common Stock on the last possible date which the Company could
have issued such Common Stock and such Preferred Stock Certificate, as the case
may be, to such holder without violating Section 5(b)(ii).  If the Company fails to pay the additional
damages set forth in this Section 5(b)(v) within five (5) business days of the
date incurred, then such payment shall bear interest at the rate of 2.0% per
month (pro rated for partial months) until such payments are made.  The term “Closing Bid Price” shall mean, for
any security as of any date, the last closing bid price of such security on the
OTC Bulletin Board or other quotation venue or principal exchange on which such
security is traded as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the “pink sheets” by the
National Quotation Bureau, Inc.  If the
Closing Bid Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security on such date shall
be the fair market value as mutually determined by the Company and the holders
of a majority of the outstanding shares of Series B Preferred Stock.

(vi)          Buy-In Rights.  In addition to any other rights available to
the holders of Series B Preferred Stock, if the Company fails to cause its
Transfer Agent to transmit to the holder a certificate or certificates
representing the shares of Common Stock issuable upon conversion of the Series
B Preferred Stock on or before the Delivery Date, and if after such date the
holder is required by its broker to purchase (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
holder of the shares of Common Stock issuable upon conversion of Series B
Preferred Stock which the holder anticipated receiving upon such conversion (a “Buy-In”),
then the Company shall (1) pay in cash to the holder the amount by which (x)
the holder’s total purchase price (including, without limitation, brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds (y)
the amount obtained by multiplying (A) the number of shares of Common Stock
issuable upon conversion of Series B Preferred Stock that the Company was
required to deliver to the holder in connection with the conversion at issue
times (B) the price at which the sell order giving rise to such purchase
obligation was executed, and (2) at the option of the holder, either reinstate
the shares of Series B Preferred Stock and equivalent number of shares of
Common Stock for which such conversion was not honored or deliver to the holder
the number of shares of Common Stock that would have been issued had the
Company timely complied with its conversion and delivery obligations
hereunder.  For example, if the holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of shares of Common Stock with
an aggregate sale price giving rise to such purchase obligation of $10,000,
under clause (1) of the immediately preceding sentence the Company shall be
required to pay to the holder $1,000. The holder shall provide the Company
written notice indicating the amounts payable to the holder in respect of the
Buy-In, together with 

 8
 

applicable confirmations and other evidence reasonably requested by the
Company.  Nothing herein shall limit a
holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company’s failure to timely
deliver certificates representing shares of Common Stock upon conversion of the
Series B Preferred Stock as required pursuant to the terms hereof.

(c)           Intentionally
Omitted.

(d)           ­Conversion Price.

(i)            The
term “Conversion Price” shall mean $[    ], subject to
adjustment under Section 5(e) hereof. 
Notwithstanding any adjustment hereunder, at no time shall the
Conversion Price be greater than $[    ] per share except
if it is adjusted pursuant to Section 5(e)(i).

(ii)           Notwithstanding
the foregoing to the contrary, if during any period (a “Black-out Period”),
a holder of Series B Preferred Stock is unable to trade any Common Stock issued
or issuable upon conversion of the Series B Preferred Stock immediately due to
the postponement of filing or delay or suspension of effectiveness of the
Registration Statement or because the Company has otherwise informed such
holder of Series B Preferred Stock that an existing prospectus cannot be used
at that time in the sale or transfer of such Common Stock (provided that such
postponement, delay, suspension or fact that the prospectus cannot be used is
not due to factors solely within the control of the holder of Series B
Preferred Stock), such holder of Series B Preferred Stock shall have the option
but not the obligation on any Conversion Date within ten (10) trading days
following the expiration of the Black-out Period of using the Conversion Price
applicable on such Conversion Date or any Conversion Price selected by such
holder of Series B Preferred Stock that would have been applicable had such
Conversion Date been at any earlier time during the Black-out Period or within
the ten (10) trading days thereafter.

(e)           ­Adjustments of
Conversion Price.

(i)            ­Adjustments
for Stock Splits and Combinations. 
If the Company shall at any time or from time to time after the Original
Issue Date, effect a stock split of the outstanding Common Stock, the
Conversion Price shall be proportionately decreased.  If the Company shall at any time or from time
to time after the Original Issue Date, combine the outstanding shares of Common
Stock, the Conversion Price shall be proportionately increased.  Any adjustments under this Section 5(e)(i)
shall be effective at the close of business on the date the stock split or
combination becomes effective.

(ii)           ­Adjustments
for Certain Dividends and Distributions. 
If the Company shall at any time or from time to time after the Original
Issue Date, make or issue or set a record date for the determination of holders
of Common Stock entitled to receive a dividend or other distribution payable in
shares of Common Stock, then, and in each event, the Conversion Price shall be
decreased as of the time of such issuance or, in the event such record date
shall 

 9
 

have been fixed, as of the close of business on such record date, by
multiplying the Conversion Price then in effect by a fraction:

(1)           the
numerator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; and

(2)           the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution.

(iii)          ­Adjustment
for Other Dividends and Distributions. 
If the Company shall at any time or from time to time after the Original
Issue Date, make or issue or set a record date for the determination of holders
of Common Stock entitled to receive a dividend or other distribution payable in
securities of the Company other than shares of Common Stock, then, and in each
event, an appropriate revision to the applicable Conversion Price shall be made
and provision shall be made (by adjustments of the Conversion Price or
otherwise) so that the holders of Series B Preferred Stock shall receive upon
conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would
have received had their Series B Preferred Stock been converted into Common
Stock on the date of such event and had thereafter, during the period from the
date of such event to and including the Conversion Date, retained such
securities (together with any distributions payable thereon during such
period), giving application to all adjustments called for during such period
under this Section 5(e)(iii) with respect to the rights of the holders of the
Series B Preferred Stock; provided, however, that if such record
date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be adjusted pursuant to this paragraph as of the time of actual payment
of such dividends or distributions; and provided  further,
however, that no such adjustment shall be made if the holders of Series B
Preferred Stock simultaneously receive (i) a dividend or other
distribution of shares of Common Stock in a number equal to the number of
shares of Common Stock as they would have received if all outstanding shares of
Series B Preferred Stock had been converted into Common Stock on the date of
such event or (ii) a dividend or other distribution of shares of Series B
Preferred Stock which are convertible, as of the date of such event, into such
number of shares of Common Stock as is equal to the number of additional shares
of Common Stock being issued with respect to each share of Common Stock in such
dividend or distribution.

(iv)          ­Adjustments
for Reclassification, Exchange or Substitution.  If the Common Stock issuable upon conversion
of the Series B Preferred Stock at any time or from time to time after the
Original Issue Date shall be changed to the same or different number of shares
of any class or classes of stock, whether by reclassification, exchange,
substitution or otherwise (other than by way of a stock split or combination of
shares or stock dividends provided for in Sections 5(e)(i), (ii) and (iii), or
a reorganization, merger, consolidation, or sale of assets provided for in
Section 5(e)(v)), then, and in each event, an appropriate revision to the
Conversion Price shall be made and provisions shall be made (by adjustments of
the Conversion Price or otherwise) so that the holder of each share of Series B
Preferred Stock shall have the

 

 10

right thereafter to convert such share of Series B Preferred Stock into
the kind and amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which such share of Series B Preferred
Stock might have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further adjustment as
provided herein.

(v)           ­Adjustments
for Reorganization, Merger, Consolidation or Sales of  Assets.  If at any time or from time to time after the
Original Issue Date there shall be a capital reorganization of the Company
(other than by way of a stock split or combination of shares or stock dividends
or distributions provided for in Section 5(e)(i), (ii) and (iii), or a
reclassification, exchange or substitution of shares provided for in Section
5(e)(iv)), or a merger or consolidation of the Company with or into another
corporation where the holders of outstanding voting securities prior to such
merger or consolidation do not own over 50% of the outstanding voting
securities of the merged or consolidated entity, immediately after such merger
or consolidation, or the sale of all or substantially all of the Company’s properties
or assets to any other person (an “Organic Change”), then as a part of such
Organic Change an appropriate revision to the Conversion Price shall be made if
necessary and provision shall be made if necessary (by adjustments of the
Conversion Price or otherwise) so that the holder of each share of Series B
Preferred Stock shall have the right thereafter to convert such share of Series
B Preferred Stock into the kind and amount of shares of stock and other
securities or property of the Company or any successor corporation resulting
from Organic Change.  In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5(e)(v) with respect to the rights of the holders of the Series B
Preferred Stock after the Organic Change to the end that the provisions of this
Section 5(e)(v) (including any adjustment in the Conversion Price then in
effect and the number of shares of stock or other securities deliverable upon
conversion of the Series B Preferred Stock) shall be applied after that event
in as nearly an equivalent manner as may be practicable.

(vi)          Adjustments
for Issuance of Additional Shares of Common Stock.  In the event the Company, shall, at any time
from time to time, issue or sell any additional shares of Common Stock (except
as provided in the foregoing subsections (i) through (v) of this Section 5(e)
with respect to Common Stock Equivalents (hereafter defined) granted or issued
prior to the Original Issue Date) or pursuant to subsection (viii) below) (“Additional
Shares of Common Stock”), without consideration or at a consideration per share
less than the Conversion Price then in effect, then upon and concurrently with
each such issuance or deemed issuance the Conversion Price shall be reduced to
the consideration per share received by the Company for such issuance or deemed
issuance of Additional Shares of Common Stock.

(vii)         Issuance
of Common Stock Equivalents. The provisions of this Section 5(e)(vii) shall
apply if (a) the Company, at any time after the Original Issue Date, shall
issue any securities convertible into or exchangeable for, directly or
indirectly, Common Stock (“Convertible Securities”), other than the Series B
Preferred Stock, or (b) any rights or warrants or options to purchase any such
Common Stock or Convertible Securities (collectively, the “Common Stock
Equivalents”) shall be issued or sold. 
If the price per share for which Additional Shares of Common Stock may
be issuable pursuant to any such Common Stock Equivalent shall be less than the
applicable Conversion Price then in effect, or if, after any such 

 11
 

issuance of Common Stock Equivalents, the price per share for which
Additional Shares of Common Stock may be issuable thereafter is amended or
adjusted, and such price as so amended shall be less than the applicable
Conversion Price in effect at the time of such amendment or adjustment, then
the applicable Conversion Price upon each such issuance or amendment shall be
adjusted as provided in the first sentence of subsection (vi) of this Section
5(e).  No adjustment shall be made to the
Conversion Price upon the issuance of Common Stock pursuant to the exercise,
conversion or exchange of any Convertible Security or Common Stock Equivalent
where an adjustment to the Conversion Price was made as a result of the
issuance or purchase of any Convertible Security or Common Stock Equivalent.

(viii)        ­Consideration
for Stock.  In case any shares of
Common Stock or Convertible Securities other than the Series B Preferred Stock,
or any rights or warrants or options to purchase any such Common Stock or
Convertible Securities, shall be issued or sold:

(1)           in
connection with any merger or consolidation in which the Company is the
surviving corporation (other than any consolidation or merger in which the previously
outstanding shares of Common Stock of the Company shall be changed to or
exchanged for the stock or other securities of another corporation), the amount
of consideration therefore shall be, deemed to be the fair value, as determined
reasonably and in good faith by the Board of Directors of the Company, of such
portion of the assets and business of the nonsurviving corporation as such
Board may determine to be attributable to such shares of Common Stock,
Convertible Securities, rights or warrants or options, as the case may be; or

(2)           in
the event of any consolidation or merger of the Company in which the Company is
not the surviving corporation or in which the previously outstanding shares of
Common Stock of the Company shall be changed into or exchanged for the stock or
other securities of another corporation, or in the event of any sale of all or
substantially all of the assets of the Company for stock or other securities of
any corporation, the Company shall be deemed to have issued a number of shares
of its Common Stock for stock or securities or other property of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation.  If
any such calculation results in adjustment of the applicable Conversion Price,
or the number of shares of Common Stock issuable upon conversion of the Series
B Preferred Stock, the determination of the applicable Conversion Price or the
number of shares of Common Stock issuable upon conversion of the Series B
Preferred Stock immediately prior to such merger, consolidation or sale, shall
be made after giving effect to such adjustment of the number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock.  In the event any consideration received by
the Company for any securities consists of property other than cash, the fair
market value thereof at the time of issuance or as otherwise applicable shall
be as determined in good faith by the Board of Directors of the Company.  In the event Common Stock is issued with
other shares or securities or other assets of the Company for consideration which
covers both, the consideration computed as provided in this Section
(5)(e)(viii) shall be allocated among such securities and assets as determined
in good faith by the Board of Directors of the Company.

 12
 

(ix)           ­Record
Date.  In case the Company shall take
record of the holders of its Common Stock or any other Preferred Stock for the
purpose of entitling them to subscribe for or purchase Common Stock or
Convertible Securities, then the date of the issue or sale of the shares of
Common Stock shall be deemed to be such record date.

(x)            Certain
Issues Excepted.  Anything herein to
the contrary notwithstanding, the Company shall not be required to make any
adjustment to the Conversion Price upon (i) securities issued (other than for
cash) in connection with a merger, acquisition, or consolidation, (ii)
securities issued pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding on or prior to the date of the
Purchase Agreement or issued pursuant to the Purchase Agreement (so long as the
conversion or exercise price in such securities are not amended to lower such
price and/or adversely affect the holders), (iii) securities issued in
connection with bona fide strategic license agreements or other partnering
arrangements so long as such issuances are not for the purpose of raising
capital, (iv) Common Stock issued or the issuance or grants of options to
purchase Common Stock pursuant to the Company’s stock option plans and employee
stock purchase plans outstanding as they exist on the date of the Purchase
Agreement so long as approved by the Company’s Board of Directors, and (v) any
warrants issued to the placement agent and its designees for the transactions
contemplated by the Purchase Agreement.

(f)            ­No Impairment.  The Company shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Section 5 by the Company,
but will at all times in good faith assist in the carrying out of all the
provisions of this Section 5 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series B Preferred Stock against impairment.  In the event a holder shall elect to convert
any shares of Series B Preferred Stock as provided herein, the Company cannot
refuse conversion based on any claim that such holder or any one associated or
affiliated with such holder has been engaged in any violation of law, unless
(i) an order from the Securities and Exchange Commission prohibiting such
conversion or (ii) an injunction from a court, on notice, restraining and/or
adjoining conversion of all or of said shares of Series B Preferred Stock shall
have been issued and the Company posts a surety bond for the benefit of such
holder in an amount equal to 120% of the Liquidation Preference Amount of the
Series B Preferred Stock such holder has elected to convert, which bond shall
remain in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such holder in the event it obtains
judgment.

(g)           ­Certificates as
to Adjustments.  Upon occurrence of
each adjustment or readjustment of the Conversion Price or number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock pursuant
to this Section 5, the Company at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of such Series B Preferred Stock a certificate setting forth such
adjustment and readjustment, showing in detail the facts upon which such
adjustment or readjustment is based.  The
Company shall, upon written request of the holder of such affected Series B
Preferred Stock, at any time, furnish or cause to be furnished to such holder a
like certificate 

 13
 

setting forth such adjustments and readjustments, the Conversion Price
in effect at the time, and the number of shares of Common Stock and the amount,
if any, of other securities or property which at the time would be received
upon the conversion of a share of such Series B Preferred Stock.  Notwithstanding the foregoing, the Company
shall not be obligated to deliver a certificate unless such certificate would
reflect an increase or decrease of at least one percent of such adjusted amount.

(h)           ­Issue Taxes.  The Company shall pay any and all issue and
other taxes, excluding federal, state or local income taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Series B Preferred Stock pursuant hereto; provided,
however, that the Company shall not be obligated to pay any transfer
taxes resulting from any transfer requested by any holder in connection with
any such conversion.

(i)            ­Notices.  All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by facsimile or three (3) business days following being mailed by certified
or registered mail, postage prepaid, return-receipt requested, addressed to the
holder of record at its address appearing on the books of the Company.  The Company will give written notice to each
holder of Series B Preferred Stock at least twenty (20) days prior to the date
on which the Company closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, (II) with respect to any pro
rata subscription offer to holders of Common Stock or (III) for determining
rights to vote with respect to any Organic Change, dissolution, liquidation or
winding-up and in no event shall such notice be provided to such holder prior
to such information being made known to the public.  The Company will also give written notice to
each holder of Series B Preferred Stock at least twenty (20) days prior to the
date on which any Organic Change, dissolution, liquidation or winding-up will
take place and in no event shall such notice be provided to such holder prior
to such information being made known to the public.

(j)            ­Fractional
Shares.  No fractional shares of
Common Stock shall be issued upon conversion of the Series B Preferred
Stock.  In lieu of any fractional shares
to which the holder would otherwise be entitled, the Company shall round the
number of shares to be issued upon conversion up to the nearest whole number of
shares.

(k)           ­Reservation
of Common Stock.  The Company shall,
so long as any shares of Series B Preferred Stock are outstanding, reserve and
keep available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Series B Preferred Stock, such
number of shares of Common Stock equal to at least one hundred twenty percent
(120%) of the aggregate number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the shares of Series B
Preferred Stock then outstanding.  The
initial number of shares of Common Stock reserved for conversions of the Series
B Preferred Stock and any increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Series B Preferred Stock based on
the number of shares of Series B Preferred Stock held by each holder of record
at the time of issuance of the Series B Preferred Stock or increase in the
number of reserved shares, as the case may be. 
In the event a holder shall sell or otherwise transfer any of such holder’s
shares of Series B Preferred Stock, 

 14
 

each transferee shall be allocated a pro rata portion of the number of
reserved shares of Common Stock reserved for such transferor.    Any shares of Common Stock reserved and
which remain allocated to any person or entity which does not hold any shares
of Series B Preferred Stock shall be allocated to the remaining holders of
Series B Preferred Stock, pro rata based on the number of shares of Series B
Preferred Stock then held by such holder.

(l)            ­Retirement of Series
B Preferred Stock.  Conversion of
Series B Preferred Stock shall be deemed to have been effected on the
Conversion Date.  Upon conversion of only
a portion of the number of shares of Series B Preferred Stock represented by a
certificate surrendered for conversion, the Company shall issue and deliver to
such holder at the expense of the Company, a new certificate covering the
number of shares of Series B Preferred Stock representing the unconverted
portion of the certificate so surrendered as required by Section 5(b)(ii).

(m)          ­Regulatory
Compliance.  If any shares of Common
Stock to be reserved for the purpose of conversion of Series B Preferred Stock
require registration or listing with or approval of any governmental authority,
stock exchange or other regulatory body under any federal or state law or
regulation or otherwise before such shares may be validly issued or delivered
upon conversion, the Company shall, at its sole cost and expense, in good faith
and as expeditiously as possible, endeavor to secure such registration, listing
or approval, as the case may be.

6.             ­No Preemptive Rights.  Except as provided in Section 5 hereof and in
the Transaction Documents (as defined in the Purchase Agreement), no holder of
the Series B Preferred Stock shall be entitled to rights to subscribe for,
purchase or receive any part of any new or additional shares of any class,
whether now or hereinafter authorized, or of bonds or debentures, or other
evidences of indebtedness convertible into or exchangeable for shares of any
class, but all such new or additional shares of any class, or any bond,
debentures or other evidences of indebtedness convertible into or exchangeable
for shares, may be issued and disposed of by the Board of Directors on such
terms and for such consideration (to the extent permitted by law), and to such
person or persons as the Board of Directors in their absolute discretion may
deem advisable.

7.             Intentionally Omitted.

8.             ­Redemption.

(a)           ­Redemption
Option Upon Major Transaction.  In
addition to all other rights of the holders of Series B Preferred Stock
contained herein, simultaneous with the occurrence of a Major Transaction (as
defined below), each holder of Series B Preferred Stock shall have the right,
at such holder’s option, to require the Company to redeem all or a portion of
such holder’s shares of Series B Preferred Stock at a price per share of Series
B Preferred Stock equal to one hundred ten percent (110%) of the Liquidation
Preference Amount, plus any accrued but unpaid dividends and liquidated damages
(the “Major Transaction Redemption Price”); provided that the Company shall
have the sole option to pay the Major Transaction Redemption Price in cash or
shares of Common Stock.  If the Company
elects to pay the Major 

 15
 

Transaction Redemption Price in shares of Common Stock, the price per
share shall be based upon the Conversion Price
then in effect on the day preceding the date of delivery of the
Notice of Redemption at Option of Buyer Upon Major Transaction (as hereafter
defined) and the holder of such shares of Common Stock shall have demand
registration rights with respect to such shares.

(b)           ­ Redemption
Option Upon Triggering Event.  In
addition to all other rights of the holders of Series B Preferred Stock
contained herein, after a Triggering Event (as defined below), each holder of
Series B Preferred Stock shall have the right, at such holder’s option, to
require the Company to redeem all or a portion of such holder’s shares of
Series B Preferred Stock at a price per share of Series B Preferred Stock equal
to one hundred twenty percent (120%) of the Liquidation Preference Amount, plus
any accrued but unpaid dividends and liquidated damages the “Triggering Event
Redemption Price” and, collectively with the “Major Transaction Redemption
Price,” the “Redemption Price”); provided that with respect to the Triggering
Events described in clauses (i), (ii), (iii) and (vii) of Section 8(d), the
Company shall have the sole option to pay the Triggering Event Redemption Price
in cash or shares of Common Stock; and provided, further, that with respect to
the Triggering Event described in clauses (iv), (v) and (vi) of Section 8(d),
the Company shall pay the Triggering Event Redemption Price in cash.  If the Company elects to pay the Triggering
Event Redemption Price in shares of Common Stock in accordance with this
Section 8(b), the price per share shall be based upon the Conversion Price  then in effect on the day preceding the
date of delivery of the Notice of Redemption at Option of Buyer Upon Triggering
Event and the holder of such shares of Common Stock shall have demand
registration rights with respect to such shares.

(c)           “Major
Transaction”.  A “Major Transaction”
shall be deemed to have occurred at such time as any of the following events:

(i)            the
consolidation, merger or other business combination of the Company with or into
another Person (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company or
(B) a consolidation, merger or other business combination in which holders of
the Company’s voting power immediately prior to the transaction continue after
the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of
the board of directors (or their equivalent if other than a corporation) of
such entity or entities).

(ii)           the
sale or transfer of more than 50% of the Company’s assets other than inventory
in the ordinary course of business in one or a related series of transactions;
or

(iii)          closing
of a purchase, tender or exchange offer made to the holders of more than fifty
percent (50%) of the outstanding shares of Common Stock in which more than
fifty percent (50%) of the outstanding shares of Common Stock were tendered and
accepted.

(d)           ­“Triggering
Event”.  A “Triggering Event” shall
be deemed to have occurred at such time as any of the following events:

 16
 

(i)            so
long as any shares of Series B Preferred Stock are outstanding, the effectiveness
of the Registration Statement, after it becomes effective, (i) lapses for any
reason (including, without limitation, the issuance of a stop order) and such
lapse continues for a period of twenty (20) consecutive trading days, or (ii)
is unavailable to the holder of the Series B Preferred Stock for sale of the
shares of Common Stock, and such lapse or unavailability continues for a period
of twenty (20) consecutive trading days, and the shares of Common Stock into
which such holder’s Series B Preferred Stock can be converted cannot be sold in
the public securities market pursuant to Rule 144(k) under the Securities Act
of 1933, as amended (“Rule 144(k)”), provided that the cause of such
lapse or unavailability is not due to factors solely within the control of such
holder of Series B Preferred Stock.

(ii)           the
suspension from listing or trading, without subsequent listing on any one of,
or the failure of the Common Stock to be listed or traded on at least one of,
the OTC Bulletin Board, the Nasdaq National Market, the Nasdaq Capital Market,
the New York Stock Exchange, Inc. or the American Stock Exchange, Inc., for a
period of five (5) consecutive trading days;

(iii)          the
Company’s notice to any holder of Series B Preferred Stock, including by way of
public announcement, at any time, of its inability to comply (including,
without limitation, for any of the reasons described in Section 9) or its
intention not to comply with proper requests for conversion of any Series B
Preferred Stock into shares of Common Stock; or

(iv)          the
Company’s failure to comply with a Conversion Notice tendered in accordance
with the provisions of this Certificate of Designation within ten (10) business
days after the receipt by the Company of the Conversion Notice and the Preferred
Stock Certificates; or

(v)           the
Company deregisters its shares of Common Stock and as a result such shares of
Common Stock are no longer publicly traded; or

(vi)          the
Company consummates a “going private” transaction and as a result the Common
Stock is no longer registered under Sections 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended; or

(vii)         the
Company breaches any representation, warranty, covenant or other term or
condition of the Purchase Agreement, this Certificate of Designation or any
other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby or hereby, except to the
extent that such breach would not have a Material Adverse Effect (as defined in
the Purchase Agreement) and except, in the case of a breach of a covenant which
is curable, only if such breach continues for a period of a least ten (10)
business days.

(e)           Mechanics of
Redemption at Option of Buyer Upon Major Transaction.  No sooner than fifteen (15) days nor later
than ten (10) days prior to the consummation of a Major Transaction, but not
prior to the public announcement of such Major Transaction, the 

 17
 

Company shall deliver written notice thereof via facsimile and
overnight courier (“Notice of Major Transaction”) to each holder of Series B
Preferred Stock.  At any time after
receipt of a Notice of Major Transaction (or, in the event a Notice of Major
Transaction is not delivered at least ten (10) days prior to a Major Transaction,
at any time within ten (10) days prior to a Major Transaction), any holder of
Series B Preferred Stock then outstanding may require the Company to redeem,
effective immediately prior to the consummation of such Major Transaction, all
of the holder’s Series B Preferred Stock then outstanding by delivering written
notice thereof via facsimile and overnight courier (“Notice of Redemption at
Option of Buyer Upon Major Transaction”) to the Company, which Notice of
Redemption at Option of Buyer Upon Major Transaction shall indicate (i) the
number of shares of Series B Preferred Stock that such holder is electing to
redeem and (ii) the applicable Major Transaction Redemption Price, as
calculated pursuant to Section 8(a) above.

(f)            ­­Mechanics of
Redemption at Option of Buyer Upon Triggering Event.  Within one (1) business day after the Company
obtains knowledge of the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier (“Notice of
Triggering Event”) to each holder of Series B Preferred Stock.  At any time after the earlier of a holder’s
receipt of a Notice of Triggering Event and such holder becoming aware of a
Triggering Event, any holder of Series B Preferred Stock then outstanding may
require the Company to redeem all of the Series B Preferred Stock by delivering
written notice thereof via facsimile and overnight courier (“Notice of
Redemption at Option of Buyer Upon Triggering Event”) to the Company, which
Notice of Redemption at Option of Buyer Upon Triggering Event shall indicate
(i) the number of shares of Series B Preferred Stock that such holder is
electing to redeem and (ii) the applicable Triggering Event Redemption Price,
as calculated pursuant to Section 8(b) above.

(g)           Payment of
Redemption Price.  Upon the Company’s
receipt of a Notice(s) of Redemption at Option of Buyer Upon Triggering Event
or a Notice(s) of Redemption at Option of Buyer Upon Major Transaction from any
holder of Series B Preferred Stock, the Company shall immediately notify such
holder of Series B Preferred Stock by facsimile of the Company’s receipt of
such Notice(s) of Redemption at Option of Buyer Upon Triggering Event or
Notice(s) of Redemption at Option of Buyer Upon Major Transaction and each
holder which has sent such a notice shall promptly submit to the Company such
holder’s Preferred Stock Certificates which such holder has elected to have
redeemed.  Other than with respect to the
Triggering Event described in clause (iv) of Section 8(d), the Company shall
have the sole option to pay the Redemption Price in cash or shares of Common
Stock in accordance with Sections 8(a) and (b) and Section 9 of this
Certificate of Designation.  The Company
shall deliver the applicable Major Transaction Redemption Price immediately
prior to the consummation of the Major Transaction; provided that a
holder’s Preferred Stock Certificates shall have been so delivered to the
Company; provided  further that if the Company is unable to redeem
all of the Series B Preferred Stock to be redeemed, the Company shall redeem an
amount from each holder of Series B Preferred Stock being redeemed equal to
such holder’s pro-rata amount (based on the number of shares of Series B
Preferred Stock held by such holder relative to the number of shares of Series
B Preferred Stock outstanding) of all Series B Preferred Stock being
redeemed.  If the Company shall fail to
redeem all of the Series B Preferred Stock submitted for redemption (other than
pursuant to a dispute as to the arithmetic calculation of the Redemption
Price), in 

 18
 

addition to any remedy such holder of Series B Preferred Stock may have
under this Certificate of Designation and the Purchase Agreement, the
applicable Redemption Price payable in respect of such unredeemed Series B
Preferred Stock shall bear interest at the rate of 2.0% per month (prorated for
partial months) until paid in full. 
Until the Company pays such unpaid applicable Redemption Price in full
to a holder of shares of Series B Preferred Stock submitted for redemption,
such holder shall have the option (the “Void Optional Redemption Option”) to,
in lieu of redemption, require the Company to promptly return to such holder(s)
all of the shares of Series B Preferred Stock that were submitted for
redemption by such holder(s) under this Section 8 and for which the applicable
Redemption Price has not been paid, by sending written notice thereof to the
Company via facsimile (the “Void Optional Redemption Notice”).  Upon the Company’s receipt of such Void
Optional Redemption Notice(s) and prior to payment of the full applicable
Redemption Price to such holder, (i) the Notice(s) of Redemption at Option of
Buyer Upon Major Transaction or Notice(s) of Redemption at Option of Buyer Upon
Triggering Event (as applicable) shall be null and void with respect to those
shares of Series B Preferred Stock submitted for redemption and for which the
applicable Redemption Price has not been paid and (ii) the Company shall
immediately return any Series B Preferred Stock submitted to the Company by
each holder for redemption under this Section 8(d) and for which the applicable
Redemption Price has not been paid and (iii) the Conversion Price of such
returned shares of Series B Preferred Stock shall be adjusted to the lesser of
(A) the Conversion Price and (B) the lowest Closing Bid Price during the period
beginning on the date on which the Notice(s) of Redemption of Option of Buyer
Upon Major Transaction or Notice(s) of Redemption of Option of Buyer Upon
Triggering Event is delivered to the Company and ending on the date on which
the Void Optional Redemption Notice(s) is delivered to the Company; provided
that no adjustment shall be made if such adjustment would result in an increase
of the Conversion Price then in effect; provided that no adjustment
shall be made if such adjustment would result in an increase of the Conversion
Price then in effect.  A holder’s
delivery of a Void Optional Redemption Notice and exercise of its rights
following such notice shall not effect the Company’s obligations to make any
payments which have accrued prior to the date of such notice other than
interest payments.  Payments provided for
in this Section 8 shall have priority to payments to other stockholders in
connection with a Major Transaction.

(h)           Demand
Registration Rights.  If the
Redemption Price upon the occurrence of a Major Transaction or a Triggering
Event is paid in shares of Common Stock and such shares have not been
previously registered on a registration statement under the Securities Act, a
holder of Series B Preferred Stock may make a written request for registration
under the Securities Act pursuant to this Section 8(h) of all of its shares of
Common Stock issued upon such Major Transaction or Triggering Event.  The Company shall use its reasonable best
efforts to cause to be filed and declared effective as soon as reasonably
practicable (but in no event later than the ninetieth (90th) day after such holder’s
request is made) a registration statement under the Securities Act, providing
for the sale of all of the shares of Common Stock issued upon such Major
Transaction or Triggering Event by such holder. 
The Company agrees to use its reasonable best efforts to keep any such
registration statement continuously effective for resale of the Common Stock
for so long as such holder shall request, but in no event shall the Company be
required to maintain the effectiveness of such registration statement later
than the date that the shares of Common Stock issued upon such Major
Transaction or Triggering Event may be offered for resale to the public
pursuant to Rule 144(k).

 19
 

(i)            Holder’s
Redemption Option.  In addition to
all other rights of the holders of Series B Preferred Stock contained herein,
on any date that is at least five (5) years following the Issuance Date (“Redemption
Option Date”), each holder of Series B Preferred Stock shall have the right, at
such holder’s option, to require the Company to redeem all or a portion of such
holder’s shares of Series B Preferred Stock (the “Redemption Option”) at a
price per share of Series B Preferred Stock equal to one hundred percent (100%)
of the Liquidation Preference Amount, plus any accrued but unpaid dividends and
liquidated damages.  The Holder shall
exercise the Redemption Option by delivering written notice thereof via
facsimile and overnight courier (“Notice of Redemption Option”) to the Company
five (5) days prior to the Redemption Option Date, which Notice of Redemption
Option shall indicate (i) the number of shares of Series B Preferred Stock that
such holder is electing to redeem and (ii) the applicable Holder’s Redemption
Option Price.  For purposes hereof, “VWAP”
shall mean, for any date, (i) the daily volume weighted average closing price
of the Common Stock for such date on the OTC Bulletin Board as reported by
Bloomberg Financial L.P. (based on a trading day from 9:30 a.m. Eastern Time to
4:02 p.m. Eastern Time); (ii) if the Common Stock is not then listed or
quoted on the OTC Bulletin Board and if prices for the Common Stock are then
reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or
(iii) in all other cases, the fair market value of a share of Common Stock
as determined by an independent appraiser selected in good faith by the Holder
and reasonably acceptable to the Company. 
If, upon the Company’s receipt of a Notice of Redemption Option, the
Company cannot redeem the number of holder’s shares of Series B Preferred Stock
indicated on such notice, than the holder shall have the option to appoint
additional members (“Additional Designees”) to the Board of the
Directors, which the Company shall appoint no later than thirty (30) days
following the receipt of the Notice of Redemption Option, such that such
Additional Designees plus the Purchaser Designees (as defined in the Purchase
Agreement) shall comprise the majority of the members of the Board of Directors
of the Company.

9.             ­Inability to Fully Convert.

(a)           ­Holder’s Option
if Company Cannot Fully Convert.  If,
upon the Company’s receipt of a Conversion Notice, the Company cannot issue
shares of Common Stock registered for resale under the Registration Statement
for any reason, including, without limitation, because the Company (w) does not
have a sufficient number of shares of Common Stock authorized and available,
(x) is otherwise prohibited by applicable law or by the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities from issuing
all of the Common Stock which is to be issued to a holder of Series B Preferred
Stock pursuant to a Conversion Notice or (y) subsequent to the effective date
of the Registration Statement, fails to have a sufficient number of shares of
Common Stock registered for resale under the Registration Statement, then the
Company shall issue as many shares of Common Stock as it is able to issue in
accordance with such holder’s Conversion Notice and pursuant to Section
5(b)(ii) above and, with respect to the unconverted Series B Preferred Stock,
the holder, solely at such holder’s option, can elect, within five (5) business
days after receipt of notice from the Company thereof to:

 

 20

(i)            require
the Company to redeem from such holder those Series B Preferred Stock for which
the Company is unable to issue Common Stock in accordance with such holder’s
Conversion Notice (“Mandatory Redemption”) at a price per share equal to the
Major Transaction Redemption Price as of such Conversion Date (the “Mandatory
Redemption Price”); provided that the Company shall have the sole option to pay
the Mandatory Redemption Price in cash or shares of Common Stock;

(ii)           if
the Company’s inability to fully convert Series B Preferred Stock is pursuant
to Section 9(a)(y) above, require the Company to issue restricted shares of
Common Stock in accordance with such holder’s Conversion Notice and pursuant to
Section 5(b)(ii) above;

(iii)          void
its Conversion Notice and retain or have returned, as the case may be, the
shares of Series B Preferred Stock that were to be converted pursuant to such
holder’s Conversion Notice (provided that a holder’s voiding its Conversion
Notice shall not effect the Company’s obligations to make any payments which
have accrued prior to the date of such notice); or

(iv)          exercise
its Buy-In rights pursuant to and in accordance with the terms and provisions
of Section 5(b)(vi) hereof.

(b)           ­Mechanics of
Fulfilling Holder’s Election.  The
Company shall immediately send via facsimile or overnight courier to a holder
of Series B Preferred Stock, upon receipt of an original or facsimile copy of a
Conversion Notice from such holder which cannot be fully satisfied as described
in Section 9(a) above, a notice of the Company’s inability to fully satisfy
such holder’s Conversion Notice (the “Inability to Fully Convert Notice”).  Such Inability to Fully Convert Notice shall
indicate (i) the reason why the Company is unable to fully satisfy such holder’s
Conversion Notice, (ii) the number of Series B Preferred Stock which cannot be
converted and (iii) the applicable Mandatory Redemption Price.  Such holder shall notify the Company of its
election pursuant to Section 9(a) above by delivering written notice via
facsimile to the Company (“Notice in Response to Inability to Convert”).

(c)           ­Payment of
Redemption Price.  If such holder
shall elect to have its shares redeemed pursuant to Section 9(a)(i) above, the
Company shall pay the Mandatory Redemption Price to such holder within thirty
(30) days of the Company’s receipt of the holder’s Notice in Response to
Inability to Convert, provided that prior to the Company’s receipt of
the holder’s Notice in Response to Inability to Convert the Company has not
delivered a notice to such holder stating, to the satisfaction of the holder,
that the event or condition resulting in the Mandatory Redemption has been
cured and all Conversion Shares issuable to such holder can and will be
delivered to the holder in accordance with the terms of Section 2(g).  If the Company shall fail to pay the
applicable Mandatory Redemption Price to such holder on a timely basis as
described in this Section 9(c) (other than pursuant to a dispute as to the
determination of the arithmetic calculation of the Redemption Price), in
addition to any remedy such holder of Series B Preferred Stock may have under
this Certificate of Designation and the Purchase Agreement, such unpaid amount
shall bear interest at the rate of 2.0% per month (prorated for partial months)

 21
 

until paid in full.  Until the
full Mandatory Redemption Price is paid in full to such holder, such holder may
(i) void the Mandatory Redemption with respect to those Series B Preferred
Stock for which the full Mandatory Redemption Price has not been paid, (ii)
receive back such Series B Preferred Stock, and (iii) require that the
Conversion Price of such returned Series B Preferred Stock be adjusted to the
lesser of (A) the Conversion Price and (B) the lowest Closing Bid Price during
the period beginning on the Conversion Date and ending on the date the holder
voided the Mandatory Redemption.

(d)           ­Pro-rata
Conversion and Redemption.  In the
event the Company receives a Conversion Notice from more than one holder of
Series B Preferred Stock on the same day and the Company can convert and redeem
some, but not all, of the Series B Preferred Stock pursuant to this Section 9,
the Company shall convert and redeem from each holder of Series B Preferred
Stock electing to have Series B Preferred Stock converted and redeemed at such
time an amount equal to such holder’s pro-rata amount (based on the number
shares of Series B Preferred Stock held by such holder relative to the number
shares of Series B Preferred Stock outstanding) of all shares of Series B
Preferred Stock being converted and redeemed at such time.

10.           ­Vote to Change the Terms of or
Issue Preferred Stock.  The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than seventy-five percent
(75%) of the then outstanding shares of Series B Preferred Stock (in addition
to any other corporate approvals then required to effect such action), shall be
required (a) for any change to this Certificate of Designation or the Company’s
Articles of Incorporation which would amend, alter, change or repeal any of the
powers, designations, preferences and rights of the Series B Preferred Stock or
(b) for the issuance of shares of Series B Preferred Stock other than pursuant
to the Purchase Agreement.

11.           ­Lost or Stolen Certificates.  Upon receipt by the Company of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Preferred Stock Certificates representing the shares of Series B Preferred
Stock, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like tenor and
date; provided, however, that the Company shall not be obligated
to re-issue Preferred Stock Certificates if the holder contemporaneously
requests the Company to convert such shares of Series B Preferred Stock into
Common Stock.

12.           ­Remedies, Characterizations,
Other Obligations, Breaches and Injunctive  Relief.  The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), no remedy contained
herein shall be deemed a waiver of compliance with the provisions giving rise
to such remedy and nothing herein shall limit a holder’s right to pursue actual
damages for any failure by the Company to comply with the terms of this
Certificate of Designation.  Amounts set
forth or provided for herein with respect to payments, conversion and the like
(and the computation thereof) shall be the amounts to be received by the holder
thereof and shall not, except as expressly provided herein, be subject to any
other obligation of the Company (or the performance thereof).  The 

 22
 

Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to the
holders of the Series B Preferred Stock 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 holders of the Series B Preferred Stock 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.

13.           ­Specific Shall Not Limit General;
Construction.  No specific provision
contained in this Certificate of Designation shall limit or modify any more
general provision contained herein.  This
Certificate of Designation shall be deemed to be jointly drafted by the Company
and all initial purchasers of the Series B Preferred Stock and shall not be
construed against any person as the drafter hereof.

14.           ­Failure or Indulgence Not Waiver.  No failure or delay on the part of a holder
of Series B Preferred Stock in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.

15.           Demand Registration Rights for
Additional Registrable Securities.

(a)           A holder may make a written request
to the Company (a “Demand Notice”) for registration under the Securities Act (a
“Demand Registration”), pursuant to this Section 15 of all of shares of Common
Stock issuable upon the conversion of the Series B Preferred Stock issuable
upon exercise of the Series B Warrants (the “Additional Registrable Securities”)
of the Company; provided, however, that the Company shall not be obligated to
effect more than two Demand Registrations pursuant to this Section 15 (which
registration shall be made on Form SB-2, or a successor form thereto, if
available for use by the Company).  The
Company shall use its reasonable best efforts to file a registration statement
under the Securities Act providing for the resale of all of the Additional
Registrable Securities within thirty (30) days following delivery of the Demand
Notice (the “Filing Date”) and have it declared effective within ninety (90)
days following delivery of the Demand Notice (the “Effectiveness Date”).  The Company agrees to use its reasonable best
efforts to keep any such registration statement continuously effective for
resale of the Additional Registrable Securities for so long as a holder shall
request, but in no event shall the Company be required to maintain the
effectiveness of such registration statement later than the date that the
Additional Registrable Securities may be offered for resale to the public
pursuant to Rule 144(k) (the “Effectiveness Period”).

(b)           A holder may, at any
time prior to the effective date of the registration statement relating to such
registration, revoke such request by providing a written notice to the Company
revoking such request.  If a holder shall
revoke any demand for registration or such Demand Registration otherwise fails
to become effective as a result of any action or inaction by such holder, a
holder shall count such revoked demand as one completed demand for registration
pursuant to this Section 15.

(c)           A Demand Registration
requested pursuant to this Section 15 will not be deemed to have been effected
unless the registration statement relating thereto has become 

 23
 

effective
under the Securities Act and remained effective for a period of ninety (90)
days following the effective date of such registration statement.

(d)           The Company and the
holder of the Series B Preferred Stock agree that the holder will suffer
damages if the registration statement is not filed on or prior to the Filing
Date and not declared effective by the SEC on or prior to the Effectiveness
Date.  The Company and the Holder further
agree that it would not be feasible to ascertain the extent of such damages
with precision.  Accordingly, if (A) the
registration statement is not filed on or prior to the Filing Date, or (B) the
registration statement is not declared effective by the SEC on or prior to the
Effectiveness Date, or (C) the Company fails to file with the SEC a request for
acceleration in accordance with Rule 461 promulgated under the Securities Act
within three (3) business days of the date that the Company is notified (orally
or in writing, whichever is earlier) by the SEC that a registration statement
will not be “reviewed,” or not subject to further review, or (D) the
registration statement is filed with and declared effective by the SEC but
thereafter ceases to be effective at any time prior to the expiration of the
Effectiveness Period, or (E) trading in the Common Stock shall be suspended or
if the Common Stock is no longer quoted on or delisted from the principal
exchange on which the Common Stock is then traded for any reason for more than
three (3) business days in the aggregate (any such failure or breach being
referred to as an “Event,” and for purposes of clauses (A) and (B) the
date on which such Event occurs, or for purposes of clause (C) the date on
which such three (3) business day period is exceeded, or for purposes of clause
(D) after more than fifteen (15) business days, or for purposes of clause (E)
the date on which such three (3) business day period is exceeded, being
referred to as “Event Date”), the Company shall pay an amount as
liquidated damages to the Holder, payable in cash, equal to one and one-half
percent (1.5%) of the aggregate Warrant Price paid pursuant to the exercise of
Series B Warrant for each calendar month or portion thereof thereafter from the
Event Date until the applicable Event is cured; provided, however,
that in no event shall the amount of liquidated damages payable at any time and
from time to time to any Holder pursuant to this Section 13(d) exceed an
aggregate of fifteen percent (15%) of the aggregate Warrant Price paid pursuant
to the exercise of this Warrant. 
Liquidated damages payable by the Company pursuant to this Section 13(d)
shall be payable on the first (1st) business day of each thirty (30) day
period following the Event Date.

 24
 

IN
WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate
and does affirm the foregoing as true this        
day of               ,
200   .

	
  

  	
  NASCENT WINE COMPANY, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Sandro Piancone

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  

 

 25
 

EXHIBIT I

NASCENT
WINE COMPANY, INC.

CONVERSION NOTICE

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

	
  Date of Conversion:

  	
   

  
	
   

  	
   

  	
   

  
	
  Number of Preferred Shares to be converted:

  	
   

  
	
   

  	
   

  	
   

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

  	
   

  
	
   

  	
   

  	
   

  
	
  The Common Stock have
  been sold pursuant to the Registration Statement: YES o   NO
  o

  
	
   

  	
   

  	
   

  
	
  Please confirm
  the following information:

  	
   

  
	
   

  	
   

  	
   

  
	
  Conversion Price:

  	
   

  
	
   

  	
   

  	
   

  
	
  Number of shares of Common Stock

  	
   

  	
   

  
	
  to be issued:

  	
   

  
	
   

  	
   

  	
   

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

  	
   

  
	
   

  	
   

  	
   

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

  
	
   

  	
   

  	
   

  
	
  Issue to:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Facsimile Number:

  	
   

  
	
   

  	
   

  	
   

  
	
  Authorization:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
  Dated:

  	
   

  

 

 26Exhibit
10.4

REGISTRATION
RIGHTS AGREEMENT

This Registration
Rights Agreement (this “Agreement”) is made and entered into as of July
3, 2007, by and among Nascent Wine Company, Inc., a Nevada corporation (the “Company”),
and the purchasers listed on Schedule I hereto (the “Purchasers”).

This Agreement is
being entered into pursuant to the Series A Convertible Preferred Stock
Purchase Agreement dated as of the date hereof among the Company and the
Purchasers (the “Purchase Agreement”).

The Company and
the Purchasers hereby agree as follows:

1.            Definitions.

Capitalized terms
used and not otherwise defined herein shall have the meanings given such terms
in the Purchase Agreement.  As used in
this Agreement, the following terms shall have the following meanings:

“Advice”
shall have meaning set forth in Section 3(m).

“Affiliate”
means, with respect to any Person, any other Person that directly or indirectly
controls or is controlled by or under common control with such Person.  For the purposes of this definition, “control,”
when used with respect to any Person, means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of “affiliated,” “controlling” and “controlled”
have meanings correlative to the foregoing.

“Board”
shall have meaning set forth in Section 3(n).

“Business Day”
means any day except Saturday, Sunday and any day which shall be a legal holiday
or a day on which banking institutions in the state of New York generally are
authorized or required by law or other government actions to close.

“Closing Date”
means the date of the closing of the purchase and sale of the Preferred Stock
and the Warrants pursuant to the Purchase Agreement.

“Commission”
means the Securities and Exchange Commission.

“Common Stock”
means the Company’s Common Stock, par value $0.001 per share.

“Effectiveness Date” means with respect to the
Registration Statement the earlier of (A) the sixtieth (60th) day following the Filing
Date (or in the event the Registration Statement receives a “full review” by
the Commission, the ninetieth (90th))
day following the Filing Date) or (B) the date which is within three (3)
Business Days after the date on which the Commission informs the Company (i)
that the Commission will not review the Registration Statement or (ii)  that the Company may request the acceleration of the
effectiveness of the Registration Statement and the Company makes such request;
provided  that, if the Effectiveness Date falls on a

 

Saturday, Sunday or any other day which shall be a legal holiday or a
day on which the Commission is authorized or required by law or other
government actions to close, the Effectiveness Date shall be the following
Business Day.

“Effectiveness
Period” shall have the meaning set forth in Section 2.

“Event”
shall have the meaning set forth in Section 7(e).

“Event Date”
shall have the meaning set forth in Section 7(e).

“Exchange Act”
means the Securities Exchange Act of 1934, as amended.

“Filing Date” means the thirtieth (30th) day following the Closing
Date; provided  that, if the Filing Date falls on a Saturday,
Sunday or any other day which shall be a legal holiday or a day on which the
Commission is authorized or required by law or other government actions to
close, the Filing Date shall be the following Business Day.

“Holder” or
“Holders” means the holder or holders, as the case may be, from time to
time of Registrable Securities.

“Indemnified Party”
shall have the meaning set forth in Section 5(c).

“Indemnifying Party”
shall have the meaning set forth in Section 5(c).

“Losses”
shall have the meaning set forth in Section  5(a).

“Person”
means an individual or a corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.

“Preferred
Stock” means shares of the Company’s Series A Convertible Preferred Stock
issued to the Purchasers pursuant to the Purchase Agreement.

“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition), whether
commenced or threatened.

“Prospectus”
means the prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.

“Registrable
Securities means the shares of Common Stock issuable upon conversion of the
Preferred Stock.

 2
 

 

“Registration
Statement” means the registration statements and any additional
registration statements contemplated by Section 2, including (in each case) the
Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference in such registration statement.

“Rule 144”
means Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such Rule.

“Rule 158”
means Rule 158 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such Rule.

“Rule 415”
means Rule 415 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such Rule.

“Rule 424”
means Rule 424 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as
such Rule.

“Securities Act”
means the Securities Act of 1933, as amended.

“Special
Counsel” means Kramer Levin Naftalis & Frankel LLP or such counsel as
may be appointed by the Holders from time to time, for which the Holders will
be reimbursed by the Company pursuant to Section 4.

2.             Resale Registration.  On or prior to the Filing Date, the Company
shall prepare and file with the Commission a “resale” Registration Statement
providing for the resale of all Registrable Securities for an offering to be
made on a continuous basis pursuant to Rule 415.  The Registration Statement shall be on Form
SB-2 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form SB-2, in which case such registration shall be
on another appropriate form in accordance herewith and the Securities Act and
the rules promulgated thereunder).  Such
Registration Statement shall cover to the extent allowable under the Securities
Act and the rules promulgated thereunder (including Rule 416), such
indeterminate number of additional shares of Common Stock resulting from stock
splits, stock dividends or similar transactions with respect to the Registrable
Securities.  The Company shall (i) not
permit any securities other than the Registrable Securities and the securities
listed on Schedule II hereto to be included in the Registration
Statement and (ii) use its best efforts to cause the Registration Statement to
be declared effective under the Securities Act as promptly as possible after
the filing thereof, but in any event prior to the Effectiveness Date, and to
keep such Registration Statement continuously effective under the Securities
Act until such date as is the earlier of (x) the date when all Registrable
Securities covered by such Registration Statement have been sold or (y) the
date on which the Registrable Securities may be sold without any restriction
pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to
a written opinion letter, addressed to the Company’s transfer agent to such
effect (the “Effectiveness Period”). 
The

 3
 

 

Company shall
request that the effective time of the Registration Statement is 4:00 p.m.
Eastern Time on the effective date.  If
at any time and for any reason, an additional Registration Statement is
required to be filed because at such time the actual number of shares of Common
Stock into which the Preferred Stock is convertible plus the number of shares
of Common Stock exceeds the number of shares of Registrable Securities
remaining under the Registration Statement, the Company shall have twenty (20)
Business Days to file such additional Registration Statement, and the Company
shall use its best efforts to cause such additional Registration Statement to
be declared effective by the Commission as soon as possible, but in no event
later than sixty (60) days after filing. 
Notwithstanding
anything to the contrary set forth in this Section 2, in the event the
Commission does not permit the Company to register all of the Registrable
Securities in the Registration Statement, the Company shall register in the
Registration Statement such number of Registrable Securities as is permitted by
the Commission.  In the event the
Commission does not permit the Company to register all of the Registrable
Securities in the Registration Statement, the Company shall use its best
efforts to register the Registrable Securities, subject to the foregoing
sentence, that were not registered in the Registration Statement as promptly as
possible and in a manner permitted by the Commission, whether by filing a
subsequent registration statement, providing demand registration rights, or
otherwise.

3.             Registration Procedures.

                                In connection with the
Company’s registration obligations hereunder, the Company shall:

                                (a)
          Prepare and file with the
Commission, on or prior to the Filing Date, a Registration Statement on Form
SB-2 (or if the Company is not then eligible to register for resale the
Registrable Securities on Form SB-2 such registration shall be on another
appropriate form in accordance herewith and the Securities Act and the rules
promulgated thereunder) in accordance with the plan of distribution as set
forth on Exhibit A hereto and in accordance with applicable law, and
cause the Registration Statement to become effective and remain effective as
provided herein; provided, however, that not less than five (5)
Business Days prior to the filing of the Registration Statement or any related
Prospectus or any amendment or supplement thereto, the Company shall (i)
furnish to the Holders and any Special Counsel, copies of all such documents
proposed to be filed, which documents will be subject to the review of such
Holders and such Special Counsel, and (ii) cause its officers and directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the reasonable opinion of Special Counsel, to
conduct a reasonable review of such documents. 
The Company shall not file the Registration Statement or any such
Prospectus or any amendments or supplements thereto to which the Holders of a
majority of the Registrable Securities or any Special Counsel shall reasonably
object in writing within three (3) Business Days of their receipt thereof.

(b)           (i) Prepare and file with the
Commission such amendments, including post-effective amendments, to the
Registration Statement as may be necessary to keep the Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements as necessary in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424

 4
 

 

(or any similar
provisions then in force) promulgated under the Securities Act; (iii) respond
as promptly as possible, but in no event later than ten (10) Business Days, to
any comments received from the Commission with respect to the Registration
Statement or any amendment thereto and as promptly as possible provide the
Holders true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; (iv) file the final
prospectus pursuant to Rule 424 of the Securities Act no later than 9:00 a.m.
Eastern Time on the Business Day following the date the Registration Statement
is declared effective by the Commission; and (v) comply in all material
respects with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all Registrable Securities covered by the
Registration Statement during the Effectiveness Period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.

(c)           Notify the Holders of Registrable
Securities and any Special Counsel as promptly as possible (and, in the case of
(i)(A) below, not less than three (3) Business Days prior to such filing, and
in the case of (iii) below, on the same day of receipt by the Company of such
notice from the Commission) and (if requested by any such Person) confirm such
notice in writing no later than one (1) Business Day following the day (i)(A)
when a Prospectus or any Prospectus supplement or post-effective amendment to
the Registration Statement is filed; (B) when the Commission notifies the
Company whether there will be a “review” of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement and
(C) with respect to the Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or
any other Federal or state governmental authority for amendments or supplements
to the Registration Statement or Prospectus or for additional information;
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement covering any or all of the
Registrable Securities or the initiation or threatening of any Proceedings for
that purpose; (iv) if at any time any of the representations and warranties of
the Company contained in any agreement contemplated hereby ceases to be true
and correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires any revisions to the Registration Statement, Prospectus or
other documents so that, in the case of the Registration Statement or the
Prospectus, as the case may be, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.

                                (d)           Use its best efforts to avoid the
issuance of, or, if issued, obtain the withdrawal of, as promptly as possible,
(i) any order suspending the effectiveness of the Registration Statement or
(ii) any suspension of the qualification (or exemption from qualification) of
any of the Registrable  Securities for
sale in any jurisdiction.

(e)           If requested by the Holders of a
majority in interest of the Registrable Securities, (i) promptly incorporate in
a Prospectus supplement or post-effective amendment to the Registration
Statement such information as the Company reasonably agrees should be

 5
 

 

included therein
and (ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment.

(f)          If requested by any Holder, furnish to
such Holder and any Special Counsel, without charge, at least one conformed
copy of each Registration Statement and each amendment thereto, including
financial statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.

(g)         Promptly deliver to each Holder and any
Special Counsel, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and subject to the
provisions of Sections 3(m) and 3(n), the Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.

(h)         Prior to any public offering of
Registrable Securities, use its best efforts to register or qualify or
cooperate with the selling Holders and any Special Counsel in connection with
the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder requests in writing, to keep each such registration or qualification
(or exemption therefrom) effective during the Effectiveness Period and to do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall
not be required to qualify generally to do business in any jurisdiction where
it is not then so qualified or to take any action that would subject it to
general service of process in any such jurisdiction where it is not then so
subject or subject the Company to any material tax in any such jurisdiction
where it is not then so subject.

                                (i)            Cooperate with the Holders to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates, to the extent permitted by the Purchase Agreement and applicable
federal and state securities laws, shall be free of all restrictive legends,
and to enable such Registrable Securities to be in such denominations and
registered in such names as any Holder may request in connection with any sale
of Registrable Securities.

(j)            Upon the occurrence of any event
contemplated by Section 3(c)(vi), as promptly as possible, prepare a supplement
or amendment, including a post-effective amendment, to the Registration
Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file any
other required document so that, as thereafter delivered, neither the
Registration Statement nor such Prospectus will contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.

 6
 

 

(k)           Use its best efforts to cause all
Registrable Securities relating to the Registration Statement to be listed or
quoted on the OTC Bulletin Board or any other securities exchange, quotation
system or market, if any, on which similar securities issued by the Company are
then listed or traded as and when required pursuant to the Purchase Agreement.

(l)            Comply in all material respects with
all applicable rules and regulations of the Commission and make generally
available to its security holders all documents filed or required to be filed
with the Commission, including, but not limited, to, earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
not later than 45 days after the end of any 12-month period (or 90 days after
the end of any 12-month period if such period is a fiscal year) commencing on
the first day of the first fiscal quarter of the Company after the effective
date of the Registration Statement, which statement shall conform to the
requirements of Rule 158.

(m)          The Company may require each selling
Holder to furnish to the Company information regarding such Holder and the
distribution of such Registrable Securities as is required by law to be
disclosed in the Registration Statement, Prospectus, or any amendment or
supplement thereto, and the Company may exclude from such registration the
Registrable Securities of any such Holder who unreasonably fails to furnish
such information within a reasonable time after receiving such request.

If the
Registration Statement refers to any Holder by name or otherwise as the holder
of any securities of the Company, then such Holder shall have the right to
require (if such reference to such Holder by name or otherwise is not required
by the Securities Act or any similar federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.

Each Holder
covenants and agrees that it will not sell any Registrable Securities under the
Registration Statement until the Company has electronically filed the
Prospectus as then amended or supplemented as contemplated in Section 3(g) and
notice from the Company that the Registration Statement and any post-effective
amendments thereto have become effective as contemplated by Section 3(c).

Each Holder agrees
by its acquisition of such Registrable Securities that, upon receipt of a
notice from the Company of the occurrence of any event of the kind described in
Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v), 3(c)(vi) or 3(n), such Holder
will forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(j), or until it is advised in writing (the “Advice”) by the
Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus
or Registration Statement.

(n)           If (i) there is material non-public
information regarding the Company which the Company’s Board of Directors (the “Board”)
determines not to be in the Company’s best interest to disclose and which the
Company is not otherwise required to disclose, (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of

 7
 

 

assets (other than
in the ordinary course of business) or any merger, consolidation, tender offer
or other similar transaction) available to the Company which the Board
determines not to be in the Company’s best interest to disclose, or (iii) the
Company is required to file a post-effective amendment to the Registration
Statement to incorporate the Company’s quarterly and annual reports and audited
financial statements on Forms 10-QSB and 10-KSB, then the Company may (x) postpone
or suspend filing of a registration statement for a period not to exceed thirty
(30) consecutive days or (y) postpone or suspend effectiveness of a
registration statement for a period not to exceed twenty (20) consecutive days;
provided that the Company may not postpone or suspend effectiveness of a
registration statement under this Section 3(n) for more than forty-five (45)
days in the aggregate during any three hundred sixty (360) day period; provided,
however, that no such postponement or suspension shall be permitted for
consecutive twenty (20) day periods arising out of the same set of facts,
circumstances or transactions.

     4.                        Registration
Expenses.

All fees and
expenses incident to the performance of or compliance with this Agreement by
the Company, except as and to the extent specified in this Section 4, shall be
borne by the Company whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. 
The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to
be made with the OTC Bulletin Board  and each other
securities exchange or market on which Registrable Securities are required
hereunder to be listed, if any (B) with respect to filing fees required to be
paid to the National Association of Securities Dealers, Inc. and the NASD Regulation,
Inc. (including, without limitation, pursuant to NASD Rule 2710) and (C) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection
with Blue Sky qualifications of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as the Holders of a majority of Registrable Securities may
designate)), (ii) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities and of printing prospectuses
if the printing of prospectuses is requested by the holders of a majority of
the Registrable Securities included in the Registration Statement), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company and Special Counsel for the Holders, in the case of the
Special Counsel, up to a maximum amount of $7,500, (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) fees and expenses
of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement, including,
without limitation, the Company’s independent public accountants (including the
expenses of any comfort letters or costs associated with the delivery by
independent public accountants of a comfort letter or comfort letters).  In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation
of the transactions contemplated by this Agreement (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit, the fees and
expenses incurred in connection with the listing of the Registrable Securities
on any securities exchange if required hereunder.  The Company shall not be responsible for any
discounts, commissions, transfer taxes or other similar fees incurred by the
Holders in connection with the sale of the Registrable Securities.

 8
 

 

     5.                         Indemnification.

(a)           Indemnification by the Company.  The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, managers, partners, members, shareholders, agents,
brokers, investment advisors and employees of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, causes of action,
damages, liabilities, costs (including, without limitation, costs of
preparation and attorneys’ fees), expenses and fees (collectively, “Losses”),
as incurred, arising out of or relating to any violation of securities laws or
untrue or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder or such other Indemnified Party
furnished in writing to the Company by such Holder expressly for use
therein.  The Company shall notify the
Holders promptly of the institution, threat or assertion of any Proceeding of
which the Company is aware in connection with the transactions contemplated by
this Agreement.

(b)           Indemnification by Holders.  Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents and employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review), as incurred, arising solely out of or based solely upon
any untrue statement of a material fact contained in the Registration
Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto, or arising solely out of or based solely upon any omission
of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing
by such Holder or other Indemnifying Party to the Company specifically for
inclusion in the Registration Statement or such Prospectus.  Notwithstanding anything to the contrary
contained herein, each Holder shall be liable under this Section 5(b) for only
that amount as does not exceed the net proceeds to such Holder as a result of
the sale of Registrable Securities pursuant to such Registration Statement.

(c)           Conduct of Indemnification
Proceedings.  If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party promptly shall notify the Person from whom
indemnity is sought (the “Indemnifying Party) in writing, and the
Indemnifying Party shall be entitled to assume the defense thereof, including
the employment of counsel reasonably satisfactory to the Indemnified

 9
 

 

Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant
to this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.

An Indemnified
Party shall have the right to employ separate counsel in any such Proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party or Parties unless:
(1) the Indemnifying Party has agreed in writing to pay such fees and expenses;
or (2) the Indemnifying Party shall have failed promptly to assume the defense
of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such parties shall have been advised by
counsel that a conflict of interest is likely to exist if the same counsel were
to represent such Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld or delayed.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened Proceeding in respect of which any Indemnified Party is a
party and indemnity has been sought hereunder, unless such settlement includes
an unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.

All fees and
expenses of the Indemnified Party (including reasonable fees and expenses to
the extent incurred in connection with investigating or preparing to defend
such Proceeding in a manner not inconsistent with this Section) shall be paid
to the Indemnified Party, as incurred, within ten (10) Business Days of written
notice thereof to the Indemnifying Party (regardless of whether it is
ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder;  provided, that
the Indemnified Party shall reimburse all such fees and expenses to the extent
it is finally judicially determined that such Indemnified Party is not entitled
to indemnification hereunder).

(d)           Contribution. If a claim for
indemnification under Section 5(a) or 5(b) is due but unavailable to an
Indemnified Party because of a failure or refusal of a governmental authority
to enforce such indemnification in accordance with its terms (by reason of
public policy or otherwise), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative benefits received by the
Indemnifying Party on the one hand and the Indemnified Party on the other from
the offering of the Preferred Stock.  If,
but only if, the allocation provided by the foregoing sentence is not permitted
by applicable law, the allocation of contribution shall be made in such
proportion as is appropriate to reflect not only the relative benefits referred
to in the foregoing sentence but also the relative fault, as applicable, of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other

 

 10

relevant equitable
considerations.  The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the  parties’
relative intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. 
The amount paid or payable by a party as a result of any Losses shall be
deemed to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided for
in this Section was available to such party in accordance with its terms.  In no event shall any selling Holder be
required to contribute an amount under this Section 5(d) in excess of the net
proceeds received by such Holder upon sale of such Holder’s Registrable
Securities pursuant to the Registration Statement giving rise to such
contribution obligation.

     The parties hereto agree that it would not
be just and equitable if contribution pursuant to this Section 5(d) were
determined by pro rata allocation or by any other method of allocation that
does not take into account the equitable considerations referred to in the
immediately preceding paragraph.  No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.

     The indemnity and contribution agreements
contained in this Section are in addition to any liability that the
Indemnifying Parties may have to the Indemnified Parties pursuant to the law.

6.             Rule 144.

     As long as any Holder owns Preferred Stock
or Registrable Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
Section 13(a) or 15(d) of the Exchange Act. 
As long as any Holder owns Preferred Stock or Registrable Securities, if
the Company is not required to file reports pursuant to Section 13(a) or 15(d)
of the Exchange Act, it will prepare and furnish to the Holders and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act.  The Company further covenants that it will
take such further action as any Holder may reasonably request, all to the
extent required from time to time to enable such Person to sell Conversion
Shares and Warrant Shares without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including providing any legal opinions relating to such sale
pursuant to Rule 144.  Upon the request
of any Holder, the Company shall deliver to such Holder a written certification
of a duly authorized officer as to whether it has complied with such
requirements.

 11
 

 

7.             Miscellaneous.

(a)           Remedies.  In the event of a breach by the Company or by
a Holder, of any of their obligations under this Agreement, such Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this  Agreement.  The
Company and each Holder agree that monetary damages would not provide  adequate compensation for any losses incurred by reason of
a breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect of
such breach, it shall waive the defense that a remedy at law would be adequate.

(b)           No Inconsistent Agreements.  Neither the Company nor any of its
subsidiaries has, as of the date hereof entered into and currently in effect,
nor shall the Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. 
Except as disclosed in Schedule 2.1(c) of the Purchase Agreement
or Schedule II hereto, neither the Company nor any of its subsidiaries
has previously entered into any agreement currently in effect granting any
registration rights with respect to any of its securities to any Person.  Without limiting the generality of the
foregoing, without the written consent of the Holders of a majority of the then
outstanding Registrable Securities, the Company shall not grant to any Person
the right to request the Company to register any securities of the Company
under the Securities Act unless the rights so granted are subject in all
respects to the prior rights in full of the Holders set forth herein, and are
not otherwise in conflict with the provisions of this Agreement.

(c)           No Piggyback on Registrations.  Neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto or as
disclosed in Schedule 2.1(c) of the Purchase Agreement or Schedule II
hereto) may include securities of the Company in the Registration Statement,
and the Company shall not after the date hereof enter into any agreement
providing such right to any of its securityholders, unless the right so granted
is subject in all respects to the prior rights in full of the Holders set forth
herein, and is not otherwise in conflict with the provisions of this Agreement.

(d)           Piggy-Back Registrations.  If at any time when there is not an effective
Registration Statement covering (i) Conversion Shares or (ii) Warrant Shares,
the Company shall determine to prepare and file with the Commission a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued
solely in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, the Company shall send to each holder of Registrable Securities written
notice of such determination and, if within thirty (30) days after receipt of
such notice, or within such shorter period of time as may be specified by the
Company in such written notice as may be necessary for the Company to comply
with its obligations with respect to the timing of the filing of such
registration statement, any such holder shall so request in writing, (which
request shall specify the Registrable Securities intended to be disposed of by
the Purchasers), the Company will cause the registration under the Securities
Act of all Registrable Securities which

 12
 

 

the Company has
been so requested to register by the holder, to the extent requisite to permit
the disposition of the Registrable Securities so to be registered, provided
that if at any time after giving written notice of its intention to register
any securities and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any
reason not to register or to delay registration of such securities, the Company
may, at its election, give written notice of such determination to such holder
and, thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration (but not from its obligation to pay expenses in
accordance with Section 4 hereof), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities being registered pursuant to this Section 7(d) for the same period
as the delay in registering such other securities. The Company shall include in
such registration statement all or any part of such Registrable Securities such
holder requests to be registered; provided, however, that the
Company shall not be required to register any Registrable Securities pursuant
to this Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the
Securities Act.  In the case of an
underwritten public offering, if the managing underwriter(s) or underwriter(s)
should reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the
managing underwriter should reasonably determine that the inclusion of such
Registrable Securities would materially adversely affect the offering
contemplated in such registration statement, and based on such determination
recommends inclusion in such registration statement of fewer or none of the
Registrable Securities of the Holders, then (x) the number of Registrable
Securities of the Holders included in such registration statement shall be
reduced pro-rata among such Holders  (based upon
the number of Registrable Securities requested to be included in the
registration), if the Company after consultation with the underwriter(s)
recommends the inclusion of fewer Registrable Securities, or (y) none of the
Registrable Securities of the Holders shall be included in such registration
statement, if the Company after consultation with the underwriter(s) recommends
the inclusion of none of such Registrable Securities; provided, however,
that if securities are being offered for the account of other persons or
entities as well as the Company, such reduction shall not represent a greater
fraction of the number of Registrable securities intended to be offered by the
Holders than the fraction of similar reductions imposed on such other persons
or entities (other than the Company).

(e)           Failure to File Registration
Statement and Other Events.  The
Company and the Purchasers agree that the Holders will suffer damages if a
Registration Statement is not filed on or prior to the Filing Date or not
declared effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Period or
if certain other events occur.  The
Company and the Holders further agree that it would not be feasible to
ascertain the extent of such damages with precision.  Accordingly, if (A) the Registration
Statement is not filed on or prior to the Filing Date, or (B) the Registration
Statement is not declared effective by the Commission on or prior to the
Effectiveness Date, or (C) the Company fails to file with the Commission a
request for acceleration in accordance with Rule 461 promulgated under the
Securities Act within three (3) Business Days of the date that the Company is
notified (orally or in writing, whichever is earlier) by the Commission that a
Registration Statement will not be “reviewed,” or not subject to further
review, or (D) the Registration Statement is filed with and declared effective
by the Commission but thereafter ceases to be effective as to all Registrable
Securities at any time prior to the expiration of the Effectiveness Period,
without being succeeded immediately by a subsequent Registration Statement
filed with and declared effective by the Commission, or (E) the Company has

 13
 

 

breached Section
3(n), or (F) trading in the Common Stock shall be suspended or if the Common
Stock is no longer quoted on or is delisted from the OTC Bulletin Board (or
other principal exchange on which the Common Stock is traded) for any reason
for more than three (3) Business Days in the aggregate (any such failure or
breach being referred to as an “Event,” and for purposes of clauses (A)
and (B) the date on which such Event occurs, or for purposes of clause (C) the
date on which such three (3) Business Day period is exceeded, or for purposes
of clause (D) after more than fifteen (15) Business Days, or for purposes of
clause (F) the date on which such three (3) Business Day period is exceeded, being
referred to as “Event Date”), the Company shall pay an amount in cash as
liquidated damages to each Holder equal to one and one-half percent (1.5%) of
the amount of the Holder’s initial investment in the Preferred Stock for each
calendar month or portion thereof thereafter from the Event Date until the
applicable Event is cured; provided, however, that in no event
shall the amount of liquidated damages payable at any time and from time to
time to any Holder pursuant to this Section 7(e) exceed an aggregate of fifteen
percent (15%) of the amount of the Holder’s initial investment in the Preferred
Stock.  Notwithstanding anything to the
contrary in this paragraph (e), if (a) any of the Events described in clauses
(A), (B), (C), (D) or (F) shall have occurred, (b) on or prior to the
applicable Event Date, the Company shall have exercised its rights under
Section 3(n) hereof and (c) the postponement or suspension permitted pursuant
to such Section 3(n) shall remain effective as of such applicable Event Date, then
the applicable Event Date shall be deemed instead to occur on the second
Business Day following the termination of such postponement or suspension.  Liquidated damages payable by the Company
pursuant to this Section 7(d) shall be payable on the first (1st) Business Day of each thirty
(30) day period following the Event Date.

(f)            Amendments and Waivers.  The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and the
Holders of seventy-five percent (75%) of the Registrable Securities
outstanding.

(g)           Notices.  Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery, telecopy or facsimile at the
address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. 
The addresses for such communications shall be:

	
  If to the Company:

  	
   

  	
  Nascent Wine Company, Inc.

  2355 Paseo de las
  Americas

  San Diego, California 92154
 Attention: Sandro Piancone

  Tel. No.: (619) 661-0458
 Fax No.: (619) 661-9735

  

 

 14
 

 

	
  with copies (which 

  	
   

  	
  The Law Offices of Gary A. Agron

  
	
  shall not constitute

  notice) to:

  	
   

  	
  5445 DTC Parkway

  Suite 520

  Greenwood Village, CO 80111

  Attention: Gary A. Agron

  Tel. No.: (303) 770-7254

  Fax No.: (303) 770-7257

  
	
   

  	
   

  	
   

  
	
  If to any Purchaser:

  	
   

  	
  At the address of such Purchaser set forth on

  Exhibit A to this Agreement, with copies to

  Purchaser’s counsel as set forth on Exhibit A or as

  specified in writing by such:

  
	
   

  	
   

  	
   

  
	
  with copies (which

  shall not constitute

  notice) to:

  	
   

  	
  Kramer Levin Naftalis & Frankel LLP

  1177 Avenue of the Americas

  New York, New York 10036

  Attention: Howard T. Spilko

                   Christopher
  S. Auguste

  Tel No.: (212) 715-9100

  Fax No.: (212) 715-8000

  

 

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

(h)           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns
and shall inure to the benefit of each Holder and its successors and
assigns.  The Company may not assign this
Agreement or any of its rights or obligations hereunder without the prior
written consent of each Holder.  Each
Purchaser may assign its rights hereunder in the manner and to the Persons as
permitted under the Purchase Agreement.

(i)            Assignment of Registration Rights.  The rights of each Holder hereunder,
including the right to have the Company register for resale Registrable
Securities in accordance with the terms of this Agreement, shall be automatically
assignable by each Holder to any Person of all or a portion  of
the Preferred Stock, the Common Shares or the Registrable Securities if: (i)
the Holder agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a)
the name and address of such transferee or assignee, and (b) the securities
with respect to which such registration rights are being transferred or
assigned, (iii) following such transfer or assignment the further disposition
of such securities by the transferee or assignees is restricted under the
Securities Act and applicable state securities laws unless such securities are
registered in a Registration Statement under this Agreement (in which case the
Company shall be obligated to amend such Registration Statement to reflect such
transfer or assignment) or are otherwise exempt from registration, (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this Section, the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions of this Agreement, and (v) such
transfer shall have been made in accordance with the applicable requirements of
the

 15
 

 

Purchase
Agreement.  The rights to assignment
shall apply to the Holders (and to subsequent) successors and assigns.

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

(k)           Governing
Law; Jurisdiction.  This Agreement
shall be governed by and construed in accordance with the internal laws of the
State of New York, without giving effect to any of the conflicts of law
principles which would result in the application of the substantive law of
another jurisdiction.  This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted. 
The Company and the Holders agree that venue for any dispute arising
under this Agreement will lie exclusively in the state or federal courts
located in New York County, New York, and the parties irrevocably waive any
right to raise forum non conveniens or any other
argument that New York is not the proper venue. 
The Company and the Holders irrevocably consent to personal jurisdiction
in the state and federal courts of the state of New York.  The Company and the Holders consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. 
Nothing in this Section 7(k) shall affect or limit any right to serve
process in any other manner permitted by law. 
The Company and the Holders hereby agree that the prevailing party in
any suit, action or proceeding arising out of or relating to this Agreement or
the Purchase Agreement, shall be entitled to reimbursement for reasonable legal
fees from the non-prevailing party.  The
parties hereby waive all rights to a trial by jury.

(l)            Cumulative Remedies.  The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.

(m)          Severability. If any term,
provision, covenant or restriction of this Agreement is held to be invalid,
illegal, void or unenforceable in any respect, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction.  It is hereby stipulated and declared  to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

(n)           Headings.  The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.

 16
 

 

(o)           Shares Held by the Company and its
Affiliates. Whenever the consent or approval of Holders of a specified
percentage of Registrable Securities is required hereunder, Registrable
Securities held by the Company or its Affiliates (other than any Holder or
transferees or successors or assigns thereof if such Holder is deemed to be an
Affiliate solely by reason of its holdings of such Registrable Securities) shall
not be counted in determining whether such consent or approval was given by the
Holders of such required percentage.

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK]

 17
 

 

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

	
  

  	
  NASCENT WINE COMPANY, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Sandro Piancone

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PURCHASER:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
						

 

 18
 

 

Schedule I

Purchasers

	
  Names and Addresses

  	
   

  	
  Number of Preferred Shares

  	
   

  	
  Dollar Amount of

  	
   

  
	
  of Purchasers

  	
   

  	
  & Warrants Purchased

  	
   

  	
  Investment

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 19
 

 

Schedule II

Other Securities to be Included on the Registration Statement

 20
 

 

Exhibit A

Plan of Distribution

The selling security holders and any of their
pledgees, donees, assignees and successors-in-interest may, from time to time,
sell any or all of their shares of common stock being offered under this
prospectus on any stock exchange, market or trading facility on which shares of
our common stock are traded or in private transactions.  These sales may be at fixed or negotiated
prices.  The selling security holders may
use any one or more of the following methods when disposing of shares:

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

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

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

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

·              privately negotiated transactions;

·              to cover short sales made after the date that
the registration statement of which this prospectus is a part is declared
effective by the Commission;

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

·              a combination of any of these methods of
sale; and

·              any other method permitted pursuant to
applicable law.

The shares may also be sold under Rule 144 under the
Securities Act of 1933, as amended (“Securities Act”), if available, rather
than under this prospectus.  The selling
security holders have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.

The selling security holders may pledge their shares
to their brokers under the margin provisions of customer agreements.  If a selling security holder defaults on a
margin loan, the broker may, from time to time, offer and sell the pledged
shares.

Broker-dealers engaged by the selling security holders
may arrange for other broker-dealers to participate in sales. Broker-dealers
may receive commissions or discounts from the selling security holders (or, if
any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated, which commissions as to a particular
broker or dealer may be in excess of customary commissions to the extent
permitted by applicable law.

 21
 

 

If sales of shares offered under this prospectus are
made to broker-dealers as principals, we would be required to file a
post-effective amendment to the registration statement of which this prospectus
is a part.  In the post-effective
amendment, we would be required to disclose the names of any participating broker-dealers
and the compensation arrangements relating to such sales.

The selling security holders and any broker-dealers or
agents that are involved in selling the shares offered under this prospectus
may be deemed to be “underwriters” within the meaning of the Securities Act in
connection with these sales.  Commissions
received by these broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.  Any
broker-dealers or agents that are deemed to be underwriters may not sell shares
offered under this prospectus unless and until we set forth the names of the
underwriters and the material details of their underwriting arrangements in a
supplement to this prospectus or, if required, in a replacement prospectus
included in a post-effective amendment to the registration statement of which
this prospectus is a part.

The selling security holders and any other persons
participating in the sale or distribution of the shares offered under this
prospectus will be subject to applicable provisions of the Exchange Act, and
the rules and regulations under that act, including Regulation M.  These provisions may restrict activities of,
and limit the timing of purchases and sales of any of the shares by, the
selling security holders or any other person. 
Furthermore, under Regulation M, persons engaged in a distribution of
securities are prohibited from simultaneously engaging in market making and
other activities with respect to those securities for a specified period of
time prior to the commencement of such distributions, subject to specified
exceptions or exemptions.  All of these
limitations may affect the marketability of the shares.

If any of the shares of common stock offered for sale
pursuant to this prospectus are transferred other than pursuant to a sale under
this prospectus, then subsequent holders could not use this prospectus until a
post-effective amendment or prospectus supplement is filed, naming such holders.  We offer no assurance as to whether any of
the selling security holders will sell all or any portion of the shares offered
under this prospectus.

We have agreed to pay all fees and expenses we incur
incident to the registration of the shares being offered under this
prospectus.  However, each selling
security holder and purchaser is responsible for paying any discounts,
commissions and similar selling expenses they incur.

We and the selling security holders have agreed to
indemnify one another against certain losses, damages and liabilities arising
in connection with this prospectus, including liabilities under the Securities
Act.

 

 22

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