Document:

exv4w78

Exhibit 4.78

SHARE TRANSFER CONTRACT

FOR

LUQUAN XIAOPENGZU POWER

GENERATION CO., LTD.

1

 

CONTENTS

	 	 	 	 	 	 	 

	CHAPTER I
	 	DEFINITIONS	 	 	7	 
	 
	 	 	 	 	 	 
	Article 1
	 	Definitions	 	 	 7	 
	 
	 	 	 	 	 	 
	CHAPTER II
	 	SALE EQUITY STAKE	 	 	9	 
	 
	 	 	 	 	 	 
	Article 2
	 	Sale Equity Stake	 	 	 9	 
	Article 3
	 	Transfer Price for the Sale Equity Stake	 	 	10	 
	Article 4
	 	Conditions Precedent for the Payment of the Transfer Price	 	 	11	 
	Article 5
	 	Payment	 	 	13	 
	Article 6
	 	Taxes Payable under the Transfer of the Sale Equity Stake	 	 	18	 
	 
	 	 	 	 	 	 
	CHAPTER III
	 	REPRESENTATIONS AND WARRANTIES BY ALL PARTIES	 	 	18	 
	 
	 	 	 	 	 	 
	Article 7
	 	Representations and Warranties by All Parties	 	 	18	 
	 
	 	 	 	 	 	 
	CHAPTER IV
	 	DISCLOSURES, REPRESENTATIONS AND WARRANTIES BY TRANSFERORS	 	 	19	 
	 
	 	 	 	 	 	 
	Article 8
	 	Disclosures, Representations and Warranties by Transferors	 	 	19	 
	Article 9
	 	General Representations and Warranties by Transferors	 	 	20	 
	Article 10
	 	Ownership	 	 	21	 
	Article 11
	 	The Company and the Hydroelectric Project	 	 	23	 
	 
	 	 	 	 	 	 
	CHAPTER V
	 	DISCLOSURES, REPRESENTATIONS AND WARRANTIES BY TRANSFEREE	 	 	33	 
	 
	 	 	 	 	 	 
	Article 12
	 	Disclosures, Representations and Warranties by Transferee	 	 	33	 
	 
	 	 	 	 	 	 
	CHAPTER VI
	 	DELIVERY	 	 	34	 
	 
	 	 	 	 	 	 
	Article 13
	 	Delivery	 	 	34	 
	 
	 	 	 	 	 	 
	CHAPTER VII
	 	DEBT ARRANGEMENT AND EMPLOYEES RELOCATION	 	 	38	 
	 
	 	 	 	 	 	 
	Article 14
	 	Debts Arrangement	 	 	38	 
	Article 15
	 	Relocation of Employees	 	 	38	 
	 
	 	 	 	 	 	 
	CHAPTER VIII
	 	CONFIDENTIALITY	 	 	39	 
	 
	 	 	 	 	 	 
	Article 16
	 	Confidentiality	 	 	39	 
	 
	 	 	 	 	 	 
	CHAPTER IX
	 	BREACH OF CONTRACT	 	 	40	 
	 
	 	 	 	 	 	 
	Article 17
	 	Liability for Breach of a Representation or Warranty	 	 	40	 
	Article 18
	 	Liability for Breach of Contract	 	 	41	 
	 
	 	 	 	 	 	 
	CHAPTER X
	 	FORCE MAJEURE	 	 	42	 
	 
	 	 	 	 	 	 
	Article 19
	 	Force Majeure	 	 	42	 
	 
	 	 	 	 	 	 
	CHAPTER XI
	 	RESOLUTION OF DISPUTES	 	 	43	 
	 
	 	 	 	 	 	 
	Article 20
	 	Arbitration	 	 	43	 
	Article 21
	 	Validity of the Arbitration Award	 	 	44	 
	Article 22
	 	Continuation of Rights and Obligations	 	 	44	 
	 
	 	 	 	 	 	 
	CHAPTER XII
	 	APPLICABLE LAW	 	 	44	 
	 
	 	 	 	 	 	 
	Article 23
	 	Applicable Law	 	 	44	 
	 
	 	 	 	 	 	 
	CHAPTER XIII
	 	MISCELLANEOUS	 	 	44	 

2

 

	 	 	 	 	 	 	 

	Article 24
	 	Waiver	 	 	44	 
	Article 25
	 	Transfer	 	 	45	 
	Article 26
	 	Amendment	 	 	45	 
	Article 27
	 	Severability	 	 	45	 
	Article 28
	 	Language	 	 	45	 
	Article 29
	 	Validity of the Text and Appendices	 	 	46	 
	Article 30
	 	Notification	 	 	46	 
	Article 31
	 	The Entire Agreement	 	 	47	 
	 
	 	 	 	 	 	 
	APPENDIX I
	 	CONDITIONS PRECEDENT	 	 	50	 
	 
	 	 	 	 	 	 
	APPENDIX II
	 	DEBTS OF THE COMPANY	 	 	52	 
	 
	 	 	 	 	 	 
	APPENDIX III
	 	EXISTING SECURITIES OF THE COMPANY	 	 	53	 
	 
	 	 	 	 	 	 
	APPENDIX IV
	 	LIST OF REAL ESTATE AND MOVABLE ASSETS ( AS OF THE DATE OF MARCH 30, 2010)	 	 	54	 

3

 

SHARE TRANSFER CONTRACT

This Share Transfer Contract (hereinafter referred to as “this Contract”) is executed by the
following Parties in Beijing, China.

	(1)	 	Party A: Fujian Huabang Hydroelectric Investment Co., Ltd. (hereinafter referred to as the
“Transferee”), a wholly foreign owned enterprise registered and established in accordance with
the laws of the People’s Republic of China, with its registration number of 350000400003598
and registered address at the 3rd Floor of East Building A, No.349, Guangda Road,
Taijiang District, Fuzhou City, the legal representative of which is John Douglas Kuhns, whose
position is chairman and nationality is the United States of America;
	 
	(2)	 	Party B: Mao Ding Gou, a PRC citizen with the ID card number of 330326195701127514, whose
domicile is at No,122, Liunan Street, Aojiang Town, Pingyang County, Zhejiang
Province;
	 
	(3)	 	Party C: Xu Xuan Bo, a PRC citizen with the ID card number of 330326196309287518,
whose domicile is at Room 341, Unit 3 of Building 1, Yahe Road, Kunyang Town, Pingyang
County, Zhejiang Province;
	 
	(4)	 	Party D, Xu Xian Xiong, a PRC citizen with the ID card number of
330326196202147515, whose domicile is at No, 12, Erzhong East Road, Lingxi
Town, Cangnan County, Zhejiang Province;
	 
	(5)	 	Party E, Zhang Jing Sheng, a PRC citizen with the ID card number of
53011219600103255X, whose domicile is at Team 2 of Tou Village, Longqing
Village Committee, Shalang Bai Ethnic Township, Wuhua District, Kunming City, Yunnan
Province;
	 
	(6)	 	Party F, Lin Rong, a PRC citizen with the ID card number of 33032619601105181X,
whose domicile is at Room 241, Building Y2, Yahe West Road, Kunyang Town, Pingyang
County, Zhejiang Province;
	 
	(7)	 	Party G, Xu Jing Qing, a PRC citizen with the ID card number of
330326196207257713, whose domicile is at No.128, Xin’aozhong Road,

4

 

	 	 	Aojiang Town, Pingyang County, Zhejiang Province;
	 
	(8)	 	Party H, Mao Xin Run, a PRC citizen with the ID card number of 33032619590712751X,
whose domicile is at Shunyang Village, Wuyang Township, Pingyang County, Zhejiang
Province;
	 
	(9)	 	Party I: Wang Shu Yi, a PRC citizen with the ID card number of 530112197711031329,
whose domicile is at No.619, Team 2 of Dapuji Village, Puji Agency of Wuhua District,
Kunming City, Yunnan Province.

Party B, Party C, Party D, Party E, Party F, Party G, Party H and Party I are hereinafter
collectively referred to as the “Transferors”. The Transferors and the Transferee are hereinafter
collectively referred to as “all Parties” as well as each of the Transferors and the Transferee is
hereinafter referred to as “Party”.

WHEREAS:

	(1)	 	Luquan Xiaopengzu Hydropower Generation Co., Ltd. (hereinafter referred to as the “Company”)
is a company incorporated in China for the purpose of hydropower generation investment,
operation and management with the registered capital of RMB100,000,000, the registration
number of which is 530128000000331;
	 
	(2)	 	Party B owns twenty-one point one eight percent (21.18%) of the equity stake of the Company,
and can exercise all of his full rights as a shareholder;
	 
	(3)	 	Party C owns eighteen point six one one percent (18.611%) of the equity stake of the Company,
and can exercise all of his full rights as a shareholder;
	 
	(4)	 	Party D owns sixteen point two seven five percent (16.275%) of the equity stake of the
Company, and can exercise all of his full rights as a shareholder;
	 
	(5)	 	Party E owns fourteen percent (14%) of the equity stake of the Company, and can exercise all
of his full rights as a shareholder;

5

 

	(6)	 	Party F owns ten point zero zero nine percent (10.009%) of the equity stake of the Company,
and can exercise all of his full rights as a shareholder;
	 
	(7)	 	Party G owns eight point four seven seven percent (8.477%) of the equity stake of the
Company, and can exercise all of his full rights as a shareholder;
	 
	(8)	 	Party H owns six point two four eight percent (6.248%) of the equity stake of the Company,
and can exercise all of his full rights as a shareholder;
	 
	(9)	 	Party I owns five point two percent (5.2%) of the equity stake of the Company, and can
exercise all of his full rights as a shareholder;
	 
	(10)	 	Subject to the terms and conditions set out in this Contract, Party B is willing to transfer
twenty one point one eight percent (21.18%) of the equity stake of the Company held by him,
Party C is willing to transfer eighteen point six one one percent (18.611%) of the equity
stake of the Company held by him, Party D is willing to transfer sixteen point two seven five
percent (16.275%) of the equity stake of the Company held by him, Party E is willing to
transfer fourteen percent (14%) of the equity stake of the Company held by him, Party F is
willing to transfer ten point zero zero nine percent (10.009%) of the equity stake of the
Company held by him, Party G is willing to transfer eight point four seven seven percent
(8.477%) of the equity stake of the Company held by him, Party H is willing to transfer six
point two four eight percent (6.248%) of the equity stake of the Company held by him, and
Party I is willing to transfer five point two percent (5.2%) of the equity stake of the
Company held by him to the Transferee, all of which represent one hundred percent (100%) of
the equity stake of the Company (hereinafter referred to as the “Sale Equity Stake”);
	 
	(11)	 	The Transferee is willing to acquire one hundred percent (100%) of the equity stake of the
Company from the Transferors subject to the terms and conditions set out in this Contract.

6

 

     For this purpose, after friendly consultations, on the principles of equality and mutual
benefit, all Parties to this Contract have reached the following agreement in accordance with the
provisions of the Company Law of the People’s Republic of China, Contract Law of the People’s
Republic of China and other relevant laws and regulations of the PRC:

Chapter I  Definitions

Article 1 Definitions

Unless otherwise prescribed and stipulated, the following terms used in this Contract shall have
the meanings set forth as follows:

The “Company” refers to Luquan Xiaopengzu Hydropower Generation Co., Ltd., a limited liability
company registered and established in accordance with the laws of PRC, with its registration
number being 530128000000331, registered capital (paid-up capital) being RMB100,000,000 and
registered address at Xiaopengzu Village, Xinglong Village Committee, Cuihua Township, Luquan
County.

The “Hydroelectric Project” refers to the Xiaopengzu Hydroelectric Project with the total
installed capacity of 44 MW which is legally owned and operated by the Company.

“New Articles of Association” refers to the new Articles of Association of Luquan Xiaopengzu
Hydropower Generation Co., Ltd. after the completion of the share transfer contemplated in this
Contract, which has been approved by the Examination and Approval Authority.

“PRC” or “China” refers to the People’s Republic of China, and insofar as this Contract is
concerned, shall exclude Hong Kong, Macao and Taiwan.

“Claims” refers to claims, actions, demands, proceedings judgments liabilities, damages amounts,
costs and expenses (including but not limited to attorney fees) whatsoever and howsoever arising.

7

 

“Signing Date” refers to the date on which this Share Transfer Contract is signed.

“Encumbrance” refers to any mortgage, assignment, lien, charge, pledge, title retention, right to
acquire, security interest, option, pre-emptive right, and any other restriction or conditions
whatsoever including, without limitation:

	 	(1)	 	any interest or right granted or reserved in or over or affecting the Sale
Equity Stake; or
	 
	 	(2)	 	the interest or right created or otherwise arising in or over the Sale
Equity Stake under a fiduciary transfer, charge, lien, pledge, power of attorney or
other form of encumbrance; or
	 
	 	(3)	 	any security over the Sale Equity Stake for the payment of a debt or any
other monetary obligation or the performance of any other obligation.

“Examination and Approval Authority”, refers to the relevant PRC governmental department having
the authority to examine and approve this Contract, the New Articles of Association of the Company
and to grant approval for the transfer of the Sale Equity Stake contemplated in this Contract
pursuant to the provisions for the examination and approval of projects which have investments by
foreign investors in the PRC.

“Material Adverse Change” refers to:

	 	(1)	 	investigations (which may cause the Company to be punished) and penalties
upon the Company by relevant governmental authorities;
	 
	 	(2)	 	involvement with any litigation, arbitration or any other judicial
proceedings by the Company;
	 
	 	(3)	 	any change (or any development that, insofar as can reasonably be foreseen,
is likely to result in any change) that may cause loss to the

8

 

	 	 	 	financial conditions,
business, assets or liabilities of the Company in the amount of more than RMB50,000.

“RMB” or “Renminbi” refers to the legal currency of the PRC.

“US Dollar” or “US$” refers to the legal currency of the United States of America.

“Transferors’ Bank Accounts” refers to, for the purpose of this Contract, the bank accounts opened
separately by Party B, Party C, Party D, Party E, Party F, Party G, Party H and Party I under
their respective names for receiving the Transfer Price (as defined in Article 3.1 below).

“Delivery Completion Date” refers to the date provided by Article 13.5 hereunder.

“Third Party” refers to any natural person, legal entity, or other organization or entity, other
than the parties to this Contract.

“Working Day” refers to the statutory working day provided by the State Council of the PRC.

Chapter II  Sale Equity Stake

Article 2 Sale Equity Stake

Pursuant to the terms and conditions stipulated in this Contract, the Transferors agree to
transfer to the Transferee and the Transferee agrees to accept from the Transferors the Sale
Equity Stake being one hundred percent (100%) of the equity
stake of the Company with all the rights and obligations of and attaching to the Sale Equity
Stake for transfer including, without limiting the generality thereof, all the rights to
receive dividends and to receive or subscribe for shares (if any) declared, paid or issued by
the Company and free of any Claims or Encumbrances.

9

 

Article 3 Transfer Price for the Sale Equity Stake

	 	3.1	 	The Transferors and the Transferee after consultations have finally determined that
the price for the Sale Equity Stake shall be agreed at RMB240,000,000 (hereinafter
referred to as the “Transfer Price”). Specifically, the amount respectively payable to
the Transferors shall be as follows:
	 
	 	 	 	Party B: RMB50,832,000;
	 
	 	 	 	Party C: RMB44,666,400;
	 
	 	 	 	Party D: RMB39,060,000;
	 
	 	 	 	Party E: RMB33,600,000;
	 
	 	 	 	Party F: RMB24,021,600;
	 
	 	 	 	Party G: RMB20,344,800;
	 
	 	 	 	Party H: RMB14,995,200;
	 
	 	 	 	Party I: RMB12,480,000.
	 
	 	3.2	 	The Transfer Price shall be paid in two (2) instalments:

	 	(1)	 	The first instalment of the Transfer Price, namely, RMB204,000,000,
shall be paid within ten (10) Working Days after the Transferors have completed
all conditions precedent stipulated in Article 4.2 hereof.
	 
	 	(2)	 	The balance of the Transfer Price, namely, RMB36,000,000, shall be
paid within ten (10) Working Days after the Transferors have completed all
conditions precedent stipulated in Article 4.3 hereof.

10

 

	 	3.3	 	The Transferee shall pay the Transfer Price in equivalent US Dollars to the
Transferors.

Article 4 Conditions Precedent for the Payment of the Transfer Price

	 	4.1	 	The Transferee agrees to pay RMB2,000,000 to the Transferors on the Signing Date as
the deposit, which shall be automatically set off against part of the first instalment of
the Transfer Price when the Transferee pays the first instalment. The Transferors hereby
irrevocably undertake and warrant that, prior to the payment of the first instalment of
the Transfer Price by the Transferee, no matter how the power tariff or policy changes,
the Transferors shall transfer the Sale Equity Stake in accordance with this Contract,
otherwise, the Transferors shall refund twice of the deposit to the Transferee; in
addition, during that period, the Transferors and its agents or representatives shall not
solicit any other offer regarding the Sale Equity Stake and/or the Hydroelectric Project,
neither shall the Transferors discuss or negotiate the transfer of the Sale Equity Stake
and/or Hydroelectric Project or the increase of the registered capital of the Company or
participate in any such discussions or negotiations with any Third Party, otherwise, the
Transferors shall refund twice of the deposit to the Transferee. The Transferee also
warrants that it will acquire the Sale Equity Stake in accordance with this Contract,
otherwise, the deposit will be retained by the Transferors.
	 
	 	4.2	 	Under this Contract, the conditions precedent for the payment of the first
instalment of the Transfer Price in the amount of RMB204,000,000 by the Transferee are
set out as follows:

	 	(1)	 	The Transferors have completed all conditions precedent set out in
Appendix I to this Contract;
	 
	 	(2)	 	This Contract, the New Articles of Association and the transfer of
the Sale Equity Stake in this Contract have been approved in writing by the
Examination and Approval Authority, and the certificate of approval for
establishment of foreign invested enterprises has been issued;

11

 

	 	(3)	 	The alteration registration with the competent administration for
industry and commerce for the Sale Equity Stake has been completed and the Sale
Equity Stake has been registered under the name of the Transferee;
	 
	 	(4)	 	The business license for foreign invested enterprises of the Company
has been issued;
	 
	 	(5)	 	The competent foreign exchange administration authority has approved
the transfer of the first instalment of the Transfer Price from the capital
account of the Transferee to the Transferors’ Bank Accounts; and
	 
	 	(6)	 	From the Signing Date to the First Payment Date (as defined in
Article 5.1), there has been no Material Adverse Change to the Company.

	 	4.3	 	Under this Contract, the conditions precedent for the payment of the balance of the
Transfer Price by Transferee are set out as follows:

	 	(1)	 	The delivery stipulated in Chapter VI of this Contract has been fully
completed and the Transferee has issued the written confirmation letter to the
Transferors confirming that the delivery has been fully completed;
	 
	 	(2)	 	The Guarantee Fund in the amount of RMB12,000,000 which shall be paid
by Transferors in accordance with Article 5.5 hereof has arrived at the bank
account designated by Transferee;
	 
	 	(3)	 	The competent foreign exchange administration authority has approved
the transfer of the balance of the Transfer Price from the capital account of the
Transferee to the Transferors’ Bank Accounts; and
	 
	 	(4)	 	During the period from the First Payment Date to the Second Payment
Date (as defined in Article 5.2), there has been no Material Adverse Change to the
Company.

12

 

	 	4.4	 	In the event that any of the conditions set out in the aforesaid Article 4.2 and/or
Article 4.3 has not been fulfilled or satisfied, and the Transferee has not indicated its
waiver of the said conditions or any one of them in writing, the Transferee shall not be
obliged to pay the Transfer Price to the Transferors which shall not be deemed as breach
of contract.
	 
	 	4.5	 	The Transferee shall be mainly responsible for the application for the approval of
this Contract by the Examination and Approval Authority and the Transferors shall provide
full cooperation, including but not limited to provision or execution of relevant
documents. The Transferors and the Transferee shall make all their best efforts to
procure the timely approvals of this Contract, the New Articles of Association and the
transfer of the Sale Equity Stake contemplated herein by the Examination and Approval
Authority and to procure the business license, the certificate of approval for
establishment of foreign invested enterprises and the approvals issued by the competent
foreign exchange administration authority for the remittance of the Transfer Price.
	 
	 	4.6	 	Upon the expiration of ninety (90) Working Days commencing from the Signing Date,
in the event that the conditions precedent set out in Article 4.2 hereof except for the
conditions precedent in Item (1) of Article 4.2, have not been fully satisfied, this
Contract shall not be binding on all Parties and the Transferors shall immediately refund
the deposit to the Transferee without compensation.

Article 5 Payment

	 	5.1	 	The First Payment Date shall be within ten (10) Working Days after all conditions
precedent set out in Article 4.2 hereof have been completed. The Transferee shall, on the
First Payment Date, remit the first instalment of the Transfer Price in the amount of
RMB204,000,000 to the Transferors’ Bank Accounts. The deposit (in the amount of
RMB2,000,000) paid by the Transferee shall be set off here. Therefore, on the First
Payment Date, the

13

 

	 	 	 	actual amount remitted by the Transferee to the Transferors’ Bank
Accounts shall be RMB202,000,000.
	 
	 	 	 	The Second Payment Date shall be within ten (10) Working Days after all conditions
precedent set out in Article 4.3 hereof have been completed. The Transferee shall, on the
Second Payment Date, remit the balance of the Transfer Price in the amount of
RMB36,000,000 to the Transferors’ Bank Accounts.
	 
	 	5.2	 	The Transferors shall, within five (5) Working Days after the satisfaction of the
conditions precedent to the payment, provide the Transferee in written form with the
detailed information in relation to the Transferors’ Bank Accounts, otherwise, in the
event that the Transferee cannot pay or cannot pay as scheduled the Transfer Price due to
the Transferors’ failure to provide the detailed information of the Transferors’ Bank
Accounts in a timely fashion, or due to the reason of the opening banks of the
Transferors’ Bank Accounts, the Transferee shall not assume any liability arising
therefrom.
	 
	 	5.3	 	The Transferors shall issue to the Transferee the legal documents evidencing the
receipt of the Transfer Price within five (5) Working Days after receiving each
instalment of the Transfer Price paid by the Transferee. In the event that the
Transferors fail to issue the said documents to the Transferee within the prescribed time
limit, the Transferee shall be entitled to correspondingly delay its payment of the
following payable instalment of the Transfer Price, which shall not be deemed as breach
of contract. In the event that the said legal documents issued by the Transferors are not
in compliance with the PRC laws
and regulations which cause the Transferee and/or the Company to suffer from any damage
or loss, the Transferors shall assume joint liability for the compensation on the
Transferee and/or the Company.
	 
	 	5.4	 	All Parties hereby confirm that, during the period from the First Payment Date to
the Second Payment Date (exclusive), the revenues of electricity fees of the Company
shall be divided between the Transferors and the Transferee in proportion to the actual
payment of the Transfer Price; and from the Second

14

 

	 	 	 	Payment Date (inclusive), all the
profit of the Company shall be enjoyed by the Transferee.
	 
	 	5.5	 	The Transferors shall remit RMB12,000,000 to the bank account designated by the
Transferee within five (5) Working Days from the arrival date of the first instalment of
the Transfer Price paid by the Transferee at the Transferors’ Bank Accounts, which shall
be served as the guarantee fund for the performance of all the obligations of the
Transferors under this Contract. The guarantee duration shall commence from the arrival
date of such guarantee fund at the bank account designated by the Transferee and
terminate when all obligations provided in Article 5.6 hereof have been fulfilled by the
Transferors. Upon the expiration of the Guarantee Duration, the Transferee shall remit
the balance of the guarantee fund (if any) without any interest to the bank account
designated by Transferors. In the event that the Transferors fail to remit the full
amount of the guarantee fund to the bank account designated by the Transferee as
scheduled, the Transferee shall be entitled to refuse to pay for the following payable
instalment of the Transfer Price, which shall not be deemed as breach of contract.
	 
	 	5.6	 	Under this Contract, within ten (10) Working Days as the Transferors complete the
acceptances in relation to fire-prevention, water and soil preservation facilities, and
environment protection, the Transferee shall refund half of the Guarantee Fund, namely,
RMB 6,000,000 to the bank account designated by Transferors. When the Transferors
complete the following obligations, the Transferee shall refund the balance of the
guarantee fund (if
any) to the bank account designated by Transferors within ten (10) Working Days after
all such obligations have been fully fulfilled:

	 	(1)	 	During the guarantee duration, the Hydroelectric Project does not have
any quality problem and the Transferors do not have any behaviours or situations
violating any provisions of this Contract;
	 
	 	(2)	 	The Transferors shall, on their own expenses, procure the replies
(filings) for the project proposal, environmental impact valuation document, land

15

 

	 	 	 	requisition, wood cutting, completion acceptance of environmental protection
facilities and water and soil preservation facilities for the project of 110 kv
transmission line of the Hydroelectric Project and deliver the originals of such
replies (filings) to the Transferee;
	 
	 	(3)	 	The Transferors shall, on their own expenses, procure the replies in
connection with the completion acceptance of environmental protection facilities,
completion acceptance of water and soil preservation facilities, fire-prevention
acceptance, record and filing acceptance and other stage acceptances and special
acceptances of the Hydroelectric Project and deliver the originals of such replies
to the Transferee;
	 
	 	(4)	 	The Transferors shall, on their own expenses, complete the overall
completion acceptance of the Hydroelectric Project (including the completion
acceptance of the 110 kv transmission line project of the Hydroelectric Project) in
accordance with relevant laws and regulations, procure the overall completion
acceptance testimonial/approval and deliver the originals of such acceptance
testimonial/approval to the Transferee;
	 
	 	(5)	 	The Transferors shall, on their own expenses, procure the Power Business
Permit (Power Generation) registered under the name of the Company in accordance
with relevant laws and regulations, and deliver the original of the Power Business
Permit (Power Generation) to the Transferee;
	 
	 	(6)	 	The Transferors shall, on their own expenses, prompt the execution of the
Grid Connection and Dispatching Agreement and Power Purchase and Sale Contract
between the Company and Yunnan Grid Corporation, which shall provide the installed
capacity of the Hydroelectric Project as 44 MW, and conduct relevant filing
procedures for such Grid Connection and Dispatching Agreement and Power Purchase and
Sale Contract with the competent power regulatory authority and deliver the
originals of such newly executed Grid Connection and Dispatching Agreement and Power
Purchase and Sale Contract to the Transferee; in addition, the Transferors

16

 

	 	 	 	shall warrant that the tariff approved of the Hydroelectric Project is RMB0.194/kwh during
wet season, RMB0.219/kwh during normal season, and RMB0.244/kwh during dry season.
	 
	 	(7)	 	The Transferors shall, on their own expenses, complete the safety
registration and safety appraisal of reservoir dam of the Hydroelectric Project in
accordance with relevant PRC laws and regulations and deliver the originals of such
safety registration certificate of reservoir dam and safety appraisal report of
reservoir dam to the Transferee;
	 
	 	(8)	 	The Transferors shall, on their own expenses, complete the tax clearance
of the Company in accordance with law before April 30, 2010 and deliver relevant
supporting documents for such full payment of relevant taxes in accordance with
relevant laws;
	 
	 	(9)	 	The Transferors shall procure the Social Insurance Registration
Certificate under the name of the Company and deliver the original of Social
Insurance Registration Certificate to the Transferee; and
	 
	 	(10)	 	The Transferors shall procure the Building Ownership Certificate for the
management building of the Hydroelectric Project under the name of the Company and
deliver the original of the Building Ownership Certificate to the Transferee.

	 	 	 	The Transferors hereby jointly and severally confirm and warrant that, in the event that
the Transferee and/ or the Company incurs any fees or expenses or suffers from any loss
or damage due to any of the above-mentioned issues, the Transferee is entitled to
directly deduct the corresponding amount from the guarantee fund, which shall not be
required to be refunded to the Transferors; in addition, such compensation shall not
prejudice any other rights of the Transferee and/or the Company to claim for damages
against the Transferors in accordance with other provisions hereof and the laws and
regulations of the PRC.

17

 

	 	5.7	 	The obligations of the Transferee shall be deemed as having been fully accomplished
upon the remittance of the Transfer Price to the Transferors’ Bank Accounts; however, the
Transferee shall continue to cooperate with the Transferors to complete various
obligations provided in Article 5.6 hereof.

Article 6 Taxes Payable under the Transfer of the Sale Equity Stake

Any taxes or fees arising out of and payable pursuant to the fulfilment of the terms of this
Contract by each of the Transferors and Transferee shall be payable by the respective Party
liable for the taxes or fees under the provisions of relevant laws and regulations of PRC.

Chapter III  Representations and Warranties by All Parties

Article 7 Representations and Warranties by All Parties

	 	7.1	 	Prior to the signing of this Contract, if the signing party is a company, such
company shall provide a power of attorney which authorizes its representative to sign
this Contract; if the signing party is an individual, such individual shall provide a
photograph of his/her identification card together with the original of the
identification card being shown. In case of proxy, power of attorney thereof and a copy
of the identification card of the principal shall be delivered.
	 
	 	7.2	 	At the time of signing this Contract, the Transferors and the Transferee hereby
state that the documents and information provided to the Party (ies) or their agencies
(including, without limitation, the lawyers, valuers, financial advisers, etc.) prior to
the Signing Date are still valid and authentic and confirm that, should discrepancies
arise between the latter and the terms of this Contract, this Contract shall prevail.
	 
	 	7.3	 	The Transferors and the Transferee hereby agree that the contracts or documents
pertaining to the transfer of Sale Equity Stake entered into among

18

 

	 	 	 	all Parties prior to
this Contract shall lapse automatically upon this Contract coming into effect.
	 
	 	7.4	 	All Parties to this Contract agree to strive jointly in coordinating all the work
pertaining to the transfer of the Sale Equity Stake, including but not limited to
application for approvals, registration and filing for record, etc., and the expenses
arising therefrom shall be borne by the Company.

Chapter IV  Disclosures, Representations and Warranties by Transferors

Article 8 Disclosures, Representations and Warranties by Transferors

The Transferors hereby jointly and severally represent and warrant to the Transferee that:

	 	8.1	 	All information and facts relating to the Company that is in the possession of the
Transferors or is known to any of the Transferors which will have a substantive effect on
the Transferors’ abilities to fulfil any of their obligations in this Contract or when
disclosed to the Transferee shall have a substantive effect on the willingness of the
Transferee to sign and fulfil its obligations under this Contract, have been disclosed to
the Transferee and the information provided by the Transferors to the Transferee does not
contain any representation that is untrue or misleading.
	 
	 	8.2	 	No lawsuits, arbitrations, or other legal or administrative proceedings or
governmental investigations are on-going against the Transferors that will materially
affect their abilities to sign this Contract or fulfil their obligations under this
Contract.
	 
	 	8.3	 	Up to the Signing Date, the Transferors have informed the whole matter of the
transfer of the Sale Equity Stake to all Third Parties relating to the Sale Equity Stake,
the Company and the Hydroelectric Project; in case of requiring the consent of such Third
Party, the Transferors have procured the written consent from the Third Party.

19

 

	 	8.4	 	The Transferors hereby undertake that none of them will take any action after the
Signing Date that will cause any adverse impact on the Company/Hydroelectric Project.
	 
	 	8.5	 	Regarding the documents and information provided by Transferors to the Transferee
and/or the Transferee’s agencies (including, without limitation, the lawyers, valuers,
financial advisers, etc.) prior to the Signing Date, the Transferors hereby undertake
that:

	 	8.5.1	 	all copies made from original documents are true and complete and
that such original documents are authentic and complete;
	 
	 	8.5.2	 	all documents supplied to the Transferee and/or the Transferee’s
agencies as originals are authentic and complete;
	 
	 	8.5.3	 	all signatures (stamps) appearing on documents supplied to the
Transferee and/or Transferee’s agencies as originals or copies of originals are
genuine; and
	 
	 	8.5.4	 	The Transferors have drawn to the attention of Transferee and/or
Transferee’s agencies all matters that are material for the Transferee to proceed
with the transaction as contemplated in this Contract.

	 	8.6	 	Prior to the Delivery Completion Date, at any moment upon the request by
Transferee, the Transferors shall, on their own expenses, carry out and/or conduct in a
way which is satisfactory to the Transferee, or to impel the Third Party to carry out
and/or conduct in a way which is satisfactory to the Transferee, any action and/or
document which the Transferee reasonably deems requisite, in order to realize the full
effectiveness and implementation of this Contract.

Article 9 General Representations and Warranties by Transferors

20

 

	 	9.1	 	Party B and Party C are legal entities that have been duly established according to
the laws and regulations of China and they are validly and legally in existence and also
operating normally in accordance with the laws and regulations of China. Signing this
Contract and fulfilling all of their obligations stipulated herein by Party B and Party C
shall not contravene or result in the violation of or constitute a failure to fulfil or
an inability to fulfil any of the stipulations in any laws, regulations, stipulations,
any authorization or approval from any government body or department or the stipulations
of any contract or agreement that Party B or Party C is a party to or is bound by.
	 
	 	9.2	 	Party D is a PRC citizen with all civil abilities to enter into this Contract and
fulfil all of his obligations stipulated herein. Signing this Contract and fulfilling
all of his obligations stipulated herein by Party D shall not contravene or result in the
violation of or constitute a failure to fulfil or an inability to fulfil any of the
stipulations in any laws, regulations, stipulations, any authorization or approval from
any government body or department or the stipulations of any contract or agreement that
Party D is a party to or is bound.

Article 10 Ownership

	 	10.1	 	The Transferors jointly and severally undertake and warrant that: the Transferors
are the legal owners of the Sale Equity Stake and have full
authority and right to transfer the Sale Equity Stake to the Transferee and the Sale
Equity Stake does not involve any state-owned assets and interests. In case that the
Transferee and/or Company suffer from any loss or damage due to the involvement of any
state-owned assets and interests in the Sale Equity Stake, the Transferors shall assume
the joint liability and compensate the Transferee and/or the Company in full.
	 
	 	10.2	 	The Transferors jointly and severally undertake and warrant that: up to the First
Payment Date (inclusive), the Sale Equity Stake is not subject to any Claims or
Encumbrances (including but not limited to any form of option, acquisition right,
mortgage, pledge, guarantee, lien or any other form of Third Party rights); and there is
no interest present and no agreement or undertaking

21

 

	 	 	 	in existence that may result in or
create any Claim or Encumbrance on the Sale Equity Stake (including but not limited to
the aforesaid option, acquisition right, mortgage, pledge, guarantee, lien or any other
form of third party rights and interest).
	 
	 	10.3	 	The Transferors jointly and severally undertake and warrant that: all obligations
as the shareholders of the Company which shall be assumed by the Transferors for the
benefit of the Company and the Third Party have been fully fulfilled by the Transferors.
Any Third Party or any level of the governmental authorities of the PRC shall not, due to
the Transferors’ failure to fulfil their due obligations as the shareholders of the
Company, claim for rights against the Company or the Transferee or adopt administrative
acts which are unfavourable to the Company or the Transferee, including but not limited
to imposing fine, revoking the business license, requiring to make supplemental payment
for the taxes or compelling to stop production, etc.
	 
	 	10.4	 	The Transferors jointly and severally undertake and warrant that: no lawsuits,
arbitrations, or other legal or administrative proceedings or governmental investigations
are on-going against any party of the Transferors that will materially affect the
Transferors’ abilities to sign this Contract or fulfil the Transferors’ obligations under
this Contract.
	 
	 	10.5	 	The Transferors jointly and severally undertake and warrant to provide all relevant
materials which should be provided by the Transferors and are requisite for procuring the
written approvals to this Contract, New Articles of Association, the transfer of the Sale
Equity Stake stipulated in this Contract from the Examination and Approval Authority,
certificate of approval for establishment of foreign invested enterprises, and business
license of foreign invested enterprises of the Company, and conducting the alteration
registration of the Sale Equity Stake under the name of the Transferee with the competent
administration of industry and commerce, including but not limited to the tax clearance
certificate issued by the competent taxation authority.

22

 

Article 11 The Company and the Hydroelectric Project

The Transferors hereby jointly and severally represent and warrant to the Transferee that:

	 	11.1	 	The Company is a legal entity that has been duly established according to the laws
of PRC and it is validly and legally in existence and also operating normally in
accordance with the laws and regulations of PRC.
	 
	 	11.2	 	The registered capital of this Company has been fully paid up on schedule. The
Transferors have completed their full obligations to contribute, and have procured valid
verifications for their contributions according to PRC laws. There is no withdrawal of
the registered capital by the Transferors.
	 
	 	11.3	 	The Company is the legal owner of the Hydroelectric Project, and has the full and
complete ownership, operation right and right to profit over the Hydroelectric Project.
	 
	 	11.4	 	The development, construction and operation of the Hydroelectric Project have been
duly granted by relevant governmental authorities all requisite approvals and are fully
complied with the PRC laws and regulations and the approvals and permits of relevant
governmental authorities, in no violation of
PRC laws and regulations and approvals and permits of relevant governmental authorities,
without any condition that leads to or may leads to the revocation or withdrawing of
such approvals and permits. In the event that Transferee and/or the Company suffer from
any damage or loss arising out of any violation and /or revocation and/or withdrawing,
the Transferors shall be jointly liable for the full compensation on the Transferee
and/or the Company.
	 
	 	11.5	 	Up to the Delivery Completion Date, every aspect of the Hydroelectric Project,
including but not limited to the hydrology, geology, water flow, dam safety and
hydropower generating units, etc., is complied with the requirements of power generation
under normal situations and is free from any defect or any other problem provided of the
loss due to normal operation and usage. In the event that Transferee and/or the Company
suffer from any

23

 

	 	 	 	damage or loss arising out of any defect or any other problem which
already existed before the Delivery Completion Date, the Transferors shall be jointly
liable for the full compensation on the Transferee and/or the Company.
	 
	 	11.6	 	Up to the Delivery Completion Date, the Company has never suffered and is not
currently suffering from any administrative investigations, prosecutions, disputes,
claims or other proceedings (ongoing, pending or threatened), nor the Company has been
punished or the Transferors can foresee any punishment to be made by any administrative
authorities of the PRC for the issues already existed before the transfer of the Sale
Equity Stake. Up to the Delivery Completion Date, the Transferors have fully disclosed to
the Transferee all information in respect of environmental protection, water and soil
preservation, flood prevention plan, utilization of land (woodland), wood cutting, power
generation, relocation, fire-prevention and work safety, etc. In addition, the
Transferors hereby jointly and severally warrant that all fees (including, without
limitation, water resources fees, land requisition and compensation fees, water and soil
preservation facility compensation fees, etc.), charges, penalties and expenses payable
to or being required to pay to any PRC governmental authority have been paid in full,
and, as of the Second Payment Date, there is no arrears of such fees, charges, penalties
and expenses, nor is there any arrears of costs and/or expenses being required by
any PRC governmental authority to be paid for any purpose of correcting defects and/or
inappropriate actions of the Company. In the event that the Transferee and/or the
Company suffer from any penalty, damage, loss, etc. due to any such administrative
investigations, prosecutions, disputes, claims, penalties and/or other proceedings which
existed before the Second Payment Date, the Transferors shall assume joint liabilities
and fully compensate the Transferee and/or the Company.
	 
	 	11.7	 	The Company legally owns all requisite real estate (including but not limited to
land, buildings, dams, water supply system, electricity power transmission lines,
structures and subsidiary facilities) and moveable assets (including but not limited to
machineries, equipments, vehicles, furniture and office supplies), and such
real estate
and movable assets shall be not less than those

24

 

	 	 	 	real estate and movable assets listed out
in Appendix IV to this Contract. The Company does not provide any other security
(including but not limited to mortgage, pledge and lien) or other restrictions on the
real estate and movable assets, except for those listed out in Appendix III to this
Contract. Up to the Delivery Completion Date, all material aspects of the buildings,
dams, machineries and equipments, vehicles and other assets owned by the Company are in
good, secure and operational conditions, which are anticipated not to need to be repaired
(excluding the daily requisite repairs), replaced or supplemented within twelve (12)
months after the Signing Date due to the issues before the Delivery Completion Date. The
Transferors warrant and undertake that commencing from the Signing Date to the Delivery
Completion Date, the above real estate and movable assets will not suffer from any loss
or damage resulting from the actions of the Transferors or any Third Party. In case of
any loss or damage suffered by the real estate and movable assets due to the above
mentioned causes, the Transferors shall assume the joint liability and compensate
Transferee and/or the Company in full.
	 
	 	11.8	 	The production, operation, construction and business of the Company are fully
complied with all the relevant PRC laws and regulations, including but not limited to
those laws and regulations in relation to hydropower generation, environmental
protection, water and soil preservation, flood prevention plan,
design and construction of water resource project, invitation and submission of bids,
utilization of woodland, wood cutting, fire-prevention, work safety and relocation. The
Transferors warrant that the environmental protection authorities, water resource
authorities, power regulatory authorities, construction authorities, forestry
authorities, fire-prevention authorities, planning authorities, safe production
authorities, development and reform authorities and other governmental authorities will
not punish the Company for the problems of environmental protection, water and soil
preservation, water fetching, flood prevention planning, design and construction of
water resources projects, invitation and submission of bids, power generation,
utilization of woodland, wood cutting, fire-prevention, work safety and relocation, etc.
which already existed before the Delivery Completion Date. In the event that the Company
suffers from any loss or damage due to the

25

 

	 	 	 	punishment by local government, environmental
protection authority, water resources authority, electricity regulatory authority,
forest authority, construction authority, fire-prevention authority, planning authority,
work safety authority, development and reform authorities or other governmental
authorities, the Transferors shall fully compensate the Transferee and/or the Company so
as to hold the Transferee and/or the Company harmless.
	 
	 	11.9	 	The fire-prevention design of all construction projects of the Company are complied
with all PRC relevant laws and regulations and national fire-prevention standards.
	 
	 	11.10	 	Prior to the signing of this Contract, the Transferors have already disclosed all
information of the debts of the Company. As of the First Payment Date, that information
is still complete, liable, accurate and true. As of the Signing Date, all debts of the
Company have been indicated in Appendix II to this Contract and as of the First Payment
date, all due principal and interests of the debts set out in Appendix II hereto have
been fully paid off. The Transferors shall assume joint liabilities for any undisclosed
debts of the Company and any unpaid due principal and interests so as to hold the
Transferee and/or the Company harmless.
	 
	 	11.11	 	The Company can legally own the land use right and building ownership for all the
land and buildings currently occupied and used by the Company, and could not be involved
in any legal action, arbitration, penalty or suffer from any other damage or loss due to
the land and/or building issues. In the event that the Transferee and/the Company suffer
from any penalty, damage or loss, etc. due to the use of land or building, the
Transferors shall assume the joint liability to compensate Transferee and/or the Company
in full.
	 
	 	11.12	 	The procurement of the state-owned land use right (obtained through allocation)
for the land currently occupied and used by the Company with the State-owned Land Use
Right Certificates (the serial numbers of which are: Lu Guo Yong [2008] No.189, Lu Guo
Yong [2008] No.190 and Fu Guo Yong [2008] No.180) has been fully in compliance with the
regulations of PRC laws

26

 

	 	 	 	and regulations, and relevant fees and taxes have been fully paid
off in accordance with law. In the event that the Transferee and/or the Company suffer
from any penalty, damage or loss, etc. due to such land, the Transferors shall assume the
joint liability to compensate the Transferee and/or the Company in full.
	 
	 	11.13	 	The procurement of the building ownership for the building currently occupied and
used by the Company with the Building Ownership Certificate (the number of which is Lu
Quan Xian Fang Quan Zheng Lu Quan Zi No.20092201) has been in full compliance with the
provisions of PRC laws and regulations, and relevant fees and taxes have been fully paid
off in accordance with laws. In the event the Transferee and/or the Company suffer from
any penalty, damage or loss, etc. due to the procurement of such building ownership, the
Transferors shall assume the joint liability to compensate Transferee and/or the Company
in full.
	 
	 	11.14	 	As of the First Payment Date, the Hydroelectric Project legally occupies and uses
the land with the area of 68.2404 hectare, among which, state-owned land use right
certificates for 46.1004 hectares land have been obtained by the Company through
allocation and the other 22.14 hectare land is river course; in addition, the usage of
such 22.14 hectare river course by the Company is
complied with the regulations of relevant PRC laws and regulations and relevant fees and
taxes have been fully paid off without any violation of laws. The competent governmental
authorities will not impose any fine or any administrative penalties in other forms or
require any making up of any fees to the Transferee and/or the Company for the
occupation and using of such river course by the Company. In the event that the
Transferee and/or the Company suffer from any penalty, damage or loss, etc. due to such
land occupation and usage, the Transferors shall assume the joint liability to
compensate the Transferee and/or the Company in full.
	 
	 	11.15	 	The mortgage created on the state-owned land use right of 46.1004 hectare occupied
by the Company, which has been obtained through allocation, has been approved by the
competent state-owned land administration authorities,

27

 

	 	 	 	and the Company has completed
relevant mortgage registration procedures for such state-owned land use right mortgage
and paid off relevant fees. Such state-owned land use right mortgage has been in full
compliance with relevant PRC laws and regulations without any violation, and the
competent state-owned land administration authorities will not require any other fees for
such mortgaged allocated state-owned land from the Transferee and/or the Company, neither
will impose any fine or other administrative penalties on the Transferee and/or the
Company. In the event the Transferee and/or the Company suffer from any penalty, damage
or loss, etc. due to such state-owned land use right mortgage, the Transferors shall
assume the joint liability to compensate Transferee and/or the Company in full.
	 
	 	11.16	 	The leased agricultural land with an area of 61.045 mu (which are located at
Xiaopengzu Village, Houjing Village and Shibajing Village of Luquan County Cuihua
Township, Xinglong Village ) by the Company in accordance with relevant land lease
contracts has been approved by the competent state-owned land administration authorities,
and the Company has paid off relevant fees for such land lease. Such lease of the
agricultural land of 61.045 mu has been in full compliance with relevant PRC laws and
regulations without any violation, and the competent state-owned land administration
authorities may not impose any fine or other administrative penalties on Transferee
and/or the Company.
In the event the Transferee and/or the Company suffer from any penalty, damage or loss,
etc. due to such land lease, the Transferors shall assume the joint liability to
compensate Transferee and/or the Company in full. The land lease agreements entered into
between the Company and relevant lessors (eight villagers including Yang Tian Rong of
Shibajing Village of Luquan County Cuihua Township, Xinglong Village) will continue to
be performed. Prior to the delivery of the management and operation of the Hydroelectric
Project to the Transferee, the Transferors shall pay relevant rental and fees in
accordance with the lease contract entered into with Yang Tian Rong and provide relevant
payment vouchers. After the delivery of management and operation of the Hydroelectric
Project to the Transferee, the Transferee shall pay the rental and fees in accordance
with the lease contract entered into with Yang Tian Rong.

28

 

	 	11.17	 	The selection of the entities for the project survey and design, construction,
substantial equipments and materials purchases and project supervisor have been in
compliance with the regulations of all RPC laws and regulations without any violation,
and the competent water resource authority will not impose any administrative penalty on
the Transferee and/or the Company due to such selection. In the event the Transferee
and/or the Company suffer from any penalty, damage or loss, etc. due to such selection of
the entities for the project survey and design, construction, substantial equipments and
materials purchases and project supervisor, the Transferors shall assume the joint
liability to compensate the Transferee and/or the Company in full
	 
	 	11.18	 	After the Signing Date, the Transferors shall normally operate and manage the
Company and warrant that there will not be any Material Adverse Change of the operation,
business and conditions of the Company.
	 
	 	11.19	 	As of the Second Payment Date, the Company does not have any equity investment or
other investment in any other companies, enterprises, and other economic organizations,
etc. In the event that the Company suffers from any damage or loss due to such
undisclosed equity investment or other
investments, the Transferors shall assume joint liabilities and fully compensate the
Transferee and/or the Company.
	 
	 	11.20	 	As of the Second Payment Date, other than those securities set out in Appendix III
to this Contract, the Company’s assets and rights are free from any other security
(including but not limited to mortgage, pledge and lien) or any other restrictions,
neither has the Company provided any security (including but not limited to mortgage,
pledge and guarantee, etc.) for any other companies, enterprises, economic entities or
any individuals. In the event that the Company suffers from any damage or loss due to
such undisclosed securities, the Transferors shall assume joint liabilities and fully
compensate the Transferee and/or the Company

29

 

	 	11.21	 	The Company has completed relevant taxation registration effectively and obtained
valid taxation registration certificates, and conducted relevant taxation declaration in
accordance with PRC laws, with all contents declared being real and complete. As of the
Second Payment Date, the Company has fully paid up all taxes required by the PRC laws and
regulations, including but not limited to enterprise income tax, value-added tax, urban
construction tax and educational surcharges. The Transferors shall assume joint
liabilities for any unpaid tax and fine to the Transferee and/or the Company so as to
hold the Transferee and/or the Company harmless.
	 
	 	11.22	 	All construction projects (whether finished or under construction) of the Company
have obtained all requisite governmental approvals and permits and are strictly complied
with and without any violation of the approvals and permits issued by relevant
governmental authorities. In the event that the Company is punished or suffers from any
damage or loss after the completion of the transfer of the Sale Equity Stake by any
governmental authority because of any above issue, the Transferors shall assume joint
liabilities and fully compensate the Company and/or the Transferee.
	 
	 	11.23	 	The effectiveness of this Contract will not cause any Third Party to terminate the
contracts or agreements which are concluded with the Company prior to
the effective date (inclusive) of this Contract which are still effective on the
effective date of this Contract, and will not create any security or restriction in any
other form favourable to the Third Party on the assets and/or rights of the Company.
	 
	 	11.24	 	The effectiveness of this Contract will not cause any adverse effect on the
development, operation and assets of the Hydroelectric Project owned by the Company,
neither can or will cause the loss of the development right, operation right, ownership
right and right to profit of the Hydroelectric Project, which has been obtained by the
Company before the effective date of this Contract (inclusive).

30

 

	 	11.25	 	The originals of all the material contacts (including, without limitation, the
contracts and relevant supplemental agreements concerning project development, investment
cooperation, land requisition, land compensation, woodland compensation, land lease,
loan, security, counter security, insurance, design, construction, procurement, project
supervisor, purchase, sales of certified emission reductions, grid connection and
dispatching agreement, power purchase and sale contracts and relevant supplemental
agreements, etc. ) concluded by the Company prior to the Signing Date of this Contract
(inclusive) have been preserved by the Company in complete form and there have been no
violations thereof, and as far as the Transferors know, there does not exist any
condition which may lead to the violation by the Company. In case of such circumstances,
the Transferors have disclosed to the Transferee in written form.
	 
	 	11.26	 	The Company’s production technology and procedures are in full compliance with
relevant PRC laws, standards and norms, and there are no illegal actions of infringing
upon intellectual property rights of others, such as patent, know-how, etc. In the event
that the Company suffers from any punishment, damage or loss due to any above issue, the
Transferors shall assume joint liabilities and fully compensate the Company and/or
Transferee.
	 
	 	11.27	 	Labour Contracts between the Company and the employees who are still employed by
the Company upon the Signing Date of this Contract have been legally and validly
concluded. The various social insurance premiums, which shall be paid for the employees
according to relevant PRC laws and regulations, have been fully and timely paid up, and
the Company has not delayed any payment of the employees’ social insurance premiums,
salaries, and other welfares provided in PRC laws and the Company’s internal regulations.
As of the Second Payment Date, the Company is free from any problem which may lead the
employees to initiate labour arbitrations or lawsuits against the Company. In the event
that the Company and/or Transferee suffer from any punishment, loss or damage due to the
aforesaid reasons, the Transferors shall be jointly liable for the full compensation on
the Transferee and/or the Company.

31

 

	 	11.28	 	As of the Signing Date, relevant coordination fees, compensation fees and other
liabilities and obligations, which are payable and assumed by the Company to any Third
Party in accordance with relevant agreements for the purpose of the construction, land
occupation and other issues of the Hydroelectric Project, have been fully paid off or
implemented, and relevant originals of the payment evidences and implementation
supporting documents have been delivered to the Transferee. After the Signing Date, in
the event that the Company and/or the Transferee suffer from any loss or damage due to
the aforesaid reasons, the Transferors shall be jointly liable for the full compensation
on Transferee and/or the Company.
	 
	 	11.29	 	The Company and/or the Transferee will not suffer from any damage or loss as a
result of being involved of any legal action, arbitration, claim, etc. initiated by
Electric Power Development Co., Ltd. due to the Company’s termination and/or failure to
perform the Certified Emission Reductions Purchase and Sale Agreement entered into
between the Company and Electric Power Development Co., Ltd. on November 28, 2008. In the
event that the Company and/or Transferee suffer from any loss or damage due to the
aforesaid reason, the Transferors shall be jointly liable for the full compensation to
Transferee and/or the Company.
	 
	 	11.30	 	Due to the reasonable needs of its production and operation, the Company has taken
out requisite insurances which are usually purchased by other companies in the same
industry, with all the insurance policies are valid, all the mature insurance premiums
have been paid up, and all the other key conditions have been fully fulfilled and
complied with. As of the Second Payment Date, there are no conditions which have lead or
may lead the aforesaid insurance policies to be invalid. The aforesaid insurance policies
are free from restrictions from any special or unusual articles. As of the Second Payment
Date, there are no situations in which the Company may claim for compensations from the
insurer according to the aforesaid insurance policies.

32

 

	 	11.31	 	All the accounts, books, ledgers and financial records of the Company have been
formulated in accordance with the accounting procedures and rules provided by PRC
accounting system, and have been fully, properly and accurately recorded and completed,
which do not involve any material mistake and deviation, and truly and precisely reflect
all transactions relating to the Company and show the financial, contractual and other
business conditions of the Company during every financial term.

Chapter V  Disclosures, Representations and Warranties by Transferee

Article 12 Disclosures, Representations and Warranties by Transferee

The Transferee hereby represents and warrants to the Transferors that:

	 	12.1	 	The Transferee is a legal entity that has been duly established, validly and
legally in existence and also operated normally in accordance with the laws and
regulations of PRC.
	 
	 	12.2	 	The Transferee in signing this Contract and fulfilling all of its obligations
stipulated herein shall not contravene or result in the violation of or constitute a
failure to fulfil or an inability to fulfil any of the stipulations of Transferee’s
Articles of Association or its internal rules, any laws, regulations, stipulations, or
any authorizations or approvals from any government body or department or any contract
or agreement that Transferee is a party to or is bound by.
	 
	 	12.3	 	No lawsuits, arbitrations, or other legal or administrative proceedings or
governmental investigations are on-going against Transferee that will materially affect
its ability to sign this Contract or fulfil its obligations under this Contract.
	 
	 	12.4	 	The Transferee shall pay the Transfer Price in accordance with this Contract. In
the event that the Transferee fails to perform its obligations in time which

33

 

	 	 	 	has caused
economic losses to the Transferors, the Transferee shall assume corresponding
compensation liability.
	 
	 	12.5	 	After the Delivery Completion Date, in the event that the machines and other
facilities of the Hydroelectric Project are severely damaged or lost due to the wrong
operation by the Transferee which consequently make the Transferors unable to fulfil
various obligations provided in Article 5.6 hereof, then the Transferee shall refund the
balance of the guarantee fund (if any) to the Transferors within ten (10) days after such
event is investigated and confirmed.

Chapter VI  Delivery

Article 13 Delivery

	 	13.1	 	After the Signing Date, Transferors and Transferee shall immediately organize a
Delivery Team to actively carry out the delivery of the Company and the Hydroelectric
Project, including but not limited to the delivery of the production and operation
management, finance, assets, files and records, certificates, approvals, seals and the
construction projects to the Transferee.
	 
	 	13.2	 	During the term from the Signing Date to the Delivery Completion Date:

	 	(1)	 	The Transferors shall continue to operate the Company in general and
usual way; the Transferors shall not (or shall not agree to) require the Company
to make any payment to any Third Party, however, excluding the payment which needs
to be made for the general operation purpose and the determined expenditure
programme (in the event that such payment exceeds RMB50,000, it shall be subject
to the prior written consent of the Transferee); the Transferors shall not
terminate any agreements or arrangements which have significant value to the
Company, or give up any rights which have significant value;

34

 

	 	(2)	 	In the event that the Company intends to enter into any contract,
agreement or memorandum, etc., of which the price, value, liability or debt
(including contingent debt) exceeds the amount of RMB 50,000, the prior written
consent from the Transferee must be procured;
	 
	 	(3)	 	Without the prior written consent of the Transferee, the Transferors
shall not make any material amendments to the financing, loan or security
arrangements of the Company;
	 
	 	(4)	 	The Transferors shall take all reasonable actions to preserve and
protect the assets of the Company; and shall not create any pledge, mortgage and
other type of securities on the assets of the Company, or provide guarantee or
other security to any Third Party in the name of the Company;
	 
	 	(5)	 	The Transferors shall not, on behalf of the Company, settle, release
or terminate any material lawsuits, arbitrations or other legal proceedings, or
any material legal liabilities and claims, or give up the rights relating to the
foregoing;
	 
	 	(6)	 	The Transferors shall not release or write off any debt owed by the
debtor specified in the accounting books of the Company;
	 
	 	(7)	 	The Transferors shall ensure the Company will not enter into any
cooperation, joint venture or other forms of outward equity investment or debt
investment arrangements;
	 
	 	(8)	 	In case of any Material Adverse Change or other conditions which may
cause the representations, warranties or undertakings made by the Transferors to
be false, inaccurate, unrealizable or misleading, the Transferors shall inform the
Transferee in written form within twenty-four (24) hours and provide reasonable
and detailed information and explanation; and

35

 

	 	(9)	 	The Transferors and/or the Company will not take any actions which
may violate the provisions of this Contract or may influence the fulfilment of the
obligations hereunder or the transfer of the Sale Equity Stake contemplated
herein.

	 	13.3	 	Transferors shall warrant making a full and complete delivery and the Company’s
movable assets and real estate delivered to Transferee shall not be decreased or damaged
comparing with those listed in Appendix IV to this Contract. Otherwise, the Transferors
shall compensate Transferee and/or the Company in full.
	 
	 	13.4	 	The delivery includes but not limited to:

	 	(1)	 	The production, operation and management of the Company;
	 
	 	(2)	 	The Company’s seals, such as the official seal, financial seal
and contract seal, etc. shall be delivered to the Transferee;
	 
	 	(3)	 	The originals of the accounts opening documents and seals for
all the bank accounts of the Company;
	 
	 	(4)	 	The Transferors and Transferee shall check and verify all the
assets (including but not limited to the real estate and movable assets) of the
Company in accordance with the real estate and movable assets list of Appendix
IV, make a list of the Company’s assets, and finish the delivery which shall be
confirmed by Transferors and Transferee and signed on site; during the checking
and verifying of the assets, the Transferors shall compensate for the damaged
assets by reference to the assessed value;
	 
	 	(5)	 	Originals of all the approvals, certificates, permits, customer
information and other materials of the Company shall be delivered to the
Transferee, which shall include all the materials set out in

36

 

	 	 	 	materials list
delivered to and confirmed by Transferee provided by Appendix I;
	 
	 	(6)	 	Originals of all the project drawings, agreements (including
but not limited to grid connection and dispatching agreement, power sale and
purchase contract, project contract, equipment contract, installation contract,
project supervisor contract, materials contract, loan contract and mortgage
contract) and other files shall be delivered to Transferee;
	 
	 	(7)	 	Originals of all the financial accounting books, financial
vouchers and the fiscal files shall be delivered to the Transferee;
	 
	 	(8)	 	The Transferors shall deliver the specific technologies of the
parties to the Hydroelectric Project contracts, such as the parties of
construction, equipment manufacture, design, supervision, quality examination,
etc. to the Transferee; and
	 
	 	(9)	 	The delivery of other materials and files of the Company.

	 	13.5	 	The delivery shall be completed within five (5) Working Days after the First
Payment Date, the completion of which shall be confirmed in writing by
Transferee. The Delivery Completion Date shall be the issuance date of the written
confirmation by Transferee.
	 
	 	13.6	 	After the completion of the delivery, as for the reasonable request of further
delivery by Transferee in writing, the Transferors shall cooperate actively.
	 
	 	13.7	 	The Transferors shall make sure the continuity, stability and safety of the
production and operation of the Company during the process of the delivery.
	 
	 	13.8	 	The Transferors shall fully cooperate so as to complete the delivery. In the event
that the Transferee or the Company after the transfer of the Sale Equity Stake suffers
from any damage due to the Transferors’ non-cooperation, the

37

 

	 	 	 	Transferors shall be jointly
liable for the compensation in accordance with law.

Chapter VII  Debt Arrangement and Employees Relocation

Article 14 Debts Arrangement

	 	14.1	 	All Parties confirm that as of the First Payment Date, the debts of the Company
shall be in the total amount of RMB150,000,000, and the Company will continue to
undertake such loans after the completion of the transfer of the Sale Equity Stake.
	 
	 	14.2	 	After the completion of the transfer of the Sale Equity Stake, except for the
debts listed out in Article 14.1 above, the Transferee shall not assume any other
liabilities to the other debts of the Company before the First Payment Date. In the event
that the Company and/or the Transferee suffer from any damage or loss due to such debts,
the Transferors shall assume the joint liability to compensate the Company and/or
Transferee in full.

Article 15 Relocation of Employees

	 	15.1	 	Upon the completion of the transfer of the Sale Equity Stake, the Transferee
shall be entitled to choose to employ excellent employees from the current employees of
the Company. The terms and conditions of their employment shall be determined by
reference to the standards applied in the other domestic project companies currently
owned by the Transferee in principle and implemented in accordance with the Labour Law of
the PRC, the Labour Contract Law of the PRC and its implementation regulations and other
relevant PRC laws and regulations. The Company shall execute new labor contracts with the
employees and the Transferors shall be responsible for the relocation of those employees
who are fired or not re-employed by the Company.

38

 

	 	15.2	 	The Transferors undertake and warrant that they will properly relocate the
employees who are fired or not re-employed by the Company and shall ensure that such
employees will not make any trouble against the Company, nor will apply for arbitration,
bring lawsuit or any other administrative or judicial proceedings against the Company.
The Transferors shall make sure that the Company will not be punished by any competent
governmental authority or incur any other adverse effect due to the relocation of the
aforesaid employees.
	 
	 	15.3	 	The Transferors undertake and warrant that all compensation, indemnity, costs
and any other expenses in connection with the relocation of the employees of the Company
shall be assumed by the Transferors themselves. In the event that the Company and/or the
Transferee suffer from any damage or loss due to the employee relocation issues of the
Company, the Transferors shall be jointly liable for the full compensation on the Company
and/or the Transferee.

Chapter VIII Confidentiality

Article 16 Confidentiality

	 	16.1	 	Unless otherwise provided in other confidentiality agreements, with regard to the
confidential and exclusive information that have been disclosed to or may be disclosed to
the other Parties by any Party to this Contract pertaining to their respective
businesses, or financial situations and other confidential matters, all Parties to this
Contract which have received the aforesaid confidential information (including written
information and non-written information, hereinafter referred to as “Confidential
Information”) shall:

	 	16.1.1	 	Keep the aforesaid Confidential Information confidential;
	 
	 	16.1.2	 	Save for the disclosure of the Confidential Information by a Party to this Contract
to its employees solely for the performance of their duties and

39

 

	      	 	 	responsibilities,
none of the Parties to this Contract shall disclose the Confidential Information to
any Third Party or any entity.

	 	16.2	 	The provisions of the aforesaid Article 16.1 shall not apply to the Confidential
Information:

	 	16.2.1	 	which was available to the receiving Party from the written records made by the
receiving Party and was approved to be known by the receiving Party by the written
records before the disclosing Party disclosed the information to the receiving Party;
	 
	 	16.2.2	 	which has become public information by means not attributable to any breach by the
receiving Party;
	 
	 	16.2.3	 	which was obtained, by the receiving Party from a Third Party not subject to any
confidentiality obligation to the said Confidential Information.

	 	16.3	 	As far as any natural person or legal entity which is a Party to this Contract is
concerned, notwithstanding that it has ceased to be a Party to this Contract
because of the transfer of its rights and obligations pursuant to the terms of this
Contract, the stipulations set out in this Chapter VIII shall remain binding on it.

Chapter IX  Breach of Contract

Article 17 Liability for Breach of a Representation or Warranty

	 	17.1	 	If any representation or warranty made by any Party to this Contract is found to be
an error or exists any omission, or if any fact, representation or warranty that has or
is likely to have a major or substantial effect on the signing of this Contract by any
Party is found to be misleading or untrue in any respect, the non-breaching Party shall
be entitled to require the Party (ies) in breach for full compensation for any loss,
damage, cost or expense arising from the

40

 

	 	 	 	erroneous, misleading or untrue representation
or warranty of the Party (ies) in breach or arising from any other breach of any
representation and warranty given by the Party (ies) in breach.
	 
	 	17.2	 	Each representation and warranty set out in this Contract is to be construed
independently.
	 
	 	17.3	 	For the avoidance of doubt, the Transferors hereby unconditionally and irrevocably
agree and confirm that they shall be jointly liable for any liability for any breach of
representation or warranty.

Article 18 Liability for Breach of Contract

	 	18.1	 	In the event of a breach committed by any Party to this Contract, the said
defaulting Party shall be liable to the other Party (ies) for breach of contract in
accordance with the provisions of this Contract and the laws and regulations of PRC. In
the event all Parties commit the breach of contract, one Party shall
assume the liability to compensate the loss or damage or other obligations as a result
of its respective breach of contract to the other Parties respectively.
	 
	 	18.2	 	In the event that the undisclosed issues by Transferors prior to the signing of
this Contract which may influence the legal existence of the Company and the
Hydroelectric Project, actually influence the legal existence of the Company or the
Hydroelectric Project after the transfer of the Sale Equity Stake, the Transferee is
entitled to the termination of this Contract and to require Transferors to fully pay back
the Transfer Price which has already paid by Transferee and three percent (3%) of the
Transfer Price as liquidated damages; in addition, the Transferee is entitled to resort
to other applicable claims in accordance with the PRC laws.
	 
	 	18.3	 	Any violation of the obligations, representations and warranties under this
Contract by any Party of the Transferors or Transferee shall constitute a breach of
contract, and the defaulting Party (ies) shall assume the liability to compensate all the
losses due to the breach of contract to the other Party.

41

 

	 	18.4	 	Any delayed performance of the obligations or provisions under this Contract by any
Party of the Transferors or Transferee shall constitute a breach of contract; however,
the delayed performance or non-performance due to the other Party’s advance performance
obligation shall not constitute a breach of contract.
	 
	 	 	 	The defaulting Party with delay in performance of the Contract shall pay
the liquidated damages per day in the amount of the Transfer Price multiplied by
the one-year bank loan rate announced by the People’s Bank of China to the
non-defaulting Party (ies); in the event that the defaulting Party delays to
perform the Contract over thirty (30) Business Days, the non-defaulting Party
(ies) is entitled to terminate the Contract, and to require the defaulting Party
to pay one percent (1%) of the Transfer Price as liquidated damages. The
procurement of the liquidated damages shall not prejudice the right of the
non-defaulting Party (ies) to claim for other legal remedies in accordance with
other provisions of this Contract and the PRC laws and regulations.
	 
	 	18.5	 	For the avoidance of doubt, Transferors hereby unconditionally and irrevocably
agree and confirm that they shall be jointly liable for any liability for any breach of
this Contract committed by any of Transferors.

Chapter X Force Majeure

Article 19 Force Majeure

	 	19.1	 	“Force Majeure” refers to earthquake, typhoon, flood, fire, war, political unrest
and such special incidents or other events that are deemed to be Force Majeure
occurrences under the provisions of the relevant laws and regulations of PRC.

42

 

	 	19.2	 	In the event of the occurrence of a Force Majeure event, the obligations of the
Party to this Contract affected by this Force Majeure event and any term or period set
out in this Contract to which the affected Party is subject shall cease during the period
of the Force Majeure event and shall automatically be extended, the period of extension
shall be the same as the period of cessation of the obligations by reason of the Force
Majeure event, and the said Party shall not assume any breach liabilities hereunder.
	 
	 	19.3	 	The Party claiming the occurrence of a Force Majeure event shall promptly inform
the other Party (ies) in writing, and within seven (7) days thereafter, it shall provide
sufficient evidence of the occurrence and the continuity of the Force Majeure event
issued by the notary organization. The Party claiming the occurrence of a Force Majeure
event shall also do its best to eliminate the adverse effect of the Force Majeure event.

Chapter XI  Resolution of Disputes

Article 20 Arbitration

	 	20.1	 	Any dispute arising out of or in connection with this Contract shall firstly be
resolved through friendly consultation by all Parties. In the event that thirty (30)
days after the commencement of the friendly consultations, the dispute cannot be resolved
through such means, either Party may submit the dispute to the China International
Economic and Trade Arbitration Commission in Beijing for arbitration in accordance with
its prevailing valid arbitration rules. The place for arbitration shall be Beijing.
	 
	 	20.2	 	The arbitration tribunal shall be constituted by three (3) arbitrators and the
arbitrators shall have a good knowledge of both English and Chinese Languages.

43

 

Article 21 Validity of the Arbitration Award

The arbitration award shall be final and shall be binding on all Parties to this Contract. All
Parties to this Contract agree to be bound by the said award, and to act according to the terms of
the said award.

Article 22 Continuation of Rights and Obligations

After a dispute has arisen and during its arbitration process, other than the disputed matter, all
Parties to this Contract shall continue to exercise their other respective rights stipulated in
this Contract, and shall also continue to fulfil their other respective obligations stipulated in
this Contract.

Chapter XII  Applicable Law

Article 23 Applicable Law

The laws and regulations of the PRC shall govern and be binding on the establishment, validity,
interpretation and execution of this Contract. All disputes under this Contract shall be
determined according to the laws of the PRC. In the event the laws of the PRC do not make
provision for a certain issue relating to this Contract, reference shall be made to general
international business practice.

Chapter XIII Miscellaneous

Article 24 Waiver

The non-exercise or delay in the exercise of an entitlement stipulated in this Contract by any
Party to this Contract shall not be regarded as a waiver of the said entitlement. Any single
exercise or partial exercise of an entitlement shall not rule out any future re-exercise of the
said entitlement.

44

 

Article 25 Transfer

Unless otherwise described and prescribed in this Contract, without the prior written consents
from the other Parties or the written approvals from the Examination and Approval Authority as
required by laws, none of the Parties to this Contract shall transfer or assign that Party’s
entitlement or obligations in part or total as stipulated in this Contract.

Article 26 Amendment

	 	26.1	 	This Contract has been executed for the benefit of all Parties to this Contract and
their respective lawful successor(s) and assignees, and shall have legal binding effect
on them.
	 
	 	26.2	 	This Contract may not be amended verbally. Only both of the written document signed
by all Parties indicating their consent to such amendment and the written approval of the
Examination and Approval Authority, shall any amendment to this Contract become
effective.

Article 27 Severability

The invalidity of any term in this Contract shall not affect the validity of the other terms in
this Contract.

Article 28 Language

This Contract is written in both the Chinese Language and the English Language. In case of any
inconsistency between the Chinese Language and the English Language, the Chinese Language shall
prevail.

45

 

Article 29 Validity of the Text and Appendices

	 	29.1	 	This Contract, being executed by all Parties, shall become effective on the
approval date by the Examination and Approval Authority. The Chinese text of this
Contract shall be signed in ten (10) sets of original. Each Party shall each hold one (1)
set of original, and one (1) set of original each shall be sent to the Examination and
Approval Authority, the competent administration for industry and commerce and any other
governmental authorities as required. The remaining originals shall be filed and kept by
the Company.
	 
	 	29.2	 	The English text of this Contract shall be signed in eight (8) sets of original and
one (1) set of original each shall be sent to the Examination and Approval Authority, the
competent administration for industry and commerce and any other governmental authorities
as required. The remaining originals shall be filed and kept by the Company.
	 
	 	29.3	 	The Appendices to this Contract shall form an integral part of this Contract, and
shall have the same effect as this Contract.

Article 30 Notification

	 	30.1	 	Unless otherwise specified and prescribed in this Contract, any Party issuing any
notification or written communication to the other Party (ies) according to the
provisions of this Contract shall have them written in the Chinese and English Language
and shall send them as a letter by a courier service company or by facsimile. Letters
sent by a courier service company will require a confirmation to be given seven (7)
Working Days after handing over the notification or communication to the courier service
company. Any notification or written communication sent in accordance with the
stipulations of this Contract shall be deemed to be effective on the date of receipt. If
they are sent by facsimile, the date of receipt shall be deemed to be three (3) Working
Days after transmission, subject to a facsimile confirmation report evidencing this.

46

 

	 	30.2	 	All notifications and communications shall be sent to the following addresses,
until such time when the other Party (ies) issues a written notice of any change to its
address:

	 	 	 

	Transferee’s Address:

	 	25B, New Poly Plaza, No.1 Chaoyangmen North St.,
 Dongcheng
District, Beijing
	Telephone Number:

	 	010-6492 8483 
	Facsimile Number:

	 	010-6496 1540 
	Addressee:

	 	Jin Lei
	 
	 	 
	The Address jointly appointed by Transferors: Xiaopengzu Hydroelectric Company,
 Dongcun Township Post
Office, 
Fumin County, Yunnan Province

	Telephone Number:

	 	13008652111 
	Facsimile Number:

	 	0871-8863500 
	Addressee:

	 	Mao Ding Gou

Article 31 The Entire Agreement

This Contract constitutes the entire agreement of all Parties to this Contract pertaining to the
transaction agreed upon in this Contract, and shall replace all the previous discussions,
negotiations and agreements among all Parties to this Contract in respect of the transaction of
this Contract.

(REMAINDER OF PAGE INTENTIALLY LEFT BLANK)

47

 

IN WITNESS WHEREOF, the duly authorised representatives of Party A, Party B and Party C have
signed this Contract with Party D on the date first above written.

Party A: Fujian Huabang Hydroelectric Investment Co., Ltd.

                    (Stamp)

Signature:
/s/ James Li

Position:                                         

April 23, 2010

Party B: Mao Ding Gou

Signature: /s/ Mao Ding Gou

April 23, 2010

Party C: Xu Xuan Bo

Signature: /s/ Xu Xuan Bo

April 23, 2010

Party D: Xu Xian Xiong

Signature: /s/ Xu Xian Xiong

April 23, 2010

Party E: Zhang Jing Sheng

Signature: /s/ Zhang Jing Sheng

April 23, 2010

Party F: Lin Rong

Signature: /s/ Lin Rong

April 23, 2010

48

 

Party G: Xu Jing Qing

Signature: /s/ Xu Jing Qing

April 23, 2010

Party H: Mao Xin Run

Signature: /s/ Mao Xin Run

April 23, 2010

Party I: Wang Shu Yi

Signature: /s/ Wang Shu Yi

April 23, 2010

49

 

Appendix I Conditions Precedent

Conditions Precedent

The Transferors hereby jointly and severally confirm and warrant that they shall, on their own
expenses, complete all of the following conditions precedent:

	 	(1)	 	To enter into relevant agreements between the Company and Electric Power
Development Co., Ltd. concerning the termination of the Certified Emission Reductions
Purchase and Sale Agreement dated November 28, 2008 (“Certified Emission Reductions
Purchase and Sale Agreement”), whereby, such Certified Emission Reductions Purchase and
Sale Agreement shall be terminated by the parties thereto, the Company will not undertake
or perform any obligation or liability under or in connection with the Certified Emission
Reductions Purchase and Sale Agreement any longer and Electric Power Development Co.,
Ltd. will not require the Company to assume any breach liability or compensation or
indemnification liabilities;
	 
	 	(2)	 	To enter into relevant agreements between the Company and relevant parties( Lezai
Village Committee of Fumin County Dongxiang Village, Lezai Village Villagers
Sub-committee, Team Seven of Lezai Village, etc.), whereby, after the Signing Date, the
Company will not pay any compensation fees, coordination fees or other liabilities and
obligations in relation to the Hydroelectric Project construction, land occupation to any
Third Party, relevant liabilities, obligations, fees and claims occurred before the
execution of such agreements shall be undertaken by Transferors and relevant payment
evidences and/or liabilities or obligations performance supporting documents shall be
delivered;
	 
	 	(3)	 	To fully repay all principal and interest of the loan in the amount of
RMB10,000,000 under the loan contract (contract number: 2008 Nian Bao Zi No.152
00003042008070302152) entered into between the Company and Luquan County Rural Credit
Cooperation Union and deliver the relevant

50

 

	 	 	 	repayment evidence for such principal and interest of the loan to the Transferee;
	 
	 	(4)	 	To obtain the confirmation letter issued by Luquan Sub-branch, Agricultural
Development Bank of China respectively, confirming that it has received relevant notice
in connection with the share transfer of the Company taken place in November 2009 and the
transfer of the Sale Equity Stake and approved such share transfers;
	 
	 	(5)	 	To deliver the list of all documents, vouchers and other materials of the Company
to Transferee, including, without limitation, the financial vouchers, accounting books,
approvals, certificates, permits, customers information, all contracts and agreements
signed by the Company, employees materials, etc.;
	 
	 	(6)	 	To provide the Consent Letter on the Flood Prevention Plan issued by the competent
water resources authority;
	 
	 	(7)	 	To provide the approval concerning the preliminary design of the Hydroelectric
Project; and
	 
	 	(8)	 	To provide the approval concerning the commencement of the works issued by the
competent water resources authority.

51exv10w1

Exhibit 10.1

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, 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 OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

Principal Amount: $75,000.00 Issue Date: March 17, 2010 Purchase Price: $75,000.00

CONVERTIBLE PROMISSORY NOTE 

FOR VALUE RECEIVED, CytoCore, Inc., a Delaware corporation (hereinafter called the “Borrower”),
hereby promises to pay to the order of ASHER ENTERPRISES, INC., a Delaware corporation, or
registered assigns (the “Holder”) the sum of $75,000.00 together with any interest as set forth
herein, on December 18, 2010 (the “Maturity Date”), and to pay interest on the unpaid principal
balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date
hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon
acceleration or by prepayment or otherwise. Except as otherwise explicitly set forth in Section
1.9 herein, this Note may not be prepaid in whole or in part. Any amount of principal or interest
on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%)
per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall
commence accruing on the Issue Date, shall be computed on the basis of a 365-day year and the
actual number of days elapsed. All payments due hereunder (to the extent not converted into common
stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall
be made in lawful money of the United States of America. All payments shall be made at such
address as the Holder shall hereafter give to the Borrower by written notice made in accordance
with the provisions of this Note. Whenever any amount expressed to be due by the terms of this
Note is due on any day which is not a business day, the same shall instead be due on the next
succeeding day which is a business day and, in the case of any interest payment date which is not
the date on which this Note is paid in full, the extension of the due date thereof shall not be
taken into account for purposes of determining the amount of interest due on such date. As used in
this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on
which commercial banks in the city of New York, New York are authorized or required by law or
executive order to remain closed. Each capitalized term used herein, and not otherwise defined,
shall have the meaning ascribed thereto

 

 

in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note
was originally issued (the “Purchase Agreement”).

This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof
and shall not be subject to preemptive rights or other similar rights of shareholders of the
Borrower and will not impose personal liability upon the holder thereof.

     The following terms shall apply to this Note:

ARTICLE I. CONVERSION RIGHTS

1.1 Conversion Right. The Holder shall have the right from time to time, and at any time on
or prior to the later of (i) the Maturity Date and (ii) the date of payment of the Default Amount
(as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the
remaining outstanding principal amount of this Note to convert all or any part of the outstanding
and unpaid principal amount of this Note into fully paid and non- assessable shares of Common
Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other
securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified
at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”);
provided, however, that in no event shall the Holder be entitled to convert any
portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1)
the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other
than shares of Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Notes or the unexercised or unconverted portion of any other security of
the Borrower subject to a limitation on conversion or exercise analogous to the limitations
contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the
portion of this Note with respect to which the determination of this proviso is being made, would
result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder,
except as otherwise provided in clause (1) of such proviso, provided, further,
however, that the limitations on conversion may be waived by the Holder upon, at the
election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of
the conversion limitation shall continue to apply until such 61st day (or such later date, as
determined by the Holder, as may be specified in such notice of waiver).. The number of shares of
Common Stock to be issued upon each conversion of this Note shall be determined by dividing the
Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date
specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of
Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below;
provided that the Notice of Conversion is submitted by facsimile (or by other means resulting in,
or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York
time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with
respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be
converted in such conversion plus (2) at the Borrower’s option, accrued and unpaid
interest, if any, on such

 

 

principal amount at the interest rates provided in this Note to the Conversion Date, provided,
however, that the Company shall have the right to pay any or all interest in cash plus (3)
at the Borrower’s option, Default Interest, if any, on the amounts referred to in the immediately
preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof.

          1.2 Conversion Price.

(a) Calculation of Conversion Price. The conversion price (the “Conversion Price”) shall
equal the Variable Conversion Price (as defined herein)(subject to equitable adjustments for stock
splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities
or the securities of any subsidiary of the Borrower, combinations, recapitalization,
reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price”
shall mean the Applicable Percentage (as defined herein) multiplied by the Market Price (as defined
herein). “Market Price” means the average of the lowest three (3) Trading Prices (as defined
below) for the Common Stock during the ten (10) Trading Day period ending one Trading Day prior to
the date the Conversion Notice is sent by the Holder to the Borrower via facsimile (the “Conversion
Date”). “Trading Price” means, for any security as of any date, the closing bid price on the
Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”) as reported by a
reliable reporting service (“Reporting Service”) mutually acceptable to Borrower and Holder and
hereafter designated by Holders of a majority in interest of the Notes and the Borrower or, if the
OTCBB is not the principal trading market for such security, the closing bid price of such security
on the principal securities exchange or trading market where such security is listed or traded or,
if no closing bid price of such security is available in any of the foregoing manners, the average
of the closing bid prices of any market makers for such security that are listed in the “pink
sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such
security on such date in the manner provided above, the Trading Price shall be the fair market
value as mutually determined by the Borrower and the holders of a majority in interest of the Notes
being converted for which the calculation of the Trading Price is required in order to determine
the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is
traded for any period on the OTCBB, or on the principal securities exchange or other securities
market on which the Common Stock is then being traded. “Applicable Percentage” shall mean 58%.

(b) Conversion Price During Major Announcements. Notwithstanding anything contained in
Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it
intends to consolidate or merge with any other corporation (other than a merger in which the
Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or
transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity
(including the Borrower) publicly announces a tender offer to purchase 50% or more of the
Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in
clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion
Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion
Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which
would have been applicable for a Conversion occurring

 

 

on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and
after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as
set forth in this Section 1.2(a). For purposes hereof, “Adjusted Conversion Price Termination Date”
shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which
a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the
Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause
(ii) above) consummates or publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become
operative.

1.3 Authorized Shares. The Borrower covenants that during the period the conversion right
exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number
of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full
conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all
times to have authorized and reserved three times the number of shares that is actually issuable
upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to
time)(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in
accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement. The
Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and
non-assessable. In addition, if the Borrower shall issue any securities or make any change to its
capital structure which would change the number of shares of Common Stock into which the Notes
shall be convertible at the then current Conversion Price, the Borrower shall at the same time make
proper provision so that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The
Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its
issuance of this Note shall constitute full authority to its officers and agents who are charged
with the duty of executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock in accordance with the terms and conditions of this Note.

If, at any time a Holder of this Note submits a Notice of Conversion, and the Borrower does not
have sufficient authorized but unissued shares of Common Stock available to effect such conversion
in accordance with the provisions of this Article I (a “Conversion Default”), the Borrower shall
issue to the Holder all of the shares of Common Stock which are then available to effect such
conversion. The portion of this Note which the Holder included in its Conversion Notice and which
exceeds the amount which is then convertible into available shares of Common Stock (the “Excess
Amount”) shall, notwithstanding anything to the contrary contained herein, not be convertible into
Common Stock in accordance with the terms hereof until (and at the Holder’s option at any time
after) the date additional shares of Common Stock are authorized by the Borrower to permit such
conversion, at which time the Conversion Price in respect thereof shall be the lesser of (i) the
Conversion Price on the Conversion Default Date (as defined below) and (ii) the Conversion Price on
the Conversion Date thereafter elected by the Holder in respect thereof. In addition, the Borrower
shall pay to the Holder payments (“Conversion Default Payments”) for a Conversion Default in the
amount of (x) the sum of (1) the then outstanding principal amount of this Note
plus (2) accrued and unpaid interest on the

 

 

unpaid principal amount of this Note through the Authorization Date (as defined below) plus
(3) Default Interest, if any, on the amounts referred to in clauses (1) and/or (2), multiplied
by (y) .24, multiplied by (z) (N/365), where N = the number of days from the day the
holder submits a Notice of Conversion giving rise to a Conversion Default (the “Conversion Default
Date”) to the date (the “Authorization Date”) that the Borrower authorizes a sufficient number of
shares of Common Stock to effect conversion of the full outstanding principal balance of this Note.
The Borrower shall use its best efforts to authorize a sufficient number of shares of Common Stock
as soon as practicable following the earlier of (i) such time that the Holder notifies the Borrower
or that the Borrower otherwise becomes aware that there are or likely will be insufficient
authorized and unissued shares to allow full conversion thereof and (ii) a Conversion Default. The
Borrower shall send notice to the Holder of the authorization of additional shares of Common Stock,
the Authorization Date and the amount of Holder’s accrued Conversion Default Payments. The accrued
Conversion Default Payments for each calendar month shall be paid in cash or shall be convertible
into Common Stock (at such time as there are sufficient authorized shares of Common Stock) at the
applicable Conversion Price, at the Borrower’s option, as follows:

(a) In the event Holder elects to take such payment in cash, cash payment shall be made to Holder
by the fifth (5th) day of the month following the month in which it has
accrued; and

(b) In the event Holder elects to take such payment in Common Stock, the Holder may convert such
payment amount into Common Stock at the Conversion Price (as in effect at the time of conversion)
at any time after the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article I (so long as there is then a sufficient number of
authorized shares of Common Stock).

The Holder’s election shall be made in writing to the Borrower at any time prior to 6:00 p.m., New
York, New York time, on the third day of the month following the month in which Conversion Default
payments have accrued. If no election is made, the Holder shall be deemed to have elected to
receive cash. Nothing herein shall limit the Holder’s right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Borrower’s failure to maintain a
sufficient number of authorized shares of Common Stock, and each holder shall have the right to
pursue all remedies available at law or in equity (including degree of specific performance and/or
injunctive relief).

          1.4 Method of Conversion.

     (a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the
Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to
the Borrower a Notice of Conversion (by facsimile or other reasonable means of communication
dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to
Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

 

     (b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set
forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall
not be required to physically surrender this Note to the Borrower unless the entire unpaid
principal amount of this Note is so converted. The Holder and the Borrower shall maintain records
showing the principal amount so converted and the dates of such conversions or shall use such other
method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical
surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such
records of the Borrower shall, prima facie, be controlling and determinative in the absence of
manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as
aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this
Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the
Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any
applicable transfer taxes) may request, representing in the aggregate the remaining unpaid
principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge
and agree that, by reason of the provisions of this paragraph, following conversion of a portion of
this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be
less than the amount stated on the face hereof.

     (c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or
other securities or property on conversion of this Note in a name other than that of the Holder (or
in street name), and the Borrower shall not be required to issue or deliver any such shares or
other securities or property unless and until the person or persons (other than the Holder or the
custodian in whose street name such shares are to be held for the Holder’s account) requesting the
issuance thereof shall have paid to the Borrower the amount of any such tax or shall have
established to the satisfaction of the Borrower that such tax has been paid.

     (d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the
Holder of a facsimile transmission (or other reasonable means of communication) of a Notice of
Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower
shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable upon such conversion within three (3) business days
after such receipt (and, solely in the case of conversion of the entire unpaid principal amount
hereof, surrender of this Note) (such third business day being hereinafter referred to as the
“Deadline”) in accordance with the terms hereof and the Purchase Agreement (including, without
limitation, in accordance with the requirements of Section 2(g) of the Purchase Agreement that
certificates for shares of Common Stock issued on or after the effective date of the Registration
Statement upon conversion of this Note shall not bear any restrictive legend).

     (e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a
Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, the outstanding principal amount and the amount of accrued and
unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower
defaults on its obligations under this Article I, all rights with respect to the portion of this
Note being so converted shall forthwith terminate except the

 

 

right to receive the Common Stock or other securities, cash or other assets, as herein
provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided
herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be
absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the
same, any waiver or consent with respect to any provision thereof, the recovery of any judgment
against any person or any action to enforce the same, any failure or delay in the enforcement of
any other obligation of the Borrower to the holder of record, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder of any
obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit
such obligation of the Borrower to the Holder in connection with such conversion. The Conversion
Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of
Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

     (f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical
certificates representing the Common Stock issuable upon conversion, provided the Borrower’s
transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions
contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause
its transfer agent to electronically transmit the Common Stock issuable upon conversion to the
Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal
Agent Commission (“DWAC”) system.

     (g) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the
Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the
parties agree that if delivery of the Common Stock issuable upon conversion of this Note is more
than three (3) business days after the Deadline (other than a failure due to the circumstances
described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall
pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails
to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the
month following the month in which it has accrued or, at the option of the Holder (by written
notice to the Borrower by the first day of the month following the month in which it has accrued),
shall be added to the principal amount of this Note, in which event interest shall accrue thereon
in accordance with the terms of this Note and such additional principal amount shall be convertible
into Common Stock in accordance with the terms of this Note. Notwithstanding anything contained
herein to the contrary,

1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this
Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective
registration statement under the Act or (ii) the Borrower or its transfer agent shall have been
furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary
for opinions of counsel in comparable transactions) to the effect that the shares to be sold or
transferred may be sold or transferred pursuant to an exemption from such registration or (iii)
such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule
144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the
Borrower who agrees to sell or otherwise transfer the shares only in accordance

 

 

with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase
Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal
provisions set forth below), until such time as the shares of Common Stock issuable upon conversion
of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date that can then be
immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note
that has not been so included in an effective registration statement or that has not been sold
pursuant to an effective registration statement or an exemption that permits removal of the legend,
shall bear a legend substantially in the following form, as appropriate:

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, 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 OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new
certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall
have received an opinion of counsel, in form, substance and scope customary for opinions of counsel
in comparable transactions, to the effect that a public sale or transfer of such Common Stock may
be made without registration under the Act and the shares are so sold or transferred, (ii) such
Holder provides the Borrower or its transfer agent with reasonable assurances that the Common Stock
issuable upon conversion of this Note (to the extent such securities are deemed to have been
acquired on the same date) can be sold pursuant to Rule 144 or (iii) in the case of the Common
Stock issuable upon conversion of this Note, such security is registered for sale by the Holder
under an effective registration statement filed under the Act or otherwise may be sold pursuant to
Rule 144 without any restriction as to the number of securities as of a particular date that can
then be immediately sold.

          1.6 Effect of Certain Events.

     (a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale,
conveyance or disposition of all or substantially all of the assets of the Borrower, the
effectuation by the Borrower of a transaction or series of related transactions in which more than
50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other
business combination of the Borrower with or into any other Person (as defined below) or Persons
when the Borrower is not the survivor shall either: (i) be deemed to be an Event of

 

 

Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to
the Holder upon the consummation of and as a condition to such transaction an amount equal to the
Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof.
“Person” shall mean any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.

     (b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is
issued and outstanding and prior to conversion of all of the Notes, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a
result of which shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of the Borrower or
another entity, or in case of any sale or conveyance of all or substantially all of the assets of
the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the
Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon
the basis and upon the terms and conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the
Holder would have been entitled to receive in such transaction had this Note been converted in full
immediately prior to such transaction (without regard to any limitations on conversion set forth
herein), and in any such case appropriate provisions shall be made with respect to the rights and
interests of the Holder of this Note to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable
upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in
relation to any securities or assets thereafter deliverable upon the conversion hereof. The
Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first
gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least
fifteen (15) days prior written notice) of the record date of the special meeting of shareholders
to approve, or if there is no such record date, the consummation of, such merger, consolidation,
exchange of shares, recapitalization, reorganization or other similar event or sale of assets
(during which time the Holder shall be entitled to convert this Note) and (b) the resulting
successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations
of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.

     (c) Adjustment Due to Distribution. If the Borrower shall declare or make any
distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a
dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or
distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note
shall be entitled, upon any conversion of this Note after the date of record for determining
shareholders entitled to such Distribution, to receive the amount of such assets which would have
been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion
had such Holder been the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.

 

 

     (d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes are issued and
outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is
deemed to have issued or sold, except for shares of Common Stock issued directly to vendors or
suppliers of the Borrower in satisfaction of amounts owed to such vendors or suppliers (provided,
however, that such vendors or suppliers shall not have an arrangement to transfer, sell or assign
such shares of Common Stock prior to the issuance of such shares), any shares of Common Stock for
no consideration or for a consideration per share (before deduction of reasonable expenses or
commissions or underwriting discounts or allowances in connection therewith) less than the
Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of
Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion
Price will be reduced to the amount of the consideration per share received by the Borrower in such
Dilutive Issuance.

     The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in
any manner issues or grants any warrants, rights or options (not including employee stock option
plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or
other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such
warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter
referred to as “Options”) and the price per share for which Common Stock is issuable upon the
exercise of such Options is less than the Conversion Price then in effect, then the Conversion
Price shall be equal to such price per share. For purposes of the preceding sentence, the “price
per share for which Common Stock is issuable upon the exercise of such Options” is determined by
dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for
the issuance or granting of all such Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the
case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the conversion or exchange thereof at the time such
Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number
of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion
of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be
made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the
conversion or exchange of Convertible Securities issuable upon exercise of such Options.

Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the
Borrower in any manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of Options), and the price
per share for which Common Stock is issuable upon such conversion or exchange is less than the
Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.
For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable
upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received
or receivable by the Borrower as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the
Borrower upon the conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon

 

 

the conversion or exchange of all such Convertible Securities. No further adjustment to the
Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.

(e) Purchase Rights. If, at any time when any Notes are issued and outstanding, the
Borrower issues any convertible securities or rights to purchase stock, warrants, securities or
other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock,
then the Holder of this Note 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 conversion of this Note
(without regard to any limitations on conversion contained herein) 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.

(f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the
Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its
expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the
Holder of a certificate setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written
request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of
shares of Common Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of the Note.

1.7 Trading Market Limitations. Unless permitted by the applicable rules and regulations of
the principal securities market on which the Common Stock is then listed or traded, in no event
shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes
issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock
that the Borrower can issue pursuant to any rule of the principal United States securities market
on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the
total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to
equitable adjustment from time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring after the date hereof.
Once the Maximum Share Amount has been issued (the date of which is hereinafter referred to as the
“Maximum Conversion Date”), if the Borrower fails to eliminate any prohibitions under applicable
law or the rules or regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Borrower or any of its securities on the
Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount (a
“Trading Market Prepayment Event”), in lieu of any further right to convert this Note, and in full
satisfaction of the Borrower’s obligations under this Note, the Borrower shall pay to the Holder,
within fifteen (15) business days of the Maximum Conversion Date (the “Trading Market Prepayment
Date”), an amount equal to 150% times the sum of (a) the then outstanding principal
amount of this Note immediately following the Maximum Conversion Date, plus (b) accrued and
unpaid interest on the unpaid principal amount of this Note to the Trading Market Prepayment Date,
plus (c)

 

 

Default Interest, if any, on the amounts referred to in clause (a) and/or (b) above, plus
(d) any optional amounts that may be added thereto at the Maximum Conversion Date by the Holder in
accordance with the terms hereof (the then outstanding principal amount of this Note immediately
following the Maximum Conversion Date, plus the amounts referred to in clauses (b), (c) and
(d) above shall collectively be referred to as the “Remaining Convertible Amount”). In the event
that the sum of (x) the aggregate number of shares of Common Stock issued upon conversion of this
Note and the other Notes issued pursuant to the Purchase Agreement plus (y) the aggregate
number of shares of Common Stock that remain issuable upon conversion of this Note and the other
Notes issued pursuant to the Purchase Agreement, represents at least one hundred percent (100%) of
the Maximum Share Amount (the “Triggering Event”), the Borrower will use its best efforts to seek
and obtain Shareholder Approval (or obtain such other relief as will allow conversions hereunder in
excess of the Maximum Share Amount) as soon as practicable following the Triggering Event and
before the Maximum Conversion Date. As used herein, “Shareholder Approval” means approval by the
shareholders of the Borrower to authorize the issuance of the full number of shares of Common Stock
which would be issuable upon full conversion of the then outstanding Notes but for the Maximum
Share Amount.

1.8 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the
shares covered thereby (other than the shares, if any, which cannot be issued because their
issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share
Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a
Holder of such converted portion of this Note shall cease and terminate, excepting only the right
to receive certificates for such shares of Common Stock and to any remedies provided herein or
otherwise available at law or in equity to such Holder because of a failure by the Borrower to
comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Deadline with respect to a conversion of any portion of this Note for any reason,
then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so
notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to
such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such
unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to
reflect that such portion of this Note has not been converted. In all cases, the Holder shall
retain all of its rights and remedies (including, without limitation, (i) the right to receive
Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion
Price with respect to subsequent conversions determined in accordance with Section 1.3) for the
Borrower’s failure to convert this Note.

1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, so long
as: (i) no Event of Default shall have occurred and be continuing, (ii) the Borrower has a
sufficient number of authorized shares of Common Stock reserved for issuance upon full conversion
of the Note, and (iii) the Borrower has not received a Notice of Conversion from the Holder, then
at any time during the period beginning on the Issue Date and ending on the date prior to the
Maturity Date, the Borrower shall have the right, exercisable on not
less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding
Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any notice of

 

 

prepayment hereunder (an “Optional Prepayment”) shall be delivered to the Holder of the Note at its
registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the
Note, and (2) the date of prepayment (the “Optional Prepayment Notice”) which shall be not more
than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for
prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional
Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder
in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If
the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder
of an amount in cash (the “Optional Prepayment Amount”) equal to 150%, multiplied by the sum of:
(w) the then outstanding principal amount of this Note plus
(x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional
Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses
(w) and
(x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the
then outstanding principal amount of this Note to the date of payment plus the amounts
referred to in clauses (x), (y) and (z) shall collectively be known as the “Optional Prepayment
Sum”). If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional
Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional
Prepayment Date, the Borrower shall forever forfeit its right to redeem the Note pursuant to this
Section 1.9.

 

 

1.10 Short Sales. During the term of this Note, Holder agrees that is shall not “short” the
Common Stock. “Short” shall mean borrowing Borrower’s Common Stock from a broker and selling it,
with the understanding that it must later be bought back and returned to the broker.

ARTICLE II. CERTAIN COVENANTS

2.1 Distributions on Capital Stock. So long as the Borrower shall have any obligation under
this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set
apart for such payment, any dividend or other distribution (whether in cash, property or other
securities) on shares of capital stock other than dividends on shares of Common Stock solely in the
form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary
make any other payment or distribution in respect of its capital stock except for distributions
pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s
disinterested directors.

2.2 Restriction on Stock Repurchases. So long as the Borrower shall have any obligation
under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or
otherwise acquire (whether for cash or in exchange for property or other securities or otherwise)
in any one transaction or series of related transactions any shares of capital stock of the
Borrower or any warrants, rights or options to purchase or acquire any such shares.

2.3 Borrowings. So long as the Borrower shall have any obligation under this Note, the
Borrower shall not, without the Holder’s written consent, create, incur, assume or suffer to exist
any liability for borrowed money, except (a) borrowings in existence or committed on the date
hereof and of which the Borrower has informed Holder in writing prior to the date

 

 

hereof, (b) indebtedness to trade creditors or financial institutions incurred in the ordinary
course of business or (c) borrowings, the proceeds of which shall be used to repay this Note.

2.4 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the
Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any
significant portion of its assets outside the ordinary course of business. Any consent to the
disposition of any assets may be conditioned on a specified use of the proceeds of disposition.

2.5 Advances and Loans. So long as the Borrower shall have any obligation under this Note,
the Borrower shall not, without the Holder’s written consent, lend money, give credit or make
advances to any person, firm, joint venture or corporation, including, without limitation,
officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits
or advances (a) in existence or committed on the date hereof and which the Borrower has informed
Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not
in excess of $100,000.

2.6 Contingent Liabilities. So long as the Borrower shall have any obligation under this
Note, the Borrower shall not, without the Holder’s written consent, which shall not be unreasonably
withheld, assume, guarantee, endorse, contingently agree to purchase or otherwise become liable
upon the obligation of any person, firm, partnership, joint venture or corporation, except by the
endorsement of negotiable instruments for deposit or collection and except assumptions, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof and which the
Borrower has informed Holder in writing prior to the date hereof, and

(b) similar transactions in the ordinary course of business.

ARTICLE III. EVENTS OF DEFAULT

     If any of the following events of default (each, an “Event of Default”) shall occur:

3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or
interest thereon when due on this Note, whether at maturity, upon a Trading Market Prepayment Event
pursuant to Section 1.7, upon acceleration or otherwise;

3.2 Conversion and the Shares. The Borrower fails to issue shares of Common Stock to the
Holder (or announces or threatens that it will not honor its obligation to do so) upon exercise by
the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails
to transfer or cause its transfer agent to transfer (electronically or in certificated form) any
certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise
pursuant to this Note as and when required by this Note, or fails to remove any restrictive legend
(or to withdraw any stop transfer instructions in respect thereof) on any certificate for any
shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note
as and when required by this Note (or makes any announcement, statement or threat that it does not
intend to honor the obligations described in this paragraph) and any such failure shall continue
uncured (or any announcement, statement or threat not to

 

 

honor its obligations shall not be rescinded in writing) for three (3) days after the Borrower
shall have been notified thereof in writing by the Holder;

3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term
or condition contained in this Note and any collateral documents including but not limited to the
Purchase Agreement and such breach continues for a period of ten (10) days after written notice
thereof to the Borrower from the Holder;

3.4 Breach of Representations and Warranties. Any representation or warranty of the
Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto
or in connection herewith (including, without limitation, the Purchase Agreement), shall be false
or misleading in any material respect when made and the breach of which has (or with the passage of
time will have) a material adverse effect on the rights of the Holder with respect to this Note or
the Purchase Agreement;

3.5 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an
assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business, or such a receiver or
trustee shall otherwise be appointed;

3.6 Judgments. Any money judgment, writ or similar process shall be entered or filed
against the Borrower or any subsidiary of the Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20)
days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld;

3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower;

3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the
Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq
National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock
Exchange;

3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the
reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the
reporting requirements of the Exchange Act; or

3.10 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any
substantial portion of its business.

3.11 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it
is otherwise generally unable to pay its debts as such debts become due,

 

 

provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern”
shall not be an admission that the Borrower cannot pay its debts as they become due.

3.12 Maintenance of Assets. The failure by Borrower to maintain any material intellectual
property rights, personal, real property or other assets which are necessary to conduct its
business (whether now or in the future).

3.13 Financial Statement Restatement. The restatement of any financial statements filed by
the Borrower with the SEC for any date or period from two years prior to the Issue Date of this
Note and until this Note is no longer outstanding, if the result of such restatement would, by
comparison to the unrestated financial statement, have constituted a material adverse effect on the
rights of the Holder with respect to this Note or the Purchase Agreement.

3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without
twenty (20) days prior written notice to the Holder.

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1
(solely with respect to failure to pay the principal hereof or interest thereon when due at the
Maturity Date), the Borrower shall pay to the Holder, in full satisfaction of its obligations
hereunder, an amount equal to the Default Sum (as defined herein). Upon the occurrence and during
the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure
to pay the principal hereof or interest thereon when due on this Note upon a Trading Market
Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.2, 3.3, 3.4, 3.6, or 3.8
exercisable through the delivery of written notice to the Borrower by such Holders (the “Default
Notice”), and upon the occurrence of an Event of Default specified the remaining sections of
Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity
Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the
Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount
equal to the greater of (i) 150% times the sum of (w) the then outstanding
principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal
amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y)
Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding
principal amount of this Note to the date of payment plus the amounts referred to in
clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity
value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares
of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance
with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the
“Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the
Default Event arises as a result of a breach in respect of a specific Conversion Date in which case
such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing
Price for the Common Stock during the period beginning on the date of first occurrence of the Event
of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all
other amounts payable hereunder shall immediately become due and payable, all without demand,
presentment or notice, all of which hereby are expressly waived, together with all costs,
including, without

 

 

limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise
all other rights and remedies available at law or in equity.

If the Borrower fails to pay the Default Amount within five (5) business days of written notice
that such amount is due and payable, then the Holder shall have the right at any time, so long as
the Borrower remains in default (and so long and to the extent that there are sufficient authorized
shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default
Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by
the Conversion Price then in effect.

ARTICLE IV. MISCELLANEOUS

4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the
exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

4.2 Notices. All notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall
be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid,
or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be deemed effective (a)
upon hand delivery or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if delivered on a
business day during normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for such communications
shall be:

If to the Borrower, to:

CytoCore, Inc.

414 North Orleans Street, Suite 510

Chicago, IL 60654

Attn: Robert F. McCullough, Jr.

Chief Executive Officer and Chief Financial Officer

facsimile: [enter fax number]

With a copy by fax only to (which copy shall not constitute notice):

[enter name of law firm]

 

 

Attn: [attorney name] [enter
address line 1]

 [enter city,
state, zip]

 facsimile: [enter fax
number]

If to the
Holder: ASHER ENTERPRISES, INC. 1 Linden Pl., Suite 207 Great Neck, NY. 11021 Attn: Curt Kramer, President facsimile: [enter fax number]

With a copy by fax only to (which copy shall not constitute notice):

Naidich Wurman Birnbaum & Mayday LLP

80 Cuttermill Road, Suite 410 Great Neck,

NY 11021 Attn: Bernard S. Feldman, Esq.

facsimile: [enter fax number]

4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in
writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used
throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the
Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended
or supplemented.

4.4 Assignability. This Note shall be binding upon the Borrower and its successors and
assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each
transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933
Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral
in connection with a bona fide margin account or other lending arrangement.

4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall
pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws
of the State of New York without regard to principles of conflicts of laws. Any action brought by
either party against the other concerning the transactions contemplated by this Note shall be
brought only in the state courts of New York or in the federal courts located in the state and
county of Nassau. The parties to this Note hereby irrevocably waive any objection to jurisdiction
and venue of any action instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by
jury. The prevailing party shall be entitled to recover from the other party its reasonable
attorney’s fees and costs. In the event that any provision of this Note or any other agreement
delivered in connection herewith is invalid or unenforceable

 

 

under any applicable statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement. Each party hereby
irrevocably waives personal service of process and consents to process being served in any suit,
action or proceeding in connection with this Agreement or any other Transaction Document 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 other manner
permitted by law.

4.7 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an
amount in excess of the outstanding principal amount (or the portion thereof required to be paid at
that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower
and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this
Note may be difficult to determine and the amount to be so paid by the Borrower represents
stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of
the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock
acquired upon conversion of this Note at a price in excess of the price paid for such shares
pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated
damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a
cash payment without the opportunity to convert this Note into shares of Common Stock.

4.8 Purchase Agreement. By its acceptance of this Note, each party agrees to be bound by
the applicable terms of the Purchase Agreement.

4.9 Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note
shall have no rights as a Holder of Common Stock unless and only to the extent that it converts
this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any
meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Borrower of a record of its shareholders for the
purpose of determining shareholders who are entitled to receive payment of any dividend or other
distribution, any right to subscribe for, purchase or otherwise acquire (including by way of
merger, consolidation, reclassification or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of determining
shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of
all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or
winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to the consummation of
the transaction or event, whichever is earlier), of the date on which any such record is to be
taken for the purpose of such dividend, distribution, right or other event, and a brief statement
regarding the amount and character of such dividend, distribution, right or other event to the
extent known at such time. The Borrower shall make a public announcement of any

 

 

event requiring notification to the Holder hereunder substantially simultaneously with the
notification to the Holder in accordance with the terms of this Section 4.9.

4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of
its obligations under this Note will be inadequate and agrees, in the event of a breach or
threatened breach by the Borrower of the provisions of this Note, that the Holder shall be
entitled, in addition to all other available remedies at law or in equity, and in addition to the
penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any
breach of this Note and to enforce specifically the terms and provisions thereof, without the
necessity of showing economic loss and without any bond or other security being required.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

     IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly
authorized officer this March 17, 2010.

 

 

	 	 	 	 	 
	 	CytoCore, Inc.

 	 
	 	By:  	 	 
	 	 	Robert F. McCullough, Jr.  	 
	 	 	Chief Executive Officer and Chief Financial Officer 	 
	 

 

 

EXHIBIT A

NOTICE OF CONVERSION

(To be Executed by the Registered Holder

in order to Convert the Notes)

The undersigned hereby irrevocably elects to convert $                     principal amount of the Note
(defined below) into shares of common stock, $0.001 par value per share (“Common Stock”), of
CytoCore, Inc., a Delaware corporation (the “Borrower”) according to the conditions of the
convertible note of the Borrower dated as of                      (the “Notes”), as of the date written
below. If securities are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates. No fee will be charged to the Holder for any conversion, except for transfer
taxes, if any. A copy of each Note is attached hereto (or evidence of loss, theft or destruction
thereof).

The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of
Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal
Agent Commission system (“DWAC Transfer”).

Name of DTC Prime Broker:

Account Number:

In lieu of receiving shares of Common Stock issuable pursuant to this Notice of Conversion by way
of a DWAC Transfer, the undersigned hereby requests that the Borrower issue a certificate or
certificates for the number of shares of Common Stock set forth below (which numbers are based on
the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:

Name:

Address:

The undersigned represents and warrants that all offers and sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Notes shall be made pursuant to
registration of the securities under the Securities Act of 1933, as amended (the “Act”), or
pursuant to an exemption from registration under the Act.

Date of Conversion:                                                        

Applicable Conversion Price:                                          Number

of Shares of Common Stock to be Issued Pursuant to

Conversion of the Notes:                      Signature:

                                                             Name:

                                                             Address:

                                                            

 

 

The Borrower shall issue and deliver shares of Common Stock to an overnight courier not later than
three business days following receipt of the original Note(s) to be converted, and shall make
payments pursuant to the Notes for the number of business days such issuance and delivery is late.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00174-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00174-of-00352.parquet"}]]