NOTE PURCHASE AGREEMENT

This Note Purchase Agreement (this “Agreement”) is made and entered into as of
September 14, 2010 by and between China New Energy Group Company, a Delaware
corporation (the “Company”), and with offices at_______________ (the
“Investor”).

WHEREAS, the Company desires to issue and sell to the Investor, and the Investor
desires to purchase from the Company the promissory note described below
pursuant to an exemption from registration under Section 4(2) and/or Regulation
D under the Securities Act of 1933, as amended (the “Securities Act”), on the
terms and conditions set forth in this Agreement;

WHEREAS, concurrently with this Agreement, the Company is entering into a Note
Purchase Agreement (the “SLS Agreement”), dated as of the date hereof, by and
between the Company and _________ (“___”) substantially in the form of this
Agreement pursuant to which the Company desires to issue and sell to __, and __
desires to purchase from the Company the promissory note described therein
pursuant to an exemption from registration under Section 4(2) and/or Regulation
D under the Securities Act on the terms and conditions set forth in the SLS
Agreement; and

WHEREAS, Investor wishes to loan to the Company the sum of ______________ (U.S.
$_______) on the terms and conditions set forth in the convertible promissory
note annexed hereto as Exhibit A (the “Note”).

NOW, THEREFORE, the parties hereby agree as follows:

1.     LOAN AND NOTE. The Investor has agreed to loan to the Company the sum
of ____________ (U.S. $_______) on the terms and conditions set forth in the
Note (the “Loan”).

2.    CLOSING AND PAYMENT.

2.1    The Closing. At the Closing, the Company will issue the Note to the
Investor in the form of Exhibit A attached hereto and subject to the terms and
conditions hereof, and in reliance upon the written representations and
warranties of the Company the Investor will make the Loan.  The closing shall be
held on September __, 2010, or such other date as the parties may agree upon
(the “Closing” and the “Closing Date”) at the offices of Guzov Ofsink, LLC, 600
Madison Avenue, New York, New York 10022, U.S.A., at 10:00 a.m., or by such
means upon which the parties may agree.

2.2    Closing Deliveries. At the Closing, the Loan shall be paid by wire
transfer of immediately available funds to the account designated by the Company
in writing prior to the Closing and the Company will deliver to the Investor a
Note in its name and in such denominations as the Investor may specify prior to
the Closing.

 
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3.     REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor as follows:

3.1    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 3.1 of the Disclosure
Schedules and (ii) except where the failure to be so qualified or licensed would
not reasonably be expected to result in 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
Investor to (A) consummate the transactions contemplated by this Agreement or
(B) perform its respective obligations hereunder or thereunder (the “Material
Adverse Effect”).  The Company has provided to Investor complete and accurate
copies of the Certificate of Incorporation, as amended, and By-laws, as amended,
of the Company.

3.2    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, 2,098,918 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,
22.48 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 3.2(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, the SLS Agreement, Series
A Financing Transaction Document, Series B Financing Transaction Document or
Series C and Series D 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 3.2(b) of the Disclosure Schedules or as
permitted by the SLS Agreement, Series A Financing Transaction Document, Series
B Financing Transaction Document or Series C and Series D 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 3.1(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 the SLS Agreement, any Series A Financing
Transaction Document, Series B Financing Transaction Document or Series C and
Series D 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.
 
3.3       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 to carry out the transactions contemplated hereby, and to issue,
sell and deliver the Note.
 
(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 Note, have been duly and validly approved
and authorized by all necessary corporate action on the part of the Company and
its shareholders, if necessary.

 
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(b)          This Agreement has been duly executed and delivered by the Company
and, assuming due execution and delivery by the other party hereto, constitutes
or will constitute valid and binding obligations of the Company, enforceable
against the Company 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.
 
3.4      Non-contravention.
 
(a)          The execution and delivery by the Company of this Agreement, the
consummation by the Company of the transactions contemplated hereby, the
performance by the Company of its obligations hereunder, and the sale, issuance
and delivery of the Note, 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 3.4 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.
 
(b)          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, the consummation by the Company of the
transactions contemplated hereby, or the performance by the Company of its
obligations hereunder, or the sale, issuance and delivery of the Note, except
for such consents, approvals, orders, authorizations, registrations,
declarations, filings and notices set forth in Section 3.4(b) of the Disclosure
Schedules.
 
3.5      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.

 
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(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.
 
3.6      Subsidiaries.
 
(a)          Section 3.6(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
Investor 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 3.6(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 3.6 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.
 
3.7      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).

 
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(b)          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.
 
3.8      Absence of Certain Changes and Events.  Since the Balance Sheet Date,
except as contemplated herein, in the SLS Agreement, in any Series A Financing
Transaction Document, Series B Financing Transaction Document or Series C and
Series D Financing Transaction Document, or as set forth on Section 3.8 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;

(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;

 
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(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;

(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;

 
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(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; or

(w)        agreed to take any action described in this Section 3.8 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.

3.9      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.

3.10 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
the execution and delivery hereof.  No proceeding is pending or, to the
Knowledge of the Company, threatened, seeking the revocation or limitation of
any Permit.  
 
3.11 Real Property.
 
(a)         Owned Real Property.  Section 3.11(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.

 
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(b)         Leased Real Property.   Section 3.11(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 Investor 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.
 
3.12 Intellectual Property.
 
(a)         All Necessary Rights; Absence of Actions and Judgments. Section
3.12(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 3.12(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.

 
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(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 3.12(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.
 
3.13 Contracts.
 
(a)        Except as disclosed in Section 3.13(a) of the Disclosure Schedules,
or as permitted under the SLS Agreement, the Series A Financing Transaction
Documents, Series B Financing Transaction Document or Series C and Series D
Financing Transaction Document, 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;

 
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(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, antidilution 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;
 
(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.

 
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(b)        The Company has delivered to Investor accurate and complete copies of
all written contracts identified in Section 3.13(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
3.13(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 3.13 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 Note, or any of the other transactions as contemplated hereunder, or which
would be altered as a result of such transactions.
 
3.14 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.

 
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(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.

3.15 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
Investor 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 3.15 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.

(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.

 
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(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.

3.16 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 Note 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 Investors, or any person or
entity that owns a beneficial interest in any of the Investors, 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.

3.17 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 3.17 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
3.17 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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3.18 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.

3.19 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.

3.20 No Brokers.  Except as disclosed in Section 3.20 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.

3.21 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.

3.22 Related Party Transactions. Except as set forth in Section 3.22 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.

(a)         Except for the agreements listed in Section 3.22(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 3.22(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.

 
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(c)         Except as set forth in Section 3.22(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).

3.23   Disclosure. This Agreement (including exhibits hereto and the financial
statements delivered to Investor), 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).
 
3.24 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 Investor’s
representations in Article V hereof, the offer, sale and issuance of the Note 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.
 
3.25 Use of Proceeds.  Section 3.25 of the Disclosure Schedule sets forth the
use of the proceeds from the sale of the Note.

4.    REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTOR. Investor
hereby represents and warrants to, and agrees with, the Company that:
 
4.1       Investment for Own Account.  The Note is being or will be acquired for
Investor'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.

 
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4.2       No Registration.  Investor understands that (a) the Note has 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
Investor's representations set forth herein.  Investor understands that the
resale of the Note 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.

4.3       Accredited Investor.  Investor 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 Note pursuant
to the terms of this Agreement and the other Transaction Documents, including a
complete loss of Investor's investment in the Note.  Investor understands that
the purchase of the Note involves substantial risk. Investor: (i) has experience
as an investor in securities of companies in the exploration stage and
acknowledges that Investor is able to fend for itself, can bear the economic
risk of Investor's investment in the Securities and has such knowledge and
experience in financial or business matters that Investor is capable of
evaluating the merits and risks of this investment in the Note 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 Investor to be aware of the character, business acumen and
financial circumstances of such persons.

4.4       Power and Authority.  Investor has the full right, power and authority
to enter into and perform its obligations under this Agreement, and this
Agreement constitutes valid and binding obligations of Investor, 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.

4.5       No Approvals.  No consent, approval or authorization of, or
designation, declaration or filing with, any Governmental Authority on the part
of Investor is required in connection with the valid execution and delivery of
this Agreement, the consummation by Investor of the transactions contemplated
hereby, the performance by Investor of its obligations hereunder, or the
purchase of the Note.

4.6       Non-contravention.  The execution and delivery by Investor of this
Agreement, the consummation by Investor of the transactions contemplated hereby,
the performance by Investor of its obligations hereunder, and the purchase of
the Note, 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
Investor, or give rise to any increased, additional, accelerated or guaranteed
rights or entitlements under, any provision of (i) Investor’s organizational
documents, as amended, and as in effect on the date hereof, (ii) any agreement
to which Investor is a party or otherwise bound or otherwise under which
Investor has rights or benefits, or (iii) any Law or Order; in each case
applicable to Investor or any of its properties or assets.

 
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4.7       Disclosure of Information.  Investor 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 Note.  The Investor further has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Note 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 Investor or to which Investor had access. The
foregoing, however, does not in any way limit or modify the representations and
warranties made by the Company in Section 3.

5.    CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

5.1       Transfer Restrictions.  The Investor acknowledges that (1) the Note
has not been and is not being registered under the provisions of the Securities
Act or any state securities laws, and that the Note may not be
transferred, unless (A) subsequently registered thereunder or (B) the Investor
shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Note to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Note made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule and further,
if said Rule is not applicable, any resale of such Note under circumstances in
which the seller, or the Person through whom the sale is made, may be deemed to
be an underwriter, as that term is used in the Securities Act, may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (3) neither the Company nor any other
Person is under any obligation to register the Note under the Securities Act or
to comply with the terms and conditions of any exemption thereunder.

5.2       Restrictive Legend.  The Investor acknowledges and agrees that, until
such time as the Note has been registered under the Securities Act and sold in
accordance with an effective registration statement or in accordance with Rule
144, the certificates and other instruments representing the Note shall bear a
restrictive legend in substantially the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR
THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER THE ACT OR UNLESS SOLD PURSUANT TO, AND IN ACCORDANCE WITH, RULE 144 OR
RULE 144A UNDER THE ACT OR OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904
OF REGULATION S UNDER THE ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND
REGULATIONS.

 
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6.    CONDITIONS TO INVESTOR’S OBLIGATIONS AT CLOSING. The obligations of the
Investor to purchase the Note and to make the Loan under this Agreement are
subject to the fulfillment or waiver, on or before the Closing, of each of the
following conditions:

6.1       Each of the representations and warranties of the Company and each
subsidiary contained in Section 3 shall be true and correct in all material
respects as of the date when made and as of the Closing as though made on and as
of such date.

6.2       The Company and each subsidiary shall have performed and complied in
all material respects with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained (or will obtain within (10) business
days following the Closing) all approvals, consents and qualifications necessary
to complete the purchase and sale of the Note described herein.

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

6.4       Since the date of execution of this Agreement, no event or series of
events shall have occurred that reasonably could have or result in a Material
Adverse Effect.

6.5       The execution and delivery of this Agreement and the Note by the
Company.

7.    CONDITIONS TO THE COMPANY’S OBLIGATIONS AT CLOSING. The obligations of the
Company to the Investor under this Agreement are subject to the fulfillment or
waiver on or before the Closing of each of the following conditions by the
Investor:

7.1       The representations and warranties of the Investor contained in
Section 4 shall be true and complete in all material respects on the date of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.

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

7.3       Delivery by the Investor to the Company of an amount in readily
available funds equal to the Loan in accordance with this Agreement.

 
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8.    TERMINATION.
 
8.1      Termination of Agreement.  The parties hereto may terminate this
Agreement as provided below:
 
(a)         Investor and the Company may terminate this Agreement by mutual
written consent at any time prior to the Closing.
 
(b)         Investor 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
Investor 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.
 
(c)         The Company may terminate this Agreement by giving written notice to
Investor at any time prior to the Closing in the event (i) Investor is in breach
of any covenant contained in this Agreement and such breach is not cured within
30 days after receipt by Investor 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 Investor shall only have five days to cure such breach; or
(ii) the representations and warranties of Investor 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 Investor.
 
8.2      Effect of Termination.  If any party terminates this Agreement pursuant
to Section 8, all obligations of the parties hereunder will terminate without
liability of any party to the other party; provided, that the provisions of
Section 9 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.

 
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9.      POST-CLOSING COVENANTS.  Each party acknowledges that the other could be
irreparably damaged if confidential information concerning the business and
affairs of the other were disclosed to or utilized on behalf of any
person.  Each party covenants and agrees with the other that, except as
otherwise provided in this Agreement, such party will not, at any time, directly
or indirectly, without the prior written consent of the other, divulge, or
permit any of its partners, employees, agents or affiliates to divulge to any
person any non–public information concerning the business or financial or other
affairs, or any of the methods of doing business used by the other, nor release
any information provided pursuant to or concerning this Agreement or the
transaction contemplated by this Agreement if such release is intended for, or
may result in, its public dissemination. The foregoing requirements of
confidentiality shall not apply to information:  (i) that is now or in the
future becomes freely available to the public through no fault of or action by
the using or disclosing party; (ii) that is in the possession of, or was used
by, the disclosing party prior to the time such information was obtained from
the Company or that is independently acquired by the using or disclosing party
without the aid, application or use of such other information; (iii) that is
obtained or used by the disclosing party in good faith without knowledge of any
breach of a secrecy arrangement from a third party; (iv) that is required to be
disclosed by applicable law or order of government agency or self-regulatory
body; or (v) that is disclosed in connection with any bona-fide offer to
purchase any shares in the Company; provided that the proposed transferor
obtains an undertaking from the proposed transferee to keep such information
confidential in accordance with the provision of this Section 9.1  prior to such
disclosure. The Investor and the Company agree to consult with each other (and
to take into consideration any comments reasonably raised by any such party)
prior to the dissemination of any press release or public communication
concerning this Agreement or the transaction contemplated by this
Agreement.  Any such press release or public communication shall be subject to
the approval of both the Company and Investor. This Section 9 will survive
termination of this Agreement.

10.   GENERAL PROVISIONS.

10.1     Survival of Warranties; Investigation. The representations, warranties
and covenants of the Company and Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.  It shall be no defense to an action for breach of this Agreement that
Investor or its agents have (or have not) made investigations into the affairs
of the Company or that the Company could not have known of the misrepresentation
or breach of warranty.  Damages for breach of a representation or warranty or
other provision of this Agreement shall not be diminished by alleged tax savings
resulting to the complaining party as a result of the loss complained of.

10.2 Successors and Assigns. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties.

 
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10.3 Governing Law; Jurisdiction. Any dispute, disagreement, conflict of
interpretation or claim arising out of or relating to this Agreement, or its
enforcement, shall be governed by the laws of the State of New York.  The
Company and Investor hereby irrevocably and unconditionally submit, for
themselves and their property, to the nonexclusive jurisdiction of the Supreme
Court of the State of New York sitting in New York County and of the United
States District Court of the Southern District of New York, and any appellate
court from any thereof, in any action or proceeding arising out of or relating
to this Agreement, or for recognition or enforcement of any judgment, and each
of the parties hereto hereby irrevocably and unconditionally agrees that all
claims in respect of any such action or proceeding may be heard and determined
in such New York State or, to the extent permitted by law, in such Federal
court.  Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Each party hereby irrevocably and unconditionally waives, to the fullest extent
it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement in any court referred to above.  Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.  Each party to this Agreement irrevocably consents
to service of process in the manner provided for notices below.  Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.   EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

10.4     Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.  A telefaxed copy of this
Agreement shall be deemed an original.

10.5     Headings. The headings and captions used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.  All references in this Agreement to sections, paragraphs, exhibits
and schedules shall, unless otherwise provided, refer to sections and paragraphs
hereof and exhibits and schedules attached hereto, all of which exhibits and
schedules are incorporated herein by this reference.

10.6     Notices. All notices and other communications provided for herein shall
be in writing and shall be delivered by hand or overnight courier service,
mailed by certified or registered mail or sent by facsimile, to the addresses
set forth below:

If  to the Company:

China New Energy Group Company
Block B1, 18/F, No. 85, Nanjing Road
Tianjin Emperor Place
Heping District, Tianjin 300040
People's Republic of China
Facsimile: ______________

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

 
22

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

 

Guzov Ofsink, LLC
600 Madison Avenue, 14th Floor
New York, NY 10022

Attention: Darren L. Ofsink, Esq.
Facsimile No: 212-688-7273

If to Investor:

____________
____________
____________
____________
____________

Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telecopier or personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as aforesaid.  Any party hereto may change its address or facsimile
number for notices and other communications hereunder by notice to the other
parties hereto.

10.7     Costs, Expenses. Each party hereto shall bear their own costs in
connection with the preparation, execution and delivery of this Agreement.

10.8     Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Investor.   No delay or omission to
exercise any right, power, or remedy accruing to the Investor, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring.  All remedies,
either under this Agreement, by law, or otherwise afforded to the Investor,
shall be cumulative and not alternative.

10.9     Severability.   If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision(s) shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision(s) were so excluded and shall be enforceable in accordance with its
terms.

10.10 Entire Agreement.  This Agreement, together with all exhibits and
schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings duties or
obligations between the parties with respect to the subject matter hereof.

 
23

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

 

10.11 Further Assurances. From and after the date of this Agreement, upon the
request of the Investor or the Company, the Company and the Investor shall
execute and deliver such instruments, documents or other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.

[Signature Pages Follow]
 

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

 
In Witness Whereof, the parties hereto have executed this Agreement as of the
date first written above.

 
THE COMPANY:
     
CHINA NEW ENERGY COMPANY
     
By:
   
Name: Yang Kan Chong
 
Title: Chief Executive Officer
     
THE INVESTOR:
           
By:
   
Name:
 
Title:

 
24

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Exhibit A

Form of Note
 
(SEE EXHIBIT 10.5 TO THIS 8-K)
 
25

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

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 Note Purchase Agreement (the “Agreement”), dated as of September 14,
2010, by and among the Company and Vicis Capital Master Fund (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.

 

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

 

Schedule 3.1

Organization and Good Standing

Delaware.

Our subsidiaries are set forth in the diagram below:

 
[dsnpg2.jpg]

 
- 2 -

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Schedule 3.2(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 -

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

 

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 -

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

 

Schedule 3.2(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 -

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

 

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 -

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

 

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 -

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

 

    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 -

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

 

Schedule 3.4

Noncontravention

None.

 
- 9 -

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

 

Schedule 3.6(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.

[dsnpg10.jpg]

 
- 10 -

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

 

Schedule 3.6(c)

Subsidiaries; Cooperation Agreements

None.

 
- 11 -

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

 

Schedule 3.8

Absence of Certain Changes and Events

None.

 
- 12 -

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

 

Schedule 3.11(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 -

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

 

Schedule 3.11(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 -

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

 

Schedule 3.12(a)

Intellectual Property

None.

 
- 15 -

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

 

Schedule 3.12(c)

Intellectual Property Infringement

None.

 
- 16 -

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

 

 Schedule 3.13(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.

 
 
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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.

 
 
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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.

 
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Schedule 3.14(d)

Consents

None.

 
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Schedule 3.15(b)

Employees

None.

 
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Schedule 3.17

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
  
 

 
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Schedule 3.20

No Brokers

None.

 
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Schedule 3.22

Related Party Transactions

None.

 
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Schedule 3.25

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.

 
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