**ISIN:
                  US16936R1133**
              **EXECUTION
                  VERSION**




**CLOSING
      WARRANT**




**NEITHER
      THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS WARRANT NOR THE
      SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN** **REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
      APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
      SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
      REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, OR (B)
      AN
      OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
      REQUIRED UNDER SAID ACT (II) UNLESS SOLD OR TRANSFERRED TO A “QUALIFIED
      INSTITUTIONAL BUYER” WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT OR
      TO AN “ACCREDITED INVESTOR” AS THAT TERM IS DEFINED IN RULE 501(A) OF REGULATION
      D**  **OR
      (III) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
      NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION WITH
      A
      BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
      THIS
      WARRANT. ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF
      THIS WARRANT.**




**CHINA
      AUTOMOTIVE SYSTEMS, INC.**




**Warrant
      To Purchase Common Stock**




Warrant No.:
                LB-2008-B-1
              Number
                  of Shares:
                  564,799





Date
      of
      Issuance: February 15, 2008




**CHINA
      AUTOMOTIVE SYSTEMS, INC.** ,
      a
      Delaware corporation (the “ **Company** ”),
      hereby certifies that, for good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, **TFINN
      & CO. as nominee for Lehman Brothers Commercial Corporation Asia Limited** (the
      “ **Holder** ”),
      the
      registered Holder hereof or its permitted assigns, is entitled, subject to
      the
      terms set forth below, to purchase from the Company upon surrender of this
      Warrant, at any time or times on or after the date hereof, but not after 11:59
      P.M. Eastern Time on the Expiration Date (as defined herein) Five Hundred Sixty
      Four Thousand Seven Hundred Ninety Nine (564,799) fully paid and nonassessable
      shares of Common Stock (as defined herein) of the Company (the “ **Warrant
      Shares** ”)
      at the
      exercise price per share provided in Section
      1(b) below or
      as subsequently adjusted; provided , however ,
      that in
      no event shall the Holder be entitled to exercise this Warrant for a number
      of
      Warrant Shares in excess of that number of Warrant Shares which, upon giving
      effect to such exercise, would cause the aggregate number of shares of Common
      Stock beneficially owned by the Holder and its affiliates to exceed 4.99% of
      the
      outstanding shares of the Common Stock following such exercise, except within
      sixty (60) days of the Expiration Date (however, such restriction may be waived
      by Holder (but only as to itself and not to any other Holder) upon not less
      than
      sixty five (65) days prior notice to the Company). For purposes of the foregoing
      proviso, the aggregate number of shares of Common Stock beneficially owned
      by
      the Holder and its affiliates shall include the number of shares of Common
      Stock
      issuable upon exercise of this Warrant with respect to which the determination
      of such proviso is being made, but shall exclude
      shares of Common Stock which would be issuable upon (i) exercise of the
      remaining, unexercised Warrants beneficially owned by the Holder and its
      affiliates and (ii) exercise or conversion of the unexercised or unconverted
      portion of any other securities of the Company beneficially owned by the Holder
      and its affiliates (including, without limitation, any convertible notes or
      preferred stock) subject to a limitation on conversion or exercise analogous
      to
      the limitation contained herein. Except as set forth in the preceding sentence,
      for purposes of this paragraph, beneficial ownership shall be calculated in
      accordance with Section 13(d) of the Securities Exchange Act of 1934, as
      amended. For purposes of this Warrant, in determining the number of outstanding
      shares of Common Stock a Holder may rely on the number of outstanding shares
      of
      Common Stock as reflected in (1) the Company’s most recent Form 10-Q or Form
      10-K, as the case may be, (2) a more recent public announcement by the Company
      or (3) any other notice by the Company or its transfer agent setting forth
      the
      number of shares of Common Stock outstanding. Upon the written request of any
      Holder, the Company shall promptly, but in no event later than one (1) Business
      Day following the receipt of such notice, confirm in writing to any such Holder
      the number of shares of Common Stock then outstanding. In any case, the number
      of outstanding shares of Common Stock shall be determined after giving effect
      to
      the conversion or exercise of securities of the Company, including this Warrant
      (as defined below) by such Holder and its affiliates since the date as
      o f
      which
      such number of outstanding shares of Common Stock was reported.









Section
      1.




(a)  General .
      This
      Warrant is a common stock purchase warrant (the “ **Warrant** ”)
      issued
      pursuant to the Securities Purchase Agreement (“ **Securities
      Purchase Agreement** ”)
      dated
      February 1, 2008 among the Company and the Holder and the other parties to
      the
      Securities Purchase Agreement.




(b)  Definitions. The
      following words and terms as used in this Warrant shall have the following
      meanings:




(i)  “ **Approved
      Stock Plan** ”
means
      any employee benefit plan which has been or is hereafter approved by the Board
      of Directors of the Company, pursuant to which the Company’s securities may be
      issued to any employee, consultant, officer or director for services provided
      to
      the Company.




(ii)  “ **Business
      Day** ”
means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      the City of New York are authorized or required by law to remain
      closed.




(iii)  “ **Closing
      Trade Price** ”
means,
      for any security as of any date, the last closing trade price for such security
      on the Principal Market, as reported by Bloomberg Financial Markets
      (“ **Bloomberg** ”),
      or,
      if the Principal Market begins to operate on an extended hours basis and does
      not designate the closing trade price then the last trade price of such security
      prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the
      Principal Market is not the principal securities exchange or trading market
      for
      such security, the last closing trade price of such security on the principal
      securities exchange or trading market where such security is listed or traded
      as
      reported by Bloomberg, or if the foregoing do not apply, the last closing trade
      price of such security in the over-the-counter market on the electronic bulletin
      board for such security as reported by Bloomberg, or, if no last closing trade
      price is reported for such security by Bloomberg, the average of the ask prices
      of any market makers for such security as reported in the “pink sheets” by Pink
      Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Trade
      Price cannot be calculated for a security on a particular date on any of the
      foregoing bases, the Closing Trade Price of such security on such date shall
      be
      the fair market value as mutually determined by the Company and the Holder.
      All
      such determinations to be appropriately adjusted for any stock dividend, stock
      split, stock combination, reclassification or similar transaction during the
      applicable calculation period.




2




(iv)  “ **Common
      Stock** ”
means
      (i) the Company’s common stock, par value $0.0001 per share, and (ii) any
      capital stock into which such Common Stock shall have been changed or any
      capital stock resulting from a reclassification of such Common
      Stock.




(v)  “ **Common
      Stock Deemed Outstanding** ”
means,
      at any given time, the number of shares of Common Stock outstanding at such
      time, plus the number of shares of Common Stock deemed to be outstanding
      pursuant to Sections
      8(a)(i) and 8(a)(ii) hereof
      regardless of whether the Options or Convertible Securities are actually
      exercisable or convertible at such time, but excluding any Common Stock owned
      or
      held by or for the account of the Company or issuable upon conversion of the
      Notes and exercise of the Warrants.




(vi)  “ **Convertible
      Securities** ”
means
      any stock or securities (other than Options) directly or indirectly convertible
      into or exercisable or exchangeable for Common Stock.




(vii)  “ **Event
      of Default** ”
means
      an event of default under the Notes, the Securities Purchase Agreement or the
      Registration Rights Agreement dated the date hereof.




(viii)  “ **Excluded
      Securities** ” means,
      Common Stock issued or issuable: (i) as a stock dividend to holders of Common
      Stock or upon any subdivision or combination of shares of Common Stock; (ii)
      in
      connection with any Approved Stock Plan; (iii) any securities issued to the
      seller as consideration for the acquisition of another entity by the Company
      by
      merger or share exchange (whereby the Company owns no less than 51% of the
      voting power of the surviving entity) or purchase of substantially all of such
      entity’s stock or assets that otherwise is permitted under the Notes if still
      outstanding; (iv) any securities issued in connection with a license, strategic
      partnership, joint venture or other similar agreement, provided that the
      purpose of such arrangement is not primarily the raising of capital; (v) upon
      exercise of warrants issued as a part of the issuance of straight debt
      securities (with no equity or equity-linked feature) issued to a financial
      institution or lender in connection with a bank loan, credit, lease, or other
      debt transaction with such financial institution or lender (where warrant
      coverage is not greater than 5% of the loan amount); or (vi) upon conversion
      of
      any Options or Convertible Securities which are outstanding on the day
      immediately preceding the Closing Date, provided that the
      terms of such Options or Convertible Securities are not amended, modified or
      changed on or after the Closing Date.




(ix)  “ **Expiration
      Date** ”
means
      the date one (1) year from the Issuance Date of this Warrant or, if such date
      falls on a Saturday, Sunday or other day on which banks are required or
      authorized to be closed in the City of New York or the State of New York or
      on
      which trading does not take place on the Principal Market or automated quotation
      system on which the Common Stock is traded (a “ **Holiday** ”),
      the
      next date that is not a Holiday.




3




(x)  “ **Issuance
      Date** ”
means
      the date hereof.




(xi)  “ **Notes** ”
means
      the Senior Convertible Notes of the Company issued on the date
      hereof.




(xii)  “ **Options** ”
means
      any rights, warrants or options to subscribe for or purchase Common Stock or
      Convertible Securities.




(xiii)  “ **Other
      Securities** ”
means
      (i) those Convertible Securities, Options and warrants of the Company issued
      prior to, and outstanding on, the Issuance Date of this Warrant, (ii) the shares
      of Common Stock issuable on exercise of such convertible securities, options
      and
      warrants, provided such convertible securities, options and warrants are not
      amended after the Issuance Date of this Warrant, and (iii) the shares of Common
      Stock issuable upon exercise of this Warrant or exercise or conversion of the
      other securities issued pursuant to the Securities Purchase
      Agreement.




(xiv)  “ **Person** ”
means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization and a government or any
      department or agency thereof.




(xv)  “ **Principal
      Market** ”
means
      the NASDAQ Capital Market.




(xvi)  “ **Registration
      Rights Agreement** ”
shall
      mean that certain Registration Rights Agreement by and among the Company and
      the
      parties thereto, dated the date hereof, and relating to the holders of the
      Warrant Shares.




(xvii)  “ **Registration
      Statement** ”
means
      a
      resale registration statement or registration statements of the Company filed
      under the 1933 Act covering the Warrant Shares.




(xviii)  “ **Required
      Holders** ”
means
      (i) the Lead Buyer as identified in the Securities Purchase Agreement or such
      other Person as it may designate (the “ **Lead
      Holder** ”)
      and
      (ii) other Holders of Warrants representing in the aggregate with the Lead
      Holder’s Warrant at least a majority of the Warrant Shares underlying such
      Warrants.




(xix)  “ **Securities
      Act** ”
means
      the Securities Act of 1933, as amended.




(xx)  “ **Trading
      Day** ”
means
      a
      day on which the Common Stock is trading on a Trading Market.




(xxi)  “ **Trading
      Market** ”
means
      the following markets or exchanges on which the Common Stock is listed or quoted
      for trading on the date in question: the Nasdaq Capital Market, the American
      Stock Exchange, the New York Stock Exchange, the Nasdaq Global Market or the
      OTC
      Bulletin Board.




(xxii)  “ **Warrant** ”
means
      this Warrant and all Warrants issued in exchange, transfer or replacement
      thereof.




4




(xxiii)  “ **Warrant
      Exercise Price** ”
shall
      be $8.8527 per Warrant Share or as subsequently adjusted as provided in Section
      8 hereof.




(xxiv)  “ **Warrant
      Shares** ”
means
      the shares of Common Stock issuable at any time upon exercise of this
      Warrant.




(xxv)  “ **Weighted
      Average Price** ”
means,
      for any security as of any date, the dollar volume-weighted average price for
      such security on the Principal Market during the period beginning at 9:30:01
      a.m., New York Time (or such other time as the Principal Market publicly
      announces is the official open of trading), and ending at 4:00:00 p.m., New
      York
      Time (or such other time as the Principal Market publicly announces is the
      official close of trading) as reported by Bloomberg through its “Volume at
      Price” functions, or, if the foregoing does not apply, the dollar
      volume-weighted average price of such security in the over-the-counter market
      on
      the electronic bulletin board for such security during the period beginning
      at
      9:30:01 a.m., New York Time (or such other time as such market publicly
      announces is the official open of trading), and ending at 4:00:00 p.m., New
      York
      Time (or such other time as such market publicly announces is the official
      close
      of trading) as reported by Bloomberg, or, if no dollar volume-weighted average
      price is reported for such security by Bloomberg for such hours, the average
      of
      the highest closing bid price and the lowest closing ask price of any of the
      market makers for such security as reported in the “pink sheets” by Pink Sheets
      LLC (formerly the National Quotation Bureau, Inc.). If the Weighted Average
      Price cannot be calculated for a security on a particular date on any of the
      foregoing bases, the Weighted Average Price of such security on such date shall
      be the Fair Market Value. All such determinations to be appropriately adjusted
      for any stock dividend, stock split, stock combination, reclassification or
      similar transaction during the applicable calculation period..




(c)  Other
      Definitional Provisions .




(i)  Except
      as
      otherwise specified herein, all references herein (A) to the Company shall
      be
      deemed to include the Company’s successors and (B) to any applicable law defined
      or referred to herein shall be deemed references to such applicable law as
      the
      same may have been or may be amended or supplemented from time to
      time.




(ii)  When
      used
      in this Warrant, the words “ **herein** ”,
      “ **hereof** ”,
      and
“ **hereunder** ”
and
      words of similar import, shall refer to this Warrant as a whole and not to
      any
      provision of this Warrant, and the words “ **Section** ”,
      “ **Schedule** ”,
      and
“ **Exhibit** ”
shall
      refer to Sections of, and Schedules and Exhibits to, this Warrant unless
      otherwise specified.




(iii)  Whenever
      the context so requires, the neuter gender includes the masculine or feminine,
      and the singular number includes the plural, and vice versa.




5




Section
      2.  Exercise
      of Warrant; Warrant Shares; Limitations on Exercise .




(a)  This
      Warrant may be exercised, in whole or in any part, at anytime between the
      Issuance Date and the Expiration Date (both dates inclusive) (the “ **Exercise
      Period** ”)
      by (i)
      delivery to the Company of a notice of election to exercise this Warrant (or
      part thereof) in the form of Exhibit A attached
      hereto (“ **Exercise
      Notice** ”)
      (or at
      such other agency or office of the Company in the United States of America
      as it
      may designate by notice in writing to the Holder at the address of the Holder),
      and (ii) payment to the Company of the aggregate Warrant
      Exercise Price within three (3) Trading Days of the date said Exercise Notice
      is
      delivered to the Company (A) by cash, wire transfer funds or check or (B) if
      applicable, in accordance with the procedures set forth inSection
      2(b)below.
      On or before the first (1st)
      Trading
      Day following the Exercise Date (as defined below), the Company shall transmit
      by facsimile a confirmation of receipt of such Exercise Notice to the Holder
      and
      the Company’s transfer agent (the “**Transfer
      Agent**”).
      On or
      before the third (3rd) Trading Day following the Exercise Date (the
“**Share
      Delivery Date**”),
      the
      Company shall (x)providedthat
      there is an effective Registration Statement and that the Transfer Agent is
      participating in the Depository Trust Company’s (“**DTC**”)
      Fast
      Automated Securities Transfer Program, credit such aggregate number of Warrant
      Shares to which the Holder shall be entitled to the Holder’s or its designee’s
      balance account with DTC through its Deposit Withdrawal Agent Commission system
      or (y) if there is no effective Registration Statement or if the Transfer Agent
      is not participating in the DTC Fast Automated Securities Transfer Program,
      issue and deliver to the address as specified in the Exercise Notice, a
      certificate, registered in the name of the Holder or its designee, for the
      number of Warrant Shares to which the Holder shall be entitled. Notwithstanding
      anything herein to the contrary, the Holder shall not be required to physically
      surrender this Warrant to the Company until the Holder has purchased all of
      the
      Warrant Shares available hereunder and the Warrant has been exercised in full,
      in which case, the Holder shall surrender this Warrant to the Company for
      cancellation within three (3) Trading Days of the date the final Exercise Notice
      is delivered to the Company. Partial exercises of this Warrant resulting in
      purchases of a portion of the total number of Warrant Shares available hereunder
      shall have the effect of lowering the outstanding number of Warrant Shares
      purchasable hereunder in an amount equal to the applicable number of Warrant
      Shares purchased.  The Holder and the Company shall maintain records
      showing the number of Warrant Shares purchased and the date of such
      purchases.  The Company shall deliver any objection to any notice of
      exercise form within two (2) Business Days of receipt of such notice.  The
      Holder and any assignee, by acceptance of this Warrant, acknowledge and agree
      that, by reason of the provisions of this paragraph, following the purchase
      of a
      portion of the Warrant Shares hereunder, the number of Warrant Shares available
      for purchase hereunder at any given time may be less than the amount stated
      on
      the face hereof.




6




(b)  In
      the
      event there is no effective Registration Statement or the effectiveness of
      the
      Registration Statement has been suspended for ten (10) consecutive Trading
      Days
      on the exercise date and suspension is ongoing on the exercise date, the Holder
      may, in lieu of exercising this Warrant for cash, wire transfer funds or check,
      elect to receive, without payment by the Holder of any additional consideration,
      a number of shares of Common Stock equal to “X”, computed using the formula set
      forth below, by surrender of this Warrant in accordance with Section
      2(a) hereof
      together with notice of such election, in which event the Company shall issue
      to
      the Holder such number of shares of Common Stock:




X  =  Y(A-B)


A




Where:


X
            =
            The
                number of  shares of Common Stock to be issued to the Holder pursuant
                to such election;


Y
            =
            The
                number of Warrant Shares in respect of which such election is
                made;




A
            =
            The
                Fair Market Value (the “**Fair
                Market Value**”)
                of one share of Common Stock; and




B
            =
            The
                Warrant Exercise Price (as adjusted to the date of the
                issuance).




For
      purposes of this Section
      2(b) ,
      the
      Fair Market Value as of a particular date shall be determined as follows: (i)
      if
      shares of Common Stock are traded on a securities exchange (including the New
      York Stock Exchange, American Stock Exchange and the NASDAQ Stock Exchange)
      or
      through the NASDAQ Global Market or Capital Market or other over-the-counter
      market, the Fair Market Value shall be deemed to be the average of the closing
      sales prices of such shares on such exchange over the thirty (30) day period
      ending three (3) days prior to the exercise of this election; or (ii) if no
      public market exists for the shares of Common Stock, the Fair Market Value
      shall
      (subject to the Holder’s right to dispute such valuation as described below) be
      determined in good faith by the Board of Directors of the Company. If the Holder
      disagrees with the Board of Directors’ determination of the Fair Market Value
      pursuant to clause (ii) above, the Holder may submit a notice of disagreement
      to
      the Company. During the three (3) Business Days immediately following the
      Company’s receipt of such notice, the Holder and the Company shall negotiate in
      good faith to determine a mutually agreeable Fair Market Value. If the parties
      remain unable to reach agreement after such period, they shall engage one of
      the
“Big 4” accounting firms reasonably acceptable to each such party to resolve
      such dispute (the “ **Valuation
      Firm** ”).
      Each
      of the Holder and the Company shall provide (at each party’s own expense) the
      Valuation Firm with copies of any documents, analyses or other information
      within its possession or control that the Valuation Firm reasonably requests
      in
      order to resolve such dispute. The Valuation Firm shall determine the Fair
      Market Value as soon as practicable after its engagement to resolve the dispute
      using customary valuation techniques for other companies or businesses in the
      same or similar industries as the Company (and shall not apply any discount
      due
      to the fact that the Common Stock may constitute “restricted securities”, may be
      illiquid or represent a minority interest in the Company). The Valuation’s
      Firm’s determination of the Fair Market Value shall be binding on the Holder and
      the Company, and not subject to challenge or collateral attack for any reason.
      The Company shall pay all fees, costs and expenses of the Valuation Firm in
      connection with its engagement to resolve such dispute (the “ **Valuation
      Cost** ”); provided , however ,
      that if
      the Valuation’s Firm’s determination of the Fair Market Value is in excess of
      50% **** lower
      than the Holder’s proposed Fair Market Value, then the fees and expenses of the
      Valuation Firm shall be shared in the same proportion that the Company’s
      position, on the one hand, and the Holder’s position, on the other hand,
      initially presented to the Valuation Firm (based on the aggregate of all
      differences taken as a whole) bear to the final resolution as determined by
      the
      Valuation Firm. If this Warrant is exercised as provided in this Section
      2(b) ,
      the
      parties hereto shall treat such exercise as a recapitalization pursuant to
      Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended, for
      all
      tax purposes.




(c)  Upon
      the
      exercise of this Warrant, the Company (unless otherwise requested by the Holder)
      will issue fractional shares of its Common Stock, and shall not distribute
      cash
      in lieu of such fractional shares. If requested by the Holder, in lieu of any
      fractional shares of Common Stock which would otherwise be issuable upon the
      exercise of this Warrant, the Company shall pay a cash adjustment in respect
      of
      such fractional interest in an amount equal to the then Fair Market Value of
      a
      share of Common Stock multiplied by such fractional interest.




7




(d)  Notwithstanding
      the terms of this Section
      2 ,
      if (i)
      the Holder has not elected to exercise this Warrant prior to the end of the
      Exercise Period pursuant to the terms hereof (the “ **Termination** ”),
      (ii)
      the Exercise Price for one Warrant Share is less than the Fair Market Value
      of
      one share of Common Stock upon such Termination and (iii) the other conditions
      (including no effective Registration Statement) set forth in Section
      2(b) exist,
      then (unless notice to the contrary is provided by the Holder), this Warrant
      shall be deemed automatically exercised pursuant to Section
      2(b) as to
      the maximum number of Warrant Shares for which this Warrant is then exercisable,
      immediately prior to such Termination, without any action by the Holder with
      such exercise to be effected pursuant to Section
      2(b) .
      In the
      event that no public market exists for the shares of Common Stock, the Company
      shall notify the Holder of the Board of Directors’ determination of the Fair
      Market Value on third day prior to the Termination, such notification to be
      given on or before the Expiration Date and without prejudice to the Holder’s
      rights to dispute the valuation in accordance with Section
      2(b) which
      shall survive the termination of this Agreement.




(e)  Each
      date
      on which this Warrant is exercised and on which payment of the Warrant Exercise
      Price (i.e., the later of those two dates) is made is referred to herein as
      an
“ **Exercise
      Date** ”.
      As
      soon as reasonably possible but in no event later than two (2) Business Days
      after the Exercise Date, the Company shall issue and deliver a certificate
      or
      certificates for the Warrant Shares being purchased pursuant to such exercise,
      registered in the name of the Holder or the Holder’s designee, to such Holder or
      designee, as the case may be. If such exercise shall not have been for the
      full
      number of the Warrant Shares, then the Company shall if the Holder has
      surrendered this Warrant for the purpose of such exercise issue promptly and
      deliver to the Holder a new Warrant, registered in the name of the Holder,
      of
      like tenor to this Warrant, for the balance of the Warrant Shares that remain
      after exercise of the Warrant.




(f)  The
      person or entity in whose name any certificate for shares of Common Stock is
      issued upon any exercise shall for all purposes be deemed to have become the
      holder of record of such shares as of the Exercise Date, except that if the
      Exercise Date is a date on which the stock transfer books of the Company are
      closed, such person or entity shall be deemed to have become the holder of
      record of such shares at the close of business on the next succeeding date
      on
      which the stock transfer books are open. The Company shall pay all documentary,
      stamp or other transactional taxes attributable to the issuance or delivery
      of
      shares of Common Stock upon exercise of all or any part of this
      Warrant.




(g)  Company’s
      Failure to Timely Issue Certificates . If
      the
      Company shall fail to issue a certificate to the Holder or credit the Holder’s
      balance account with DTC (as defined below), as applicable, for the number
      of
      shares of Common Stock to which the Holder is entitled upon exercise of any
      portion of this Warrant on or prior to the date which is three (3) Trading
      Days
      after the Exercise Date (a “ **Exercise
      Failure** ”),
      then
      (A) the Company shall at the Holder’s request pay damages to the Holder for each
      Trading Day of such Exercise Failure in an amount equal to one and one-half
      percent (1.5%) of the product of (1) the sum of the number of shares of Common
      Stock not issued to the Holder on or prior to the Share Delivery Date and to
      which the Holder is entitled, and (2) the Weighted Average Price of the Common
      Stock on the Share Delivery Date and (B) the Holder, upon written notice to
      the
      Company within five (5) Trading Days after the Exercise Failure, may void its
      Exercise Notice with respect to, and retain or have returned, as the case may
      be, any portion of this Warrant that has not been exercised pursuant to such
      Exercise Notice. In addition to the foregoing, i f
      within
      three (3) Trading Days after the Exercise Date the Company shall fail to issue
      and
      deliver a certificate to the Holder or credit the Holder’s balance account with
      DTC for the number of shares of Common Stock to which the Holder is entitled
      upon such holder’s exercise of any portion of this Warrant or on any date of the
      Company’s obligation to deliver shares of Common Stock as contemplated pursuant
      to clause (y) below, and if on or after such Trading Day the Holder purchases
      (in an open market transaction or otherwise) Common Stock to deliver in
      satisfaction of a sale by the Holder of Common Stock issuable upon such exercise
      that the Holder anticipated receiving from the Company (a “ **Buy-In** ”),
      then
      the Company shall, within three (3) Trading Days after the Holder’s request and
      in the Holder’s discretion, either (x) pay cash to the Holder in an amount equal
      to the Holder’s total purchase price (including brokerage commissions and other
      out of pocket expenses, if any) for the shares of Common Stock so purchased (the
“ **Buy-In
      Price** ”),
      at
      which point the Company’s obligation to deliver such certificate (and to issue
      such Common Stock) shall terminate, or (y) promptly honor its obligation to
      deliver to the Holder a certificate or certificates representing such Common
      Stock and pay cash to the Holder in an amount equal to the excess (if any)
      of
      the Buy-In Price over the product of (I) such number of shares of Common Stock,
      times (II) the Weighted Average Price on the Exercise Date.


8


(h)  Limitations
      on Exercise .
      Notwithstanding any other provision in this Warrant to the
      contrary:




(i)  Beneficial
      Ownership .
      The
      Company shall not effect any exercise of this Warrant, and the Holder of this
      Warrant shall not have the right to exercise any portion of this Warrant
      pursuant to Section
      2(a) ,
      to the
      extent that after giving effect to such exercise, the Holder (together with
      the
      Holder’s affiliates) would beneficially own in excess of 4.99% **** (the
      “ **Maximum
      Percentage** ”)
      of the
      number of shares of Common Stock outstanding immediately after giving effect
      to
      such exercise. For purposes of the foregoing sentence, the number of shares
      of
      Common Stock beneficially owned by the Holder and its affiliates shall include
      the number of shares of Common Stock issuable upon conversion of this Warrant
      with respect to which the determination of such sentence is being made, but
      shall exclude the number of shares of Common Stock which would be issuable
      upon
      (A) conversion of the remaining, non-exercised portion of this Warrant
      beneficially owned by the Holder or any of its affiliates and (B) exercise
      or
      conversion of the unexercised or nonconverted portion of any other securities
      of
      the Company (including, without limitation, the Notes and any other Warrants)
      subject to a limitation on conversion or exercise analogous to the limitation
      contained herein beneficially owned by the Holder or any of its affiliates.
      Except as set forth in the preceding sentence, for purposes of this Section
      2(h)(i) ,
      beneficial ownership shall be calculated in accordance with Section 13(d) of
      the
      Securities Exchange Act of 1934, as amended (the “ **Exchange
      Act** ”).
      For
      purposes of this Section
      2(h)(i) ,
      in
      determining the number of outstanding shares of Common Stock, the Holder may
      rely on the number of outstanding shares of Common Stock as reflected in (1)
      the
      Company’s most recent Form 10-K, Form 10-Q, Form 8-K or other public filing with
      the SEC, as the case may be, (2) a more recent public announcement by the
      Company or (3) any other notice by the Company or the Transfer Agent setting
      forth the number of shares of Common Stock outstanding. For any reason at any
      time, upon the written or oral request of the Holder, the Company shall within
      one (1) Business Day confirm orally and in writing to the Holder the number
      of
      shares of Common Stock then outstanding. In any case, the number of outstanding
      shares of Common Stock shall be determined after giving effect to the conversion
      or exercise of securities of the Company, including this Warrant, by the Holder
      or its affiliates since the date as of which such number of outstanding shares
      of Common Stock was reported. By written notice to the Company, the Holder
      may
      increase or decrease the Maximum Percentage to any other percentage not in
      excess of 4.99% specified in such notice; provided that (x)
      any such increase will not be effective before the sixty-fifth (65 th )
      day
      after such notice is delivered to the Company, and (y) any such increase or
      decrease will apply only to the Holder and not to any other holder of the
      Warrants.




9




(ii)  Market
      Regulation .
      The
      Company shall not be obligated to issue any shares of Common Stock upon
      conversion of this Warrant if the issuance of such shares of Common Stock would
      exceed the aggregate number of shares of Common Stock which the Company may
      issue upon exercise of the Warrants without breaching the Company’s obligations
      under the rules or regulations of the Principal Market (the “ **Exchange
      Cap** ”),
      except that such limitation shall not apply in the event that the Company (A)
      obtains the approval of its stockholders as required by the applicable rules
      of
      such Principal Market for issuances of Common Stock in excess of such amount
      or
      (B) obtains a written opinion from outside counsel to the Company that such
      approval is not required, which opinion shall be reasonably satisfactory to
      the
      Required Holders. Until such approval or written opinion is obtained, no
      purchaser of the Warrants pursuant to the Securities Purchase Agreement (the
      “ **Purchasers** ”)
      shall
      be issued in the aggregate, upon exercise of the Warrants, shares of Common
      Stock in an amount greater than the product of the Exchange Cap multiplied
      by a
      fraction, the numerator of which is the amount of the Warrant Shares underlying
      the Warrants issued to a Purchaser pursuant to the Securities Purchase Agreement
      on the Closing Date and the denominator of which is the aggregate amount of
      all
      Warrant Shares underlying the Warrants issued to the Purchasers pursuant to
      the
      Securities Purchase Agreement on the Closing Date (with respect to each
      Purchaser, the “ **Exchange
      Cap Allocation** ”).
      In
      the event that any Purchaser shall sell or otherwise transfer any of such
      Purchaser’s Warrants, the transferee shall be allocated a pro rata portion of
      such Purchaser’s Exchange Cap Allocation, and the restrictions of the prior
      sentence shall apply to such transferee with respect to the portion of the
      Exchange Cap Allocation allocated to such transferee. In the event that any
      holder of the Warrants shall convert all of such holder’s Warrants into a number
      of shares of Common Stock which, in the aggregate, is less than such holder’s
      Exchange Cap Allocation, then the difference between such holder’s Exchange Cap
      Allocation and the number of shares of Common Stock actually issued to such
      holder shall be allocated to the respective Exchange Cap Allocations of the
      remaining holders of Warrants on a pro rata basis in proportion to the aggregate
      Warrant Shares then held by each such holder.




Section
      3.  Covenants
      as to Common Stock .
      The
      Company hereby covenants and agrees as follows:




(a)  This
      Warrant is, and any Warrants issued in substitution for or replacement of this
      Warrant will upon issuance be, duly authorized and validly issued.




(b)  All
      Warrant Shares which may be issued upon the exercise of the rights represented
      by this Warrant will, upon issuance, be validly issued, fully paid and
      nonassessable and free from all taxes, liens and charges with respect to the
      issue thereof.




(c)  During
      the period within which the rights represented by this Warrant may be exercised,
      the Company will take all actions necessary to, to have reserved from its duly
      authorized capital stock not less than 120% of the maximum number of shares
      of
      Common Stock issuable upon exercise of this Warrant.




10




(d)  The
      Warrant Shares issuable to the Holder, pursuant to the terms of this Warrant
      shall have registration rights as provided for in the Registration Rights
      Agreement. The Company shall list the Warrant Shares on the Principal Market
      and
      shall maintain such listing if and so long as any shares of the same class
      shall
      be listed on such Principal Market.




(e)  If,
      at
      any time while this Warrant is outstanding, (A) the Company effects any merger
      or consolidation of the Company with or into another Person, (B) the Company
      effects any sale of all or substantially all of its assets in one or a series
      of
      related transactions, (C) any tender offer or exchange offer (whether by the
      Company or another Person) is completed pursuant to which holders of a majority
      of the then outstanding Common Stock are permitted to tender or exchange their
      shares for other securities, cash or property, or (D) 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 (in any such case, a “ **Fundamental
      Transaction** ”),
      then,
      upon any subsequent exercise of this Warrant, the Holder shall have the right
      to
      receive, for each Warrant Share that would have been issuable upon such exercise
      immediately prior to the occurrence of such Fundamental Transaction, (a) if
      the
      Company is the acquiring and surviving corporation, the number of shares of
      Common Stock of the Company and any additional consideration receivable upon
      or
      as a result of such reorganization, reclassification, merger, consolidation
      or
      disposition of assets (the “ **Alternate
      Consideration** ”)
      by a
      Holder of the number of shares of Common Stock for which this Warrant is
      exercisable immediately prior to such event, (b) if the Company is not the
      acquiring and surviving entity and the transaction consideration is not all
      cash, then the number of securities and any Alternate Consideration receivable
      by a holder of the number of shares of Common Stock for which this Warrant
      is
      exercisable immediately prior to such event or (c) if the Company is acquired
      in
      an all cash transaction, cash equal to the value of this Warrant as determined
      by the Company in good faith in accordance with the Black-Scholes option pricing
      formula. For purposes of any such exercise, the determination of the Warrant
      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 Warrant Exercise Price among the Alternate Consideration
      in
      a reasonable manner reflecting the relative value of any different components
      of
      the Alternate Consideration. If holders of Common Stock are given any choice
      as
      to the securities, cash or property to be received in a Fundamental Transaction,
      then the Holder shall be given the same choice as to the Alternate Consideration
      it receives upon any exercise of this Warrant following such Fundamental
      Transaction. To the extent necessary to effectuate the foregoing provisions,
      any
      successor to the Company or surviving entity in such Fundamental Transaction
      shall issue to the Holder a new warrant consistent with the foregoing provisions
      and evidencing the Holder’s right to exercise such warrant into Alternate
      Consideration. The terms of any agreement pursuant to which a Fundamental
      Transaction is effected shall include terms requiring any such successor or
      surviving entity to comply with the provisions of this Section 3(e) and
      insuring that this Warrant (or any such replacement security) will be similarly
      adjusted upon any subsequent transaction analogous to a Fundamental
      Transaction.




11




(f)  Unless
      otherwise provided for in Section
      3(e) above,
      this Warrant will be binding upon any entity succeeding to the Company by
      merger, consolidation or acquisition of all or substantially all of the
      Company’s assets.




Section
      4.  Taxes. The
      Company shall pay any and all taxes, except any applicable withholding, which
      may be payable with respect to the issuance and delivery of Warrant Shares
      upon
      exercise of this Warrant.




Section
      5.  Warrant
      Holder Not Deemed a Stockholder. Except
      as otherwise specifically provided herein, no Holder, as such, of this Warrant
      shall be entitled to vote or receive dividends or be deemed the holder of shares
      of capital stock of the Company for any purpose, nor shall anything contained
      in
      this Warrant be construed to confer upon the Holder hereof, as such, any of
      the
      rights of a stockholder of the Company or any right to vote, give or withhold
      consent to any corporate action (whether any reorganization, issue of stock,
      reclassification of stock, consolidation, merger, conveyance or otherwise),
      receive notice of meetings, receive dividends or subscription rights, or
      otherwise, prior to the issuance to the Holder of this Warrant of the Warrant
      Shares which he or she is then entitled to receive upon the due exercise of
      this
      Warrant. In addition, nothing contained in this Warrant shall be construed
      as
      imposing any liabilities on such Holder to purchase any securities (upon
      exercise of this Warrant or otherwise) or as a stockholder of the Company,
      whether such liabilities are asserted by the Company or by creditors of the
      Company. Notwithstanding this Section
      5 ,
      the
      Company will provide the Holder of this Warrant with copies of the same notices
      and other information given to the stockholders of the Company generally,
      contemporaneously with the giving thereof to the stockholders.




Section
      6.  Representations
      of Holder .
      The
      Holder of this Warrant, by the acceptance hereof, represents that it is
      acquiring this Warrant and the Warrant Shares for its own account for investment
      only and not with a view towards, or for resale in connection with, the public
      sale or distribution of this Warrant or the Warrant Shares, except pursuant
      to
      sales registered or exempted under the Securities Act (and, in the case of
      registered resales, with proper delivery of a prospectus); provided , however ,
      that by
      making the representations herein, the Holder does not agree to hold this
      Warrant or any of the Warrant Shares for any minimum or other specific term
      and
      reserves the right to dispose of this Warrant and the Warrant Shares at any
      time
      in accordance with or pursuant to a registration statement or an exemption
      under
      the Securities Act (and, in the case of registered resales, with proper delivery
      of a prospectus). The Holder of this Warrant further represents, by acceptance
      hereof, that, as of this date, such Holder is an “accredited investor” as such
      term is defined in Rule 501(a)(1) of Regulation D promulgated by the Securities
      and Exchange Commission under the Securities Act (an “ **Accredited
      Investor** ”).
      Upon
      exercise of this Warrant, the Holder shall, if requested by the Company, confirm
      in writing, in a form satisfactory to the Company, that the Warrant Shares
      so
      purchased are being acquired solely for the Holder’s own account and not as a
      nominee for any other party, for investment, and not with a view toward
      distribution or resale and that such Holder is an Accredited Investor. If such
      Holder cannot make such representations because they would be factually
      incorrect, it shall be a condition to such Holder’s exercise of this Warrant
      that the Company receive such other representations as the Company considers
      reasonably necessary to assure the Company that the issuance of its securities
      upon exercise of this Warrant shall not violate any United States or state
      securities laws.




12




Section
      7.  Ownership
      and Transfer .
      This
      Warrant and or shares of Common Stock issued upon exercise of this Warrant
      may
      be offered, sold, assigned or transferred by the Holder without the consent
      of
      the Company, subject only to the provisions of Sections 2(f) and 2(g) of the
      Securities Purchase Agreement and Section 4(d) of the Registration Rights
      Agreement. The Company shall maintain at its principal executive offices (or
      such other office or agency of the Company as it may designate by notice to
      the
      Holder hereof), a register for this Warrant, in which the Company shall record
      the name and address of the person in whose name this Warrant has been issued,
      as well as the name and address of each transferee. The Company may treat the
      person in whose name any Warrant is registered on the register as the owner
      and
      Holder thereof for all purposes, notwithstanding any notice to the contrary,
      but
      in all events recognizing any transfers made in accordance with the terms of
      this Warrant.




Section
      8.  Adjustment
      of Warrant Exercise Price and Number of Shares .




(a)  Adjustment
      of Warrant Exercise Price upon Issuance of Common Stock. If and whenever on
      or
      after the Issuance Date, the Company issues or sells, or in accordance with
      this Section
      7(a) is
      deemed to have issued or sold, any shares of Common Stock (including the
      issuance or sale of shares of Common Stock owned or held by or for the account
      of the Company, but excluding shares of Common Stock deemed to have been issued
      or sold by the Company in connection with any Excluded Security) for a
      consideration per share less than a price (the “ **Applicable
      Price** ”)
      equal
      to the Warrant Exercise Price in effect immediately prior to such issue or
      sale
      (the foregoing a “ **Dilutive
      Issuance** ”),
      then
      immediately after such Dilutive Issuance the Warrant Exercise Price then in
      effect shall be an amount equal to the following:




NWEP  =  AP  x [
      (OWEP x OS) + (C)  ]


[ 
      (AP x NS)  ]




where:




NWEP
            =               
                  new Warrant Exercise Price (immediately after such Dilutive
                  Issuance)




OWEP
            =old
                Warrant Exercise Price (immediately prior to such Dilutive
                Issuance)




AP
            =the
                Applicable Price




NS
            =new
                shares of Common Stock Deemed Outstanding (immediately after such
                Dilutive
                Issuance)




OS
            =old
                shares of Common Stock Deemed Outstanding (immediately prior to such
                Dilutive Issuance)




C
            =the
                consideration, if any, received by the Company upon such Dilutive
                Issuance.




For
      purposes of determining the adjusted Warrant Exercise Price under this Section
      8(a ),
      the
      following shall be applicable:




(i)  Issuance
      of Options .
      If the
      Company in any manner grants or sells any 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 or exchange or exercise of any Convertible Securities
      issuable upon exercise of such Option is less than the Applicable 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
      8(a)(i) ,
      the
“lowest price per share for which one share of Common Stock is issuable upon
      the
      exercise of any such Option or upon conversion or exchange or exercise of any
      Convertible Securities issuable upon exercise of such Option” 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 granting
      or
      sale of the Option, upon exercise of the Option and upon conversion or exchange
      or exercise of any Convertible Security issuable upon exercise of such Option.
      No further adjustment of the Warrant Exercise Price shall be made upon the
      actual issuance of such share of Common Stock or of such Convertible Securities
      upon the exercise of such Options or upon the actual issuance of such Common
      Stock upon conversion or exchange or exercise of such Convertible
      Securities.




13




(ii)  Issuance
      of Convertible Securities .
      If the
      Company in any manner issues or sells any Convertible Securities and the lowest
      price per share for which one share of Common Stock is issuable upon such
      conversion or exchange or exercise thereof is less than the Applicable 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
      8(a)(ii) ,
      the
“lowest price per share for which one share of Common Stock is issuable upon
      such conversion or exchange or exercise” 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 issuance or sale of the
      Convertible Security and upon the conversion or exchange or exercise of such
      Convertible Security. No further adjustment of the Warrant Exercise Price shall
      be made upon the actual issuance of such share of Common Stock upon conversion
      or exchange or exercise 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 the Warrant Exercise Price had been or are to be made
      pursuant to other provisions of this Section
      8(a) ,
      no
      further adjustment of the Warrant Exercise Price 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, exchange or exercise of any Convertible
      Securities, or the rate at which any Convertible Securities are convertible
      into
      or exchangeable or exercisable for Common Stock changes at any time, the Warrant
      Exercise Price in effect at the time of such change shall be adjusted to the
      Warrant Exercise Price which would have been in effect at such time had such
      Options or Convertible Securities provided for such changed purchase price,
      additional consideration or changed conversion rate, as the case may be, at
      the
      time initially granted, issued or sold. For purposes of this Section
      8(a)(iii) ,
      if the
      terms of any Option or Convertible Security that was outstanding as of the
      Issuance Date are changed 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 change. No adjustment shall be made if such
      adjustment would result in an increase of the Warrant Exercise Price then in
      effect.




14




(iv)  Calculation
      of Consideration Received .
      In case
      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, (x) the
      Options will be deemed to have been issued for a value determined by use of
      the
      Black Scholes Option Pricing Model (the “ **Option
      Value** ”)
      and
      (y) the other securities issued or sold in such integrated transaction shall
      be
      deemed to have been issued for the difference of (I) the aggregate consideration
      received by the Company, less (II) the Option Value. 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 or sold for a consideration other than
      cash, the amount of the consideration other than cash received by the Company
      will be the fair value of such consideration, except where such consideration
      consists of securities, in which case the amount of consideration received
      by
      the Company will be the Closing Trade Price of such securities on the date
      of
      receipt. 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. The fair value of any consideration
      other than cash or securities will be determined jointly by the Company and
      the
      Required Holders. If such parties are unable to reach agreement within ten
      (10)
      days after the occurrence of an event requiring valuation (the “ **Valuation
      Event** ”),
      the
      fair value of such consideration will be determined within five (5) Business
      Days after the tenth (10 th )
      day
      following the Valuation Event by an independent, reputable appraiser jointly
      selected by the Company and the Required Holders. The determination of such
      appraiser shall be deemed binding upon all parties absent manifest error and
      the
      fees and expenses of such appraiser shall be borne by the Company.




(v)  Treasury
      Shares. The
      number of shares of Common Stock outstanding at any given time does not include
      shares owned or held by or for the account of the Company, and the disposition
      of any shares so owned or held will be considered an issue or sale of Common
      Stock.




(vi)  Record
      Date. If the
      Company takes a record of the holders of Common Stock for the purpose of
      entitling them (A) to receive a dividend or other distribution payable in Common
      Stock, Options or in Convertible Securities or (B) to subscribe for or purchase
      Common Stock, Options or Convertible Securities, then such record date will
      be
      deemed to be the date of the issue or sale of the Common Stock deemed to have
      been issued or sold upon the declaration of such dividend or the making of
      such
      other distribution or the date of the granting of such right of subscription
      or
      purchase, as the case may be.




(b)  Adjustment
      of Warrant Exercise Price upon Subdivision or Combination of Common
      Stock. If the
      Company at any time on or after the Issuance Date subdivides (by any stock
      dividend, stock split, recapitalization or otherwise) one or more classes of
      its
      outstanding shares of Common Stock into a greater number of shares, the Warrant
      Exercise Price in effect immediately prior to such subdivision will be
      proportionately reduced and upon exercise, the number of Warrant Shares will
      be
      proportionately increased. If the Company at any time on or after the Issuance
      Date combines (by combination, reverse stock split or otherwise) one or more
      classes of its outstanding shares of Common Stock into a smaller number of
      shares, the Warrant Exercise Price in effect immediately prior to such
      combination will be proportionately increased and upon exercise, the number
      of
      Warrant Shares will be proportionately reduced.




15




(c)  Certain
      Events .
      If any
      event occurs of the type contemplated by the provisions of this Section
      8 but not
      expressly provided for by such provisions (including, without limitation,
      non-stock dividends or distributions of assets or the granting of stock
      appreciation rights, phantom stock rights or other rights with equity features),
      then the Company’s Board of Directors will make an appropriate adjustment in the
      Warrant Exercise Price so as to protect the rights of the Holder under this
      Warrant; provided that no
      such adjustment will increase the Warrant Exercise Price as otherwise determined
      pursuant to this Section
      8 .
      The
      Company may at any time during the term of this Warrant reduce the then current
      Warrant Exercise Price to any amount and for any period of time deemed
      appropriate by the Board of Directors. The issuance of any Excluded Securities
      or Other Securities shall not result in an adjustment to the Warrant Exercise
      Price.




(d)  Notices .
      Immediately upon any adjustment of the Warrant Exercise Price, the Company
      will
      give written notice thereof to the Holder of this Warrant, setting forth in
      reasonable detail, and certifying, the calculation of such
      adjustment.




Section
        9. Purchase
        Rights; Reorganization, Reclassification, Consolidation, Merger or
        Sale.




(a)  In
      addition to any adjustments pursuant to Section
      8 above,
      if at any time the Company grants, issues or sells any Options, Convertible
      Securities or rights to purchase stock, warrants, securities or other property
      pro rata to the record holders of any class of Common Stock (the “ **Purchase
      Rights** ”),
      then
      the Holder of this Warrant will be entitled to acquire, upon the terms
      applicable to such Purchase Rights, the aggregate Purchase Rights which such
      Holder could have acquired if such Holder had held the number of shares of
      Common Stock acquirable upon complete exercise of this Warrant immediately
      before the date on which a record is taken for the grant, issuance or sale
      of
      such Purchase Rights, or, if no such record is taken, the date as of which
      the
      record holders of Common Stock are to be determined for the grant, issue or
      sale
      of such Purchase Rights.




(b)  Any
      recapitalization, reorganization, reclassification, consolidation, merger,
      sale
      of all or substantially all of the Company’s assets to another Person or other
      transaction in each case which is effected in such a way that holders of Common
      Stock are entitled to receive (either directly or upon subsequent liquidation)
      stock, securities or assets with respect to or in exchange for Common Stock
      is
      referred to herein as an “ **Organic
      Change** .”
Prior
      to the consummation of any (i) sale of all or substantially all of the Company’s
      assets to an acquiring Person or (ii) other Organic Change following which
      the
      Company is not a surviving entity, the Company will secure from the Person
      purchasing such assets or the acquirer in or successor resulting from such
      Organic Change (in each case, the “ **Acquiring
      Entity** ”)
      a
      written agreement (in form and substance reasonably satisfactory to the Holders
      of Warrants representing at least two-thirds of the Warrant Shares issuable
      upon
      exercise of the Warrants then outstanding) to deliver to each Holder of Warrants
      in exchange for such Warrants, a security of the Acquiring Entity evidenced
      by a
      written instrument substantially similar in form and substance to this Warrant
      as adjusted pursuant to Section
      3(e) above
      and reasonably satisfactory to the Holders of the Warrants (including an
      adjusted warrant exercise price if so required by Section
      3(e) ,
      without
      regard to any limitations on exercise, if the value so reflected is less than
      any Applicable Warrant Exercise Price immediately prior to such consolidation,
      merger or sale).




16




Section
      10.  Lost,
      Stolen, Mutilated or Destroyed Warrant. If this
      Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly,
      on
      receipt of an indemnification undertaking (or, in the case of a mutilated
      Warrant, the Warrant), issue a new Warrant of like denomination and tenor as
      this Warrant so lost, stolen, mutilated or destroyed.




Section
      11.  Notice. Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Warrant must be in writing and will be deemed
      to
      have been delivered: (i) upon receipt, when delivered personally; (ii) upon
      receipt, when sent by facsimile (provided confirmation of receipt is received
      by
      the sending party or confirmation of transmission is mechanically or
      electronically generated and kept on file by the sending party); or (iii) one
      (1) Business Day after deposit with a internationally recognized courier
      service, in each case properly addressed to the party to receive the same.
      The
      addresses and facsimile numbers for such communications shall be:




If
                    to Holder, to:
                JPMorgan
                    Chase4
                    New York PlazaNew
                    York, NY 10004Ground
                    Floor WindowandLehman
                    Brothers Commercial Corporation Asia Limited24F,
                    Two International Finance Center8,
                    Finance StreetCentral,
                    Hong KongAttention:
                    Steven QianFacsimile:
                    (65) 6433-6187With
                    a copy to:
                Goodwin
                    Procter, LLPExchange
                    PlaceBoston,
                    MA 02109Attention:
                    Jocelyn M. Arel and James A. HutchinsonFacsimile:
                    (617) 525-1231If
                    to the Company, to:
                China
                    Automotive Systems, Inc.No.
                    1 Henglong RoadYu
                    Qiao Development ZoneSashi
                    District, Jing Zhou CityHubei
                    Province, People’s Republic of ChinaAttention:
                    Hanlin ChenFacsimile:
                    (86) 27-5980-8808With
                    a copy to:
                Heller
                    Ehrman LLP4350
                    La Jolla Village Drive -7thFloorSan
                    Diego, CA 92122Attention:
                    Hayden Trubitt, Esq.Facsimile:
                    (858) 587-5903


Each
      party shall provide five days’ prior written notice to the other party of any
      change in address or facsimile number. Written confirmation of receipt (A)
      given
      by the recipient of such notice, consent, facsimile, waiver or other
      communication, or (B) provided by an internationally recognized courier shall
      be
      rebuttable evidence of personal service, receipt by facsimile or receipt from
      an
      internationally recognized courier in accordance with clause (i), (ii) or (iii)
      above, respectively.




17




Section
      12.  Date .
      The
      date of this Warrant is set forth on page 1 hereof. Except as otherwise provided
      in Section
      2(e) ,
      this
      Warrant, in all events, shall be wholly void and of no effect after the close
      of
      business on the Expiration Date.




Section
      13.  Amendment
      and Waiver. Except
      as otherwise provided herein, the provisions of the Warrants may be amended
      and
      the Company may take any action herein prohibited, or omit to perform any act
      herein required to be performed by it, only if the Company has obtained the
      written consent of the Company and of the Holders of Warrants representing
      at
      least two-thirds of the Warrant Shares issuable upon exercise of the Warrants
      then outstanding; provided that,
      except for Section
      8(d) ,
      no such
      action may increase the Warrant Exercise Price or decrease the number of shares
      or class of stock obtainable upon exercise of any Warrant without the written
      consent of the Holder of such Warrant.




Section
      14.  Descriptive
      Headings; Governing Law. The
      descriptive headings of the several sections and paragraphs of this Warrant
      are
      inserted for convenience only and do not constitute a part of this Warrant.
      The
      corporate laws of the State of Delaware shall govern all issues concerning
      the
      relative rights of the Company and its stockholders. All other questions
      concerning the construction, validity, enforcement and interpretation of this
      Agreement shall be governed by the internal laws of the State of New York,
      without giving effect to any choice of law or conflict of law provision or
      rule
      (whether of the State of New York or any other jurisdictions) that would cause
      the application of the laws of any jurisdictions other than the State of New
      York. Each party hereby irrevocably submits to the exclusive jurisdiction of
      the
      state and federal courts sitting in The City of New York, Borough of Manhattan,
      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 suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is brought in an inconvenient forum or that
      the
      venue of such suit, action or proceeding is improper. Each party hereby
      irrevocably waives personal service of process and consents to process being
      served in any such suit, action or proceeding by mailing a copy thereof to
      such
      party at the address for such 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.




18




**Section
      15.**  Waiver
      of Jury Trial.  **AS
      A**  **MATERIAL
      INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE PARTIES HERETO
      HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN
      ANY
      WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH
      THIS TRANSACTION.**




[ *SIGNATURE
      PAGE FOLLOWS* ]




19


**IN
      WITNESS WHEREOF,** the
      Company has caused this Warrant to be signed as of the date first set forth
      above.




**CHINA
              AUTOMOTIVE SYSTEMS, INC.**By:
            /s/ Hanlin
              ChanName:Hanlin
                ChanTitle:    
              Chairman




*[Closing
                  Warrant Signature Page]*







**EXHIBIT
      A TO WARRANT**




**EXERCISE
      NOTICE**





**TO
      BE EXECUTED**


**BY
      THE REGISTERED HOLDER TO EXERCISE THIS WARRANT**





**CHINA
      AUTOMOTIVE SYSTEMS, INC.**





The
      undersigned Holder hereby exercises the right to purchase ______________ of
      the
      shares of Common Stock (“ **Warrant
      Shares** ”)
      of
      China Automotive Systems, Inc. (the “ **Company** ”),
      evidenced by the attached Warrant (the “ **Warrant** ”).
      Capitalized terms used herein and not otherwise defined shall have the
      respective meanings set forth in the Warrant.





Specify
      Method of exercise by check mark:




1. ___ Cash
      Exercise





(a)
            Payment
                of Warrant Exercise Price.The Holder shall pay the Aggregate Exercise Price of $___________
                to the
                Company in accordance with the terms of the
                Warrant.




(b)
            Delivery
                of Warrant Shares.The Company shall deliver to the Holder ________ Warrant Shares in
                accordance with the terms of the
                Warrant.





2. ___ Cashless
      Exercise





(a)
            Payment
                of Warrant Exercise Price.In
                lieu of making payment of the Aggregate Exercise Price and as a result
                of
                the conditions inSection
                2(b)of
                the Warrant having been met, the Holder elects to receive upon such
                exercise the Net Number of shares of Common Stock determined in accordance
                with the terms of the Warrant.




(b)
            Delivery
                of Warrant Shares.The Company shall deliver to the Holder ____________ Warrant Shares
                in
                accordance with the terms of the
                Warrant.




Date:
              __________________, ____Name of
              Registered
              HolderBy:Name:Title:









**EXHIBIT
      B TO WARRANT**




**FORM
      OF WARRANT POWER**




**FOR
      VALUE RECEIVED,** the
      undersigned does hereby assign and transfer to __________________________,
      Federal Identification No. ___________________, a warrant to purchase
      _______________ shares of the common stock of China Automotive Systems, Inc.
      represented by warrant certificate no. ______________, standing in the name
      of
      the undersigned on the books of said corporation. The undersigned does hereby
      irrevocably constitute and appoint ________________________, attorney to
      transfer the warrants on the books of said corporation, with full power of
      substitution in the premises.




Dated:
                __________________By:Name:Title: