SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is dated as of August 2,
2007, among CHINA NATURAL GAS, INC., a Delaware corporation (the “Company”), and
the investors identified on the signature pages hereto (each, an “Investor” and
collectively, the “Investors”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act (as defined below) and Rule 506
promulgated thereunder, the Company desires to issue and sell to each Investor,
and each Investor, severally and not jointly, desires to purchase from the
Company certain securities of the Company, as more fully described in this
Agreement. 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:

ARTICLE I.
DEFINITIONS
 
Section 1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms shall have
the meanings indicated in this Section 1.1:
 
“Action” means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation pending
or threatened in writing against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator, governmental
or administrative agency, regulatory authority (federal, state, county, local or
foreign), stock market, stock exchange or trading facility.

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144.

“Business Day” means any day except Saturday, Sunday and any day which is a
federal legal holiday or a day on which banking institutions in the State of
California are authorized or required by law or other governmental action to
close.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per
share, and any securities into which such common stock may hereafter be
reclassified.

“Common Stock Equivalents” means any securities of the Company or any Subsidiary
which entitle the holder thereof to acquire Common Stock at any time, including
without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or exchangeable or
exercisable for, or otherwise entitles the holder thereof to receive, Common
Stock or other securities that entitle the holder to receive, directly or
indirectly, Common Stock.

“Company Counsel” means Crone Rozynko LLP.

“Disclosure Materials” has the meaning set forth in Section 3.1(h).

“Effective Date” means the date that the Registration Statement required by
Section 2(a) of the Registration Rights Agreement is first declared effective by
the Commission.

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

“First Closing” means the closing of the purchase and sale of the Securities
pursuant to Section 2.1(a).
 
 
 

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“First Closing Company Deliverables” has the meaning set forth in Section
2.2(a).

“First Closing Date” means the Business Day on which all of the conditions set
forth in Sections 5.1 and 5.2 hereof with respect to the purchase of the
Securities and Delivery of the Shares are satisfied, or such other date as the
parties may agree.

“GAAP” means U.S. generally accepted accounting principles.

“Intellectual Property Rights” has the meaning set forth in Section 3.1(n).

“Investment Amount” means, with respect to each Investor, the Investment Amount
indicated on such Investor’s signature page to this Agreement.

“Investor Deliverables” has the meaning set forth in Section 2.2(b).

“Investor Party” has the meaning set forth in Section 4.8.

“Lien” means any lien, charge, encumbrance, security interest, right of first
refusal or other restrictions of any kind.

“Material Adverse Effect” means any of (i) a material and adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) an adverse impairment to the Company’s
ability to perform on a timely basis its obligations under any Transaction
Document.

“California Courts” means the state and federal courts sitting in the City of
San Francisco, County of San Francisco, California.

“Outside Date” means August 6, 2007.

“Per Share Purchase Price” equals $3.25.

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

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

“Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the date of this Agreement, among the Company and the Investors, in the
form of Exhibit B hereto.

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Investors of the Shares.

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

“SEC Reports” has the meaning set forth in Section 3.1(h).

“Second Closing” means the closing of the issuance of the Warrants set forth in
Section 2.1(b).

“Second Closing Company Deliverables” has the meaning set forth in Section
2.2(c).
 
 
 

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“Securities” means the Shares, the Warrants and the Warrant Shares.

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

“Shares” means the shares of Common Stock issued or issuable to the Investors
pursuant to this Agreement.

“Short Sales” include, without limitation, all “short sales” as defined in Rule
200 promulgated under Regulation SHO under the Exchange Act and all types of
direct and indirect stock pledges, forward sale contracts, options, puts, calls,
swaps and similar arrangements (including on a total return basis), and sales
and other transactions through non-US broker dealers or foreign regulated
brokers.

“Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of
the Regulation S-X promulgated by the Commission under the Exchange Act.

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not
listed on a Trading Market (other than the OTC Bulletin Board), a day on which
the Common Stock is traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading
Market, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Market, the NASDAQ Capital Market or OTC
Bulletin Board on which the Common Stock is listed or quoted for trading on the
date in question.

“Transaction Documents” means this Agreement, the Warrants and the Registration
Rights Agreement and any other documents or agreements executed in connection
with the transactions contemplated hereunder.

“Warrants” means the Common Stock purchase warrants in the form of Exhibit A,
which are issuable to the Investors at the Second Closing.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.

ARTICLE II.
PURCHASE AND SALE
 
Section 2.1 Closings. Subject to the terms and conditions set forth in this
Agreement, each Investor agrees to purchase at the First Closing, that number of
Shares and Warrants set forth opposite such Investor’s name on Schedule 2.1
hereto for the aggregate purchase price set forth thereon and the Company agrees
to sell and issue to each Investor at the First Closing that number of Shares
set forth opposite such Investor’s name on Schedule 2.1 hereto and to issue to
each Investor at the Second Closing the Warrants to purchase that number of
Warrant Shares as set forth opposite such Investor’s name on Schedule 2.1
hereto.

(a) First Closing. The purchase and sale of Shares and Warrants shall take place
at the offices of Crone Rozynko LLP, 101 Montgomery Street, Suite 1950, San
Francisco, California 94104 on August 2, 2007, or at such other time and place
as the Company and the Investors pursuant hereto mutually agree upon orally or
in writing (which time and place are designated as the “First Closing”).

(b) Second Closing. The issuance of the Warrants shall take place at the offices
of Crone Rozynko LLP, 101 Montgomery Street, Suite 1950, San Francisco,
California 94104 within three business days following the Certificate of
Amendment of the Company to increase its authorized shares of Common Stock from
30,000,000 shares to 45,000,000 shares being filed and becoming effective with
the Secretary of State of the State of Delaware. In the event the Second Closing
does not occur 90 days following the First Closing, on such date and each
monthly anniversary of such date thereafter, the Company shall pay to each
Investor an amount in cash, as liquidated damages and not as a penalty, equal to
1.0% of the aggregate of the product of (x) the number of Warrant Share set
forth opposite such Investor’s name on Schedule 2.1 hereto times (y) the per
share Exercise Price as set forth in the Warrants until the Second Closing has
occurred. In no event shall the Company be obligated to pay any penalty to any
Investor pursuant to this Section 2.11(b) in an aggregate amount that exceeds
10% of the aggregate number of Warrant Shares times the per share Exercise Price
as set forth in the Warrants.
 
 
 

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(c) Subsequent Closings. The Company may sell up to the balance of the
authorized number of Shares and Warrants not sold as the Initial Closing to such
purchasers as it shall select provided that any such sale shall be consummated
not later than thirty (30) days after the Initial Closing. The subsequent
purchases and sales of the Shares shall take place at the offices of Crone
Rozynko LLP, 101 Montgomery Street, Suite 1950, San Francisco, California 94104,
at such time or at such other place as the Company and the Investors acquiring
the Shares mutually agree upon orally or in writing (which such time and place,
together with the First and Second Closings, are each designated as a “Closing”)
 
Section 2.2 Closing Deliveries.

(a) At the First Closing, the Company shall deliver or cause to be delivered to
each Investor the following (the “First Closing Company Deliverables”):
 
(i) a certificate evidencing a number of Shares equal to such Investor’s
Investment Amount divided by the Per Share Purchase Price, registered in the
name of such Investor;
 
(ii) a certificate of the Transfer Agent with respect to the outstanding Common
Stock number of the Company as of the most recent practicable date;

(iii) an Officer’s Certificate and Incumbency Certificate, in agreed form, duly
executed by such officers of the Company as of the date of the First Closing;

(iv) the Registration Rights Agreement, duly executed by the Company;

(v) this Agreement duly executed by the Company;

(vi) a legal opinion of Company Counsel, in the form of Exhibit B attached
hereto; and

(vii) a copy of a certificate of good standing for the Company issued by the
Secretary of State of Delaware as of the date of the First Closing.
 
(b) At the First Closing, each Investor shall deliver or cause to be delivered
to the Company the following (the “Investor Deliverables”):
 
(i) its Investment Amount, (A) in United States dollars and in immediately
available funds, by check or by wire transfer to the following account
designated for such purpose:

Account Name: China Natural Gas, Inc.
Account Number:
Bank Name:
ABA Routing Number:
Bank Address:

(ii) the Registration Rights Agreement, duly executed by such Investor; and

(iii)  
the Agreement duly executed by such Investor.

 
(c) At the Second Closing, the Company shall deliver or cause to be delivered to
each Investor the following (the “Second Closing Company Deliverables”):
 
 
 

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(i) a certificate of the Transfer Agent with respect to the outstanding Common
Stock number of the Company as of the most recent practicable date;

(ii) an Officer’s Certificate and Incumbency Certificate, in agreed form, duly
executed by such officers of the Company as of the date of the Second Closing;

(iii) a Warrant, registered in the name of such Investor, pursuant to which such
Investor shall have the right to acquire up to the number of shares of Common
Stock equal to 15% of the Shares to be issued to such Investor;

(iv) a copy of a certificate of good standing for the Company issued by the
Secretary of State of Delaware as of the date of the Second Closing.

ARTICLE III.
REPRESENTATIONS AND WARRANTIES
 
Section 3.1 Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to each Investor:
 
(a) Subsidiaries. The Company has no direct or indirect Subsidiaries other than
as specified in the SEC Reports. The Company owns, directly or indirectly, all
of the capital stock of each Subsidiary free and clear of any and all Liens, and
all the issued and outstanding shares of capital stock of each Subsidiary are
validly issued and are fully paid, non-assessable and free of preemptive and
similar rights. Neither the Company nor any Subsidiary is party to any material
joint venture, nor has any ownership interest in any entity that is material to
the Company or as disclosed in the SEC Reports.
 
(b) Organization and Qualification. The Company and each Subsidiary are duly
incorporated or otherwise organized and validly existing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation of any of the material provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. The Company and each Subsidiary are duly qualified to conduct
its respective businesses and are in good standing as a foreign corporation or
other entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification

(c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
thereunder, including, without limitation, to issue the Securities in accordance
with the terms thereof. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby, including, without limitation, the issuance of the Shares
and Warrants and the reservation for issuance and issuance of 100% of the
Warrant Shares upon exercise of the Warrants, have been duly authorized by all
necessary action on the part of the Company and no further action is required by
the Company in connection therewith. Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.
 
(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated thereby do not and will not (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) to which the
Company or any Subsidiary is a party or by which any property or asset of the
Company or any Subsidiary is bound, or (iii) conflict with or result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company or
a Subsidiary is subject (including federal and state securities laws and
regulations and regulations of each Trading Market on which the Common Stock of
the Company is listed, quoted or traded on the date hereof), or by which any
property or asset of the Company or a Subsidiary is bound or affected; except in
the case of each of clauses (ii) and (iii), such as could not, individually or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.
 
 
 

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(e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) the filing with the Commission of one or more Registration Statements in
accordance with the requirements of the Registration Rights Agreement, (ii)
filings required by state securities laws, (iii) the filing of a Notice of Sale
of Securities on Form D with the Commission under Regulation D of the Securities
Act, (iv) the filing of any requisite notices or applications with each
applicable Trading Market and (v) those that have been made or obtained prior to
the date of this Agreement.

(f) Issuance of the Securities. The Securities have been duly authorized and,
when issued and paid for in accordance with the Transaction Documents, will be
duly and validly issued, fully paid and nonassessable, free and clear of all
Liens. The Company has reserved from its duly authorized capital stock the
maximum number of shares of Common Stock issuable pursuant to this Agreement and
the Warrants.

(g) Capitalization. The number of shares and type of all authorized, issued and
outstanding capital stock of the Company, and all shares of Common Stock
reserved for issuance under the Company’s various option and incentive plans as
of March 31, 2007, is accurately set forth in the SEC Reports. Except as
specified in the SEC Reports, no securities of the Company are entitled to
preemptive or similar rights. No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as specified
in the SEC Reports, Schedule 3.1(g), and other than stock options granted
pursuant to the Company’s stock option plans following March 31, 2007, there are
no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
The issue and sale of the Securities will not, immediately or with the passage
of time, obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Investors) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities.
 
(h) SEC Reports; Financial Statements. The Company has filed all reports, forms
and schedules required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two
years preceding the date hereof (or such shorter period as the Company was
required by law to file such reports) (the foregoing materials being
collectively referred to herein as the “SEC Reports” and, together with the
Schedules to this Agreement (if any), the “Disclosure Materials”) on a timely
basis or has timely filed a valid extension of such time of filing and has filed
any such SEC Reports prior to the expiration of any such extension. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, 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. Each registration statement and any amendment
thereto filed by the Company since July 1, 2005 pursuant to the Securities Act
and the rules and regulations thereunder, as of the date such statement or
amendment became effective, complied as to form in all material respects with
the Securities Act and did not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein not misleading; and each prospectus
filed pursuant to Rule 424(b) under the Securities Act, as of its issue date and
as of the closing of any sale of securities pursuant thereto did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Reports comply in
all material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with GAAP,
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for 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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(i) Material Changes. Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in the SEC
Reports, (i) there has been no event, occurrence or development that has had or
that could reasonably be expected to result in a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables, accrued expenses and other liabilities incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting or the identity of its
auditors, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or made any
agreements to purchase or redeem any shares of its capital stock (other than in
connection with repurchases of unvested stock issued to employees of the
Company), and (v) the Company has not issued any equity securities to any
officer, director or Affiliate, except pursuant to existing Company stock option
plans.
 
(j) Litigation. There is no Action which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) except as specifically disclosed in the SEC Reports, could,
if there were an unfavorable decision, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof (in his or her
capacity as such), is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty, except as specifically disclosed in the SEC Reports.
There has not been, and to the knowledge of the Company, there is not pending
any investigation by the Commission involving the Company or any current or
former director or officer of the Company (in his or her capacity as such). The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
 
(k) Compliance. Neither the Company nor any Subsidiary (i) is in default under
or in violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the Company
or any Subsidiary under), nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of, or in
receipt of notice that it is in violation of, any order of any court, arbitrator
or governmental body, or (iii) is or has been in violation of, or in receipt of
notice that it is in violation of, any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety, employment and labor matters and, to its
knowledge, privacy, except in each case as could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect. The Company is in compliance with all effective requirements of the
Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations
thereunder, that are applicable to it, except where such noncompliance could not
have a Material Adverse Effect.

(l) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect, and neither the
Company nor any Subsidiary has received any notice of Proceedings relating to
the revocation or modification of any such permits.
 
 
 

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(m) Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them that is material to their
respective businesses and good and marketable title in all personal property
owned by them that is material to their respective businesses, in each case free
and clear of all Liens, except for Liens as do not materially affect the value
of such property and do not materially interfere with the use made and proposed
to be made of such property by the Company and the Subsidiaries. Any real
property and facilities held under lease by the Company and the Subsidiaries are
held by them under leases valid, subsisting and enforceable against the Company
and the Subsidiaries, and the Company and the Subsidiaries are in compliance
with such leases, except as could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.
 
(n) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have could, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person and the Company has no
knowledge of any such violation or infringement. Except as set forth in the SEC
Reports, to the knowledge of the Company, all such Intellectual Property Rights
are enforceable and, except as disclosed in the SEC Reports, there is no
existing infringement by another Person of any of the Intellectual Property
Rights of the Company or its Subsidiaries. The Company is unaware of any facts
or circumstances which might give rise to a claim of infringement, and the
Company and its Subsidiaries have taken reasonable measures to protect the value
of their Intellectual Property Rights.
 
(o) Insurance. Except as set forth in Schedule 3.1(o), the Company and the
Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are prudent and customary
for enterprises of similar size and stage of development in the businesses in
which the Company and the Subsidiaries are engaged, including, but not limited
to, directors and officers insurance coverage of at least $10 million. The
Company has no reason to believe that it will not be able to renew its and the
Subsidiaries’ existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to continue
its business on terms consistent with market for the Company’s and such
Subsidiaries’ respective lines of business.

(p) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge
of the Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary required to be disclosed in the
SEC Reports (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

(q) Certain Fees. Except as set forth in Schedule 3.1(q), the Company has not
engaged or made an agreement with any agent, broker or finder with respect to
the transactions contemplated by this Agreement. The Investors shall have no
obligation with respect to any fees or with respect to any claims (other than
such fees or commissions owed by an Investor pursuant to written agreements
executed by such Investor which fees or commissions shall be the sole
responsibility of such Investor) made by or on behalf of other Persons for fees
of a type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.

(r) Certain Registration Matters. Assuming the accuracy of the Investors’
representations and warranties set forth in Section 3.2(b)-(e), no registration
under the Securities Act is required for the offer and sale of the Shares by the
Company to the Investors under the Transaction Documents
 
 
 

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(s) Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. Except as specified in the SEC
Reports, the Company has not, in the two years preceding the date hereof,
received notice from any Trading Market to the effect that the Company is not in
compliance with the listing or maintenance requirements thereof. The Company is,
and has no reason to believe that it will not in the foreseeable future continue
to be, in compliance with the listing and maintenance requirements for continued
listing of the Common Stock on the Trading Market on which the Common Stock is
currently listed or quoted. The issuance and sale of the Securities under the
Transaction Documents does not contravene the rules and regulations of the
Trading Market on which the Common Stock is currently listed or quoted, and no
approval of the shareholders of the Company thereunder is required for the
Company to issue and deliver to the Investors the Securities contemplated by
Transaction Documents.
 
(t) Investment Company. The Company is not, and immediately after receipt of
payment for the Securities will not be, an “investment company”, an “affiliated
person” of, “promoter” for or “principal underwriter” for, or an entity
“controlled” by an “investment company”, within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.
 
(u) No Additional Agreements. Except as set forth in Schedule 3.1(u), the
Company does not have any agreement or understanding with any Investor with
respect to the transactions contemplated by the Transaction Documents other than
as specified in the Transaction Documents.
 
(v) Disclosure. The Company confirms that neither it nor any Person acting on
its behalf has provided any Investor or its respective agents or counsel with
any information that the Company believes constitutes material, non-public
information except insofar as the existence and terms of the proposed
transactions hereunder may constitute such information. The Company understands
and confirms that the Investors will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. All disclosure
provided to the Investors regarding the Company, its business and the
transactions contemplated hereby, furnished by or on behalf of the Company
(including the Company’s Disclosure Materials and the representations and
warranties set forth in this Agreement) are true and correct and do not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.

(w) Transfer Taxes. On the First Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to each Investor
hereunder will be, or will have been, fully paid or provided for by the Company,
and all laws imposing such taxes will be or will have been complied with by the
Company, except where such noncompliance would not materially adversely affect
any Investor, its rights to the Securities or other rights or benefits under any
of the Transaction Documents; provided that, any such material noncompliance
shall be promptly cured or remedied by the Company upon obtaining knowledge of
noncompliance.
 
(x) Tax Status. The Company and each of its Subsidiaries (i) has made or filed
all foreign, federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply,
except where the failure to do so could not have or reasonably be expected to
result in a Material Adverse Effect. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim.
 
 
 

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(y) Undisclosed Liabilities. No event, liability, development or circumstance
has occurred or exists with respect to the Company or its respective business,
properties, prospects, operations or financial condition, that would be required
to be disclosed by the Company under the Securities Act and the Exchange Act and
the rules and regulations of the Commission promulgated thereunder relating to
an issuance and sale by the Company of its securities and which has not been
reported in accordance with such rules and regulations of the Commission.
 
(z) Employee Relations. Neither Company nor any of its Subsidiaries is a party
to any collective bargaining agreement or employs any member of a union. The
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer of the Company or any of its Subsidiaries (as
defined in Rule 501(f) of the Securities Act) has notified the Company or any
such Subsidiary that such officer intends to leave the Company or any such
Subsidiary or otherwise terminate such officer’s employment with the Company or
any such Subsidiary. No executive officer of the Company or any of its
Subsidiaries, to the knowledge of the Company or any such Subsidiary, is now, or
expects to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract, agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any such Subsidiary to any liability with respect to any
of the foregoing matters. The Company and its Subsidiaries are in compliance
with all federal, state and local laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect. There are no complaints or charges against the
Company or its Subsidiaries pending or, to the knowledge of the Company and its
Subsidiaries, threatened to be filed with any Governmental Authority or
arbitrator based on, arising out of, in connection with, or otherwise relating
to the employment or termination of employment by the Company or its
Subsidiaries of any individual, that would be reasonably likely to result in a
Material Adverse Effect.

(aa) Subsidiary Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
 
(bb) Off Balance Sheet Arrangements. There is no transaction, arrangement, or
other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its SEC
Reports and is not so disclosed or that otherwise would be reasonably likely to
have a Material Adverse Effect.

(cc) No Integrated Offering. Assuming the accuracy of the Investors’
representations and warranties set forth in this Agreement neither the Company,
nor any of its affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the Securities Act or any applicable shareholder approval
provisions, including, without limitation, under the rules and regulations of
any Trading Market. None of the Company, its Subsidiaries, their Affiliates and
any Person acting on their behalf will take any action or steps referred to in
the preceding sentence that would require registration of any of the Securities
under the Securities Act or cause the offering of the Securities to be
integrated with other offerings, which would impair the exemptions relied upon
in this offering of the Securities or the Company’s ability to timely comply
with its obligations hereunder.

(dd) General Solicitation. Neither the Company nor any person acting on behalf
of the Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the Shares for sale
only to the Investors and certain other “accredited investors” within the
meaning of Rule 501 under the Securities Act.

(ee) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to
the knowledge of the Company, any agent or other person acting on behalf of the
Company or any Subsidiary, has (i) directly or indirectly, used any corporate
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made any
unlawful payment to foreign or domestic government officials or employees or to
any foreign or domestic political parties or campaigns from corporate funds,
(iii) failed to disclose fully any contribution made by the Company (or made by
any person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision of the
Foreign Corrupt Practices Act of 1977, as amended.
 
 
 

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(ff) Accountants. The Company’s accountants are set forth in the SEC Reports. To
the Company’s knowledge, such accountants, are a registered public accounting
firm as required by the Securities Act.

(gg) Manipulation of Price. The Company has not, and to its knowledge no one
acting on its behalf has, taken, directly or indirectly, any action designed to
cause or to result or that could reasonably be expected to cause or result, in
the stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities.

(hh) Environmental Laws. The Company and each of its Subsidiaries (a) are in
compliance with any and all Environmental Laws (as hereinafter defined),
(b) have received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(c) are in compliance with all terms and conditions of any such permit, license
or approval where, in each of the foregoing clauses (a), (b) and (c), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. The term “Environmental Laws” means
all applicable federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

(ii) No Disagreements with Accountants. There are no disagreements of any kind
presently existing, or reasonably anticipated by the Company to arise, between
the Company and the accountants formerly or presently employed by the Company
which could affect the Company’s ability to perform any of its obligations under
any of the Transaction Documents, and the Company is current with respect to any
fees owed to its accountants and lawyers.
 
3.2 Representations and Warranties of the Investors. Each Investor hereby, for
itself and for no other Investor, represents and warrants to the Company as
follows:
 
(a) Organization; Authority. Such Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the applicable
Transaction Documents and otherwise to carry out its obligations thereunder. The
execution, delivery and performance by such Investor of the transactions
contemplated by this Agreement has been duly authorized by all necessary
corporate or, if such Investor is not a corporation, such partnership, limited
liability company or other applicable like action, on the part of such Investor.
Each of this Agreement and the Registration Rights Agreement has been duly
executed by such Investor, and when delivered by such Investor in accordance
with terms hereof, will constitute the valid and legally binding obligation of
such Investor, enforceable against it in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.
 
(b) Investment Intent. Such Investor is acquiring the Securities as principal
for its own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Investor’s right at all times to sell or otherwise
dispose of all or any part of such Securities in compliance with applicable
federal and state securities laws. Subject to the immediately preceding
sentence, nothing contained herein shall be deemed a representation or warranty
by such Investor to hold the Securities for any period of time. Such Investor is
acquiring the Securities hereunder in the ordinary course of its business. Such
Investor does not have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Securities.
 
 
 

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(c) Investor Status. At the time such Investor was offered the Securities, it
was, and at the date hereof it is, an “accredited investor” as defined in Rule
501(a) under the Securities Act. Such Investor is not a registered broker-dealer
under Section 15 of the Exchange Act and has completed and executed the
Accredited Investor Questionnaire attached hereto as Exhibit C.
 
(d) General Solicitation. Such Investor is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
 
(e) Access to Information. Such Investor acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Shares and the merits and risks of investing in the Securities;
(ii) access to information about the Company and the Subsidiaries and their
respective financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or
on behalf of such Investor or its representatives or counsel shall modify, amend
or affect such Investor’s right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company’s representations and warranties
contained in the Transaction Documents.
 
(f) Certain Trading Activities. Such Investor has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
such Investor, engaged in any transactions in the securities of the Company
(including, without limitations, any Short Sales involving the Company’s
securities) since the time that such Investor was first contacted by the Company
regarding the investment in the Company contemplated by this Agreement. Such
Investor covenants that neither it nor any Person acting on its behalf or
pursuant to any understanding with it will 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 by the
Company. Such Investor has maintained, and covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company such Investor will maintain, the confidentiality of any disclosures made
to it in connection with this transaction (including the existence and terms of
this transaction). Such Investor understands and acknowledges, that the
Commission currently takes the position that coverage of Short Sales “against
the box” prior to the Effective Date of the Registration Statement is a
violation of Section 5 of the Securities Act, as set forth in Item 65, Section
A, of the Manual of Publicly Available Telephone Interpretations, dated July
1997, compiled by the Office of Chief Counsel, Division of Corporation Finance.

(g) Independent Investment Decision. Such Investor has independently evaluated
the merits of its decision to purchase Securities pursuant to the Transaction
Documents, and such Investor confirms that it has not relied on the advice of
any other Investor’s business and/or legal counsel in making such decision. Such
Investor has not relied on the business or legal advice of the Company or any of
its agents, counsel or Affiliates in making its investment decision hereunder,
and confirms that none of such Persons has made any representations or
warranties to such Investor in connection with the transactions contemplated by
the Transaction Documents.

(h) Prohibited Transactions. During the last thirty (30) days prior to the date
hereof, neither such Investor nor any Affiliate of such Investor which (a) had
knowledge of the transactions contemplated hereby, (b) has or shares discretion
relating to such Investor’s investments or trading or information concerning
such Investor’s investments, including in respect of the Securities, or (c) is
subject to such Investor’s review or input concerning such Affiliate’s
investments or trading (collectively, “Trading Affiliates”) has, directly or
indirectly, effected or agreed to effect any short sale, whether or not against
the box, established any “put equivalent position” (as defined in Rule 16a-1(h)
under the Securities Exchange Act or 1934, as amended) with respect to the
Company’s Common Stock, granted any other right (including, without limitation,
any put or call option) with respect to the Company’s Common Stock or with
respect to any security that includes, relates to or derived any significant
part of its value from the Company’s Common Stock or otherwise sought to hedge
its position in the Securities (each, a “Prohibited Transaction”). Prior to
December 31, 2007, such Investor shall not, and shall cause its Trading
Affiliates not to, engage, directly or indirectly, in a Prohibited Transaction.
Such Investor acknowledges that the representations, warranties and covenants
contained in this Section 3.2(h) are being made for the benefit of the Company
and the Investors, and that the Company may not waive or amend any portion of
this Section 3.2(h) without the prior written consent of all Investors. The
Company shall use its reasonable best efforts to assert claims against any
Investor arising out of any breach or violation of the provisions of this
Section 3.2(h).
 
 
 

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The Company acknowledges and agrees that no Investor has made or makes any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
 
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
 
Section 4.1 Additional Agreements.

(a) Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of the Securities other than
pursuant to an effective registration statement, Rule 144, to the Company, to an
Affiliate of an Investor or in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act.
 
(b) Certificates evidencing the Securities will contain the following legend,
until such time as they are not required under Section 4.1(c):
 
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

The Company acknowledges and agrees that an Investor may from time to time
pledge, and/or grant a security interest in some or all of the Securities
pursuant to a bona fide margin agreement in connection with a bona fide margin
account and, if required under the terms of such agreement or account, such
Investor may transfer pledged or secured Securities to the pledgees or secured
parties. Such a pledge or transfer would not be subject to approval or consent
of the Company and no legal opinion of legal counsel to the pledgee, secured
party or pledgor shall be required in connection with the pledge, but such legal
opinion may be required in connection with a subsequent transfer following
default by the Investor transferee of the pledge. No notice shall be required of
such pledge. At the appropriate Investor’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) of the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.
 
(c) Certificates evidencing the Shares shall not contain any legend (including
the legend set forth in Section 4.1(b)): (i) once a registration statement
(including the Registration Statement) covering the resale of such security has
been declared effective under the Securities Act, or (ii) following a sale or
transfer of such Shares pursuant to Rule 144 (assuming the transferor is not an
Affiliate of the Company), or (iii) while such Shares are eligible for sale
under Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission). The Company shall cause
its counsel to issue a legal opinion to the Company’s transfer agent promptly
after the Effective Date if required by the Company’s transfer agent to effect
the removal of the legend hereunder. If all or any portion of a Warrant is
exercised at a time when there is an effective registration statement to cover
the resale of the Warrant Shares, such Warrant Shares shall be issued free of
all legends. The Company agrees that following the Effective Date or at such
time as such legend is no longer required under this Section 4.1(c), it will, no
later than three Trading Days following the delivery by an Investor to the
Company or the Company’s transfer agent of a certificate representing Shares or
Warrant Shares, as the case may be, issued with a restrictive legend (such date,
the “Legend Removal Date”), deliver or cause to be delivered to such Investor a
certificate representing such Securities that is free from all restrictive and
other legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. When the Company is required to cause
unlegended certificates to replace previously issued legended certificates under
this Section, if unlegended certificates are not delivered to an Investor within
three (3) Trading Days of submission by that Investor of legended certificate(s)
to the Transfer Agent as provided above (the “Delivery Date”), and if after such
Delivery Date and prior to the receipt of such unlegended certificates, the
Investor or the Investor’s broker purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Investor of the Shares which the Investor anticipated receiving upon such
request (a “Buy In”), then the Company shall (1) pay in cash to the Investor the
amount by which (x) the Investor’s total purchase price (including reasonable
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (y) the amount obtained by multiplying (A) the number of Shares that the
Company was required to deliver to the Investor on the Delivery Date by (B) the
closing bid price of the Common Stock on the Delivery Date and (2) deliver to
such Investor the number of shares of Common Stock that would have been issued
had the Company timely complied with its delivery obligations hereunder. The
Investor shall provide the Company written notice indicating the amounts payable
to the Investor in respect of the Buy In. Each Investor, severally and not
jointly with the other Investors, agrees that the removal of the restrictive
legend from certificates representing Securities as set forth in this Section
4.1 is predicated upon the Company’s reliance that the Investor will sell any
Securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an exemption
therefrom.
 
 
 

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Section 4.2 Furnishing of Information. As long as any Investor owns the
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Investor owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Investors and make publicly available in accordance with Rule 144(c) such
information as is required for the Investors to sell the Shares under Rule 144.
The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell the Shares without registration under
the Securities Act within the limitation of the exemptions provided by Rule 144.

Section 4.3 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Investor
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Investor
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Investor shall
be relying on the foregoing covenant and agreement in effecting transactions in
securities of the Company.

Section 4.4 Listing of Securities. The Company agrees, (i) if the Company
applies to have the Common Stock traded on any other Trading Market, it will
include in such application the Shares and the Warrant Shares, and will take
such other action as is necessary or desirable to cause the Shares and Warrant
Shares to be listed on such other Trading Market as promptly as possible, and
(ii) it will take all action reasonably necessary to continue the listing and
trading of its Common Stock on a Trading Market and will comply in all material
respects with the Company’s reporting, filing and other obligations under the
bylaws or rules of the Trading Market.

Section 4.5 Use of Proceeds. The Company will use the net proceeds from the sale
of the Securities hereunder for general corporate purposes, which may include
working capital and reduction of contractual obligations.

Section 4.6 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Investors or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.
 
 
 

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Section 4.7  Securities Laws Disclosure; Publicity. The Company shall, by the
fourth Trading Day following the date hereof, issue a Current Report on Form
8-K, reasonably acceptable to each Investor disclosing the material terms of the
transactions contemplated hereby. The Company may also issue a press release
with respect to the transactions contemplated by this Agreement. The Company
shall not publicly disclose the name of any Investor, or include the name of the
Investor in any filing with any governmental authority or Trading Market,
without the prior written consent of the Investor, except (i) as required by
federal securities law, including Current Reports on Form 8-K and any
registration statements as set forth in Section 2 of the Registration Rights
Agreement and (ii) to the extent such disclosure is required by law or
regulations or listing agreements, in which case the Company shall provide such
Investor with prior notice of such disclosure permitted under subclause (i) or
(ii).

Section 4.8 Indemnification of Investors. Subject to the provisions of this
Section 4.9, the Company will indemnify and hold the Investors and their
directors, officers, shareholders, partners, employees and agents (each, a
“Investor Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Investor Party may suffer or incur as a
result of or relating to any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents up to the aggregate Investment Amount of the Investors. If
any action shall be brought against any Investor Party in respect of which
indemnity may be sought pursuant to this Agreement, such Investor Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Investor Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Investor Party except to the extent that (i) the
employment thereof has been specifically authorized by the Company in writing,
(ii) the Company has failed after a reasonable period of time to assume such
defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of such Investor
Party. The Company will not be liable to any Investor Party under this Agreement
for any settlement by an Investor Party effected without the Company’s prior
written consent, which shall not be unreasonably withheld or delayed. 

Section 4.9 Reservation of Common Stock. As of the date of the Second Closing,
the Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, a sufficient number of shares
of Common Stock to permit the full exercise of the Warrants for Warrant Shares.

Section 4.10 Registration Statements. The Company shall not file any
registration statements with the Commission, except on Forms S-8 or S-4 and
post-effective amendments, until all Securities required to be registered
pursuant to the Registration Rights Agreement have been registered for resale to
the public and the registration statement(s) registering such Securities have
been declared effective by the Commission.

Section 4.11 Participation in Future Financing. From the date hereof until the
one year anniversary of the First Closing Date, upon any financing by the
Company of Common Stock or any securities exchangeable or exercisable for, or
convertible into, any Common Stock at a price less than the Per Share Purchase
Price, other than issuances set forth in Section 9(d) of the Warrants (a
“Subsequent Financing”), all the Investors shall have the right to participate
in the aggregate in up to 100% of the Subsequent Financing on a pro-rata basis
(the “Participation Maximum”).  At least 5 Trading Days prior to the closing of
the Subsequent Financing, the Company shall deliver to each Investor a written
notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which
Pre-Notice shall ask such Investor if it wants to review the details of such
financing (such additional notice, a “Subsequent Financing Notice”).  Upon the
request of a Investor, and only upon a request by such Investor, for a
Subsequent Financing Notice, the Company shall promptly, but no later than one
Trading Day after such request, deliver a Subsequent Financing Notice to such
Investor.  The Subsequent Financing Notice shall describe in reasonable detail
the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Financing is
proposed to be effected, and attached to which shall be a term sheet or similar
document relating thereto. If by 5:30 p.m. (pacific time) on the 5th Trading Day
after all of the Investors have received the Pre-Notice, notifications by the
Investors of their willingness to participate in the Subsequent Financing (or to
cause their designees to participate) is, in the aggregate, less than the total
amount of the Subsequent Financing, then the Company may effect the remaining
portion of such Subsequent Financing on the terms and to the Persons set forth
in the Subsequent Financing Notice.  If the Company receives no notice from an
Investor as of such 5th Trading Day, such Investor shall be deemed to have
notified the Company that it does not elect to participate.  The Company must
provide the Investors with a second Subsequent Financing Notice, and the
Investors will again have the right of participation set forth above in this
Section 4.11, if the Subsequent Financing subject to the initial Subsequent
Financing Notice is not consummated for any reason on the terms set forth in
such Subsequent Financing Notice within 60 Trading Days after the date of the
initial Subsequent Financing Notice. In the event the Company receives responses
to Subsequent Financing Notices from Investors seeking to purchase more than the
aggregate amount of the Subsequent Financing, each such Investor shall have the
right to purchase their Pro Rata Portion (as defined below) of the Participation
Maximum.  “Pro Rata Portion” is the ratio of (x) the Investment Amount of
Securities purchased by a participating Investor and (y) the sum of the
aggregate Investment Amount of all participating Investors.
 
 
 

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

 
 
ARTICLE V.
CONDITIONS PRECEDENT TO CLOSING

Section 5.1 Conditions Precedent to the Obligations of the Investors to Purchase
Securities. The obligation of each Investor to acquire Securities at the
applicable Closing is subject to the satisfaction or waiver by such Investor, at
or before the applicable Closing, of each of the following conditions:

(a) Representations and Warranties. The representations and warranties of the
Company contained herein shall be true and correct in all material respects as
of the date when made and as of the applicable Closing as though made on and as
of such date, except that representations and warranties that are qualified by
materiality shall be true and correct as of the date when made and as of the
applicable Closing as though made on and as of such date;
 
(b) Performance. The Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by it at or
prior to the applicable Closing;
 
(c) No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents;
 
(d) Adverse Changes. 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;
 
(e) No Suspensions of Trading in Common Stock; Listing. Trading in the Common
Stock shall not have been suspended by the Commission or any Trading Market
(except for any suspensions of trading of not more than one Trading Day solely
to permit dissemination of material information regarding the Company) at any
time since the date of execution of this Agreement, and the Common Stock shall
have been at all times since such date listed for trading on a Trading Market;
 
(g) Company Deliverables. The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a); and
 
(h) Termination. This Agreement shall not have been terminated as to such
Investor in accordance with Section 6.5 herein.
 
Section 5.2 Conditions Precedent to the Obligations of the Company to sell
Securities. The obligation of the Company to sell Securities at the applicable
Closing is subject to the satisfaction or waiver by the Company, at or before
the applicable Closing, of each of the following conditions:
 
 
 

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

 
 
(a) Representations and Warranties. The representations and warranties of each
Investor contained herein shall be true and correct in all material respects as
of the date when made and as of the applicable Closing as though made on and as
of such date;
 
(b) Performance. Each Investor shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with by such
Investor at or prior to the applicable Closing;

(c) No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents;
 
(e) Investors Deliverables. Each Investor shall have delivered its Investors
Deliverables in accordance with Section 2.2(b); and
 
(f) Termination. This Agreement shall not have been terminated as to such
Investor in accordance with Section 6.5 herein.

ARTICLE VI.
MISCELLANEOUS
 
Section 6.1 Fees and Expenses. Each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of the Transaction Documents. The Company shall pay all
stamp and other taxes and duties levied in connection with the sale of the
Shares.

Section 6.2 Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements,
understandings, discussions and representations, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
 
Section 6.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile (provided the sender
receives a machine-generated confirmation of successful transmission and
reasonably promptly following such transmission sends such notice or
communication via U.S. mail or overnight courier) at the facsimile number
specified in this Section prior to 5:00 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 5:00 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as follows:
 
If to the Company:
China Natural Gas
 
Tang Xing Shu Ma Building, Suite 418
 
Tang Xing Road
 
Xian High Tech Area
 
Xian, Shaanxi Province, China
 
Facsimile No.: 86-29-8844353
 
Telephone No.: 86-29-88323325
 
 
Attention: Chief Financial Officer
 
     

With a copy to:
Crone Rozynko LLP
 
101 Montgomery Street, Suite 1950
 
San Francisco, CA 94104
 
Facsimile No.: (415) 955-8900
 
Attention: Alisande M. Rozynko, Esq.

 
 
 

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

 
 
 
 
If to an Investor:
To the address set forth under such Investor’s
name on the signature pages hereof

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

Section 6.4 Amendments; Waivers; No Additional Consideration. No provision of
this Agreement may be waived or amended except in a written instrument signed by
the Company and the Investors holding a majority of the Shares. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right. No
consideration shall be offered or paid to any Investor to amend or consent to a
waiver or modification of any provision of any Transaction Document unless the
same consideration is also offered to all Investors who then hold Shares.
 
Section 6.5 Termination. This Agreement may be terminated prior to the First
Closing:
 
(a) by written agreement of the Investors and the Company; and
 
(b) by the Company or an Investor (as to itself but no other Investor) upon
written notice to the other, if the First Closing shall not have taken place by
5:00 p.m. (New York City time) on the Outside Date; provided, that the right to
terminate this Agreement under this Section 6.5(b) shall not be available to any
Person whose failure to comply with its obligations under this Agreement has
been the cause of or resulted in the failure of the First Closing to occur on or
before such time.
 
In the event of a termination pursuant to this Section, the Company shall
promptly notify all non-terminating Investors. Upon a termination in accordance
with this Section 6.5, the Company and the terminating Investor(s) shall not
have any further obligation or liability (including as arising from such
termination) to the other and no Investor will have any liability to any other
Investor under the Transaction Documents as a result therefrom.
 
Section 6.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. This Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.

Section 6.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
Other than in connection with a merger, consolidation, sale of all or
substantially all of the Company’s assets or other similar change in control
transaction, the Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Investors. Any
Investor may assign any or all of its rights under this Agreement to any Person
to whom such Investor assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the “Investors.”
 
Section 6.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
 
Section 6.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
California, without regard to the principles of conflicts of law thereof. Each
party agrees that all Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the
California Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the California Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of the any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such California Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document, then
the prevailing party in such Proceeding shall be reimbursed by the other party
for its reasonable attorneys’ fees and other costs and expenses incurred with
the investigation, preparation and prosecution of such Proceeding.
 
 
 

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

 

Section 6.10 Survival. The agreements, covenants, representation and warranties
contained herein shall survive the Closings and the delivery of the Securities.
 
Section 6.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
 
Section 6.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
 
Section 6.13 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities. If a replacement
certificate or instrument evidencing any Securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.
 
Section 6.14 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Investors and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
 
Section 6.15 Payment Set Aside. To the extent that the Company makes a payment
or payments to any Investor pursuant to any Transaction Document or an Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
 
 
 

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

 

Section 6.16 Independent Nature of Investors’ Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Each Investor’s obligations
hereunder are expressly not conditioned on the purchase by any or all of the
other Investors of the Shares and Warrants. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including without limitation the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor. The Company’s obligations to each Investor
under this Agreement are identical to its obligations to each other Investor
other than such differences resulting solely from the number of Securities
purchased by each Investor, but regardless of whether such obligations are
memorialized herein or in another agreement between the Company and an Investor.
 
Section 6.18 Limitation of Liability. Notwithstanding anything herein to the
contrary, the Company acknowledges and agrees that the liability of an Investor
arising directly or indirectly, under any Transaction Document of any and every
nature whatsoever shall be satisfied solely out of the assets of such Investor,
and that no trustee, officer, other investment vehicle or any other Affiliate of
such Investor or any investor, shareholder or holder of shares of beneficial
interest of such a Investor shall be personally liable for any liabilities of
such Investor.

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

 
CHINA NATURAL GAS, INC.
  
  
  
  
 
By: 
/s/ Qinan Ji
  
 
  
Name: Qinan Ji 
  
 
  
Title: Chief Executive Officer 
  
  
  
  
  
  
  

 
[Signature Pages for Investors Follows]

 
 

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

 

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

 
NAME OF INVESTOR 
 
Alder Capital Partners I, L.P.
 
 
 
 
 
 
By:
/s/ Michael Licosati
 
 
Name:
Michael Licosati
 
 
Title:
Managing Partner Alder Capital, LLC.
 
 
 
 
 
Investment Amount: $ 161,492.50
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
483-82484
 
  
  
 
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Alder Capital, LLC.
 
 
  
 
Street:
12750 High Bluff Dr., Suite 120
 
 
  
 
City/State/Zip:
San Diego, CA 92130
 
 
  
 
Attention:
Michael Licosati
 
 
  
 
Tel:
(858)259-3900x101
 
 
  
 
Fax:
(858)259-3272
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
     
c/o:
 
 
 
  
 
Street:
 
 
 
  
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Alder Offshore Partners, Ltd.
 
 
     
By:
/s/ Michael Licosati
 
 
Name:
Michael Licosati
 
 
Title:
Managing Partner Alder Capital, LLC.
 
 
 
 
 
 
 
 
Investment Amount: $ 63,508.25
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
483-85051-19
 
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Alder Capital, LLC.
 
 
  
 
Street:
12750 High Bluff Dr., Suite 120
 
 
  
 
City/State/Zip:
San Diego, CA 92130
 
 
  
 
Attention:
Michael Licosati
 
 
  
 
Tel:
(858)259-3900x101
 
 
  
 
Fax:
(858)259-3272
 
 
 
 
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
     
c/o:
 
 
 
  
 
Street:
 
 
 
  
   
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Enable Opportunity Partners, L.P.
 
 
 
 
 
 
 
 
By:
/s/ Brendan O’Neil
 
 
Name:
Brendan O’Neil
 
 
Title:
Principal and Portfolio Manager
 
 
 
 
 
 
 
 
Investment Amount: $ 99,999.25
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
20-1204059
 
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Brendan O’Neil
 
 
  
 
Street:
One Ferry Building Suite 255
 
   
 
City/State/Zip:
San Francisco, CA 94111
 
 
  
 
Attention:
Brendan O’Neil
 
 
  
 
Tel:
(415)677-1578
 
 
  
 
Fax:
(415)677-1580
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
 
 
 
c/o:
 
 
 
  
 
Street:
 
 
 
  
   
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Enable Growth Partners, L.P.
 
 
 
 
 
 
 
 
By:
/s/ Brendan O’Neil
 
 
Name:
Brendan O’Neil
 
 
Title:
Principal and Portfolio Manager
 
 
 
 
 
 
 
 
Investment Amount: $ 225,000.75
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
75-3030215
 
  
  
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Brendan O’Neil
 
 
  
 
Street:
One Ferry Building Suite 255
 
       
 
  
 
City/State/Zip:
San Francisco, CA 94111
 
 
  
 
Attention:
Brendan O’Neil
 
 
  
 
Tel:
(415)677-1578
 
 
  
 
Fax:
(415)677-1580
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
 
 
     
c/o:
 
 
 
  
 
Street:
 
 
 
  
   
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Lagunitas Partners, L.P.
 
 
 
 
 
 
By:
/s/ Jon D. Gruber
 
 
Name:
Gruber + McBaine Capital Management
 
 
Title:
General Partner
 
 
 
 
 
 
 
 
Investment Amount: $ 247,123.50
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
94-3052761
 
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Gruber + McBaine Capital Management
 
 
  
 
Street:
50 Osgood Place - Penthouse
 
 
  
   
 
City/State/Zip:
San Francisco, CA 94133
 
 
  
 
Attention:
Christine Arroyo
 
 
  
 
Tel:
(415)782-2606
 
 
  
 
Fax:
(415)981-6434
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
     
c/o:
 
 
 
  
 
Street:
 
 
 
  
   
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Gruber + McBaine International
 
 
 
 
 
 
By:
/s/ Jon D. Gruber
 
 
Name:
Gruber + McBaine Capital Management
 
 
Title:
Investment Advisor
 
 
 
 
 
 
 
 
Investment Amount: $ 56,875.00
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
N/A Offshore Entity
 
  
  
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Gruber+McBaine Capital Management
 
 
  
 
Street:
50 Osgood Place - Penthouse
 
 
  
   
 
City/State/Zip:
San Francisco, CA 94133
 
 
  
 
Attention:
Christine Arroyo
 
 
  
 
Tel:
(415)782-2606
 
 
  
 
Fax:
(415)981-6434
 
 
 
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
     
c/o:
 
 
 
  
 
Street:
 
 
 
  
   
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Jon D and Linda W Gruber Trust
 
 
 
 
 
By:
/s/ Jon D. Gruber
 
 
Name:
Jon D. Gruber
 
 
Title:
Trustee
 
 
 
 
 
 
 
 
Investment Amount: $ 95,998.50
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
###-##-####
 
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Gruber+McBaine Capital Management
 
 
  
 
Street:
50 Osgood Place - Penthouse
 
 
  
   
 
City/State/Zip:
San Francisco, CA 94133
 
 
  
 
Attention:
Christine Arroyo
 
 
  
 
Tel:
(415)782-2606
 
 
  
 
Fax:
(415)981-6434
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
 
 
 
c/o:
 
 
 
  
 
Street:
 
 
 
  
   
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Excalibur Limited Partnership
 
 
 
 
 
 
 
 
By:
/s/ William Hechter
 
 
Name:
William Hechter
 
 
Title:
President
 
 
 
 
 
 
 
 
Investment Amount: $ 200,001.75
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
N/A
 
  
  
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
 
 
 
  
 
Street:
33 Prince Arthur Ave.
 
 
  
   
 
City/State/Zip:
Toronto On M5R 1B2
 
 
  
 
Attention:
William Hechter
 
 
  
 
Tel:
(416)964-9077
 
 
  
 
Fax:
(416)964-8868
 
 
 
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
     
c/o:
CIBC World Market, Inc.
 
 
  
 
Street:
200 King Street West, Ste 1807
 
 
  
   
 
City/State/Zip:
Toronto On
 
 
  
 
Attention:
Lisa Convad
 
 
  
 
Tel:
(416)594-8933
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Pinnacle China Fund, L.P.
 
 
 
 
 
 
By:
/s/ Barry M. Kitt
 
 
Name:
Barry M. Kitt
 
 
Title:
General Partner of Pinnacle China Fund, L.P.
 
 
 
 
 
 
 
 
Investment Amount: $ 1,074,999.25
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
20-3358646
 
  
  
  
  
 
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Pinnacle China Fund, L.P.
 
 
  
 
Street:
4965 Preston Park Blvd., Ste 240
 
 
  
   
 
City/State/Zip:
Plano, TX 75093
 
 
  
 
Attention:
Barry M. Kitt
 
 
  
 
Tel:
(972)985-2121
 
 
  
 
Fax:
(972)985-2122
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
 
 
 
c/o:
Banc of America Securities
 
 
  
 
Street:
901 Main Street, Suite 6616
 
 
  
   
 
City/State/Zip:
Dallas, TX 75202
 
 
  
 
Attention:
Brett Speer
 
 
  
 
Tel:
(214)209-9973
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
The Pinnacle Fund, L.P.
 
 
 
 
 
 
By:
/s/ Barry M. Kitt
 
 
Name:
Barry M. Kitt
 
 
Title:
General Partner of The Pinnacle Fund, L.P.
 
 
 
 
 
 
 
 
Investment Amount: $ 1,074,999.25
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
75-2512784
 
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
The Pinnacle Fund, L.P.
 
 
  
 
Street:
4965 Preston Park Blvd., Ste 240
 
 
  
   
 
City/State/Zip:
Plano, TX 75093
 
 
  
 
Attention:
Barry M. Kitt
 
 
  
 
Tel:
(972)985-2121
 
 
  
 
Fax:
(972)985-2122
 
 
 
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
 
 
     
c/o:
Banc of America Securities
 
 
  
 
Street:
901 Main Street, Suite 6616
 
 
  
   
 
City/State/Zip:
Dallas, TX 75202
 
 
  
 
Attention:
Brett Speer
 
 
  
 
Tel:
(214)209-9973
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Patara Capital, L.P.
 
 
 
 
 
By:
/s/ Berke Bakay
 
 
Name:
Berke Bakay
 
 
Title:
Principal
 
 
 
 
 
 
 
 
Investment Amount: $ 99,999.25
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
20-4364808
 
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Patara Capital, L.P.
 
 
  
 
Street:
5050 Quorum Drive, Ste 312
 
 
  
   
 
City/State/Zip:
Dallas, TX 75254
 
 
  
 
Attention:
Berke Bakay
 
 
  
 
Tel:
(214)866-0005
 
 
  
 
Fax:
(214)540-5796
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
     
c/o:
 
 
 
  
 
Street:
 
 
 
  
   
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Keyrock Partners, L.P.
 
 
 
 
 
 
By:
/s/ Stephen J. Carter
 
 
Name:
Stephen J. Carter
 
 
Title:
Managing Member
 
 
 
 
 
 
 
 
Investment Amount: $ 124,999.88
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
 
 
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Keyrock Partners, L.P.
 
 
  
 
Street:
8201 Preston Rd, Ste 400
 
 
  
   
 
City/State/Zip:
Dallas, TX 75225
 
 
  
 
Attention:
Stephen Carter
 
 
  
 
Tel:
(214)891-1601
 
 
  
 
Fax:
(214)890-8825
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
     
c/o:
 
 
 
  
 
Street:
 
 
 
  
   
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Robert K. Moses, Jr.
 
 
 
 
 
 
 
 
By:
/s/ Robert K. Moses, Jr.
 
 
Name:
Robert K. Moses, Jr.
 
 
Title:
Individual
 
 
 
 
 
 
 
 
Investment Amount: $ 2,112,500.00
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
55462-60-2233
 
  
  
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Robert K. Moses, Jr.
 
 
  
 
Street:
P.O. Box 27888
 
 
  
   
 
City/State/Zip:
Houston, TX 77227
 
 
  
 
Attention:
 
 
 
  
 
Tel:
(713)781-6191
 
 
  
 
Fax:
(713)781-6022
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
FedEx ONLY
 
 
     
c/o:
Robert K. Moses, Jr.
 
 
  
 
Street:
1220 Auqusta Dr, Ste 240
 
 
  
   
 
City/State/Zip:
Houston, TX 77057
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Straus GEPT Partners, L.P.
 
 
 
 
 
By:
/s/ Craig Connors
 
 
Name:
Craig Connors
 
 
Title:
CFO
 
 
 
 
 
 
 
 
Investment Amount: $ 192,497.50
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
134054804
 
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Straus Asset Management
 
 
  
 
Street:
320 Par, Ave., 10th Floor
 
 
  
   
 
City/State/Zip:
New York, NY 10022
 
 
  
 
Attention:
Craig Connors
 
 
  
 
Tel:
(212)415-7274
 
 
  
 
Fax:
(212)415-7256
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
     
c/o:
Straus Asset Management
 
 
  
 
Street:
320 Park Ave. 10th Floor
 
 
  
 
City/State/Zip:
New York, NY 10022
 
 
  
 
Attention:
Craig Connors
 
 
  
 
Tel:
(212)415-7274
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Straus Partners, L.P.
 
 
 
 
 
 
By:
/s/ Craig Connors
 
 
Name:
Craig Connors
 
 
Title:
CFO
 
 
 
 
 
 
 
 
Investment Amount: $ 157,501.50
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
133976076
 
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Straus Asset Management
 
 
  
 
Street:
320 Par, Ave., 10th Floor
 
 
  
   
 
City/State/Zip:
New York, NY 10022
 
 
  
 
Attention:
Craig Connors
 
 
  
 
Tel:
(212)415-7274
 
 
  
 
Fax:
(212)415-7256
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
     
c/o:
Straus Asset Management
 
 
  
 
Street:
320 Park Ave. 10th Floor
 
 
  
   
 
City/State/Zip:
New York, NY 10022
 
 
  
 
Attention:
Craig Connors
 
 
  
 
Tel:
(212)415-7274
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Sansar Capital Special Opportunity Master Fund, L.P.
 
 
 
 
 
 
 
 
By:
/s/ Vincent Guacci
 
 
Name:
Vincent Guacci
 
 
Title:
CFO/COO
 
 
 
 
 
 
 
 
Investment Amount: $ 2,149,998.50
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
20-4090101
 
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Sansar Capital Special Opportunity Master Fund
 
 
  
 
Street:
25 West 53rd St.
 
 
  
   
 
City/State/Zip:
New York, NY 10019
 
 
  
 
Attention:
Vince Guacci
 
 
  
 
Tel:
(212)399-8980
 
 
  
 
Fax:
(917)849-5120
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
     
c/o:
 
 
 
  
 
Street:
 
 
 
  
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Octagon Capital Partners
 
 
 
 
 
 
By:
/s/ Steven Hart
 
 
Name:
Steven Hart
 
 
Title:
General Partner
 
 
 
 
 
 
 
 
Investment Amount: $ 102,375.00
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
20-2027228
 
  
  
  
  
 
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Steven Hart
 
 
  
 
Street:
155 West 68th St., #276
 
 
  
   
 
City/State/Zip:
New York, NY 10023
 
 
  
 
Attention:
 
 
 
  
 
Tel:
(917)658-7878
 
 
  
 
Fax:
 
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
     
c/o:
 
 
 
  
 
Street:
 
 
 
  
   
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Heller Capital Investments
 
 
 
 
 
 
 
 
By:
/s/ Ronald I. Heller
 
 
Name:
Ronald I. Heller
 
 
Title:
CIO
 
 
 
 
 
 
 
 
Investment Amount: $ 347,626.50
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
20-2301089
 
  
  
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
 
 
 
  
 
Street:
700 E. Palisade Ave.
 
 
  
   
 
City/State/Zip:
Englewood Cliffs, NJ 07632
 
 
  
 
Attention:
Steven Hart
 
 
  
 
Tel:
(201)816-4235
 
 
  
 
Fax:
(201)569-5014
 
 
 
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
 
 
     
c/o:
 
 
 
  
 
Street:
 
 
 
  
   
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Highbridge International, LLC
 
 
 
 
 
By:
/s/ Adam J. Chill
 
 
Name:
Adam J. Chill
 
 
Title:
Managing Director
 
 
 
 
 
 
 
 
Investment Amount: $ 412,503.00
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
Not Applicable
 
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Highbridge Capital Mangement, L.L.C.
 
 
  
 
Street:
9 West 57th St., 27th Floor
 
 
  
   
 
City/State/Zip:
New York, NY 10019
 
 
  
 
Attention:
Ari J. Storch/Adam J. Chill
 
 
  
 
Tel:
(212)287-4720
 
 
  
 
Fax:
(212)-751-0755
 
 
 
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
 
 
     
c/o:
Bear Stearns
 
 
  
 
Street:
1 Metrotech Center, 20th Floor
 
 
  
   
 
City/State/Zip:
Brooklyn, NY 11201
 
 
  
 
Attention:
Elanna Bradley
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Whitebox Intermarket Partners, L.P.
 
 
 
 
 
 
 
 
By:
/s/ Jonathan Wood
 
 
Name:
Jonathan Wood
 
 
Title:
COO
 
 
 
 
 
 
 
 
Investment Amount: $ 525,001.75
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
 
 
  
  
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Whitebox Advisors, LLC
 
 
  
 
Street:
3033 Excelsior Blvd., Ste 300
 
 
  
   
 
City/State/Zip:
Minneapolis, MN 55416
 
 
  
 
Attention:
Ryan Kuehn
 
 
  
 
Tel:
(612)253-6069
 
 
  
 
Fax:
(612)253-6169
 
 
 
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
 
 
     
c/o:
 
 
 
  
 
Street:
 
 
 
  
   
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Heartland Group, Inc. Solely on behalf of
 
Heartland Value Fund
 
 
 
 
 
 
By:
/s/ David C. Fondrie
 
 
Name:
David C. Fondrie
 
 
Title:
CEO
 
 
 
 
 
 
 
 
Investment Amount: $ 4,875,000.00
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
39-1498286
 
  
  
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Heartland Advisors, Inc.
 
 
  
 
Street:
789 N. Water St., Ste 500
 
 
  
   
 
City/State/Zip:
Milwaukee, WI 53202
 
 
  
 
Attention:
Nicole J. Best
 
 
  
 
Tel:
(414)977-8748
 
 
  
 
Fax:
(414)977-8948
 
 
 
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
Shares to be Registered to: Heartland Value Fund
 
 
     
c/o:
Brown Brothers Harriman - New York Vault
 
 
  
 
Street:
140 Broadway St.
 
 
  
   
 
City/State/Zip:
New York, NY 10005-1101
 
 
  Ref: A/C #6159537 / A/C Heartland Value Fund
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Nite Capital Master, Ltd.
 
 
 
 
 
 
 
 
By:
/s/ Keith A. Goodman
 
 
Name:
Keith A. Goodman
 
 
Title:
Authorized Signatory
 
 
 
 
 
 
 
 
Investment Amount: $ 99,999.25
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
98-0528694
 
  
  
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Nite Capital Master, Ltd.
 
 
  
 
Street:
100 East Cook Ave. Ste 201
 
 
  
   
 
City/State/Zip:
Libertyville, IL 60048
 
 
  
 
Attention:
Keith Goodman
 
 
  
 
Tel:
(847)968-2655
 
 
  
 
Fax:
(847)968-2648
 
 
 
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
 
 
     
c/o:
Nite Capital Master, Ltd.
 
 
  
 
Street:
100 East Cook Ave. Ste 201
 
 
  
   
 
City/State/Zip:
Libertyville, IL 60048
 
 
  
 
Attention:
Keith Goodman
 
 
  
 
Tel:
(847)968-2655
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Barrington Partners, a California Limited Partnership
 
 
 
 
 
 
 
 
By:
/s/ Russell Faucett
 
 
Name:
Russell Faucett
 
 
Title:
General Partner
 
 
 
 
 
 
 
 
Investment Amount: $ 152,249.50
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
95-3927686
 
  
  
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Barrington Partners
 
 
  
 
Street:
2001 Wilshire Blvd., Ste 401
 
 
  
   
 
City/State/Zip:
Santa Monica, CA 90403
 
 
  
 
Attention:
Glenn Rosen
 
 
  
 
Tel:
(310)264-4844x5
 
 
  
 
Fax:
(310)264-4847
 
 
 
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
 
 
     
c/o:
 
 
 
  
 
Street:
 
 
 
  
   
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

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

 
NAME OF INVESTOR 
 
Barrington Investors, L.P.
 
 
 
 
 
 
By:
/s/ Russell Famcett
 
 
Name:
Russell Famcett
 
 
Title:
General Partner
 
 
 
 
 
 
 
 
Investment Amount: $ 347,750.00
 
 
 
 
 
 
 
 
 
 
 
Tax ID No.:
95-4664502
 
  
  
     
ADDRESS FOR NOTICE 
  
  
  
  
 
c/o:
Barrington Investors
 
 
  
 
Street:
2001 Wilshire Blvd., Ste 401
 
 
  
   
 
City/State/Zip:
Santa Monica, CA 90403
 
 
  
 
Attention:
Glenn Rosen
 
 
  
 
Tel:
(310)264-4844x5
 
 
  
 
Fax:
(310)264-4847
 
 
 
 
     
 
DELIVERY INSTRUCTIONS 
 
 
(if different from above) 
 
 
 
     
c/o:
 
 
 
  
 
Street:
 
 
 
  
   
 
City/State/Zip:
 
 
 
  
 
Attention:
 
 
 
  
 
Tel:
 
 

 
 
 

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

 
 
SCHEDULE 2.1
 
Investor
 
Investment Amount
 
No. of Shares
 
No. of Warrants
                 
Alder Capital Partners I, L.P.
 
$
161,492.50
   
49,690
   
7,454
 
Alder Offshore Partners Ltd.
 
$
63,508.25
   
19,541
   
2,931
 
Enable Opportunity Partners LP
 
$
99,999.25
   
30,769
   
4,615
 
Enable Growth Partners LP
 
$
225,000.75
   
69,231
   
10,385
 
Lagunitas Partners LP
 
$
247,123.50
   
76,038
   
11,406
 
Gruber + McBaine International
 
$
56,875.00
   
17,500
   
2,625
 
Jon D and Linda W Gruber Trust
 
$
95,998.50
   
29,538
   
4,431
 
Excalibur Limited Partnership
 
$
200,001.75
   
61,539
   
9,231
 
Pinnacle China Fund, L.P.
 
$
1,074,999.25
   
330,769
   
49,615
 
The Pinnacle Fund, L.P.
 
$
1,074,999.25
   
330,769
   
49,615
 
Keyrock Partners, L.P.
 
$
124,999.88
   
38,462
   
5,769
 
Patara Capital, LP
 
$
99,999.25
   
30,769
   
4,615
 
Robert K. Moses, Jr.
 
$
2,112,500.00
   
650,000
   
97,500
 
Straus GEPT Partners LP
 
$
192,497.50
   
59,230
   
8,885
 
Straus Partners LP
 
$
157,501.50
   
48,462
   
7,269
 
Sansar Capital Special Opportunity Master Fund, LP
 
$
2,149,998.50
   
661,538
   
99,231
 
Octagon Catpial Partners
 
$
102,375.00
   
31,500
   
4,725
 
Heller Capital Investments
 
$
347,626.50
   
106,962
   
16,044
 
Highbridge International LLC
 
$
412,503.00
   
126,924
   
19,039
 
Whitebox Intermarket Partners, LP
 
$
525,001.75
   
161,539
   
24,231
 
Heartland Value Fund
 
$
4,875,000.00
   
1,500,000
   
225,000
 
Nite Capital Master LTD
 
$
99,999.25
   
30,769
   
4,615
 
Barrington Partners, A California Limited Partnership
 
$
152,249.50
   
46,846
   
7,027
 
Barrington Investors L.P.
 
$
347,750.00
   
107,000
   
16,050
                       
Total
 
$
14,999,999.63
   
4,615,385
   
692,308
 

 
 

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

 

CHINA NATUAL GAS, INC.

DISCLOSURE SCHEDULES

The following information is being furnished to the Investors identified on the
signature pages of, and pursuant to, the Securities Purchase Agreement dated as
of July __, 2007 (the “Purchase Agreement”), and is meant to qualify and limit
any representations, warranties and covenants made by the Company therein. Any
reference to, or disclosure of, any item or other matter in these Disclosure
Schedule shall not be construed as an admission or indication that such item or
other matter is material to the Company or that such item or other matter is
required to be referred to, or disclosed in, these Disclosure Schedules. Any
disclosure in these Disclosure Schedules relating to a possible breach or
violation of any agreement, statute, rule or regulation shall not be construed
as an admission or indication that such beach or violation exists or has
actually occurred. The information disclosed in these Disclosure Schedules is
arranged in section and subsection numbers corresponding to the section and
subsection numbers contained in the Purchase Agreement. Capitalized terms used
herein and not otherwise defined shall, unless the context indicates otherwise,
have the respective meanings ascribed to them in the Purchase Agreement.

Schedule 3.1(g) Capitalization

(i) On December 6, 2005, the Company entered into a share purchase agreement
with Xian Xilan Natural Gas Co., Ltd., a corporation formed under the laws of
the People’s Republic of China (“Xilan”) and each of Xilan’s shareholders.
Pursuant to the agreement, the Company acquired all of the issued and
outstanding capital stock of Xilan from the Xilan shareholders in exchange for
4,000,000 shares of the Company’s common stock (the “Exchange Transaction”).
Recently, seven individuals presented to the Company certain Agreements of Stock
Right Ownership Transfer and Stock Right Certificates claiming rights to
1,180,000 shares of Common Stock of Xilan (the “Xilan Shares”). Applying the
exchange ratio used in the Exchange Transaction, such shares of Xilan would
equal 68,406 shares of the Company’s common stock. The Xilan shares were not
issued to these individuals by Xilan originally but purchased by these
individuals from other stockholders of Xilan. Although it appears that the
Agreements of Stock Right Ownership Transfer and Stock Right Certificates are
stamped with the chop of Xian Xilan Natural Gas Stock Co., Ltd., the Company
disputes the validity of such transfers.

(ii) Xian Sunway Technology & Industry Co. Ltd. (“Sunway”) is an entity which
was founded by Mr. Qinan Ji, the Chairman and Chief Executive Officer of the
Company. Sunway currently owns 2,875,364 shares (approximately 11.9%) of the
Company’s common stock and Mr. Ji holds 43% of the outstanding stock in Sunway.
Sunway raised funds from numerous Chinese individual investors who have alleged
that they purchased shares in Sunway based on the promise that Sunway would soon
go public in the United States. However, to date Sunway has not completed a
public offering in the United States. Sunway has expressed intent to distribute
its current holding of the Company’s common stock on a pro rata basis to its
shareholders to satisfy the concerns expressed by some of Sunway’s shareholders.
Alternatively Sunway may choose to sell its shares of the Company in a private
sale or a public offering. Sunway is subject to a lockup agreement therefore a
sale or transfer of its shares of the Company would not occur prior to the one
year anniversary of the effectiveness of the Registration Statement. The Company
has no involvement with Sunway.
 
 
 

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Schedule 3.1(o) Insurance

The Company does not currently maintain any directors and officers liability
insurance policy but is in the process of obtaining such policy in the amount of
$15,000,000. The Company expects to have this policy in place by December 31,
2007.

Schedule 3.1(q) Certain Fees

The Company entered into a finance representation agreement with Brean Murray,
Carret & Co., LLC. (“BMC”) on July 31, 2007, for a period of six months.
Pursuant to the agreement, the Company agreed to pay BMC a retainer of $10,000
and issued a warrant to acquire 75,000 shares of the Company’s common stock. In
addition, upon the consummation of a financing transaction, the Company shall
pay BMC a fee equal to 7% of the gross proceeds raised in such financing
transaction.

Schedule 3.1(u) No Additional Agreements

In connection with the transactions contemplated by the Purchase Agreement and
the Registration Rights Agreement, the Company has entered into a side letter
agreement (“Side Letter”) with Heartland Group, Inc. (“Heartland”) on even date
herewith. Pursuant to the Side Letter, the Company has agreed to notify
Heartland and its legal counsel in the event the SEC declares any Registration
Statement effective or issues a stop order suspending the effectiveness of any
Registration Statement.

 
 

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EXHIBIT A

FORM OF WARRANT

 
 

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NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED
BY SUCH SECURITIES.

CHINA NATURAL GAS, INC.

WARRANT

Warrant No. [ ]       Issue Date: [ ], 2007

China Natural Gas, Inc., a Delaware corporation (the "Company"), hereby
certifies that, for value received, [ ] or its registered assigns (the
"Holder"), is entitled to purchase from the Company up to a total of [ ](1)
shares of Common Stock, subject to adjustment in accordance herewith (each such
share, a "Warrant Share" and all such shares, the "Warrant Shares"), at any time
and from time to time from and after the date hereof through and including [ ],
2012 (five years) (the "Expiration Date"), and subject to the following terms
and conditions:

1. Definitions. As used in this Warrant, the following terms shall have the
respective definitions set forth in this Section 1. Capitalized terms that are
used and not defined in this Warrant that are defined in the Purchase Agreement
(as defined below) shall have the respective definitions set forth in the
Purchase Agreement.

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(1) A number of shares as equals 15% of the Investment Amount (as defined in the
Purchase Agreement), divided by $3.25.

"Business Day" means any day except Saturday, Sunday and any day that is a
federal legal holiday in the United States or a day on which banking
institutions in the State of California are authorized or required by law or
other government action to close.

"Common Stock" means the common stock of the Company, par value $0.0001 per
share, and any securities into which such common stock may hereafter be
reclassified.

"Exercise Price" means $7.79 per share, subject to adjustment in accordance with
Section 9.

"Fundamental Transaction" means any of the following: (1) the Company effects
any merger or consolidation of the Company with or into another Person, (2) the
Company effects any sale of all or substantially all of its assets in one or a
series of related transactions, (3) any tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (4) 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.

"Original Issue Date" means the Original Issue Date first set forth on the first
page of this Warrant.

"California Courts" means the state and federal courts sitting in the City of
San Francisco, County of San Francisco, California.
 
 
 

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"Purchase Agreement" means the Securities Purchase Agreement, dated August 2,
2007, to which the Company and the original Holder are parties.

"Trading Day" means (i) a day on which the Common Stock is traded on a Trading
Market, or (ii) if the Common Stock is not quoted on any Trading Market, a day
on which the Common Stock is quoted in the over-the-counter market as reported
by the Pink Sheets, LLC (or any similar organization or agency succeeding to its
functions of reporting prices).

"VWAP" means on any particular Trading Day or for any particular period, the
volume weighted average trading price per share of Common Stock on such date or
for such period as reported by the Bloomberg L.P., or by any successor
performing similar functions.

2. Registration of Warrant. The Company shall register this Warrant upon records
to be maintained by the Company for that purpose (the "Warrant Register"), in
the name of the record Holder hereof from time to time. The Company may deem and
treat the registered Holder of this Warrant as the absolute owner hereof for the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent actual notice to the contrary.

3. Registration of Transfers. The Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this Warrant,
with the Form of Assignment attached hereto duly completed and signed, to the
Company at its address specified herein. Upon any such registration or transfer,
a new Warrant to purchase Common Stock, in substantially the form of this
Warrant (any such new Warrant, a "New Warrant"), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by
the transferee thereof shall be deemed the acceptance by such transferee of all
of the rights and obligations of a holder of a Warrant.

4. Exercise and Duration of Warrants. This Warrant shall be exercisable by the
registered Holder at any time and from time to time on or after the date hereof
through and including the Expiration Date. At 6:30 p.m., New York City time on
the Expiration Date, the portion of this Warrant not exercised prior thereto
shall automatically be deemed to be exercised in full in the manner set forth in
Section 10(b), without any further action on behalf of the Holder immediately
prior to the Expiration Date; provided, however, that in the event that the
cashless exercise formula set forth in Section 10(b) yields a result that is
less than or equal to zero, then the unexercised portion of this Warrant shall
automatically terminate and become void. The Company may not call or redeem any
portion of this Warrant without the prior written consent of the affected
Holder.

5. Delivery of Warrant Shares.

(a) To effect exercises hereunder, the Holder shall not be required to
physically surrender this Warrant unless the aggregate Warrant Shares
represented by this Warrant is being exercised. Upon delivery of the Exercise
Notice (in the form attached hereto) to the Company at its address for notice
set forth herein and upon payment of the Exercise Price multiplied by the number
of Warrant Shares that the Holder intends to purchase hereunder, the Company
shall promptly (but in no event later than five Trading Days after the Date of
Exercise (as defined herein)) issue and deliver to the Holder, a certificate for
the Warrant Shares issuable upon such exercise, which, unless otherwise required
by the Purchase Agreement, shall be free of restrictive legends. The Company
shall, upon request of the Holder and subsequent to the date on which a
registration statement covering the resale of the Warrant Shares has been
declared effective by the Securities and Exchange Commission, use its
commercially reasonable efforts to deliver Warrant Shares hereunder
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions, if available, provided, that,
the Company may, but will not be required to change its transfer agent if its
current transfer agent cannot deliver Warrant Shares electronically through the
Depository Trust Corporation. A "Date of Exercise" means the date on which the
Holder shall have delivered to the Company: (i) the Exercise Notice,
appropriately completed and duly signed and (ii) if such Holder is not utilizing
the cashless exercise provisions set forth in this Warrant, payment of the
Exercise Price for the number of Warrant Shares so indicated by the Holder to be
purchased.
 
 
 

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(b)  If by the fifth Trading Day after a Date of Exercise (“Warrant Delivery
Date”) the Company fails to deliver the required number of Warrant Shares in the
manner required pursuant to Section 5(a), then the Holder will have the right to
rescind such exercise.

(c)  The Company's obligations to issue and deliver Warrant 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 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 of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other Person, and irrespective of any
other circumstance which might otherwise limit such obligation of the Company to
the Holder in connection with the issuance of Warrant 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 certificates representing Warrant Shares upon exercise
of the Warrant as required pursuant to the terms hereof.

(d)In addition to any other rights available to the Holder, if the Company fails
to cause its transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to an exercise on or
before the Warrant Share Delivery Date, and if after such date the Holder is
required by its broker to purchase (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of the
Warrant Shares which the Holder anticipated receiving upon such exercise (a
“Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by
which (x) the Holder’s total purchase price (excluding brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (y) the amount obtained
by multiplying (A) the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation was
executed, and (2) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was
not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the Company. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.
 
6. Charges, Taxes and Expenses. Issuance and delivery of Warrant Shares upon
exercise of this Warrant shall be made without charge to the Holder for any
issue or transfer tax, transfer agent fee or other incidental tax or expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company; 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 registration of any certificates for Warrant 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 Warrant Shares upon exercise hereof.

7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity (which shall not include a surety bond), if requested.
Applicants for a New Warrant under such circumstances shall also comply with
such other reasonable regulations and procedures and pay such other reasonable
third-party costs as the Company may prescribe. If a New Warrant is requested as
a result of a mutilation of this Warrant, then the Holder shall deliver such
mutilated Warrant to the Company as a condition precedent to the Company's
obligation to issue the New Warrant.
 
 
 

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8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of Persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly authorized, validly issued and fully paid and nonassessable.

9. Certain Adjustments. The Exercise Price and number of Warrant Shares issuable
upon exercise of this Warrant are subject to adjustment from time to time as set
forth in this Section 9.

(a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes
a distribution on any class of capital stock that is payable in shares of Common
Stock, (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, or (iii) combines outstanding shares of Common Stock into a smaller
number of shares, then in each such case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clause (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.

(b) Fundamental Transactions. If, at any time while this Warrant is outstanding
there is a Fundamental Transaction, then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind
of securities, cash or property as it would have been entitled to receive upon
the occurrence of such Fundamental Transaction if it had been, immediately prior
to such Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the "Alternate Consideration").
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. 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 paragraph (b) and
insuring that the Warrant (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

(c) Additional Issuances. Except as hereinafter provided, in case the Company
shall at any time after the date hereof issue or sell any shares of Common Stock
or securities convertible into or exercisable or exchangeable for shares of
Common Stock (other than the issuance or sales referred to in Section 9(d)
hereof), for a consideration per share less than the Exercise Price in effect
immediately prior to the issuance or sale of such shares or without
consideration (“Additional Shares of Common Stock”), then forthwith upon such
issuance or sale, the Exercise Price shall be reduced to the price (calculated
to the nearest full cent) determined by multiplying such Exercise Price by a
fraction, the numerator of which shall be (x) the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of shares of
Common Stock which the aggregate consideration received by the Company for the
total number of Additional Shares of Common Stock so issued would purchase at
such Exercise Price in effect immediately prior to such issuance, and the
denominator of which shall be (y) the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued. For the purpose of the above calculation, the
number of shares of Common Stock outstanding immediately prior to such issue
shall be calculated on a fully diluted basis, as if all Convertible Securities
had been fully converted into shares of Common Stock immediately prior to such
issuance and any outstanding Options, including shares reserved for Options
under the Company’s stock plans, or Options for Convertible Securities had been
fully exercised immediately prior to such issuance (and the resulting securities
fully converted into shares of Common Stock, if so convertible) as of such date;
provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares, as provided by Section 9(a) hereof.
 
 
 

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For the purposes of any computation to be made in accordance with this Section
9(c), in case of the issuance or sale (otherwise than as a dividend or other
distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.

For purposes of determining the adjusted Exercise Price under this Section 9(c),
the following shall be applicable:

(i) Issuance of Options. If the Company in any manner grants any rights,
warrants or options to subscribe for or purchase Common Stock or Convertible
Securities (as defined below) ("Options") and the lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such Option
or upon conversion, exercise or exchange of any Convertible Securities issuable
upon exercise of any such Option is less than the then current Exercise Price,
then such share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the granting or sale of such
Option for such price per share. For purposes of this Section 9(c)(i), the
"lowest price per share for which one share of Common Stock is issuable upon
exercise of such Options or upon conversion, exercise or exchange of such
Convertible Securities" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. No further adjustment of the
Exercise Price or number of Warrant Shares shall be made upon the actual
issuance of such Common Stock or of such Convertible Securities upon the
exercise of such Options or upon the actual issuance of such Common Stock upon
conversion, exercise or exchange of such Convertible Securities.

(ii) Issuance of Convertible Securities. If the Company in any manner issues or
sells any securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for Common Stock ("Convertible Securities")
and the lowest price per share for which one share of Common Stock is issuable
upon the conversion, exercise or exchange thereof is less than the then current
Exercise Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
issuance or sale of such Convertible Securities for such price per share. For
the purposes of this Section 9(c)(ii), the "lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or exchange"
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to one share of Common Stock
upon the issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No further adjustment of the
Exercise Price or number of Warrant Shares shall be made upon the actual
issuance of such Common Stock upon conversion, exercise or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of this
Warrant has been or is to be made pursuant to other provisions of this Section
9(c), no further adjustment of the Exercise Price or number of Warrant Shares
shall be made by reason of such issue or sale.

(iii) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion, exercise or exchange of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or exercisable
or exchangeable for Common Stock increases or decreases at any time, the
Exercise Price and the number of Warrant Shares in effect at the time of such
increase or decrease shall be adjusted to the Exercise Price and the number of
Warrant Shares which would have been in effect at such time had such Options or
Convertible Securities provided for such increased or decreased purchase price,
additional consideration or increased or decreased conversion rate, as the case
may be, at the time initially granted, issued or sold. For purposes of this
Section 9(c)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are increased or
decreased in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such increase or decrease.
 
 
 

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(iv) Recomputation of Adjustment as a Result of Expiration of Options or
Convertible Securities. Upon expiration of any Options or any rights of
conversion or exchange under Convertible Securities that have not been exercised
or converted, the Exercise Price and the number of Warrant Shares in effect at
the time of such expiration shall be adjusted to the Exercise Price and the
number of Warrant Shares which would have been in effect at such time as if (a)
in the case of Convertible Securities or Options for Common Stock, the only
Additional Shares of Common Stock issued were shares of Common Stock, if any,
actually issued upon the exercise of such Options or the conversion or exchange
of such Convertible Securities and the consideration received therefore was the
consideration actually received by the Company for the issuance of all such
Options, whether or not exercised, plus the consideration actually received by
the Company upon such exercise, or the consideration that was actually received
by the Company for the issuance of all such Convertible Securities, whether or
not converted or exchanged, plus the additional consideration, if any, actually
received by this Company upon such conversion or exchange, and (b) in the case
of Options for Convertible Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued at the time of issuance or
deemed issuance of such Options, and the consideration received by the Company
for the Additional Shares of Common Stock deemed to have been then issued was
the consideration actually received by the Company for the issuance of all such
Options, whether or not exercised, plus the consideration deemed to have been
received by the Company upon the issuance of the Convertible Securities with
respect to which such Options were actually exercised.

(iv) Calculation of Consideration Received. If any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $0.01. If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be.

(d) No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made upon the issuance or sale of: (a) shares of Common
Stock and options, warrants or other rights to purchase Common Stock issued to
employees, officers or directors of, or consultants or advisors to the Company
or any subsidiary pursuant to restricted stock purchase agreements, stock option
plans or similar arrangements; (b) shares of Common Stock issued upon the
exercise or conversion of options or convertible securities; (c) shares of
Common Stock issued or issuable pursuant to the acquisition of another
corporation by the Company by merger, purchase of substantially all of the
assets or other reorganization or to a joint venture agreement, provided, that
such issuances are approved by the Board of Directors; (d) shares of Common
Stock issued or issuable to banks, equipment lessors or other commercial
financial institutions pursuant to a commercial debt financing or commercial
leasing transactions approved by the Board of Directors; (e) shares of Common
Stock issued or issuable in connection with sponsored research, collaboration,
technology license, development, OEM, marketing or other similar agreements or
strategic partnerships approved by the Board of Directors; and (f) shares of
Common Stock issued or issuable to suppliers or third party service providers in
connection with the provision of goods or services pursuant to transactions
approved by the Board of Directors. Notwithstanding the foregoing, the total
issuance of securities as set forth in this Section 9(d) shall not exceed 10% of
the total outstanding shares of Common Stock on a fully diluted basis.

(e) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise
Price pursuant to Section 9(a), the number of Warrant Shares that may be
purchased upon exercise of this Warrant shall be increased or decreased
proportionately, so that after such adjustment the aggregate Exercise Price
payable hereunder for the adjusted number of Warrant Shares shall be the same as
the aggregate Exercise Price in effect immediately prior to such adjustment.

(f) Calculations. All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
 
 
 

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(g) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to
this Section 9, the Company at its expense will 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 Warrant 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 Company's Transfer Agent.

(h) Notice of Corporate Events. If the Company (i) declares a dividend or any
other distribution of cash, securities or other property in respect of its
Common Stock, including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, it being understood that if such
disclosure would result in the dissemination of material, non-public information
to the Holder, then the Holder shall be required to execute a customary
non-disclosure agreement on terms and conditions reasonably acceptable to the
Holder), at least 10 calendar days prior to the consummation of such
transaction.

10. Payment of Exercise Price. The Holder may pay the Exercise Price in one of
the following manners:

(a) Cash Exercise. The Holder may deliver immediately available funds; or

(b) Cashless Exercise. If commencing one year after the original issuance date
of this Warrant an Exercise Notice is delivered at a time when a registration
statement permitting the Holder to resell the Warrant Shares is not then
effective or the prospectus forming a part thereof is not then available to the
Holder for the resale of the Warrant Shares, then the Holder may notify the
Company in an Exercise Notice of its election to utilize cashless exercise, in
which event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:

X = Y [(A-B)/A]

where:

X = the number of Warrant Shares to be issued to the Holder.

Y = the number of Warrant Shares with respect to which this Warrant is being
exercised.

A = the average of the VWAP for the five Trading Days immediately prior to (but
not including) the Exercise Date.

B = the Exercise Price.

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued.

11. Limitations on Exercise. Notwithstanding anything to the contrary contained
herein, the number of Warrant Shares that may be acquired by the Holder upon any
exercise of this Warrant (or otherwise in respect hereof) shall be limited to
the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned by
such Holder and its Affiliates and any other Persons whose beneficial ownership
of Common Stock would be aggregated with the Holder's for purposes of Section
13(d) of the Exchange Act, does not exceed 4.99% of the total number of issued
and outstanding shares of Common Stock (including for such purpose the shares of
Common Stock issuable upon such exercise). For such purposes, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. This provision shall
not restrict the number of shares of Common Stock which a Holder may receive or
beneficially own in order to determine the amount of securities or other
consideration that such Holder may receive in the event of a Fundamental
Transaction as contemplated in Section 9 of this Warrant. This restrictions
contained in this Section 11 may be waived at the election of the Holder upon 61
days' prior written notice to the Company.
 
 
 

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12. No Fractional Shares. No fractional shares of Warrant Shares will be issued
in connection with any exercise of this Warrant. In lieu of any fractional
shares which would, otherwise be issuable, the Company shall round up the number
of Warrant Shares issued to the Holder to the nearest whole number.

13. Notices. Any and all notices or other communications or deliveries hereunder
(including, without limitation, any Exercise Notice) shall be in writing and
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be the
registered address of the Company or the Holder, as applicable, or such other
address as either party may provide the other in writing.

14. Warrant Agent. The Company shall serve as warrant agent under this Warrant.
Upon 10 calendar days' notice to the Holder, the Company may appoint a new
warrant agent. Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.

15. Miscellaneous.

(a) This Warrant shall be binding on and inure to the benefit of the parties
hereto and their respective successors and assigns. Subject to the preceding
sentence, nothing in this Warrant shall be construed to give to any Person other
than the Company and the Holder any legal or equitable right, remedy or cause of
action under this Warrant. This Warrant may be amended only in writing signed by
the Company and the Holder and their successors and assigns.

(b)  All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of California (except for
matters governed by corporate law in the State of Delaware), without regard to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of this
Warrant and the transactions herein contemplated ("Proceedings") (whether
brought against a party hereto or its respective Affiliates, employees or
agents) shall be commenced exclusively in the California Courts. Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the
California Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim
that it is not personally subject to the jurisdiction of any California Court,
or that such Proceeding has been commenced in an improper or inconvenient forum.
Each party hereto hereby irrevocably waives personal service of process and
consents to process being served in any such Proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Warrant and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Warrant or the transactions contemplated
hereby. If either party shall commence a Proceeding to enforce any provisions of
this Warrant, then the prevailing party in such Proceeding shall be reimbursed
by the other party for its attorney's fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such Proceeding.
 
 
 

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

(d) In case any one or more of the provisions of this Warrant shall be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

(e) Prior to exercise of this Warrant, the Holder hereof shall not, by reason of
being a Holder, be entitled to any rights of a stockholder with respect to the
Warrant Shares.

(f) Except and to the extent as waived or consented to by the Holder, the
Company shall not by any action, including, without limitation, amending 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 of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.

(g) Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date.

(h) Notices. Any notice, request or other document required or permitted to be
given or delivered to the Holder by the Company shall be delivered in accordance
with the notice provisions of the Purchase Agreement.

(i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

(j) Transfer; Successors and Assigns. Subject to applicable securities laws,
this Warrant and all rights hereunder are transferable, in whole or in part, by
the Holder upon surrender of this Warrant and an opinion of legal counsel at the
principal office of the Company, together with a written assignment of this
Warrant. Subject to applicable securities laws, this Warrant and the rights and
obligations evidenced hereby shall inure to the benefit of and be binding upon
the successors of the Company and the successors and permitted assigns of
Holder. The provisions of this Warrant are intended to be for the benefit of all
Holders from time to time of this Warrant and shall be enforceable by any such
Holder or holder of Warrant Shares.

 
 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its authorized officer as of the date first indicated above.

CHINA NATURAL GAS, INC.

By: _________________________________________
Name:
Title:

 
 

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EXERCISE NOTICE
CHINA NATURAL GAS, INC.

The undersigned Holder hereby irrevocably elects to purchase _____________
shares of Common Stock pursuant to the above referenced Warrant. Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.

(1) The undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the Warrant.

(2) The Holder intends that payment of the Exercise Price shall be made as
(check one):

____"Cash Exercise" under Section 10

____"Cashless Exercise" under Section 10

(3) If the holder has elected a Cash Exercise, the holder shall pay the sum of
$____________ to the Company in accordance with the terms of the Warrant.

(4) Pursuant to this Exercise Notice, the Company shall deliver to the holder
_______________ Warrant Shares in accordance with the terms of the Warrant.

(5) By its delivery of this Exercise Notice, the undersigned represents and
warrants to the Company that in giving effect to the exercise evidenced hereby
the Holder will not beneficially own in excess of the number of shares of Common
Stock (determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934) permitted to be owned under Section 11 of this Warrant to which
this notice relates. Notwithstanding the foregoing, in the event the Holder
waived the restriction contained in Section 11 of the Warrant and such waiver
occurred at least 61 days prior to the date hereof, the representation in this
Section 5 shall be deemed not to have been given by the Holder.

Dated:_____________ , _________

Name of Holder:

__________________________________________
(Print)

By:_______________________________________

Name:_____________________________________

Title:____________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)

 
 

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CHINA NATURAL GAS, INC.

FORM OF ASSIGNMENT

[To be completed and signed only upon transfer of Warrant]

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________ the right represented by the above-captioned
Warrant to purchase ____________ shares of Common Stock to which such Warrant
relates and appoints ________________ attorney to transfer said right on the
books of the Company with full power of substitution in the
premises.

Dated: _______________, ____

_________________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)

_________________________________________
Address of Transferee

_________________________________________

_________________________________________

In the presence of:

________________________________

(1) A number of shares as equals 30% of the Investment Amount (as defined in the
Purchase Agreement), divided by $___________.

 
 

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EXHIBIT B

FORM OF OPINION
 
August 2, 2007

To Brean Murray, Carret & Co., LLC and
the Investors listed on
the signature page to the
China Natural Gas, Inc.
Securities Purchase Agreement
Dated as of August 2, 2007
 
Ladies and Gentlemen:

Reference is made to the Securities Purchase Agreement dated as of August 2,
2007 (the “Agreement”), by and among China Natural Gas, Inc., a Delaware
corporation (the “Company”), and the Investors listed on the signature page to
the Agreement (the “Investors”), which provides for the issuance by the Company
to the Investors of (i) 4,615,385 shares of the Company Common Stock, par value
$0.001 per share (“Common Stock”) and (ii) warrants to purchase an aggregate of
up to 692,308 shares of Common Stock (subject to adjustment) (the “Warrants”).
Reference is also made to the agreement by and between Brean Murray, Carret &
Co., LLC (“BMC”) dated as of July 31, 2007, which provided for the issuance by
the Company to BMC Warrants to purchase up to 75,000 shares of Common Stock.
This opinion is rendered to BMC and the Investors pursuant to Section 2.2(vii)
of the Agreement, and all capitalized terms used herein have the meanings
assigned thereto in the Agreement unless otherwise defined herein. Reference in
this opinion to the Agreement excludes any schedule or substantive agreement
attached as an exhibit to the Agreement, unless otherwise indicated herein.

We have acted as counsel for the Company in connection with the negotiation of
the Agreement, and the related Warrants, Registration Rights Agreement and
Escrow Agreement (collectively, the "Transaction Documents") and the issuance of
the Common Stock and the Warrants (the “Securities”). As such counsel, we have
made such legal and factual examinations and inquiries as we have deemed
advisable or necessary for the purpose of rendering this opinion. In addition,
we have examined originals or copies of such corporate records of the Company,
certificates of public officials and such other documents which we consider
necessary or advisable for the purpose of rendering this opinion. In such
examination we have assumed the genuineness of all signatures on original
documents, the authenticity and completeness of all documents submitted to us as
originals, the conformity to original documents of all copies submitted to us
and the due execution and delivery of all documents (except as to due execution
and delivery by the Company) where due execution and delivery are a prerequisite
to the effectiveness thereof.

As used in this opinion, the expression “to our knowledge,” “known to us” or
similar language with reference to matters of fact refers to the current actual
knowledge of our attorneys working on the transaction contemplated by the
Transaction Documents. Except to the extent expressly set forth herein or as we
otherwise believe to be necessary to our opinion, we have not undertaken any
independent investigation to determine the existence or absence of any fact, and
no inference as to our knowledge of the existence or absence of any fact should
be drawn from our representation of the Company or the rendering of the opinion
set forth below.

For purposes of this opinion, we are assuming that the Investor has all
requisite power and authority, and have taken any and all necessary corporate or
partnership action, to execute and deliver the Transaction Documents, and we are
assuming that the representations and warranties made by the Investor in the
Agreement and pursuant thereto are true and correct. We are also assuming that
the Investor has purchased the Securities for value, in good faith and without
notice of any adverse claims within the meaning of the California Uniform
Commercial Code.

We are members of the Bar of the State of California and we express no opinion
as to any matter relating to the laws of any jurisdiction other than the federal
laws of the United States of America and the laws of the State of California.
 
 
 

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The opinions hereinafter expressed are subject to the following additional
qualifications:

(a)  
We express no opinion as to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar federal or state laws affecting the
rights of creditors;

 

(b)  
The enforceability of the Company’s obligations under the Transaction Documents
is subject to general principles of equity, including without limitation,
concepts of materiality, reasonableness, good faith and fair dealing and the
possible unavailability of specific performance, or injunctive relief regardless
of whether any such remedy is considered in a proceeding at law or in equity;

 

(c)  
We express no opinion as to the effect of any state or federal laws relating to
usury or permissible rates of interest upon the transactions contemplated by the
Transaction Documents;

 

(d)  
This opinion is qualified by the limitations imposed by statutes and principles
of law and equity that provide that certain covenants and provisions of
agreements are unenforceable where such covenants or provisions are
unconscionable or contrary to public policy or where enforcement of such
covenants or provisions under the circumstances would violate the enforcing
party’s implied covenant of good faith and fair dealing;

 

(e)  
The opinion regarding enforceability of the Transaction Documents is subject to
the qualification that certain provisions of Transaction Documents may be
unenforceable, but such enforceability may not, subject to the other exceptions,
qualifications, and limitations in this opinion letter, render the contract
invalid as a whole or substantially interfere with realization of the principle
benefits provided by the contract;

 

(f)  
We express no opinion as to compliance with the anti-fraud provisions of
applicable securities laws; and

 

(g)  
We express no opinion as to the enforceability of the indemnification and
contribution provisions of the Registration Rights Agreement to the extent the
provisions thereof may be subject to limitations of public policy and the effect
of applicable statutes and judicial decisions.

 
Based upon and subject to the foregoing, we are of the opinion that:

1.  The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of Delaware.
 
2.  The Company has the requisite corporate power and authority to enter into
and perform its obligations under the Transaction Documents and to issue the
Shares, the Warrants and the Warrant Shares as contemplated therein. The
execution and delivery of the Agreements by the Company and the consummation by
it of the transactions contemplated thereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required. Except for the
Warrants which are to be delivered on the Second Closing, each of the
Transaction Documents has been duly executed and delivered by the Company and
constitutes valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors’ rights and remedies or
by other equitable principles of general application.
 
3.  The execution, delivery and performance of the Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated
thereby, including, without limitation, the issuance of the Shares, the Warrants
and the Warrant Shares, do not and will not (i) result in a violation of the
Company’s Certificate of Incorporation or By-Laws, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or given to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or other
written instrument of the Company or other written agreement or understanding to
which the Company is a party attached as an exhibit to the SEC reports, or (iii)
result in a violation of any U.S. federal or state law, rule or regulation
applicable to the Company or by which any property or asset of the Company is
bound or affected, except for such violations as would not, individually or in
the aggregate, have a Material Adverse Effect. To our knowledge, the Company is
not in violation of any terms of its Certificate of Incorporation or Bylaws.
 
 
 

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4.  Based in part on the representations of the Investors contained in the
Purchase Agreement, the issuance of the Shares, Warrants and Warrant Shares in
accordance with the Purchase Agreement will be exempt from registration under
Section 5 of the Securities Act of 1933, as amended. When so issued, the Shares,
the Warrants and Warrant Shares will be duly and validly issued, fully paid and
nonassessable, and free of any liens, encumbrances and preemptive or similar
rights contained in the Company’s Certificate of Incorporation or Bylaws.
 
5.  To our knowledge, no claims, actions, suits, proceedings or investigations
are pending against the Company or its properties, or against any officer or
director of the Company in his or her capacity as such. To our knowledge, the
Company is not a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality except as set forth in the disclosure schedules to the Purchase
Agreement.
 
6.  No consent, approval or authorization of or designation, declaration of
filing with any governmental authority or Trading Market on the part of the
Company is required under federal, state or local law, rule or regulation in
connection with the valid execution, delivery and performance of the Transaction
Documents, or the offer, sale or issuance of the Shares, the Warrants and the
Warrant Shares other than (i) those that have been obtained or made and to our
knowledge are in full force and effect, and (ii) the filing of Form D and Form
8-K under the Securities Act and Exchange Act, respectively, with the SEC (iii)
filing under applicable state securities or blue sky laws, and (iv) filing
required under the Registration Rights Agreement.
 
Very truly yours,
 
CRONE ROZYNKO. LLP
 

 
 

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