8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)  August 2, 2004

XSTREAM BEVERAGE GROUP, INC.

(Exact name of registrant as specified in its charter)

Nevada	033-30158-A	62-1386351
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

4800 NW 15 Avenue, Bay A, Fort Lauderdale, Florida 33309

(Address of Principal Executive Office) (Zip Code)

(954) 598-7997

(Registrant’s telephone number, including area code)

Not Applicable

(Former Name or Former Address, If Changed Since Last Report.)

Item 5.     Other Events and Regulation FD Disclosure.

On August 2, 2004 Xstream Beverage Group, Inc. sold 43.2 shares of our Series B Convertible Preferred Stock to nine accredited investors and issued the purchasers Series A Common Stock Purchase Warrants and Series B Common Stock Purchase Warrants in a private transaction exempt from registration under the Securities Act of 1933 in reliance on Section 4(2) of that act and Rule 506 of Regulation D. We received gross proceeds of $2,160,000. We will use the net proceeds of this offering for general working capital.

Series B Convertible Preferred Stock

The designations, rights and preferences of the Series B Preferred provide:

*

the shares have a liquidation preference of $50,000 per share,

*

the shares of our Series B Preferred are convertible into shares of our common stock equal to the liquidation preference divided by the conversion price of $1.50 per share.  The conversion price is subject to adjustment in the event of stock splits and combinations, dividends or distributions, reclassifications or reorganizations, or in the event we issue or sell any additional shares of common stock or other securities which are convertible into common stock or common stock equivalents at a price less than the then current conversion price. Holders are restricted in their ability to convert the Series B Preferred into common stock if at the time of conversion the number of shares of common stock to be issued, together with all other shares of common stock owned by the holder, would result in the holder owning in excess of either 4.9% or 9.9% of t he then issued and outstanding shares of our common stock, subject to a waiver by the holder of these limitations upon 61 days notice to us,

*

the holders have the right to require us to redeem all or a portion of the shares the Series B Preferred under certain circumstances, including:

*

upon the occurrence of a Major Transaction (as that term is defined in the designations of the Series B Preferred). In this event, the redemption price would be equal to 100% of the liquidation preference plus all accrued but unpaid dividends, and

*

upon the occurrence of a Triggering Event ( as that term is defined in the designations of the Series B Preferred). In this event, the redemption price would be equal to 120% of the amount of the liquidation preference plus all accrued but unpaid dividends.

Upon either occurrence, at our discretion we can pay the redemption price in cash or shares of common stock based upon the then current conversion price,

*

on the date which is 42 months from the date of issuance of the Series B Preferred, at the option of the holder we are required to redeem the outstanding shares of Series B Preferred into such number of shares of our common stock as equal the liquidation preference

2

plus all accrued but unpaid dividends divided by the conversion price then in effect, or for cash at a price equal to the number of shares of common stock each holder would be entitled to receive at the conversion price then in effect multiplied by $1.85,

*

so long as the Series B Preferred is outstanding, without the consent of the holders of at least ¾ of the outstanding shares of Series B Preferred we cannot:

*

amend the provisions of the Series B Preferred,

*

repurchase, redeem or pay any dividends on our common stock or any other securities which rank junior to the Series B Preferred,

*

amend our Articles of Incorporation or By-laws in a manner which would materially and adversely any right of the Series B Preferred,

*

make any distribution with respect to any junior security,

*

voluntarily file for bankruptcy, liquidate our assets or make an assignment for the benefit of our creditors,

*

change the nature of our business, or

*

so long as at least $1,500,000 of the Series B Preferred is outstanding (which represents 30 shares), we cannot authorize or create any class of securities which ranks senior to our pari passu with the Series B Preferred

Other than in the foregoing instances, the Series B Preferred has no voting rights.

*

it ranks senior to our common stock and to all other classes of our securities which do not specifically provide that they are senior to our Series B, but subordinate to all of our indebtness, and

*

it pays cumulative semi-annual dividends of 6% per annum, payable at our option in cash, registered shares of our common stock or additional shares of our Series B Preferred. If we choose to pay the dividends in registered shares of our common stock, the shares are valued at the then conversion price of the Series B Preferred and if we choose to pay the dividends in shares of Series B Preferred, those shares are valued at the liquidation preference of the stock.

Common Stock Purchase Warrants

We issued the purchasers of the Series B Preferred two series of five year common stock purchase warrants. The Series A Warrants are exercisable into a number of shares of our common stock equal to 100% of the shares issuable upon the conversion of the Series B Preferred at an exercise price of $2.00 per share. The Series B Warrants are exercisable into a number of shares of our common stock equal to 50% of the shares issuable upon the conversion of the Series B Preferred at an exercise price of $4.00 per share. All other terms of the warrants are identical, and include:

*

the warrants are transferable at the discretion of the holder,

*

the number of shares underlying the warrant and the exercise price of each warrant are subject to adjustment in the event of recapitalization, reorganization,

3

reclassifications, consolidations, mergers or a sale of all or substantially all of our assets or properties, stock dividends, subdivisions and combinations and distributions as well as issuance of additional shares of our common stock or any common stock equivalents (as that term is defined in the warrant) at a price less than the then current exercise price of the warrant or if we purchase any shares of our common stock at a price greater than the market value or the current exercise price,

*

holders are restricted in their ability to exercise the warrants if at the time of exercise the number of shares of common stock to be issued, together with all other shares of common stock owned by the holder, would result in the holder owning in excess of either 4.9% or 9.9% of the then issued and outstanding shares of our common stock, subject to a waiver by the holder of these limitations upon 61 days notice to us, and

*

beginning 12 months from the effective date of the registration statement covering the resale of the shares of common stock underlying the warrants at our option upon 20 days notice we can call up to 100% of the warrants at $0.01 per share if the market value of our common stock has been greater than 400% of the conversion price then in effect for our Series B Preferred for 20 trading days immediately preceding the call notice, subject to certain requirements.

Other terms of the offering

HC Wainwright & Co. acted as placement agent for us in this offering and we paid that firm a 10% cash commission ($216,000) and five year common stock purchase warrants to purchase 228,000 shares of our common stock at an exercise price of $1.50 per share. In connection with the transaction, we also agreed to pay the attorney's fees of the purchasers in an amount not to exceed $35,000. We also granted the purchasers a three year right of first offer and refusal for certain subsequent financings, other than those we may enter into with Laurus Master Fund, Ltd. or any entity which Laurus Master Fund, Ltd. may introduce to us.

We also granted the purchasers registration rights covering the shares of our common stock issuable upon the conversion of the Series B Preferred and the exercise of the Series A and Series B warrants, including the shares underlying the warrants issued to the placement agent (the "Registrable Securities"). We have agreed to file a registration statement with the Securities and Exchange Commission within 30 days of the closing of this offering which, when declared effective, will permit the public resale of the Registrable Securities. If we should fail to file the registration statement on a timely basis or if the registration statement is not declared effective by the Securities and Exchange Commission within 120 days from its filing date, or in certain other instances specified in the registration rights agreement, we are required to pay th e holders liquidated damages equal to 2% of their initial investment for the first month or any portion of that month and thereafter 1.25% for each successive month or any portion of that month until the registration statement is effective or we have cured the other events of default.

4

A copy of the forms of Series B convertible preferred stock purchase agreement, certificate of designation of the Series B preferred, Series A warrant, Series B warrant and registration rights agreement are filed as exhibits to this report. The foregoing descriptions are qualified in their entirety by reference to the full text of such exhibits.

Item 7.     Financial Statements and Exhibits.

(c)

Exhibits.

Exhibit No.	Description
3.1	Certificate of Designation of the Relative Rights and Preference of the Series B Convertible Preferred Stock
4.1	Series A Warrant
4.2	Series B Warrant
10.1	Series B Convertible Preferred Stock Purchase Agreement
10.2	Registration Rights Agreement
99.1	Press release dated August 3, 2004

5

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

	XSTREAM BEVERAGE GROUP, INC.
Date:  August 3, 2004	By:	/s/ JERRY PEARRING
		Jerry Pearring President

6

INDEX TO EXHIBITS

Exhibit No.	Description
3.1	Certificate of Designation of the Relative Rights and Preference of the Series B Convertible Preferred Stock
4.1	Series A Warrant
4.2	Series B Warrant
10.1	Series B Convertible Preferred Stock Purchase Agreement
10.2	Registration Rights Agreement
99.1	Press release dated August 3, 2004

EX-3.1

                                                                     EXHIBIT 3.1




        CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES
                                     OF THE
                      SERIES B CONVERTIBLE PREFERRED STOCK
                                       OF
                          XSTREAM BEVERAGE GROUP, INC.

         The undersigned, the Chief Executive Officer of XStream Beverage Group,
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 Series B Convertible
Preferred Stock, was duly adopted on July 28, 2004:

         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 Preferred Stock, par value $.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 eighty (80) 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
$.001 per share (the "Series B Preferred Stock"). The maximum number of shares
of Series B Preferred Stock shall be eighty (80) shares. Except for the Series A
Preferred Stock of the Company, the Series B Preferred Stock shall rank senior
to the common stock, par value $.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 have a term of forty-two (42) months (the "Maturity Date").

         2. Dividends.

         (a) Payment of Dividends. 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 when and as declared by the Board of Directors,
dividends at the rate of six percent (6%) of the stated Liquidation Preference
Amount (as defined in Section 4 hereof) per share per annum commencing on the
date of issuance (the "Issuance Date") of the Series B Preferred Stock (the
"Dividend Payment"), and no more, payable semi-annually at the option of the
Company in cash, shares of Series B Preferred Stock or registered shares of
Common Stock. If the Company elects to pay any dividend in registered shares of
Common Stock, the number of registered shares of Common Stock to be issued to
the holder shall be an amount equal to the quotient of (i) the Dividend Payment
divided by (ii) the then effective Conversion Price (as defined in Section 5(d)
hereof). If the



Company elects to pay any dividend in 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(a) hereof); provided,
that, the Company may only elect to pay any dividend in shares of Series B
Preferred Stock if the amount of such shares shall not be less than one-tenth of
one share of Series B Preferred Stock or a multiple of one-tenth of one share of
Series B Preferred Stock. If the Company elects or is required to pay any
dividend in Common Stock or Series B Preferred Stock, the Company will give the
holders of record of shares of the Series B Preferred Stock ten (10) trading
days notice prior to the date of the applicable Dividend Payment. In the case of
shares of Series B Preferred Stock outstanding for less than a full year,
dividends shall be pro rated based on the portion of each year during which such
shares are outstanding. Dividends on the Series B Preferred Stock shall be
cumulative, shall accrue and be payable semi-annually. 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 on a parity 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, all accrued and unpaid dividends on the Series B
Preferred Stock shall be payable on the day immediately preceding 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 or (ii) a
redemption upon the occurrence of a Major Transaction (as defined in Section
8(c)) or a Triggering Event (as defined in Section 8(d)), all accrued and unpaid
dividends on the Series B Preferred Stock shall be payable on the day
immediately preceding the date of such redemption. In the event of a conversion
pursuant to Section 5(a), all accrued and unpaid dividends on the Series B
Preferred Stock being converted shall be payable on the day immediately
preceding the Conversion Date (as defined in Section 5(b)(i)).

         (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


                                       2


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.

         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 three-fourths (3/4) 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) amend, alter or repeal 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; provided, however, that any creation and
issuance of another series of Junior Stock shall not be deemed to adversely
affect such rights, preferences, privileges or voting powers; (ii) repurchase,
redeem or pay dividends on, shares of Common Stock or any other shares of the
Company's Junior Stock (other than de minimus repurchases from employees of the
Company in certain circumstances); (iii) amend the Articles of Incorporation or
By-Laws of the Company so as to affect materially and adversely any right,
preference, privilege or voting power of the Series B Preferred Stock; provided,
however, that any creation and issuance of another series of Junior Stock shall
not be deemed to adversely affect such rights, preferences, privileges or voting
powers; (iv) effect any distribution with respect to Junior Stock; (v)
reclassify the Company's outstanding securities; (vi) voluntarily file for
bankruptcy, liquidate the Company's assets or make an assignment for the benefit
of the Company's creditors; or (vii) change the nature of the Company's
business. Notwithstanding the foregoing to the contrary, so long as at least
$1,500,000 of Series B Preferred Stock is outstanding, the Company shall not
authorize, create, issue or increase the authorized or issued amount of any
class or series of 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 without the affirmative vote or consent of the holders of at least
three-fourths (3/4) of the shares of the Series B Preferred Stock outstanding at
the time; provided, however, the foregoing sentence shall not apply to any
transaction that the Company consummates with Laurus Master Fund, Ltd. or any
other entity that Laurus Master Fund, Ltd. may introduce to the Company.

         (b) General Voting Rights. Except with respect to transactions upon
which the Series B Preferred Stock shall be entitled to vote separately as a
class pursuant to Section 3(a) above and except as otherwise required by Nevada
law, the Series B Preferred Stock shall have no voting rights. The Common Stock
into which the Series B Preferred Stock is convertible shall, upon issuance,
have all of the same voting rights as other issued and outstanding Common Stock
of the Company.

                                       3


         4. Liquidation Preference.

         (a) In the event of the liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, and provided that the
Company's obligations to Laurus Master Fund, Ltd. under certain agreements
executed on May 14, 2004 are satisfied, then the holders of shares of the Series
B Preferred Stock then outstanding shall be entitled to receive, out of the
remaining assets of the Company available for distribution to its stockholders,
an amount equal to $50,000 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 plus any accrued and unpaid
dividends payable to the holders of outstanding shares of the Series B Preferred
Stock and any series of preferred stock or any other class of stock on a parity,
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 on a parity 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 plus any accrued and unpaid
dividends to which such holder is entitled as provided herein. After payment of
the full Liquidation Preference Amount plus any accrued and unpaid dividends 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 relative powers, designations and
preferences provided for herein and no merger shall result 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.

                                       4


         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 on or after the effective date of a
registration statement providing for the resale of the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock (the "Registration
Statement"), the holder of any such shares of Series B Preferred Stock may, at
such holder's option, subject to the limitations set forth in Section 7 herein,
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 divided 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 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 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 following the
effective date of the Registration Statement (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, and (B) surrender to a common carrier for delivery to
the Company as soon as practicable following such Conversion Date but in no
event later than three (3) business days after such 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.

                                       5


                  (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.
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 (so long as the
applicable Preferred Stock Certificates and original Conversion Notice are
received by the Company on or before such third business day), 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 such conversion is in connection with a sale and such holder
has complied with the applicable prospectus delivery requirements. 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, 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).

                                       6


                  (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 "Share Delivery Period") 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 B Convertible
Preferred Stock Purchase Agreement (the "Purchase Agreement") among the Company
and the initial holders of the Series B Preferred Stock (including
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 0.5% of the
product of (A) the sum of the number of shares 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 for such security 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.

                                       7


         (c) Intentionally Omitted.

         (d) Conversion Price. The term "Conversion Price" shall mean $1.50 per
share, subject to adjustment under Section 5(e) hereof. Notwithstanding any
adjustment hereunder, at no time shall the Conversion Price be greater than
$1.50 per share except if it is adjusted pursuant to Section 5(e)(i) hereof.

         (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 Issuance 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 Issuance 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 Issuance 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 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 Issuance 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


                                       8


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 Issuance 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
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 Issuance 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


                                       9


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 or any securities convertible or
exercisable into, or exchangeable for, directly or indirectly, Common Stock (the
"Additional Shares of Common Stock"), at a price per share less than the
Conversion Price then in effect or without consideration, the Conversion Price
then in effect shall be reduced to a price equal to the consideration per share
paid for such Additional Shares of Common Stock.

                  (vii) Issuance of Common Stock Equivalents. If the Company, at
any time after the Issuance 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 any rights or warrants
or options to purchase any such Common Stock or Convertible Securities, shall be
issued or sold (collectively, the "Common Stock Equivalents") and the aggregate
of the price per share for which Additional Shares of Common Stock may be
issuable thereafter pursuant to such Common Stock Equivalent, plus the
consideration received by the Company for issuance of such Common Stock
Equivalent divided by the number of shares of Common Stock issuable pursuant to
such Common Stock Equivalent (the "Aggregate Per Common Share Price") shall be
less than the Conversion Price, or if, after any such 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 or
adjusted shall make the Aggregate Per Common Share Price be less than Conversion
Price in effect at the time of such amendment or adjustment, then the Conversion
Price then in effect shall be adjusted pursuant to Section (5)(e)(vi). No
adjustment of the Conversion Price shall be made under this subsection (vii)
upon the issuance of any Convertible Security which is issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefore, if
any adjustment shall previously have been made to the exercise price of such
warrants then in effect upon the issuance of such warrants or other rights
pursuant to this subsection (vii). 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.

                                       10


                  (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.

                  (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 (A) the Company's issuance of any Additional Shares of
Common Stock and warrants therefore in connection with a merger, acquisition or


                                       11


consolidation, (B) the Company's issuance of Additional Shares of Common Stock
(other than for cash) pursuant to a bona fide firm underwritten public offering
of the Company's securities, (C) the Company's issuance of Additional Shares of
Common Stock or warrants therefore in connection with strategic license
agreements or other partnering arrangements so long as such issuances are not
for the purpose of raising capital, (D) the Company's issuance of Common Stock
or the issuance or grants of options to purchase Common Stock pursuant to the
Company's stock option plans and employee stock purchase plans so long as the
purchase price or exercise price of such securities is greater than the
Conversion Price, (E) any issuances of warrants issued pursuant to the Purchase
Agreement, (F) securities issued pursuant to the conversion or exercise of
convertible or exercisable securities issued or outstanding on or prior to the
date hereof or issued pursuant to the Purchase Agreement, (G) any warrants
issued to the placement agent for the transactions contemplated by the Purchase
Agreement and (H) the payment of any dividends on the Series B Preferred Stock.

         (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 hereunder 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, 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 100% 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 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.

                                       12


         (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 thereto; 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 pay cash equal to the product of such fraction multiplied by the average
of the Closing Bid Prices of the Common Stock for the five (5) consecutive
trading immediately preceding the Conversion Date or Maturity Date, as
applicable.

         (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 as shall from time to time be sufficient to effect the
conversion of all of the Series B Preferred Stock then outstanding. The initial
number of shares of Common Stock reserved for conversions of the Series B
Preferred Stock and each 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,


                                       13


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 applicable
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 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. Conversion Restrictions.

         (a) Notwithstanding anything to the contrary set forth in Section 5 of
this Certificate of Designation, at no time may a holder of shares of Series B
Preferred Stock convert shares of the Series B Preferred Stock if the number of
shares of Common Stock to be issued pursuant to such conversion would exceed,
when aggregated with all other shares of Common Stock owned by such holder at
such time, would result in such holder beneficially owning (as determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules thereunder) in excess of 4.9% of the then issued and
outstanding shares of Common Stock outstanding at such time; provided, however,
that upon a holder of Series B Preferred Stock providing the Company with



                                       14


sixty-one (61) days notice (pursuant to Section 5(i) hereof) (the "Waiver
Notice") that such holder would like to waive Section 7(a) of this Certificate
of Designation with regard to any or all shares of Common Stock issuable upon
conversion of Series B Preferred Stock, this Section 7(a) shall be of no force
or effect with regard to those shares of Series B Preferred Stock referenced in
the Waiver Notice; provided, further, that this provision shall be of no further
force or effect during the sixty-one (61) days immediately preceding the
Maturity Date.

         (b) Notwithstanding anything to the contrary set forth in Section 5 of
this Certificate of Designation, at no time may a holder of shares of Series B
Preferred Stock convert shares of the Series B Preferred Stock if the number of
shares of Common Stock to be issued pursuant to such conversion would exceed,
when aggregated with all other shares of Common Stock owned by such holder at
such time, would result in such holder beneficially owning (as determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules thereunder) in excess of 9.9% of the then issued and
outstanding shares of Common Stock outstanding at such time; provided, however,
that upon a holder of Series B Preferred Stock providing the Company with a
Waiver Notice that such holder would like to waive Section 7(b) of this
Certificate of Designation with regard to any or all shares of Common Stock
issuable upon conversion of Series B Preferred Stock, this Section 7(b) shall be
of no force or effect with regard to those shares of Series B Preferred Stock
referenced in the Waiver Notice; provided, further, that this provision shall be
of no further force or effect during the sixty-one (61) days immediately
preceding the Maturity Date.

         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 100%
of the Liquidation Preference Amount plus any accrued but unpaid dividends (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 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



                                       15


per share of Series B Preferred Stock equal to 120% of the Liquidation
Preference Amount plus any accrued but unpaid dividends (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 (v) 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 clause (iv) 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:

                  (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) 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

                                       16


can be converted cannot be sold in the public securities market pursuant to Rule
144(k) ("Rule 144(k)") under the Securities Act of 1933, as amended, 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, without subsequent listing
on any one of, or the failure of the Common Stock to be listed on at least one
of the OTC Bulletin Board, the Nasdaq National Market, the Nasdaq SmallCap
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 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 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) 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 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.

                                       17


         (f) Mechanics of Redemption at Option of Buyer Upon Triggering Event.
Within one (1) day after 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 each 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 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 1.0% 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


                                       18


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 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 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. 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) Mandatory Redemption upon Maturity Date. The number of outstanding
shares of Series B Preferred Stock on the Maturity Date shall, at the option of
each holder of shares of Series B Preferred Stock, (A) convert into a number of
fully paid and nonassessable shares of Common Stock equal to the quotient of (i)
the Liquidation Preference Amount of the number of shares of Series B Preferred
Stock being converted on the Maturity Date plus any accrued but unpaid dividends
divided by (ii) the Conversion Price then in effect, or (B) exchanged for cash
at a price equal to the number of shares of Common Stock such holder would be
entitled to receive at the Conversion Price then in effect multiplied by $1.85
(the "Maturity Date Redemption Price").

         (i) Demand Registration Rights. If the Redemption Price upon the
occurrence of a Major Transaction or Triggering Event, or the Maturity Date
Redemption Price, 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(i) of all of its shares of
Common Stock issued upon such Major Transaction, Triggering Event or Maturity
Date. 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 or on the
Maturity Date 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 later than the date that the shares of Common Stock issued upon such Major
Transaction or Triggering Event or on the Maturity Date may be offered for
resale to the public pursuant to Rule 144(k).

                                       19


         9. Inability to Fully Convert.

         (a) Holder's Option if Company Cannot Fully Convert. If, upon the
Company's receipt of a Conversion Notice or on the Maturity Date, 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) 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:

                  (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 affect the Company's obligations to make
any payments which have accrued prior to the date of such notice);

                  (iv) extend the Maturity Date to such date that the Company
complies with clauses (i) or (ii) above, as applicable (provided that dividends
shall continue to accrue beyond the Maturity Date until the date the Company has
complied with clauses (i) or (ii) above and the Company shall be obligated to
make such dividend payments which have accrued from the Maturity Date).

                                       20


         (b) Mechanics of Fulfilling Holder's Election. The Company shall
immediately send via facsimile to a holder of Series B Preferred Stock, upon
receipt of a 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) 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.

                                       21


         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 three-fourths (3/4)
of the then outstanding shares of Series B Preferred Stock, 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 and/or as dividends paid in shares of Series B Preferred
Stock..

         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, 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 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.

                                       22


         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.

                                       23


         IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true this 30th day of July, 2004.


                                                 XSTREAM BEVERAGE GROUP, INC.


                                                 By:
                                                    ---------------------------
                                                    Name:
                                                    Title:

                                       24



                                                                       EXHIBIT I
                          XSTREAM BEVERAGE GROUP, INC.
                                CONVERSION NOTICE

Reference is made to the Certificate of Designation of the Relative Rights and
Preferences of the Series B Preferred Stock of XStream Beverage Group, 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 $.001 per share (the "Preferred
Shares"), of XStream Beverage Group, Inc., a Nevada corporation (the "Company"),
indicated below into shares of Common Stock, par value $.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  (as  defined in the  Purchase
Agreement): YES ____                                          NO____

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:


         

                                       25

EX-4.1

                                                                     Exhibit 4.1

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR XSTREAM BEVERAGE GROUP, INC. SHALL HAVE
RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED.

                          SERIES A WARRANT TO PURCHASE

                             SHARES OF COMMON STOCK

                                       OF

                          XSTREAM BEVERAGE GROUP, INC.


                              Expires July 30, 2009

No.: W-A-04- __                                   Number of Shares: ___________
Date of Issuance: July 30, 2004


         FOR VALUE RECEIVED, subject to the provisions hereinafter set forth,
the undersigned, XStream Beverage Group, Inc., a Nevada corporation (together
with its successors and assigns, the "Issuer"), hereby certifies that
_______________________________ or its registered assigns is entitled to
subscribe for and purchase, during the Term (as hereinafter defined), up to
____________________________________ (_____________) shares (subject to
adjustment as hereinafter provided) of the duly authorized, validly issued,
fully paid and non-assessable Common Stock of the Issuer, at an exercise price
per share equal to the Warrant Price then in effect, subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. Capitalized
terms used in this Warrant and not otherwise defined herein shall have the
respective meanings specified in Section 9 hereof.

         1. Term. The term of this Warrant shall commence on July 30, 2004 and
shall expire at 5:00 p.m., eastern time, on July 30, 2009 (such period being the
"Term").

         2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and
Exchange.

         (a) Time of Exercise. The purchase rights represented by this Warrant
may be exercised in whole or in part at any time during the Term.

         (b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the



payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable by certified or official bank check or by wire transfer to an
account designated by the Issuer.

         (c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three (3) Trading Days after such
exercise or, at the request of the Holder (provided that a registration
statement under the Securities Act providing for the resale of the Warrant Stock
is then in effect), issued and delivered to the Depository Trust Company ("DTC")
account on the Holder's behalf via the Deposit Withdrawal Agent Commission
System ("DWAC"), within a reasonable time, not exceeding three (3) Trading Days
after such exercise, and the Holder hereof shall be deemed for all purposes to
be the holder of the shares of Warrant Stock so purchased as of the date of such
exercise and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.

         (d) Transferability of Warrant. Subject to Section 2(e), this Warrant
may be transferred by a Holder without the consent of the Issuer. If transferred
pursuant to this paragraph and subject to the provisions of Section 2(e), this
Warrant may be transferred on the books of the Issuer by the Holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant at the
principal office of the Issuer, properly endorsed (by the Holder executing an
assignment in the form attached hereto) and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. This
Warrant is exchangeable at the principal office of the Issuer for Warrants to
purchase the same aggregate number of shares of Warrant Stock, each new Warrant
to represent the right to purchase such number of shares of Warrant Stock as the
Holder hereof shall designate at the time of such exchange. All Warrants issued
upon a transfer or exchange shall be dated the Original Issue Date and shall be
identical with this Warrant except as to the number of shares of Warrant Stock
issuable pursuant hereto.

         (e) Compliance with Securities Laws.

                  (i) The Holder of this Warrant, by acceptance hereof,
         acknowledges that this Warrant or the shares of Warrant Stock to be
         issued upon exercise hereof, as applicable, are being acquired for the
         Holder's own account and not as a nominee for any other party, and for
         investment, and that the Holder will not offer, sell or otherwise
         dispose of this Warrant or any shares of Warrant Stock to be issued
         upon exercise hereof, except pursuant to an effective registration
         statement, or an exemption from registration, under the Securities Act
         and any applicable state securities laws.

                  (ii) Except as provided in Section 2(e)(iii), this Warrant and
         all certificates representing shares of Warrant Stock issued upon
         exercise hereof shall be stamped or imprinted with a legend in
         substantially the following form:

                                      -2-


                  THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
                  EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
                  ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
                  SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
                  DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND
                  UNDER APPLICABLE STATE SECURITIES LAWS OR XSTREAM BEVERAGE
                  GROUP, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT
                  REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
                  UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS
                  NOT REQUIRED.

                  (iii) The Issuer agrees to reissue this Warrant or
         certificates representing any of the Warrant Stock, without the legend
         set forth above if at such time, prior to making any transfer of any
         such securities, the Holder shall give written notice to the Issuer
         describing the manner and terms of such transfer and removal as the
         Issuer may reasonably request. Such proposed transfer and removal will
         not be effected until: (a) either (i) the Issuer has received an
         opinion of counsel reasonably satisfactory to the Issuer, to the effect
         that the registration of such securities under the Securities Act is
         not required in connection with such proposed transfer, (ii) a
         registration statement under the Securities Act covering such proposed
         disposition has been filed by the Issuer with the Securities and
         Exchange Commission and has become effective under the Securities Act,
         (iii) the Issuer has received other evidence reasonably satisfactory to
         the Issuer that such registration and qualification under the
         Securities Act and state securities laws are not required, or (iv) the
         Holder provides the Issuer with reasonable assurances that such
         security can be sold pursuant to Rule 144 under the Securities Act; and
         (b) either (i) the Issuer has received an opinion of counsel reasonably
         satisfactory to the Issuer, to the effect that registration or
         qualification under the securities or "blue sky" laws of any state is
         not required in connection with such proposed disposition, or (ii)
         compliance with applicable state securities or "blue sky" laws has been
         effected or a valid exemption exists with respect thereto. The Issuer
         will respond to any such notice from the Holder within five (5)
         business days. In the case of any proposed transfer under this Section
         2(e), the Issuer will use reasonable best efforts to comply with any
         such applicable state securities or "blue sky" laws, but shall in no
         event be required, (x) to qualify to do business in any state where it
         is not then qualified, or (y) to take any action that would subject it
         to tax or to the general service of process in any state where it is
         not then subject. The restrictions on transfer contained in this
         Section 2(e) shall be in addition to, and not by way of limitation of,
         any other restrictions on transfer contained in any other section of
         this Warrant. Whenever a certificate representing the Warrant Stock is
         required to be issued to a the Holder without a legend, in lieu of
         delivering physical certificates representing the Warrant Stock,
         provided the Issuer's transfer agent is participating in the DTC Fast
         Automated Securities Transfer program, the Issuer shall use its
         reasonable best efforts to cause its transfer agent to electronically
         transmit the Warrant Stock to the Holder by crediting the account of
         the Holder's Prime Broker with DTC through DWAC (to the extent not


                                      -3-


         inconsistent with any provisions of this Warrant or the Purchase
         Agreement).

         3. Stock Fully Paid; Reservation and Listing of Shares; Covenants.

         (a) Stock Fully Paid. The Issuer represents, and warrants to the
Holder, and covenants and agrees for the benefit of the Holder that all shares
of Warrant Stock which may be issued upon the exercise of this Warrant or
otherwise hereunder will, upon issuance, be duly authorized, validly issued,
fully paid and non-assessable and free from all taxes, liens, charges or other
encumbrances of any nature whatsoever created by or through the Issuer. The
Issuer further covenants and agrees that during the period within which this
Warrant may be exercised, the Issuer will at all times have authorized and
reserved for the purpose of the issue upon exercise of this Warrant a sufficient
number of shares of Common Stock to provide for the exercise of this Warrant.

         (b) Reservation. If any shares of Common Stock required to be reserved
for issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts at its expense to cause such shares to be duly
registered or qualified. If the Issuer shall list any shares of Common Stock on
any securities exchange or market it will, at its expense, list thereon,
maintain and increase when necessary such listing, of, all shares of Warrant
Stock from time to time issued upon exercise of this Warrant or as otherwise
provided hereunder (provided that such Warrant Stock has been registered
pursuant to a registration statement under the Securities Act then in effect),
and, to the extent permissible under the applicable securities exchange rules,
all unissued shares of Warrant Stock which are at any time issuable hereunder,
so long as any shares of Common Stock shall be so listed. The Issuer will also
so list on each securities exchange or market, and will maintain such listing
of, any other securities which the Holder of this Warrant shall be entitled to
receive upon the exercise of this Warrant if at the time any securities of the
same class shall be listed on such securities exchange or market by the Issuer.

         (c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Articles of Incorporation or the by-laws of the Issuer,
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek to
avoid the observance or performance of any of the terms or provisions of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holder hereof against dilution (to the
extent specifically provided herein) or impairment. Without limiting the
generality of the foregoing, the Issuer will (i) not permit the par value, if
any, of its Common Stock to exceed the then effective Warrant Price, (ii) not
amend or modify any provision of the Articles of Incorporation or by-laws of the
Issuer in any manner that would adversely affect the rights of the Holder of
this Warrant, (iii) take all such action as may be reasonably necessary in order
that the Issuer may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this Warrant,
and (iv) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be


                                      -4-


reasonably necessary to enable the Issuer to perform its obligations under this
Warrant.

         (d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security reasonably satisfactory to
the Issuer or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Issuer will make and deliver, in lieu of such
lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same number of shares of Common Stock.

         4. Adjustment of Warrant Price and Warrant Share Number. The number of
shares of Common Stock for which this Warrant is exercisable, and the price at
which such shares may be purchased upon exercise of this Warrant, shall be
subject to adjustment from time to time as set forth in this Section 4. The
Issuer shall give the Holder notice of any event described below which requires
an adjustment pursuant to this Section 4 in accordance with Section 5.

         (a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale.

                  (i) In case the Issuer after the Original Issue Date shall do
         any of the following (each, a "Triggering Event"): (a) consolidate with
         or merge into any other Person and the Issuer shall not be the
         continuing or surviving corporation of such consolidation or merger, or
         (b) permit any other Person to consolidate with or merge into the
         Issuer and the Issuer shall be the continuing or surviving Person but,
         in connection with such consolidation or merger, any Capital Stock of
         the Issuer shall be changed into or exchanged for Securities of any
         other Person or cash or any other property, or (c) transfer all or
         substantially all of its properties or assets to any other Person, or
         (d) effect a capital reorganization or reclassification of its Capital
         Stock, then, and in the case of each such Triggering Event, proper
         provision shall be made so that, upon the basis and the terms and in
         the manner provided in this Warrant, the Holder of this Warrant shall
         be entitled upon the exercise hereof at any time after the consummation
         of such Triggering Event, to the extent this Warrant is not exercised
         prior to such Triggering Event, to receive at the Warrant Price in
         effect at the time immediately prior to the consummation of such
         Triggering Event in lieu of the Common Stock issuable upon such
         exercise of this Warrant prior to such Triggering Event, the
         Securities, cash and property to which such Holder would have been
         entitled upon the consummation of such Triggering Event if such Holder
         had exercised the rights represented by this Warrant immediately prior
         thereto, subject to adjustments (subsequent to such corporate action)
         as nearly equivalent as possible to the adjustments provided for
         elsewhere in this Section 4.

                  (ii) Notwithstanding anything contained in this Warrant to the
         contrary, a Triggering Event shall not be deemed to have occurred if,
         prior to the consummation thereof, each Person (other than the Issuer)
         which may be required to deliver any Securities, cash or property upon
         the exercise of this Warrant as provided herein shall assume, by
         written instrument delivered to, and reasonably satisfactory to, the
         Holder of this Warrant, (A) the obligations of the Issuer under this


                                      -5-


         Warrant (and if the Issuer shall survive the consummation of such
         Triggering Event, such assumption shall be in addition to, and shall
         not release the Issuer from, any continuing obligations of the Issuer
         under this Warrant) and (B) the obligation to deliver to such Holder
         such Securities, cash or property as, in accordance with the foregoing
         provisions of this subsection (a), such Holder shall be entitled to
         receive, and such Person shall have similarly delivered to such Holder
         an opinion of counsel for such Person, which counsel shall be
         reasonably satisfactory to such Holder, or in the alternative, a
         written acknowledgement executed by the President or Chief Financial
         Officer of the Issuer, stating that this Warrant shall thereafter
         continue in full force and effect and the terms hereof (including,
         without limitation, all of the provisions of this subsection (a)) shall
         be applicable to the Securities, cash or property which such Person may
         be required to deliver upon any exercise of this Warrant or the
         exercise of any rights pursuant hereto.

                  (b) Stock Dividends, Subdivisions and Combinations. If at any
         time the Issuer shall:

                           (i) take a record of the holders of its Common Stock
         for the purpose of entitling them to receive a dividend payable in, or
         other distribution of, shares of Common Stock,

                           (ii) subdivide its outstanding shares of Common Stock
         into a larger number of shares of Common Stock, or

                           (iii) combine its outstanding shares of Common Stock
         into a smaller number of shares of Common Stock,

then (1) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (2) the Warrant Price then in
effect shall be adjusted to equal (A) the Warrant Price then in effect
multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately after
such adjustment.

         (c) Certain Other Distributions. If at any time the Issuer shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of:

                           (i) cash (other than a cash dividend payable out of
         earnings or earned surplus legally available for the payment of
         dividends under the laws of the jurisdiction of incorporation of the
         Issuer),

                           (ii) any evidences of its indebtedness, any shares of
         stock of any class or any other securities or property of any nature
         whatsoever (other than cash, Common Stock Equivalents or Additional
         Shares of Common Stock), or

                                      -6-


                           (iii) any warrants or other rights to subscribe for
         or purchase any evidences of its indebtedness, any shares of stock of
         any class or any other securities or property of any nature whatsoever
         (other than cash, Common Stock Equivalents or Additional Shares of
         Common Stock),

then (1) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
adjustment multiplied by a fraction (A) the numerator of which shall be the Per
Share Market Value of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Per Share Market Value minus the amount
allocable to one share of Common Stock of any such cash so distributable and of
the fair value (as determined in good faith by the Board of Directors of the
Issuer and supported by an opinion from an investment banking firm of recognized
national standing acceptable to (but not affiliated with) the Holder) of any and
all such evidences of indebtedness, shares of stock, other securities or
property or warrants or other subscription or purchase rights so distributable,
and (2) the Warrant Price then in effect shall be adjusted to equal (A) the
Warrant Price then in effect multiplied by the number of shares of Common Stock
for which this Warrant is exercisable immediately prior to the adjustment
divided by (B) the number of shares of Common Stock for which this Warrant is
exercisable immediately after such adjustment. A reclassification of the Common
Stock (other than a change in par value, or from par value to no par value or
from no par value to par value) into shares of Common Stock and shares of any
other class of stock shall be deemed a distribution by the Issuer to the holders
of its Common Stock of such shares of such other class of stock within the
meaning of this Section 4(c) and, if the outstanding shares of Common Stock
shall be changed into a larger or smaller number of shares of Common Stock as a
part of such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 4(b).

         (d) Issuance of Additional Shares of Common Stock. In the event the
Issuer shall at any time following the Original Issue Date issue any Additional
Shares of Common Stock (otherwise than as provided in the foregoing subsections
(a) through (c) of this Section 4), at a price per share less than the Warrant
Price then in effect or without consideration, then the Warrant Price upon each
such issuance shall be adjusted to the price equal to the consideration per
share paid for such Additional Shares of Common Stock.

         (e) Issuance of Warrants or Other Rights. If at any time the Issuer
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Issuer is the surviving
corporation) issue or sell, any Common Stock Equivalents (or issue any warrant
or other rights therefor), whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such Common Stock Equivalents (or any
warrant or other rights therefor) shall be less than the Warrant Price in effect
immediately prior to the time of such issue or sale, then the number of shares
for which this Warrant is exercisable and the Warrant Price then in effect shall
be adjusted as provided in Section 4(d). No adjustments of the Warrant Price
then in effect or the number of Warrant Shares for which this Warrant is
exercisable shall be made upon the actual issue of such Common Stock or of such
Common Stock Equivalents upon exercise of such warrants or other rights or upon
the actual issue of such Common Stock upon such conversion or exchange of such
Common Stock Equivalents.

                                      -7-


         (f) Issuance of Common Stock Equivalents. If at any time the Issuer
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Issuer is the surviving
corporation) issue or sell, any Common Stock Equivalents, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Warrant Price in effect immediately prior to the
time of such issue or sale, then the number of shares of Common Stock for which
this Warrant is exercisable and the Warrant Price then in effect shall be
adjusted as provided in Section 4(d). No further adjustment of the number of
shares of Common Stock for which this Warrant is exercisable and the Warrant
Price then in effect shall be made under this Section 4(f) upon the issuance of
any Common Stock Equivalents which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights therefor, if any such
adjustment shall previously have been made upon the issuance of such warrants or
other rights pursuant to Section 4(e). No further adjustments of the number of
shares of Common Stock for which this Warrant is exercisable and the Warrant
Price then in effect shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Common Stock Equivalents.

         (g) Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price then in effect shall have been made pursuant to Section 4(e) or
Section 4(f) as the result of any issuance of warrants, other rights or Common
Stock Equivalents, and (i) such warrants or other rights, or the right of
conversion or exchange in such other Common Stock Equivalents, shall expire, and
all or a portion of such warrants or other rights, or the right of conversion or
exchange with respect to all or a portion of such other Common Stock
Equivalents, as the case may be shall not have been exercised, or (ii) the
consideration per share for which shares of Common Stock are issuable pursuant
to such Common Stock Equivalents, shall be increased solely by virtue of
provisions therein contained for an automatic increase in such consideration per
share upon the occurrence of a specified date or event, then for each
outstanding Warrant such previous adjustment shall be rescinded and annulled and
the Additional Shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Upon the occurrence of an event set forth in this Section 4(g)
above, there shall be a recomputation made of the effect of such Common Stock
Equivalents on the basis of: (i) treating the number of Additional Shares of
Common Stock or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or other rights or any
such right of conversion or exchange, as having been issued on the date or dates
of any such exercise and for the consideration actually received and receivable
therefor, and (ii) treating any such Common Stock Equivalents which then remain
outstanding as having been granted or issued immediately after the time of such
increase of the consideration per share for which shares of Common Stock or
other property are issuable under such Common Stock Equivalents; whereupon a new
adjustment of the number of shares of Common Stock for which this Warrant is
exercisable and the Warrant Price then in effect shall be made, which new
adjustment shall supersede the previous adjustment so rescinded and annulled.

                                      -8-


         (h) Purchase of Common Stock by the Issuer. If the Issuer at any time
while this Warrant is outstanding shall, directly or indirectly through a
Subsidiary or otherwise, purchase, redeem or otherwise acquire any shares of
Common Stock at a price per share greater than the Per Share Market Value, then
the Warrant Price upon each such purchase, redemption or acquisition shall be
adjusted to that price determined by multiplying such Warrant Price by a
fraction (i) the numerator of which shall be the number of shares of Outstanding
Common Stock immediately prior to such purchase, redemption or acquisition minus
the number of shares of Common Stock which the aggregate consideration for the
total number of such shares of Common Stock so purchased, redeemed or acquired
would purchase at the Per Share Market Value; and (ii) the denominator of which
shall be the number of shares of Outstanding Common Stock immediately after such
purchase, redemption or acquisition. For the purposes of this subsection (h),
the date as of which the Per Share Market Price shall be computed shall be the
earlier of (x) the date on which the Issuer shall enter into a firm contract for
the purchase, redemption or acquisition of such Common Stock, or (y) the date of
actual purchase, redemption or acquisition of such Common Stock. For the
purposes of this subsection (h), a purchase, redemption or acquisition of a
Common Stock Equivalent shall be deemed to be a purchase of the underlying
Common Stock, and the computation herein required shall be made on the basis of
the full exercise, conversion or exchange of such Common Stock Equivalent on the
date as of which such computation is required hereby to be made, whether or not
such Common Stock Equivalent is actually exercisable, convertible or
exchangeable on such date.

         (i) Other Provisions applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price then in effect provided for in this Section 4:

                  (i) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Common Stock Equivalents (or any
warrants or other rights therefor) shall be issued for cash consideration, the
consideration received by the Issuer therefor shall be the amount of the cash
received by the Issuer therefor, or, if such Additional Shares of Common Stock
or Common Stock Equivalents are offered by the Issuer for subscription, the
subscription price, or, if such Additional Shares of Common Stock or Common
Stock Equivalents are sold to underwriters or dealers for public offering
without a subscription offering, the initial public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest or accrued
dividends and without taking into account any compensation, discounts or
expenses paid or incurred by the Issuer for and in the underwriting of, or
otherwise in connection with, the issuance thereof). To the extent that such
issuance shall be for a consideration other than cash, then, except as herein
otherwise expressly provided, the amount of such consideration shall be deemed
to be the fair value of such consideration at the time of such issuance as
determined in good faith by the Board of Directors of the Issuer. In case any
Additional Shares of Common Stock or any Common Stock Equivalents (or any
warrants or other rights therefor) shall be issued in connection with any merger
in which the Issuer issues any securities, the amount of consideration therefor
shall be deemed to be the fair value, as determined in good faith by the Board


                                      -9-


of Directors of the Issuer, of such portion of the assets and business of the
nonsurviving corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Common Stock, Common Stock
Equivalents, or any warrants or other rights therefor, as the case may be. The
consideration for any Additional Shares of Common Stock issuable pursuant to any
warrants or other rights to subscribe for or purchase the same shall be the
consideration received by the Issuer for issuing such warrants or other rights
plus the additional consideration payable to the Issuer upon exercise of such
warrants or other rights. The consideration for any Additional Shares of Common
Stock issuable pursuant to the terms of any Common Stock Equivalents shall be
the consideration received by the Issuer for issuing warrants or other rights to
subscribe for or purchase such Common Stock Equivalents, plus the consideration
paid or payable to the Issuer in respect of the subscription for or purchase of
such Common Stock Equivalents, plus the additional consideration, if any,
payable to the Issuer upon the exercise of the right of conversion or exchange
in such Common Stock Equivalents. In case of the issuance at any time of any
Additional Shares of Common Stock or Common Stock Equivalents in payment or
satisfaction of any dividends upon any class of stock other than Common Stock,
the Issuer shall be deemed to have received for such Additional Shares of Common
Stock or Common Stock Equivalents a consideration equal to the amount of such
dividend so paid or satisfied.

                  (ii) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the number of
shares of Common Stock for which this Warrant is exercisable that would
otherwise be required may be postponed (except in the case of a subdivision or
combination of shares of the Common Stock, as provided for in Section 4(b)) up
to, but not beyond the date of exercise if such adjustment either by itself or
with other adjustments not previously made adds or subtracts less than one
percent (1%) of the shares of Common Stock for which this Warrant is exercisable
immediately prior to the making of such adjustment. Any adjustment representing
a change of less than such minimum amount (except as aforesaid) which is
postponed shall be carried forward and made as soon as such adjustment, together
with other adjustments required by this Section 4 and not previously made, would
result in a minimum adjustment or on the date of exercise. For the purpose of
any adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.

                  (iii) Fractional Interests. In computing adjustments under
this Section 4, fractional interests in Common Stock shall be taken into account
to the nearest one one-hundredth (1/100th) of a share.

                  (iv) When Adjustment Not Required. If the Issuer shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.

         (j) Form of Warrant after Adjustments. The form of this Warrant need
not be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.

         (k) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any record


                                      -10-


of the holders of Common Stock, but prior to the occurrence of the event for
which such record is taken, and the Holder exercises this Warrant, any shares of
Common Stock issuable upon exercise by reason of such adjustment shall be deemed
the last shares of Common Stock for which this Warrant is exercised
(notwithstanding any other provision to the contrary herein) and such shares or
other property shall be held in escrow for the Holder by the Issuer to be issued
to the Holder upon and to the extent that the event actually takes place, upon
payment of the current Warrant Price. Notwithstanding any other provision to the
contrary herein, if the event for which such record was taken fails to occur or
is rescinded, then such escrowed shares shall be cancelled by the Issuer and
escrowed property returned.

         5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder), and the Warrant
Price and Warrant Share Number after giving effect to such adjustment, and shall
cause copies of such certificate to be delivered to the Holder of this Warrant
promptly after each adjustment. Any dispute between the Issuer and the Holder of
this Warrant with respect to the matters set forth in such certificate may at
the option of the Holder of this Warrant be submitted to one of the national
accounting firms currently known as the "big four" selected by the Holder;
provided that the Issuer shall have ten (10) days after receipt of notice from
such Holder of its selection of such firm to object thereto, in which case such
Holder shall select another such firm and the Issuer shall have no such right of
objection. The firm selected by the Holder of this Warrant as provided in the
preceding sentence shall be instructed to deliver a written opinion as to such
matters to the Issuer and such Holder within thirty (30) days after submission
to it of such dispute. Such opinion shall be final and binding on the parties
hereto.

         6. Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with any exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Per Share Market Value then
in effect.

         7. Ownership Cap and Certain Exercise Restrictions. (a) Notwithstanding
anything to the contrary set forth in this Warrant, at no time may a Holder of
this Warrant exercise this Warrant if the number of shares of Common Stock to be
issued pursuant to such exercise would exceed, when aggregated with all other
shares of Common Stock owned by such Holder at such time, the number of shares
of Common Stock which would result in such Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) more than 4.9% of all of the Common Stock outstanding at such time;
provided, however, that upon the Holder of this Warrant providing the Issuer
with sixty-one (61) days notice (pursuant to Section 13 hereof) (the "Waiver
Notice") that such Holder would like to waive this Section 7(a) with regard to
any or all shares of Common Stock issuable upon exercise of this Warrant, this
Section 7(a) will be of no force or effect with regard to all or a portion of
the Warrant referenced in the Waiver Notice; provided, further, that this
provision shall be of no further force or effect (i) during the sixty-one (61)


                                      -11-


days immediately preceding the expiration of the term of this Warrant or (ii)
upon the Holder's receipt of a Call Notice (as defined in Section 8 hereof).

                  (b) The Holder may not exercise the Warrant hereunder to the
extent such exercise would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 9.9% of the then issued and outstanding shares of
Common Stock, including shares issuable upon exercise of this Warrant held by
the Holder; provided, however, that upon a holder of this Warrant providing the
Issuer with a Waiver Notice that such holder would like to waive this Section
7(b) with regard to any or all shares of Common Stock issuable upon exercise of
this Warrant, this Section 7(b) shall be of no force or effect with regard to
those shares of Warrant Stock referenced in the Waiver Notice; provided,
further, that this provision shall be of no further force or effect (i) during
the sixty-one (61) days immediately preceding the expiration of the term of this
Warrant or (ii) upon the Holder's receipt of a Call Notice.

         8. Call. Notwithstanding anything herein to the contrary, commencing
twelve (12) months following the effective date (the "Effective Date") of a
registration statement providing for the resale of the Warrant Stock and the
shares of Common Stock issuable upon conversion of the Issuer's Series B
Preferred Stock issued pursuant to the Purchase Agreement (the "Registration
Statement"), the Issuer, at its option, may call up to one hundred percent
(100%) of this Warrant by providing the Holder of this Warrant written notice
pursuant to Section 13 (the "Call Notice") if the Per Share Market Value of the
Common Stock has been greater than four hundred percent (400%) of the Conversion
Price (as defined in the Certificate of Designation) for a period of twenty (20)
consecutive Trading Days immediately prior to the date of delivery of the Call
Notice; provided, that (i) the Registration Statement is then in effect and has
been effective, without lapse or suspension of any kind, for a period of thirty
(30) consecutive Trading Days, (ii) trading in the Common Stock shall not have
been suspended by the Securities and Exchange Commission or the OTC Bulletin
Board, (iii) the average trading volume of the Common Stock is greater than
40,000 shares for a period of twenty (20) consecutive Trading Days immediately
prior to the date of delivery of the Call Notice and (iv) the Issuer is in
material compliance with the terms and conditions of this Warrant and the other
Transaction Documents (as defined in the Purchase Agreement); provided, further,
that the Registration Statement is in effect from the date of delivery of the
Call Notice until the date which is the later of (A) the date the Holder
exercises the Warrant pursuant to the Call Notice and (B) the 20th Trading Day
after the Holder receives the Call Notice (the "Early Termination Date"). The
rights and privileges granted pursuant to this Warrant with respect to the
shares of Warrant Stock subject to the Call Notice (the "Called Warrant Shares")
shall expire on the Early Termination Date if this Warrant is not exercised with
respect to such Called Warrant Shares prior to such Early Termination Date. In
the event this Warrant is not exercised with respect to the Called Warrant
Shares, the Issuer shall remit to the Holder of this Warrant (A) $.01 per Called
Warrant Share and (B) a new Warrant representing the number of shares of Warrant
Stock, if any, which shall not have been subject to the Call Notice upon the
Holder tendering to the Issuer the applicable Warrant certificate.

         9. Definitions. For the purposes of this Warrant, the following terms
have the following meanings:

                  "Additional Shares of Common Stock" means all shares of Common
         Stock issued by the Issuer after the Original Issue Date, and all


                                      -12-


         shares of Other Common, if any, issued by the Issuer after the Original
         Issue Date, except: (i) the Issuer's issuance of Common Stock and
         warrants therefore in connection with a merger, acquisition, or
         consolidation; provided that the Warrant Price shall be adjusted in
         accordance with Section 4(a)(i), (ii) the issuance of Additional Shares
         of Common Stock pursuant to a bona fide firm underwritten public
         offering of the Issuer's securities, (iii) the issuance of shares of
         Common Stock or warrants therefore in connection with strategic license
         agreements and other partnering arrangements so long as such issuances
         are not for the purpose of raising capital, (iv) the Issuer's issuance
         of Common Stock or the issuance or grants of options to purchase Common
         Stock pursuant to the Issuer's stock option plans and employee stock
         purchase plans so long as the purchase price or exercise price of such
         securities is greater than the Conversion Price (as defined in the
         Certificate of Designation), (v) the issuance of Common Stock upon the
         exercise or conversion of any securities outstanding on the date
         hereof, (vi) the issuance of any warrants issued to the placement agent
         for the transactions contemplated by the Purchase Agreement, (vii) the
         Warrant Stock, and (viii) the payment of any dividends on the Series B
         Preferred Stock of the Issuer.

                  "Articles of Incorporation" means the Articles of
         Incorporation of the Issuer as in effect on the Original Issue Date,
         and as hereafter from time to time amended, modified, supplemented or
         restated in accordance with the terms hereof and thereof and pursuant
         to applicable law.

                  "Board" shall mean the Board of Directors of the Issuer.

                  "Capital Stock" means and includes (i) any and all shares,
         interests, participations or other equivalents of or interests in
         (however designated) corporate stock, including, without limitation,
         shares of preferred or preference stock, (ii) all partnership interests
         (whether general or limited) in any Person which is a partnership,
         (iii) all membership interests or limited liability company interests
         in any limited liability company, and (iv) all equity or ownership
         interests in any Person of any other type.

                  "Certificate of Designation" means the Certificate of
         Designation of the Relative Rights and Preferences of the Series B
         Convertible Preferred Stock of the Issuer.

                  "Common Stock" means the Common Stock, par value $0.001 per
         share, of the Issuer and any other Capital Stock into which such stock
         may hereafter be changed.

                  "Common Stock Equivalent" means any Convertible Security or
         warrant, option or other right to subscribe for or purchase any
         Additional Shares of Common Stock or any Convertible Security.

                  "Convertible Securities" means evidences of Indebtedness,
         shares of Capital Stock or other Securities which are or may be at any
         time convertible into or exchangeable for Additional Shares of Common
         Stock. The term "Convertible Security" means one of the Convertible
         Securities.

                                      -13-


                  "Governmental Authority" means any governmental, regulatory or
         self-regulatory entity, department, body, official, authority,
         commission, board, agency or instrumentality, whether federal, state or
         local, and whether domestic or foreign.

                  "Holder" means the Person who holds this Warrant. The term
         "Holders" means one of the Persons who shall from time to time hold
         this Warrant.

                  "Independent Appraiser" means a nationally recognized or major
         regional investment banking firm or firm of independent certified
         public accountants of recognized standing (which may be the firm that
         regularly examines the financial statements of the Issuer) that is
         regularly engaged in the business of appraising the Capital Stock or
         assets of corporations or other entities as going concerns, and which
         is not affiliated with either the Issuer or the Holder of any Warrant.

                  "Issuer" means XStream Beverage Group, Inc., a Nevada
         corporation, and its successors and assigns.

                  "Majority Holders" means at any time the Holders of Warrants
         exercisable for a majority of the shares of Warrant Stock issuable
         under the Warrants at the time outstanding.

                  "Original Issue Date" means July 30, 2004.

                  "OTC Bulletin Board" means the over-the-counter electronic
         bulletin board.

                  "Other Common" means any other Capital Stock of the Issuer of
         any class which shall be authorized at any time after the date of this
         Warrant (other than Common Stock) and which shall have the right to
         participate in the distribution of earnings and assets of the Issuer
         without limitation as to amount.

                  "Outstanding Common Stock" means, at any given time, the
         aggregate amount of outstanding shares of Common Stock, assuming full
         exercise, conversion or exchange (as applicable) of all options,
         warrants and other Securities which are convertible into or exercisable
         or exchangeable for, and any right to subscribe for, shares of Common
         Stock that are outstanding at such time.

                  "Person" means an individual, corporation, limited liability
         company, partnership, joint stock company, trust, unincorporated
         organization, joint venture, Governmental Authority or other entity of
         whatever nature.

                  "Per Share Market Value" means on any particular date (a) the
         closing bid price for a share of Common Stock in the over-the-counter
         market, as reported by the OTC Bulletin Board or in the National
         Quotation Bureau Incorporated or similar organization or agency
         succeeding to its functions of reporting prices at the close of
         business on such date, or (b) if the Common Stock is not then reported
         by the OTC Bulletin Board or the National Quotation Bureau Incorporated


                                      -14-


         (or similar organization or agency succeeding to its functions of
         reporting prices), then the average of the "Pink Sheet" quotes for the
         five Trading Days prior to the relevant determination period, or (c) if
         the Common Stock is not then publicly traded the fair market value of a
         share of Common Stock as determined by the Board in good faith;
         provided, however, that the Majority Holders, after receipt of the
         determination by the Board, shall have the right to select, jointly
         with the Issuer, an Independent Appraiser, in which case, the fair
         market value shall be the determination by such Independent Appraiser;
         and provided, further that all determinations of the Per Share Market
         Value shall be appropriately adjusted for any stock dividends, stock
         splits or other similar transactions during such period. The
         determination of fair market value shall be based upon the fair market
         value of the Issuer determined on a going concern basis as between a
         willing buyer and a willing seller and taking into account all relevant
         factors determinative of value, and shall be final and binding on all
         parties. In determining the fair market value of any shares of Common
         Stock, no consideration shall be given to any restrictions on transfer
         of the Common Stock imposed by agreement or by federal or state
         securities laws, or to the existence or absence of, or any limitations
         on, voting rights.

                  "Purchase Agreement" means the Series B Convertible Preferred
         Stock Purchase Agreement dated as of July 30, 2004, among the Issuer
         and the Purchasers.

                  "Purchasers" means the purchasers of the Issuer's Series B
         Preferred Stock pursuant to the Purchase Agreement.

                  "Securities" means any debt or equity securities of the
         Issuer, whether now or hereafter authorized, any instrument convertible
         into or exchangeable for Securities or a Security, and any option,
         warrant or other right to purchase or acquire any Security. "Security"
         means one of the Securities.

                  "Securities Act" means the Securities Act of 1933, as amended,
         or any similar federal statute then in effect.

                  "Subsidiary" means any corporation at least 50% of whose
         outstanding Voting Stock shall at the time be owned directly or
         indirectly by the Issuer or by one or more of its Subsidiaries, or by
         the Issuer and one or more of its Subsidiaries.

                  "Term" has the meaning specified in Section 1 hereof.

                  "Trading Day" means (a) a day on which the Common Stock is
         traded on the OTC Bulletin Board, or (b) if the Common Stock is not
         traded on the OTC Bulletin Board, a day on which the Common Stock is
         quoted in the over-the-counter market as reported by the National
         Quotation Bureau Incorporated (or any similar organization or agency
         succeeding its functions of reporting prices); provided, however, that
         in the event that the Common Stock is not listed or quoted as set forth
         in (a) or (b) hereof, then Trading Day shall mean 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 are authorized or
         required by law or other government action to close.

                                      -15-


                  "Voting Stock" means, as applied to the Capital Stock of any
         corporation, Capital Stock of any class or classes (however designated)
         having ordinary voting power for the election of a majority of the
         members of the Board of Directors (or other governing body) of such
         corporation, other than Capital Stock having such power only by reason
         of the happening of a contingency.

                  "Warrants" means the Warrants issued and sold pursuant to the
         Purchase Agreement, including, without limitation, this Warrant, and
         any other warrants of like tenor issued in substitution or exchange
         therefor pursuant to the provisions of Section 2(c), 2(d) or 2(e)
         hereof or of any of such other Warrants.

                  "Warrant Price" initially means U.S. $2.00, as such price may
         be adjusted from time to time as shall result from the adjustments
         specified in this Warrant, including Section 4 hereto.

                  "Warrant Share Number" means at any time the aggregate number
         of shares of Warrant Stock which may at such time be purchased upon
         exercise of this Warrant, after giving effect to all prior adjustments
         and increases to such number made or required to be made under the
         terms hereof.

                  "Warrant Stock" means Common Stock issuable upon exercise of
         any Warrant or Warrants or otherwise issuable pursuant to any Warrant
         or Warrants.

         10. Other Notices. In case at any time:

                                    (A)     the Issuer shall make any
                                            distributions to the holders of
                                            Common Stock; or

                                    (B)     the Issuer shall authorize the
                                            granting to all holders of its
                                            Common Stock of rights to subscribe
                                            for or purchase any shares of
                                            Capital Stock of any class or other
                                            rights; or

                                    (C)     there shall be any reclassification
                                            of the Capital Stock of the Issuer;
                                            or

                                    (D)     there shall be any capital
                                            reorganization by the Issuer; or

                                    (E)     there shall be any (i) consolidation
                                            or merger involving the Issuer or
                                            (ii) sale, transfer or other
                                            disposition of all or substantially
                                            all of the Issuer's property, assets
                                            or business (except a merger or
                                            other reorganization in which the
                                            Issuer shall be the surviving
                                            corporation and its shares of
                                            Capital Stock shall continue to be
                                            outstanding and unchanged and except
                                            a consolidation, merger, sale,
                                            transfer or other disposition
                                            involving a wholly-owned
                                            Subsidiary); or

                                      -16-


                                    (F)     there shall be a voluntary or
                                            involuntary dissolution, liquidation
                                            or winding-up of the Issuer or any
                                            partial liquidation of the Issuer or
                                            distribution to holders of Common
                                            Stock;

then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be. Such notice shall be given at least twenty
(20) days prior to the action in question and not less than ten (10) days prior
to the record date or the date on which the Issuer's transfer books are closed
in respect thereto. This Warrant entitles the Holder to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Common Stock.

         11. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and the Majority Holders; provided, however, that no such amendment or
waiver shall reduce the Warrant Share Number, increase the Warrant Price,
shorten the period during which this Warrant may be exercised or modify any
provision of this Section 11 without the consent of the Holder of this Warrant.

         12. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY
OF ITS PRINCIPLES OF CONFLICTS OF LAW WHICH WOULD RESULT IN THE APPLICATION OF
THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION.

         13. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., eastern time, on a
Trading Day, (ii) the Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile telephone number
specified for notice later than 5:00 p.m., eastern time, on any date and earlier
than 11:59 p.m., eastern time, on such date, (iii) the Trading Day following the
date of mailing, if sent by nationally recognized overnight courier service or
(iv) actual receipt by the party to whom such notice is required to be given.
The addresses for such communications shall be with respect to the Holder of
this Warrant or of Warrant Stock issued pursuant hereto, addressed to such
Holder at its last known address or facsimile number appearing on the books of
the Issuer maintained for such purposes, or with respect to the Issuer,
addressed to:

                                      -17-


                                    XStream Beverage Group, Inc.
                                    4800 N.W. 15th Avenue, Bay 1-A
                                    Fort Lauderdale, FL 33309
                                    Attention: Jerry Pearring
                                    Tel. No.: (954) 598-7997
                                    Fax No.:  (954) 598-7996

with copies (which copies
shall not constitute notice
to the Issuer) to:                  Newman, Pollock and Klein LLP
                                    2600 North Military Trail
                                    Boca Raton, FL 33431
                                    Attention: Jeffrey Klein
                                    Tel. No.: (561) 997-9920
                                    Fax No.:  (561) 241-4943

Copies of notices to the Holder shall be sent to Jenkens & Gilchrist Parker
Chapin LLP, 405 Lexington Avenue, New York, New York 10174, Attention:
Christopher S. Auguste, Esq., Facsimile No.: (212) 704-6288. 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.

         14. Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in New York, New York for the
purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.

         15. Remedies. The Issuer stipulates that the remedies at law of the
Holder of this Warrant in the event of any breach or threatened breach by the
Issuer in the performance of or compliance with any of the terms or provisions
of this Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms or provisions may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms or provisions hereof or
otherwise.

         16. Successors and Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
assigns of the Issuer, the Holder hereof and (to the extent provided herein) the
Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any
such Holder or Holders of Warrant Stock.

         17. Severability. If, in any action before any court or agency legally
empowered to enforce any provision contained herein, any provision hereof is
found to be unenforceable, then such provision shall be deemed modified to the
extent necessary to make it enforceable by such court or agency. If any such
provision is not enforceable as set forth in the preceding sentence, the
unenforceability of such provision shall not affect the other provisions of this


                                      -18-


Warrant, but this Warrant shall be construed as if such unenforceable provision
had never been contained herein.

         18. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant and shall not influence the construction or interpretation of
this Warrant.

                                      -19-


         IN WITNESS WHEREOF, the Issuer has executed this Series A Warrant as of
the day and year first above written.


                                XSTREAM BEVERAGE GROUP, INC.



                                By:
                                   ---------------------------------------------
                                   Name:
                                   Title:

                                      -20-


                                  EXERCISE FORM
                                SERIES A WARRANT

                          XSTREAM BEVERAGE GROUP, INC.

The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of ____________
covered by the within Warrant.

Dated: _________________            Signature___________________________________

                                    Address_____________________________________

                                           _____________________________________

                                   ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.

Dated: _________________            Signature___________________________________

                                    Address_____________________________________

                                           _____________________________________


                               PARTIAL ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.

Dated: _________________            Signature___________________________________

                                    Address_____________________________________

                                           _____________________________________


                           FOR USE BY THE ISSUER ONLY:

This Warrant No. W-___ canceled (or transferred or exchanged) this _____ day of
___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.


                                      -21-

EX-4.2

                                                                     Exhibit 4.2

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR XSTREAM BEVERAGE GROUP, INC. SHALL HAVE
RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE
SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED.

                          SERIES B WARRANT TO PURCHASE

                             SHARES OF COMMON STOCK

                                       OF

                          XSTREAM BEVERAGE GROUP, INC.

                              Expires July 30, 2009

No.: W-B-04- __                                    Number of Shares: ___________
Date of Issuance: July 30, 2004


         FOR VALUE RECEIVED, subject to the provisions hereinafter set forth,
the undersigned, XStream Beverage Group, Inc., a Nevada corporation (together
with its successors and assigns, the "Issuer"), hereby certifies that
_______________________________ or its registered assigns is entitled to
subscribe for and purchase, during the Term (as hereinafter defined), up to
____________________________________ (_____________) shares (subject to
adjustment as hereinafter provided) of the duly authorized, validly issued,
fully paid and non-assessable Common Stock of the Issuer, at an exercise price
per share equal to the Warrant Price then in effect, subject, however, to the
provisions and upon the terms and conditions hereinafter set forth. Capitalized
terms used in this Warrant and not otherwise defined herein shall have the
respective meanings specified in Section 8 hereof.

         1. Term. The term of this Warrant shall commence on July 30, 2004 and
shall expire at 5:00 p.m., eastern time, on July 30, 2009 (such period being the
"Term").

         2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and
Exchange.

         (a) Time of Exercise. The purchase rights represented by this Warrant
may be exercised in whole or in part at any time during the Term.

         (b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of


                                      -1-


shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable by certified or official bank check or by wire transfer to an
account designated by the Issuer.

         (c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three (3) Trading Days after such
exercise or, at the request of the Holder (provided that a registration
statement under the Securities Act providing for the resale of the Warrant Stock
is then in effect), issued and delivered to the Depository Trust Company ("DTC")
account on the Holder's behalf via the Deposit Withdrawal Agent Commission
System ("DWAC"), within a reasonable time, not exceeding three (3) Trading Days
after such exercise, and the Holder hereof shall be deemed for all purposes to
be the holder of the shares of Warrant Stock so purchased as of the date of such
exercise and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.

         (d) Transferability of Warrant. Subject to Section 2(e), this Warrant
may be transferred by a Holder without the consent of the Issuer. If transferred
pursuant to this paragraph and subject to the provisions of Section 2(e), this
Warrant may be transferred on the books of the Issuer by the Holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant at the
principal office of the Issuer, properly endorsed (by the Holder executing an
assignment in the form attached hereto) and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. This
Warrant is exchangeable at the principal office of the Issuer for Warrants to
purchase the same aggregate number of shares of Warrant Stock, each new Warrant
to represent the right to purchase such number of shares of Warrant Stock as the
Holder hereof shall designate at the time of such exchange. All Warrants issued
upon a transfer or exchange shall be dated the Original Issue Date and shall be
identical with this Warrant except as to the number of shares of Warrant Stock
issuable pursuant hereto.

         (e) Compliance with Securities Laws.

                  (i) The Holder of this Warrant, by acceptance hereof,
         acknowledges that this Warrant or the shares of Warrant Stock to be
         issued upon exercise hereof, as applicable, are being acquired for the
         Holder's own account and not as a nominee for any other party, and for
         investment, and that the Holder will not offer, sell or otherwise
         dispose of this Warrant or any shares of Warrant Stock to be issued
         upon exercise hereof, except pursuant to an effective registration
         statement, or an exemption from registration, under the Securities Act
         and any applicable state securities laws.

                  (ii) Except as provided in Section 2(e)(iii), this Warrant and
         all certificates representing shares of Warrant Stock issued upon
         exercise hereof shall be stamped or imprinted with a legend in
         substantially the following form:

                                      -2-


                  THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
                  EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
                  ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
                  SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
                  DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND
                  UNDER APPLICABLE STATE SECURITIES LAWS OR XSTREAM BEVERAGE
                  GROUP, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT
                  REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
                  UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS
                  NOT REQUIRED.

                  (iii) The Issuer agrees to reissue this Warrant or
         certificates representing any of the Warrant Stock, without the legend
         set forth above if at such time, prior to making any transfer of any
         such securities, the Holder shall give written notice to the Issuer
         describing the manner and terms of such transfer and removal as the
         Issuer may reasonably request. Such proposed transfer and removal will
         not be effected until: (a) either (i) the Issuer has received an
         opinion of counsel reasonably satisfactory to the Issuer, to the effect
         that the registration of such securities under the Securities Act is
         not required in connection with such proposed transfer, (ii) a
         registration statement under the Securities Act covering such proposed
         disposition has been filed by the Issuer with the Securities and
         Exchange Commission and has become effective under the Securities Act,
         (iii) the Issuer has received other evidence reasonably satisfactory to
         the Issuer that such registration and qualification under the
         Securities Act and state securities laws are not required, or (iv) the
         Holder provides the Issuer with reasonable assurances that such
         security can be sold pursuant to Rule 144 under the Securities Act; and
         (b) either (i) the Issuer has received an opinion of counsel reasonably
         satisfactory to the Issuer, to the effect that registration or
         qualification under the securities or "blue sky" laws of any state is
         not required in connection with such proposed disposition, or (ii)
         compliance with applicable state securities or "blue sky" laws has been
         effected or a valid exemption exists with respect thereto. The Issuer
         will respond to any such notice from the Holder within five (5)
         business days. In the case of any proposed transfer under this Section
         2(e), the Issuer will use reasonable best efforts to comply with any
         such applicable state securities or "blue sky" laws, but shall in no
         event be required, (x) to qualify to do business in any state where it
         is not then qualified, or (y) to take any action that would subject it
         to tax or to the general service of process in any state where it is
         not then subject. The restrictions on transfer contained in this
         Section 2(e) shall be in addition to, and not by way of limitation of,
         any other restrictions on transfer contained in any other section of
         this Warrant. Whenever a certificate representing the Warrant Stock is
         required to be issued to a the Holder without a legend, in lieu of
         delivering physical certificates representing the Warrant Stock,
         provided the Issuer's transfer agent is participating in the DTC Fast
         Automated Securities Transfer program, the Issuer shall use its
         reasonable best efforts to cause its transfer agent to electronically
         transmit the Warrant Stock to the Holder by crediting the account of
         the Holder's Prime Broker with DTC through DWAC (to the extent not


                                      -3-


         inconsistent with any provisions of this Warrant or the Purchase
         Agreement).

         3. Stock Fully Paid; Reservation and Listing of Shares; Covenants.

         (a) Stock Fully Paid. The Issuer represents, and warrants to the
Holder, and covenants and agrees for the benefit of the Holder that all shares
of Warrant Stock which may be issued upon the exercise of this Warrant or
otherwise hereunder will, upon issuance, be duly authorized, validly issued,
fully paid and non-assessable and free from all taxes, liens, charges or other
encumbrances of any nature whatsoever created by or through the Issuer. The
Issuer further covenants and agrees that during the period within which this
Warrant may be exercised, the Issuer will at all times have authorized and
reserved for the purpose of the issue upon exercise of this Warrant a sufficient
number of shares of Common Stock to provide for the exercise of this Warrant.

         (b) Reservation. If any shares of Common Stock required to be reserved
for issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts at its expense to cause such shares to be duly
registered or qualified. If the Issuer shall list any shares of Common Stock on
any securities exchange or market it will, at its expense, list thereon,
maintain and increase when necessary such listing, of, all shares of Warrant
Stock from time to time issued upon exercise of this Warrant or as otherwise
provided hereunder (provided that such Warrant Stock has been registered
pursuant to a registration statement under the Securities Act then in effect),
and, to the extent permissible under the applicable securities exchange rules,
all unissued shares of Warrant Stock which are at any time issuable hereunder,
so long as any shares of Common Stock shall be so listed. The Issuer will also
so list on each securities exchange or market, and will maintain such listing
of, any other securities which the Holder of this Warrant shall be entitled to
receive upon the exercise of this Warrant if at the time any securities of the
same class shall be listed on such securities exchange or market by the Issuer.

         (c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Articles of Incorporation or the by-laws of the Issuer,
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek to
avoid the observance or performance of any of the terms or provisions of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holder hereof against dilution (to the
extent specifically provided herein) or impairment. Without limiting the
generality of the foregoing, the Issuer will (i) not permit the par value, if
any, of its Common Stock to exceed the then effective Warrant Price, (ii) not
amend or modify any provision of the Articles of Incorporation or by-laws of the
Issuer in any manner that would adversely affect the rights of the Holder of
this Warrant, (iii) take all such action as may be reasonably necessary in order
that the Issuer may validly and legally issue fully paid and nonassessable
shares of Common Stock, free and clear of any liens, claims, encumbrances and
restrictions (other than as provided herein) upon the exercise of this Warrant,
and (iv) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be


                                      -4-


reasonably necessary to enable the Issuer to perform its obligations under this
Warrant.

         (d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security reasonably satisfactory to
the Issuer or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Issuer will make and deliver, in lieu of such
lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same number of shares of Common Stock.

         4. Adjustment of Warrant Price and Warrant Share Number. The number of
shares of Common Stock for which this Warrant is exercisable, and the price at
which such shares may be purchased upon exercise of this Warrant, shall be
subject to adjustment from time to time as set forth in this Section 4. The
Issuer shall give the Holder notice of any event described below which requires
an adjustment pursuant to this Section 4 in accordance with Section 5.

         (a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale.

                  (i) In case the Issuer after the Original Issue Date shall do
         any of the following (each, a "Triggering Event"): (a) consolidate with
         or merge into any other Person and the Issuer shall not be the
         continuing or surviving corporation of such consolidation or merger, or
         (b) permit any other Person to consolidate with or merge into the
         Issuer and the Issuer shall be the continuing or surviving Person but,
         in connection with such consolidation or merger, any Capital Stock of
         the Issuer shall be changed into or exchanged for Securities of any
         other Person or cash or any other property, or (c) transfer all or
         substantially all of its properties or assets to any other Person, or
         (d) effect a capital reorganization or reclassification of its Capital
         Stock, then, and in the case of each such Triggering Event, proper
         provision shall be made so that, upon the basis and the terms and in
         the manner provided in this Warrant, the Holder of this Warrant shall
         be entitled upon the exercise hereof at any time after the consummation
         of such Triggering Event, to the extent this Warrant is not exercised
         prior to such Triggering Event, to receive at the Warrant Price in
         effect at the time immediately prior to the consummation of such
         Triggering Event in lieu of the Common Stock issuable upon such
         exercise of this Warrant prior to such Triggering Event, the
         Securities, cash and property to which such Holder would have been
         entitled upon the consummation of such Triggering Event if such Holder
         had exercised the rights represented by this Warrant immediately prior
         thereto, subject to adjustments (subsequent to such corporate action)
         as nearly equivalent as possible to the adjustments provided for
         elsewhere in this Section 4.

                  (ii) Notwithstanding anything contained in this Warrant to the
         contrary, a Triggering Event shall not be deemed to have occurred if,
         prior to the consummation thereof, each Person (other than the Issuer)
         which may be required to deliver any Securities, cash or property upon
         the exercise of this Warrant as provided herein shall assume, by
         written instrument delivered to, and reasonably satisfactory to, the
         Holder of this Warrant, (A) the obligations of the Issuer under this


                                      -5-


         Warrant (and if the Issuer shall survive the consummation of such
         Triggering Event, such assumption shall be in addition to, and shall
         not release the Issuer from, any continuing obligations of the Issuer
         under this Warrant) and (B) the obligation to deliver to such Holder
         such Securities, cash or property as, in accordance with the foregoing
         provisions of this subsection (a), such Holder shall be entitled to
         receive, and such Person shall have similarly delivered to such Holder
         an opinion of counsel for such Person, which counsel shall be
         reasonably satisfactory to such Holder, or in the alternative, a
         written acknowledgement executed by the President or Chief Financial
         Officer of the Issuer, stating that this Warrant shall thereafter
         continue in full force and effect and the terms hereof (including,
         without limitation, all of the provisions of this subsection (a)) shall
         be applicable to the Securities, cash or property which such Person may
         be required to deliver upon any exercise of this Warrant or the
         exercise of any rights pursuant hereto.

                  (b) Stock Dividends, Subdivisions and Combinations. If at any
         time the Issuer shall:

                  (i) take a record of the holders of its Common Stock for the
         purpose of entitling them to receive a dividend payable in, or other
         distribution of, shares of Common Stock,

                  (ii) subdivide its outstanding shares of Common Stock into a
         larger number of shares of Common Stock, or

                  (iii) combine its outstanding shares of Common Stock into a
         smaller number of shares of Common Stock,

then (1) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (2) the Warrant Price then in
effect shall be adjusted to equal (A) the Warrant Price then in effect
multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately after
such adjustment.

         (c) Certain Other Distributions. If at any time the Issuer shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of:

                  (i) cash (other than a cash dividend payable out of earnings
or earned surplus legally available for the payment of dividends under the laws
of the jurisdiction of incorporation of the Issuer),

                  (ii) any evidences of its indebtedness, any shares of stock of
any class or any other securities or property of any nature whatsoever (other
than cash, Common Stock Equivalents or Additional Shares of Common Stock), or

                                      -6-


                  (iii) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of stock of any class or
any other securities or property of any nature whatsoever (other than cash,
Common Stock Equivalents or Additional Shares of Common Stock),

then (1) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
adjustment multiplied by a fraction (A) the numerator of which shall be the Per
Share Market Value of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Per Share Market Value minus the amount
allocable to one share of Common Stock of any such cash so distributable and of
the fair value (as determined in good faith by the Board of Directors of the
Issuer and supported by an opinion from an investment banking firm of recognized
national standing acceptable to (but not affiliated with) the Holder) of any and
all such evidences of indebtedness, shares of stock, other securities or
property or warrants or other subscription or purchase rights so distributable,
and (2) the Warrant Price then in effect shall be adjusted to equal (A) the
Warrant Price then in effect multiplied by the number of shares of Common Stock
for which this Warrant is exercisable immediately prior to the adjustment
divided by (B) the number of shares of Common Stock for which this Warrant is
exercisable immediately after such adjustment. A reclassification of the Common
Stock (other than a change in par value, or from par value to no par value or
from no par value to par value) into shares of Common Stock and shares of any
other class of stock shall be deemed a distribution by the Issuer to the holders
of its Common Stock of such shares of such other class of stock within the
meaning of this Section 4(c) and, if the outstanding shares of Common Stock
shall be changed into a larger or smaller number of shares of Common Stock as a
part of such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 4(b).

         (d) Issuance of Additional Shares of Common Stock. In the event the
Issuer shall at any time following the Original Issue Date issue any Additional
Shares of Common Stock (otherwise than as provided in the foregoing subsections
(a) through (c) of this Section 4), at a price per share less than the Warrant
Price then in effect or without consideration, then the Warrant Price upon each
such issuance shall be adjusted to the price equal to the consideration per
share paid for such Additional Shares of Common Stock.

         (e) Issuance of Warrants or Other Rights. If at any time the Issuer
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Issuer is the surviving
corporation) issue or sell, any Common Stock Equivalents (or issue any warrant
or other rights therefor), whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such Common Stock Equivalents (or any
warrant or other rights therefor) shall be less than the Warrant Price in effect
immediately prior to the time of such issue or sale, then the number of shares
for which this Warrant is exercisable and the Warrant Price then in effect shall
be adjusted as provided in Section 4(d). No adjustments of the Warrant Price
then in effect or the number of Warrant Shares for which this Warrant is
exercisable shall be made upon the actual issue of such Common Stock or of such
Common Stock Equivalents upon exercise of such warrants or other rights or upon
the actual issue of such Common Stock upon such conversion or exchange of such
Common Stock Equivalents.

                                      -7-


         (f) Issuance of Common Stock Equivalents. If at any time the Issuer
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Issuer is the surviving
corporation) issue or sell, any Common Stock Equivalents, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Warrant Price in effect immediately prior to the
time of such issue or sale, then the number of shares of Common Stock for which
this Warrant is exercisable and the Warrant Price then in effect shall be
adjusted as provided in Section 4(d). No further adjustment of the number of
shares of Common Stock for which this Warrant is exercisable and the Warrant
Price then in effect shall be made under this Section 4(f) upon the issuance of
any Common Stock Equivalents which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights therefor, if any such
adjustment shall previously have been made upon the issuance of such warrants or
other rights pursuant to Section 4(e). No further adjustments of the number of
shares of Common Stock for which this Warrant is exercisable and the Warrant
Price then in effect shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Common Stock Equivalents.

         (g) Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price then in effect shall have been made pursuant to Section 4(e) or
Section 4(f) as the result of any issuance of warrants, other rights or Common
Stock Equivalents, and (i) such warrants or other rights, or the right of
conversion or exchange in such other Common Stock Equivalents, shall expire, and
all or a portion of such warrants or other rights, or the right of conversion or
exchange with respect to all or a portion of such other Common Stock
Equivalents, as the case may be shall not have been exercised, or (ii) the
consideration per share for which shares of Common Stock are issuable pursuant
to such Common Stock Equivalents, shall be increased solely by virtue of
provisions therein contained for an automatic increase in such consideration per
share upon the occurrence of a specified date or event, then for each
outstanding Warrant such previous adjustment shall be rescinded and annulled and
the Additional Shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Upon the occurrence of an event set forth in this Section 4(g)
above, there shall be a recomputation made of the effect of such Common Stock
Equivalents on the basis of: (i) treating the number of Additional Shares of
Common Stock or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or other rights or any
such right of conversion or exchange, as having been issued on the date or dates
of any such exercise and for the consideration actually received and receivable
therefor, and (ii) treating any such Common Stock Equivalents which then remain
outstanding as having been granted or issued immediately after the time of such
increase of the consideration per share for which shares of Common Stock or
other property are issuable under such Common Stock Equivalents; whereupon a new
adjustment of the number of shares of Common Stock for which this Warrant is
exercisable and the Warrant Price then in effect shall be made, which new
adjustment shall supersede the previous adjustment so rescinded and annulled.

                                      -8-


         (h) Purchase of Common Stock by the Issuer. If the Issuer at any time
while this Warrant is outstanding shall, directly or indirectly through a
Subsidiary or otherwise, purchase, redeem or otherwise acquire any shares of
Common Stock at a price per share greater than the Per Share Market Value, then
the Warrant Price upon each such purchase, redemption or acquisition shall be
adjusted to that price determined by multiplying such Warrant Price by a
fraction (i) the numerator of which shall be the number of shares of Outstanding
Common Stock immediately prior to such purchase, redemption or acquisition minus
the number of shares of Common Stock which the aggregate consideration for the
total number of such shares of Common Stock so purchased, redeemed or acquired
would purchase at the Per Share Market Value; and (ii) the denominator of which
shall be the number of shares of Outstanding Common Stock immediately after such
purchase, redemption or acquisition. For the purposes of this subsection (h),
the date as of which the Per Share Market Price shall be computed shall be the
earlier of (x) the date on which the Issuer shall enter into a firm contract for
the purchase, redemption or acquisition of such Common Stock, or (y) the date of
actual purchase, redemption or acquisition of such Common Stock. For the
purposes of this subsection (h), a purchase, redemption or acquisition of a
Common Stock Equivalent shall be deemed to be a purchase of the underlying
Common Stock, and the computation herein required shall be made on the basis of
the full exercise, conversion or exchange of such Common Stock Equivalent on the
date as of which such computation is required hereby to be made, whether or not
such Common Stock Equivalent is actually exercisable, convertible or
exchangeable on such date.

         (i) Other Provisions applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price then in effect provided for in this Section 4:

                  (i) Computation of Consideration. To the extent that any
         Additional Shares of Common Stock or any Common Stock Equivalents (or
         any warrants or other rights therefor) shall be issued for cash
         consideration, the consideration received by the Issuer therefor shall
         be the amount of the cash received by the Issuer therefor, or, if such
         Additional Shares of Common Stock or Common Stock Equivalents are
         offered by the Issuer for subscription, the subscription price, or, if
         such Additional Shares of Common Stock or Common Stock Equivalents are
         sold to underwriters or dealers for public offering without a
         subscription offering, the initial public offering price (in any such
         case subtracting any amounts paid or receivable for accrued interest or
         accrued dividends and without taking into account any compensation,
         discounts or expenses paid or incurred by the Issuer for and in the
         underwriting of, or otherwise in connection with, the issuance
         thereof). To the extent that such issuance shall be for a consideration
         other than cash, then, except as herein otherwise expressly provided,
         the amount of such consideration shall be deemed to be the fair value
         of such consideration at the time of such issuance as determined in
         good faith by the Board of Directors of the Issuer. In case any
         Additional Shares of Common Stock or any Common Stock Equivalents (or
         any warrants or other rights therefor) shall be issued in connection


                                      -9-


         with any merger in which the Issuer issues any securities, the amount
         of consideration therefor shall be deemed to be the fair value, as
         determined in good faith by the Board of Directors of the Issuer, of
         such portion of the assets and business of the nonsurviving corporation
         as such Board in good faith shall determine to be attributable to such
         Additional Shares of Common Stock, Common Stock Equivalents, or any
         warrants or other rights therefor, as the case may be. The
         consideration for any Additional Shares of Common Stock issuable
         pursuant to any warrants or other rights to subscribe for or purchase
         the same shall be the consideration received by the Issuer for issuing
         such warrants or other rights plus the additional consideration payable
         to the Issuer upon exercise of such warrants or other rights. The
         consideration for any Additional Shares of Common Stock issuable
         pursuant to the terms of any Common Stock Equivalents shall be the
         consideration received by the Issuer for issuing warrants or other
         rights to subscribe for or purchase such Common Stock Equivalents, plus
         the consideration paid or payable to the Issuer in respect of the
         subscription for or purchase of such Common Stock Equivalents, plus the
         additional consideration, if any, payable to the Issuer upon the
         exercise of the right of conversion or exchange in such Common Stock
         Equivalents. In case of the issuance at any time of any Additional
         Shares of Common Stock or Common Stock Equivalents in payment or
         satisfaction of any dividends upon any class of stock other than Common
         Stock, the Issuer shall be deemed to have received for such Additional
         Shares of Common Stock or Common Stock Equivalents a consideration
         equal to the amount of such dividend so paid or satisfied.

                  (ii) When Adjustments to Be Made. The adjustments required by
         this Section 4 shall be made whenever and as often as any specified
         event requiring an adjustment shall occur, except that any adjustment
         of the number of shares of Common Stock for which this Warrant is
         exercisable that would otherwise be required may be postponed (except
         in the case of a subdivision or combination of shares of the Common
         Stock, as provided for in Section 4(b)) up to, but not beyond the date
         of exercise if such adjustment either by itself or with other
         adjustments not previously made adds or subtracts less than one percent
         (1%) of the shares of Common Stock for which this Warrant is
         exercisable immediately prior to the making of such adjustment. Any
         adjustment representing a change of less than such minimum amount
         (except as aforesaid) which is postponed shall be carried forward and
         made as soon as such adjustment, together with other adjustments
         required by this Section 4 and not previously made, would result in a
         minimum adjustment or on the date of exercise. For the purpose of any
         adjustment, any specified event shall be deemed to have occurred at the
         close of business on the date of its occurrence.

                  (iii) Fractional Interests. In computing adjustments under
         this Section 4, fractional interests in Common Stock shall be taken
         into account to the nearest one one-hundredth (1/100th) of a share.

                  (iv) When Adjustment Not Required. If the Issuer shall take a
         record of the holders of its Common Stock for the purpose of entitling
         them to receive a dividend or distribution or subscription or purchase
         rights and shall, thereafter and before the distribution to
         stockholders thereof, legally abandon its plan to pay or deliver such
         dividend, distribution, subscription or purchase rights, then
         thereafter no adjustment shall be required by reason of the taking of
         such record and any such adjustment previously made in respect thereof
         shall be rescinded and annulled.

         (j) Form of Warrant after Adjustments. The form of this Warrant need
not be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.

                                      -10-


         (k) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any record
of the holders of Common Stock, but prior to the occurrence of the event for
which such record is taken, and the Holder exercises this Warrant, any shares of
Common Stock issuable upon exercise by reason of such adjustment shall be deemed
the last shares of Common Stock for which this Warrant is exercised
(notwithstanding any other provision to the contrary herein) and such shares or
other property shall be held in escrow for the Holder by the Issuer to be issued
to the Holder upon and to the extent that the event actually takes place, upon
payment of the current Warrant Price. Notwithstanding any other provision to the
contrary herein, if the event for which such record was taken fails to occur or
is rescinded, then such escrowed shares shall be cancelled by the Issuer and
escrowed property returned.

         5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder), and the Warrant
Price and Warrant Share Number after giving effect to such adjustment, and shall
cause copies of such certificate to be delivered to the Holder of this Warrant
promptly after each adjustment. Any dispute between the Issuer and the Holder of
this Warrant with respect to the matters set forth in such certificate may at
the option of the Holder of this Warrant be submitted to one of the national
accounting firms currently known as the "big four" selected by the Holder;
provided that the Issuer shall have ten (10) days after receipt of notice from
such Holder of its selection of such firm to object thereto, in which case such
Holder shall select another such firm and the Issuer shall have no such right of
objection. The firm selected by the Holder of this Warrant as provided in the
preceding sentence shall be instructed to deliver a written opinion as to such
matters to the Issuer and such Holder within thirty (30) days after submission
to it of such dispute. Such opinion shall be final and binding on the parties
hereto.

         6. Fractional Shares. No fractional shares of Warrant Stock will be
issued in connection with any exercise hereof, but in lieu of such fractional
shares, the Issuer shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the Per Share Market Value then
in effect.

         7. Ownership Cap and Certain Exercise Restrictions. (a) Notwithstanding
anything to the contrary set forth in this Warrant, at no time may a Holder of
this Warrant exercise this Warrant if the number of shares of Common Stock to be
issued pursuant to such exercise would exceed, when aggregated with all other
shares of Common Stock owned by such Holder at such time, the number of shares
of Common Stock which would result in such Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) more than 4.9% of all of the Common Stock outstanding at such time;
provided, however, that upon the Holder of this Warrant providing the Issuer
with sixty-one (61) days notice (pursuant to Section 12 hereof) (the "Waiver
Notice") that such Holder would like to waive this Section 7(a) with regard to
any or all shares of Common Stock issuable upon exercise of this Warrant, this
Section 7(a) will be of no force or effect with regard to all or a portion of
the Warrant referenced in the Waiver Notice; provided, further, that this


                                      -11-


provision shall be of no further force or effect during the sixty-one (61) days
immediately preceding the expiration of the term of this Warrant.

                  (b) The Holder may not exercise the Warrant hereunder to the
extent such exercise would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 9.9% of the then issued and outstanding shares of
Common Stock, including shares issuable upon exercise of this Warrant held by
the Holder; provided, however, that upon a holder of this Warrant providing the
Issuer with a Waiver Notice that such holder would like to waive this Section
7(b) with regard to any or all shares of Common Stock issuable upon exercise of
this Warrant, this Section 7(b) shall be of no force or effect with regard to
those shares of Warrant Stock referenced in the Waiver Notice; provided,
further, that this provision shall be of no further force or effect during the
sixty-one (61) days immediately preceding the expiration of the term of this
Warrant.

         8. Definitions. For the purposes of this Warrant, the following terms
have the following meanings:

                  "Additional Shares of Common Stock" means all shares of Common
         Stock issued by the Issuer after the Original Issue Date, and all
         shares of Other Common, if any, issued by the Issuer after the Original
         Issue Date, except: (i) the Issuer's issuance of Common Stock and
         warrants therefore in connection with a merger, acquisition, or
         consolidation; provided that the Warrant Price shall be adjusted in
         accordance with Section 4(a)(i), (ii) the issuance of Additional Shares
         of Common Stock pursuant to a bona fide firm underwritten public
         offering of the Issuer's securities, (iii) the issuance of shares of
         Common Stock or warrants therefore in connection with strategic license
         agreements and other partnering arrangements so long as such issuances
         are not for the purpose of raising capital, (iv) the Issuer's issuance
         of Common Stock or the issuance or grants of options to purchase Common
         Stock pursuant to the Issuer's stock option plans and employee stock
         purchase plans so long as the purchase price or exercise price of such
         securities is greater than the Conversion Price (as defined in the
         Certificate of Designation), (v) the issuance of Common Stock upon the
         exercise or conversion of any securities outstanding on the date
         hereof, (vi) the issuance of any warrants issued to the placement agent
         for the transactions contemplated by the Purchase Agreement, (vii) the
         Warrant Stock, and (viii) the payment of any dividends on the Series B
         Preferred Stock of the Issuer.

                  "Articles of Incorporation" means the Articles of
         Incorporation of the Issuer as in effect on the Original Issue Date,
         and as hereafter from time to time amended, modified, supplemented or
         restated in accordance with the terms hereof and thereof and pursuant
         to applicable law.

                  "Board" shall mean the Board of Directors of the Issuer.

                  "Capital Stock" means and includes (i) any and all shares,
         interests, participations or other equivalents of or interests in
         (however designated) corporate stock, including, without limitation,
         shares of preferred or preference stock, (ii) all partnership interests
         (whether general or limited) in any Person which is a partnership,
         (iii) all membership interests or limited liability company interests


                                      -12-


         in any limited liability company, and (iv) all equity or ownership
         interests in any Person of any other type.

                  "Certificate of Designation" means the Certificate of
         Designation of the Relative Rights and Preferences of the Series B
         Convertible Preferred Stock of the Issuer.

                  "Common Stock" means the Common Stock, par value $0.001 per
         share, of the Issuer and any other Capital Stock into which such stock
         may hereafter be changed.

                  "Common Stock Equivalent" means any Convertible Security or
         warrant, option or other right to subscribe for or purchase any
         Additional Shares of Common Stock or any Convertible Security.

                  "Convertible Securities" means evidences of Indebtedness,
         shares of Capital Stock or other Securities which are or may be at any
         time convertible into or exchangeable for Additional Shares of Common
         Stock. The term "Convertible Security" means one of the Convertible
         Securities.

                  "Governmental Authority" means any governmental, regulatory or
         self-regulatory entity, department, body, official, authority,
         commission, board, agency or instrumentality, whether federal, state or
         local, and whether domestic or foreign.

                  "Holder" means the Person who holds this Warrant. The term
         "Holders" means one of the Persons who shall from time to time hold
         this Warrant.

                  "Independent Appraiser" means a nationally recognized or major
         regional investment banking firm or firm of independent certified
         public accountants of recognized standing (which may be the firm that
         regularly examines the financial statements of the Issuer) that is
         regularly engaged in the business of appraising the Capital Stock or
         assets of corporations or other entities as going concerns, and which
         is not affiliated with either the Issuer or the Holder of any Warrant.

                  "Issuer" means XStream Beverage Group, Inc., a Nevada
         corporation, and its successors and assigns.

                  "Majority Holders" means at any time the Holders of Warrants
         exercisable for a majority of the shares of Warrant Stock issuable
         under the Warrants at the time outstanding.

                  "Original Issue Date" means July 30, 2004.

                  "OTC Bulletin Board" means the over-the-counter electronic
         bulletin board.

                  "Other Common" means any other Capital Stock of the Issuer of
         any class which shall be authorized at any time after the date of this
         Warrant (other than Common Stock) and which shall have the right to
         participate in the distribution of earnings and assets of the Issuer
         without limitation as to amount.

                                      -13-


                  "Outstanding Common Stock" means, at any given time, the
         aggregate amount of outstanding shares of Common Stock, assuming full
         exercise, conversion or exchange (as applicable) of all options,
         warrants and other Securities which are convertible into or exercisable
         or exchangeable for, and any right to subscribe for, shares of Common
         Stock that are outstanding at such time.

                  "Person" means an individual, corporation, limited liability
         company, partnership, joint stock company, trust, unincorporated
         organization, joint venture, Governmental Authority or other entity of
         whatever nature.

                  "Per Share Market Value" means on any particular date (a) the
         closing bid price for a share of Common Stock in the over-the-counter
         market, as reported by the OTC Bulletin Board or in the National
         Quotation Bureau Incorporated or similar organization or agency
         succeeding to its functions of reporting prices at the close of
         business on such date, or (b) if the Common Stock is not then reported
         by the OTC Bulletin Board or the National Quotation Bureau Incorporated
         (or similar organization or agency succeeding to its functions of
         reporting prices), then the average of the "Pink Sheet" quotes for the
         five Trading Days prior to the relevant determination period, or (c) if
         the Common Stock is not then publicly traded the fair market value of a
         share of Common Stock as determined by the Board in good faith;
         provided, however, that the Majority Holders, after receipt of the
         determination by the Board, shall have the right to select, jointly
         with the Issuer, an Independent Appraiser, in which case, the fair
         market value shall be the determination by such Independent Appraiser;
         and provided, further that all determinations of the Per Share Market
         Value shall be appropriately adjusted for any stock dividends, stock
         splits or other similar transactions during such period. The
         determination of fair market value shall be based upon the fair market
         value of the Issuer determined on a going concern basis as between a
         willing buyer and a willing seller and taking into account all relevant
         factors determinative of value, and shall be final and binding on all
         parties. In determining the fair market value of any shares of Common
         Stock, no consideration shall be given to any restrictions on transfer
         of the Common Stock imposed by agreement or by federal or state
         securities laws, or to the existence or absence of, or any limitations
         on, voting rights.

                  "Purchase Agreement" means the Series B Convertible Preferred
         Stock Purchase Agreement dated as of July 30, 2004, among the Issuer
         and the Purchasers.

                  "Purchasers" means the purchasers of the Issuer's Series B
         Preferred Stock pursuant to the Purchase Agreement.

                  "Securities" means any debt or equity securities of the
         Issuer, whether now or hereafter authorized, any instrument convertible
         into or exchangeable for Securities or a Security, and any option,
         warrant or other right to purchase or acquire any Security. "Security"
         means one of the Securities.

                  "Securities Act" means the Securities Act of 1933, as amended,
         or any similar federal statute then in effect.

                                      -14-


                  "Subsidiary" means any corporation at least 50% of whose
         outstanding Voting Stock shall at the time be owned directly or
         indirectly by the Issuer or by one or more of its Subsidiaries, or by
         the Issuer and one or more of its Subsidiaries.

                  "Term" has the meaning specified in Section 1 hereof.

                  "Trading Day" means (a) a day on which the Common Stock is
         traded on the OTC Bulletin Board, or (b) if the Common Stock is not
         traded on the OTC Bulletin Board, a day on which the Common Stock is
         quoted in the over-the-counter market as reported by the National
         Quotation Bureau Incorporated (or any similar organization or agency
         succeeding its functions of reporting prices); provided, however, that
         in the event that the Common Stock is not listed or quoted as set forth
         in (a) or (b) hereof, then Trading Day shall mean 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 are authorized or
         required by law or other government action to close.

                  "Voting Stock" means, as applied to the Capital Stock of any
         corporation, Capital Stock of any class or classes (however designated)
         having ordinary voting power for the election of a majority of the
         members of the Board of Directors (or other governing body) of such
         corporation, other than Capital Stock having such power only by reason
         of the happening of a contingency.

                  "Warrants" means the Warrants issued and sold pursuant to the
         Purchase Agreement, including, without limitation, this Warrant, and
         any other warrants of like tenor issued in substitution or exchange
         therefor pursuant to the provisions of Section 2(c), 2(d) or 2(e)
         hereof or of any of such other Warrants.

                  "Warrant Price" initially means U.S. $4.00, as such price may
         be adjusted from time to time as shall result from the adjustments
         specified in this Warrant, including Section 4 hereto.

                  "Warrant Share Number" means at any time the aggregate number
         of shares of Warrant Stock which may at such time be purchased upon
         exercise of this Warrant, after giving effect to all prior adjustments
         and increases to such number made or required to be made under the
         terms hereof.

                  "Warrant Stock" means Common Stock issuable upon exercise of
         any Warrant or Warrants or otherwise issuable pursuant to any Warrant
         or Warrants.

         9. Other Notices. In case at any time:

                           (A)      the Issuer shall make any distributions to
                                    the holders of Common Stock; or

                                      -15-


                           (B)      the Issuer shall authorize the granting to
                                    all holders of its Common Stock of rights to
                                    subscribe for or purchase any shares of
                                    Capital Stock of any class or other rights;
                                    or

                           (C)      there shall be any reclassification of the
                                    Capital Stock of the Issuer; or

                           (D)      there shall be any capital reorganization by
                                    the Issuer; or

                           (E)      there shall be any (i) consolidation or
                                    merger involving the Issuer or (ii) sale,
                                    transfer or other disposition of all or
                                    substantially all of the Issuer's property,
                                    assets or business (except a merger or other
                                    reorganization in which the Issuer shall be
                                    the surviving corporation and its shares of
                                    Capital Stock shall continue to be
                                    outstanding and unchanged and except a
                                    consolidation, merger, sale, transfer or
                                    other disposition involving a wholly-owned
                                    Subsidiary); or

                           (F)      there shall be a voluntary or involuntary
                                    dissolution, liquidation or winding-up of
                                    the Issuer or any partial liquidation of the
                                    Issuer or distribution to holders of Common
                                    Stock;

then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be. Such notice shall be given at least twenty
(20) days prior to the action in question and not less than ten (10) days prior
to the record date or the date on which the Issuer's transfer books are closed
in respect thereto. This Warrant entitles the Holder to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Common Stock.

         10. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and the Majority Holders; provided, however, that no such amendment or
waiver shall reduce the Warrant Share Number, increase the Warrant Price,
shorten the period during which this Warrant may be exercised or modify any
provision of this Section 10 without the consent of the Holder of this Warrant.

         11. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY


                                      -16-


OF ITS PRINCIPLES OF CONFLICTS OF LAW WHICH WOULD RESULT IN THE APPLICATION OF
THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION.

         12. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., eastern time, on a
Trading Day, (ii) the Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile telephone number
specified for notice later than 5:00 p.m., eastern time, on any date and earlier
than 11:59 p.m., eastern time, on such date, (iii) the Trading Day following the
date of mailing, if sent by nationally recognized overnight courier service or
(iv) actual receipt by the party to whom such notice is required to be given.
The addresses for such communications shall be with respect to the Holder of
this Warrant or of Warrant Stock issued pursuant hereto, addressed to such
Holder at its last known address or facsimile number appearing on the books of
the Issuer maintained for such purposes, or with respect to the Issuer,
addressed to:

                                    XStream Beverage Group, Inc.
                                    4800 N.W. 15th Avenue, Bay 1-A
                                    Fort Lauderdale, FL 33309
                                    Attention: Jerry Pearring
                                    Tel. No.: (954) 598-7997
                                    Fax No.:  (954) 598-7996

with copies (which copies
shall not constitute notice
to the Issuer) to:                  Newman, Pollock and Klein LLP
                                    2600 North Military Trail
                                    Boca Raton, FL 33431
                                    Attention: Jeffrey Klein
                                    Tel. No.: (561) 997-9920
                                    Fax No.:  (561) 241-4943

Copies of notices to the Holder shall be sent to Jenkens & Gilchrist Parker
Chapin LLP, 405 Lexington Avenue, New York, New York 10174, Attention:
Christopher S. Auguste, Esq., Facsimile No.: (212) 704-6288. 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.

         13. Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in New York, New York for the
purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.

                                      -17-


         14. Remedies. The Issuer stipulates that the remedies at law of the
Holder of this Warrant in the event of any breach or threatened breach by the
Issuer in the performance of or compliance with any of the terms or provisions
of this Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms or provisions may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms or provisions hereof or
otherwise.

         15. Successors and Assigns. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
assigns of the Issuer, the Holder hereof and (to the extent provided herein) the
Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any
such Holder or Holders of Warrant Stock.

         16. Severability. If, in any action before any court or agency legally
empowered to enforce any provision contained herein, any provision hereof is
found to be unenforceable, then such provision shall be deemed modified to the
extent necessary to make it enforceable by such court or agency. If any such
provision is not enforceable as set forth in the preceding sentence, the
unenforceability of such provision shall not affect the other provisions of this
Warrant, but this Warrant shall be construed as if such unenforceable provision
had never been contained herein.

         17. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant and shall not influence the construction or interpretation of
this Warrant.

                                      -18-


         IN WITNESS WHEREOF, the Issuer has executed this Series B Warrant as of
the day and year first above written.


                                  XSTREAM BEVERAGE GROUP, INC.



                                  By:_________________________
                                     Name:
                                     Title:

                                      -19-


                                  EXERCISE FORM
                                SERIES B WARRANT

                          XSTREAM BEVERAGE GROUP, INC.

The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of ____________
covered by the within Warrant.

Dated: _________________            Signature___________________________________

                                    Address_____________________________________

                                           _____________________________________



                                   ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.

Dated: _________________            Signature___________________________________

                                    Address_____________________________________

                                           _____________________________________


                               PARTIAL ASSIGNMENT

FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.

Dated: _________________            Signature___________________________________

                                    Address_____________________________________

                                           _____________________________________


                           FOR USE BY THE ISSUER ONLY:

This Warrant No. W-___ canceled (or transferred or exchanged) this _____ day of
___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No. W-_____ issued for ____ shares of Common Stock in
the name of _______________.

                                      -20-

EX-10.1

                                                                    EXHIBIT 10.1


                  SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE

                                    AGREEMENT




                            DATED AS OF JULY 30, 2004




                                      AMONG



                          XSTREAM BEVERAGE GROUP, INC.




                                       AND





                       THE PURCHASERS LISTED ON EXHIBIT A





                                TABLE OF CONTENTS



                                                                                                                  PAGE

                                                                                                                
ARTICLE I Purchase and Sale of Preferred Stock......................................................................1

         Section 1.1       Purchase and Sale of Preferred Stock and Warrants........................................1
         Section 1.2       The Conversion Shares....................................................................2
         Section 1.3       Purchase Price and Closing...............................................................2

ARTICLE II Representations and Warranties...........................................................................2

         Section 2.1       Representations and Warranties of the Company............................................2
         Section 2.2       Representations and Warranties of the Purchasers........................................13

ARTICLE III Covenants..............................................................................................16

         Section 3.1       Securities Compliance...................................................................16
         Section 3.2       Registration and Listing................................................................16
         Section 3.3       Inspection Rights.......................................................................16
         Section 3.4       Compliance with Laws....................................................................16
         Section 3.5       Keeping of Records and Books of Account.................................................16
         Section 3.6       Reporting Requirements..................................................................17
         Section 3.7       Amendments..............................................................................17
         Section 3.8       Other Agreements........................................................................17
         Section 3.9       Distributions...........................................................................17
         Section 3.10      Status of Dividends.....................................................................17
         Section 3.11      Use of Proceeds.........................................................................18
         Section 3.12      Future Financings; Right of First Offer and Refusal.....................................18
         Section 3.13      Reservation of Shares...................................................................20
         Section 3.14      Transfer Agent Instructions.............................................................20
         Section 3.15      Disposition of Assets...................................................................21
         Section 3.16      Reporting Status........................................................................21
         Section 3.17      Disclosure of Transaction ..............................................................21
         Section 3.18      Disclosure of Material Information......................................................21
         Section 3.19      Pledge of Securities....................................................................21
         Section 3.20      Charter Amendment.......................................................................22
         Section 3.21      Warrant Listing.........................................................................22

ARTICLE IV Conditions..............................................................................................22

         Section 4.1       Conditions Precedent to the Obligation of the Company to Sell the
                           Shares..................................................................................22
         Section 4.2       Conditions Precedent to the Obligation of the Purchasers to Purchase
                           the Shares..............................................................................23


                                       i




                                                                                                                
ARTICLE V Stock Certificate Legend.................................................................................25

         Section 5.1       Legend..................................................................................25

ARTICLE VI Indemnification.........................................................................................26

         Section 6.1       General Indemnity.......................................................................26
         Section 6.2       Indemnification Procedure...............................................................27

ARTICLE VII Miscellaneous..........................................................................................28

         Section 7.1       Fees and Expenses.......................................................................28
         Section 7.2       Specific Enforcement, Consent to Jurisdiction...........................................28
         Section 7.3       Entire Agreement; Amendment.............................................................29
         Section 7.4       Notices.................................................................................29
         Section 7.5       Waivers.................................................................................30
         Section 7.6       Headings................................................................................30
         Section 7.7       Successors and Assigns..................................................................30
         Section 7.8       No Third Party Beneficiaries............................................................30
         Section 7.9       Governing Law...........................................................................30
         Section 7.10      Survival................................................................................30
         Section 7.11      Counterparts............................................................................31
         Section 7.12      Publicity...............................................................................31
         Section 7.13      Severability............................................................................31
         Section 7.14      Further Assurances......................................................................31



                                       ii


         SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

         This SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of July 30, 2004 by and among XStream Beverage Group,
Inc., a Nevada corporation (the "Company"), and each of the Purchasers of shares
of Series B Convertible Preferred Stock of the Company whose names are set forth
on Exhibit A hereto (individually, a "Purchaser" and collectively, the
"Purchasers").

         The parties hereto agree as follows:

                                   ARTICLE I

                      PURCHASE AND SALE OF PREFERRED STOCK

                  Section 1.1 Purchase and Sale of Preferred Stock and Warrants.

                  (a) Upon the following terms and conditions, the Company shall
issue and sell to the Purchasers and each of the Purchasers shall purchase from
the Company, the number of shares of the Company's Series B Convertible
Preferred Stock, par value $.001 per share (the "Preferred Shares"), at a
purchase price of $50,000 per share, set forth opposite such Purchaser's name on
Exhibit A hereto. The aggregate purchase price for the Preferred Shares and the
Warrants shall be up to $4,000,000. The designation, rights, preferences and
other terms and provisions of the Series B Convertible Preferred Stock are set
forth in the Certificate of Designation of the Relative Rights and Preferences
of the Series B Convertible Preferred Stock attached hereto as Exhibit B (the
"Certificate of Designation"). The Company and the Purchasers are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by Rule 506 of Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act") or Section 4(2) of the Securities Act.

                  (b) Upon the following terms and conditions, each of the
Purchasers shall be issued (i) Series A Warrants, in substantially the form
attached hereto as Exhibit C (the "Series A Warrants"), to purchase the number
of shares of the Company's Common Stock, par value $.001 per share (the "Common
Stock") equal to one hundred percent (100%) of the number of shares of Common
Stock issuable upon conversion of the Preferred Shares purchased pursuant to the
terms hereof, such amount to be set forth opposite such Purchaser's name on
Exhibit A hereto, and (ii) Series B Warrants, in substantially the form attached
hereto as Exhibit D (the "Series B Warrants" and together with the Series A
Warrants, the "Warrants"), to purchase the number of shares of Common Stock
equal to fifty percent (50%) of the number of shares of Common Stock issuable
upon conversion of the Preferred Shares purchased pursuant to the terms hereof,
such amount to be set forth opposite such Purchaser's name on Exhibit A attached
hereto. The Warrants shall have an exercise price equal to the Warrant Price (as
defined in the respective Warrant) and shall be exercisable as stated therein.
The Warrants shall expire five (5) years from the Closing Date, as defined
below.


                  Section 1.2 The Conversion Shares. Upon the filing of an
amendment to the Company's Articles (as defined in Section 2.1(c) hereof) with
the Nevada Secretary of State increasing the number of authorized shares of
Common Stock of the Company (the "Charter Amendment"), the Company will
authorize and will reserve and covenants to continue to reserve, free of
preemptive rights and other similar contractual rights of stockholders, such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the Preferred Shares and exercise of the
Warrants then outstanding. Any shares of Common Stock issuable upon conversion
of the Preferred Shares are herein referred to as the "Conversion Shares". Any
shares of Common Stock issuable upon exercise of the Warrants (and such shares
when issued) are herein referred to as the "Warrant Shares". The Preferred
Shares, the Conversion Shares and the Warrant Shares are sometimes collectively
referred to as the "Shares".

                  Section 1.3 Purchase Price and Closing. The Company agrees to
issue and sell to the Purchasers and, in consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions
of this Agreement, the Purchasers, severally but not jointly, agree to purchase
that number of the Preferred Shares and Warrants set forth opposite their
respective names on Exhibit A. The aggregate purchase price of the Preferred
Shares and Warrants being acquired by each Purchaser is set forth opposite such
Purchaser's name on Exhibit A (for each such Purchaser, the "Purchase Price" and
collectively referred to as the "Purchase Prices"). The closing of the purchase
and sale of the Preferred Shares and Warrants shall take place at the offices of
Jenkens & Gilchrist Parker Chapin LLP, The Chrysler Building, 405 Lexington
Avenue, New York, New York 10174 (the "Closing") at 1:00 p.m. (eastern time)
upon the satisfaction of each of the conditions set forth in Article IV hereof
(the "Closing Date"). Funding with respect to the Closing shall take place by
wire transfer of immediately available funds on or prior to the Closing Date.

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

                  Section 2.1 Representations and Warranties of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers, except as set forth in the Company's disclosure schedule delivered
with this Agreement as follows:

                  (a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Nevada and has the requisite corporate power to own, lease
and operate its properties and assets and to conduct its business as it is now
being conducted. The Company does not have any subsidiaries except as set forth
in the Company's Form 10-KSB for the year ended December 31, 2003, including the
accompanying financial statements (the "Form 10-KSB"), or in the Company's Form
10-QSB for the fiscal quarters ended March 31, 2004, September 30, 2003, June
30, 2003 or March 31, 2003 (collectively, the "Form 10-QSB"), or on Schedule
2.1(a) hereto. The Company and each such subsidiary is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified will not have a Material
Adverse Effect (as defined in Section 2.1(c) hereof) on the Company's financial
condition.

                                       2


                  (b) Authorization; Enforcement. Subject to the approval of
Laurus Master Fund, Ltd. ("Laurus") and the filing of the Charter Amendment, the
Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement attached hereto as
Exhibit E (the "Registration Rights Agreement"), the Irrevocable Transfer Agent
Instructions (as defined in Section 3.14), the Certificate of Designation, and
the Warrants (collectively, the "Transaction Documents") and to issue and sell
the Shares and the Warrants in accordance with the terms hereof. The execution,
delivery and, subject to the filing of the Charter Amendment, the performance of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the Company.
The other Transaction Documents will have been duly executed and delivered by
the Company at the Closing. Each of the Transaction Documents constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.

                  (c) Capitalization. The authorized capital stock of the
Company and the shares thereof currently issued and outstanding as of July 19,
2004 are set forth on Schedule 2.1(c) hereto. All of the outstanding shares of
the Company's Common Stock and Series B Convertible Preferred Stock have been
duly and validly authorized. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth on Schedule 2.1(c) hereto, no
shares of Common Stock are entitled to preemptive rights or registration rights
and there are no outstanding options, warrants, scrip, rights to subscribe to,
call or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company.
Furthermore, except as set forth in this Agreement and the Registration Rights
Agreement or on Schedule 2.1(c), there are no contracts, commitments,
understandings, or arrangements by which the Company is or may become bound to
issue additional shares of the capital stock of the Company or options,
securities or rights convertible into shares of capital stock of the Company.
Except for customary transfer restrictions contained in agreements entered into
by the Company in order to sell restricted securities or as set forth on
Schedule 2.1(c) hereto, the Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. The Company is not a party to, and it has no
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of the Company. Except as set forth on Schedule 2.1(c) hereto,
the offer and sale of all capital stock, convertible securities, rights,
warrants, or options of the Company issued prior to the Closing complied with
all applicable Federal and state securities laws, and no stockholder has a right
of rescission or claim for damages with respect thereto which would have a
Material Adverse Effect (as defined below) on the Company's financial condition
or operating results. The Company has furnished or made available to the
Purchasers true and correct copies of the Company's Articles of Incorporation as
in effect on the date hereof (the "Articles"), and the Company's Bylaws as in


                                       3


effect on the date hereof (the "Bylaws"). For the purposes of this Agreement,
"Material Adverse Effect" means any material adverse effect on the business,
operations, properties, prospects, or financial condition of the Company and its
subsidiaries and/or any condition, circumstance, or situation that would
prohibit or otherwise materially interfere with the ability of the Company to
perform any of its obligations under this Agreement in any material respect.

                  (d) Issuance of Shares. Subject to the filing of the Charter
Amendment, the Preferred Shares and the Warrants to be issued at the Closing
have been duly authorized by all necessary corporate action and the Preferred
Shares, when paid for or issued in accordance with the terms hereof, shall be
validly issued and outstanding, fully paid and nonassessable and entitled to the
rights and preferences set forth in the Certificate of Designation. When the
Conversion Shares and the Warrant Shares are issued in accordance with the terms
of the Certificate of Designation and the Warrants, respectively, such shares
will be duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled to
all rights accorded to a holder of Common Stock.

                  (e) No Conflicts. The execution, delivery and, subject to the
filing of the Charter Amendment, the performance of the Transaction Documents by
the Company, the performance by the Company of its obligations under the
Certificate of Designation and the consummation by the Company of the
transactions contemplated herein and therein do not and will not (i) violate any
provision of the Company's Articles or Bylaws, (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, mortgage, deed of trust,
indenture, note, bond, license, lease agreement, instrument or obligation to
which the Company is a party or by which it or its properties or assets are
bound, (iii) create or impose a lien, mortgage, security interest, charge or
encumbrance of any nature on any property of the Company under any agreement or
any commitment to which the Company is a party or by which the Company is bound
or by which any of its respective properties or assets are bound, or (iv) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries are bound
or affected, except, in all cases other than violations pursuant to clauses (i)
and (iv) above, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under Federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under the Transaction
Documents, or issue and sell the Preferred Shares, the Warrants, the Conversion
Shares and the Warrant Shares in accordance with the terms hereof or thereof
(other than any filings which may be required to be made by the Company with the
Commission or state securities administrators subsequent to the Closing, any


                                       4


registration statement which may be filed pursuant hereto, and the Certificate
of Designation); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchasers herein.

                  (f) Commission Documents, Financial Statements. The Common
Stock is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, since March 31,
2004, the Company has timely filed all reports, schedules, forms, statements and
other documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the
"Commission Documents"). The Company has delivered or made available to each of
the Purchasers true and complete copies of the Commission Documents filed with
the Commission since March 31, 2004. The Company has not provided to the
Purchasers any material non-public information or other information which,
according to applicable law, rule or regulation, was required to have been
disclosed publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement. At the
times of their respective filings, the Form 10-KSB and the Form 10-QSB complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such documents, and,
as of their respective dates, none of the Form 10-KSB and the Form 10-QSB
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Commission
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary
statements), and fairly present in all material respects the financial position
of the Company and its subsidiaries as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).

                  (g) Subsidiaries. Schedule 2.1(g) hereto sets forth each
subsidiary of the Company, showing the jurisdiction of its incorporation or
organization and showing the percentage of each person's ownership. For the
purposes of this Agreement, "subsidiary" shall mean any corporation or other
entity of which at least a majority of the securities or other ownership
interest having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by the Company and/or any of its other
subsidiaries. All of the outstanding shares of capital stock of each subsidiary
have been duly authorized and validly issued, and are fully paid and
nonassessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any


                                       5


subsidiary for the purchase or acquisition of any shares of capital stock of any
subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence. Except as set forth
on Schedule 2.1(g) hereto, neither the Company nor any subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any subsidiary.

                  (h) No Material Adverse Change. Since March 31, 2004, the
Company has not experienced or suffered any Material Adverse Effect, except as
disclosed on Schedule 2.1(h) hereto.

                  (i) No Undisclosed Liabilities. Except as set forth on
Schedule 2.1(i) hereto, or in the Commission Documents, neither the Company nor
any of its subsidiaries has any liabilities, obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) other than those incurred in the ordinary course of the
Company's or its subsidiaries respective businesses since March 31, 2004 and
which, individually or in the aggregate, do not or would not have a Material
Adverse Effect on the Company or its subsidiaries.

                  (j) No Undisclosed Events or Circumstances. Except as set
forth on Schedule 2.1(j) hereto, no event or circumstance has occurred or exists
with respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.

                  (k) Indebtedness. The Form 10-KSB, Form 10-QSB or Schedule
2.1(k) hereto sets forth as of a recent date all outstanding secured and
unsecured Indebtedness of the Company or any subsidiary, or for which the
Company or any subsidiary has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (a) any liabilities for borrowed money or amounts owed
in excess of $100,000 (other than trade accounts payable incurred in the
ordinary course of business), (b) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $25,000 due under
leases required to be capitalized in accordance with GAAP. Except as set forth
on Schedule 2.1(k), neither the Company nor any subsidiary is in default with
respect to any Indebtedness.

                  (l) Title to Assets. Except as disclosed on Schedule 2.1(l)
hereto, each of the Company and the subsidiaries has good and marketable title
to all of its real and personal property reflected in the Form 10-KSB, free and
clear of any mortgages, pledges, charges, liens, security interests or other
encumbrances, except for those indicated in the Form 10-KSB, Form 10-QSB or on
Schedule 2.1(l) hereto or such that, individually or in the aggregate, do not
cause a Material Adverse Effect on the Company's financial condition or
operating results. All said leases of the Company and each of its subsidiaries
are valid and subsisting and in full force and effect.

                                       6


                  (m) Actions Pending. There is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or any other
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any subsidiary which questions the validity of this Agreement or any
of the other Transaction Documents or the transactions contemplated hereby or
thereby or any action taken or to be taken pursuant hereto or thereto. Except as
set forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(m) hereto, there is
no action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or any other proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any subsidiary or any of their
respective properties or assets. Except as set forth in the Form 10-KSB, Form
10-QSB or Schedule 2.1(m) hereto, there are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any subsidiary or any officers or
directors of the Company or subsidiary in their capacities as such.

                  (n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 10-KSB, Form 10-QSB, or such that,
individually or in the aggregate, do not cause a Material Adverse Effect. The
Company and each of its subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals
necessary for the conduct of its business as now being conducted by it unless
the failure to possess such franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.

                  (o) Taxes. The Company and each of the subsidiaries has
accurately prepared and filed all federal, state and other tax returns required
by law to be filed by it, has paid or made provisions for the payment of all
taxes shown to be due and all additional assessments, and adequate provisions
have been and are reflected in the financial statements of the Company and the
subsidiaries for all current taxes and other charges to which the Company or any
subsidiary is subject and which are not currently due and payable. None of the
federal income tax returns of the Company or any subsidiary have been audited by
the Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company or
any subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency.

                  (p) Certain Fees. Except as set forth in this Agreement or on
Schedule 2.1(p) hereto, no brokers, finders or financial advisory fees or
commissions will be payable by the Company or any subsidiary or any Purchaser
with respect to the transactions contemplated by this Agreement.

                  (q) Disclosure. To the best of the Company's knowledge,
neither this Agreement or the Schedules hereto nor any other documents,
certificates or instruments furnished to the Purchasers by or on behalf of the
Company or any subsidiary in connection with the transactions contemplated by


                                       7


this Agreement contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made herein or
therein, not misleading.

                  (r) Operation of Business. The Company and each of the
subsidiaries owns or possesses, subject to the intellectual property pledge
rights granted to Laurus in certain agreements entered into between the Company
and Laurus on May 14, 2004, all patents, trademarks, domain names (whether or
not registered) and any patentable improvements or copyrightable derivative
works thereof, websites and intellectual property rights relating thereto,
service marks, trade names, copyrights, licenses and authorizations as set forth
in the Form 10-KSB, Form 10-QSB and on Schedule 2.1(r) hereto, and all rights
with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others.

                  (s) Environmental Compliance. The Company and each of its
subsidiaries have obtained all material approvals, authorization, certificates,
consents, licenses, orders and permits or other similar authorizations of all
governmental authorities, or from any other person, that are required under any
Environmental Laws. The Form 10-KSB or Form 10-QSB describes all material
permits, licenses and other authorizations issued under any Environmental Laws
to the Company or its subsidiaries. "Environmental Laws" shall mean all
applicable laws relating to the protection of the environment including, without
limitation, all requirements pertaining to reporting, licensing, permitting,
controlling, investigating or remediating emissions, discharges, releases or
threatened releases of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature, into the air, surface water, groundwater or land, or relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of hazardous substances, chemical substances, pollutants,
contaminants or toxic substances, material or wastes, whether solid, liquid or
gaseous in nature. The Company has all necessary governmental approvals required
under all Environmental Laws and used in its business or in the business of any
of its subsidiaries. The Company and each of its subsidiaries are also in
compliance with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws. Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present
events, conditions, circumstances, incidents, actions or omissions relating to
or in any way affecting the Company or its subsidiaries that violate or may
violate any Environmental Law after the Closing Date or that may give rise to
any environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any hazardous substance.

                  (t) Books and Record Internal Accounting Controls. The books
and records of the Company and its subsidiaries accurately reflect in all
material respects the information relating to the business of the Company and
the subsidiaries, the location and collection of their assets, and the nature of
all transactions giving rise to the obligations or accounts receivable of the

                                       8


Company or any subsidiary. The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company, to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
actions is taken with respect to any differences.

                  (u) Material Agreements. Except as set forth in the Form
10-KSB, Form 10-QSB or on Schedule 2.1(u) hereto, neither the Company nor any
subsidiary is a party to any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, a copy of which would be required
to be filed with the Commission as an exhibit to a registration statement on
Form S-3 or applicable form (collectively, "Material Agreements") if the Company
or any subsidiary were registering securities under the Securities Act. Except
as set forth on Schedule 2.1(u) or in the Commission Documents, the Company and
each of its subsidiaries has in all material respects performed all the
obligations required to be performed by them to date under the foregoing
agreements, have received no notice of default and, to the best of the Company's
knowledge are not in default under any Material Agreement now in effect, the
result of which could cause a Material Adverse Effect. Except as set forth on
Schedule 2.1(u) or in the Commission Documents, no written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement of the
Company or of any subsidiary limits or shall limit the payment of dividends on
the Company's Preferred Shares, other Preferred Stock, if any, or its Common
Stock. (v) Transactions with Affiliates. Except as set forth in the Form 10-KSB,
Form 10-QSB or on Schedule 2.1

                  (v) hereto, there are no loans, leases, agreements, contracts,
royalty agreements, management contracts or arrangements or other continuing
transactions between (a) the Company, any subsidiary or any of their respective
customers or suppliers 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.

                  (w) Securities Act of 1933. Based in material part upon the
representations herein of the Purchasers, the Company has complied and will
comply with all applicable federal and state securities laws in connection with
the offer, issuance and sale of the Shares and the Warrants hereunder. Neither
the Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy any of the Shares, the Warrants or
similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
person, or has taken or will take any action so as to bring the issuance and
sale of any of the Shares and the Warrants under the registration provisions of
the Securities Act and applicable state securities laws, and neither the Company
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of any of the Shares and the Warrants.

                                       9


                  (x) Governmental Approvals. Except as set forth in the Form
10-KSB or Form 10-QSB, and except for the filing of any notice prior or
subsequent to the Closing Date that may be required under applicable state
and/or Federal securities laws (which if required, shall be filed on a timely
basis), including the filing of a Form D and a registration statement or
statements pursuant to the Registration Rights Agreement, and the filing of the
Certificate of Designation with the Secretary of State for the State of Nevada,
no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Preferred Shares
and the Warrants, or for the performance by the Company of its obligations under
the Transaction Documents.

                  (y) Employees. Neither the Company nor any subsidiary has any
collective bargaining arrangements or agreements covering any of its employees,
except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(y)
hereto. Except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule
2.1(y) hereto, neither the Company nor any subsidiary has any employment
contract, agreement regarding proprietary information, non-competition
agreement, non-solicitation agreement, confidentiality agreement, or any other
similar contract or restrictive covenant, relating to the right of any officer,
employee or consultant to be employed or engaged by the Company or such
subsidiary. Since September 30, 2003, no officer, consultant or key employee of
the Company or any subsidiary whose termination, either individually or in the
aggregate, could have a Material Adverse Effect, has terminated or, to the
knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any subsidiary.

                  (z) Absence of Certain Developments. Except as provided on
Schedule 2.1(z) hereto, since March 31, 2004, neither the Company nor any
subsidiary has:

                    (i) issued any stock, bonds or other corporate securities or
any right, options or warrants with respect thereto;

                    (ii) borrowed any amount in excess of $300,000 or incurred
or become subject to any other liabilities in excess of $100,000 (absolute or
contingent) except current liabilities incurred in the ordinary course of
business which are comparable in nature and amount to the current liabilities
incurred in the ordinary course of business during the comparable portion of its
prior fiscal year, as adjusted to reflect the current nature and volume of the
business of the Company and its Subsidiaries;

                    (iii) discharged or satisfied any lien or encumbrance in
excess of $250,000 or paid any obligation or liability (absolute or contingent)
in excess of $250,000, other than current liabilities paid in the ordinary
course of business;

                                       10


                    (iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock, in each case in excess of $50,000 individually or $100,000 in the
aggregate;

                    (v) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, in each case in excess of $250,000, except in
the ordinary course of business;

                    (vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights in excess of $250,000, or disclosed any proprietary
confidential information to any person except to customers in the ordinary
course of business or to the Purchasers or their representatives;

                    (vii) suffered any material losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;

                    (viii) made any changes in employee compensation except in
the ordinary course of business and consistent with past practices;

                    (ix) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;

                    (x) entered into any material transaction, whether or not in
the ordinary course of business;

                    (xi) made charitable contributions or pledges in excess of
$25,000;

                    (xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;

                    (xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their employment; or

                    (xiv) entered into an agreement, written or otherwise, to
take any of the foregoing actions.

                  (aa) Public Utility Holding Company Act and Investment Company
Act Status. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not, and as a result of and immediately upon the Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.

                                       11


                  (bb) ERISA. No liability to the Pension Benefit Guaranty
Corporation has been incurred with respect to any Plan by the Company or any of
its subsidiaries which is or would be materially adverse to the Company and its
subsidiaries. The execution and delivery of this Agreement and the issuance and
sale of the Preferred Shares will not involve any transaction which is subject
to the prohibitions of Section 406 of ERISA or in connection with which a tax
could be imposed pursuant to Section 4975 of the Internal Revenue Code of 1986,
as amended, provided that, if any of the Purchasers, or any person or entity
that owns a beneficial interest in any of the Purchasers, is an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) with respect
to which the Company is a "party in interest" (within the meaning of Section
3(14) of ERISA), the requirements of Sections 407(d)(5) and 408(e) of ERISA, if
applicable, are met. As used in this Section 2.1(bb), the term "Plan" shall mean
an "employee pension benefit plan" (as defined in Section 3 of ERISA) which is
or has been established or maintained, or to which contributions are or have
been made, by the Company or any subsidiary or by any trade or business, whether
or not incorporated, which, together with the Company or any subsidiary, is
under common control, as described in Section 414(b) or (c) of the Code.

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

                  (dd) Independent Nature of Purchasers. The Company
acknowledges that the obligations of each Purchaser under the Transaction
Documents are several and not joint with the obligations of any other Purchaser,
and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under the Transaction Documents. The Company
acknowledges that the decision of each Purchaser to purchase the Shares and
Warrants pursuant to this Agreement has been made by such Purchaser
independently of any other purchase and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of its Subsidiaries which may have
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
liability to any Purchaser (or any other person) relating to or arising from any
such information, materials, statements or opinions. The Company acknowledges
that nothing contained herein, or in any Transaction Document, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute
the Purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Purchaser shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of this Agreement
or out of the other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that for reasons of administrative convenience
only, the Transaction Documents have been prepared by counsel for one of the


                                       12


Purchasers and such counsel does not represent all of the Purchasers but only
such Purchaser and the other Purchasers have retained their own individual
counsel with respect to the transactions contemplated hereby. The Company
acknowledges that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers. The Company acknowledges
that such procedure with respect to the Transaction Documents in no way creates
a presumption that the Purchasers are in any way acting in concert or as a group
with respect to the Transaction Documents or the transactions contemplated
hereby or thereby.

                  (ee) No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the Shares
pursuant to this Agreement to be integrated with prior offerings by the Company
for purposes of the Securities Act which would prevent the Company from selling
the Shares pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any of
its affiliates or subsidiaries take any action or steps that would cause the
offering of the Shares to be integrated with other offerings. The Company does
not have any registration statement pending before the Commission or currently
under the Commission's review and since January 1, 2004, the Company has not
offered or sold any of its equity securities.

                  (hh) Sarbanes-Oxley Act(kk) . The Company is in substantial
compliance with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the
"Sarbanes-Oxley Act"), and the rules and regulations promulgated thereunder,
that are effective and intends to comply substantially with other applicable
provisions of the Sarbanes-Oxley Act, and the rules and regulations promulgated
thereunder, upon the effectiveness of such provisions.

                  Section 2.2 Representations and Warranties of the Purchasers.
Each of the Purchasers hereby makes the following representations and warranties
to the Company with respect solely to itself and not with respect to any other
Purchaser:

                  (a) Organization and Standing of the Purchasers. If the
Purchaser is an entity, such Purchaser is a corporation or partnership duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.

                  (b) Authorization and Power. Each Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Preferred Shares and Warrants being sold to it hereunder. The execution,
delivery and performance of this Agreement and the Registration Rights Agreement
by such Purchaser and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate or
partnership action, and no further consent or authorization of such Purchaser or
its Board of Directors, stockholders, or partners, as the case may be, is
required. Each of this Agreement and the Registration Rights Agreement has been
duly authorized, executed and delivered by such Purchaser and constitutes, or
shall constitute when executed and delivered, a valid and binding obligation of
the Purchaser enforceable against the Purchaser in accordance with the terms
thereof.

                                       13


                  (c) No Conflicts. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the consummation by
such Purchaser of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or other organizational documents or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Purchaser is a party or by which its
properties or assets are bound, or result in a violation of any law, rule, or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Purchaser or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have a
material adverse effect on such Purchaser). Such Purchaser is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or to purchase the Preferred Shares or acquire the
Warrants in accordance with the terms hereof, provided that for purposes of the
representation made in this sentence, such Purchaser is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.

                  (d) Acquisition for Investment. Each Purchaser is acquiring
the Preferred Shares and the Warrants solely for its own account for the purpose
of investment and not with a view to or for sale in connection with
distribution. Each Purchaser does not have a present intention to sell the
Preferred Shares or the Warrants, nor a present arrangement (whether or not
legally binding) or intention to effect any distribution of the Preferred Shares
or the Warrants to or through any person or entity; provided, however, that by
making the representations herein and subject to Section 2.2(h) below, such
Purchaser does not agree to hold the Shares or the Warrants for any minimum or
other specific term and reserves the right to dispose of the Shares or the
Warrants at any time in accordance with Federal and state securities laws
applicable to such disposition. Each Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Preferred Shares
and the Warrants and that it has been given full access to such records of the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries and received such information as it has deemed necessary or
appropriate to conduct its due diligence investigation and has sufficient
knowledge and experience in investing in companies similar to the Company in
terms of the Company's stage of development so as to be able to evaluate the
risks and merits of its investment in the Company.

                  (e) Status of Purchasers. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act. Such
Purchaser is not required to be registered as a broker-dealer under Section 15
of the Exchange Act and such Purchaser is not a broker-dealer.

                  (f) Opportunities for Additional Information. Each Purchaser
acknowledges that such Purchaser has had the opportunity to ask questions of and
receive answers from, or obtain additional information from, the executive
officers of the Company concerning the financial and other affairs of the


                                       14


Company, and to the extent deemed necessary in light of such Purchaser's
personal knowledge of the Company's affairs, such Purchaser has asked such
questions and received answers to the full satisfaction of such Purchaser, and
such Purchaser desires to invest in the Company.

                  (g) No General Solicitation. Each Purchaser acknowledges that
the Shares were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.

                  (h) Rule 144. Such Purchaser understands that the Shares must
be held indefinitely unless such Shares are registered under the Securities Act
or an exemption from registration is available. Such Purchaser acknowledges that
such Purchaser is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such person has been advised that Rule 144 permits resales only under
certain circumstances. Such Purchaser understands that to the extent that Rule
144 is not available, such Purchaser will be unable to sell any Shares without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.

                  (i) General. Such Purchaser understands that the Shares are
being offered and sold in reliance on a transactional exemption from the
registration requirement of Federal and state securities laws and the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchaser to acquire the Shares.

                  (j) Independent Investment. No Purchaser has agreed to act
with any other Purchaser for the purpose of acquiring, holding, voting or
disposing of the Shares purchased hereunder for purposes of Section 13(d) under
the Exchange Act, and each Purchaser is acting independently with respect to its
investment in the Shares.

                                       15


                                  ARTICLE III

                                    COVENANTS

         The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers and their permitted assignees
(as defined herein).

                  Section 3.1 Securities Compliance. The Company shall notify
the Commission in accordance with their rules and regulations, of the
transactions contemplated by any of the Transaction Documents, including filing
a Form D with respect to the Preferred Shares, Warrants, Conversion Shares and
Warrant Shares as required under Regulation D, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Preferred
Shares, the Warrants, the Conversion Shares and the Warrant Shares to the
Purchasers or subsequent holders.

                  Section 3.2 Registration and Listing. The Company will cause
its Common Stock to continue to be registered under Sections 12(b) or 12(g) of
the Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement or the Registration
Rights Agreement, and will not take any action or file any document (whether or
not permitted by the Securities Act or the rules promulgated thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under the Exchange Act or Securities Act, except as
permitted herein. The Company will take all action necessary to continue the
listing or trading of its Common Stock on the OTC Bulletin Board. Section

                  3.3 Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, each Purchaser
or any employees, agents or representatives thereof, so long as such Purchaser
shall be obligated hereunder to purchase the Preferred Shares or shall
beneficially own any Preferred Shares, or shall own Conversion Shares which, in
the aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding, for purposes reasonably related to such
Purchaser's interests as a stockholder to examine and make reasonable copies of
and extracts from the records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company and any subsidiary,
and to discuss the affairs, finances and accounts of the Company and any
subsidiary with any of its officers, consultants, directors, and key employees.
Section

                  3.4 Compliance with Laws. The Company shall comply, and cause
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could have a Material Adverse Effect. Section


                  3.5 Keeping of Records and Books of Account. The Company shall
keep and cause each subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.

                                       16


                  Section 3.6 Reporting Requirements. If the Commission ceases
making periodic reports filed under Section 13 of the Exchange Act available via
its Election Data Gathering Retrieval and Analysis System, then at a Purchaser's
request the Company shall furnish the following to such Purchaser so long as
such Purchaser shall be obligated hereunder to purchase the Preferred Shares or
shall beneficially own any Preferred Shares, or shall own Conversion Shares
which, in the aggregate, represent more than 2% of the total combined voting
power of all voting securities then outstanding:

                  (a) Quarterly Reports filed with the Commission on Form 10-QSB
as soon as practical after the document is filed with the Commission, and in any
event within fifty-five (55) days after the end of each of the first three
fiscal quarters of the Company;

                  (b) Annual Reports filed with the Commission on Form 10-KSB as
soon as practical after the document is filed with the Commission, and in any
event within one hundred (100) days after the end of each fiscal year of the
Company; and

                  (c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.

                  Section 3.7 Amendments. The Company shall not amend or waive
any provision of the Articles or Bylaws of the Company in any way that would
adversely affect the liquidation preferences, dividends rights, conversion
rights, voting rights or redemption rights of the Preferred Shares; provided,
however, that any creation and issuance of another series of Junior Stock (as
defined in the Certificate of Designation) or any other class or series of
equity securities which by its terms shall rank on parity with the Preferred
Shares shall not be deemed to materially and adversely affect such rights,
preferences or privileges.

                  Section 3.8 Other Agreements. The Company shall not enter into
any agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any subsidiary under any
Transaction Document.

                  Section 3.9 Distributions. So long as any Preferred Shares or
Warrants remain outstanding, the Company agrees that it shall not (i) declare or
pay any dividends or make any distributions to any holder(s) of Common Stock or
(ii) purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.

                  Section 3.10 Status of Dividends. The Company covenants and
agrees that (i) no Federal income tax return or claim for refund of Federal
income tax or other submission to the Internal Revenue Service will adversely
affect the Preferred Shares, any other series of its Preferred Stock, or the
Common Stock, and any deduction shall not operate to jeopardize the availability


                                       17


to Purchasers of the dividends received deduction provided by Section 243(a)(1)
of the Code or any successor provision, (ii) in no report to shareholders or to
any governmental body having jurisdiction over the Company or otherwise will it
treat the Preferred Shares other than as equity capital or the dividends paid
thereon other than as dividends paid on equity capital unless required to do so
by a governmental body having jurisdiction over the accounts of the Company or
by a change in generally accepted accounting principles required as a result of
action by an authoritative accounting standards setting body, and (iii) other
than pursuant to this Agreement or the Certificate of Designation, it will take
no action which would result in the dividends paid by the Company on the
Preferred Shares out of the Company's current or accumulated earnings and
profits being ineligible for the dividends received deduction provided by
Section 243(a)(1) of the Code. The preceding sentence shall not be deemed to
prevent the Company from designating the Preferred Stock as "Convertible
Preferred Stock" in its annual and quarterly financial statements in accordance
with its prior practice concerning other series of preferred stock of the
Company. Notwithstanding the foregoing, the Company shall not be required to
restate or modify its tax returns for periods prior to the Closing Date. In the
event that the Purchasers have reasonable cause to believe that dividends paid
by the Company on the Preferred Shares out of the Company's current or
accumulated earnings and profits will not be treated as eligible for the
dividends received deduction provided by Section 243(a)(1) of the Code, or any
successor provision, the Company will, at the reasonable request of the
Purchasers of 51% of the outstanding Preferred Shares, join with the Purchasers
in the submission to the Service of a request for a ruling that dividends paid
on the Shares will be so eligible for Federal income tax purposes, at the
Purchasers expense. In addition, the Company will reasonably cooperate with the
Purchasers (at Purchasers' expense) in any litigation, appeal or other
proceeding challenging or contesting any ruling, technical advice, finding or
determination that earnings and profits are not eligible for the dividends
received deduction provided by Section 243(a)(1) of the Code, or any successor
provision to the extent that the position to be taken in any such litigation,
appeal, or other proceeding is not contrary to any provision of the Code or
incurred in connection with any such submission, litigation, appeal or other
proceeding. Notwithstanding the foregoing, nothing herein contained shall be
deemed to preclude the Company from claiming a deduction with respect to such
dividends if (i) the Code shall hereafter be amended, or final Treasury
regulations thereunder are issued or modified, to provide that dividends on the
Preferred Shares or Conversion Shares should not be treated as dividends for
Federal income tax purposes or that a deduction with respect to all or a portion
of the dividends on the Shares is allowable for Federal income tax purposes, or
(ii) in the absence of such an amendment, issuance or modification and after a
submission of a request for ruling or technical advice, the service shall rule
or advise that dividends on the shares should not be treated as dividends for
Federal income tax purposes. If the Service determines that the Preferred Shares
or Conversion Shares constitute debt, the Company may file protective claims for
refund.

                  Section 3.11 Use of Proceeds. The proceeds from the sale of
the Preferred Shares will be used by the Company for working capital and general
corporate purposes.

                  Section 3.12 Future Financings; Right of First Offer and
Refusal. (a) For purposes of this Agreement, a "Subsequent Financing" shall be
defined as any subsequent offer or sale to, or exchange with (or other type of
distribution to), any third party of Common Stock or any securities convertible,
exercisable or exchangeable into Common Stock, including debt securities so
convertible, in a private transaction (collectively, the "Financing Securities")


                                       18


other than a Permitted Financing. For purposes of this Agreement, "Permitted
Financing" shall mean any transaction involving (i) the Company's issuance of
any Financing Securities (other than for cash) in connection with a merger,
acquisition or consolidation, (ii) the Company's issuance of Financing
Securities in connection with strategic license agreements and other partnering
arrangements so long as such issuances are not for the purpose of raising
capital, (iii) the Company's issuance of Financing Securities in connection with
bona fide firm underwritten public offerings of its securities, (iv) the
Company's issuance of Common Stock or the issuance or grants of options to
purchase Common Stock pursuant to the Company's stock option plans and employee
stock purchase plans so long as the purchase price or exercise price of such
securities is greater than the Conversion Price (as defined in the Certificate
of Designation), (v) as a result of the exercise of options or warrants or
conversion of convertible notes or preferred stock which are granted or issued
as of the date of this Agreement, (vi) any Warrants issued to the Purchasers and
any warrants issued to the placement agent for the transactions contemplated by
this Agreement, (vii) the payment of any dividends on the Series B Preferred
Stock, or (viii) the Company's issuance of any Financing Securities in a
transaction involving Laurus or any other entity that Laurus may introduce to
the Company.

                  (b) During the period commencing on the Closing Date and
ending on the date that is three (3) years following the Closing Date, the
Company covenants and agrees to promptly notify (in no event later than five (5)
days after making or receiving an applicable offer) in writing (a "Rights
Notice") each Purchaser of the terms and conditions of any proposed Subsequent
Financing. The Rights Notice shall describe, in reasonable detail, the proposed
Subsequent Financing, the proposed closing date of the Subsequent Financing,
which shall be within thirty (30) calendar days from the date of the Rights
Notice, including, without limitation, all of the terms and conditions thereof
and proposed definitive documentation to be entered into in connection
therewith. The Rights Notice shall provide each Purchaser an option (the "Rights
Option") during the fifteen (15) trading days following delivery of the Rights
Notice (the "Option Period") to inform the Company whether such Purchaser will
purchase up its pro rata portion for the securities being offered in such
Subsequent Financing on the same, absolute terms and conditions as contemplated
by such Subsequent Financing (the "First Refusal Rights"). If any Purchaser
elects not to participate in such Subsequent Financing, the other Purchasers may
participate on a pro-rata basis so long as such participation in the aggregate
does not exceed the total Purchase Price hereunder. For purposes of this
Section, all references to "pro rata" means, for any Purchaser electing to
participate in such Subsequent Financing, the percentage obtained by dividing
(x) the total number of Preferred Shares purchased by such Purchaser at the
Closing by (y) the total number of Preferred Shares purchased by all of the
participating Purchasers at the Closing. Delivery of any Rights Notice
constitutes a representation and warranty by the Company that there are no other
material terms and conditions, arrangements, agreements or otherwise except for
those disclosed in the Rights Notice, to provide additional compensation to any
party participating in any proposed Subsequent Financing, including, but not
limited to, additional compensation based on changes in the Purchase Price or
any type of reset or adjustment of a purchase or conversion price or to issue
additional securities at any time after the closing date of a Subsequent
Financing. If the Company does not receive notice of exercise of the Rights
Option from the Purchasers within the Option Period, the Company shall have the
right to close the Subsequent Financing on the scheduled closing date with a
third party; provided that all of the material terms and conditions of the
closing are the same as those provided to the Purchasers in the Rights Notice.


                                       19


If the closing of the proposed Subsequent Financing does not occur on that date,
any closing of the contemplated Subsequent Financing or any other Subsequent
Financing shall be subject to all of the provisions of this Section 3.12,
including, without limitation, the delivery of a new Rights Notice. The
provisions of this Section 3.12(b) shall not apply to issuances of Financing
Securities in a Permitted Financing.

                  (c) During the period commencing on the Closing Date and
ending on the date that is forty two (42) months following the Closing Date, if
the Company enters into any Subsequent Financing on terms more favorable than
the terms governing the Preferred Shares, then the Purchasers in their sole
discretion may exchange the Preferred Shares, valued at their stated value, for
the securities issued or to be issued in the Subsequent Financing. The Company
covenants and agrees to promptly notify in writing the Purchasers of the terms
and conditions of any such proposed Subsequent Financing.

                  Section 3.13 Reservation of Shares. Upon the filing of the
Charter Amendment, so long as any of the Preferred Shares or Warrants remain
outstanding, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, no less than the aggregate
number of shares of Common Stock needed to provide for the issuance of the
Conversion Shares and the Warrant Shares.

                  Section 3.14 Transfer Agent Instructions. The Company shall
issue irrevocable instructions to its transfer agent, and any subsequent
transfer agent, to issue certificates, registered in the name of each Purchaser
or its respective nominee(s), for the Conversion Shares and the Warrant Shares
in such amounts as specified from time to time by each Purchaser to the Company
upon conversion of the Preferred Shares or exercise of the Warrants in the form
of Exhibit F attached hereto (the "Irrevocable Transfer Agent Instructions").
Prior to registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.14 will be given by the Company to its transfer agent and that
the Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 3.14 shall affect in any way each
Purchaser's obligations and agreements set forth in Section 5.1 to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Shares. If a Purchaser provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a public sale, assignment or
transfer of the Shares may be made without registration under the Securities Act
or the Purchaser provides the Company with reasonable assurances that the Shares
can be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold,
the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations under this Section 3.14 will cause irreparable
harm to the Purchasers by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the remedy at
law for a breach of its obligations under this Section 3.14 will be inadequate


                                       20


and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 3.14, that the Purchasers shall be entitled, in
addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.

                  Section 3.15 Disposition of Assets. So long as the Preferred
Shares remain outstanding, neither the Company nor any Subsidiary shall sell,
transfer or otherwise dispose of any of its properties, assets and rights
including, without limitation, its software and intellectual property, to any
person except for sales to customers in the ordinary course of business or with
the prior written consent of the holders of a majority of the Preferred Shares
then outstanding; provided, that, the Company may sell, transfer or otherwise
dispose of its properties and assets to Laurus in connection with certain
agreements entered into between the Company and Laurus on May 14, 2004 and any
future agreements entered into between the Company and Laurus so long as the
fair market value of the properties or assets being sold or transferred to
Laurus does not exceed the investment amount under such agreements entered into
between Laurus and the Company.

                  Section 3.16 Reporting Status. So long as a Purchaser
beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the Commission pursuant to the Exchange Act,
and the Company shall not terminate its status as an issuer required to file
reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination. Section

                  3.17 Disclosure of Transaction. The Company shall issue a
press release describing the material terms of the transactions contemplated
hereby (the "Press Release") as soon as practicable after the Closing; provided,
however, that if Closing occurs after 4:00 P.M. Eastern Time on any Trading Day
but in no event later than one hour after the Closing, the Company shall issue
the Press Release no later than 9:00 A.M. Eastern Time on the first Trading Day
following the Closing Date. The Company shall also file with the Commission a
Current Report on Form 8-K (the "Form 8-K") describing the material terms of the
transactions contemplated hereby (and attaching as exhibits thereto this
Agreement, the Certificate of Designation, the Registration Rights Agreement and
the form of Warrant) as soon as practicable following the Closing Date but in no
event more than two (2) Trading Days following the Closing Date, which Press
Release and Form 8-K shall be subject to prior review and comment by the
Purchasers. "Trading Day" means any day during which the OTC Bulletin Board (or
other principal exchange on which the Common Stock is traded) shall be open for
trading.

                  Section 3.18 Disclosure of Material Information. The Company
covenants and agrees that neither it nor any other person acting on its behalf
has provided or will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
representations in effecting transactions in securities of the Company.

                                       21


                  Section 3.19 Pledge of Securities. The Company acknowledges
and agrees that the Shares may be pledged by a Purchaser in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Common Stock. The pledge of Common Stock shall not be deemed to
be a transfer, sale or assignment of the Common Stock hereunder, and no
Purchaser effecting a pledge of Common Stock shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document; provided that a
Purchaser and its pledgee shall be required to comply with the provisions of
Article V hereof in order to effect a sale, transfer or assignment of Common
Stock to such pledgee. At the Purchasers' expense, the Company hereby agrees to
execute and deliver such documentation as a pledgee of the Common Stock may
reasonably request in connection with a pledge of the Common Stock to such
pledgee by a Purchaser.

                  Section 3.20 Charter Amendment. The Company shall file the
Charter Amendment no later than August 30, 2004.

                  Section 3.21 Listing of Warrants. The Company shall use its
best efforts to list the Warrants for trading on the OTC Bulletin Board or other
applicable exchange no later than five (5) business days following the
Effectiveness Date (as defined in the Registration Rights Agreement). The
Company and the Purchasers agree that the Purchasers will suffer damages if the
Warrants are not listed for trading on the OTC Bulletin Board or other
applicable exchange within five (5) business days following the Effectiveness
Date (the "Warrant Listing Date"). The Company and the Purchasers further agree
that it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, if the Warrants are not listed for trading on the OTC
Bulletin Board or other applicable exchange by the Warrant Listing Date, the
Company shall pay an amount as liquidated damages to each Purchaser, payable in
cash, equal to two percent (2%) for the first calendar month or portion thereof
of the Purchaser's initial investment in the Preferred Shares from the Warrant
Listing Date and one and one quarter percent (1.25%) for each calendar month
thereafter or portion thereof from the Warrant Listing Date until the Warrants
are listed for trading on the OTC Bulletin Board or other applicable exchange.

                                   ARTICLE IV

                                   CONDITIONS

                  Section 4.1 Conditions Precedent to the Obligation of the
Company to Sell the Shares. The obligation hereunder of the Company to issue and
sell the Preferred Shares and the Warrants to the Purchasers is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.

                  (a) Accuracy of Each Purchaser's Representations and
Warranties. The representations and warranties of each Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true
and correct in all material respects as of such date.

                  (b) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing.

                                       22


                  (c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.

                  (d) Delivery of Purchase Price. The Purchase Price for the
Preferred Shares and Warrants has been delivered to the Company at the Closing
Date.

                  (e) Delivery of Transaction Documents. The Transaction
Documents have been duly executed and delivered by the Purchasers to the
Company.

                  (f) Written Consent of Laurus. Laurus shall have delivered to
the Company an executed written consent consenting to the transactions
contemplated by this Agreement.

                  Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Purchase the Shares. The obligation hereunder of each Purchaser to
acquire and pay for the Preferred Shares and the Warrants is subject to the
satisfaction or waiver, at or before the Closing, of each of the conditions set
forth below. These conditions are for each Purchaser's sole benefit and may be
waived by such Purchaser at any time in its sole discretion.

                  (a) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company in this Agreement and
the Registration Rights Agreement shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that are expressly made as
of a particular date), which shall be true and correct in all material respects
as of such date.

                  (b) Performance by the Company. The Company shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing.

                  (c) No Suspension, Etc. Trading in the Company's Common Stock
shall not have been suspended by the Commission or the OTC Bulletin Board
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the applicable Closing),
and, at any time prior to the Closing Date, trading in securities generally as
reported by Bloomberg Financial Markets ("Bloomberg") shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported by Bloomberg, or on the New York Stock
Exchange, nor shall a banking moratorium have been declared either by the United
States or New York State authorities.

                                       23


                  (d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.

                  (e) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall have been
commenced, and no investigation by any governmental authority shall have been
threatened, against the Company or any subsidiary, or any of the officers,
directors or affiliates of the Company or any subsidiary seeking to restrain,
prevent or change the transactions contemplated by this Agreement, or seeking
damages in connection with such transactions.

                  (f) Certificate of Designation of Rights and Preferences.
Prior to the Closing, the Certificate of Designation in the form of Exhibit B
attached hereto shall have been filed with the Secretary of State of Nevada.

                  (g) Opinion of Counsel, Etc. At the Closing, the Purchasers
shall have received an opinion of counsel to the Company, dated the date of the
Closing, in the form of Exhibit G hereto, and such other certificates and
documents as the Purchasers or its counsel shall reasonably require incident to
the Closing.

                  (h) Registration Rights Agreement. At the Closing, the Company
shall have executed and delivered the Registration Rights Agreement to each
Purchaser.

                  (i) Certificates. The Company shall have executed and
delivered to the Purchasers the certificates (in such denominations as such
Purchaser shall request) for the Preferred Shares and Warrants being acquired by
such Purchaser at the Closing.

                  (j) Resolutions. The Board of Directors of the Company shall
have adopted resolutions consistent with Section 2.1(b) hereof in a form
reasonably acceptable to such Purchaser (the "Resolutions").

                  (k) Intentionally Omitted.

                  (l) Transfer Agent Instructions. The Irrevocable Transfer
Agent Instructions, in the form of Exhibit F attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.

                  (m) Secretary's Certificate. The Company shall have delivered
to such Purchaser a secretary's certificate, dated as of the Closing Date, as to
(i) the Resolutions, (ii) the Articles, (iii) the Bylaws, (iv) the Certificate
of Designation, each as in effect at the Closing, and (iv) the authority and
incumbency of the officers of the Company executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.

                                       24


                  (n) Officer's Certificate. The Company shall have delivered to
the Purchasers a certificate of an executive officer of the Company, dated as of
the Closing Date, confirming the accuracy of the Company's representations,
warranties and covenants as of such Closing Date and confirming the compliance
by the Company with the conditions precedent set forth in this Section 4.2 as of
the Closing Date.

                  (o) Material Adverse Effect. No Material Adverse Effect shall
have occurred at or before the Closing Date.

                  (p) Written Consent of Laurus. The Company shall have
delivered to the Purchasers an executed written consent of Laurus consenting to
the transactions contemplated by this Agreement.

                  (q) Minimum Purchase. The Purchasers shall have purchased at
least $2,000,000 of the aggregate Purchase Price.

                  (r) Release of Restricted Cash. Laurus shall have released
$250,000 of restricted cash to the Company in connection with certain agreements
entered into between the Company and Laurus on May 14, 2004.

                                   ARTICLE V

                            STOCK CERTIFICATE LEGEND

                  Section 5.1 Legend. Each certificate representing the
Preferred Shares and the Warrants, and, if appropriate, securities issued upon
conversion thereof, shall be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required by
applicable state securities or "blue sky" laws):

                 THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
                 "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                 OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
                 SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
                 DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND
                 UNDER APPLICABLE STATE SECURITIES LAWS OR XSTREAM BEVERAGE
                 GROUP, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT
                 REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
                 UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
                 REQUIRED.

         The Company agrees to reissue certificates representing any of the
Conversion Shares and the Warrant Shares, without the legend set forth above if
at such time, prior to making any transfer of any such securities, such holder
thereof shall give written notice to the Company describing the manner and terms
of such transfer and removal as the Company may reasonably request. Such
proposed transfer and removal will not be effected until: (a) either (i) the
Company has received an opinion of counsel reasonably satisfactory to the


                                       25


Company, to the effect that the registration of the Conversion Shares or the
Warrant Shares under the Securities Act is not required in connection with such
proposed transfer, (ii) a registration statement under the Securities Act
covering such proposed disposition has been filed by the Company with the
Commission and has become effective under the Securities Act, (iii) the Company
has received other evidence reasonably satisfactory to the Company that such
registration and qualification under the Securities Act and state securities
laws are not required, or (iv) the holder provides the Company with reasonable
assurances that such security can be sold pursuant to Rule 144 under the
Securities Act; and (b) either (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that registration
or qualification under the securities or "blue sky" laws of any state is not
required in connection with such proposed disposition, or (ii) compliance with
applicable state securities or "blue sky" laws has been effected or a valid
exemption exists with respect thereto. The Company will respond to any such
notice from a holder within five (5) business days. In the case of any proposed
transfer under this Section 6.1, the Company will use reasonable efforts to
comply with any such applicable state securities or "blue sky" laws, but shall
in no event be required, (x) to qualify to do business in any state where it is
not then qualified, (y) to take any action that would subject it to tax or to
the general service of process in any state where it is not then subject, or (z)
to comply with state securities or "blue sky" laws of any state for which
registration by coordination is unavailable to the Company. The restrictions on
transfer contained in this Section 6.1 shall be in addition to, and not by way
of limitation of, any other restrictions on transfer contained in any other
section of this Agreement. Whenever a certificate representing the Conversion
Shares or Warrant Shares is required to be issued to a Purchaser without a
legend, in lieu of delivering physical certificates representing the Conversion
Shares or Warrant Shares, provided the Company's transfer agent is participating
in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
program, the Company shall use its reasonable best efforts to cause its transfer
agent to electronically transmit the Conversion Shares or Warrant Shares to a
Purchaser by crediting the account of such Purchaser's Prime Broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system (to the extent
not inconsistent with any provisions of this Agreement).

                                   ARTICLE VI

                                 INDEMNIFICATION

                  Section 6.1 General Indemnity. The Company agrees to indemnify
and hold harmless the Purchasers (and their respective directors, officers,
affiliates, agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser severally but not jointly agrees to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by such Purchaser
herein. The maximum aggregate liability of each Purchaser pursuant to its
indemnification obligations under this Article VI shall not exceed the portion
of the Purchase Price paid by such Purchaser hereunder.

                                       26


                  Section 6.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VI (an "indemnified party") will give written
notice to the indemnifying party of any matters giving rise to a claim for
indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VI except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VI shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.

                                       27


                                  ARTICLE VII

                                  MISCELLANEOUS

                  Section 7.1 Fees and Expenses. Except as otherwise set forth
in this Agreement, the Registration Rights Agreement or the Certificate of
Designation, each party shall pay the fees and expenses of its advisors,
counsel, accountants and other experts, if any, and all other expenses, incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement, provided that the Company shall pay all actual
attorneys' fees and expenses (including disbursements and out-of-pocket
expenses) incurred by the Purchasers in connection with (i) the preparation,
negotiation, execution and delivery of this Agreement, the Registration Rights
Agreement and the transactions contemplated thereunder, which payment shall be
made at Closing and shall not exceed $35,000 (exclusive of disbursements and
out-of-pocket expenses), (ii) the filing and declaration of effectiveness by the
Commission of the Registration Statement (as defined in the Registration Rights
Agreement) and (iii) any amendments, modifications or waivers of this Agreement
or any of the other Transaction Documents. In addition, the Company shall pay
all reasonable fees and expenses incurred by the Purchasers in connection with
the enforcement of this Agreement or any of the other Transaction Documents,
including, without limitation, all reasonable attorneys' fees and expenses. The
Company shall pay all stamp or other similar taxes and duties levied in
connection with issuance of the Preferred Shares pursuant hereto.

                  Section 7.2 Specific Enforcement, Consent to Jurisdiction.

                  (a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement, the Certificate of Designation or the Registration Rights Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement or the Registration Rights Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity.

                  (b) Each of the Company and the Purchasers (i) hereby
irrevocably submits to the jurisdiction of the United States District Court
sitting in the Southern District of New York and the courts of the State of New
York located in New York county for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement or any of the other
Transaction Documents or the transactions contemplated hereby or thereby and
(ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
such court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper. Each of
the Company and the Purchasers consents 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 9.2 shall affect or limit any right to serve
process in any other manner permitted by law.

                                       28


                  Section 7.3 Entire Agreement; Amendment. This Agreement and
the Transaction Documents contains the entire understanding and agreement of the
parties with respect to the matters covered hereby and, except as specifically
set forth herein or in the Transaction Documents or the Certificate of
Designation, neither the Company nor any of the Purchasers makes any
representations, warranty, covenant or undertaking with respect to such matters
and they supersede all prior understandings and agreements with respect to said
subject matter, all of which are merged herein. No provision of this Agreement
may be waived or amended other than by a written instrument signed by the
Company and the holders of at least three-fourths (3/4) of the Preferred Shares
then outstanding, and no provision hereof may be waived other than by an a
written instrument signed by the party against whom enforcement of any such
amendment or waiver is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Preferred Shares
then outstanding. No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of any of the
Transaction Documents or the Certificate of Designation unless the same
consideration is also offered to all of the parties to the Transaction Documents
or holders of Preferred Shares, as the case may be.

                  Section 7.4 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:        XStream Beverage Group, Inc.
                                         4800 N.W. 15th Avenue, Bay 1-A
                                         Fort Lauderdale, FL 33309
                                         Attention: Jerry Pearring
                                         Tel. No.: (954) 598-7997
                                         Fax No.:  (954) 586-7996


               with copies to:           Newman, Pollock & Klein, LLP
                                         2600 North Military Trail
                                         Boca Raton, Florida 33431
                                         Attention: Jeffrey Klein
                                         Tel. No.: (561) 997-9920
                                         Fax No.:  (561) 241-4943

                                       29


               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 Purchaser
                                         with copies to:

                                         Jenkens & Gilchrist Parker Chapin LLP
                                         The Chrysler Building
                                         405 Lexington Avenue
                                         New York, NY 10174
                                         Attention: Christopher S. Auguste, Esq.
                                         Tel No.: (212) 704-6000
                                         Fax No.: (212) 704-6288

         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.

                  Section 7.5 Waivers. No waiver by either party of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.

                  Section 7.6 Headings. The article, section and subsection
headings in this Agreement are for convenience only and shall not constitute a
part of this Agreement for any other purpose and shall not be deemed to limit or
affect any of the provisions hereof.

                  Section 7.7 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns.

                  Section 7.8 No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.

                  Section 7.9 Governing Law. 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.

                  Section 7.10 Survival. The representations and warranties of
the Company and the Purchasers contained in Sections 2.1(o) and (s) should
survive indefinitely and those contained in Article II, with the exception of
Sections 2.1(o) and (s), shall survive the execution and delivery hereof and the
Closing until the date three (3) years from the Closing Date, and the agreements
and covenants set forth in Articles I, III, VI and VII of this Agreement shall
survive the execution and delivery hereof and the Closing hereunder until the
Purchasers in the aggregate beneficially own (determined in accordance with Rule
13d-3 under the Exchange Act) less than 10% of the total combined voting power
of all voting securities then outstanding, provided, that Sections 3.1, 3.2,
3.4, 3.5, 3.7, 3.8, 3.9, 3.10, 3.11, 3.13, 3.14, 3.15, 3.16, and 3.18 shall not
expire until the Registration Statement required by Section 2 of the
Registration Rights Agreement is no longer required to be effective under the
terms and conditions of Registration Rights Agreement.

                                       30


                  Section 7.11 Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument 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 any
signature is delivered by facsimile transmission, the party using such means of
delivery shall cause four additional executed signature pages to be physically
delivered to the other parties within five days of the execution and delivery
hereof.

                  Section 7.12 Publicity. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of the
Purchasers without the consent of the Purchasers unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.

                  Section 7.13 Severability. The provisions of this Agreement,
the Certificate of Designation and the Registration Rights Agreement are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of the provisions
contained in this Agreement, the Certificate of Designation or the Registration
Rights Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Agreement,
the Certificate of Designation or the Registration Rights Agreement shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of such provision, had never been contained herein, so that such
provisions would be valid, legal and enforceable to the maximum extent possible.

                  Section 7.14 Further Assurances. From and after the date of
this Agreement, upon the request of any Purchaser or the Company, each of the
Company and the Purchasers shall execute and deliver such instrument, documents
and other writings as may be reasonably necessary or desirable to confirm and
carry out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate of Designation, and the Registration Rights Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       31


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


                                             XSTREAM BEVERAGE GROUP, INC.



                                             By:
                                                ---------------------------
                                                     Name:
                                                     Title:


                                             PURCHASER



                                             By:
                                                ---------------------------
                                                     Name:
                                                     Title:


                                       32

EX-10.2

                                                                    Exhibit 10.2

                          REGISTRATION RIGHTS AGREEMENT

                  This Registration Rights Agreement (this "Agreement") is made
and entered into as of July 30, 2004, by and among XStream Beverage Group, 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 B
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 Shares and 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 October 1, 2004 or the date which is within three (3)
business days of the date the Commission informs the Company that the Commission
(i) 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.



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

                  "Event" shall have the meaning set forth in Section 7(d).

                  "Event Date" shall have the meaning set forth in Section 7(d).

                  "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

                  "Filing Date" means with respect to the Registration Statement
no later than thirty days following the Closing Date.

                  "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.

                  "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 (i) the shares of Common Stock
issuable upon conversion of the Preferred Shares, (ii) the Warrants and (iii)
the shares of Common Stock issuable upon exercise of the Warrants.

                  "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.

                                      -2-


                  "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.

                  "Securities Act" means the Securities Act of 1933, as amended.

                  "Special Counsel" means one special counsel to the Holders,
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 covering 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). The Company shall (i) not permit any securities
other than the Registrable Securities and the securities set forth on Schedule
II hereto to be included in the Registration Statement and (ii) use its
reasonable 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 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").

         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)
in accordance with the method or methods of distribution thereof as specified by


                                      -3-


the Holders (except if otherwise directed by the Holders), and use its
reasonable best efforts to 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 (including any
document that would be incorporated therein by reference), the Company shall (i)
furnish to the Special Counsel, copies of all such documents proposed to be
filed, which documents (other than those incorporated by reference) will be
subject to the review of 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 investigation within the meaning of the
Securities Act. Unless otherwise advised by outside counsel to the Company in
its reasonable judgment, the Company shall not file the Registration Statement
or any such Prospectus or any amendments or supplements thereto to which the
Special Counsel shall reasonably object in writing within three (3) Business
Days of its receipt thereof; provided, however, that Special Counsel may only
object to the filing of the Registration Statement if such objection relates
specifically to the Holders or may affect the timely effectiveness of the
Registration Statement.

                  (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 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 (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; and (iv)
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 applicable 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 any Special Counsel as promptly as possible (and,
in the case of (i)(A) below, not less than five (5) days prior to such filing)
(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


                                      -4-


all of the Registrable Securities or the initiation 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 reasonable best efforts to avoid the issuance of,
or, if issued, obtain the withdrawal of, (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, at the earliest practicable moment.

                  (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 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) Furnish to each 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 Holder or
Special Counsel may reasonably request. The Company hereby consents to the use
of any 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 reasonable 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


                                      -5-


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 shall be free
of all restrictive legends so long as the Holder has complied with all
applicable securities laws in connection with such sale, including the
prospectus delivery requirements, and to enable such Registrable Securities to
be in such denominations and registered in such names as any Holder may request
in writing at least two (2) Business Days prior to 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.

                  (k) Use its reasonable best efforts to cause all Registrable
Securities relating to the Registration Statement to be listed 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 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 earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than forty-five (45) days after the end of
any 12-month period (or ninety (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 Effectiveness Date, 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, 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


                                      -6-


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 (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.

                  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") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of 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 reasonably determines not to be in the Company's
best interest to disclose, 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
12-month 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


                                      -7-


Bulletin Board and each other securities exchange or market on which Registrable
Securities are required hereunder to be listed, (B) with respect to filing fees
required to be paid to the National Association of Securities Dealers, Inc. and
the NASD Regulation, Inc. 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, to a maximum amount of $5,000, (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, as well as the fees and expenses incurred in connection with
the listing of the Registrable Securities on any securities exchange as required
hereunder.

     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, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), 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, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any 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 (i) 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 and
(ii) that the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any untrue statement, allegedly untrue statement,
omission or alleged omission made in any preliminary prospectus but eliminated
or remedied in the final prospectus (filed pursuant to Rule 424 of the
Securities Act), such indemnity agreement shall not inure to the benefit of any
Holder, underwriter, broker or other Person acting on behalf of holders of the


                                      -8-


Registrable Securities, from whom the Person asserting any loss, claim, damage,
liability or expense purchased the Registrable Securities which are the subject
thereof, if a copy of such final prospectus had been made available to such
Person and such Holder, underwriter, broker or other Person acting on behalf of
Holders of the Registrable Securities and such final prospectus was not
delivered to such Person with or prior to the written confirmation of the sale
of such Registrable Securities to such Person. 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 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 assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified 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


                                      -9-


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
Indemnified Party shall have been advised by counsel (which shall be reasonably
acceptable to the Indemnifying Party) 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 Proceeding in respect of which any Indemnified Party
is a party, 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 Indemnifying Party may require such Indemnified Party to undertake to
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 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 Shares and Warrants. 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
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.

                                      -10-


              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. Notwithstanding anything to the contrary contained
herein, the Holders shall be liable under this Section 5(d) 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.

         6. Rule 144.

              As long as any Holder owns any Shares or Warrants, 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 any Shares, 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 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 in writing, all to the extent required from time to time
to enable such Person to sell the 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.

         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, each 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 agree 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


                                      -11-


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, 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 on 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 security holders, 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) Failure to File Registration Statement and Other Events.
The Company and the Purchasers agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and 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 has not been declared effective
within one hundred and twenty (120) days of the Filing Date, or (B) the
Registration Statement is not filed on or prior to the Filing 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 promptly by a
subsequent Registration Statement filed with and declared effective by the
Commission, or (E) the Company has breached Section 3(n) of this Agreement, or
(F) trading in the Common Stock shall be suspended or if the Common Stock is
delisted from the OTC Bulletin Board 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 as liquidated damages to each Holder, payable in
cash, equal to two percent (2%) for the first calendar month or portion thereof
of the Holder's initial investment in the Preferred Shares from the Event Date
and one and one quarter percent (1.25%) for each calendar month thereafter or
portion thereof from the applicable Event Date until the Event is cured.


                                      -12-


Notwithstanding anything to the contrary in this Section 7(d), if (I) any of the
Events described in clauses (A), (B) or (C) shall have occurred, (II) on or
prior to the applicable Event Date, the Company shall have exercised its rights
under Section 3(n) hereof and (III) 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 (2nd) Business Day following the termination of such postponement or
suspension.

                  (e) 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 or 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 a majority of the Registrable Securities outstanding.

                  (f) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., New York
City time, on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice later than 5:00 p.m., New York
City time, on any date and earlier than 11:59 p.m., New York City time, on such
date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service or (iv) actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications shall be with respect to each Holder at its address set forth
under its name on Schedule I attached hereto, or with respect to the Company,
addressed to:

                                    XStream Beverage Group, Inc.
                                    4800 N.W. 15th Avenue, Bay 1-A
                                    Fort Lauderdale, FL 33309
                                    Attention: Jerry Pearring
                                    Tel. No.: (954) 598-7997
                                    Fax No.:  (954) 598-7996

with copies (which copies
shall not constitute notice
to the Company) to:                 Newman, Pollock & Klein LLP
                                    2600 North Military Trail
                                    Boca Raton FL 33431
                                    Attention: Jeffrey Klein
                                    Tel. No.: (561) 997-9920
                                    Fax No.:  (561) 241-4943

or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Holder shall be sent to Jenkens &
Gilchrist Parker Chapin LLP, 405 Lexington Avenue, New York, New York 10174,


                                      -13-


Attention: Christopher S. Auguste, Esq., Tel. No.: (212) 704-6000, Fax No.:
(212) 704-6288.

                  (g) 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.

                  (h) 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 Affiliate of such Holder or any
other Holder or Affiliate of any other Holder of all or a portion of 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, (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 compliance with all applicable securities laws and in
accordance with the applicable requirements of the Purchase Agreement. In
addition, each Holder shall have the right to assign its rights hereunder to any
other Person with the prior written consent of the Company, which consent shall
not be unreasonably withheld. The rights to assignment shall apply to the
Holders (and to subsequent) successors and assigns.

                  (i) 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. 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.

                  (j) Governing Law. 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.

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

                                      -14-


                  (l) 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.

                  (m) 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.

                  (n) 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.

                                      -15-


         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.

                                            XSTREAM BEVERAGE GROUP, INC.


                                            By:_________________________________
                                                  Name:
                                                  Title:

                                            PURCHASER


                                            By:_________________________________
                                                   Name:
                                                   Title:

                                      -16-

EX-99.1

                                  EXHIBIT 99.1


XSTREAM BEVERAGE GROUP INC. RAISES $2.16 MILLION
Tuesday August 3, 3:01 pm ET

PROCEEDS OF SECOND EQUITY FUNDING TO FINANCE BRAND DEVELOPMENT AND FUTURE
ACQUISITIONS

FORT LAUDERDALE, Fla., Aug. 3 /PRNewswire-FirstCall/ -- XStream Beverage Group,
Inc. (OTC Bulletin Board: XSBV - News), a rapidly growing player in the national
beverage industry, announced the completion of a private placement of
$2,160,000, with institutional investors.

The proceeds from this transaction will be used to finance the development of
the Yohimbe, Maui Juice and Squeeze brands, as well as enhance the company's
capabilities for future brand and distributor acquisitions.

H.C. Wainwright & Co, Inc. acted as the exclusive placement agent for the
transaction.

"We're delighted that in less than 90 days we've been able to raise over $5
million in institutional financing," said XStream Beverage Group CEO Jerry
Pearring. "This gives us the financial stability to continue executing our
growth plan through brand development and distributor acquisitions."

XStream recently acquired Maryland-based Atlantic Beverage Company, expanding
the Company's Beverage Network concept along the east coast. The Company also
recently acquired Ayer Beverage in Massachusetts, giving XStream Beverage
contiguous geographic coverage from Boston through the entire state of
Connecticut by joining forces with Beverage Network of Connecticut, XStream's
previous New England acquisition. XStream also owns and operates Beverage
Network of South Florida, covering Miami-Dade, Broward and Palm Beach Counties.

XStream also recently executed a $2,000,000 export agreement with Havana
International to distribute its proprietary energy drink, Yohimbe, in the
Dominican Republic, Haiti, Jamaica, Bahamas, Cayman Islands, Suriname, French
Guyana and St. Marten.

About XStream Beverage Group, Inc.

XStream Beverage Group, Inc., http://www.xbev.com, is a beverage brand owner and
distributor and is rapidly becoming a key player in the new age beverage
category. The company plans to continue acquiring small- to medium- sized
beverage distributors, developing brands under its own label or through
acquisition and leveraging those brands through its current and future
distribution channels. The company is a fully reporting, public entity trading
on the OTC Bulletin Board, ticker symbol XSBV.

This press release includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include
failure to complete successfully the development of new or enhanced products,
the Company's future capital needs, the success of competitive products,
fluctuations in costs, changes in consumer preferences and other items described
in the Company's Securities and Exchange Commission filings. The Company
undertakes no obligation to update any statements in this press release