Document:

SECURITIES
PURCHASE AGREEMENT

     

    This
SECURITIES PURCHASE
AGREEMENT (this “Agreement”), dated as of
December 21, 2010, is by and among Kandi Technologies, Corp., a Delaware
corporation with headquarters located at Jinhua City Industrial Zone, Jinhua,
Zhejiang Province, People’s Republic of China, Post Code 321016 (the “Company”), and each of the
investors listed on the Schedule of Buyers attached hereto (individually, a
“Buyer” and
collectively, the “Buyers”).

     

    RECITALS

     

    A.           The
Company and each Buyer desire to enter into this transaction to purchase the
Common Shares (as defined below) and Warrants (as defined below) set forth
herein pursuant to a currently effective shelf registration statement on Form
S-3, which has at least $30,000,000 of unallocated securities, including Common
Stock (as defined below) and warrants registered thereunder (Registration Number
333-163222) (the “Registration
Statement”), which Registration Statement has been declared effective in
accordance with the Securities Act of 1933, as amended (the “1933 Act”), by the United
States Securities and Exchange Commission (the “SEC”).

     

    B.           Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms stated
in this Agreement, (i) the aggregate number of shares of common stock, $0.001
par value per share, of the Company (the “Common Stock”) set forth
opposite such Buyer’s name in column (3) on the Schedule of Buyers (which
aggregate amount for all Buyers shall be 3,027,272 shares of Common Stock and
shall collectively be referred to herein as the “Common Shares”) and (ii) a
warrant to initially acquire up to the aggregate number of shares of Common
Stock set forth opposite such Buyer’s name in column (4) on the Schedule of
Buyers, in the form attached hereto as Exhibit
A (the “Warrants”) (as exercised,
collectively, the “Warrant
Shares”).

     

    C.           The
Common Shares, the Warrants and the Warrant Shares are collectively referred to
herein as the “Securities.”

     

    AGREEMENT

     

    NOW,
THEREFORE, in consideration of the premises and the mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each Buyer hereby
agree as follows:

     

    
      	
              1.

            	
              PURCHASE
      AND SALE OF COMMON SHARES AND
WARRANTS.

            

    

     

    
      (a)          Common Shares and
Warrants. The
Company shall issue and sell to each Buyer, and each Buyer severally, but not
jointly, shall purchase from the Company on the Closing Date (as defined below),
the aggregate number of Common Shares, as is set forth opposite such Buyer’s
name in column (3) on the Schedule of Buyers, along with Warrants to
initially acquire up to the aggregate number of Warrant Shares as is set forth
opposite such Buyer’s name in column (4) on the Schedule of
Buyers.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    
      (b)       
 Closing. The
closing (the “Closing”)
of the purchase of the Common Shares and the Warrants by the Buyers shall occur
at the offices of Greenberg Traurig, LLP, 77 W. Wacker Drive, Suite 3100,
Chicago, Illinois 60601. The date and time of the Closing (the “Closing Date”) shall be 10:00
a.m., New York time, on the third (3rd)
Trading Day (as defined in the Warrants) after the date hereof (or such earlier
date as is mutually agreed to by the Company and each Buyer). As used herein
“Business Day” means any
day other than a Saturday, Sunday or other day on which commercial banks in New
York, New York are authorized or required by law to remain
closed.

    

     

    (c)          Purchase
Price. The
aggregate purchase price for the Common Shares and the Warrants to be purchased
by each Buyer (the “Purchase
Price”) shall be the amount set forth opposite such Buyer’s name in
column (5) on the Schedule of Buyers.

     

    (d)          Payment of Purchase Price;
Deliveries. On the
Closing Date, (i) each Buyer shall pay its respective Purchase Price to the
Company for the Common Shares and the Warrants to be issued and sold to such
Buyer at the Closing, by wire transfer of immediately available funds in
accordance with the Company’s written wire instructions (less, in the case of
Cranshire (as defined below), the amounts withheld pursuant to Section 4(g)) and
(ii) the Company shall (A) cause Corporate Stock Transfer, Inc. (together
with any subsequent transfer agent, the “Transfer Agent”) through the
Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, to credit such aggregate number of Common Shares
that such Buyer is purchasing as is set forth opposite such Buyer’s name in
column (3) of the Schedule of Buyers to such Buyer’s or its designee’s balance
account with DTC through its Deposit/Withdrawal at Custodian system, (B) deliver
to each Buyer Warrants to initially acquire up to the aggregate number of
Warrant Shares as is set forth opposite such Buyer’s name in column (4) on the
Schedule of Buyers duly executed on behalf of the Company and registered in the
name of such Buyer or its designee and (C) deliver to each such Buyer the other
documents, instruments and certificates set forth in Section 6 duly executed on
behalf of the Company.

     

    
      	
              2.

            	
              BUYER’S
      REPRESENTATIONS AND WARRANTIES.

            

    

     

    Each
Buyer, severally and not jointly, represents and warrants to the Company with
respect to only itself that:

     

    (a)          Organization;
Authority. Such
Buyer is an entity duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization with the requisite power and
authority to enter into and to consummate the transactions contemplated by the
Transaction Documents (as defined below) to which it is a party and otherwise to
carry out its obligations hereunder and thereunder.

     

    (b)          Validity;
Enforcement. This Agreement has been duly and validly authorized,
executed and delivered on behalf of such Buyer and constitutes the legal, valid
and binding obligations of such Buyer enforceable against such Buyer in
accordance with its terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

     

    
      
         

      

      
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    (c)          No
Conflicts.  The
execution, delivery and performance by such Buyer of this Agreement and the
consummation by such Buyer of the transactions contemplated hereby will not (i)
result in a violation of the organizational documents of such Buyer, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which such Buyer is a party or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws) applicable to such Buyer, except, in the case
of clauses (ii) and (iii) above, for such conflicts, defaults, rights or
violations which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of such Buyer to
perform its obligations hereunder.

     

    (d)          Certain Trading
Activities. Such Buyer has not directly or indirectly, nor has any Person
acting on behalf of or pursuant to any understanding with such Buyer, engaged in
any transactions in the securities of the Company (including, without
limitation, any Short Sales (as defined below) involving the Company’s
securities) during the period commencing on December 18, 2010 and ending
immediately prior to the execution of this Agreement by such Buyer, excluding
any transaction in any securities of the Company that relates to the exercise or
assignment by a third party of any option sold or bought by such Buyer prior to
December 18, 2010. “Short
Sales” means all “short sales” as defined in Rule 200 promulgated under
Regulation SHO under the Securities Exchange Act of 1934, as amended (the “1934 Act”) (but shall not be
deemed to include the location and/or reservation of borrowable shares of Common
Stock).

     

    
      	
              3.

            	
              REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

            

    

     

    The
Company represents and warrants to each of the Buyers that:

     

    (a)          Organization and
Qualification. Each of
the Company and each of its Subsidiaries are entities duly organized and validly
existing and in good standing under the laws of the jurisdiction in which they
are formed, and have the requisite power and authorization to own their
properties and to carry on their business as now being conducted and as
presently proposed to be conducted. Each of the Company and each of its
Subsidiaries is duly qualified as a foreign entity to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect. “Material Adverse Effect” means
any material adverse effect on (i) the business, properties, assets,
liabilities, operations (including results thereof), condition (financial or
otherwise) or prospects of the Company or any Subsidiary, either individually or
taken as a whole, (ii) the transactions contemplated hereby or in any of the
other Transaction Documents or (iii) the authority or ability of the Company to
perform any of its obligations under any of the Transaction Documents. Other
than the Persons (as defined below) set forth in the Company’s Quarterly Report
on Form 10-Q, as filed with the SEC on November 15, 2010, the Company has no
Subsidiaries. “Subsidiaries” means any Person
in which the Company, directly or indirectly, (A) owns any of the outstanding
capital stock or holds any equity or similar interest of such Person or (B)
controls or operates all or any part of the business, operations or
administration of such Person, and each of the foregoing, is individually
referred to herein as a “Subsidiary.”

     

    
      
         

      

      
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    (b)          Authorization; Enforcement;
Validity. The
Company has the requisite power and authority to enter into and perform its
obligations under this Agreement and the other Transaction Documents and to
issue the Securities in accordance with the terms hereof and
thereof.  The execution and delivery of this Agreement and the other
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Common Shares, the issuance of the Warrants and the reservation
for issuance and issuance of the Warrant Shares issuable upon exercise of the
Warrants) have been duly authorized by the Company’s board of directors and
(other than the filing with the SEC of the prospectus supplement required by the
Registration Statement pursuant to Rule 424(b) under the 1933 Act (the “Prospectus Supplement”)
supplementing the base prospectus forming part of the Registration Statement
(the “Prospectus”) and
any other filings as may be required by any state securities agencies) no
further filing, consent or authorization is required by the Company, its board
of directors or its stockholders or other governing body. This Agreement has
been, and the other Transaction Documents will be prior to the Closing, duly
executed and delivered by the Company, and each constitutes the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with its respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies and except as rights to indemnification and to contribution may be
limited by federal or state securities law. “Transaction Documents” means,
collectively, this Agreement, the Warrants, the Irrevocable Transfer Agent
Instructions (as defined below) and each of the other agreements and instruments
entered into or delivered by any of the parties hereto in connection with the
transactions contemplated hereby and thereby, as may be amended from time to
time.

     

    
      
         

      

      
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    (c)          Issuance of Securities;
Registration Statement. The
issuance of the Common Shares and the Warrants are duly authorized and, upon
issuance in accordance with the terms of the Transaction Documents, will be
validly issued, fully paid and non-assessable and free from all preemptive or
similar rights, taxes, liens, charges and other encumbrances with respect to the
issue thereof. As of the Closing, the Company shall have reserved from its duly
authorized capital stock not less than 100% of the maximum number of shares of
Common Stock issuable upon exercise of the Warrants (without taking into account
any limitations on the exercise of the Warrants set forth therein). The issuance
of the Warrant Shares is duly authorized, and upon exercise in accordance with
the Warrants, the Warrant Shares, when issued, will be validly issued, fully
paid and non-assessable and free from all preemptive or similar rights, taxes,
liens, charges and other encumbrances with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.
The issuance by the Company of the Securities has been registered under the 1933
Act, the Securities are being issued pursuant to the Registration Statement and
all of the Securities are freely transferable and freely tradable by each of the
Buyers without restriction. The Registration Statement is effective and
available for the issuance of the Securities thereunder and the Company has not
received any notice that the SEC has issued or intends to issue a stop-order
with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened in writing to do so.
The “Plan of Distribution” section under the Registration Statement permits the
issuance and sale of the Securities hereunder and as contemplated by the other
Transaction Documents. Upon receipt of the Securities, each of the Buyers will
have good and marketable title to the Securities. The Registration Statement and
any prospectus included therein, including the Prospectus and the Prospectus
Supplement, complied in all material respects with the requirements of the 1933
Act and the 1934 Act and the rules and regulations of the SEC promulgated
thereunder and all other applicable laws and regulations. At the time the
Registration Statement and any amendments thereto became effective, at the date
of this Agreement and at each deemed effective date thereof pursuant to Rule
430B(f)(2) of the 1933 Act, the Registration Statement and any amendments
thereto complied and will comply in all material respects with the requirements
of the 1933 Act and did not and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. The Prospectus and
any amendments or supplements thereto (including, without limitation the
Prospectus Supplement), at the time the Prospectus or any amendment or
supplement thereto was issued and at the Closing Date, complied, and will
comply, in all material respects with the requirements of the 1933 Act and did
not, and will not, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading.  The Company meets all of the requirements for the use of
Form S-3 under the 1933 Act for the offering and sale of the Securities
contemplated by this Agreement and the other Transaction Documents, and the SEC
has not notified the Company of any objection to the use of the form of the
Registration Statement pursuant to Rule 401(g)(1) under the 1933 Act. The
Registration Statement meets the requirements set forth in Rule 415(a)(1)(x)
under the 1933 Act. At the earliest time after the filing of the Registration
Statement that the Company or another offering participant made a bona fide
offer (within the meaning of Rule 164(h)(2) under the 1933 Act) relating to any
of the Securities, the Company was not and is not an “Ineligible Issuer” (as
defined in Rule 405 under the 1933 Act). The Company (i) has not distributed any
offering material in connection with the offer or sale of any of the Securities
and (ii) until no Buyer holds any of the Securities, shall not distribute any
offering material in connection with the offer or sale of any of the Securities
to, or by, any of the Buyers (if required), in each case, other than the
Registration Statement, the Prospectus or the Prospectus Supplement. In
accordance with Rule 5110(b)(7)(C)(i) of
the Financial Industry Regulatory Authority Manual, the offering of the
Securities has been registered with the SEC on Form S-3 under the 1933 Act
pursuant to the standards for Form S-3 in effect prior to October 21, 1992, and
the Securities are being offered pursuant to Rule 415 promulgated under the 1933
Act.

     

    (d)          No
Conflicts. The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Common Shares, the
Warrants and Warrant Shares and the reservation for issuance of the Warrant
Shares) will not (i) result in a violation of the Certificate of Incorporation
(as defined below) (including, without limitation, any certificates of
designation contained therein) or other organizational documents of the Company
or any of its Subsidiaries, any capital stock of the Company, or Bylaws (as
defined below), (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including, without limitation, foreign,
federal and state securities laws and regulations and the rules and regulations
of the Nasdaq Capital Market (the “Principal Market”)) applicable
to the Company or any of its Subsidiaries or by which any property or asset of
the Company or any of its Subsidiaries is bound or affected, except, in the case
of clause (ii) or (iii) above, to the extent such violations that could not
reasonably be expected to have a Material Adverse Effect.

     

    
      
         

      

      
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    (e)          Consents.  The
Company is not required to obtain any consent from, authorization or order of,
or make any filing or registration with (other than the filing with the SEC of
the Prospectus Supplement and any other filings as may be required by any state
securities agencies), any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under, or contemplated by, the Transaction
Documents, in each case, in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain at or prior to the Closing have been obtained or effected on
or prior to the Closing Date, and neither the Company nor any of its
Subsidiaries are aware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the registration, application or
filings contemplated by the Transaction Documents. The Company is not in
violation of the requirements of the Principal Market and has no knowledge of
any facts or circumstances which could reasonably lead to delisting or
suspension of the Common Stock in the foreseeable future.

     

    (f)  
        Acknowledgment Regarding
Buyer’s Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company or any of its Subsidiaries, (ii) an “affiliate” (as
defined in Rule 144 promulgated under the 1933 Act (or a successor rule thereto)
(collectively, “Rule
144”)) of the Company or any of its Subsidiaries or (iii) to its
knowledge, a “beneficial owner” of more than 10% of the shares of Common Stock
(as defined for purposes of Rule 13d-3 of the 1934 Act). The Company further
acknowledges that no Buyer is acting as a financial advisor or fiduciary of the
Company or any of its Subsidiaries (or in any similar capacity) with respect to
the Transaction Documents and the transactions contemplated hereby and thereby,
and any advice given by a Buyer or any of its representatives or agents in
connection with the Transaction Documents and the transactions contemplated
hereby and thereby is merely incidental to such Buyer’s purchase of the
Securities. The Company further represents to each Buyer that the Company’s
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.

     

    (g)          Placement Agent’s
Fees. The
Company shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, or brokers’ commissions (other than for Persons engaged
by any Buyer or its investment advisor) relating to or arising out of the
transactions contemplated hereby. Other than FT Global Capital, Inc. (the “Placement Agent”), neither the
Company nor any of its Subsidiaries has engaged any placement agent or other
agent in connection with the offer or sale of the Securities.

     

    (h)          No Integrated
Offering. None of
the Company, its Subsidiaries or any of their affiliates, nor any Person acting
on their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would cause this offering of the Securities to require approval of stockholders
of the Company under any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated for quotation. None of the Company, its Subsidiaries, their
affiliates nor any Person acting on their behalf will take any action or steps
that would cause the offering of any of the Securities to be integrated with
other offerings of securities of the Company.

     

    
      
         

      

      
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    (i)           Application of Takeover
Protections; Rights Agreement. The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, interested
stockholder, business combination, poison pill (including, without limitation,
any distribution under a rights agreement) or other similar anti-takeover
provision under the Certificate of Incorporation, Bylaws or other organizational
documents or the laws of the jurisdiction of its incorporation or otherwise
which is or could become applicable to any Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company’s
issuance of the Securities and any Buyer’s ownership of the Securities. The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of shares of Common Stock or a
change in control of the Company or any of its Subsidiaries.

     

    (j)           SEC Documents; Financial
Statements. During
the two (2) years prior to the date hereof, the Company has timely filed all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the 1934 Act (all
of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements, notes and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the “SEC Documents”). As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto as in effect as of the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which will not be material, either individually or in the
aggregate). No other information provided by or on behalf of the Company to any
of the Buyers which is not included in the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein not misleading, in the light of the
circumstance under which they are or were made.

     

    
      
         

      

      
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    (k)          Absence of Certain
Changes. Since
the date of the Company’s most recent audited financial statements contained in
a Form 10-K, except as disclosed in the SEC Documents filed subsequent to such
Form 10-K, there has been no material adverse change and no material adverse
development in the business, assets, liabilities, properties, operations
(including results thereof), condition (financial or otherwise) or prospects of
the Company or any of its Subsidiaries. Since the date of the Company’s most
recent audited financial statements contained in a Form 10-K, neither the
Company nor any of its Subsidiaries has (i) declared or paid any dividends, (ii)
sold any assets outside of the ordinary course of business or (iii) made any
material capital expenditures, individually or in the aggregate. Neither the
Company nor any of its Subsidiaries has taken any steps to seek protection
pursuant to any law or statute relating to bankruptcy, insolvency,
reorganization, receivership, liquidation or winding up, nor does the Company or
any Subsidiary have any knowledge or reason to believe that any of their
respective creditors intend to initiate involuntary bankruptcy proceedings or
any actual knowledge of any fact which would reasonably lead a creditor to do
so. The Company and its Subsidiaries, individually and on a consolidated basis,
are not as of the date hereof, and after giving effect to the transactions
contemplated hereby to occur at the Closing will not be, Insolvent (as defined
below). “Insolvent”
means, (A) with respect to the Company and its Subsidiaries, on a consolidated
basis, (1) the present fair saleable value of the Company’s and its
Subsidiaries’ assets is less than the amount required to pay the Company’s and
its Subsidiaries’ total Indebtedness (as defined below), (2) the Company and its
Subsidiaries are unable to pay their debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured or (3) the Company and its Subsidiaries intend to incur or believe that
they will incur debts that would be beyond their ability to pay as such debts
mature; and (B) with respect to the Company and each Subsidiary, individually,
(1) the present fair saleable value of the Company’s or such Subsidiary’s (as
the case may be) assets is less than the amount required to pay its respective
total Indebtedness, (2) the Company or such Subsidiary (as the case may be) is
unable to pay its respective debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured or (3) the
Company or such Subsidiary (as the case may be) intends to incur or believes
that it will incur debts that would be beyond its respective ability to pay as
such debts mature. Neither the Company nor any of its Subsidiaries has engaged
in any business or in any transaction, and is not about to engage in any
business or in any transaction, for which the Company’s or such Subsidiary’s
remaining assets constitute unreasonably small capital.

     

    (l)           No Undisclosed Events,
Liabilities, Developments or Circumstances. No
event, liability, development or circumstance has occurred or exists, or is
reasonably expected to occur or exist with respect to the Company, any of its
Subsidiaries or any of their respective businesses, properties, liabilities,
prospects, operations (including results thereof) or condition (financial or
otherwise) that (i) would be required to be disclosed by the Company under
applicable securities laws on a registration statement on Form S-1 filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced, (ii) could have a material adverse effect
on any Buyer’s investment hereunder or (iii) could have a Material Adverse
Effect.

     

    
      
         

      

      
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    (m)         Conduct of Business;
Regulatory Permits. Neither
the Company nor any of its Subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation, any certificate of designation,
preferences or rights of any other outstanding series of preferred stock of the
Company or any of its Subsidiaries or Bylaws or their organizational charter,
certificate of formation or certificate of incorporation or bylaws,
respectively. Neither the Company nor any of its Subsidiaries is in violation of
any judgment, decree or order or any statute, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries, and neither the Company
nor any of its Subsidiaries will conduct its business in violation of any of the
foregoing, except in all cases for possible violations which could not,
individually or in the aggregate, have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Company is not in violation of any
of the rules, regulations or requirements of the Principal Market and has no
knowledge of any facts or circumstances that could reasonably lead to delisting
or suspension of the Common Stock by the Principal Market in the foreseeable
future. Since January 21, 2010, (i) the Common Stock has been listed or
designated for quotation on the Principal Market, (ii) trading in the Common
Stock has not been suspended by the SEC or the Principal Market and (iii) the
Company has received no communication, written or oral, from the SEC or the
Principal Market regarding the suspension or delisting of the Common Stock from
the Principal Market. The Company and each of its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.

     

    (n)     
    Foreign Corrupt
Practices.  Neither
the Company nor any of its Subsidiaries nor any director, officer, agent,
employee or other Person acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the Company
or any of its Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

     

    (o)          Sarbanes-Oxley
Act. The
Company and each Subsidiary is in compliance with all applicable requirements of
the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and all
applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof.

     

    (p)          Transactions With
Affiliates. Other
than the grant of stock options disclosed in the SEC Documents, none of the
officers, directors or employees of the Company or any of its Subsidiaries is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for ordinary course services as employees, officers or directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director or employee or, to the knowledge of the Company or any of its
Subsidiaries, any corporation, partnership, trust or other Person in which any
such officer, director or employee has a substantial interest or is an employee,
officer, director, trustee or partner.

     

    
      
         

      

      
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    (q)          Equity
Capitalization.  As
of the date hereof, the authorized capital stock of the Company consists of (i)
100,000,000 shares of Common Stock, of which, 24,366,829 are issued and
outstanding and 1,793,310 shares are reserved for issuance pursuant to
securities (other than the Common Shares and the Warrants) exercisable or
exchangeable for, or convertible into, shares of Common Stock and (ii)
10,000,000 shares of preferred stock, none of which are issued and outstanding.
75,633,171 shares of Common Stock are held in treasury. All of such outstanding
shares are duly authorized and have been, or upon issuance will be, validly
issued and are fully paid and non-assessable. 12,730,003 shares of the Company’s
issued and outstanding Common Stock on the date hereof are owned by Persons who
are “affiliates” (as defined in Rule 405 of the 1933 Act and calculated based on
the assumption that only officers, directors and holders of at least 10% of the
Company’s issued and outstanding Common Stock are “affiliates” without conceding
that any such Persons are “affiliates” for purposes of federal securities laws)
of the Company or any of its Subsidiaries. With the exception of Excelvantage
Group Limited, which owns approximately 49% of the Company’s issued and
outstanding shares of Common Stock, to the Company’s knowledge, no Person owns
10% or more of the Company’s issued and outstanding shares of Common Stock
(calculated based on the assumption that all Convertible Securities (as defined
below), whether or not presently exercisable or convertible, have been fully
exercised or converted (as the case may be) taking account of any
limitations on exercise or conversion (including “blockers”) contained therein
without conceding that such identified Person is a 10% stockholder for purposes
of federal securities laws). (A) Except as set forth in the Company’s Quarterly
Report on Form 10-Q, as filed with the SEC on November 15, 2010, none of the
Company’s or any Subsidiary’s capital stock is subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or permitted by
the Company or any Subsidiary; (B) except as set forth in the Company’s
Quarterly Report on Form 10-Q, as filed with the SEC on November 15, 2010, there
are no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any of its Subsidiaries; (C) except as set forth in the Company’s
Quarterly Report on Form 10-Q, as filed with the SEC on November 15, 2010, there
are no outstanding debt securities, notes, credit agreements, credit facilities
or other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (D) except as set forth in the Company’s
Quarterly Report on Form 10-Q, as filed with the SEC on November 15, 2010, there
are no financing statements securing obligations in any amounts filed in
connection with the Company or any of its Subsidiaries; (E) except as set forth
in the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on
November 15, 2010 and as contemplated by this Agreement, there are no agreements
or arrangements under which the Company or any of its Subsidiaries is obligated
to register the sale of any of their securities under the 1933 Act; (F) except
as set forth in the Company’s Quarterly Report on Form 10-Q, as filed with the
SEC on November 15, 2010, there are no outstanding securities or instruments of
the Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (G) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities; (H) neither the
Company nor any Subsidiary has any stock appreciation rights or “phantom stock”
plans or agreements or any similar plan or agreement; and (I) neither the
Company nor any of its Subsidiaries have any liabilities or obligations required
to be disclosed in the SEC Documents which are not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company’s or
its Subsidiaries’ respective businesses and which, individually or in the
aggregate, do not or could not have a Material Adverse Effect. The Company has
furnished to the Buyers true, correct and complete copies of the Company’s
Certificate of Incorporation, as amended and as in effect on the date hereof
(the “Articles of Incorporation”), and the
Company’s bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect
thereto.

     

    
      
         

      

      
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    (r)           Indebtedness and Other
Contracts. Neither
the Company nor any of its Subsidiaries (i) except as set forth in the SEC
Documents, has any outstanding Indebtedness (as defined below), (ii) is a party
to any contract, agreement or instrument, the violation of which, or default
under which, by the other party(ies) to such contract, agreement or instrument
could reasonably be expected to result in a Material Adverse Effect, (iii) is in
violation of any term of, or in default under, any contract, agreement or
instrument relating to any Indebtedness, except where such violations and
defaults would not result, individually or in the aggregate, in a Material
Adverse Effect, or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of the
Company’s officers, has or is expected to have a Material Adverse Effect. For
purposes of this Agreement: “Indebtedness” of any Person
means, without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (including, without limitation, “capital leases” in
accordance with generally accepted accounting principles) (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; “Contingent
Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness, lease,
dividend or other obligation of another Person if the primary purpose or intent
of the Person incurring such liability, or the primary effect thereof, is to
provide assurance to the obligee of such liability that such liability will be
paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such liability will be protected (in whole or in
part) against loss with respect thereto; and “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

     

    
      
         

      

      
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    (s)          Absence of
Litigation. There
is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened in
writing against or affecting the Company or any of its Subsidiaries, the Common
Stock or any of the Company’s or its Subsidiaries’ officers or directors which
is outside of the ordinary course of business or individually or in the
aggregate material to the Company or any of its Subsidiaries. There has not
been, and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the SEC involving the Company, any of its Subsidiaries or
any current of former director or officer of the Company or any of its
Subsidiaries. The SEC has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company under the
1933 Act or the 1934 Act, including, without limitation, the Registration
Statement.

     

    (t)           Insurance. The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the Company nor
any such Subsidiary has been refused any insurance coverage sought or applied
for, and neither the Company nor any such Subsidiary has any reason to believe
that it will be unable to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.

     

    (u)          Employee
Relations.  Neither
the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. The Company believes that its and
its Subsidiaries’ relations with their respective employees are
good.  No executive officer (as defined in Rule 501(f) promulgated
under the 1933 Act) or other key employee of the Company or any of its
Subsidiaries has notified the Company or any such Subsidiary that such officer
intends to leave the Company or any such Subsidiary or otherwise terminate such
officer’s employment with the Company or any such Subsidiary. No executive
officer or other key employee of the Company or any of its Subsidiaries is, or
is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer or other
key employee (as the case may be) does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing
matters.  The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.

     

    (v)          Title. The
Company and its Subsidiaries have good and marketable title in fee simple to all
real property, and have good and marketable title to all personal property,
owned by them which is material to the business of the Company and its
Subsidiaries, in each case, free and clear of all liens, encumbrances and
defects except such as do not materially affect the value of such property and
do not interfere with the use made and proposed to be made of such property by
the Company and any of its Subsidiaries. Any real property and facilities held
under lease by the Company or any of its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company or any of its Subsidiaries.

     

    
      
         

      

      
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    (w)         Intellectual Property
Rights. The
Company and its Subsidiaries own or possess adequate rights or licenses to use
all trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, original works, inventions, licenses,
approvals, governmental authorizations, trade secrets and other intellectual
property rights and all applications and registrations therefor (“Intellectual Property Rights”)
necessary to conduct their respective businesses as now conducted and as
presently proposed to be conducted. None of the Company’s or its Subsidiaries’
Intellectual Property Rights have expired, terminated or been abandoned, or are
expected to expire, terminate or be abandoned, within three years from the date
of this Agreement. The Company has no knowledge of any infringement by the
Company or any of its Subsidiaries of Intellectual Property Rights of others.
There is no claim, action or proceeding being made or brought, or to the
knowledge of the Company or any of its Subsidiaries, being threatened, against
the Company or any of its Subsidiaries regarding their Intellectual Property
Rights. The Company is not aware of any facts or circumstances which might give
rise to any of the foregoing infringements or claims, actions or proceedings.
The Company and each of its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their Intellectual
Property Rights.

     

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

     

    (y)          Subsidiary
Rights. The
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.

     

    (z)          Tax
Status. The
Company and each of its Subsidiaries (i) has timely made or filed all foreign,
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject, (ii) has timely paid all
taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company and its
Subsidiaries know of no basis for any such claim. The Company is not operated in
such a manner as to qualify as a passive foreign investment company, as defined
in Section 1297 of the U.S. Internal Revenue Code of 1986, as
amended.

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    (aa)        Internal Accounting and
Disclosure Controls. The
Company and each of its Subsidiaries maintains internal control over financial
reporting (as such term is defined in Rule 13a-15(f) under the 1934 Act) that is
effective to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, including that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference. The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) under the 1934 Act) that
are effective in ensuring that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
rules and forms of the SEC, including, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company’s management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure. Neither the Company nor any of its Subsidiaries has received any
notice or correspondence from any accountant or other Person relating to any
potential material weakness or significant deficiency in any part of the
internal controls over financial reporting of the Company or any of its
Subsidiaries.

     

    (bb)        Off Balance Sheet
Arrangements. There
is no transaction, arrangement, or other relationship between the Company or any
of its Subsidiaries and an unconsolidated or other off balance sheet entity that
is required to be disclosed by the Company in its 1934 Act filings and is not so
disclosed or that otherwise could be reasonably likely to have a Material
Adverse Effect.

     

    (cc)        Investment Company
Status. The
Company is not, and upon consummation of the sale of the Securities will not be,
an “investment company,” an affiliate of an “investment company,” a company
controlled by an “investment company” or an “affiliated person” of, or
“promoter” or “principal underwriter” for, an “investment company” as such terms
are defined in the Investment Company Act of  1940, as
amended.

     

    
      
         

      

      
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    (dd)        Acknowledgement Regarding
Buyers’ Trading Activity. It is
understood and acknowledged by the Company that (i) following the public
disclosure of the transactions contemplated by the Transaction Documents, in
accordance with the terms thereof, none of the Buyers have been asked by the
Company or any of its Subsidiaries to agree, nor has any Buyer agreed with the
Company or any of its Subsidiaries, to desist from effecting any transactions in
or with respect to (including, without limitation, purchasing or selling, long
and/or short) any securities of the Company, or “derivative” securities based on
securities issued by the Company or to hold any of the Securities for any
specified term; (ii) any Buyer, and counterparties in “derivative” transactions
to which any such Buyer is a party, directly or indirectly, presently may have a
“short” position in the Common Stock which was established prior to such Buyer’s
knowledge of the transactions contemplated by the Transaction Documents; and
(iii) each Buyer shall not be deemed to have any affiliation with or control
over any arm’s length counterparty in any “derivative” transaction. The Company
further understands and acknowledges that following the public disclosure of the
transactions contemplated by the Transaction Documents pursuant to the Press
Release (as defined below) one or more Buyers may engage in hedging and/or
trading activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value
and/or number of the Warrant Shares deliverable with respect to the Securities
are being determined and such hedging and/or trading activities, if any, can
reduce the value of the existing stockholders’ equity interest in the Company
both at and after the time the hedging and/or trading activities are being
conducted. The Company acknowledges that such aforementioned hedging and/or
trading activities do not constitute a breach of this Agreement or any other
Transaction Document or any of the documents executed in connection herewith or
therewith.

     

    (ee)        Manipulation of
Price. Neither
the Company nor any of its Subsidiaries has, and, to the knowledge of the
Company, no Person acting on their behalf has, directly or indirectly, (i) taken
any action designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company or any of its Subsidiaries to
facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or paid any compensation for soliciting purchases of, any of the
Securities (other than the Placement Agent), or (iii) paid or agreed to pay to
any Person any compensation for soliciting another to purchase any other
securities of the Company or any of its Subsidiaries.

     

    (ff)         U.S. Real Property Holding
Corporation. Neither
the Company nor any of its Subsidiaries is, or has ever been, and so long as any
of the Securities are held by any of the Buyers, shall become, a U.S. real
property holding corporation within the meaning of Section 897 of the Internal
Revenue Code of 1986, as amended, and the Company and each Subsidiary shall so
certify upon any Buyer’s request.

     

    (gg)       Registration
Eligibility. The Company is eligible to register the issuance and sale of
the Securities to the Buyers using Form S-3 promulgated under the 1933
Act.

     

    (hh)       Transfer Taxes. On
the Closing Date, all stock transfer or other taxes (other than income or
similar taxes) which are required to be paid in connection with the issuance and
sale of the Securities to be sold to each Buyer hereunder will be, or will have
been, fully paid or provided for by the Company, and all laws imposing such
taxes will be or will have been complied with.

     

    (ii)          Bank Holding Company
Act.  Neither the Company nor any of its Subsidiaries is
subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by
the Board of Governors of the Federal Reserve System (the “Federal
Reserve”).  Neither the Company nor any of its Subsidiaries or
affiliates owns or controls, directly or indirectly, five percent (5%) or more
of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any equity that is
subject to the BHCA and to regulation by the Federal Reserve. Neither the
Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.

     

    
      
         

      

      
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    (jj)          Public Utility Holding
Act.  None of the Company nor any of its Subsidiaries is a
“holding company,” or an “affiliate” of a “holding company,” as such terms are
defined in the Public Utility Holding Act of 2005.

     

    (kk)        Federal Power
Act.  None of the Company nor any of its Subsidiaries is
subject to regulation as a “public utility” under the Federal Power Act, as
amended.

     

    (ll)          No Additional
Agreements. The Company does not have any agreement or understanding with
any Buyer with respect to the transactions contemplated by the Transaction
Documents other than as specified in the Transaction Documents.

     

    (mm)      Real Property. Each
of the Company and its Subsidiaries holds good title to all real property,
leases in real property, or other interests in real property owned or held by
the Company or any of its Subsidiaries (the “Real Property”) owned by the
Company or any of its Subsidiaries (as applicable). The Real Property is free
and clear of all mortgages, defects, claims, liens, pledges, charges, taxes,
rights of first refusal, encumbrances, security interests and other encumbrances
(collectively “Encumbrances”) and is not
subject to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature except for (a) liens for current
taxes not yet due and (b) zoning laws and other land use restrictions that do
not impair the present or anticipated use of the property subject
thereto.

     

    (nn)       Fixtures and
Equipment. Each of the Company and its Subsidiaries (as applicable) has
good title to, or a valid leasehold interest in, the tangible personal property,
equipment, improvements, fixtures, and other personal property and appurtenances
that are used by the Company or its Subsidiary in connection with the conduct of
its business (the “Fixtures and
Equipment”). The Fixtures and Equipment are structurally sound, are in
good operating condition and repair, are adequate for the uses to which they are
being put, are not in need of maintenance or repairs except for ordinary,
routine maintenance and repairs and are sufficient for the conduct of the
Company’s and/or its Subsidiaries’ businesses (as applicable) in the manner as
conducted prior to the Closing. Each of the Company and its Subsidiaries owns
all of its Fixtures and Equipment free and clear of all Encumbrances except for
(a) liens for current taxes not yet due and (b) zoning laws and other land use
restrictions that do not impair the present or anticipated use of the property
subject thereto.

     

    (oo)       Illegal or Unauthorized
Payments; Political Contributions.  Neither the Company nor any
of its Subsidiaries nor, to the best of the Company’s knowledge (after
reasonable inquiry of its officers and directors), any of the officers,
directors, employees, agents or other representatives of the Company or any of
its Subsidiaries or any other business entity or enterprise with which the
Company or any Subsidiary is or has been affiliated or associated, has, directly
or indirectly, made or authorized any payment, contribution or gift of money,
property, or services, whether or not in contravention of applicable law, (a) as
a kickback or bribe to any Person or (b) to any political organization, or the
holder of or any aspirant to any elective or appointive public office except for
personal political contributions not involving the direct or indirect use of
funds of the Company or any of its Subsidiaries.

     

    (pp)       Money Laundering. The
Company and its Subsidiaries are in compliance with, and have not previously
violated, the USA Patriot Act of 2001 and all other applicable U.S. and non-U.S.
anti-money laundering laws and regulations, including, without limitation, the
laws, regulations and Executive Orders and sanctions programs administered by
the U.S. Office of Foreign Assets Control, including, without limitation, (i)
Executive Order 13224 of September 23, 2001 entitled, “Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support
Terrorism” (66 Fed. Reg. 49079 (2001)); and (ii) any regulations contained in 31
CFR, Subtitle B, Chapter V.

     

    
      
         

      

      
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    (qq)       Registration
Rights.  No holder of securities of the Company has rights to
the registration of any securities of the Company because of the filing of the
Registration Statement or the issuance of the Securities hereunder that could
expose the Company to material liability or any Buyer to any liability or that
could impair the Company’s ability to consummate the issuance and sale of the
Securities in the manner, and at the times, contemplated hereby, which rights
have not been waived by the holder thereof as of the date hereof.

     

    (rr)         Disclosure.  The
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Buyers or their agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, non-public
information concerning the Company or any of its Subsidiaries, other than the
existence of the transactions contemplated by this Agreement and the other
Transaction Documents. The Company understands and confirms that each of the
Buyers will rely on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Buyers regarding the
Company and its Subsidiaries, their businesses and the transactions contemplated
hereby, including the schedules to this Agreement, furnished by or on behalf of
the Company or any of its Subsidiaries is true and correct and does not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. Each press release
issued by the Company or any of its Subsidiaries during the twelve (12) months
preceding the date of this Agreement did not at the time of release contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not
misleading.  No event or circumstance has occurred or information
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, liabilities, prospects, operations (including results
thereof) or conditions (financial or otherwise), which, under applicable law,
rule or regulation, requires public disclosure at or before the date hereof or
announcement by the Company but which has not been so publicly disclosed. The
Company acknowledges and agrees that no Buyer makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.

     

    
      	
              4.

            	
              COVENANTS.

            

    

     

    (a)          Maintenance of Registration
Statement  For
so long as any of the Warrants remain outstanding, the Company shall use its
best efforts to maintain the effectiveness of the Registration Statement for the
issuance thereunder of the Warrant Shares, provided that if at any time while
the Warrants are outstanding the Company shall be ineligible to utilize Form S-3
(or any successor form) for the purpose of issuance of the Warrant Shares, the
Company shall promptly amend the Registration Statement on such other form as
may be necessary to maintain the effectiveness of the Registration Statement for
this purpose. If at any time following the date hereof the Registration
Statement is not effective or is not otherwise available for the issuance of the
Securities or any prospectus contained therein is not available for use, the
Company shall immediately notify the holders of the Securities in writing that
the Registration Statement is not then effective or a prospectus contained
therein is not available for use and thereafter shall promptly notify such
holders when the Registration Statement is effective again and available for the
issuance of the Securities or such prospectus is again available for
use.

     

    
      
         

      

      
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    (b)          Prospectus Supplement and
Blue Sky. Immediately prior to execution of this Agreement, the Company
shall have delivered, and as soon as practicable after execution of this
Agreement the Company shall file, the Prospectus Supplement with respect to the
Securities as required under, and in conformity with, the 1933 Act, including
Rule 424(b) thereunder. If required, the Company, on or before the Closing Date,
shall take such action as the Company shall reasonably determine is necessary in
order to obtain an exemption for, or to, qualify the Securities for sale to the
Buyers at the Closing pursuant to this Agreement under applicable securities or
“Blue Sky” laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to the Buyers on or prior to the Closing Date. Without limiting any other
obligation of the Company under this Agreement, the Company shall timely make
all filings and reports relating to the offer and sale of the Securities
required under all applicable securities laws (including, without limitation,
all applicable federal securities laws and all applicable “Blue Sky” laws), and
the Company shall comply with all applicable federal, state and local laws,
statutes, rules, regulations and the like relating to the offering and sale of
the Securities to the Buyers.

     

    (c)          Reporting
Status. Until
the date on which no Warrants are outstanding (the “Reporting Period”), the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would no longer require or otherwise permit such
termination.

     

    (d)          Use of
Proceeds. The
Company shall use the net proceeds from the sale of the Securities hereunder
solely for general working capital purposes. Without limiting the foregoing,
none of such proceeds shall be used, directly or indirectly, (i) for the
satisfaction of any debt of the Company or any of its Subsidiaries (other than
payment of trade payables incurred after the date hereof in the ordinary course
of business of the Company and its Subsidiaries and consistent with prior
practices), (ii) for the redemption of any securities of the Company or (iii)
with respect to any litigation involving the Company or any of its Subsidiaries
(including, without limitation, (A) any settlement thereof or (B) the payment of
any costs or expenses related thereto).

     

    (e)          Financial
Information. The
Company agrees to send the following to each Buyer during the Reporting Period
(i) unless the following are filed with the SEC through EDGAR and are available
to the public through the EDGAR system, within one (1) Business Day after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q, any interim reports or any consolidated balance
sheets, income statements, stockholders’ equity statements and/or cash flow
statements for any period other than annual, any Current Reports on Form 8-K and
any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act, (ii) unless the following are filed with the SEC
through EDGAR and are available to the public through the EDGAR system, on the
same day as the release thereof, facsimile copies of all press releases issued
by the Company or any of its Subsidiaries and (iii) copies of any notices and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.

     

    
      
         

      

      
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    (f)           Listing. The
Company shall promptly secure the listing or designation for quotation (as the
case may be) of all of the Common Shares and Warrant Shares upon each national
securities exchange and automated quotation system, if any, upon which the
Common Stock is then listed or designated for quotation (as the case may be)
(subject to official notice of issuance) (but in no event later than the Closing
Date) and shall maintain such listing or designation for quotation (as the case
may be) of all the shares of Common Stock from time to time issuable under the
terms of the Transaction Documents on such national securities exchange or
automated quotation system. The Company shall maintain the Common Stock’s
listing or designation for quotation (as the case may be) on the Principal
Market, The New York Stock Exchange, the NYSE Amex, the Nasdaq Global Select
Market or the Nasdaq Global Market (each, an “Eligible Market”). Neither the
Company nor any of its Subsidiaries shall take any action which could be
reasonably expected to result in the delisting or suspension of the Common Stock
on an Eligible Market. The Company shall pay all fees and expenses in connection
with satisfying its obligations under this Section 4(f).

     

    (g)          Fees. The
Company shall reimburse Cranshire Capital, L.P. (“Cranshire”) or its designee(s)
for all costs and expenses incurred by it or its affiliates in connection with
the transactions contemplated by the Transaction Documents (including, without
limitation, all legal fees and disbursements in connection therewith,
structuring, documentation and implementation of the transactions contemplated
by the Transaction Documents and due diligence and regulatory filings in
connection therewith) in a non-accountable amount equal to $35,000, which amount
shall be withheld by Cranshire from its Purchase Price at the Closing or paid by
the Company on demand by Cranshire if Cranshire terminates its obligations under
this Agreement in accordance with Section 7 (as the case may be), less $15,000
which was previously advanced to Cranshire by the Company. The Company shall be
responsible for the payment of any placement agent’s fees, financial advisory
fees, or broker’s commissions (other than for Persons engaged by any Buyer)
relating to or arising out of the transactions contemplated hereby (including,
without limitation, any fees payable to the Placement Agent, who is the
Company’s sole placement agent in connection with the transactions contemplated
by this Agreement). The Company shall pay, and hold each Buyer harmless against,
any liability, loss or expense (including, without limitation, reasonable
attorneys’ fees and out-of-pocket expenses) arising in connection with any claim
relating to any such payment. Except as otherwise set forth in the Transaction
Documents, each party to this Agreement shall bear its own expenses in
connection with the sale of the Securities to the Buyers.

     

    (h)          Pledge of
Securities.
Notwithstanding anything to the contrary contained in this Agreement, the
Company acknowledges and agrees that the Securities may be pledged by a Buyer in
connection with a bona fide margin agreement or other loan or financing
arrangement that is secured by the Securities. The pledge of Securities shall
not be deemed to be a transfer, sale or assignment of the Securities hereunder,
and no Buyer effecting a pledge of Securities shall be required to provide the
Company with any notice thereof or otherwise make any delivery to the Company
pursuant to this Agreement or any other Transaction Document. The Company hereby
agrees to execute and deliver such documentation as a pledgee of the Securities
may reasonably request in connection with a pledge of the Securities to such
pledgee by a Buyer.

     

    
      
         

      

      
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    (i)           Disclosure of Transactions
and Other Material Information. The
Company shall, on or before 8:30 a.m., New York time, on the date of this
Agreement, (i) issue a press release (the “Press Release”) reasonably
acceptable to the Buyers disclosing all the material terms of the transactions
contemplated by the Transaction Documents and (ii) file a Current Report on Form
8-K describing all the material terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and attaching all the
material Transaction Documents (including, without limitation, this Agreement
(and all schedules to this Agreement) and the form of Warrants) (including all
attachments, the “8-K
Filing”). From and after the issuance of the Press Release, the Company
shall have disclosed all material, non-public information (if any) delivered to
any of the Buyers by the Company or any of its Subsidiaries, or any of their
respective officers, directors, employees or agents in connection with the
transactions contemplated by the Transaction Documents. The Company shall not,
and the Company shall cause each of its Subsidiaries and each of its and their
respective officers, directors, employees and agents, not to, provide any Buyer
with any material, non-public information regarding the Company or any of its
Subsidiaries from and after the issuance of the Press Release without the
express prior written consent of such Buyer. In the event of a breach of any of
the foregoing covenants or any of the covenants contained in Section 4(n) by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents (as determined in the reasonable good faith
judgment of such Buyer), in addition to any other remedy provided herein or in
the Transaction Documents, such Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, non-public information without the prior approval by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Buyer shall have any liability to the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents, for any such disclosure. Subject
to the foregoing, neither the Company, its Subsidiaries nor any Buyer shall
issue any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions (A) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (B) as is
required by applicable law and regulations (provided that in the case of clause
(A) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release). Without the
prior written consent of the applicable Buyer, the Company shall not (and shall
cause each of its Subsidiaries and affiliates to not) disclose the name of such
Buyer in any filing (other than the 8-K Filing), announcement, release or
otherwise. Notwithstanding anything contained in this Agreement to the contrary
and without implication that the contrary would otherwise be true, the Company
expressly acknowledges and agrees that no Buyer has had, and no Buyer shall have
(unless expressly agreed to by a particular Buyer after the date hereof in a
written definitive and binding agreement executed by the Company and such
particular Buyer (it being understood and agreed that no Buyer may bind any
other Buyer with respect thereto)), any duty of confidentiality with respect to,
or a duty not to trade on the basis of, any information regarding the Company or
any of its Subsidiaries.

     

    
      
         

      

      
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    (j)           Additional Issuance of
Securities. The
Company agrees that for the period commencing on the date hereof and ending on
the date immediately following the sixty (60) Trading Day anniversary of the
Closing Date (provided that such period shall be extended by the number of
Trading Days during such period and any extension thereof contemplated by this
proviso on which the Registration Statement is not effective or any prospectus
contained therein is not available for use) (the “Restricted Period”), neither the Company
nor any of its Subsidiaries shall directly or indirectly issue, offer, sell,
grant any option or right to purchase, or otherwise dispose of (or announce any
issuance, offer, sale, grant of any option or right to purchase or other
disposition of) any equity security or any equity-linked or related security
(including, without limitation, any “equity security” (as that term is defined
under Rule 405 promulgated under the 1933 Act), any Convertible Securities, any
preferred stock or any purchase rights) (any such issuance, offer, sale, grant,
disposition or announcement (whether occurring during the Restricted Period or
at any time thereafter) is referred to as a “Subsequent Placement”).
Notwithstanding the foregoing, this Section 4(j) shall not apply in respect of
the issuance of (i) shares of Common Stock or standard options to purchase
Common Stock to directors, officers, employees or consultants of the Company or
any of its Subsidiaries in their capacity as such pursuant to an Approved Share
Plan (as defined below) (it being expressly understood and agreed that lawyers,
law firms, accountants, accounting firms and other similar professional advisors
and professional advisory firms are not consultants), provided that (A) all such
issuances (taking into account the shares of Common Stock issuable upon exercise
of such options) after the date hereof pursuant to this clause (i) do not, in
the aggregate, exceed more than 1,218,341 shares of Common Stock (adjusted for
stock splits, stock combinations and other similar transactions) and (B) the
exercise price of any such options is not lowered, none of such options are
amended to increase the number of shares issuable thereunder and none of the
terms or conditions of any such options are otherwise materially changed in any
manner that adversely affects any of the Buyers; (ii) shares of Common Stock
issued upon the conversion or exercise of Convertible Securities (other than
standard options to purchase Common Stock issued pursuant to an Approved Share
Plan that are covered by clause (i) above) issued prior to the date hereof,
provided that the conversion price of any such Convertible Securities (other
than standard options to purchase Common Stock issued pursuant to an Approved
Share Plan that are covered by clause (i) above) is not lowered, none of such
Convertible Securities (other than standard options to purchase Common Stock
issued pursuant to an Approved Share Plan that are covered by clause (i) above)
are amended to increase the number of shares issuable thereunder and none of the
terms or conditions of any such Convertible Securities (other than standard
options to purchase Common Stock issued pursuant to an Approved Share Plan that
are covered by clause (i) above) are otherwise materially changed in any manner
that adversely affects any of the Buyers; (iii) shares of Common Stock issued
pursuant to a bona fide firm commitment underwritten public offering with a
nationally recognized underwriter that generates gross proceeds to the Company
in excess of $25,000,000 (but expressly excluding “at-the-market offerings” (as
defined in Rule 415(a)(4) under the 1933 Act) and “equity lines of credit”);
(iv) shares of Common Stock issued in connection with strategic alliances,
strategic mergers and acquisitions and strategic partnerships, provided that (A)
the primary purpose of such issuance is not to raise capital as determined in
good faith by the Buyers, (B) the purchaser or acquirer of such shares of Common
Stock in such issuance solely consists of either (1) the actual participants in
such strategic alliance or strategic partnership, (2) the actual owners of such
assets or securities acquired in such merger or acquisition or (3) the
stockholders, partners or members of the foregoing Persons, (C) the number or
amount (as the case may be) of such shares of Common Stock issued to such Person
by the Company shall not be disproportionate to such Person’s actual
participation in such strategic alliance or strategic partnership or ownership
of such assets or securities to be acquired by the Company (as applicable) and
(D) all such issuances of Common Stock after the date hereof pursuant to this
clause (iv) do not, in the aggregate, exceed more than 2,436,682 shares of
Common Stock (adjusted for stock splits, stock combinations and other similar
transactions); (v) standard warrants to purchase Common Stock and the shares of
Common Stock issuable upon exercise of such warrants issued solely to placement
agents solely as compensation for services rendered to the Company in their
capacity as such in connection with a Subsequent Placement,  provided
that (A) all such issuances (taking into account the shares of Common Stock
issuable upon exercise of such warrants) after the date hereof pursuant to this
clause (i) do not, in the aggregate, exceed more than 1,218,341 shares of Common
Stock (adjusted for stock splits, stock combinations and other similar
transactions), (B) the exercise price of any such warrants is not lower than the
Exercise Price (as defined in the Warrants) and (C) the exercise price of any
such warrants is not lowered, none of such warrants are amended to increase the
number of shares issuable thereunder and none of the terms or conditions of any
such warrants are otherwise materially changed in any manner that adversely
affects any of the Buyers; (vi) the Common Shares, (vii) the Warrants and (viii)
the Warrant Shares (each of the foregoing in clauses (i) through (viii),
collectively the “Excluded
Securities”). “Approved
Share Plan” means any employee benefit plan which has been approved by
the board of directors of the Company prior to or subsequent to the date hereof
pursuant to which shares of Common Stock and standard options to purchase Common
Stock may be issued to any employee, officer, director or consultant for
services provided to the Company or any of its Subsidiaries in their capacity as
such. “Convertible
Securities” means any capital stock or other security of the Company or
any of its Subsidiaries that is at any time and under any circumstances directly
or indirectly convertible into, exercisable or exchangeable for, or which
otherwise entitles the holder thereof to acquire, any capital stock or other
security of the Company (including, without limitation, Common Stock) or any of
its Subsidiaries.

     

    
      
         

      

      
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    (k)          Reservation of
Shares. So long
as any of the Warrants remain outstanding, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 100% of the maximum number of shares of Common Stock
issuable upon exercise of all the Warrants (without regard to any limitations on
the exercise of the Warrants set forth therein).

     

    (l)           Conduct of
Business.  The
business of the Company and its Subsidiaries shall not be conducted in violation
of any law, ordinance or regulation of any governmental entity, except where
such violations would not result, either individually or in the aggregate, in a
Material Adverse Effect.

     

    (m)         Variable Rate
Transaction. From the date hereof through the one (1) year anniversary of
the Closing Date, the Company and each Subsidiary shall be prohibited from
effecting or entering into an agreement to effect any Subsequent Placement
involving a Variable Rate Transaction. “Variable Rate Transaction”
means a transaction in which the Company or any Subsidiary (i) issues or sells
any Convertible Securities either (A) at a conversion, exercise or exchange rate
or other price that is based upon and/or varies with the trading prices of, or
quotations for, the shares of Common Stock at any time after the initial
issuance of such Convertible Securities, or (B) with a conversion, exercise or
exchange price that is subject to being reset at some future date after the
initial issuance of such Convertible Securities or upon the occurrence of
specified or contingent events directly or indirectly related to the business of
the Company or the market for the Common Stock, other than pursuant to a
customary “weighted average” anti-dilution provision or (ii) enters into any
agreement (including, without limitation, an “equity line of credit” or an
“at-the-market offering”) whereby the Company or any Subsidiary may sell
securities at a future determined price (other than standard and customary
“preemptive” or “participation” rights). Each Buyer shall be entitled to obtain
injunctive relief against the Company and its Subsidiaries to preclude any such
issuance, which remedy shall be in addition to any right to collect
damages.

     

    
      
         

      

      
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    (n)          Participation Right.
From the date hereof through the one (1) year anniversary of the Closing Date,
neither the Company nor any of its Subsidiaries shall, directly or indirectly,
effect any Subsequent Placement unless the Company shall have first complied
with this Section 4(n). The Company acknowledges and agrees that the right set
forth in this Section 4(n) is a right granted by the Company, separately, to
each Buyer.

     

    (i)           At
least five (5) Trading Days prior to any proposed or intended Subsequent
Placement, the Company shall deliver to each Buyer a written notice of its
proposal or intention to effect a Subsequent Placement (each such notice, a
“Pre-Notice”), which
Pre-Notice shall not contain any information (including, without limitation,
material, non-public information) other than: (A) a statement that the Company
proposes or intends to effect a Subsequent Placement, (B) a statement that the
statement in clause (A) above does not constitute material, non-public
information and (iii) a statement informing such Buyer that it is entitled to
receive an Offer Notice (as defined below) with respect to such Subsequent
Placement upon its written request. Upon the written request of a Buyer
within three (3) Trading Days after the Company’s delivery to such Buyer of such
Pre-Notice, and only upon a written request by such Buyer, the Company shall
promptly, but no later than one (1) Trading Day after such request, deliver to
such Buyer an irrevocable written notice (the “Offer Notice”) of any proposed
or intended issuance or sale or exchange (the “Offer”) of the securities
being offered (the “Offered
Securities”) in a Subsequent Placement, which Offer Notice shall (1)
identify and describe the Offered Securities, (2) describe the price and other
terms upon which they are to be issued, sold or exchanged, and the number or
amount of the Offered Securities to be issued, sold or exchanged, (3) identify
the Persons (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (4) offer to issue and sell to or
exchange with such Buyer in accordance with the terms of the Offer fifty percent
(50%) of the Offered Securities, provided that the number of Offered Securities
which such Buyer shall have the right to subscribe for under this Section 4(n)
shall be (a) based on such Buyer’s pro rata portion of the aggregate number of
Common Shares purchased hereunder by all Buyers (the “Basic Amount”), and (b) with
respect to each Buyer that elects to purchase its Basic Amount, any additional
portion of the Offered Securities attributable to the Basic Amounts of other
Buyers as such Buyer shall indicate it will purchase or acquire should the other
Buyers subscribe for less than their Basic Amounts (the “Undersubscription
Amount”).

    

    (ii)           To
accept an Offer, in whole or in part, such Buyer must deliver a written notice
to the Company prior to the end of the fifth (5th)
Business Day after such Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth
the portion of such Buyer’s Basic Amount that such Buyer elects to purchase and,
if such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either
case, the “Notice of
Acceptance”). If the Basic Amounts subscribed for by all Buyers are less
than the total of all of the Basic Amounts, then such Buyer who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be entitled to
purchase, in addition to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, if the Undersubscription
Amounts subscribed for exceed the difference between the total of all the Basic
Amounts and the Basic Amounts subscribed for (the “Available Undersubscription
Amount”), such Buyer who has subscribed for any Undersubscription Amount
shall be entitled to purchase only that portion of the Available
Undersubscription Amount as the Basic Amount of such Buyer bears to the total
Basic Amounts of all Buyers that have subscribed for Undersubscription Amounts,
subject to rounding by the Company to the extent it deems reasonably necessary.
Notwithstanding the foregoing, if the Company desires to modify or amend the
terms and conditions of the Offer prior to the expiration of the Offer Period,
the Company may deliver to each Buyer a new Offer Notice and the Offer Period
shall expire on the fifth (5th)
Business Day after such Buyer’s receipt of such new Offer
Notice.

    
      
         

      

      
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    (iii)         The
Company shall have five (5) days from the expiration of the Offer Period above
(A) to offer, issue, sell or exchange all or any part of such Offered Securities
as to which a Notice of Acceptance has not been given by a Buyer (the “Refused Securities”) pursuant
to a definitive agreement(s) (the “Subsequent Placement
Agreement”), but only to the offerees described in the Offer Notice (if
so described therein) and only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more favorable to the
acquiring Person or Persons or less favorable to the Company than those set
forth in the Offer Notice and (B) to publicly announce (1) the execution of such
Subsequent Placement Agreement, and (2) either (a) the consummation of the
transactions contemplated by such Subsequent Placement Agreement or (b) the
termination of such Subsequent Placement Agreement, which shall be filed with
the SEC on a Current Report on Form 8-K with such Subsequent Placement Agreement
and any documents contemplated therein filed as exhibits thereto.

    

    (iv)         In
the event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section
4(n)(iii) above), then such Buyer may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified in
its Notice of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that such Buyer elected to purchase pursuant to
Section 4(n)(ii) above multiplied by a fraction, (A) the numerator of which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Buyers pursuant to this Section 4(n) prior to such reduction) and (B)
the denominator of which shall be the original amount of the Offered Securities.
In the event that any Buyer so elects to reduce the number or amount of Offered
Securities specified in its Notice of Acceptance, the Company may not issue,
sell or exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been offered to the
Buyers in accordance with Section 4(n)(i) above.

    

    (v)          Upon
the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, such Buyer shall acquire from the Company, and the Company
shall issue to such Buyer, the number or amount of Offered Securities specified
in its Notice of Acceptance. The purchase by such Buyer of any Offered
Securities is subject in all cases to the preparation, execution and delivery by
the Company and such Buyer of a separate purchase agreement relating to such
Offered Securities reasonably satisfactory in form and substance to such Buyer
and its counsel.

    
      
         

      

      
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    (vi)         Any
Offered Securities not acquired by a Buyer or other Persons in accordance with
this Section 4(n) may not be issued, sold or exchanged until they are again
offered to such  Buyer under the procedures specified in this
Agreement.

    

    (vii)        The
Company and each Buyer agree that if any Buyer elects to participate in the
Offer, neither the Subsequent Placement Agreement with respect to such Offer nor
any other transaction documents related thereto (collectively, the “Subsequent Placement
Documents”) shall include any term or provision whereby such Buyer shall
be required to agree to any restrictions on trading as to any securities of the
Company or be required to consent to any amendment to or termination of, or
grant any waiver, release or the like under or in connection with, any agreement
previously entered into with the Company or any instrument received from the
Company.

    

    (viii)       Notwithstanding
anything to the contrary in this Section 4(n) and unless otherwise agreed to by
such Buyer, the Company shall either confirm in writing to such Buyer that the
transaction with respect to the Subsequent Placement has been abandoned or shall
publicly disclose its intention to issue the Offered Securities, in either case
in such a manner such that such Buyer will not be in possession of any material,
non-public information, by the fifth (5th)
Business Day following delivery of the Offer Notice. If by such fifth (5th)
Business Day, no public disclosure regarding a transaction with respect to the
Offered Securities has been made, and no notice regarding the abandonment of
such transaction has been received by such Buyer, such transaction shall be
deemed to have been abandoned and such Buyer shall not be in possession of any
material, non-public information with respect to the Company or any of its
Subsidiaries. Should the Company decide to pursue such transaction with respect
to the Offered Securities, the Company shall provide such Buyer with another
Offer Notice in accordance with, and subject to, the terms of this Section 4(n)
and such Buyer will again have the right of participation set forth in this
Section 4(n). The Company shall not be permitted to deliver more than one Offer
Notice to such Buyer in any sixty (60) day period, except as expressly
contemplated by the last sentence of Section 4(n)(ii).

     

    (ix)          The
restrictions contained in this Section 4(n) shall not apply in connection with
the issuance of any Excluded Securities. The Company shall not circumvent the
provisions of this Section 4(n) by providing terms or conditions to one Buyer
that are not provided to all.

     

    (o)         Passive Foreign Investment
Company. The Company shall conduct its business in such a manner as will
ensure that the Company will not be deemed to constitute a passive foreign
investment company within the meaning of Section 1297 of the U.S. Internal
Revenue Code of 1986, as amended.

     

    
      	
              5.

            	
              REGISTER;
      TRANSFER AGENT INSTRUCTIONS;
LEGEND.

            

    

     

    (a)         Register. The
Company shall maintain at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to each holder of
Securities), a register for the Common Shares and the Warrants in which the
Company shall record the name and address of the Person in whose name the Common
Shares and the
Warrants have been issued (including the name and address of each transferee),
the number of Common Shares held by such Person and the number of Warrant Shares
issuable upon exercise of the Warrants held by such Person. The Company shall
keep the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.

     

    
      
         

      

      
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    (b)         Transfer Agent
Instructions. The
Company shall issue irrevocable instructions to the Transfer Agent in the form
previously provided to the Company (the “Irrevocable Transfer Agent
Instructions”) to issue certificates or credit shares to the applicable
balance accounts at DTC, registered in the name of each Buyer or its respective
nominee(s), for the Common Shares and the Warrant Shares in such amounts as
specified from time to time by each Buyer to the Company upon delivery of the
Common Shares or the exercise of the Warrants (as the case may be). The Company
represents and warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5(b) will be given by the Company
to the Transfer Agent with respect to the Securities, and that the Securities
shall otherwise be freely transferable on the books and records of the Company.
If a Buyer effects a sale, assignment or transfer of the Securities, the Company
shall permit the transfer and shall promptly instruct the Transfer Agent to
issue one or more certificates or credit shares to the applicable balance
accounts at DTC in such name and in such denominations as specified by such
Buyer to effect such sale, transfer or assignment. The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to each
Buyer. Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations under this Section 5(b) will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of this
Section 5(b), that each Buyer shall be entitled, in addition to all other
available remedies, to an order and/or injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being
required.

     

    (c)          Legends.
Certificates and any other instruments evidencing the Securities shall not bear
any restrictive or other legend.

     

    
      	
              6.

            	
              ADDITIONAL
      CLOSING DELIVERIES OF THE COMPANY.

            

    

     

    (a) 
        Deliveries. The
Company shall deliver to each Buyer on the Closing Date each of the
following:

     

    (i)         
 The opinion of K&L Gates LLP, the
Company’s counsel, dated as of the Closing Date, in the form previously provided
to the Company.

     

    (ii)        
 A copy of the Irrevocable Transfer Agent Instructions, in the form
previously provided to the Company, that have been delivered to and acknowledged
in writing by the Transfer Agent.

     

    (iii)       
 A certificate evidencing the formation and good standing of the Company
and each of its Subsidiaries in each such entity’s jurisdiction of formation
issued by the Secretary of State (or comparable office) of such jurisdiction of
formation as of a date within ten (10) days of the Closing Date.

     

    (iv)   
    A certificate evidencing the Company’s qualification as
a foreign corporation and good standing issued by the Secretary of State (or
comparable office) of each jurisdiction in which the Company conducts business
and is required to so qualify, as of a date within ten (10) days of the Closing
Date.

     

    
      
         

      

      
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    (v)        
 A certified copy of the Certificate of Incorporation as certified by the
Secretary of State of the Company’s jurisdiction of formation within ten (10)
days of the Closing Date.

     

    (vi)       
 A certificate, in the form previously provided to the Company, executed by
an officer of the Company and dated as of the Closing Date, as to (i) the
resolutions consistent with Section 3(b) as adopted by the Company’s board of
directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of
Incorporation and (iii) the Bylaws, each as in effect at the
Closing.

     

    (vii)      
 A letter from the Transfer Agent certifying the number of shares of Common
Stock outstanding on the Closing Date immediately prior to the
Closing.

     

    (viii)     
 Such other documents, instruments or certificates relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may
reasonably request.

     

    
      	
              7.

            	
              TERMINATION.

            

    

     

    In the
event that the Closing shall not have occurred with respect to a Buyer within
five (5) days after the date hereof, then such Buyer shall have the right to
terminate its obligations under this Agreement with respect to itself at any
time on or after the close of business on such date without liability of such
Buyer to any other party; provided, however, (a) the right to terminate this
Agreement under this Section 7 shall not be available to such Buyer if the
failure of the transactions contemplated by this Agreement to have been
consummated by such date is the result of such Buyer’s breach of this Agreement
and (b) the abandonment of the sale and purchase of the Common Shares and the
Warrants shall be applicable only to such Buyer providing such written notice,
provided further that no such termination shall affect any obligation of the
Company under this Agreement to reimburse such Buyer for the expenses described
in Section 4(g) above. Nothing contained in this Section 7 shall be deemed to
release any party from any liability for any breach by such party of the terms
and provisions of this Agreement or the other Transaction Documents or to impair
the right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction
Documents.

    
      
         

      

      
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              8.

            	
              MISCELLANEOUS.

            

    

     

    (a)          Governing Law; Jurisdiction;
Jury Trial. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement and the other Transaction Documents shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdiction other than the State of New York. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
The City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or under any of the other Transaction Documents or in connection
herewith or therewith or with any transaction contemplated hereby or thereby or
discussed herein or therein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Nothing contained herein shall be deemed or operate to
preclude any Buyer from bringing suit or taking other legal action against the
Company in any other jurisdiction to collect on the Company’s obligations to
such Buyer or to enforce a judgment or other court ruling in favor of such
Buyer. The Company hereby appoints CT Corporation System, with offices at 111
Eighth Avenue, New York, New York 10011, as its agent for service of process in
New York.  Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

     

    (b)         Counterparts. This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party. In
the event that any signature is delivered by facsimile transmission or by an
e-mail which contains a portable document format (.pdf) file of an executed
signature page, such signature page shall create a valid and binding obligation
of the party executing (or on whose behalf such signature is executed) with the
same force and effect as if such signature page were an original
thereof.

     

    (c)         Headings;
Gender. The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement. Unless the context
clearly indicates otherwise, each pronoun herein shall be deemed to include the
masculine, feminine, neuter, singular and plural forms thereof. The terms
“including,” “includes,” “include” and words of like import shall be construed
broadly as if followed by the words “without limitation.”  The terms
“herein,” “hereunder,” “hereof” and words of like import refer to this entire
Agreement instead of just the provision in which they are found.

     

    (d)         Severability. If any
provision of this Agreement is prohibited by law or otherwise determined to be
invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of this Agreement so long as this Agreement
as so modified continues to express, without material change, the original
intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties. The parties will endeavor in good faith negotiations
to replace the prohibited, invalid or unenforceable provision(s) with a valid
provision(s), the effect of which comes as close as possible to that of the
prohibited, invalid or unenforceable provision(s).

     

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

     

    (e)          Entire Agreement;
Amendments. This
Agreement, the other Transaction Documents and the schedules and exhibits
attached hereto and thereto and the instruments referenced herein and therein
supersede all other prior oral or written agreements between the Buyers, the
Company, their affiliates and Persons acting on their behalf solely with respect
to the matters contained herein and therein, and this Agreement, the other
Transaction Documents, the schedules and exhibits attached hereto and thereto
and the instruments referenced herein and therein contain the entire
understanding of the parties solely with respect to the matters covered herein
and therein; provided, however, nothing contained in this Agreement or any other
Transaction Document shall (or shall be deemed to) (i) have any effect on any
agreements any Buyer has entered into with the Company or any of its
Subsidiaries prior to the date hereof with respect to any prior investment made
by such Buyer in the Company or (ii) waive, alter, modify or amend in any
respect any obligations of the Company or any of its Subsidiaries, or any rights
of or benefits to any Buyer or any other Person, in any agreement entered into
prior to the date hereof between or among the Company and/or any of its
Subsidiaries and any Buyer and all such agreements shall continue in full force
and effect (except that Section 4(n) hereof supersedes in its entirety Section
4(n) of that certain Securities Purchase Agreement, dated as of January 20,
2010, by and among the Company and the other parties thereto (the “January Purchase Agreement”)).
Except as specifically set forth herein or therein, neither the Company nor any
Buyer makes any representation, warranty, covenant or undertaking with respect
to such matters. For clarification purposes, the Recitals are part of this
Agreement. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and each of the Buyers. No waiver
shall be effective unless it is in writing and signed by an authorized
representative of the waiving party. No consideration shall be offered or paid
to any Person to amend or consent to a waiver or modification of any provision
of any of the Transaction Documents unless the same consideration also is
offered to all of the parties to the Transaction Documents, all holders of
Common Shares or all holders of the Warrants (as the case may be). The Company
has not, directly or indirectly, made any agreements with any Buyers relating to
the terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents. Without limiting the
foregoing, the Company confirms that, except as set forth in this Agreement, no
Buyer has made any commitment or promise or has any other obligation to provide
any financing to the Company, any Subsidiary or otherwise. As a material
inducement for each Buyer to enter into this Agreement, the Company expressly
acknowledges and agrees that (A) no due diligence or other investigation or
inquiry conducted by a Buyer, any of its advisors or any of its representatives
shall affect such Buyer’s right to rely on, or shall modify or qualify in any
manner or be an exception to any of, the Company’s representations and
warranties contained in this Agreement or any other Transaction Document, (B)
nothing contained in the Registration Statement, the Prospectus or the
Prospectus Supplement shall affect such Buyer’s right to rely on, or shall
modify or qualify in any manner or be an exception to any of, the Company’s
representations and warranties contained in this Agreement or any other
Transaction Document and (C) unless a provision of this Agreement or any other
Transaction Document is expressly preceded by the phrase “except as disclosed in
the SEC Documents,” nothing contained in any of the SEC Documents shall affect
such Buyer’s right to rely on, or shall modify or qualify in any manner or be an
exception to any of, the Company’s representations and warranties contained in
this Agreement or any other Transaction Document.

     

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

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

     

    If to the
Company:

     

    Kandi
Technologies, Corp.

    Jinhua
City Industrial Zone

    Jinhua,
Zhejiang Province

    People’s
Republic of China

    Post Code
321016

    Telephone:  (86-0579)
82239851

    Facsimile:  (86-0579)
82239855

    Attention:  Chief
Executive Officer

     

    With a
copy (for informational purposes only) to:

     

    K&L
Gates LLP

    599
Lexington Ave.

    New York,
NY 10022

    Telephone:  (212)
536-3900

    Facsimile:  (212)
536-3901

    Attention:  Robert
S. Matlin, Esq.

     

    If to the
Transfer Agent:

     

    Corporate
Stock Transfer

    3200
Cherry Creek Dr. South

    Suite
430

    Denver,
CO  80209

    Facsimile:  (303)
282-5800

    Attention:  Carylyn
Bell

    

    If to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
with copies to such Buyer’s representatives as set forth on the Schedule of
Buyers,

     

    with a
copy (for informational purposes only) to:

     

    Greenberg
Traurig, LLP

    77 W.
Wacker Drive, Suite 3100

    Chicago,
Illinois 60601

    Telephone:  (312)
456-8400

    Facsimile:  (312)
456-8435

    Attention:  Peter
H. Lieberman, Esq.

    Todd A.
Mazur, Esq.

     

    
      
         

      

      
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    or to
such other address and/or facsimile number and/or to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change, provided
that Greenberg Traurig, LLP shall only be provided copies of notices sent to
Cranshire. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

     

    (g)          Successors and
Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including, as contemplated below, any
assignee of any of the Securities. The Company shall not assign this Agreement
or any rights or obligations hereunder without the prior written consent of each
of the Buyers, including, without limitation, by way of a Fundamental
Transaction (as defined in the Warrants) (unless the Company is in compliance
with the applicable provisions governing Fundamental Transactions set forth in
the Warrants). A Buyer may assign some or all of its rights hereunder in
connection with any transfer of any of its Securities without the consent of the
Company, in which event such assignee shall be deemed to be a Buyer hereunder
with respect to such assigned rights.

     

    (h)          No Third Party
Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, other than the Indemnitees
referred to in Section 8(k).

     

    (i)           Survival. The
representations, warranties, agreements and covenants shall survive the Closing.
Each Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.

     

    (j)           Further
Assurances. Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as any other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.

     

    
      
         

      

      
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    (k)          Indemnification.

     

    (i)    
      In consideration of each Buyer’s execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company’s other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Buyer and each holder of any Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing Persons’ agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against
any and all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees
and disbursements (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to (A)
any misrepresentation or breach of any representation or warranty made by the
Company in any of the Transaction Documents, (B) any breach of any covenant,
agreement or obligation of the Company contained in any of the Transaction
Documents or (C) any cause of action, suit or claim brought or made against such
Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company) and arising out of or resulting from (1) the
execution, delivery, performance or enforcement of any of the Transaction
Documents, (2) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Securities, (3)
any disclosure properly made by such Buyer pursuant to Section 4(i), or (4) the
status of such Buyer or holder of the Securities as an investor in the Company
pursuant to the transactions contemplated by the Transaction Documents. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.

     

    (ii)           Promptly
after receipt by an Indemnitee under this Section 8(k) of notice of the
commencement of any action or proceeding (including any governmental action or
proceeding) involving an Indemnified Liability, such Indemnitee shall, if a
claim in respect thereof is to be made against the Company under this Section
8(k), deliver to the Company a written notice of the commencement thereof, and
the Company shall have the right to participate in, and, to the extent the
Company so desires, to assume control of the defense thereof with counsel
mutually satisfactory to the Company and the Indemnitee; provided, however, that
an Indemnitee shall have the right to retain its own counsel with the fees and
expenses of such counsel to be paid by the Company if: (A) the Company has
agreed in writing to pay such fees and expenses; (B) the Company shall have
failed promptly to assume the defense of such Indemnified Liability and to
employ counsel reasonably satisfactory to such Indemnitee in any such
Indemnified Liability; or (C) the named parties to any such Indemnified
Liability (including any impleaded parties) include both such Indemnitee and the
Company, and such Indemnitee shall have been advised by counsel that a conflict
of interest is likely to exist if the same counsel were to represent such
Indemnitee and the Company (in which case, if such Indemnitee notifies the
Company in writing that it elects to employ separate counsel at the expense of
the Company, then the Company shall not have the right to assume the defense
thereof and such counsel shall be at the expense of the Company), provided
further, that in the case of clause (C) above the Company shall not be
responsible for the reasonable fees and expenses of more than one (1) separate
legal counsel for the Indemnitees. The Indemnitee shall reasonably cooperate
with the Company in connection with any negotiation or defense of any such
action or Indemnified Liability by the Company and shall furnish to the Company
all information reasonably available to the Indemnitee which relates to such
action or Indemnified Liability. The Company shall keep the Indemnitee
reasonably apprised at all times as to the status of the defense or any
settlement negotiations with respect thereto. The Company shall not be liable
for any settlement of any action, claim or proceeding effected without its prior
written consent, provided, however, that the Company shall not unreasonably
withhold, delay or condition its consent. The Company shall not, without the
prior written consent of the Indemnitee, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all liability in respect to such Indemnified
Liability or litigation, and such settlement shall not include any admission as
to fault on the part of the Indemnitee. Following indemnification as provided
for hereunder, the Company shall be subrogated to all rights of the Indemnitee
with respect to all third parties, firms or corporations relating to the matter
for which indemnification has been made. The failure to deliver written notice
to the Company within a reasonable time of the commencement of any such action
shall not relieve the Company of any liability to the Indemnitee under this
Section 8(k), except to the extent that the Company is materially and adversely
prejudiced in its ability to defend such action.

     

    
      
         

      

      
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    (iii)         The
indemnification required by this Section 8(k) shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, within
ten (10) days after bills are received or Indemnified Liabilities are
incurred.

     

    (iv)         The
indemnity agreement contained herein shall be in addition to (A) any cause of
action or similar right of the Indemnitee against the Company or others, and (B)
any liabilities the Company may be subject to pursuant to the law.

     

    (l)           Construction. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party. No specific representation or warranty shall limit
the generality or applicability of a more general representation or warranty.
Each and every reference to share prices, shares of Common Stock and any other
numbers in this Agreement that relate to the Common Stock shall be automatically
adjusted for stock splits, stock dividends, stock combinations and other similar
transactions that occur with respect to the Common Stock after the date of this
Agreement.

     

    (m)         Remedies.  Each
Buyer and each holder of any Securities shall have all rights and remedies set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law. Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or all of
its obligations under the Transaction Documents, any remedy at law may prove to
be inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek specific performance and/or temporary, preliminary and
permanent injunctive or other equitable relief from any court of competent
jurisdiction in any such case without the necessity of proving actual damages
and without posting a bond or other security.

     

    (n)          Withdrawal
Right.
Notwithstanding anything to the contrary contained in (and without limiting any
similar provisions of) the Transaction Documents, whenever any Buyer exercises a
right, election, demand or option under a Transaction Document and the Company
does not timely perform its related obligations within the periods therein
provided, then such Buyer may rescind or withdraw, in its sole discretion from
time to time upon written notice to the Company, any relevant notice, demand or
election in whole or in part without prejudice to its future actions and
rights.

     

    
      
         

      

      
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    (o)         Payment Set Aside;
Currency. To the
extent that the Company makes a payment or payments to any Buyer hereunder or
pursuant to any of the other Transaction Documents or any of the Buyers enforce
or exercise their rights hereunder or thereunder, and such payment or payments
or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, foreign, state or federal
law, common law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment
had not been made or such enforcement or setoff had not occurred. Until the
Warrants are no longer outstanding, the Company shall not effect any stock
combination, reverse stock split or other similar transaction (or make any
public announcement or disclosure with respect to any of the foregoing) without
the prior written consent of each of the Buyers, such consent not to be
unreasonably withheld, conditioned or delayed. Unless otherwise expressly
indicated, all dollar amounts referred to in this Agreement and the other
Transaction Documents are in United States Dollars (“U.S. Dollars”), and all amounts
owing under this Agreement and all other Transaction Documents shall be paid in
U.S. Dollars. All amounts denominated in other currencies (if any) shall be
converted into the U.S. Dollar equivalent amount in accordance with the Exchange
Rate on the date of calculation. “Exchange Rate” means, in relation to
any amount of currency to be converted into U.S. Dollars pursuant to this
Agreement, the U.S. Dollar exchange rate as published in the Wall Street Journal
on the relevant date of calculation.

     

    (p)         Independent Nature of
Buyers’ Obligations and Rights.  The
obligations of each Buyer under the Transaction Documents are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document.  Nothing contained herein or in any other
Transaction Document, and no action taken by any Buyer pursuant hereto or
thereto, shall be deemed to constitute the Buyers as, and the Company
acknowledges that the Buyers do not so constitute, a partnership, an
association, a joint venture or any other kind of group or entity, or create a
presumption that the Buyers are in any way acting in concert or as a group or
entity with respect to such obligations or the transactions contemplated by the
Transaction Documents or any matters, and the Company acknowledges that the
Buyers are not acting in concert or as a group, and the Company shall not assert
any such claim, with respect to such obligations or the transactions
contemplated by the Transaction Documents. The decision of each Buyer to
purchase Securities pursuant to the Transaction Documents has been made by such
Buyer independently of any other Buyer. Each Buyer acknowledges that no other
Buyer has acted as agent for such Buyer in connection with such Buyer making its
investment hereunder and that no other Buyer will be acting as agent of such
Buyer in connection with monitoring such Buyer’s investment in the Securities or
enforcing its rights under the Transaction Documents. The Company and each Buyer
confirms that each Buyer has independently participated with the Company in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.  The use of a single agreement to
effectuate the purchase and sale of the Securities contemplated hereby was
solely in the control of the Company, not the action or decision of any Buyer,
and was done solely for the convenience of the Company and not because it was
required or requested to do so by any Buyer.  It is expressly
understood and agreed that each provision contained in this Agreement and in
each other Transaction Document is between the Company and a Buyer, solely, and
not between the Company and the Buyers collectively and not between and among
the Buyers.

     

    
      
         

      

      
        34

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              (q)

            	
              Judgment
      Currency.

            

    

     

    (i)           If
for the purpose of obtaining or enforcing judgment against the Company in any
court in any jurisdiction it becomes necessary to convert into any other
currency (such other currency being hereinafter in this Section 8(q) referred to
as the “Judgment
Currency”) an amount due in U.S. Dollars under this Agreement or any
other Transaction Document, the conversion shall be made at the Exchange Rate
prevailing on the Trading Day immediately preceding: (A) the date actual payment
of the amount due, in the case of any proceeding in the courts of New York or in
the courts of any other jurisdiction that will give effect to such conversion
being made on such date or (B) the date on which the foreign court determines,
in the case of any proceeding in the courts of any other jurisdiction (the date
as of which such conversion is made pursuant to this Section 8(q)(i) being
hereinafter referred to as the “Judgment Conversion
Date”).

     

    (ii)          If
in the case of any proceeding in the court of any jurisdiction referred to in
Section 8(q)(i) above, there is a change in the Exchange Rate prevailing between
the Judgment Conversion Date and the date of actual payment of the amount due,
the applicable party shall pay such adjusted amount as may be necessary to
ensure that the amount paid in the Judgment Currency, when converted at the
Exchange Rate prevailing on the date of payment, will produce the amount of U.S.
Dollars which could have been purchased with the amount of Judgment Currency
stipulated in the judgment or judicial order at the Exchange Rate prevailing on
the Judgment Conversion Date.

     

    (iii)         Any
amount due from the Company under this provision shall be due as a separate debt
and shall not be affected by judgment being obtained for any other amounts due
under or in respect of this Agreement or any other Transaction
Document.

     

    [signature pages
follow]

    
      
         

      

      
        35

        
          

        

      

      
         

      

    

    IN WITNESS WHEREOF, Buyer and
the Company have caused their respective signature page to this Agreement to be
duly executed as of the date first written above.

    

    
      
        
          
            	
                    COMPANY:

                  
	 
      
	
                    KANDI
      TECHNOLOGIES, CORP.

                  
	 
      
	
                    By:

                  	 
      
	 
      	
                    Name:

                  	 
      	 
      
	 
      	
                    Title:EXHIBIT
10.1

    FORM
OF

    ESCROW
AGREEMENT

    

    THIS
ESCROW AGREEMENT is made and entered into as of the day of ___________, 20__, by
and among FIRST SECURITY BANK, N.A., a national banking association (the “Bank”); Crown
Exploration Partners, Ltd., a Texas limited partnership (the “Managing General
Partner”), and the Managing General Partner of Crown Exploration Fund I,
L.P., a limited partnership to be formed under the laws of Texas (the “Partnership”); and
TEXAS SECURITIES, INC., a Texas corporation and the broker dealer (the “Broker Dealer”) of
the proposed securities offering of units of the Partnership.

    

    I.  RECITALS

    

    1.1
            The Agreement.   The
Managing General Partner has prepared an offering prospectus (“Prospectus”) on
behalf of the Partnership pertaining to the offer and subscription for
partnership interest in the Partnership (“Units”) aggregating
$8,400,000, upon the terms and subject to the conditions set forth in the
Prospectus which, among other things, provides that each person desiring to
subscribe for Units will be required to forward to the Broker Dealer a check
payable to the order of “First Security Bank, N.A., Escrow Agent for Crown
Exploration Fund I, L.P.” in an amount equal to his subscription to the
Partnership.

    

    1.2
            Purpose Hereof.  
The Bank, the Managing General Partner (for itself and the Partnership) and the
Broker Dealer hereby enter into this Escrow Agreement.

    

    II. ESCROW PROVISIONS

    

    2.1
            Appointment of
Bank.   The Bank is hereby appointed Escrow Agent to hold and
dispose of all funds paid by subscribers (“Escrow Funds “) for
Units or reservations for such Units, as hereinafter provided.

    

    2.2           Deposit
and Receipt of Funds.

    

    (a)           The
Broker Dealer shall deposit all checks received by it in payment of
subscriptions in an escrow account entitled “First Security Bank, N.A., Escrow
Agent for Crown Exploration Fund I, L.P.,” established at the Bank, for the
purpose of this Escrow Agreement.  The Broker Dealer shall deposit
each check received by it in payment of subscriptions in the escrow account no
later than noon of the business day following the receipt of the
check.  Concurrently with the delivery of such deposits to the Bank,
the Broker Dealer shall supply the Bank and the Managing General Partner with
the name, mailing address and a completed Form W9/W8 for each subscriber. 
The Bank shall hold the proceeds of said checks (the “Escrow Funds”) in
escrow until disbursements therefrom are directed as set forth in Paragraph
2.4.

    

    (b)           The
Managing General Partner and Broker Dealer shall each execute and deliver to the
Escrow Agent a certificate of incumbency substantially in the form of Exhibit A hereto
for the purpose of establishing the identity of the representatives of the
Managing General Partner and Broker Dealer entitled to issue instructions or
directions to the Escrow Agent on behalf of each such party.  In the
event of any change in the identity of such representatives, a new certificate
of incumbency shall be executed and delivered to the Escrow Agent by the
appropriate party.  Until such time as the Escrow Agent shall receive
a new incumbency certificate, the Escrow Agent shall be fully protected in
relying without inquiry on any then current incumbency certificate on file with
the Escrow Agent.

    

    (c)           The
Managing General Partner, Partnership and Broker Dealer shall each furnish the
Escrow Agent with a completed Form W-8 or Form W-9, as applicable.

    

    2.3
            Investment of
Funds.   The Escrow Funds shall be invested only in short term
institutional investments including bank accounts, insured bank money market
accounts or certificates of deposit issued by a bank.  The interest
earned shall be added to the Escrow Funds and disbursed in accordance with the
provisions of Paragraph 2.4 or 2.10, as the case may be.

    

    2.4
            Disbursement of Escrow
Funds.   At such time as (i) checks representing subscriptions
for at least 40 Units ($1,000,000) shall have been deposited with the Bank,
without regard to Units subscribed for by the Managing General Partner or its
affiliates, and (ii) funds for at least $1,000,000 shall have been
collected by the Bank, upon receipt by the Bank of written instructions from the
Managing General Partner and the Broker Dealer informing the Bank of the date of
closing with respect to the Partnership, the Bank will deliver to the Managing
General Partner certified, or official bank or trust checks drawn on the Escrow
Funds to the orders and in the amounts set forth in the aforementioned
instructions.  The Bank shall not disburse any Escrow Funds to the
Partnership until at least $1,000,000 in collected funds have been deposited in
the Escrow Account.  All such disbursement instructions shall be
unconditional and shall not impose any duties upon the Bank other than that of
disbursing Escrow Funds in a designated amount to a particular
party.  In the event that any funds, including cleared funds but
excluding funds that are part of the initial $1,000,000 necessary for
disbursement, deposited in the Escrow Account prove uncollectible after the
funds represented thereby have been released by the Escrow Agent pursuant to
this Agreement, the Managing General Partner shall immediately reimburse the
Escrow Agent upon request for the face amount of such check or checks, together
with reasonable and customary charges and expenses related thereto, and the
Escrow Agent shall deliver the returned checks or other instruments to the
Managing General Partner.  The Managing General Partner acknowledges
that its obligation in the preceding sentence shall survive the termination of
this Agreement and the resignation or removal of the Escrow Agent.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    2.5
            Return of Escrow Funds to
Subscribers.   Before, at or following the closing, the
Managing General Partner may separately instruct the Bank in writing to return
to any subscriber so specified by the Managing General Partner an amount equal
to the total amount of Units subscribed for, together with interest attributable
thereto, if any, as calculated by the Managing General Partner.

    

    2.6
            Bank’s
Responsibility.   The Bank’s sole responsibility shall be for
the safekeeping of the Escrow Funds, the deposit of the Escrow Funds pursuant to
Paragraph 2.3 and the disbursement thereof in accordance with Paragraph 2.4, 2.5
or 2.10, and the Bank shall not be required to take any other action with
reference to any matters which might arise in connection with the Escrow Funds
or this Escrow Agreement.  The Bank may act upon any written
instruction or other instrument which the Bank in good faith believes to be
genuine and what it purports to be.  THE BANK SHALL NOT BE LIABLE FOR
ANY ACTION TAKEN BY IT IN GOOD FAITH AND BELIEVED TO BE AUTHORIZED OR WITHIN THE
RIGHTS OR POWERS CONFERRED UPON IT BY THIS ESCROW AGREEMENT OR FOR ANYTHING
WHICH THE BANK MAY DO OR REFRAIN FROM DOING IN CONNECTION HEREWITH UNLESS THE
BANK IS GUILTY OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.  IN NO EVENT
SHALL THE ESCROW AGENT BE LIABLE TO THE MANAGING GENERAL PARTNER, PARTNERSHIP OR
THE BROKER DEALER OR ANY THIRD PARTY FOR SPECIAL, INDIRECT, OR CONSEQUENTIAL
DAMAGES, OR LOST PROFITS OR LOSS OF BUSINESS ARISING UNDER OR IN CONNECTION WITH
THIS AGREEMENT.  The Bank may consult with counsel of its own choice
and shall have full and complete authorization and protection for any action
taken or suffered by it hereunder in good faith and in accordance with the
opinion of such counsel, except actions of gross negligence or willful
misconduct.  The Bank is not a party to, nor is it bound by, nor need
it give consideration to the terms or provisions of, even though it may have
knowledge of, (i) any agreement or undertaking between the Managing General
Partner and any other party or parties, except for this Escrow Agreement, (ii)
any agreement or undertaking which may be evidenced or disclosed by this Escrow
Agreement or the Prospectus, or (iii) any other agreement that may now or in the
future be deposited with the Bank in connection with this Escrow
Agreement.  The Bank has no duty to determine or inquire into any
happening or occurrence or any performance or failure of performance of the
Managing General Partner or any other party with respect to agreements or
arrangements with each other or with any other party or parties.  The
Bank shall have no responsibility or liability for any diminution in value of
any assets held hereunder which may result from any investments or reinvestment
made in accordance with any provision which may be contained
herein.  The Bank shall be under no obligation to invest the deposited
funds or the income generated thereby until it has received a Form W-9 or W-8,
as applicable, from the Managing General Partner, Partnership, Broker Dealer and
subscribers, regardless of whether such party is exempt from reporting or
withholding requirements under the Internal Revenue Code of 1986, as
amended.

    

    2.7
            Possible
Disagreements.   If any disagreement should arise between the
parties hereto or with any other party with respect to the Escrow Funds or this
Escrow Agreement or if the Bank in good faith is in doubt as to what action
should be taken hereunder, the Bank shall have the absolute right at its
election to do either or both of the following: (i) withhold or stop all further
performance under this Escrow Agreement and all instructions received in
connection herewith until the Bank is satisfied that such disagreement has been
resolved, or (ii) file a suit in interpleader and obtain an order from a court
of appropriate jurisdiction requiring all persons involved to litigate in such
court their respective claims arising out of or in connection with the Escrow
Funds.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    2.8
            Indemnity To Bank.  
THE MANAGING GENERAL PARTNER AND BROKER DEALER JOINTLY AND SEVERALLY AGREE TO
INDEMNIFY AND HOLD THE BANK HARMLESS AGAINST AND FROM ANY AND ALL COSTS,
EXPENSES, CLAIMS, LOSSES, LIABILITIES AND DAMAGES (INCLUDING REASONABLE
ATTORNEYS’ FEES) THAT MAY ARISE OUT OF OR IN CONNECTION WITH THE BANK’S ACTING
AS ESCROW AGENT UNDER THE TERMS OF THIS ESCROW AGREEMENT, EXCEPT IN THOSE
INSTANCES WHERE THE BANK HAS BEEN GUILTY OF GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, AND INDEMNIFICATION SHALL SURVIVE THE BANK’S RESIGNATION OR REMOVAL,
OR THE TERMINATION OF THE AGREEMENT.  AT THE REQUEST OF THE BANK, THE
MANAGING GENERAL PARTNER SHALL CAUSE THE PARTNERSHIP, ONCE IT IS FORMED, TO
ENTER INTO THIS COVENANT TO INDEMNIFY THE BANK.

    

    2.9
            Compensation.   The
Bank shall be entitled to compensation for its services hereunder as per Exhibit B attached
hereto, which is made a part hereof, and for reimbursement of its out-of-pocket
expenses including, but not by way of limitation, the fees and costs of
attorneys or agents that it may find necessary to engage in performance of its
duties hereunder, all to be paid by the Managing General Partner.  At
such time as the required minimum of 40 Units ($1,000,000), without regard to
Units subscribed for by the Managing General Partner or its affiliates, shall
have been collected and be disbursable to the Managing General Partner, the
Escrow Agent shall have, and is hereby granted, a prior lien upon any property,
cash, or assets of the Escrow Account, with respect to its unpaid fees and
nonreimbursed expenses, superior to the interests of any other persons or
entities.  At such time as the required minimum of 40 Units
($1,000,000), without regard to Units subscribed for by the Managing General
Partner or its affiliates, shall have been collected and be disbursable to the
Managing General Partner, the Bank shall be entitled to and is hereby granted
the right to set off and deduct any unpaid fees and/or nonreimbursed expenses
from amounts on deposit in the Escrow Funds.

    

    2.10
            Return of Escrow
Funds.   If the required minimum of 40 Units ($1,000,000),
without regard to Units subscribed for by the Managing General Partner or its
affiliates, are not subscribed for and accepted by the Managing General Partner
prior to ____________ the Bank will promptly return to subscribers from the
Escrow Funds an amount equal to the principal amount of Units subscribed for
together with interest attributable thereto where appropriate.

    

    2.11
            Effective Date and
Termination.   This Escrow Agreement shall become effective on
the date of this agreement.  All of the provisions of this Escrow
Agreement shall be fully performed and this Escrow Agreement shall terminate by
the disbursement of all Escrow Funds as herein set out.

    

    2.12
            Statements.   During
the term of this Agreement, the Escrow Agent shall provide the Broker Dealer
with monthly statements containing the beginning balance in the escrow account
as well as all principal and income transactions for the statements
period.  Broker Dealer shall be responsible for reconciling these
statements.  The Escrow Agent shall be forever released and discharged
from all liability with respect to the accuracy of such statements and the
transactions listed therein, except with respect to any such act or transaction
as to which the Broker Dealer shall within 90 days after the furnishing of the
statement file written objections with the Escrow Agent.

    

    2.13
            Notices and
Communications.   All notices and communications hereunder
shall be in writing and shall be deemed to be duly given if sent by registered
mail, return receipt requested, as follows:

    

    First
Security Bank, N.A.

     _________________

     _________________

     Attn.:
____________

    Telephone:
_______

    Facsimile:
________

    

    Crown
Exploration Partners, Ltd.

    4024
Nazarene Drive

    Carrollton,
Texas 75010

    Telephone:
972.395.1133

    Facsimile:
__________

    

    Texas
Securities, Inc.

    4024
Nazarene Drive

    Carrollton,
Texas 75010

    Telephone:
972.395.1133

    Facsimile:
___________

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    2.14
            Resignation.   The
Bank may resign and be discharged from its duties or obligations hereunder by
giving notice in writing of such resignation specifying a date when such
resignation shall take place.

    

    2.15
            Entire Agreement.  
This instrument evidences the entire agreement between the Bank, the
Partnership, the Managing General Partner and the Broker Dealer.

    

    2.16
            Applicable
Law.  This agreement shall be construed and enforced according
to the laws of the State of Texas, and the provisions herein administered in
accordance with such laws.

    

    2.17
            Approval of
Offering.  The Bank is acting solely as Escrow Agent and has
not reviewed or approved the offering of the Units, nor is it required to review
or approve the offering of the Units or the economic viability of the
Partnership, nor any other matters relating to the sale of the Units other than
this Agreement.

    

    2.18.           Tax
Matters.

    

    (a)           
Preparation and Filing of Tax
Returns.  The Managing General Partner is required to prepare
and file any and all income or other tax returns applicable to the Escrow Funds
with the Internal Revenue Service and all required state and local departments
of revenue in all years income is earned in any particular tax year as and to
the extent required under the provisions of the Code.

    

    (b)           
Unrelated
Transactions.  The Escrow Agent shall have no responsibility
for the preparation of and/or filing of any tax or information return with
respect to any transaction, whether or not related to this Agreement or a
related agreement, that occurs outside the Escrow Funds.

    

    WITNESS
THE EXECUTION OF THIS ESCROW AGREEMENT, as of the date first above
written.

     

    
      
        
          
            	 
      	
                    FIRST
      SECURITY BANK, N.A.

                  	 
      
	 
      	 
      	 
      	 
      
	 
      	
                    By:

                  	 
      	 
      
	 
      	 
      	
                    Name: 

                  	 
      
	 
      	 
      	
                    Title:  

                  	 
      

          

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                	 
      	
                                                        CROWN
      EXPLORATION PARTNERS, LTD.

                                                      
	 
      	
                                                        individually
      and as Managing General Partner of Crown Exploration Fund I,
      L.P.

                                                      
	 
      	 
      	 
      	 
      
	 
      	
                                                        By:

                                                      	
                                                        Petro
      Share Management, LLC,

                                                      
	 
      	
                                                        Its
      general partner

                                                      
	 
      	 
      	 
      	 
      
	 
      	
                                                        By:

                                                      	 
      	 
      
	 
      	 
      	
                                                        Name:

                                                      	 
      
	 	 	 	 
	 	 	

                                                        Title:

                                                      	 
	 	 	 	 
	 
      	 
      	 
      	 
      
	 
      	
                                                        TEXAS
      SECURITIES, INC.

                                                      
	 
      	 
      	 
      	 
      
	 
      	
                                                        By:

                                                      	 
      
	 
      	 
      	
                                                        Name:

                                                      	 
      
	 	 	 	 
	 	 	

                                                        Title:

                                                      	 
	 	 	 	 

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
A

    

    CERTIFICATE
OF INCUMBENCY

    

    The
undersigned, _________________, of ___________________, hereby certifies that
the following named officers are duly appointed, qualified and acting in the
capacity set forth opposite his/her name, and the following signature is the
true and genuine signature of said officer.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              	
                                      Name

                                    	 
      	
                                      Title

                                    	 
      	
                                      Signature

                                    
	 
      	 
      	
                                        

                                    	 
      	
                                        

                                    
	 
      	 
      	
                                        

                                    	 
      	
                                        

                                    
	 
      	 
      	
                                        

                                    	 
      	
                                        

                                    

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    

    Such
officers are hereby authorized to furnish the Escrow Agent with directions
relating to any matter concerning this Escrow Agreement and the funds and/or
property held pursuant thereto.

    

    IN
WITNESS WHEREOF, ________________has caused this Certificate of Incumbency to be
executed by its officer duly authorized this_________ day of ____________,
200___.

     

    
      
        
          	 
      	
                  [Name
      of Party]

                	 
      
	 
      	 
      	 
      	 
      
	 
      	
                  By:

                	 
      	 
      
	 
      	 
      	
                  Name: 

                	 
      
	 
      	 
      	
                  Title:  

                	 
      
	 
      	 
      	 
      	 
      

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
B

    

    SCHEDULE
OF ESCROW AGENT FEES

    

    Annual
Administration Fee:

    

    Out-of-pocket Expenses
:

    

    Expenses
for extraordinary services, such as, but not limited to, travel, legal,
securities delivery and legal notice publication will be billed
additionally.

    

    Additional
Terms and Conditions:

    

    In
the event the escrow is not funded, the Annual Administration Fee and all
related expenses will not be refunded.  The flat fee covers a full
year in advance, or any part thereof, and is not pro-rated in the year of
termination.

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