SERIES C AND SERIES D CONVERTIBLE PREFERRED STOCK SECURITIES PURCHASE AGREEMENT
 
by and between
 
CHINA NEW ENERGY GROUP COMPANY
 
and
 
CHINA HAND FUND I, LLC
 
September 14, 2010

 
 

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Table of Contents

ARTICLE I AUTHORIZATION AND SALE OF SECURITIES
1
     
1.1
Authorization. .
1
1.2
Issuance and Sale of Shares and Warrants.
1
1.3
Payment of the Purchase Price.
2
1.4
Stockholder Rights.
2
     
ARTICLE II THE CLOSING
2
     
2.1
The Closing.
2
2.2
Deliveries at the Closing
2
     
ARTICLE III CONDITIONS TO THE CLOSING
3
     
3.1
Conditions to Obligation of Purchaser.
3
3.2
Conditions to Obligations of the Company
5
     
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
6
     
4.1
Organization and Good Standing
6
4.2
Capital Structure.
6
4.3
Power, Authorization and Validity.
7
4.4
Non-contravention.  .
8
4.5
Title to Personal Property and Assets.
8
4.6
Subsidiaries.
9
4.7
Financial Statements; GAAP Treatment of Financial Statements.
9
4.8
Absence of Certain Changes and Events
10
4.9
Compliance with Laws.
12
4.10
Permits..
12
4.11
Real Property.
13
4.12
Intellectual Property
13
4.13
Contracts.
15
4.14
Taxes.
16
4.15
Employees.
17
4.16
Employee Benefit Plans.
18
4.17
Insurance.
18
4.18
Compliance with Environmental Requirements.
19
4.19
Litigation.
19
4.20
No Brokers.
19
4.21
Solvency.
19
4.22
Related Party Transactions.
19
4.23
Disclosure.
20
4.24
Securities Act
20
4.25
Use of Proceeds
21
4.26
SAFE Compliance.
21
     
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER
21
     
5.1
Investment for Own Account.
21
5.2
No Registration.
21
5.3
Accredited Investor.
21
5.4
Power and Authority
21
5.5
No Approvals.
22
5.6
Non-contravention.
22
5.7
Disclosure of Information
22
     
ARTICLE VI CERTAIN COVENANTS
22

 
 

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6.1
Regulatory and Other Approvals.
22
6.2
Information..
23
6.3
Information Updates.
23
6.4
Confidentiality.
23
6.5
Reservation of Shares.
24
6.6
Compliance with Laws
24
6.7
Listing, Securities Exchange Act of 1934 and Rule 144 Requirements
24
6.8
Disclosure of Transaction
25
     
ARTICLE VII
25
     
7.1
Termination of Agreement
25
7.2
Effect of Termination.
26
     
ARTICLE VIII INDEMNITY
26
     
8.1
Survival.
26
8.2
Indemnity.
26
8.3
Procedures.
27
 
 
 
ARTICLE IX MISCELLANEOUS
28
     
9.1
Legend
28
9.2
Removal of Legend and Transfer Restrictions
28
9.3
Waivers and Amendments.
29
9.4
Governing Law
29
9.5
Dispute Resolution.
29
9.6
Successors and Assigns
30
9.7
Entire Agreement.
30
9.8
Notices, etc
30
9.9
Severability
31
9.10
Expenses.
31
9.11
Titles and Subtitles.
31
9.12
Counterparts; Facsimile Signatures.
31
9.13
No Strict Construction
32

Exhibits
 
Exhibit A
Certain Definitions
Exhibit B
Series C Certificate of Designations
Exhibit C
Series D Certificate of Designations
Exhibit D
Registration Rights Agreement
Exhibit E
Backstop Agreement
Exhibit F
Disclosure Schedules

 
 
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SECURITIES PURCHASE AGREEMENT
 
THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of September 14,
2010, is entered into by and between China New Energy Group Company, a Delaware
corporation (the “Company”), and China Hand Fund I, LLC, a limited liability
company organized and existing under the laws of the State of Delaware (together
with its successors and assigns, the “Purchaser”). The Company and the Purchaser
are also referred to herein individually as a “Party” and collectively as the
“Parties.” Certain capitalized terms used in this Agreement are defined in
Exhibit A attached hereto.
 
WHEREAS, the Company desires to issue and sell to Purchaser, and Purchaser
desires to acquire, the securities specified herein, all on the terms and
subject to the conditions set forth in this Agreement.
 
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
 
ARTICLE I
AUTHORIZATION AND SALE OF SECURITIES
 
1.1                 Authorization.  The Company, on or prior to the Closing,
shall have authorized the issuance and sale of, in one or a series of
transactions and closings, pursuant to the terms and conditions provided herein,
(i) an aggregate of 25 shares of its Series C Convertible Preferred Stock, par
value $.001 per share (“Series C Preferred Stock”), having the rights,
restrictions, privileges and preferences set forth in the Certificate of
Designations of Preferences, Rights and Limitations of Series C Convertible
Preferred Stock attached hereto as Exhibit B (the “Series C Certificate”), and
(ii) an aggregate of 4 shares of its Series D Convertible Preferred Stock, par
value $.001 per share (“Series D Preferred Stock”), having the rights,
restrictions, privileges and preferences set forth in the Certificate of
Designations of Preferences, Rights and Limitations of Series D Convertible
Preferred Stock attached hereto as Exhibit C (the “Series D Certificate”).  Each
of the Series C Certificate and Series D Certificate has been, or prior to the
Closing shall have been, adopted by the Company’s Board of Directors (the “Board
of Directors”) and filed with the Delaware Secretary of State.
 
1.2                 Issuance and Sale of Shares and Warrants.  On the terms and
subject to the conditions contained in this Agreement, and in reliance on the
representations and warranties set forth in Article IV of this Agreement, at the
Closing, the Company will issue and sell to Purchaser, and Purchaser will
purchase from the Company, 18.73 shares of Series C Preferred Stock (“Series C
Shares”) in consideration for an aggregate purchase price of Fifteen Million
U.S. Dollars ($15,000,000) (the “Cash Purchase Price”) and four (4) shares of
Series D Preferred Stock (“Series D Shares”) in consideration for entering into
that certain Backstop Agreement substantially in the form attached hereto as
Exhibit E (the “Backstop Agreement”, and together with the Cash Purchase Price,
the “Purchase Price”).

 
 

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1.3                 Payment of the Cash Purchase Price.  At the Closing,
Purchaser shall pay the Cash Purchase Price in immediately available funds by
wire transfer to the Company Account.
 
1.4                 Stockholder Rights.  The Purchaser shall have the rights
specified in the (i) Series C Certificate, (ii) Series D Certificate and (iii)
the Registration Rights Agreement, dated as of the date hereof, by and between
the Company and Purchaser, substantially in the form attached as Exhibit D
hereto (the “Registration Rights Agreement” and together with this Agreement,
the Series C Certificate, the Series D Certificate, the Registration Rights
Agreement, and the certificates, documents and instrument related to or
contemplated by each of the foregoing agreements, each a “Transaction Document”
and collectively, the “Transaction Documents”), each of which shall be executed
and delivered by the parties hereto and thereto as of the Closing.
 
ARTICLE II
THE CLOSING
 
2.1                 The Closing.  The Closing shall take place at such time,
date and place as are mutually agreeable to by the Company and Purchaser.  The
date of the Closing is hereinafter referred to as the “Closing Date.”
 
2.2                 Deliveries at the Closing.  At or prior to the Closing:
 
(a)          the Company will deliver to Purchaser:
 
(i)            An executed Agreement with all exhibits and schedules attached
hereto;
 
(ii)           The stock certificates (in such denominations as Purchaser shall
request) for the Series C Preferred Stock and the Series D Preferred Stock;
 
(iii)          A copy of the Series C Certificate, filed with the Delaware
Secretary of State, as amended and in effect as of the Closing Date;
 
(iv)          A copy of the Series D Certificate, filed with the Delaware
Secretary of State, as amended and in effect as of the Closing Date;
 
(v)           Consent of the holders of Series A Preferred Stock representing at
least 75% of the shares of Series A Preferred Stock outstanding as of the
Closing Date;
 
(vi)          Consent of the holders of Series B Preferred Stock representing at
least 75% of the shares of Series B Preferred Stock outstanding as of the
Closing Date;

 
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(vii)         Certificates, as of the most recent practicable dates, as to the
corporate good standing of the Company issued by the relevant office of the
Company’s jurisdiction of incorporation;
 
(viii)        A certificate of the Company’s Secretary, dated as of the Closing
Date, attesting to and attaching copies of (A) the Certificate of Incorporation
of the Company, as amended, (B) the By-laws of the Company, as amended, each in
effect as of the date of the Closing Date; and (C) the resolutions of the Board
of Directors of the Company, authorizing and approving all matters in connection
with this Agreement, each of the other Transaction Documents and the
transactions contemplated hereby and thereby, including without limitation the
filing of the Certificates with the Delaware Secretary of State;
 
(ix)           A certificate of an executive officer of the Company, dated as of
the Closing Date, attesting to the fact that the conditions set forth in Section
3.1(d) have been satisfied;
 
(x)           Each of the other Transaction Documents to which the Company is a
party duly executed by the Company;
 
(xi)          An opinion from the Company’s legal counsel, Guzov Ofsink, LLC,
concerning this Agreement and other Transaction Documents and the transactions
contemplated hereby and thereby that is reasonably satisfactory to Purchaser;
 
(xii)         such other supporting documents and certificates as Purchaser may
reasonably request or as may be required pursuant to this Agreement or any
Transaction Documents.
 
(b)          Purchaser will deliver to the Company the Cash Purchase Price, by
wire transfer to an account as directed by the Company on the Closing Date, an
executed copy of this Agreement, the Backstop Agreement and each of the other
Transaction Documents to which the Purchaser is a party.
 
ARTICLE III
CONDITIONS TO THE CLOSING
 
3.1                 Conditions to Obligation of Purchaser.  The obligation of
Purchaser to purchase the Series C Shares and the Series D Shares is subject to
the fulfillment, on or prior to the Closing Date, of the following conditions,
any of which may be waived by Purchaser in its sole discretion:
 
(a)           Deliveries at the Closing.  Each of the documents and other items
set forth in Section 2.2(a) shall have been delivered to Purchaser.
 
(b)           Series C Certificate. The Series C Certificate in the form of
Exhibit B attached hereto shall have been filed with the Secretary of State of
Delaware.
 
 
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(c)           Series D Certificate. The Series D Certificate in the form of
Exhibit C attached hereto shall have been filed with the Secretary of State of
Delaware.
 
(d)           Representations and Warranties.  The representations and
warranties made by the Company on behalf of itself and its Subsidiaries in
Article IV hereof shall be true and correct in all respects as of the date of
this Agreement and as of the Closing Date, with the same effect as though made
as of the Closing Date, except that the accuracy of representations and
warranties that by their terms speak as of a specified date will be determined
as of such date.
 
(e)           Performance of Obligations.  The Company shall have performed in
all material respects all obligations, covenants and agreements herein required
to be performed by it on or prior to the Closing.
 
(f)           No Material Adverse Change/Material Adverse Effect.   There shall
not have been any Material Adverse Effect, as determined by Purchaser in its
sole discretion, and no event shall have occurred that could reasonably be
expected to have a Material Adverse Effect.  The Company and its Subsidiaries
shall have conducted their business and operations in the ordinary course of
business consistent with past practice since December 31, 2009.
 
(g)           Consents and Waivers.  The Company shall have made all filings
with and notifications of Governmental Authorities required to be made in
connection with the execution and delivery of this Agreement and each other
Transaction Documents and the performance of the transactions contemplated
hereby and thereby.  The Company and Purchaser shall have received all
authorizations, waivers, consents and permits, in form and substance reasonably
satisfactory to Purchaser (whether or not set forth on Section 4.4(a) of the
Disclosure Schedules), including without limitation applicable Governmental
Authorities, lessors, lenders, employees and contract parties, required to
permit the consummation of the transactions contemplated by this Agreement and
each of the other Transaction Documents, and to avoid a breach, default,
termination, acceleration or modification of any indenture, loan or credit
agreement or any other material agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award, as a result of, or in connection with, the
execution and performance of this Agreement and each of the other Transaction
Documents.
 
(h)           Proceedings Satisfactory.  All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement and each of the other Transaction Documents, and
all documents and instruments related thereto, shall be in form and substance
reasonably satisfactory to Purchaser and its counsel, and the issuance and sale
of the Securities hereunder shall be made in compliance with all applicable
federal and state laws.
 
(i)            No Violation or Injunction.  No action or proceeding by or before
any court or other Governmental Authority shall have been instituted or
threatened by any Person or Governmental Authority whatsoever which shall seek
to restrain, prohibit or invalidate the transactions contemplated by this
Agreement and each of the other Transaction Documents, or which might affect the
right of the Company to issue and sell the Securities to Purchaser.
 
 
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(j)            No Suspension, Etc.  Quotation of the 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 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, nor shall there have occurred any material outbreak or escalation
of hostilities or other national or international calamity or crisis of such
magnitude in its effect on, or any material adverse change in any financial
market which, in each case, in the judgment of Purchaser, makes it impracticable
or inadvisable to purchase the Series C Shares.
 
(k)           The Company shall have filed all forms, reports and documents set
forth on Section 4.24 of the Disclosure Schedules so that the Company is current
in its reporting obligations under the Securities Act and the Exchange Act, and
the rules and regulations of the Commission thereunder.
 
3.2                 Conditions to Obligations of the Company.  The Company's
obligation to issue and sell the Series C Shares and the Series D Shares to
Purchaser at the Closing is subject to the fulfillment on or prior to the
Closing Date of the following conditions, any of which may be waived by the
Company in its sole discretion:
 
(a)           Delivery of Purchase Price.  Purchaser shall have delivered to the
Company the Purchase Price as set forth in Section 2.2(b) including the Backstop
Agreement duly executed by Purchaser.
 
(b)           Representations and Warranties.  The representations and
warranties made by Purchaser in Article V hereof shall be true and correct in
all respects as of the date of this Agreement and as of the Closing Date, with
the same effect as though made as of the Closing Date, except that the accuracy
of representations and warranties that by their terms speak as of a specified
date will be determined as of such date.
 
(c)           Transaction Documents.  Purchaser shall have executed and
delivered each of the other Transaction Documents to which it is a party, in
each case in form and substance satisfactory to the Company.
 
(d)           Proceedings Satisfactory.  All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement and each of the other Transaction Documents, and
all documents and instruments related thereto, shall be in form and substance
reasonably satisfactory to the Company and its counsel, and the issuance and
sale of the Series C Shares and the Series D Shares hereunder shall be made in
compliance with all applicable federal and state laws.
 
(e)           No Violation or Injunction.  No action or proceeding by or before
any court or other Governmental Authority shall have been instituted or
threatened by any Person or Governmental Authority whatsoever which shall seek
to restrain, prohibit or invalidate the transactions contemplated by this
Agreement and each of the other Transaction Documents, or which might affect the
right of the Company to issue and sell the Securities to Purchaser.
 
 
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

In order to induce Purchaser to enter into this Agreement and consummate the
transactions contemplated hereby, the Company hereby makes to Purchaser the
representations and warranties contained in this Article IV on behalf of itself
and, where applicable, its Subsidiaries.  Such representations and warranties
are subject to the qualifications and exceptions set forth in the corresponding
Section of the Disclosure Schedules, attached hereto as Exhibit F and delivered
to Purchaser pursuant to this Agreement.  The Disclosure Schedules make explicit
reference to the particular representation or warranty (or Section of a
representation or warranty) as to which exception is taken.
 
4.1                 Organization and Good Standing.  The Company (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and (b) is duly qualified or registered to do business
as a foreign corporation in each jurisdiction (i) listed on Section 4.1 of the
Disclosure Schedules and (ii) except where the failure to be so qualified or
licensed would not reasonably be expected to result in a Material Adverse
Effect.  The Company has provided to Purchaser complete and accurate copies of
the Certificate of Incorporation, as amended, and By-laws, as amended, of the
Company.
 
4.2                Capital Structure. (a)  Outstanding Capital Stock.  As of the
Closing and after giving effect to the transactions contemplated hereby, the
authorized capital stock of the Company will consist of the following shares and
other rights and securities:
 
(i)            Preferred Stock.  A total of 10,000,000 authorized shares of
Preferred Stock (“Preferred Stock”), of which (i) 5,500,000 shares are
designated as Series A Preferred Stock, par value $0.001 per share, 2,098,917 of
which Series A Preferred Stock are issued and outstanding, (ii) 2,000,000 shares
are designated as Series B Preferred Stock, of which 1,116,388 shares are issued
and outstanding, (iii) 25 shares will be designated as Series C Preferred Stock,
18.73 of which shares will be issued and outstanding immediately following the
consummation of the transactions contemplated hereby, and (iv) four shares will
be designated as Series D Preferred Stock, all of which shares will be issued
and outstanding immediately following the consummation of the transactions
contemplated hereby.
 
(ii)           Common Stock.  A total of 500,000,000 authorized shares of Common
Stock, par value $0.001 per share, of which 107,070,281 shares are issued and
outstanding.
 
 
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(b)           Options, Warrants, Reserved Shares, Treasury Stock.  Except as set
forth on Section 4.2(b) of the Disclosure Schedules, there are no outstanding
subscriptions, options, warrants, agreements, arrangements, commitments or
rights of any kind (including conversion rights) for or relating to the issuance
by, or purchase or acquisition from, the Company of any shares of the Company's
capital stock or any securities convertible into or ultimately exchangeable or
exercisable for any shares of the Company's capital stock, or other similar
rights, including stock appreciation and phantom stock rights, nor is the
Company obligated in any manner to issue any shares of its capital stock or
other securities.  Except pursuant to this Agreement, a Transaction Document,
Series A Financing Transaction Document or a Series B Financing Transaction
Document, the Company has no obligation to purchase, redeem or otherwise acquire
any of its capital stock or any securities convertible into or ultimately
exchangeable or exercisable for any shares of the Company’s capital stock, or
other similar rights.  As of the Closing, except as set forth on Section 4.2(b)
of the Disclosure Schedules or as permitted by Series A Financing Transaction
Document or a Series B Financing Transaction Document, there are (A) no
preemptive rights, rights of first refusal, put or call rights or obligations or
anti-dilution rights with respect to the issuance, sale or redemption of the
Company’s capital stock, (B) no rights to have the Company’s capital stock
registered for sale to the public in connection with the laws of any
jurisdiction, (C) no documents, instruments or agreements relating to the voting
of the Company’s voting securities or restrictions on the transfer of the
Company’s capital stock, or (D) no agreements, documents or commitments (written
or oral) of the Company providing for the acceleration of vesting (or lapse of a
repurchase right) upon the occurrence of any event with respect to any
outstanding securities, options, warrants or other purchase rights.  The Company
holds no shares of its capital stock in its treasury.
 
(c)           Security Holders.  Section 4.2(c) of the Disclosure Schedules
contains a complete and accurate list of the names of all current stockholders
of the Company and all current holders of outstanding warrants, options, or
other rights ultimately exchangeable, exercisable or convertible for or into
capital stock, segregated by the type of security held by each such holder, the
amount of such security held by such holder, the exercise price, if any, for
such security, and in the case of securities exchangeable, exercisable or
convertible into Common Stock, the amount of Common Stock into which such
securities are exchangeable, exercisable or convertible.
 
(d)           Compliance with Securities Laws.  As of the Closing and after
giving effect to the transactions contemplated hereby, all of the issued and
outstanding securities of the Company will have been duly and validly authorized
and issued, and will be fully paid and non-assessable, free and clear of all
Liens (other than restrictions under any Transaction Documents, any Series A
Financing Transaction Document or Series B Financing Transaction Document, or
applicable federal and state securities laws), and will have been offered,
issued, sold and delivered in compliance with applicable federal, state and
foreign securities laws and not subject to any preemptive rights which have not
been waived.
 
4.3                 Power, Authorization and Validity.  The Company has the
corporate power, legal capacity and corporate authority to carry on its business
as presently conducted, to enter into and perform its obligations under this
Agreement and each of the other Transaction Documents to which it is a party,
and to carry out the transactions contemplated hereby and thereby, and to issue,
sell and deliver the Securities.
 
 
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(a)           The execution, delivery and performance by the Company of this
Agreement and each of the other Transaction Documents to which it is a party,
the sale, issuance and delivery of the Securities, have been duly and validly
approved and authorized by all necessary corporate action on the part of the
Company and its shareholders, if necessary.
 
(b)           This Agreement and each of the other Transaction Documents to
which it is a party have been duly executed and delivered by the Company and,
assuming due execution and delivery by the other parties thereto, constitute or
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or
similar laws affecting creditors’ rights generally and general principles of
equity.
 
4.4                 Non-contravention.  The execution and delivery by the
Company of this Agreement and each of the other Transaction Documents to which
it is a party, the consummation by the Company of the transactions contemplated
hereby and thereby, the performance by the Company of its obligations hereunder
and thereunder, and the sale, issuance and delivery of the Securities, do not
and will not conflict with, or result in any violation or breach of, or default
(with or without notice or lapse of time or both) under, or give rise to a right
of, or result in, termination, cancellation or acceleration of any obligation or
to a loss of a material benefit under, or result in the creation of any Lien in
or upon any of the properties or assets of the Company or its Subsidiaries
under, or give rise to any increased, additional, accelerated or guaranteed
rights or entitlements under, any provision of (i) the Company’s Certificate of
Incorporation, as amended, and as in effect on the date hereof, or the Bylaws,
as amended, and as in effect on the date hereof, of the Company, (ii) except as
set forth in Section 4.4 of the Disclosure Schedules, any agreement to which the
Company or any Subsidiary is a party or otherwise bound or otherwise under which
the Company or any Subsidiary has rights or benefits, or (iii) any Law or Order;
in each case applicable to the Company, its Subsidiaries or any of their
properties or assets; except, in the case of clauses (ii) and (iii) above where
any such conflict, violation, breach, default, right of termination,
cancellation or acceleration, creation of Lien, or increased, additional,
accelerated or guaranteed rights or entitlements, would not result in a Material
Adverse Effect.
 
(a)           No consent, approval, order or authorization of, registration,
declaration or filing with, or notice to, any Governmental Authority is required
by or with respect to the Company in connection with the execution and delivery
by the Company of this Agreement and each of the other Transaction Documents,
the consummation by the Company of the transactions contemplated hereby and
thereby, or the performance by the Company of its obligations hereunder and
thereunder, or the sale, issuance and delivery of the Securities, except for
such consents, approvals, orders, authorizations, registrations, declarations,
filings and notices set forth in Section 4.4(a) of the Disclosure Schedules.
 
 
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4.5                 Title to Personal Property and Assets.
 
(a)           The Company or one of its Subsidiaries is the true and lawful
owner and has good and valid title to all assets (tangible or intangible)
reflected on the audited consolidated balance sheet of the Company included in
the Annual Report on Form 10-K for fiscal year ended December 31, 2009 (the
“Balance Sheet”, and the date of the Balance Sheet, the “Balance Sheet Date”) or
thereafter acquired, except those sold or otherwise disposed of for fair value
in the ordinary course of business consistent with past practice since the
Balance Sheet Date, in each case free and clear of all Liens other than
Permitted Liens; and except where the failure to have good and valid title would
not result in a Material Adverse Effect.
 
(b)           The Company and its Subsidiaries collectively own or lease all
tangible assets sufficient for the conduct of its businesses as presently
conducted.  Each tangible asset of the Company or any of its Subsidiaries is
located at one of the Owned Real Properties or Leased Properties.  The tangible
assets of the Company and its Subsidiaries are free from material defects, have
been maintained in accordance with the past practice of the Company and
generally accepted industry practice, are in satisfactory working order and are
suitable for the purposes for which they are presently used.  All material
leased personal property of the Company and its Subsidiaries is in good working
order, ordinary wear and tear excepted, and is in all material respects in the
condition required of such property by the terms of the lease applicable
thereto.
 
4.6                 Subsidiaries.
 
(a)           Section 4.6(a) of the Disclosure Schedules sets forth, with
respect to each Subsidiary of the Company: (i) the name of such Subsidiary, (ii)
the number and type of outstanding capital stock or other voting or equity
interests of such Subsidiary, (iii) the jurisdiction of organization of such
Subsidiary, and (iv) the jurisdiction in which such Subsidiary is qualified or
holds licenses to do business as a foreign corporation or other entity.
 
(b)           Each Subsidiary of the Company (i) is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, (ii) has all requisite power and authority to carry on its
business as now being conducted and as proposed to be conducted, and (iii)
except where failure to be so qualified or licensed would not reasonably be
expected to result in a Material Adverse Effect, is duly qualified or licensed
to do business, and (iv) is in good standing in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of its properties
makes such qualification or licensing necessary, which jurisdictions are listed
in Section 4.6(a) of the Disclosure Schedules.  The Company has provided to
Purchaser complete and accurate copies of the certificate of incorporation, as
amended, and Bylaws, as amended (or other similar organizational documents) of
each Subsidiary.
 
(c)           Except as set forth in Section 4.6(c) of the Disclosure Schedules,
neither the Company nor any of its Subsidiaries has any written agreement in
respect of any strategic partnership, joint venture, cooperation arrangement or
other similar relationship providing for joint development efforts, nor does the
Company or a Subsidiary have any direct or indirect interest in or control over
any corporation, partnership, joint venture or other entity of any kind.  The
term “control” for purposes of this Section 4.6 shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
 
 
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4.7                 Financial Statements; GAAP Treatment of Financial
Statements.
 
(a)           The financial statements of the Company included in the SEC
Documents (as defined below) (the “Financial Statements”) comply as to form and
substance 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”) consistently applied during the periods covered thereby, 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).
 
(b)           No Other Liabilities; Reserves.  To the Knowledge of the Company,
the Company and its Subsidiaries have no debts, liabilities, or obligations in a
material amount, either individually or in the aggregate, of any nature, whether
accrued, absolute, contingent, or otherwise, and whether due or to become due,
that are not reflected or reserved against in the Financial Statements, which
are required to be disclosed or which would cause a Material Adverse Change.  To
the Knowledge of the Company, the reserves, if any, reflected on the Financial
Statements, are adequate in light of the contingencies with respect to which
they are made.  There has been no material change in the Company's accounting
policies except as described in the notes to the Financial Statements.
 
4.8                 Absence of Certain Changes and Events.  Since the Balance
Sheet Date, except as contemplated herein, in the other Transaction Documents,
in any Series A Financing Transaction Document or Series B Financing Transaction
Document, or as set forth on Section 4.8 of the Disclosure Schedules, the
Company and its Subsidiaries have not:
 
(a)           to the Knowledge of the Company, suffered any Material Adverse
Change;
 
(b)           suffered any damage, destruction or loss, whether or not covered
by insurance, in an amount in excess of $100,000;
 
(c)           granted or agreed to make any increase in the compensation payable
or to become payable by the Company or a Subsidiary to any officer or employee,
except for normal raises for non-executive personnel made in the ordinary course
of business that are usual and normal in amount;
 
(d)           declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of capital stock of the Company or a
Subsidiary, or declared or agreed to any direct or indirect redemption,
retirement, purchase or other acquisition by the Company or a Subsidiary of such
shares;
 
(e)           issued any shares of capital stock of the Company or a Subsidiary,
or any warrants, rights or options thereof, or entered into any commitment
relating to the shares of capital stock of the Company or a Subsidiary;
 
(f)           adopted or proposed the adoption of any change in the Company’s
Certificate of Incorporation or Bylaws;
 
 
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(g)           made any change in the accounting methods or practices they
follow, whether for general financial or Tax purposes, or any change in
depreciation or amortization policies or rates adopted therein, or any Tax
election;
 
(h)           sold, leased, abandoned or otherwise disposed of any real property
or any machinery, equipment or other operating property other than in the
ordinary course of their business;
 
(i)            sold, assigned, transferred, licensed or otherwise disposed of
any Company Intellectual Property or interest thereunder or other intangible
asset except in the ordinary course of their business;
 
(j)            been involved in any dispute involving any employee which would
reasonably be expected to result in a Material Adverse Change;
 
(k)           entered into, terminated or modified any employment, severance,
termination or similar agreement or arrangement with, or granted any bonuses (or
bonus opportunity) to, or otherwise increased the compensation of any executive
officer or Key Employee;
 
(l)            entered into any material commitment or transaction (including
without limitation any borrowing or capital expenditure);
 
(m)           amended or modified, or waived any default under, any Material
Contract;
 
(n)           to the Knowledge of the Company, incurred any material
liabilities, contingent or otherwise, either matured or unmatured (whether or
not required to be reflected in financial statements in accordance with GAAP,
and whether due or to become due), except for accounts payable or accrued
salaries that have been incurred by the Company since the Balance Sheet Date, in
the ordinary course of its business and consistent with the Company’s past
practices;
 
(o)           permitted or allowed any of their material property or assets to
be subjected to any Lien, except for Permitted Liens;
 
(p)           settled any claim, litigation or action, whether now pending or
hereafter made or brought;
 
(q)           made any capital expenditure or commitment for additions to
property, plant or equipment individually in excess of $100,000, or in the
aggregate, in excess of $250,000;
 
(r)           paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or arrangement
with any of their Affiliates, officers, directors or stockholders or, to the
Company's Knowledge, any Affiliate or associate of any of the foregoing;
 
 
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(s)           made any amendment to, or terminated any agreement that, if not so
amended or terminated, would be material to the business, assets, liabilities,
operations or financial performance of the Company or a Subsidiary;
 
(t)           compromised or settled any claims relating to Taxes, any Tax audit
or other Tax proceeding, or filed any amended Tax Returns;
 
(u)           merged or consolidated with any other Person, or acquired a
material amount of assets of any other Person;
 
(v)           entered into any agreement in contemplation of the transactions
specified herein other than this Agreement and the other Transaction Documents;
or
 
(w)          agreed to take any action described in this Section 4.8 or which
would reasonably be expected to otherwise constitute a breach of any of the
representations or warranties contained in this Agreement or any other
Transaction Documents.
 
4.9                 Compliance with Laws.  The Company and its Subsidiaries are,
and since their respective formations have been, in compliance in all material
respects with all applicable Laws of any Governmental Authority applicable to
their business or operations. 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 in all
material respects as now being conducted by it except where the failure to so
comply would not have a Material Adverse Effect.  Neither the Company nor any of
its Subsidiaries has received a notice or other written communication alleging a
possible violation by the Company or a Subsidiary of any applicable Law of any
Governmental Authority applicable to their business or operations.
 
4.10                 Permits.  The Company and its Subsidiaries validly hold and
have in full force and effect all material Permits necessary for them to own,
lease or operate their properties and assets and to carry on their business as
now conducted, and there has occurred no violation of, or default (with or
without notice or lapse of time or both) under, or event giving to any other
Person any right of termination, amendment or cancellation of, any such
Permit.  The Company and its Subsidiaries have complied in all material respects
with the terms and conditions of all Permits issued to or held by them, and such
Permits will not be subject to suspension, modification, revocation or
non-renewal as a result of the consummation of the transactions set forth in
this Agreement or any other Transaction Documents, or the execution and delivery
hereof or thereof.  No proceeding is pending or, to the Knowledge of the
Company, threatened, seeking the revocation or limitation of any Permit.
 
 
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4.11               Real Property.
 
(a)           Owned Real Property.  Section 4.11(a) of the Disclosure Schedules
lists all real property owned by the Company or its Subsidiaries (each, an
“Owned Real Property” and together, the “Owned Real Properties”), including the
address of such properties.  The Company or a Subsidiary of the Company has good
and marketable title to each parcel of Owned Real Property (including all
buildings, structures, fixtures and improvements thereon and all rights
thereto), free and clear of all Liens, except Permitted Liens, none of which
materially interfere with the use of, or materially detracts from the value of,
or the marketability of, such Owned Real Property.
 
(b)           Leased Real Property.   Section 4.11(b) of the Disclosure
Schedules lists all real property leased by the Company or its Subsidiaries
(each, a “Leased Property” and together, the “Leased Properties”).  The Company
has delivered to Purchaser complete and accurate copies of all such leases, and
any operating agreements relating thereto.  With respect to each Leased
Property, (i) the Company or a Subsidiary of the Company has good and valid
title to the leasehold estate relating thereto, free and clear of all Liens,
assignments, subleases, easements, covenants, rights of way and other similar
restrictions of any nature whatsoever, other than Permitted Liens, (ii) the
lease relating to such Leased Property is in writing and is valid and binding,
in full force and effect and enforceable against the Company or the leasing
Subsidiary and, to the Knowledge of the Company, the other parties thereto, in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium or similar laws affecting
creditors’ rights generally and general principles of equity, and (iii) the
Company is not and, to the Knowledge of the Company, no other party to the lease
relating to such Leased Property is, in breach or violation of, or in default
under, such lease.
 
(c)           There are no rights of first refusal, options to purchase,
purchase agreements, contracts for deed or installment sale agreements in effect
with respect to all or any part of the Real Property.
 
(d)           The Real Property comprises all of the real property used by the
Company in connection with the operation of the Company Business.
 
(e)           The buildings and improvements on the Real Property are in good
operating condition and in a state of good and working maintenance and repair,
ordinary wear and tear excepted, and are adequate and suitable for their current
uses and purposes.
 
(f)            There are no physical conditions or defects on any part of the
Real Property which would impair or would reasonably be expected to impair the
continued operation of the Company Business.
 
 
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4.12         Intellectual Property. (a)        All Necessary Rights; Absence of
Actions and Judgments.  Section  4.12(a) of the Disclosure Schedules sets forth
all of the Company Intellectual Property.  The Company owns and has good and
exclusive title, or has a valid, subsisting and enforceable license (sufficient
for the conduct of its business) to all Company Intellectual Property; except
where the failure to have good and/or exclusive title or a valid, subsisting and
enforceable license would not have a Material Adverse Effect.  Except as set
forth in Section 4.12(a) of the Disclosure Schedules, to the Knowledge of the
Company, there are no proceedings or actions currently before any Governmental
Authority anywhere in the world relating to Company Intellectual Property, and
no Company Intellectual Property is subject to any outstanding Order or Contract
(including any settlement agreement) restricting in any manner the Use,
transfer, or licensing thereof by the Company, or which may affect the validity,
Use or enforceability thereof.  To the Knowledge of the Company, the Company has
the right to bring actions for infringement of all Company Intellectual Property
owned by or exclusively licensed to it.
 
(b)           No Violation.  The execution, delivery and performance of this
Agreement and each of the other Transaction Documents, and the consummation of
the transactions contemplated hereby or thereby, will not (i) breach, violate or
conflict with, or result in the modification, cancellation, or suspension of any
instrument or other Contract relating to any Company Intellectual Property, (ii)
cause the forfeiture or termination or give rise to a right of forfeiture or
termination of any Company Intellectual Property or any of the Company’s rights
therein or thereto, (iii) in any way impair any existing right of the Company to
Use, or to bring any action for the infringement of, any Company Intellectual
Property, or any portion thereof, or (iv) give rise to any right or acceleration
of any royalties, fees or other payments to any third party. Immediately
following the Closing Date, the Company will be permitted to exercise all of the
Company’s rights under all Contracts relating to Company Intellectual Property
to the same extent the Company was able to in the absence of the transactions
contemplated hereby.
 
(c)           No Infringement.  To the Knowledge of the Company, no Use of the
Company Intellectual Property by the Company or any of its Subsidiaries
breaches, has violated or conflicted with, or violates or conflicts with any
license (or sublicense) or other Contract of the Company with any third
party.  To the Knowledge of the Company, the Use of the Company Intellectual
Property and the conduct of the Company Business have not, and do not, infringe
or misappropriate, any common law or statutory rights of any third party,
including, without limitation, rights relating to defamation, contractual
rights, Intellectual Property or other proprietary rights, rights of privacy or
publicity.  To the Knowledge of the Company, no third party has breached or
violated or is breaching or violating any Contract with the Company or any of
its Subsidiaries relating to any Company Intellectual Property, or has infringed
or misappropriated or is infringing or misappropriating any Company Intellectual
Property except as set forth in Section 4.12(c) of the Disclosure
Schedules.  Neither the Company nor any of its Subsidiaries has received any
notice (whether in the form of invitation to license or otherwise) from any
third party that any Company Intellectual Property or the conduct of the Company
Business, has infringed or misappropriated or does or will infringe or
misappropriate any common law or statutory rights of any other third party,
including, without limitation, rights relating to defamation, contractual
rights, Intellectual Property or other proprietary rights, rights of privacy or
publicity, nor, to the Knowledge of the Company, is there any basis for any such
assertion. There is no pending or, to the Knowledge of the Company, threatened
claim, litigation or proceeding contesting or challenging the ownership of or
the validity or enforceability of, or the Company’s right to Use, any Company
Intellectual Property, nor, to the Knowledge of the Company, is there any basis
for any such claim, litigation or proceeding.
 
 
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4.13              Contracts.
 
(a)             Except as disclosed in Section 4.13(a) of the Disclosure
Schedules, or as permitted under the Series A Financing Transaction Documents or
the Series B Financing Transaction Documents, neither the Company nor any
Subsidiary is party or subject to, or bound by:
 
(i)            any agreements, contracts or commitments that call for
prospective fixed and/or contingent payments or expenditures by or to the
Company or a Subsidiary of more than $100,000, or which is otherwise material
and not entered into in the ordinary course of business;
 
(ii)           any contract, lease or agreement involving payments in excess of
$100,000, which is not cancelable by the Company or the Subsidiary, as
applicable, without penalty on not less than 60 days notice;
 
(iii)          any contract, including any distribution agreements, containing
covenants directly or explicitly limiting the freedom of the Company or a
Subsidiary to compete in any line of business or with any Person or to offer any
of its products or services;
 
(iv)         any indenture, mortgage, promissory note, loan agreement, guaranty
or other agreement or commitment for the borrowing of money or pledging or
granting a security interest in any assets;
 
(v)          any employment contracts, non-competition agreements, invention
assignments, severance or other agreements with officers, directors, employees,
stockholders or consultants of the Company or a Subsidiary or Persons related to
or affiliated with such Persons;
 
(vi)         any stock redemption or purchase agreements or other agreements
affecting or relating to the capital stock of the Company or a Subsidiary,
including, without limitation, any agreement with any stockholder of the Company
or a Subsidiary which includes, without limitation, anti-dilution rights, voting
arrangements or operating covenants;
 
(vii)        any pension, profit sharing, retirement, stock option or stock
ownership plans;
 
(viii)       any royalty, dividend or similar arrangement based on the revenues
or profits of the Company or a Subsidiary or based on the revenues or profits
derived from any material contract;
 
(ix)          any acquisition, merger, asset purchase or other similar
agreement;
 
(x)           any sales agreement which entitles any customer to a right of
set-off, or right to a refund after acceptance thereof;

 
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(xi)          any agreement with any supplier or licensor containing any
provision permitting such supplier or licensor to change the price or other
terms upon a breach or failure by the Company or its Subsidiary, as applicable,
to meet its obligations under such agreement; or
 
(xii)         any agreement under which the Company or a Subsidiary has granted
any Person registration rights for securities.
 
(b)           The Company has delivered to Purchaser accurate and complete
copies of all written contracts identified in Section 4.13(b) of the Disclosure
Schedules (collectively, the “Material Contracts”), including all amendments
thereto.  Neither the Company nor any Subsidiary has entered into any oral
contracts which, if written, would be required to be disclosed in Section
4.13(b) of the Disclosure Schedules.  Each of the Material Contracts is valid
and in full force and effect, is enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, fraudulent
transfer, moratorium or similar laws affecting creditors’ rights generally and
general principles of equity, and will continue to be so immediately following
the Closing Date.
 
(c)           Actions with Respect to Material Contracts.
 
(i)            Neither the Company nor any Subsidiary has violated or breached,
or committed any default under, any Material Contract in any material respect,
and, to the Company's Knowledge, no other Person has violated or breached, or
committed any default under any Material Contract in any material respect; and
 
(ii)           To the Company's Knowledge, no event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time)
will, or would reasonably be expected to, (A) result in a material violation or
breach of any of the provisions of any Material Contract, (B) give any Person
the right to declare a default or exercise any remedy under any Material
Contract, (C) give any Person the right to accelerate the maturity or
performance of any Material Contract or (D) give any Person the right to cancel,
terminate or modify any Material Contract.
 
(d)           No Consents.  Except as set forth in Section 4.13(d) of the
Disclosure Schedules, none of the Material Contracts contains any provision
which would require the consent of third parties to the sale, issuance and/or
delivery of the Shares, or any of the other transactions as contemplated
hereunder or under any of the other Transaction Documents, or which would be
altered as a result of such transactions.
 
 
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4.14              Taxes.
 
(a)           The Company and its Subsidiaries have timely and properly filed
all Tax Returns required to be filed by them for all years and periods (and
portions thereof) for which any such Tax Returns were due.  All such filed Tax
Returns are accurate in all material respects.  The Company has timely paid all
Taxes due and payable (whether or not shown on filed Tax Returns).  There are no
pending assessments, asserted deficiencies or claims for additional Taxes that
have not been paid.  The reserves for Taxes, if any, reflected on the Financial
Statements are adequate, and there are no Liens for Taxes on any property or
assets of the Company and any of its Subsidiaries (other than Liens for Taxes
not yet due and payable).  There have been no audits or examinations of any Tax
Returns by any Governmental Authority, and the Company or its Subsidiaries have
not received any notice that such audit or examination is pending or
contemplated.  No claim has been made by a Governmental Authority in a
jurisdiction where the Company or any of its Subsidiaries does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction.  To the
Knowledge of the Company, no state of facts exists or has existed which would
constitute grounds for the assessment of any penalty or any further Tax
liability beyond that shown on the respective Tax Returns.  There are no
outstanding agreements or waivers extending the statutory period of limitation
for the assessment or collection of any Tax.
 
(b)           All Taxes that the Company or its Subsidiaries has been required
to collect or withhold have been duly withheld or collected and, to the extent
required, have been paid to the proper Taxing authority.
 
(c)           Neither the Company nor any of its Subsidiaries is a party to any
Tax-sharing agreement or similar arrangement with any other Person.
 
(d)           Neither the Company nor any of its Subsidiaries is currently under
any contractual obligation to pay to any Governmental Authority any Tax
obligations of, or with respect to any transaction relating to, any other
Person, or to indemnify any other Person with respect to any Tax, other than
pursuant to this Agreement.
 
(e)           The Company has made all necessary disclosures required by
Treasury Regulation Section 1.6011-4.  The Company has not been a participant in
a “reportable transaction” within the meaning of Treasury Regulation Section
1.6011-4(b).
 
(f)           No payment or benefit paid or provided, or to be paid or provided,
to current or former employees, directors or other service providers of the
Company (including pursuant to this Agreement or the Rights Agreements) will
fail to be deductible for federal income tax purposes under Section 280G of the
Code.
 
4.15              Employees.
 
(a)           The Company and its Subsidiaries are not party to any collective
bargaining agreements and, to the Company’s Knowledge, there are no attempts to
organize the employees of the Company or any Subsidiary.
 
(b)           The Company and its Subsidiaries are not delinquent in payments to
any of their employees for any wages, salaries, commissions, bonuses or other
direct compensation for any service performed as of the date hereof or amounts
required to be reimbursed to such employees.  The Company has delivered to
Purchaser copies of all employment agreements to which the Company or a
Subsidiary is a party (collectively, the “Employment Agreements”) and which have
not previously been filed by the Company with the Commission.  Except as set
forth in Section 4.15(b) of the Disclosure Schedules, the Company and its
Subsidiaries have no policy, practice, plan or program of paying severance pay
or any form of severance compensation in connection with the termination of
employment services.
 
 
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(c)           Each Person who performs services for the Company or a Subsidiary
has been, and is, properly classified by the Company or such Subsidiary as an
employee or an independent contractor.
 
(d)           To the Company's Knowledge, no employee or advisor of the Company
or a Subsidiary is or is alleged to be in violation of any term of any
employment contract, disclosure agreement, proprietary information and
inventions agreement or any other contract or agreement or any restrictive
covenant or any other common law obligation to a former employer relating to the
right of any such employee to be employed by the Company or such Subsidiary
because of the nature of the business conducted or to be conducted by the
Company or such Subsidiary or to the use of trade secrets or proprietary
information of others, and the employment of the employees of the Company and
its Subsidiaries does not subject the Company or the Company's stockholders to
any liability.  There is neither pending nor, to the Company's Knowledge,
threatened any actions, suits, proceedings or claims, or, to the Company’s
Knowledge, any basis therefor or threat thereof with respect to any contract,
agreement, covenant or obligation referred to in the preceding sentence.
 
4.16              Employee Benefit Plans.  No liability to the Pension Benefit
Guaranty Corporation has been incurred with respect to any Plan (as defined
below) 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 Securities 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 4.16, 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.
 
4.17              Insurance.  The Company and its Subsidiaries maintain and keep
in force with good and responsible insurance companies insurance in such amounts
with such coverage or risks as are customary for similar businesses that operate
in the same geographic regions as the Company and adequate to the needs of the
Company and its Subsidiaries.  Section 4.17 of the Disclosure Schedules sets
forth a list of such insurance policies, stating the name and address of the
insurance provider and the amount of insurance. Except as set forth in Section
4.17 of the Disclosure Schedules, there are no claims by the Company or a
Subsidiary pending under any such policies.  Such insurance policies are in full
force and effect; all premiums with respect thereto are currently paid, and the
Company and its Subsidiaries are in compliance with the terms thereof.  Each
insurance policy shall continue to be in full force and effect immediately
following the consummation of the transactions contemplated by this Agreement
and the other Transaction Documents.  To the Company’s Knowledge, there is no
threatened termination of any such insurance policies.
 
 
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4.18              Compliance with Environmental Requirements.  Since their
inception, neither the Company, nor any of its Subsidiaries have been, in
violation of any applicable law relating to the environment or occupational
health and safety, where such violation would have a Material Adverse
Effect.  Each of Company and its Subsidiaries has operated all facilities and
properties owned, leased or operated by it in material compliance with the
Environmental Laws.
 
4.19              Litigation.  There is no action, suit, proceeding or
investigation pending or, to the Company’s Knowledge, currently threatened
against the Company, any Subsidiary or any of their properties or assets
(a) that may impair the right or ability of the Company to carry on the Company
Business; (b) that questions the validity of this Agreement or the other
Transaction Documents or the Company’s ability to consummate the transactions
contemplated hereby and thereby, or (c) that, if adversely determined, would
reasonably be expected to have a Material Adverse Effect, and there is no basis
for any of the foregoing.  Neither the Company nor any Subsidiary is a party to,
named in, or subject to any Order.  There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
 
4.20              No Brokers.  Except as disclosed in Section 4.20 of the
Disclosure Schedules, neither the Company nor, to the Company's Knowledge, any
Company stockholder is obligated for the payment of fees or expenses of any
broker or finder in connection with the origin, negotiation or execution of this
Agreement or in connection with any transaction contemplated hereby.
 
4.21              Solvency.  The Company has not (a) made a general assignment
for the benefit of creditors; (b) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by its creditors; (c) suffered
the appointment of a receiver to take possession of all, or substantially all,
of its assets; (d) suffered the attachment or other judicial seizure of all, or
substantially all, of its assets; (e) admitted in writing its inability to pay
its debts as they come due; or (f) made an offer of settlement, extension or
composition to its creditors generally.
 
4.22              Related Party Transactions. Except as set forth in Section
4.22 of the Disclosure Schedules, none of the Company or any of its Affiliates,
officers, directors, stockholders or employees, or any Affiliate of any of such
Person, has any material interest in any property, real or personal, tangible or
intangible, including Company Intellectual Property used in or pertaining to the
business of the Company, except for the normal rights of a stockholder, or, to
the Knowledge of the Company, any supplier, distributor or customer of the
Company.

 
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(a)           Except for the agreements listed in Section 4.22(a) of the
Disclosure Schedules, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, employees,
Affiliates, or, to the Company's Knowledge, any Affiliate thereof.
 
(b)           To the Company's Knowledge, except as set forth in Section 4.22(b)
of the Disclosure Schedules, no employee, officer or director of the Company or
a Subsidiary has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company.  To the Company's Knowledge, no member of the immediate family of any
officer or director of the Company is directly or indirectly interested in any
Material Contract.
 
(c)           Except as set forth in Section 4.22(c) of the Disclosure
Schedules, there are no amounts owed (cash and stock) to officers, director,
consultants and Key Employees (salary, bonuses or other forms of compensation).
 
4.23              Disclosure. This Agreement (including exhibits hereto and the
financial statements delivered to Purchaser), the Disclosure Schedules and the
certificates and statements furnished pursuant to this Agreement by or on behalf
of the Company do not contain any untrue statement of a material fact or omit to
state a fact necessary in order to make the statements contained therein not
misleading in the light of the circumstances under which they were made.  To the
Company’s Knowledge, none of the current executive officers or directors of the
Company during the previous five years have been (i) subject to a voluntary or
involuntary petition under the federal bankruptcy laws or any state insolvency
law or the appointment of a receiver, fiscal agent or similar officer by a court
for his or her business or property or (ii) convicted in a criminal proceeding
or named as a subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses).
 
4.24              Securities Act. The Company has filed all forms, reports and
documents (the "SEC Documents") required to be filed by it with the Commission
pursuant to the Securities Act and/or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as the case may be, and the rules and regulations
of the Commission thereunder through the date of this Agreement. As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act and/or the Exchange Act, as the case
may be, and the rules and regulations of the Commission thereunder applicable to
such SEC Documents, and were complete and correct in all material respects, and
none of the SEC Documents 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.  Subject to the accuracy of Purchaser’s
representations in Article V hereof, the offer, sale and issuance of the
Securities in conformity with the terms of this Agreement and the other
Transaction Documents, constitute or will constitute transactions exempt from
the registration and prospectus delivery requirements of the Securities Act, and
the qualification or registration requirements of any applicable state
securities laws as such laws exist on the date hereof, and neither the Company
nor any authorized agent acting on its behalf will take any action hereafter
that would cause the loss of such exemption.
 
 
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4.25              Use of Proceeds.  Section 4.25 of the Disclosure Schedule sets
forth the use of the proceeds from the sale of the Securities.
 
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser represents and warrants to the Company as follows:
 
5.1                 Investment for Own Account.  The Securities are being or
will be acquired for Purchaser's own account, for investment and not with a view
to, or for resale in connection with, any distribution or public offering
thereof within the meaning of the Securities Act, or applicable state securities
laws.
 
5.2                 No Registration.  Purchaser understands that (a) the
Securities have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act pursuant to Section 4(2) thereof and have not
been qualified under any state securities laws on the grounds that the offering
and sale of securities contemplated by this Agreement are exempt from
registration thereunder, and (b) the Company's reliance on such exemptions is
predicated on Purchaser's representations set forth herein.  Purchaser
understands that the resale of the Securities may be restricted indefinitely,
unless a subsequent disposition thereof is registered under the Securities Act
and registered under any state securities law or is exempt from such
registration.
 
5.3                 Accredited Investor.  Purchaser is an “accredited investor”
as that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act, and is able to bear the economic risk of the purchase of the
Securities pursuant to the terms of this Agreement and the other Transaction
Documents, including a complete loss of Purchaser's investment in the
Securities.  Purchaser understands that the purchase of the Securities involves
substantial risk. Purchaser: (i) has experience as an investor in securities of
companies in the exploration stage and acknowledges that Purchaser is able to
fend for itself, can bear the economic risk of Purchaser's investment in the
Securities and has such knowledge and experience in financial or business
matters that Purchaser is capable of evaluating the merits and risks of this
investment in the Securities and protecting its own interests in connection with
this investment and/or (ii) has a preexisting personal or business relationship
with the Company and certain of its officers, directors or controlling persons
of a nature and duration that enables such Purchaser to be aware of the
character, business acumen and financial circumstances of such persons.

 
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5.4                 Power and Authority.  Purchaser has the full right, power
and authority to enter into and perform its obligations under this Agreement and
each of the other Transaction Documents to which it is a party, and this
Agreement and each of the other Transaction Documents to which it is a party
constitute valid and binding obligations of Purchaser, enforceable in accordance
with their terms, subject to applicable bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium or similar Laws affecting creditors’ rights
generally and general principles of equity.
 
5.5                 No Approvals.  No consent, approval or authorization of, or
designation, declaration or filing with, any Governmental Authority on the part
of Purchaser is required in connection with the valid execution and delivery of
this Agreement or each of the other Transaction Documents, the consummation by
Purchaser of the transactions contemplated hereby and thereby, the performance
by Purchaser of its obligations hereunder and thereunder, or the purchase of the
Securities.
 
5.6                 Non-contravention.  The execution and delivery by Purchaser
of this Agreement and each of the other Transaction Documents to which it is a
party, the consummation by Purchaser of the transactions contemplated hereby and
thereby, the performance by Purchaser of its obligations hereunder and
thereunder, and the purchase of the Securities, do not and will not conflict
with, or result in any violation or breach of, or default (with or without
notice or lapse of time or both) under, or give rise to a right of, or result
in, termination, cancellation or acceleration of any obligation or to a loss of
a material benefit under, or result in the creation of any Lien in or upon any
of the properties or assets of Purchaser, or give rise to any increased,
additional, accelerated or guaranteed rights or entitlements under, any
provision of (i) Purchaser’s organizational documents, as amended, and as in
effect on the date hereof, (ii) any agreement to which Purchaser is a party or
otherwise bound or otherwise under which Purchaser has rights or benefits, or
(iii) any Law or Order; in each case applicable to Purchaser or any of its
properties or assets.
 
5.7                 Disclosure of Information.  Purchaser has received or has
had full access to all the information it considers necessary or appropriate to
make an informed investment decision with respect to the Securities.  The
Purchaser further has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Securities and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to Purchaser or to which
Purchaser had access. The foregoing, however, does not in any way limit or
modify the representations and warranties made by the Company in Article IV.
 
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ARTICLE VI
CERTAIN COVENANTS
 
6.1                 Regulatory and Other Approvals.  Each party hereto shall,
prior to the Closing, (a) take all commercially reasonable steps necessary or
desirable, and proceed diligently and in good faith use all commercially
reasonable efforts, as promptly as practicable, to obtain any and all consents,
approvals or actions of, to make all filings with and to give all notices to
Governmental Authorities or any other Person required to consummate the
transactions contemplated hereby and by each of the other Transaction Documents,
and (b) provide such other information and communications to such Governmental
Authorities or other Persons as such Governmental Authorities or other Persons
may reasonably request in connection therewith.  The Company shall provide
prompt notification to Purchaser when any such consent, approval, action, filing
or notice referred to in clause (a) above is obtained, taken, made or given, as
applicable, and will advise Purchaser of any material communications (and,
unless precluded by law, provide copies of any such communications that are in
writing) with any Governmental Authority or other Person regarding any of the
transactions contemplated by this Agreement or each of the other Transaction
Documents.
 
6.2                 Information.  Unless otherwise restricted by an agreement or
arrangement with a third party or by Law, to the extent commercially reasonable,
the Company shall, prior to the Closing, (a) provide Purchaser and its officers,
directors, employees, agents, counsel, accountants, financial advisors,
consultants and other representatives (collectively, “Representatives”) with
full access, upon reasonable prior notice and during normal business hours, to
the key employees and agents of the Company and to the Company’s assets and
accountants, and (b) furnish Purchaser and its Representatives with all such
information and data concerning the Company’s businesses as Purchaser or any of
such other Persons reasonably may request in connection with such investigation
subject to the Representatives’ being bound by appropriate confidentiality
obligations and restrictions; provided that, if the Company is not able to grant
Purchaser or its Representatives access and furnish information required by this
Section 6.2 due to restrictions imposed by third party agreements or
arrangements, it shall notify Purchaser (which such notice shall describe in
reasonable detail the basis for withholding information and general nature of
such information) and use all reasonable efforts to obtain a waiver of such
restrictions from the relevant third parties.
 
6.3                 Information Updates.  The Company shall, prior to the
Closing, notify Purchaser in writing of, and as promptly as practical will
provide Purchaser with true and complete copies of, any and all material
information or documents relating to, any event, transaction or circumstance, as
soon as practicable after it becomes known to the Company, occurring after the
date of this Agreement and prior to the Closing that causes any covenant of the
Company under this Agreement or any other Transaction Documents to be breached
or that renders untrue any representation or warranty of the Company contained
in this Agreement as if the same were made on or as of the date of such event,
transaction or circumstance.

 
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6.4                 Confidentiality.  Each of the parties hereto hereby agrees
that any information regarding (i) a party to this Agreement or such party’s
business, assets, management or operating plans (“Party Confidential
Information”), (ii) the terms and conditions of this Agreement, (iii) the
Purchaser’s acquisition of the Securities or (iv) the negotiation and execution
of this Agreement shall be held in confidence by both parties, and neither party
shall make any disclosure of any such information unless (a) the release of such
information is ordered pursuant to a subpoena or other order from a court or
Governmental Authority of competent jurisdiction, (b) the release of such
information is otherwise required by applicable law, including, without
limitation, the requirement of the Company under the Exchange Act to file a
current report on Form 8-K that discloses the transactions contemplated hereby
and includes copies of this Agreement and the other Transaction Documents, or
(c) such information has been made generally available to the public other than
by disclosure in violation of this Agreement or any applicable Law or other
restriction; provided that disclosure of such information may be made by
Purchaser to any Affiliate, or to any transferee or assignee of the Securities,
so long as such Affiliate, transferee or assignee is bound by confidentiality
obligations reasonably similar in substance to those set forth in this Section
6.4.  The confidentiality obligations of each party with respect to the other
party’s Party Confidential Information shall continue for a period of two (2)
years following the date hereof, and during such period neither party shall use
the other party’s Party Confidential Information for any purpose other than in
connection with the transactions contemplated herein or in any of the other
Transaction Documents. Each of the parties hereto hereby further agrees that
such party shall obtain no intellectual property or other rights with respect to
any information disclosed by the other party to such party in any investigation
pursuant to Section 6.2, or during the negotiation and execution of this
Agreement or the effectuation of the transactions contemplated hereby, and all
such information shall remain the property of the disclosing party.  Each party
agrees that it shall, upon learning that disclosure of such information is
sought in or by a court or Governmental Authority of competent jurisdiction or
through other means, give prompt notice to the other party and allow the other
party, at its expense, to undertake appropriate action to prevent disclosure of,
or to obtain a protective order for, the information.
 
6.5                 Reservation of Shares.  As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, the maximum number of shares of Common Stock
for the purpose of enabling the Company to issue the Conversion Shares.
 
6.6                 Compliance with Laws.  For so long as any Purchaser owns any
Securities, the Company shall comply in all material respects with the Company’s
reporting, filing and other obligations under the securities Laws.
 
6.7                Compliance with Laws.  For so long as any Purchaser owns any
Securities, the Company shall comply in all material respects with the Company’s
reporting, filing and other obligations under the securities Laws.
 
6.8                 Corporate Existence; No Conflicting Agreements. For so long
as any Purchaser owns Securities, the Company shall take all steps necessary to
preserve and continue the corporate existence of the Company.  For so long as
any Series C Purchaser owns any Securities, the Company shall not enter into any
agreement, the terms of which agreement would restrict or impair the right or
ability of the Company to perform any of its obligations under this Agreement or
any of the other agreements attached as exhibits hereto.

 
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6.8                Listing, Securities Exchange Act of 1934 and Rule 144
Requirements.  The Company shall continue its obligation to report to the
Commission under Section 12 of the 1934 Act and shall use its best efforts to
comply in all material respects with its reporting and filing obligations under
the 1934 Act for so long as any Purchaser owns any Securities. For so long as
any Purchaser owns Securities, the Company shall 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 under the Transaction Documents.  For so
long as any Purchaser owns any Securities, the Company shall take all action
necessary to continue the quotation or listing of its Common Stock on the OTC
Bulletin Board or other exchange or market on which the Common Stock is trading
or may be traded in the future.  Subject to the terms of the Transaction
Documents, the Company further covenants that it shall take such further action
as Purchaser may reasonably request, all to the extent required from time to
time to enable Purchaser to sell the Securities and without registration under
the Securities Act within the limitation of the exemptions provided by Rule 144,
including without limitation the timely filing of the SEC Reports. Upon the
request of Purchaser, the Company shall deliver to Purchaser a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
 
6.9                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 but in no event
later than 9:00 A.M. Eastern Time on the fourth Trading Day following such
Closing.  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 as soon as practicable following the Closing Date but in no
event more than four (4) Trading Days following such Closing Date, which Press
Release and Form 8-K shall be subject to prior review and comment by Purchaser.

ARTICLE VII
TERMINATION
 
7.1                 Termination of Agreement.  The parties hereto may terminate
this Agreement as provided below:
 
(a)           Purchaser and the Company may terminate this Agreement by mutual
written consent at any time prior to the Closing.
 
(b)           Purchaser may terminate this Agreement by giving written notice to
the Company at any time prior to the Closing in the event that (i) the Company
is in breach of any covenant contained in this Agreement and such breach is not
cured within 30 days after receipt by the Company of a written notice from
Purchaser of such breach; or (ii) the representations and warranties of the
Company contained in this Agreement shall have been untrue on the date when made
(or in the case of any representations or warranties that are made as of a
different date or period, as of such different date or period), but only to the
extent that such breach or inaccuracy of a representation or warranty is not
cured within 30 days after receipt of the applicable notice by the Company.

 
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(c)           The Company may terminate this Agreement by giving written notice
to Purchaser at any time prior to the Closing in the event (i) Purchaser is in
breach of any covenant contained in this Agreement and such breach is not cured
within 30 days after receipt by Purchaser of a written notice from the Company
of such breach unless such breach involves the failure to deliver the Purchase
Price, in which case, the Purchaser shall only have five days to cure such
breach; or (ii) the representations and warranties of Purchaser contained in
this Agreement shall have been untrue on the date when made (or in the case of
any representations or warranties that are made as of a different date or
period, as of such different date or period), but only to the extent that such
breach or inaccuracy of a representation or warranty is not cured within 30 days
after receipt of the applicable notice by Purchaser.
 
7.2                 Effect of Termination.  If any party terminates this
Agreement pursuant to Section 7.1, all obligations of the parties hereunder will
terminate without liability of any party to the other party; provided, that the
provisions of Sections 6.4, 9.4, 9.5, 9.6, 9.7, 9.8, and 9.10 will survive
termination and remain in full force and effect; and provided, further, that no
such termination shall release any party of liability to any other party for
damages or otherwise by reason of the breach of any of the provisions of this
Agreement.
 
ARTICLE VIII
INDEMNITY
 
8.1                 Survival.  The representations and warranties of the parties
contained in this Agreement shall survive the Closing for a period of twenty
four (24) months; provided, however, that the representations and warranties
contained in Section 4.2 (Capital Structure), 4.3 (Power, Authorization and
Validity), 4.4 (Non-contravention); and 4.14 (Taxes), shall survive the Closing
for a period equal to the applicable statute of limitations.  The covenants of
the parties shall survive the Closing until such time as they have been fully
performed.
 
8.2                 Indemnity.
 
(a)           The Company hereby agrees to indemnify, defend and hold harmless
Purchaser, its respective Affiliates, successors and assigns, and each of their
respective officers, directors, employees and agents (the “Purchaser Indemnified
Parties”), from and against, and agrees to pay or cause to be paid to the
Purchaser Indemnified Parties all amounts equal to the sum of, any and all
claims, demands, costs, expenses, losses and other liabilities of any kind that
the Purchaser Indemnified Parties may incur or suffer (including without
limitation all reasonable legal fees and expenses) which arise or result from
any breach of or failure by the Company to perform any of its representations,
warranties, covenants or agreements in this Agreement.  The rights of Purchaser
hereunder shall be in addition to, and not in lieu of, any other rights and
remedies which may be available to it by Law.

 
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(b)           Purchaser hereby agrees to indemnify, defend and hold harmless the
Company, its respective Affiliates, successors and assigns, and each of their
respective officers, directors, employees and agents (the “Company Indemnified
Parties” and, together with the Purchaser Indemnified Parties, the “Indemnified
Parties”), from and against, and agrees to pay or cause to be paid to the
Company Indemnified Parties all amounts equal to the sum of, any and all claims,
demands, costs, expenses, losses and other liabilities of any kind that the
Company Indemnified Parties may incur or suffer (including without limitation
all reasonable legal fees and expenses) which arise or result from any breach of
or failure by Purchaser to perform any of its representations, warranties,
covenants or agreements in this Agreement.  The rights of the Company hereunder
shall be in addition to, and not in lieu of, any other rights and remedies which
may be available to it by Law.  Notwithstanding anything to the contrary
provided in the foregoing, the maximum aggregate liability of Purchaser pursuant
to its indemnification obligations under this Section 8.2(b) shall not exceed
the Cash Purchase Price paid by Purchaser hereunder.
 
(c)           No Party shall be entitled to indemnification pursuant to Section
8.2, unless and until the aggregate amount of all damages to such Party with
respect to such matters for which indemnification is available exceeds $100,000,
at which time, subject to the foregoing cap, it shall be entitled to
indemnification for the total amount of such damages.
 
8.3                 Procedures.  If a third party shall notify an Indemnified
Party with respect to any matter that may give rise to a claim for
indemnification under the indemnity set forth above in Section 8.2, the
procedure set forth below shall be followed.
 
(a)           Notice.  The Indemnified Party shall give to the party providing
indemnification (the “Indemnifying Party”) written notice of any claim, suit,
judgment or matter for which indemnity may be sought under Section 8.2 promptly
but in any event within 30 days after the Indemnified Party receives notice
thereof; provided, however, that failure by the Indemnified Party to give such
notice shall not relieve the Indemnifying Party from any liability it shall
otherwise have pursuant to this Agreement except to the extent that the
Indemnifying Party is actually prejudiced by such failure.  Such notice shall
set forth in reasonable detail, if known, (i) the basis for such potential claim
and (ii) the dollar amount of such claim.  The Indemnifying Party shall have a
period of 20 days within which to respond thereto.  If the Indemnifying Party
does not respond within such 20-day period, the Indemnifying Party shall be
deemed to have accepted responsibility for such indemnity.
 
(b)           Defense of Claim.  With respect to a claim by a third party
against an Indemnified Party for which indemnification may be sought under this
Agreement, the Indemnifying Party shall have the right, at its option, to be
represented by counsel of its choice and to assume the defense or otherwise
control the handling of any claim, suit, judgment or matter for which indemnity
is sought, which is set forth in the notice sent by the Indemnified Party, by
notifying the Indemnified Party in writing to such effect within 20 days of
receipt of such notice; provided, however, that the Indemnified Party shall have
the right to employ counsel to represent it if, in the Indemnified Party's
reasonable judgment based upon the advice of counsel, it is advisable in light
of the separate interests of the Indemnified Party to be represented by separate
counsel, and in that event the fees and expenses of one such separate counsel
shall be paid by the Indemnifying Party.  If the Indemnifying Party does not
give timely notice in accordance with the preceding sentence, the Indemnifying
Party shall be deemed to have given notice that it does not wish to control the
handling of such claim, suit or judgment.  In the event the Indemnifying Party
elects (by notice in writing within such 20-day period) to assume the defense of
or otherwise control the handling of any such claim, suit, judgment or matter
for which indemnity is sought, the Indemnifying Party shall indemnify and hold
harmless the Indemnified Party from and against any and all fees (including
reasonable attorneys' fees, accountants, consultants and engineering fees) and
expenses incurred by the Indemnifying Party prior to such election.  In the
event that the Indemnifying Party does not assume the defense or otherwise
control the handling of such matter, the Indemnified Party may retain counsel,
as an indemnification expense, to defend such claim, suit, judgment or matter.

 
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(c)           Final Authority.  Each of the parties shall cooperate in the
defense of any such claim or litigation.  In connection with any claim, suit or
other proceeding with respect to which the Indemnifying Party has assumed the
defense or control, the Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement with respect to any matter which does not
include a provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all liability with respect thereto, without the written
consent of the Indemnified Party.  In connection with any claim, suit or other
proceeding with respect to which the Indemnifying Party has not assumed the
defense or control, the Indemnified Party may not compromise or settle such
claim without the consent of the Indemnifying Party, which shall not be
unreasonably withheld.
 
ARTICLE IX
MISCELLANEOUS
 
9.1                 Legend.  The Company and Purchaser acknowledge and agree
that each certificate representing the Securities may be endorsed with the
following legends:
 
(a)           The securities represented by this certificate have not been
registered under the Securities Act or under the securities laws of certain
states. These securities are subject to restrictions on transferability and
resale and may not be transferred or resold except as permitted under the
Securities Act and the applicable state securities laws, pursuant to
registration or exemption therefrom. Investors should be aware that they may be
required to bear the financial risks of this investment for an indefinite period
of time. The issuer of these securities may require an opinion of counsel in
form and substance satisfactory to the issuer to the effect that any proposed
transfer or resale is in compliance with the Act and any applicable state
securities laws.
 
(b)           Any other legends required by applicable Laws.
 
The Company may instruct its transfer agent not to register the transfer of the
Securities, unless the conditions specified in the foregoing legends are
satisfied.
 
9.2                 Removal of Legend and Transfer Restrictions.  Any legend
endorsed on a certificate pursuant to Section 9.1 and the stop transfer
instructions with respect to such Securities shall be removed and the Company
shall issue a certificate without such legend to the holder thereof (a) if such
Securities are registered under the Securities Act and a prospectus meeting the
requirements of Section 10 of the Securities Act is available, (b) if such
legend may be properly removed under the terms of Rule 144 promulgated under the
Securities Act, or (c) if such holder provides the Company with an opinion of
counsel for such holder, reasonably satisfactory to legal counsel for the
Company to the effect that a sale, transfer or assignment of such Securities may
be made without registration.

 
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9.3                 Waivers and Amendments.  All waivers and amendments
hereunder must be made in writing, and failure of any party at any time to
require another party's performance of any obligation under this Agreement shall
not affect the right subsequently to require performance of that
obligation.  Any waiver of any breach of any provision of this Agreement shall
not be construed as a waiver of any continuing or succeeding breach of such
provision or a waiver or modification of any other provision.
 
9.4                 Governing Law.  This Agreement shall be governed in all
respects by the laws of the State of New York without regard to the principles
of conflicts of law thereof.
 
9.5                 Dispute Resolution.
 
(a)           Subject to Section 9.5(b), any dispute, controversy or claim
relating to or arising under, out of or in connection with this Agreement or the
validity, enforceability, construction, performance or breach of this Agreement
(“Dispute”) shall be determined by arbitration administered by the American
Arbitration Association (“AAA”) in accordance with its International Arbitration
Rules (“Rules”) then in force on the date of commencement of the
arbitration.  The arbitration shall be conducted by a panel of three (3)
arbitrators appointed in accordance with the Rules unless the parties otherwise
agree that the arbitration may be conducted by a single arbitrator appointed in
accordance with the Rules.  The place of arbitration shall be New York, New
York, and the language of the arbitration shall be English.  The arbitrators
shall determine the Dispute and render a final award in accordance with the
internal laws of the State of New York.  The award rendered shall be final and
binding on the parties.  The parties agree that any award shall be enforceable
pursuant to the United Nations Convention on the Recognition and Enforcement of
Foreign Arbitral Awards.  The costs of arbitration, including administrative
fees and fees of arbitrators, shall be shared equally by the parties unless
otherwise specified by the arbitrators.  Each party shall bear the cost of its
own attorneys’ and experts’ fees; provided that the arbitrators may in their
discretion award to the prevailing party the costs and expenses incurred by the
prevailing party in connection with the arbitration proceeding.
 
(b)           The parties recognize that irreparable injury may result from a
breach of this Agreement and that money damages would be inadequate to fully
remedy the injury resulting from such breach.  In order to prevent such injury,
the arbitrators shall have the power to grant temporary or permanent injunctive
or other equitable relief.  Prior to the appointment of the arbitrators a party
may, notwithstanding any other provision of this Agreement, seek temporary
injunctive relief in any court of competent jurisdiction (“Temporary
Relief”).  Any party seeking Temporary Relief shall (if arbitration has not been
commenced) simultaneously commence arbitration.  Such court ordered Temporary
Relief shall not continue beyond the entry of any temporary or permanent
injunctive relief granted by the arbitrators or any final award by the
arbitrators, whichever occurs first.

 
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9.6                 Successors and Assigns.  Neither this Agreement nor any
right or obligation hereunder is assignable in whole or in part, whether by
operation of Law or otherwise, by any party without the express written consent
of the other party hereto and any such attempted assignment shall be void and
unenforceable.  Notwithstanding the foregoing, Purchaser may transfer or assign
this Agreement or any right or obligation hereunder to an Affiliate or Vicis
Capital Master Fund (“Vicis”), which shall not be deemed an Affiliate of China
Hand solely by virtue of this Section 9.6 and Vicis may assign its rights to any
of its affiliates, at any time prior to or after the Closing.  This Agreement
and the rights and obligations hereunder shall be binding upon, and shall inure
to the benefit of, the parties hereto and their respective successors or
assignees, and no other person shall acquire or have any rights under or by
virtue of this Agreement.
 
9.7                 Entire Agreement.  This Agreement, the exhibits hereto, each
of the other Transaction Documents, and the other documents delivered pursuant
hereto and thereto, constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
 
9.8                 Notices, etc.  All notices, requests, demands, and other
communications under this Agreement shall be in writing and delivered in person
or sent by facsimile or sent by certified mail, postage prepaid, or by
nationally recognized courier service and properly addressed as follows:
 
to the Company:

China New Energy Group
Block B1, 18/F, No. 85, Nanjing Road
Tianjin Emperor Place
Heping District,Tianjin, 300040
People's Republic of China
Attn: Yang Kan Chong, CEO
Tel. No.: (86 22) 2321 0508
Fax No.: ___________________________
Email: ykchong@cner.com

with a copy to, which shall not constitute notice hereunder,

Guzov Ofsink, LLC
600 Madison Avenue, 14th Floor
New York, New York  10022 USA
Attn: Darren L. Ofsink, Esq.

 
30

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Tel.: (212) 371-8008
Fax No.; (212) 688-7273
Email: dofsink@golawintl.com

to Purchaser:

China Hand Fund I, LLC
558 Lime Rock Road
Lakeville, CT  06039
Attn: Mary Fellows
Tel. No.: 860-435-7000
Fax No.: 860-435-6540
Email: mfellows@kuhnsbrothers.com

Any party hereto may from time to time change its address for the purpose of
notices to that party by a similar notice specifying a new address, but no such
change shall be deemed to have been given until it is actually received by the
party sought to be charged with its contents.  All notices and other
communications required or permitted under this Agreement which are addressed as
provided in this Section 9.8 if delivered personally, by facsimile or by
nationally recognized courier service, shall be effective upon delivery; and, if
delivered by mail, shall be effective three days following deposit in the United
States mail, postage prepaid.
 
9.9                 Severability.  In case any provision of this Agreement shall
be declared invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
 
9.10              Expenses.  The legal fees and other expenses incurred by the
parties with respect to this Agreement and the other Transaction Documents, and
the transactions contemplated hereby and thereby, shall be paid for by the
Company.  At the Closing, Purchaser may deduct from the Cash Purchase Price the
aggregate amount of such fees and expenses incurred by Purchaser in accordance
with Section 3.1(j).  In the event that this Agreement is terminated pursuant to
Sections 7.1(b), the Company will promptly pay to Purchaser, upon demand
therefor, the amount of such fees and expenses incurred by
Purchaser.  Notwithstanding the foregoing, in no event shall the fees and
expenses payable by the Company pursuant to this Section 9.10 exceed $100,000.
 
9.11              Titles and Subtitles.  The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
 
9.12              Counterparts; Facsimile Signatures.  This Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which together shall constitute one instrument.  This Agreement may be
executed and delivered by facsimile signatures.

 
31

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9.13              No Strict Construction.  The parties hereto have participated
jointly in the negotiation and drafting of this Agreement.  In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
 
 [Signatures follow on the next page]

 
32

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
 
THE COMPANY:
 
CHINA NEW ENERGY GROUP COMPANY
 
By:
/s/ Yang Kan Chong
Name: Yang Kan Chong
Title: Chairman and Chief Executive Officer
   
PURCHASER:
 
CHINA HAND FUND I, LLC
 
By:
/s/ Authorized Signatory
Name: Authorized Signatory
Title:

[Signature Page to Securities Purchase Agreement]
 
 
 

--------------------------------------------------------------------------------

 

EXHIBIT A
 
CERTAIN DEFINITIONS
 
For purposes of the Agreement to which this Exhibit A is attached, and for
purposes of the other Transaction Documents, unless otherwise specifically
defined therein, the following terms have the following meanings:
 
“AAA” has the meaning set forth in Section 9.5(a).
 
“Affiliate” means, with respect to any Person, any other Person directly or
indirectly controlling, directly or indirectly controlled by, or under direct or
indirect common control with, such Person or a member of such Person's immediate
family; or if such Person is a partnership, any general partner of such Person
or a Person controlling any such general partner.  For purposes of this
definition, "control" (including "controlled by" and "under common control
with") shall mean the power, directly or indirectly, 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.
 
 “Agreement” has the meaning set forth in the Preamble.
 
“Balance Sheet” has the meaning set forth in Section 4.5.
 
“Balance Sheet Date” has the meaning set forth in Section 4.5.
 
“Business Day” means any day other than a Saturday, Sunday or other day on which
the national or state banks located in the State of New York are authorized to
be closed.
 
“CERCLA” means the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq.
 
“Certificates” has the meaning set forth in Section 1.1.
 
“Closing” has the meaning set forth in Section 2.1.
 
“Closing Date” has the meaning set forth in Section 2.1.
 
“Code” means the Internal Revenue Code of 1986, as amended.
 
“Commission” means the Securities and Exchange Commission of the United States
of America.
 
“Common Stock” has the meaning set forth in Section 4.2(a).
 
“Company” has the meaning set forth in the Preamble.
 
 
 

--------------------------------------------------------------------------------

 
 
“Company Account” means an account of the Company designated in a written notice
delivered to Purchaser at least one Business Day prior to the date of any
required payment by Purchaser to the Company under this Agreement.
 
“Company Business” means the business of the Company and its Subsidiaries as
currently conducted and as proposed to be conducted.
 
“Company Indemnified Parties” has the meaning set forth in Section 8.2(b).
 
"Company Intellectual Property” means all Intellectual Property in existence as
of the Closing Date that is owned by or exclusively licensed to the Company or
any of its Subsidiaries and all other Intellectual Property in existence as of
the Closing Date that is Used in or, to the Knowledge of the Company, necessary
for the conduct of the Company Business, excluding commercially available
off-the-shelf software licenses and any Intellectual Property necessary in
connection with any equipment, machinery or other asset that the Company or any
of its Subsidiaries must purchase from third parties.
 
“Contracts” means all contracts, agreements, commitments and understandings
relating to the Company Business or to which the Company is a party or has an
interest, whether oral or written, including, but not limited to, purchase, sale
or other commitments, distributorship, franchise or similar agreements, patent
or trademark licensing agreements (either as licensor or licensee), lease or
sublease agreements (either as lessor or lessee), equipment or vehicle leases,
employment agreements (including, but not limited to, agreements entered into by
employees of the Company relating to the transfer and/or safeguarding of
Intellectual Property rights), consulting agreements, union or collective
bargaining agreements, guarantees, loan agreements, non-competition agreements,
severance agreements, letters of credit, joint venture, limited liability
company or partnership agreements, and supply or requirements contracts.
 
“Conversion Shares” means collectively the shares of Common Stock issued or
issuable upon conversion of the Series C Preferred Stock and Series D Preferred
Stock issued or issuable hereunder.
 
“Disclosure Schedules” means the exceptions to the Company’s representations and
warranties made in Article IV of this Agreement, set forth on the schedules
attached hereto as Exhibit ___.
 
“Dispute” has the meaning set forth in Section 9.5.
 
 “Employment Agreements” has the meaning set forth in Section 4.16(b).
 
“Environmental Law” means all applicable laws (whether imposed by federal,
state, local or foreign statutes, regulation, rules, codes, licenses, permits,
administrative orders, ordinances, judicial orders or otherwise) relating to
protection of the environment, prevention, minimization or remediation of
pollution, or control and tracking of any hazardous substance, hazardous waste
or other waste.  Environmental Law shall include without limitation CERCLA; the
Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq.; the
Clean Water Act, 33 U.S.C. § 1311, et seq.; the Clean Air Act, 42 U.S.C.
§ 7401-7642; the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.; the
Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. § 136-136y, the
Oil Pollution Act; the Emergency Planning and Community Right-to-Know Act of
1986, 42 U.S.C. § 1101, et seq. and similar or related state, local or foreign
laws including without limitation any applicable national, provincial and local
environmental laws and regulations in the People’s Republic of China.
 
 
 

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“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder.
 
“Exchange Act” has the meaning set forth in Section 4.25(a).
 
“Financial Statements” has the meaning set forth in Section 4.7.
 
“GAAP” means United States generally accepted accounting principles,
consistently applied.
 
“Governmental Authority” means any: (i) nation, state, commonwealth, province,
territory, county, municipality, district or other jurisdiction of any nature;
(ii) federal, state, local, municipal, foreign or other government; or (iii)
governmental or quasi-governmental authority of any nature (including any
governmental division, department, agency, commission, instrumentality,
official, organization, unit, body or entity and any court or other tribunal).
 
“Indemnified Parties” has the meaning set forth in Section 8.2(b).
 
“Indemnifying Party” has the meaning set forth in Section 8.3(a).
 
"Intellectual Property" means any and all of the following and all rights in,
arising out of or associated therewith:  (i) all United States, international
and foreign patents and applications therefor and all reissues, divisions,
renewals, extensions, provisionals, continuations and continuations-in-part
thereof; (ii) all inventions (whether patentable or not), invention disclosures,
and improvements, all other rights corresponding thereto throughout the world,
(iii) trade secrets, proprietary information, know how, technology, technical
data and customer lists, and all documentation relating to any of the foregoing;
(iv) all copyrights, copyright registrations and applications therefor, and all
other rights corresponding thereto throughout the world; (v) all industrial
designs and any registrations and applications therefor throughout the world;
(vi) all domain names, uniform resource locators (“URLs”) and other names and
locators associated with the Internet; (vii) all trade names, logos, common law
trademarks and service marks, trademark and service mark registrations and
applications therefor throughout the world; (viii) all databases and data
collections and all rights therein throughout the world; (ix) all moral and
economic rights of authors and inventors, however denominated, throughout the
world; (x) all software; (xi) all content, text, graphics, images, audio, video,
data, and software included on or used to operate and maintain the Company’s
websites, including all data, documentation, ASP, HTML, DHTML, SHTML, and XML
files, cgi and other scripts, all programming code (source and object),
subscriber and other data, archives, and server and traffic logs relating to the
Company’s websites; (xii) all historical or archived data relating to any of the
Company’s websites and (xiii) any similar or equivalent rights to any of the
foregoing anywhere in the world.
 
 
 

--------------------------------------------------------------------------------

 
 
“IRS” means the Internal Revenue Service.
 
 “Knowledge,” when used to refer to the Company, means the actual knowledge of
any director of the Board of Directors of the Company or any Subsidiary of the
Company and any officers of the Company or any Subsidiary of the Company, as
well as any other knowledge which such persons would have possessed had they
made reasonable inquiry of appropriate employees, agents, or books and records
of the Company with respect to the matter in question.
 
“Law” means any law, statute, code, ordinance, regulation, rule, Permit, rules
of common law, standards, directives, guidelines and the like, including any
judicial and administrative interpretations thereof, of any Governmental
Authority, including all judicial and administrative Orders.
 
“Leased Property” or “Leased Properties” has the meaning set forth in Section
4.12(b).
 
“Liens” in respect of any property or assets, shall mean any encumbrance or
title defect of whatever kind or nature, regardless of form, whether or not
registered or registrable and whether or not consensual or arising by Law,
including, but not limited to, any lien, mortgage, charge, pledge, security
interest, assignment, lease, option, easement, servitude, right-of-way,
conditional sales contract, encroachment, restrictive covenant, right of first
refusal, right of use or any other right or claim of any kind or nature
whatsoever (or any agreement to grant or furnish any of the foregoing) which
affects ownership or possession of, or title to, or any interest in, or the
right to use or occupy such property or assets.
 
“Material Adverse Change” means a change which would have a Material Adverse
Effect.
 
“Material Adverse Effect” means any change in or effect that, either
individually or in the aggregate with all other changes or effects, (i) is or is
reasonably likely to be materially adverse to the assets, business, prospects,
results of operations, or condition (financial or otherwise) of the Company,
taken as a whole, or (ii) would materially impair the ability of the Company or
Purchaser to (A) consummate the transactions contemplated by this Agreement or
any Transaction Documents or (B) perform its respective obligations hereunder or
thereunder.
 
“Material Contract” has the meaning set forth in Section 4.13(b).
 
“Order” means any order, judgment, ruling, injunction, assessment, award, decree
or writ of any Governmental Authority.
 
“Owned Real Property” or “Owned Real Properties” has the meaning set forth in
Section 4.12(a).
 
 
 

--------------------------------------------------------------------------------

 
 
“Party Confidential Information” has the meaning set forth in Section 6.4.
 
“PBGC” means the Pension Benefit Guaranty Corporation.
 
“Permit” means any license, permit, authorization, certificate of authority,
qualification or similar document or authority that has been issued or granted
by any Governmental Authority.
 
“Permitted Liens” means (i) Liens imposed by Law, such as carrier's,
warehousemen's and mechanic's liens and other similar liens, which arise in the
ordinary course of business with respect to obligations not yet due or being
diligently contested in good faith by appropriate proceedings and for which the
Company shall have set aside adequate reserves on its books as required by GAAP,
(ii) Liens for Taxes that are not yet due, or that are described in the
Disclosure Schedules and are being diligently contested in good faith by
appropriate proceedings and for which the Company shall have set aside adequate
reserves on its books as required by GAAP, (iii) applicable Laws regulating the
use or occupancy of real property or the character, dimensions or locations of
the improvements thereon, including, without limitation, building restrictions
and zoning laws, so long as the same do not materially impair the value of such
property or the operation of the Company’s business as currently conducted, and
(iv) covenants, consents, reservations, servitudes, restrictions, easements,
rights of way and other similar rights for utilities, public streets and
roadways, so long as the same do not materially impair the value of such
property or the operation of the Company’s business as currently conducted.
 
“Person” means any individual, corporation, partnership, joint venture, limited
liability company, trust, unincorporated organization or Governmental Authority.
 
“Plan” has the meaning set forth in Section 4.2(b).
 
“Preferred Stock” has the meaning set forth in Section 4.2(a).
 
“Purchase Price” has the meaning set forth in Section 1.2.
 
“Purchaser” has the meaning set forth in the Preamble.
 
“Purchaser Indemnified Parties” has the meaning set forth in Section 8.2(a).
 
“Real Property” means the Leased Properties and the Owned Real Properties.
 
“Registration Rights Agreement” has the meaning set forth in Section 1.4.
 
“Representatives” has the meaning set forth in Section 6.2.
 
“Rights Agreements” has the meaning set forth in Section 1.4.
 
“Rules” has the meaning set forth in Section 9.5(a).
 
 
 

--------------------------------------------------------------------------------

 
 
“SEC Documents” has the meaning set forth in Section 4.25(a).
 
“Securities” means collectively Series C Shares, Series D Shares and Conversion
Shares.
 
“Securities Act” means the Securities Act of 1933, as amended, and the
regulations promulgated thereto.
 
“Series A Preferred Stock” means Series A Convertible Preferred Stock, par value
$.001 per share, having the rights, preferences and designations as set forth in
the Certificate of Designations of Preferences, Rights and Limitations of Series
A Convertible Preferred Stock dated as of September 20, 2008.
 
“Series B Preferred Stock” means Series B Convertible Preferred Stock, par value
$.001 per share, having the rights, preferences and designations as set forth in
the Certificate of Designations of Preferences, Rights and Limitations of Series
B Convertible Preferred Stock dated as of April 28, 2009.
 
“Series C Certificate” has the meaning set forth in Section 1.1.
 
“Series D Certificate” has the meaning set forth in Section 1.1.
 
“Series C Shares” has the meaning set forth in Section 1.2.
 
“Series D Shares” has the meaning set forth in Section 1.2.
 
“Subsidiary” means, with respect to the Company, any other Person with respect
to which the Company possesses direct or indirect 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; provided, that, for
purposes of this Agreement and each of the other Transaction Documents, as of
the date of this Agreement, Willsky and its Subsidiary should be deemed direct
and indirect Subsidiaries of the Company.
 
“Tax” or “Taxes” means all federal, state, local, foreign or other governmental
taxes, assessments, duties, fees, levies or similar charges of any kind imposed
by a Governmental Authority, including, but not limited to, all income, profit,
gross receipts, franchise, excise, property, use, intangibles, sales, payroll,
social security, employment, value added, withholding and other taxes, and
including all interest, penalties and additional amounts imposed with respect to
such amounts, whether as a primary obligor or as a result of being a
“transferee” (within the meaning of Section 6901 of the Code or any other
applicable Law) of another Person or as a result of being a member of an
affiliated, consolidated, unitary or combined group.
 
“Tax Return” means any return, declaration, report, information return,
statement, notice or other document filed, or required to be filed, with any
Governmental Authority relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.

 
 

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“Temporary Relief” has the meaning set forth in Section 9.5(b).
 
“Trading Day” means any day during which the OTC Bulletin Board (or other
quotation venue or principal exchange on which the Common Stock is traded) shall
be open for trading.
 
“Transaction Documents” means collectively, this Agreement, the Amended and
Restated Registration Rights Agreement, the Series C Securities Escrow
Agreement, the Closing Escrow Agreement and the Series C Certificate and the
certificates, documents and instrument related to or contemplated by each of the
foregoing agreements.
 
“Use” or “Used” means to use, make, have made, develop, market, sell, offer to
sell, import, transfer, practice, license (or sublicense), transmit, broadcast,
reproduce, perform, display, modify, create derivative works based upon,
distribute (electronically or otherwise) and disclose.
 
 
 

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EXHIBIT B
 
CERTIFICATE OF DESIGNATION FOR
 
SERIES C CONVERTIBLE PREFERRED STOCK
 
(SEE EXHIBIT 4.1 TO THIS 8-K)
 
 
 

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EXHIBIT C
 
CERTIFICATE OF DESIGNATION FOR
 
SERIES D CONVERTIBLE PREFERRED STOCK
 
(SEE EXHIBIT 4.2 TO THIS 8-K)
 
 
 

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EXHIBIT D
 
REGISTRATION RIGHTS AGREEMENT
 
(SEE EXHIBIT 10.3 TO THIS 8-K)
 
 
 

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EXHIBIT E
 
BACKSTOP AGREEMENT
 
(SEE EXHIBIT 10.2 TO THIS 8-K)
 
 
 

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EXHIBIT F
 
DISCLOSURE SCHEDULES
 

CHINA NEW ENERGY GROUP COMPANY

DISCLOSURE SCHEDULES

These Disclosure Schedules (“Disclosure Schedules”) are being delivered by China
New Energy Group Company, a Delaware corporation (the “Company”), in connection
with the Series C and Series D Convertible Preferred Stock Securities Purchase
Agreement (the “Agreement”), dated as of September 14, 2010, by and among the
Company and China Hand Fund I, LLC (the “Investor”).  Unless the context
otherwise requires, all capitalized terms used in these Disclosure Schedules
shall have the respective meanings assigned to them in the Agreement. Any
information disclosed herein under the heading of a particular section or
subsection of the Agreement shall be deemed to apply to any other section or
subsection of these Disclosure Schedules to the extent such disclosure
reasonably relates.
 
The representations, warranties, covenants and agreements made by the Company
set forth in the Agreement are hereby excepted to the extent disclosed
hereafter.  The sections in these Disclosure Schedules correspond to the section
numbers in the Agreement which are modified by the disclosures.  The disclosures
in these Disclosure Schedules shall modify and relate to the representations,
warranties, covenants and agreements in the Section of the Agreement to which
they expressly refer (whether or not specific cross-references are made in the
Agreement).  Unless otherwise stated, all statements made herein are made as of
the date of the execution of the Agreement.  These Disclosure Schedules are
incorporated by reference to the Agreement and should be considered an integral
part of the Agreement.
 
No reference to or disclosure of any item or other matter in these Disclosure
Schedules shall be construed as an admission or indication that such item or
other matter is material or that such item or other matter is required to be
referred to or disclosed in these Disclosure Schedules. No disclosure in these
Disclosure Schedules relating to any possible breach or violation of any
agreement, law or regulation shall be construed as an admission or indication
that any such breach or violation exists or has actually occurred, and nothing
in these Disclosure Schedules constitutes an admission of any liability or
obligation of the Company to any third party, nor an admission against the
Company’s interests.

 

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Schedule 4.1

Organization and Good Standing

Delaware.

Our subsidiaries are set forth in the diagram below:

 
[dsspg2.jpg]

 
- 2 -

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Schedule 4.2(b)

Options, Warrants, Reserved Shares, Treasury Stock

On March 28, 2008, the Company issued common stock purchase warrants to each of
Fountainhead Capital Management Limited (“Fountainhead”) and La Pergola
Investments Limited (“La Pergola”) for the purchase of a number of shares of its
common stock equal to an aggregate of two percent (2%) of the Company’s issued
and outstanding common stock as of immediately after the closing of the
Company’s next private placement transaction in which it receives gross proceeds
of at least $8 million. Following the closing of the Series A Financing, the
aggregate number of shares issuable to Fountainhead and La Pergola is
3,560,194. The term of the warrants is 5 years and each has an exercise price
equal to 150% of the purchase price per share paid by the investors in such
private placement transaction, provided that if securities other than the shares
of common stock are issued in such private placement transaction, then the
exercise price shall be 150% of the price attributable to a share of common
stock at the valuation attributable to the Company in the transaction on
“post-money” basis.

In connection with the Series A Financing, the Company issued warrants to
purchase an aggregate of 13,001,608 shares of its common stock to China Hand’s
designees and warrants to purchase an aggregate of 6,460,805 shares of its
common stock to Kuhns Brothers, Inc. and its designees, at an initial exercise
price of $0.187 per share (subject to adjustments).  The term of these warrants
is 5 years.

On March 28, 2008, the Company entered into the Registration Rights Agreement
with Fountainhead and La Pergola pursuant to which the Company granted piggyback
registration rights to each of Fountainhead and La Pergola to include all shares
of the Company’s common stock held by each of Fountainhead and La Pergola,
including all shares of our common stock issuable to each of Fountainhead and La
Pergola upon the exercise, conversion or exchange of other securities held by
Fountainhead and La Pergola, including the warrants.  .

On August 8, 2008, in connection with the Series A Financing, the Company,
Fountainhead, La Pergola and China Hand entered into a Letter Agreement whereby
the parties agreed that the securities of the Company held by Fountainhead and
La Pergola will be included in the Registration Statement filed in connection
with Series A Securities Purchase Agreement, provided, however, that if the SEC
issues a comment pursuant to Rule 415 of the Securities Act of 1933, as amended,
and requires that the Company amend the Registration Statement to reduce the
size of the offering covered by the Registration Statement, the securities of
the Company held by China Hand will have priority over the securities held by
the Fountainhead parties with respect to removing securities from the
Registration Statement, such that so long as any securities held by the
Fountainhead parties remain in the Registration Statement, all of the securities
held by China Hand will remain in the Registration Statement.

On April 30, 2009, China New Energy Group Company (the “Company”) entered into a
Series B Convertible Preferred Stock Securities Purchase Agreement (the “SPA”)
with China Hand Fund I L.P. (“China Hand”).

Pursuant to the SPA, on May 1, 2009, the Company issued and sold to China Hand,
and China Hand purchased from the Company, 1,116,388 shares of the Company’s
Series B Convertible Preferred Stock (“Series B Preferred Stock”) and warrants
(the “Warrants”) to purchase 7,814,719 shares of its Common Stock at an initial
exercise price of $0.187 per share (subject to adjustments) for a period of five
(5) years following the date of issuance for an aggregate purchase price of
$5,400,000 (the “Private Placement”).

 
- 3 -

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Additionally, the Company agreed to make good provisions that will require the
Company to issue to China Hand up to 334,916 additional shares (the “Make Good
Shares”) of its Series B Preferred Stock if it does not achieve an audited
after-tax net income of $5.0 million for the year ending December 31, 2009 (the
“2009 Income Target”); if the Company is successful in achieving the 2009 Income
Target, China Hand will transfer 22,327 shares of its Series B Preferred Stock
to certain members of the Company’s management, which shares have been deposited
into an escrow account. The Company also agreed to issue to China Hand 27,910
shares of Series B Preferred Stock if the Company’s Common Stock is not listed
for trading on a national securities exchange on or before January 31, 2010 (the
“Listing Shares”).

In connection with the signing of the SPA, on April 30, 2009, the Company also
entered into a Closing Escrow Agreement by and among the Company, China Hand and
Escrow LLC (the “Escrow Agent”), pursuant to which China Hand agreed to deposit
all funds due to the Company under the SPA in escrow until such time as all
closing conditions of the SPA have been satisfied and the Escrow Agent shall
have received notice, executed by both the Company and China Hand, instructing
the Escrow Agent to release such funds to the Company. The Closing Escrow
Agreement terminates upon the release of all funds from escrow as described
above, or upon the 90th day following the date of the Closing Escrow Agreement
if no such instructions to disburse funds is received by the Escrow Agent, on
which date all such funds will be returned to China Hand.

On May 1, 2009, the company and China Hand consummated the Private Placement and
all of the Series B Preferred Stock and the Warrants were sold to China Hand and
payment was received for such securities by the Company. Kuhns Brothers
Securities Corporation (“Kuhns Brothers”) acted as placement agent in connection
with the Private Placement. As compensation for its services, Kuhns Brothers
received a cash fee equal to $540,000, representing 10% of the gross proceeds
received from the Private Placement, as well as warrants to purchase 3,907,358
shares of the Company’s Common Stock (the “Agent Warrants”), representing 10%
the aggregate number of shares of common stock issuable to China Hand in the
Private Placement upon conversion of the Preferred Stock.

In connection with the closing of the Private Placement, the Company and China
Hand amended and restated that certain registration rights agreement between the
Company and China Hand dated August 20, 2008. Pursuant to the Amended and
Restated Registration Rights Agreement (the “Amended and Restated Registration
Rights Agreement”), among other things, the Company agreed to register all of
the shares of common stock underlying the securities issued to China Hand in the
Private Placement, as well as the private placement that was consummated on
August 20, 2008 (collectively, the “Shares”) within a pre-defined period. Under
the terms of the Amended and Restated Registration Rights Agreement, the Company
is obligated to file a registration statement (the “Registration Statement”)
under the Securities Act of 1933 covering the resale of the Shares by May 30,
2009. The Company is subject to registration delay payments in amounts
prescribed by the Amended and Restated Registration Rights Agreement if it is
unable to file the Registration Statement, cause it to become effective or
maintain its effectiveness as required by the Amended and Restated Registration
Rights Agreement. Registration delay payments will accrue at a rate of $54,000
per month or one percent (1%) of the gross proceeds of the Private Placement;
provided that the maximum aggregate amount of the registration delay payments
pursuant to the Amended and Restated Registration Rights Agreement is $810,000,
or fifteen percent (15%) of the gross proceeds of the Private Placement.

 
- 4 -

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Schedule 4.2(c)

Security Holders

Following is a copy of the Company’s current Series A&B Preferred Stock Ledger
and Warrant Register.  Attached is a list of registered stockholders as
of  September 14, 2010 from the Company’s transfer agent.

 
- 5 -

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CHINA NEW ENERGY GROUP COMPANY

Series A Preferred Stock Ledger

Name of Holder
 
Number of
Shares
 
From Whom
Transferred
 
Balance
 
New World Power, LLC
    321,213  
Original Issue
    321,213  
Mary E. Fellows
    107,071  
Original Issue
    107,071  
Dr. You-Su Lin
    107,071  
Original Issue
    107,071  
Fang Chen
    13,903  
Original Issue
    13,903  
Vicis Capital Master Fund
    1,546,184  
Original Issue
    1,546,184  
Tie Li
    3,476  
Reissued from James Li
    3,476                                       2,098,918  

Series B Preferred Stock Ledger

Name of Holder
 
Number of
Shares
 
Date
Issued
 
From Whom
Transferred
 
Balance
 
Vicis Capital Master Fund
    1,116,388  
08/20/08
 
Original Issue
    1,116,388                                               1,116,388  

 
 
- 6 -

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CHINA NEW ENERGY GROUP COMPANY
Warrant Register

Warrant
No.
 
Name of Warrant
Holder
 
No. of 
Shares
Underlying
Warrant
 
Date
Issued
 
Expiration
Date
 
Exercise
Price
 
Event
(exercise;
transfer;
cancellation)
 
Event
Date
 
New
  Warrant  
No.
 
No. of
Underlying
Shares
Transferred/
Cancelled
 
Number of
Shares issued
upon
Exercise
 
Consideration
Paid 
(cash exercise
or cashless
exercise)
 
No. of
outstanding
shares
underlying
Warrant
   
Fountainhead Capital Management Limited
 
3,026,165
 
03/28/08
 
03/27/13
   
*
                         
3,026,165
   
La Pergola Investments Limited
 
534,029
 
03/28/08
 
03/27/13
   
*
 
                       
534,029
W-A-08-1
 
Kuhns Brothers, Inc.
 
2,351,846
 
08/20/08
 
08/19/13
 
$
0.187
                         
2,351,846
W-A-08-2
 
Gregory Dryer
 
1,115,698
 
08/20/08
 
08/19/13
 
$
0.187
                         
1,115,698
W-A-08-3
 
John D. Kuhns
 
1,763,885
 
08/20/08
 
08/19/13
 
$
0.187
                         
1,763,885
W-A-08-4
 
Mary E. Fellows
 
587,962
 
08/20/08
 
08/19/13
 
$
0.187
                         
587,962
W-A-08-5
 
Samuel Shoen
 
534,511
 
08/20/08
 
08/19/13
 
$
0.187
                         
534,511
W-A-08-6
 
Paul Kuhns
 
106,902
 
08/20/08
 
08/19/13
 
$
0.187
                         
106,902
W-A-08-7
 
New World Power, LLC
 
1,989,737
 
08/20/08
 
08/19/13
 
$
0.187
                         
1,989,737
W-A-08-8
 
Mary E. Fellows
 
663,246
 
08/20/08
 
08/19/13
 
$
0.187
                         
663,246
W-A-08-9
 
You-Su Lin
 
663,246
 
08/20/08
 
08/19/13
 
$
0.187
                         
663,246
W-A-08-10
 
Fang Chen
 
86,122
 
08/20/08
 
08/19/13
 
$
0.187
                         
86,122
W-A-08-11
 
James Li
 
21,531
 
08/20/08
 
08/19/13
 
$
0.187
 
Reissued in new name
 
10/08/08
 
W-A-08-13
 
21,531
 
N/A
 
N/A
 
0
W-A-08-12
 
Vicis Capital Master Fund
 
9,577,727
 
08/20/08
 
08/19/13
 
$
0.187
                         
9,577,727
W-A-08-13
 
Tie Li
 
21,531
 
08/20/08
 
08/19/13
 
$
0.187
                         
21,531
 
  
 
  
 
  
 
  
 
  
  
 
  
 
  
 
  
 
  
 
  
0
  
$
0.00
  
23,022,607

 
* On March 28, 2008, the Company issued common stock purchase warrants to each
of Fountainhead Capital Management Limited and La Pergola Investments Limited
for the purchase of a number of shares of its common stock equal to an aggregate
of two percent (2%) of the Company’s issued and outstanding common stock as of
immediately after the closing of the Company's next private placement
transaction in which it receives gross proceeds of at least $8 million.  Each
has an exercise price equal to 150% of the purchase price per share paid by the
investors in such private placement transaction, provided that if securities
other than the shares of common stock are issued in such private placement
transaction, then the exercise price shall be 150% of the price attributable to
a share of common stock at the valuation attributable to the Company in the
transaction on “post-money” basis.

 
- 7 -

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    Warrant    
No.
 
Name of Warrant
Holder
 
No. of 
Shares
Underlying
Warrant
 
Date
Issued
 
Expiration
Date
 
Exercise
Price
 
Event
(exercise;
transfer;
cancellation)
 
Event
Date
 
New
Warrant
No.
 
No. of
Underlying
Shares
Transferred/
Cancelled
 
Number of
Shares issued
upon
Exercise
 
Consideration
Paid 
(cash exercise
or cashless
exercise)
 
No. of
outstanding
shares
underlying
Warrant
W-A-09-001
 
Vicis Capital Master Fund
 
7,814,719
 
05/2009
 
05/01/14
 
$
0.187
                         
7,814,719
W-A-09-002
 
Kuhns Brothers, Inc.
 
1,587,239
 
05/20/09
 
05/01/14
 
$
0.187
                         
1,587,239
W-A-09-003
 
John D. Kuhns
 
793,619
 
05/20/09
 
05/01/14
 
$
0.187
                         
793,619
W-A-09-004
 
Mary E. Fellows
 
571,406
 
05/20/09
 
05/01/14
 
$
0.187
 
                       
571,406
W-A-09-005
 
Samuel Shoen
 
360,736
 
05/20/09
 
05/01/14
 
$
0.187
                         
360,736
W-A-09-006
 
Paul Kuhns
 
72,147
 
05/20/09
 
05/01/14
 
$
0.187
                         
72,147
W-A-09-007
 
Tie Li
 
300,000
 
05/01/09
 
05/01/14
 
$
0.187
                         
300,000
W-A-09-008
 
Judith Chang
 
222,211
 
05/20/09
 
05/01/14
 
$
0.187
                         
222,211
 
  
 
  
 
  
 
  
 
  
 
 
  
 
  
 
  
 
  
 
  
0
  
$
0.00
  
11,722,077

 
- 8 -

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Schedule 4.4

Noncontravention

None.

 
- 9 -

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Schedule 4.6(a)

Subsidiaries

Subsidiary
 
Jurisdiction of
Organization
 
Capital Stock
 
Foreign
Business
Licenses
Willsky Development, Ltd.
 
BVI
     
N/A
             
Tianjin SingOcean Public Utility Development Co., Ltd.
 
PRC
     
N/A
             
Qinhuangdao Chensheng Gas Co. Ltd.
 
PRC
     
N/A
             
Tianjin SingOcean Public Utility Development Co., Ltd. – Acheng Division
 
PRC
 
Division of SingOcean.  Not separate legal entity.
 
N/A
             
Tianjin SingOcean Public Utility Development Co., Ltd. – Daishiquiao Division
  
PRC
  
Division of SingOcean.  Not separate legal entity.
  
N/A

Below is the Company’s organizational chart.

[dsspg10.jpg]

 
- 10 -

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Schedule 4.6(c)

Subsidiaries; Cooperation Agreements

None.

 
- 11 -

--------------------------------------------------------------------------------

 

Schedule 4.8

Absence of Certain Changes and Events

None.

 
- 12 -

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Schedule 4.11(a)

Owned Real Property

There is no private land ownership in China. Individuals and companies are
permitted to acquire land use rights for specific purposes.

The Company has rights to 10,000 square meters of land in Dashiqiao city.  The
land use right was granted by the Dashiqiao government on August 29th, 2005, and
such grant expires on March, 12, 2045.

The Company has rights to 20,731 square meters of land in Acheng city.  The land
use right was granted by the Acheng government on August 20, 2003, and such
grant expires on August 20, 2053.

The Company has ownership rights to 283.77 square meters of building which is
located at Jianshe Road West, Nandai He, Funing county. The number for the
Building Ownership Certificate is Q8684. The Company also has rights to 4911.16
square meters of land in Jianshe Road West, Nandai He, Funing county. The land
use right was granted by the Funing government, and such grant will expire on
February 25, 2057. These two properties have been mortgaged to Qinhuangdao
Branch of Transportation Bank Co. Ltd (the “Qinhuangdao”). The value of these
two properties will provide ceiling guarantee for all the major contracts
entered between the Company and Qinhuangdao from June 10th, 2010 through June
10th 2013.The maximum credit that is under this ceiling guarantee is RMB
1,500,000.

Wuyuan County Zhongran Gas Co., Ltd. has right to a parcel of land in Wuyuan
County for which a Land Use License Certificate is just in process. This land is
not mortgaged to any party.

The Company also owns natural gas pipelines in three cities, with a total length
of approximately 112km, including 40km in Acheng, 60km in Dashiqiao and 12km in
Nandaihe.  The Company also has 10,000 square meters of land in Acheng, 20,731
square meters of land in Dashiqiao and 4,611 square meters which may potentially
contain natural gas reserves.

 
- 13 -

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Schedule 4.11(b)

Leased Real Property

The Company’s office in Tianjin, which has 1076.95 square meters, is located at
level 18, building B1, Junlong Square, Nanjing Road South, Heping District,
Tianjin, China. The office is owned by Tianjin Singhai Gangtong Physical
Distribution Co., Ltd. Pursuant to the terms of the lease, the Company may use
the office space during the period from May 10, 2010 through May 9, 2012 at a
monthly rental charge of RMB 77,540 and a monthly maintenance charge of RMB
25,846.8.

 
- 14 -

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Schedule 4.12(a)

Intellectual Property

None.

 
- 15 -

--------------------------------------------------------------------------------

 

Schedule 4.12(c)

Intellectual Property Infringement

None.

 
- 16 -

--------------------------------------------------------------------------------

 

 Schedule 4.13(a)

Contracts

1.
Equity Transfer Agreement , dated March 17, 2010, between Tianjin Xinhai Public
Utilities Development Co., Ltd., and Hunan Zhongyouzhiyuan Gas Co., Ltd..
   
2.
Equity Transfer Agreement , dated March 8, 2010, between the Company and Mr.
Tang Zhixiang
   
3.
Agreement, dated February 1, 2010, among Willsky Development, Ltd.,  Flying
Dragon Investment Management Limited, Flying Dragon Resource Development Limited
and China New Energy Group Company.
   
4.
Supplementary Agreement, dated February 2, 2010, among Willsky Development, Ltd.
and Zhanhua Jiutai Gas Co..
   
5.
Supplementary Agreement, dated January 31, 2010, among Willsky Development,
Ltd., Flying Dragon Resource Development Limited and Flying Dragon Investment
Management Limited.
   
6.
Equity Interest Purchase Agreement, dated January 5, 2010, among  Willsky
Development, Ltd. , Flying Dragon Resource Development Limited and Flying Dragon
Investment Management Limited to acquire all of the outstanding equity interest
of Fuzhou Flying Dragon Zhongran Gas Inc..
   
7.
Asset Purchase Agreement, dated December 22, 2009, between Tianjin SingOcean
Public Utilities Development Co., Ltd.and Harbin Hengsheng Real Estate
Development Co., Ltd.
   
8.
Equity Interest Purchase Agreement, dated December 16, 2009, between Willsky
Development, Ltd. and Flying Dragon Investment Management Limited to acquire all
of the outstanding equity interest of Wuyuan County Zhongran Gas Inc.
   
9.
Equity Interest Purchase Agreement, dated December 16, 2009, between Willsky
Development, Ltd. and Flying Dragon Resource Development Limited to acquire all
of the outstanding equity interest of Fuzhou City Lean Zhongran Gas Inc.
   
10.
Equity Interest Purchase Agreement, dated December 12, 2009, between Qinhuangdao
Chensheng Gas Co., Ltd. and Zhanhua Jiutai Gas Co..  Qinhuangdao subsequently
assigned its rights under the Jiutai agreement to Willsky Development, Ltd.
   
11.
Employment Agreement, dated September 25, 2009, between the Company and Mr.Yu.
   
12.
Employment Agreement, dated May 11,2009 by and between the Company and Yangkan
Chong
   
13.
Waiver, dated April 30, 2009, among the Company and China Hand Fund I, LLC.
   
14.
Series B Convertible Preferred Stock Securities Escrow Agreement, dated April
30, 2009, among the Company, China Hand Fund I, LLC and Escrow, LLC.
   
15.
Amended and Restated Registration Rights Agreement, dated April 30, 2009, among
the Company and China Hand Fund I, LLC.
   
16.
Closing Escrow Agreement, dated April 30, 2009, among the Company, China Hand
Fund I,LLC and Escrow LLC.
   
17.
Series B Convertible Preferred Stock Securities Purchase Agreement (the “SPA”),
dated April 30, 2009, between the Company and China Hand Fund I, LLC
   
18.
Letter Agreement between the Company and China Hand Fund I, L.P., dated August
20, 2008.
   
19.
Shareholders Agreement, among the Company, China Hand Fund I, L.P., Quick Rise
Investments Limited, Waterpower Investments Limited and Eternal International
Holding Group Limited, dated August 20, 2008.

 
 
- 17 -

--------------------------------------------------------------------------------

 

20.
Securities Escrow Agreement, among the Company, China Hand Fund I, L.P. and
Escrow LLC, dated August 20, 2008.
   
21.
Registration Rights Agreement, between the Company and China Hand Fund I, L.P.,
dated August 20, 2008.
   
22.
Closing Escrow Agreement, among the Company, China Hand Fund I, L.P. and Escrow
LLC, dated August 8, 2008.
   
23.
Series A Convertible Preferred Stock Securities Purchase Agreement, between the
Company and China Hand Fund I, L.P., dated August 8, 2008.
   
24.
Share Exchange Agreement, dated March 28, 2008, among the Company, Willsky
Development, Ltd. and its shareholder.
   
25.
Redemption Agreement, dated March 28, 2008, among the Company, Fountainhead
Capital Management Limited and La Pergola Investments Limited.
   
26.
Convertible Promissory Note, dated March 28, 2008, by the Company in favor of
Fountainhead Capital Management Limited.
   
27.
Convertible Promissory Note, dated March 28, 2008, by the Company in favor of La
Pergola Investments Limited.
   
28.
Anti-Dilution Agreement, dated March 28, 2008, among the Company and
Fountainhead Capital Management Limited.
   
29.
Anti-Dilution Agreement, dated March 28, 2008, among the Company and La Pergola
Investments Limited.
   
30.
Common Stock Purchase Warrant issued to Fountainhead Capital Management Limited,
dated March 28, 2008.
   
31.
Common Stock Purchase Warrant issued to La Pergola Investments Limited, dated
March 28, 2008.
   
32.
Piggyback Registration Rights Agreement, dated March 28, 2008, by and among the
Company, Fountainhead Capital Management Limited and La Pergola Investments
Limited.
   
33.
Contract of the Gas Pipeline Installment Project in Tiancheng Community in
Acheng City, dated August 8, 2007, between Tianjin Singocean Public Utility
Development Co., Ltd. and China North Industry Installment Company.
   
34.
Contract of the Gas Pipeline Installment Project in Saiside Community in
Dashiqiao City, dated July 5, 2007, between Tianjin Singocean Public Utility
Development Co., Ltd. and No.1 Branch of Tianjin Quanzhou Construction Project
Co., Ltd.
   
35.
Contract of the Gas Pipeline Installment Project in Communities in Hunchun City,
dated March 2, 2007, between Hunchun Singocean Gas Project Co., Ltd. and Tianjin
Lianyi Gas Related Project Co., Ltd.
   
36.
Investment Agreement of Gas Pipe Project Construction in A Cheng, dated June 10,
2005,  between Construction Bureau of A Cheng and Tianjin Singocean Public
Utilities Development Co. Ltd.
   
37.
Methane Supply Agreement, dated March 4, 2004, between Fuxin Hongdi New Energy
Co. Ltd. and Tianjin Singocean Gas Engineering Co. Ltd.
   
38.
Agreement, dated February 9, 2004, between Municipal Government of Hunchun City
and Tianjin Singocean Gas Co. Ltd.

 
 
- 18 -

--------------------------------------------------------------------------------

 

39.
Da Shi Qiao Gas Pipeline Construction Project Investment Agreement between Da
Shi Qiao Urban and Rural construction Bureau and TianJin Singocean Gas Co Ltd.
   
40.
Gas Pipeline Project Agreement between Hunchun Real Estate Bureau and Hunchun
SingOcean.
   
41.
Gas Pipeline Project Agreement between Dashiqiao Gas Management Office and
Tianjin SingOcean.
   
42.
Gas supply pipeline construction contract between Dalian LuBo Real Estate
Development Co., Ltd. and Tianjin Sing Ocean Public Utility Development Co.,
Ltd.
   
43.
Compressed Coal Bed Methane Supply Agreement between Fuxin Dali Gas Co., Ltd.
and Tianjin Singocean Public Utility Development Co., Ltd.
   
44.
Compressed Coal Bed Methane Supply Agreement between Fuxin Dali Gas Co. Ltd and
Tianjin Singocean Public Utilities Development Co. Ltd.

 
- 19 -

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Schedule 4.14(d)

Consents

None.

 
- 20 -

--------------------------------------------------------------------------------

 

Schedule 4.15(b)

Employees

None.

 
- 21 -

--------------------------------------------------------------------------------

 

Schedule 4.17

Insurance

The Company has the following insurance.

Type of Insurance
保险种类（保险名称）
 
Insurance Company
保险公司名称
 
Premium
保费
 
Amount of
Insurance
保险金额
机动车商业保险
Motor Vehicle Commercial Insurance
 
安邦财产保险股份有限公司
Anbang Property Insurance Co., Ltd.
 
6222.26元
RMB 6222.26 yuan
                 
机动车商业保险
Motor Vehicle Commercial Insurance
 
安邦财产保险股份有限公司
Anbang Property Insurance Co., Ltd.
 
11111.50
RMB11111.50 yuan
                 
机动车商业保险
Motor Vehicle
Commercial Insurance
 
中国太平洋财产保险股份有限公司
China Pacific Property Insurance Co., Ltd.
 
6664.33元
RMB 6664.33 yuan
                 
机动车交通事故责任强制保险单
Compulsory Insurance for Traffic Accident of Motor –Driven Vehicle
 
太平财产保险有限公司
China Pacific Property Insurance Co., Ltd.
 
1000元
RMB 1000 yuan
                 
机动车交通事故责任强制保险单
Compulsory Insurance for Traffic Accident of Motor –Driven Vehicle
 
太平洋保险
China Pacific Property Insurance Co., Ltd.
 
950元
RMB 950 yuan
                 
机动车交通事故责任强制保险单
Compulsory Insurance for Traffic Accident of Motor –Driven Vehicle
  
安邦财产保险股份有限公司
Anbang Property Insurance Co., Ltd.
  
1017元
RMB 1017 yuan
  
 

 
- 22 -

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Schedule 4.20

No Brokers

None.

 
- 23 -

--------------------------------------------------------------------------------

 

Schedule 4.22

Related Party Transactions

None.

 
- 24 -

--------------------------------------------------------------------------------

 

Schedule 4.25

Use of Proceeds

The proceeds will be used for the Company’s acquisition of at least 70% of the
equity interests in Beijing Century Dadi Gas Engineering Co., Ltd. and/or its
Affiliates.
 
 
- 25 -

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