Exhibit 10.1
SUBSCRIPTION AGREEMENT

American DG Energy Inc.
45 First Avenue
Waltham, Massachusetts 02451

Gentlemen:

The undersigned (the “Investor”) hereby confirms its agreement with American DG
Energy Inc., a Delaware corporation (the “Company”), as follows:
 
1.           This Subscription Agreement, including the Terms and Conditions for
Purchase of Units attached hereto as Annex I (collectively, this “Agreement”) is
made as of the date set forth below between the Company and the Investor.
 
2.           The Company has authorized the sale and issuance to certain
investors of up to an aggregate of 500,000 units (the “Units”), with each Unit
consisting of (i) one share (a “Share,” collectively, the “Shares”) of its
Common Stock, par value $0.001 per share (the “Common Stock”) and (ii) one
warrant (a “Warrant,” collectively, the “Warrants”) to purchase one share of
Common Stock (and the fractional amount being the “Warrant Ratio”) in
substantially the form attached hereto as Exhibit B, subject to adjustment by
the Company’s Board of Directors or a committee thereof, for a purchase price of
$2.50 per Unit (the “Purchase Price”).  Units will not be issued or
certificated.  The Shares and Warrants are immediately separable and will be
issued separately.  The shares of Common Stock issuable upon exercise of the
Warrants are referred to herein as the “Warrant Shares” and, together with the
Units, the Shares and the Warrants, are referred to herein as the “Offered
Securities”).
 
3.           The offering and sale of the Units (the “Offering”) are being made
pursuant to (a) an effective Registration Statement on Form S-3 (File No.
333-167392) (the “Registration Statement”) filed by the Company with the
Securities and Exchange Commission (the “Commission”), including the Prospectus
dated October 6, 2010 filed pursuant to Rule 424(b)(3) under the Securities Act
of 1933, as amended (the “Act”) (the “Base Prospectus”), (b) if applicable,
certain “free writing prospectuses” (as that term is defined in Rule 405 under
the Act), that have been or will be filed with the Commission and delivered to
the Investor on or prior to the date hereof  (the “Issuer Free Writing
Prospectus”), containing certain supplemental information regarding the Units,
the terms of the Offering and the Company, and (c) a Prospectus Supplement (the
“Prospectus Supplement” and, together with the Base Prospectus, the
“Prospectus”) containing certain supplemental information regarding the Units
and terms of the Offering that has been or will be filed with the Commission and
delivered to the Investor (or made available to the Investor by the filing by
the Company of an electronic version thereof with the Commission).
 
4.           The Company and the Investor agree that the Investor will purchase
from the Company and the Company will issue and sell to the Investor the Units
set forth below for the aggregate purchase price set forth below.  The Units
shall be purchased pursuant to the Terms and Conditions for Purchase of Units
attached hereto as Annex I and incorporated herein by this reference as if fully
set forth herein.  The Investor acknowledges that the Offering is not being
underwritten by the placement agent (the “Placement Agent”) named in the
Prospectus Supplement and that there is no minimum offering amount.

 
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5.           The manner of settlement of the Shares included in the Units
purchased by the Investor shall be determined by such Investor as follows (check
one):
 
 [____] A.
Delivery versus payment (“DVP”) through The Depository Trust & Clearing
Corporation (“DTC”) (i.e., on the Closing Date (as defined in Section 3.1 of
Annex I), the Company shall deliver Shares registered in the Investor’s name and
address as set forth below and released by the Transfer Agent to the Investor
through DTC at the Closing directly to the account at Canaccord Genuity Inc.
(“Canaccord”) identified by the Investor; upon receipt of such
Shares,  Canaccord  shall promptly electronically deliver such Shares to the
Investor, and simultaneously therewith payment shall be made by Canaccord by
wire transfer to the Company).  NO LATER THAN ONE (1) BUSINESS DAY AFTER THE
EXECUTION OF THIS AGREEMENT BY THE INVESTOR AND THE COMPANY, THE INVESTOR SHALL:

 
 
(I)
NOTIFY CANACCORD OF THE ACCOUNT OR ACCOUNTS AT  CANACCORD TO BE CREDITED WITH
THE SHARES BEING PURCHASED BY SUCH INVESTOR, AND

 
 
(II)
CONFIRM THAT THE ACCOUNT OR ACCOUNTS AT CANACCORD TO BE CREDITED WITH THE UNITS
BEING PURCHASED BY THE INVESTOR HAVE A MINIMUM BALANCE EQUAL TO THE AGGREGATE
PURCHASE PRICE FOR THE UNITS BEING PURCHASED BY THE INVESTOR.

 
— OR —
 
[____] B.
Delivery by wire transfer to the Company.  NO LATER THAN ONE (1) BUSINESS DAY
AFTER THE EXECUTION OF THIS AGREEMENT BY THE INVESTOR AND THE COMPANY, THE
INVESTOR SHALL REMIT BY WIRE TRANSFER THE AMOUNT OF FUNDS EQUAL TO THE AGGREGATE
PURCHASE PRICE FOR THE UNITS BEING PURCHASED BY THE INVESTOR TO THE ACCOUNT
DESIGNATED BY THE COMPANY IN ACCORDANCE WITH THE WIRE INSTRUCTIONS PROVIDED TO
THE INVESTOR.

 
IT IS THE INVESTOR’S RESPONSIBILITY TO (A) MAKE THE NECESSARY WIRE TRANSFER OR
CONFIRM THE PROPER ACCOUNT BALANCE IN A TIMELY MANNER AND (B) ARRANGE FOR
SETTLEMENT BY WAY OF DVP OR WIRE TRANSFER TO THE COMPANY IN A TIMELY MANNER.  IF
THE INVESTOR DOES NOT DELIVER THE AGGREGATE PURCHASE PRICE FOR THE UNITS OR DOES
NOT MAKE PROPER ARRANGEMENTS FOR SETTLEMENT IN A TIMELY MANNER, THE UNITS MAY
NOT BE DELIVERED AT CLOSING TO THE INVESTOR OR THE INVESTOR MAY BE EXCLUDED FROM
THE CLOSING ALTOGETHER.

 
6.           The executed Warrant shall be delivered in accordance with the
terms thereof.
 
 
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7.           The Investor represents that, except as set forth below, (a) it has
had no position, office or other material relationship within the past three
years with the Company or persons known to it to be affiliates of the Company,
(b) it is not a FINRA member or an Associated Person (as such term is defined
under the NASD Membership and Registration Rules Section 1011) as of the
Closing, and (c) neither the Investor nor any group of Investors (as identified
in a public filing made with the Commission) of which the Investor is a part in
connection with the Offering of the Units, acquired, or obtained the right to
acquire, 20% or more of the Common Stock (or securities convertible into or
exercisable for Common Stock) or the voting power of the Company on a
post-transaction basis.  Exceptions:
 

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(If no exceptions, write “none.” If left blank, response will be deemed to be
“none.”)
 
8.           The Investor represents that it has received (or otherwise had made
available to it by the filing by the Company of an electronic version thereof
with the Commission) the Base Prospectus, the documents incorporated by
reference therein and any free writing prospectus (collectively, the “Disclosure
Package”), prior to or in connection with the receipt of this Agreement.  The
Investor acknowledges that, prior to the delivery of this Agreement to the
Company, the Investor will receive certain additional information regarding the
Offering, including pricing information (the “Offering Information”). Such
information may be provided to the Investor by any means permitted under the
Act, including the Prospectus Supplement, a free writing prospectus and oral
communications.
 
9.           No offer by the Investor to buy Units will be accepted and no part
of the Purchase Price will be delivered to the Company until the Investor has
received the Offering Information and the Company has accepted such offer by
countersigning a copy of this Agreement, and any such offer may be withdrawn or
revoked, without obligation or commitment of any kind, at any time prior to the
Company (or Placement Agent on behalf of the Company) sending (orally, in
writing or by electronic mail) notice of its acceptance of such offer.  An
indication of interest will involve no obligation or commitment of any kind
until the Investor has been delivered the Offering Information and this
Agreement is accepted and countersigned by or on behalf of the Company.

 
[Remainder of Page Left Blank Intentionally.  Signature Page Follows.]

 
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Number of Units:
  

Purchase Price Per Unit: $
  

Aggregate Purchase Unit: $
 

 
Please confirm that the foregoing correctly sets forth the agreement between us
by signing in the space provided below for that purpose.

 
Dated as of:  December __, 2010
   
INVESTOR

By:
 

Print Name:
  

Title:
  

Address:
          

 
Agreed and Accepted
this ___ day of December, 2010:
   
AMERICAN DG ENERGY INC.
   
By:
 
Title:

 
 
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ANNEX I
 
TERMS AND CONDITIONS FOR PURCHASE OF UNITS
 
1.           Authorization and Sale of the Units.  Subject to the terms and
conditions of this Agreement, the Company has authorized the sale of the Units.
 
2.           Agreement to Sell and Purchase the Units; Placement Agent.
 
2.1           At the Closing (as defined in Section 3.1), the Company will sell
to the Investor, and the Investor will purchase from the Company, upon the terms
and conditions set forth herein, the number of Units set forth on the last page
of the Agreement to which these Terms and Conditions for Purchase of Units are
attached as Annex I (the “Signature Page”) for the aggregate purchase price
therefor set forth on the Signature Page.
 
2.2           The Company proposes to enter into substantially this same form of
Subscription Agreement with certain other investors (the “Other Investors”) and
expects to complete sales of Units to them.  The Investor and the Other
Investors are hereinafter sometimes collectively referred to as the “Investors,”
and this Agreement and the Subscription Agreements executed by the Other
Investors are hereinafter sometimes collectively referred to as the
“Agreements.”

2.3           Investor acknowledges that the Company has agreed to pay Canaccord
Genuity Inc. (the “Placement Agent”) a fee (the “Placement Fee”) in respect of
the sale of Units to the Investor.

2.4           The Company has entered into a Placement Agency Agreement, dated
December 9, 2010 (the “Placement Agreement”), with the Placement Agent that
contains certain representations, warranties, covenants and agreements of the
Company that may be relied upon by the Investor, which shall be a third party
beneficiary thereof.  Except with respect to the material terms and conditions
of the transactions contemplated by this Agreement, the Placement Agreement and
any other documents or agreements contemplated hereby or thereby, the Company
confirms that neither it nor any other person acting on its behalf has provided
the Investor or any Other Investor or its respective agents or counsel with any
information that it believes constitutes or might constitute material,
non-public information which is not otherwise disclosed in or incorporated by
reference into the Prospectus Supplement.

3.           Closings and Delivery of the Units and Funds.
 
3.1           Closing.  The completion of the purchase and sale of the Units
(the “Closing”) shall occur at a place and time (the “Closing Date”) to be
specified by the Company and the Placement Agent, and of which the Investors
will be notified in advance by the Placement Agent, in accordance with Rule
15c6-1 promulgated under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).  At the Closing, (a) the Company shall cause the Transfer Agent
to deliver to the Investor the number of Shares included in the Units as set
forth on the Signature Page registered in the name of the Investor or, if so
indicated on the Investor Questionnaire attached hereto as Exhibit A, in the
name of a nominee designated by the Investor, (b) the Company shall cause to be
delivered to the Investor a Warrant to purchase a number of whole Warrant Shares
determined by multiplying the number of Shares included in the Units as set
forth on the signature page by the Warrant Ration and rounding down to the
nearest whole  number and (c) the aggregate purchase price for the Units being
purchased by the Investor will be delivered by or on behalf of the Investor to
the Company.

 
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3.2          Conditions to the Obligations of the Parties.

(a)  Conditions to the Company’s Obligations.  The Company’s obligation to issue
and sell the Units to the Investor shall be subject to: (i) the receipt by the
Company of the purchase price for the Units being purchased hereunder as set
forth on the Signature Page and (ii) the accuracy of the representations and
warranties made by the Investor and the fulfillment of those undertakings of the
Investor to be fulfilled prior to the Closing Date.

(b)           Conditions to the Investor’s Obligations.  The Investor’s
obligation to purchase the Units will be subject to the accuracy of the
representations and warranties made by the Company and the fulfillment of those
undertakings of the Company to be fulfilled prior to the Closing Date, including
without limitation, those contained in the Placement Agreement, and to the
condition that the Placement Agent shall not have: (i) terminated the Placement
Agreement pursuant to the terms thereof or (ii) determined that the conditions
to the closing in the Placement Agreement have not been satisfied.  The
Investor’s obligations are expressly not conditioned on the purchase by any or
all of the Other Investors of the Units that they have agreed to purchase from
the Company.  The Investor understands and agrees that, in the event that the
Placement Agent in its sole discretion determines that the conditions to closing
in the Placement Agreement have not been satisfied or if the Placement Agreement
may be terminated for any other reason permitted by such Agreement, then the
Placement Agent may, but shall not be obligated to, terminate such Agreement,
which shall have the effect of terminating this Subscription Agreement pursuant
to Section 14 below.

3.3          Delivery of Funds.

(a)           Delivery Versus Payment through DTC.  If the Investor elects to
settle the Shares included in the Units purchased by such Investor by delivery
versus payment through DTC, no later than one (1) business day after the
execution of this Agreement by the Investor and the Company, the Investor shall
confirm that the account at Canaccord Genuity Inc. (“Canaccord”) to be credited
with the Units being purchased by the Investor have a minimum balance equal to
the aggregate purchase price for the Units being purchased by the Investor.

(b)           Wire Transfer Delivery.  If the Investor elects to settle the
Shares included in the Units purchased by such Investor through wire transfer to
the Company, no later than one (1) business day after the execution of this
Agreement by the Investor and the Company, the Investor shall confirm the
remittance by wire transfer of the amount of funds equal to the aggregate
purchase price for the Units being purchased by the Investor to the account
designated by the Company in accordance with the wire instructions provided to
the Investor.

 
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3.4          Delivery of Shares included in the Units.

(a)           Delivery Versus Payment through DTC.  If the Investor elects to
settle the Shares included in the Units purchased by such Investor by delivery
versus payment through DTC, no later than one (1) business day after the
execution of this Agreement by the Investor and the Company, the Investor shall
notify Canaccord of the account at Canaccord to be credited with the Shares
included in the Units being purchased by such Investor.  On the Closing Date,
the Company shall deliver the Shares to the Investor through DTC directly to the
account at Canaccord identified by Investor and simultaneously therewith payment
shall be made by Canaccord by wire transfer to the Company.

(b)           Wire Transfer Delivery.  If the Investor elects to settle the
Shares included in the Units purchased by such Investor through wire transfer
delivery, no later than one (1) business day after the execution of this
Agreement by the Investor and the Company, the Investor shall notify the Company
of the account to be credited with the Shares included in the Units being
purchased by such Investor.  On the Closing Date, the Company shall deliver the
Shares to the Investor directly to the account identified by the Investor upon
confirmation by the Company of the remittance to it of the funds equal to the
aggregate purchase price for the Units being purchased.

4.           Representations, Warranties and Covenants of the Investor.
 
The Investor acknowledges, represents and warrants to, and agrees with, the
Company and the Placement Agent that:

4.1           The Investor (a) is knowledgeable, sophisticated and experienced
in making, and is qualified to make decisions with respect to, investments in
securities presenting an investment decision like that involved in the purchase
of the Units, including investments in securities issued by the Company and
investments in comparable companies, (b) has answered all questions on the
Signature Page and the Investor Questionnaire and the answers thereto are true
and correct as of the date hereof and will be true and correct as of the Closing
Date and (c) in connection with its decision to purchase the number of Units set
forth on the Signature Page, has received and is relying only upon the
Disclosure Package and the documents incorporated by reference therein and the
Offering Information.

4.2           (a) No action has been or will be taken in any jurisdiction
outside the United States by the Company or the Placement Agent that would
permit an offering of the Units, or possession or distribution of offering
materials in connection with the issue of the Units in any jurisdiction outside
the United States where action for that purpose is required, (b) if the Investor
is outside the United States, it will comply with all applicable laws and
regulations in each foreign jurisdiction in which it purchases, offers, sells or
delivers Offered Securities or has in its possession or distributes any offering
material, in all cases at its own expense and (c) the Placement Agent is not
authorized to make or has not made any representation, disclosure or used any
information in connection with the issue, placement, purchase and sale of the
Units, except as set forth in the Disclosure Package and the documents
incorporated by reference therein and the Offering Information.

 
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4.3           (a) The Investor has full right, power, authority and capacity to
enter into this Agreement and to consummate the transactions contemplated hereby
and has taken all necessary action to authorize the execution, delivery and
performance of this Agreement, and (b) this Agreement constitutes a valid and
binding obligation of the Investor enforceable against the Investor in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors’ and contracting parties’ rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as to the enforceability of any rights to indemnification or
contribution that may be violative of the public policy underlying any law, rule
or regulation (including any federal or state securities law, rule or
regulation).
 
4.4           The Investor understands that nothing in this Agreement, the
Prospectus or any other materials presented to the Investor in connection with
the purchase and sale of the Units constitutes legal, tax or investment
advice.  The Investor has consulted such legal, tax and investment advisors and
made such investigation as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of Units.
 
4.5           Since the first date on which the Placement Agent contacted the
Investor about the Offering, the Investor has not disclosed any information
regarding the Offering to any third parties (other than its legal, accounting
and other advisors) and has not engaged in any transactions involving the
securities of the Company (including, without limitation, any Short Sales (as
defined herein) involving the Company’s securities).  The Investor covenants
that it will not engage in any transactions in the securities of the Company
(including Short Sales) prior to the time that the transactions contemplated by
this Agreement are publicly disclosed.  The Investor agrees that it will not use
any of the Shares or Warrants acquired pursuant to this Agreement to cover any
short position in the Common Stock if doing so would be in violation of
applicable securities laws.  For purposes hereof, “Short Sales” include, without
limitation, all “short sales” as defined in Rule 200 promulgated under
Regulation SHO under the Exchange Act, whether or not against the box, and all
types of direct and indirect stock pledges, forward sales contracts, options,
puts, calls, short sales, swaps, “put equivalent positions” (as defined in Rule
16a-1(h) under the Exchange Act) and similar arrangements (including on a total
return basis), and sales and other transactions through non-US broker dealers or
foreign regulated brokers.
 
5.           Survival of Representations, Warranties and Agreements; Third Party
Beneficiary.  Notwithstanding any investigation made by any party to this
Agreement or by the Placement Agent, all covenants, agreements, representations
and warranties made by the Company and the Investor herein will survive the
execution of this Agreement, the delivery to the Investor of the Shares and
Warrants included in the Units being purchased and the payment therefor.  The
Placement Agent shall be a third party beneficiary with respect to the
representations, warranties and agreements of the Investor in Section 4 hereof.

 
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6.           Notices.  All notices, requests, consents and other communications
hereunder will be in writing, will be mailed (a) if within the domestic United
States by first-class registered or certified airmail, or nationally recognized
overnight express courier, postage prepaid, or by facsimile or (b) if delivered
from outside the United States, by International Federal Express or facsimile,
and (c) will be deemed given (i) if delivered by first-class registered or
certified mail domestic, three business days after so mailed, (ii) if delivered
by nationally recognized overnight carrier, one business day after so mailed,
(iii) if delivered by International Federal Express, two business days after so
mailed and (iv) if delivered by facsimile, upon electric confirmation of receipt
and will be delivered and addressed as follows:
 
 
(a)
if to the Company, to:

 
American DG Energy Inc.
45 First Avenue
Waltham, Masschusetts 02451
Attention:  Barry J. Sanders, President and COO
Facsimile: (781) 522-6050

 
with copies to:
 
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Edwin L. Miller, Jr., Esq.
Facsimile: (617) 338-2880
 
(b)      if to the Investor, at its address on the Signature Page hereto, or at
such other address or addresses as may have been furnished to the Company in
writing.
 
7.           Changes.  This Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the Investor.
 
8.           Headings.  The headings of the various sections of this Agreement
have been inserted for convenience of reference only and will not be deemed to
be part of this Agreement.
 
9.           Severability.  In case any provision contained in this Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein will
not in any way be affected or impaired thereby.
 
10.           Governing Law.  This Agreement will be governed by, and construed
in accordance with, the internal laws of the State of New York, without giving
effect to the principles of conflicts of law that would require the application
of the laws of any other jurisdiction.
 
11.           Counterparts.  This Agreement may be executed in two or more
counterparts, each of which will constitute an original, but all of which, when
taken together, will constitute but one instrument, and will become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.  The Company and the Investor acknowledge and
agree that the Company shall deliver its counterpart to the Investor along with
the Prospectus Supplement (or the filing by the Company of an electronic version
thereof with the Commission).

 
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12.           Confirmation of Sale.  The Investor acknowledges and agrees that
such Investor’s receipt of the Company’s signed counterpart to this Agreement,
together with the Prospectus Supplement (or the filing by the Company of an
electronic version thereof with the Commission), shall constitute written
confirmation of the Company’s sale of Units to such Investor.
 
13.           Press Release.  The Company and the Investor agree that the
Company shall issue a press release announcing the Offering and disclosing all
material information regarding the  Offering prior to the opening of the
financial markets in New York City on the business day immediately after the
date hereof; provided that the Company shall not issue any press release or
other announcement naming the Investor without the Investor’s prior approval.
 
14.           Termination.  In the event that the Placement Agreement is
terminated by the Placement Agent pursuant to the terms thereof, this Agreement
shall terminate without any further action on the part of the parties hereto.

 
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Exhibit A
 
AMERICAN DG ENERGY INC.
 
INVESTOR QUESTIONNAIRE
 
Pursuant to Section 3 of Annex I to the Agreement, please provide us with the
following information:

1.
The exact name that your Shares and Warrants are to be registered in. You
    may use a nominee name if appropriate:        
2.
The relationship between the Investor and the registered holder listed in
    response to item 1 above:        
3.
The mailing address of the registered holder listed
    in response to item 1 above:        
4.
The Social Security Number or Tax Identification Number of the registered
    holder listed in the response to item 1 above:        
5.
Name of DTC Participant (broker-dealer at which the account or accounts to
    be credited with the Shares are maintained):        
6.
DTC Participant Number:
       
7.
Name of Account at DTC Participant being credited with the Shares:
       
8.
Account Number at DTC Participant being credited with the Shares:
 

 
 
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Exhibit B
 
FORM OF WARRANT

AMERICAN DG ENERGY INC.
 
WARRANT TO PURCHASE COMMON STOCK
 
To Purchase [_______] Shares of Common Stock
 
Date of Issuance: December 14, 2010
 
VOID AFTER DECEMBER 14, 2015
 
THIS CERTIFIES THAT, for value received, [______________], or permitted
registered assigns (the “Holder”), is entitled to subscribe for and purchase at
the Exercise Price (defined below) from American DG Energy Inc., a Delaware
corporation (the “Company”), up to [____________] shares of the common stock of
the Company, par value $0.001 per share (the “Common Stock”).  This warrant is
one of a series of warrants issued by the Company as of the date hereof
(individually a “Warrant”; collectively, the “Warrants”) pursuant to those
certain subscription agreements between the Company and the investors identified
therein, dated as of December 9, 2010 (collectively, the “Subscription
Agreement”).
 
1.           DEFINITIONS.  Capitalized terms used herein but not otherwise
defined herein shall have their respective meanings as set forth in the
Subscription Agreement.  As used herein, the following terms shall have the
following respective meanings:
 
(A)           “Eligible Market” means any of the New York Stock Exchange, the
NYSE Amex, The NASDAQ Global Market, The NASDAQ Global Select Market or The
NASDAQ Capital Market.
 
(B)           “Exercise Period” shall mean the period commencing six (6) months
after the date hereof and ending 5:00 P.M. New York City time on December 14,
2010, unless sooner terminated as provided below.
 
(C)           “Exercise Price” shall mean $3.25 per share, subject to adjustment
pursuant to Section 4 below.
 
(D)           “Exercise Shares” shall mean the shares of Common Stock issuable
upon exercise of this Warrant.
 
(E)           “Trading Day” shall mean (a) any day on which the Common Stock is
listed or quoted and traded on its primary Trading Market, (b) if the Common
Stock is not then listed or quoted and traded on any Eligible Market, then a day
on which trading occurs on the OTC Bulletin Board (or any successor thereto), or
(c) if trading does not occur on the OTC Bulletin Board (or any successor
thereto), any Business Day.

 
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(F)           “Trading Market” shall mean the NYSE Amex or any other Eligible
Market, or any national securities exchange, market or trading or quotation
facility on which the Common Stock is then listed or quoted.
 
2.           EXERCISE OF WARRANT.  The rights represented by this Warrant may be
exercised in whole or in part at any time during the Exercise Period, by
delivery of the following to the Company at its address set forth on the
signature page hereto (or at such other address as it may designate by notice in
writing to the Holder):
 
(A)           An executed Notice of Exercise in the form attached hereto;
 
(B)           Payment of the Exercise Price either (i) in cash or by check, or
(ii) pursuant to Section 2.1 below; and
 
(C)           This Warrant.
 
Execution and delivery of the Notice of Exercise shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Exercise Shares, if any.
 
Certificates for Exercise Shares purchased hereunder shall be transmitted by the
Company’s transfer agent (the “Transfer Agent”) to the Holder by crediting the
account of the Holder’s prime broker with the Depository Trust & Clearing
Corporation through its Deposit Withdrawal Agent Commission system if the
Company is a participant in such system, and otherwise by physical delivery to
the address specified by the Holder in the Notice of Exercise within three (3)
business days from the delivery to the Company of the Notice of Exercise,
surrender of this Warrant and payment of the aggregate Exercise Price as set
forth above.  This Warrant shall be deemed to have been exercised on the date
the latest of the Warrant, Notice of Exercise and Exercise Price are received by
the Company.
 
The person in whose name any certificate or certificates for Exercise Shares are
to be issued upon exercise of this Warrant shall be deemed to have become the
holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate or certificates, except that, if the date of
such surrender and payment is a date when the stock transfer books of the
Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
 
Subject to Section 2.4, to the extent permitted by law, the Company’s
obligations to issue and deliver Exercise Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by
the Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any person or entity or
any action to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder or any
other person or entity of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other person or entity, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of
Exercise Shares.  Nothing herein shall limit a Holder’s right to pursue any
other remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver Exercise Shares upon exercise
of this Warrant as required pursuant to the terms hereof.

 
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2.1           NET EXERCISE.  If during the Exercise Period, the Holder is not
permitted to sell Exercise Shares pursuant to the Registration Statement (as
defined in the Subscription Agreement) or pursuant to another registration
statement that has been declared effective under Securities Act of 1933, as
amended, and the fair market value of one share of the Common Stock is greater
than the Exercise Price (at the date of calculation as set forth below), in lieu
of exercising this Warrant by payment of cash or by check, the Holder may elect
to receive shares equal to the value (as determined below) of this Warrant (or
the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Notice of
Exercise in which event the Company shall issue to the Holder a number of shares
of Common Stock computed using the following formula:
 
X = Y (A-B)
——
A

Where X = the number of Exercise Shares to be issued to the Holder
 
Y =
the number of shares of Common Stock purchasable under this Warrant or, if only
a portion of this Warrant is being exercised, the portion of this Warrant being
canceled (at the date of such calculation)

 
 
A =
the fair market value of one share of the Company’s Common Stock (at the date of
such calculation)

 
 
B =
Exercise Price (as adjusted to the date of such calculation)

 
For purposes of the above calculation, the “fair market value” of one share of
Common Stock shall mean (i) the average of the closing sales prices for the
shares of Common Stock on the NYSE Amex or other Eligible Market where the
Common Stock is listed or traded as reported by Bloomberg Financial Markets (or
a comparable reporting service of national reputation selected by the Company
and reasonably acceptable to the Holder if Bloomberg Financial Markets is not
then reporting sales prices of such security) (collectively, “Bloomberg”) for
the five (5) consecutive trading days immediately prior to the Exercise Date, or
(ii) if the NYSE Amex is not the principal Trading Market for the shares of
Common Stock, the average of the reported sales prices reported by Bloomberg on
the principal Trading Market for the Common Stock during the same period, or, if
there is no sales price for such period, the last sales price reported by
Bloomberg for such period, or (iii) if neither of the foregoing applies, the
last sales price of such security in the over-the-counter market on the pink
sheets or bulletin board for such security as reported by Bloomberg, or if no
sales price is so reported for such security, the last bid price of such
security as reported by Bloomberg or (iv) if fair market value cannot be
calculated as of such date on any of the foregoing bases, the fair market value
shall be as determined by the Board of Directors of the Company in the exercise
of its good faith judgment.

 
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2.2           ISSUANCE OF NEW WARRANTS.  Upon any partial exercise of this
Warrant, the Company, at its expense, will forthwith and, in any event within
five business days, issue and deliver to the Holder a new warrant or warrants of
like tenor, registered in the name of the Holder, exercisable during the balance
of the Exercise Period, in the aggregate, for the balance of the number of
shares of Common Stock remaining available for purchase under this Warrant.
 
2.3           PAYMENT OF TAXES AND EXPENSES.  The Company shall pay any
recording, filing, stamp or similar tax which may be payable in respect of any
transfer involved in the issuance of, and the preparation and delivery of
certificates (if applicable) representing, (i) any Exercise Shares purchased
upon exercise of this Warrant and/or (ii) new or replacement warrants in the
Holder’s name or the name of any transferee of all or any portion of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance,
delivery or registration of any certificates for Exercise Shares or Warrants in
a name other than that of the Holder.  The Holder shall be responsible for all
other tax liability that may arise as a result of holding or transferring this
Warrant or receiving Exercise Shares upon exercise hereof.
 
2.4           EXERCISE LIMITATIONS; HOLDER’S RESTRICTIONS.  A Holder shall not
have the right to exercise any portion of this Warrant, pursuant to Section 2 or
otherwise, to the extent that after giving effect to such issuance after
exercise, such Holder (together with such Holder’s affiliates), as set forth on
the applicable Notice of Exercise, would beneficially own in excess of 9.9% of
the number of shares of the Common Stock outstanding immediately after giving
effect to such issuance.  For purposes of this Section 2.4, the number of shares
of Common Stock beneficially owned by such Holder and its affiliates shall
include the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which the determination of such sentence is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (A) exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by such Holder or any of its affiliates and (B) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other shares of Common Stock or
Warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by such Holder or any of its
affiliates.  Except as set forth in the preceding sentence, for purposes of this
Section 2.4, beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act, it being acknowledged by a Holder that the Company is
not representing to such Holder that such calculation is in compliance with
Section 13(d) of the Exchange Act and such Holder is solely responsible for any
schedules required to be filed in accordance therewith.  To the extent that the
limitation contained in this Section 2.4 applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by such
Holder) and of which a portion of this Warrant is exercisable shall be in the
sole discretion of a Holder, and the submission of a Notice of Exercise shall be
deemed to be each Holder’s  determination of whether this Warrant is exercisable
(in relation to other securities owned by such Holder) and of which portion of
this Warrant is exercisable, in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation to verify or confirm the
accuracy of such determination.  For purposes of this Section 2.4, in
determining the number of outstanding shares of Common Stock, a Holder may rely
on the number of outstanding shares of Common Stock as reflected in (x) the
Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a more
recent public announcement by the Company or (z) any other notice by the Company
or the Company’s Transfer Agent setting forth the number of shares of Common
Stock outstanding.  Upon the written or oral request of a Holder, the Company
shall within two Trading Days confirm orally and in writing to such Holder the
number of shares of Common Stock then outstanding.  In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Warrant,
by such Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.  The provisions of this Section
2.4 may be waived by such Holder, at the election of such Holder, upon not less
than 61 days’ prior notice to the Company, and the provisions of this Section
2.4 shall continue to apply until such 61st day (or such later date, as
determined by such Holder, as may be specified in such notice of waiver).

 
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3.           COVENANTS OF THE COMPANY.
 
3.1           COVENANTS AS TO EXERCISE SHARES.  The Company covenants and agrees
that all Exercise Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued and
outstanding, fully paid and nonassessable, and free from all taxes, liens (other
than those imposed by the Holder) and charges with respect to the issuance
thereof.  The Company further covenants and agrees that the Company will at all
times during the Exercise Period, have authorized and reserved, free from
preemptive rights, a sufficient number of shares of Common Stock to provide for
the exercise of the rights represented by this Warrant.  If at any time during
the Exercise Period the number of authorized but unissued shares of Common Stock
shall not be sufficient to permit exercise of this Warrant, the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
 
3.2           NO IMPAIRMENT.  Except and to the extent as waived or consented to
by the holder of the Warrants representing at least a majority of the number of
shares of Common Stock then subject to outstanding Warrants, the Company will
not, by amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the taking of all such
action as may be necessary or appropriate in order to protect the exercise
rights of the Holder against impairment.
 
3.3           NOTICES OF RECORD DATE AND CERTAIN OTHER EVENTS.  In the event of
any taking by the Company of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, the Company shall mail to the Holder, at
least twenty (20) days prior to the date on which any such record is to be taken
for the purpose of such dividend or distribution, a notice specifying such
date.  In the event of any voluntary dissolution, liquidation or winding up of
the Company, the Company shall mail to the Holder, at least twenty (20) days
prior to the date of the occurrence of any such event, a notice specifying such
date.  In the event the Company authorizes or approves, enters into any
agreement contemplating, or solicits stockholder approval for any Fundamental
Transaction, as defined in Section 6 herein, the Company shall mail to the
Holder, at least twenty (20) days prior to the date of the occurrence of such
event, a notice specifying such date.

 
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4.           ADJUSTMENT OF EXERCISE PRICE AND SHARES.
 
(A)           In the event of changes in the outstanding Common Stock of the
Company by reason of stock dividends, split-ups, recapitalizations,
reclassifications, combinations or exchanges of shares, separations,
reorganizations, liquidations, consolidation, acquisition of the Company
(whether through merger or acquisition of substantially all the assets or stock
of the Company), or the like, the number, class and type of shares available
under this Warrant in the aggregate and the Exercise Price shall be
correspondingly adjusted to give the Holder of this Warrant, on exercise for the
same aggregate Exercise Price, the total number, class, and type of shares or
other property as the Holder would have owned had this Warrant been exercised
prior to the event and had the Holder continued to hold such shares until the
event requiring adjustment.  The form of this Warrant need not be changed
because of any adjustment in the number of Exercise Shares subject to this
Warrant.
 
(B)           If at any time or from time to time the holders of all outstanding
shares of Common Stock of the Company (or any shares of stock or other
securities at the time receivable upon the exercise of this Warrant) pursuant to
a dividend or distribution declared by the Company (other than a dividend or
distribution covered in Section 4(A) above), shall have received or become
entitled to receive, without payment therefor:
 
(I)           Common Stock or any shares of stock or other securities which are
at any time directly or indirectly convertible into or exchangeable for Common
Stock, or any rights or options to subscribe for, purchase or otherwise acquire
any of the foregoing by way of dividend or other distribution;
 
(II)           any cash paid or payable otherwise than as a cash dividend; or
 
(III)          Common Stock or additional stock or other securities or property
(including cash) by way of spinoff, split-up, reclassification, combination of
shares or similar corporate rearrangement, then and in each such case, the
Holder hereof will, upon the exercise of this Warrant, be entitled to receive,
in addition to the number of shares of Common Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of stock
and other securities and property (including cash in the cases referred to in
clauses (II) and (III) above) which such Holder would hold on the date of such
exercise had such Holder been the holder of record of such Common Stock as of
the date on which holders of Common Stock received or became entitled to receive
such shares or all other additional stock and other securities and property.
 
(C)           Upon the occurrence of each adjustment pursuant to this Section 4,
the Company at its expense will, at the written request of the Holder, promptly
compute such adjustment in accordance with the terms of this Warrant and prepare
a certificate setting forth such adjustment, including a statement of the
adjusted Exercise Price and adjusted number or type of Exercise Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing
the transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based.  Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
transfer agent for the Warrants, if other than  the Company.

 
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5.           FRACTIONAL SHARES.  No fractional shares shall be issued upon the
exercise of this Warrant as a consequence of any adjustment pursuant
hereto.  All Exercise Shares (including fractions) issuable upon exercise of
this Warrant may be aggregated for purposes of determining whether the exercise
would result in the issuance of any fractional share.  If, after aggregation,
the exercise would result in the issuance of a fractional share, the Company
shall, in lieu of issuance of any fractional share, pay the Holder otherwise
entitled to such fraction a sum in cash equal to the product resulting from
multiplying the then current fair market value of an Exercise Share by such
fraction.
 
6.           FUNDAMENTAL TRANSACTIONS.  If, at any time while this Warrant is
outstanding, (i) the Company effects any merger of the Company with or into
another entity and the Company is not the surviving entity, (ii) the Company
effects any sale of all or substantially all of its assets in one or a series of
related transactions, (iii) any tender offer or exchange offer (whether by the
Company or by another individual or entity and approved by the Company) is
completed pursuant to which holders of Common Stock are permitted to tender or
exchange their shares of Common Stock for other securities, cash or property or
(iv) the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (other than
as a result of a subdivision or combination of shares of Common Stock covered by
Section 4 above) (in any such case, a “Fundamental Transaction”), then, upon any
subsequent exercise of this Warrant, the Holder shall have the right to receive
the number of shares of Common Stock of the successor or acquiring corporation
or of the Company and any additional consideration (the “Alternate
Consideration”) receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event (disregarding any limitation on exercise
contained herein solely for the purpose of such determination).  For purposes of
any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration.  If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental
Transaction.  To the extent necessary to effectuate the foregoing provisions,
any successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new warrant consistent with the foregoing provisions
and evidencing the Holder’s right to exercise such warrant into Alternate
Consideration.  Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction, then the Company or any successor entity shall at the
Holder’s option, exercisable at any time concurrently with or within thirty (30)
days after the consummation of the Fundamental Transaction, purchase this
Warrant from the Holder by paying to the Holder an amount of cash equal to the
value of this Warrant as determined in accordance with the Black Scholes Option
Pricing Model obtained from the “OV” function on Bloomberg L.P. using (i) a
price per share of Common Stock equal to the Volume-Weighted Average Price of
the Common Stock for the Trading Day immediately preceding the date of
consummation of the applicable Fundamental Transaction, (ii) a risk-free
interest rate corresponding to the U.S. Treasury rate for a period equal to the
remaining term of this Warrant as of the date of consummation of the applicable
Fundamental Transaction and (iii) an expected volatility equal to the lesser of
(1) the thirty (30) day volatility obtained from the “HVT” function on Bloomberg
L.P. determined as of the end of the Trading Day immediately following the
public announcement of the applicable Fundamental Transaction or (2) 70%. The
terms of any agreement pursuant to which a Fundamental Transaction is effected
shall include terms requiring any such successor or surviving entity to comply
with the provisions of this Section 6 and ensuring that this Warrant (or any
such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.

 
B-7

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7.           NO STOCKHOLDER RIGHTS.  Other than as provided in Section 3.3 or
otherwise herein, this Warrant in and of itself shall not entitle the Holder to
any voting rights or other rights as a stockholder of the Company.
 
8.           TRANSFER OF WARRANT.  Subject to applicable laws and the
restriction on transfer set forth in the Subscription Agreement, this Warrant
and all rights hereunder are transferable, by the Holder in person or by duly
authorized attorney, upon delivery of this Warrant and the form of assignment
attached hereto to any transferee designated by Holder.  The transferee shall
sign an investment letter in form and substance reasonably satisfactory to the
Company and its counsel. Any proposed transfer of all or any portion of this
Warrant in violation of the provisions of this warrant or the Subscription
Agreement shall be null and void.  Upon surrender of this Warrant and delivery
of an assignment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the transferee or transferees, as applicable, and in the
denomination or denominations specified in such instrument of assignment, and
shall issue to the transferor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be cancelled.
 
9.           LOST, STOLEN, MUTILATED OR DESTROYED WARRANT.  If this Warrant is
lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnity or otherwise as it may reasonably impose (which shall, in the case of
a mutilated Warrant, include the surrender thereof), issue a new Warrant of like
denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
Any such new Warrant shall constitute an original contractual obligation of the
Company.
 
10.         NOTICES, ETC.  All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt.  All communications shall be sent to the
Company at the address listed on the signature page hereto and to Holder at
the  applicable address set forth on the applicable signature page to the
Subscription Agreement or at such other address as the Company or Holder may
designate by ten (10) days advance written notice to the other parties hereto.

 
B-8

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11.           ACCEPTANCE.  Receipt of this Warrant by the Holder shall
constitute acceptance of and agreement to all of the terms and conditions
contained herein.
 
12.           GOVERNING LAW.  This Warrant and all rights, obligations and
liabilities hereunder shall be governed by, and construed in accordance with,
the internal laws of the State of New York, without giving effect to the
principles of conflicts of law that would require the application of the laws of
any other jurisdiction.
 
13.           AMENDMENT OR WAIVER.  Any term of this Warrant may be amended or
waived (either generally or in a particular instance and either retroactively or
prospectively) with the written consent of the Company and the holders of the
Warrants representing at least two-thirds of the number of shares of Common
Stock then subject to outstanding Warrants.  Notwithstanding the foregoing, (a)
this Warrant may be amended and the observance of any term hereunder may be
waived without the written consent of the Holder only in a manner which applies
to all Warrants in the same fashion and (b) the number of Exercise Shares
subject to this Warrant and the Exercise Price of this Warrant may not be
amended, and the right to exercise this Warrant may not be waived, without the
written consent of the Holder.  The Company shall give prompt written notice to
the Holder of any amendment hereof or waiver hereunder that was effected without
the Holder’s written consent.  No waivers of any term, condition or provision of
this Warrant, in any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such term, condition or provision.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 
B-9

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer as of December __, 2010.
 
AMERICAN DG ENERGY INC.
   
By:
   
Name:
 
Title:
 
45 First Avenue
Waltham, Massachusetts 02451

 
 
B-10

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NOTICE OF EXERCISE
 
TO:           AMERICAN DG ENERGY INC.
(1)        [_]           The undersigned hereby elects to purchase [__________]
shares of the common stock, par value $0.001 (the “Common Stock”), of AMERICAN
DG ENERGY INC. (the “Company”) pursuant to the terms of the attached Warrant,
and tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.
 
[_]           The undersigned hereby elects to purchase [___________] shares of
Common Stock of the Company pursuant to the terms of the net exercise provisions
set forth in Section 2.1 of the attached Warrant, and shall tender payment of
all applicable transfer taxes, if any.
 
(2)           Please issue the certificate for shares of Common Stock in the
name of, and pay any cash for any fractional share to:
 

   
Print or type name
   
Social Security or other Identifying Number
   
Street Address
   
City State Zip Code

 
(3)           If such number of shares shall not be all the shares purchasable
upon the exercise of the Warrants evidenced by this Warrant, a new warrant
certificate for the balance of such Warrants remaining unexercised shall be
registered in the name of and delivered to:
 
Please insert social security or other identifying number:  ———————
 

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

 
(Please print name and address)
 

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

 
Dated:

 
(Signature)
 
(Print name)

 
 
 

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ASSIGNMENT FORM
 
(To assign the foregoing Warrant, execute this form and supply required
information.  Do not use this form to purchase shares.)
 
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to
 
Name:
   
(Please Print)
   
Address:
   
(Please Print)

Dated:  
   

Holder’s Signature:
  

Holder’s Address:
  

NOTE:  The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever.  Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.

 
 

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