Document:

Exhibit 4.1

Replacement
Capital Covenant, dated as of December 20, 2006 (this “Replacement
Capital Covenant”), by Assured Guaranty U.S. Holdings Inc., a
Delaware corporation (together with its successors and assigns, the “Corporation”), and Assured Guaranty Ltd., a Bermuda company
(together with its successors and assigns, the “Guarantor”),
in favor of and for the benefit of each Covered Debtholder (as defined below).

Recitals

A.            On the date hereof, the Corporation
is issuing $150,000,000 aggregate principal amount of its Series A Enhanced
Junior Subordinated Debentures due 2066 (the “Capital
Securities”), which Capital Securities are being issued pursuant to,
and fully and unconditionally guaranteed by the Guarantor in accordance with,
the Subordinated Indenture, dated as of December 1, 2006, among the
Corporation, the Guarantor and The Bank of New York, as subordinated indenture
trustee (the “Trustee”), as supplemented by the
First Supplemental Subordinated Indenture, dated as of December 20, 2006, among
the Corporation, the Guarantor and the Trustee (the “Supplemental
Indenture” and, together with the Subordinated Indenture, the “Indenture”).

B.            This Replacement Capital Covenant is
the “Replacement Capital Covenant” referred
to in the Prospectus Supplement, dated 
December 13, 2006, relating to the Capital Securities (together with the
accompanying Prospectus, dated June 30, 2005, the “Prospectus”).

C.            The Corporation and the Guarantor
are entering into and disclosing the contents of this Replacement Capital
Covenant in the manner provided below with the intent that the covenants
provided for in this Replacement Capital Covenant be enforceable by each
Covered Debtholder and that the Corporation and the Guarantor be stopped from
disregarding the covenants in this Replacement Capital Covenant, in each case
to the fullest extent permitted by applicable law.

D.            The Corporation and the Guarantor
acknowledge that reliance by each Covered Debtholder upon the covenants in this
Replacement Capital Covenant is reasonable and foreseeable by the Corporation
and the Guarantor and that, were the Corporation or the Guarantor to disregard
their respective covenants in this Replacement Capital Covenant, each Covered
Debtholder would have sustained an injury as a result of its reliance on such
covenants.

NOW,
THEREFORE, the Corporation and the Guarantor hereby covenant and agree as
follows in favor of and for the benefit of each Covered Debtholder.

Section 1.  Definitions.  Capitalized terms used in this
Replacement Capital Covenant (including the Recitals) have the meanings set
forth in Schedule I hereto.

 

 

Section 2.  Limitations on Redemption,
Repurchase, or Purchase of Capital Securities. 
The Corporation and the Guarantor hereby promise and covenant
to and for the benefit of each Covered Debtholder that the Corporation shall
not redeem or repurchase all or any part of the Capital Securities, and the
Guarantor shall not, and shall cause its Subsidiaries not to, purchase all or
any part of the Capital Securities, on or before December 15, 2046 except to
the extent that the applicable redemption, repurchase or purchase price does
not exceed the sum of the following amounts:

(a)       the Applicable Percentage of the
aggregate amount of net cash proceeds received by the Guarantor, the Corporation
and their Subsidiaries since the most recent Measurement Date from the sale of
Common Shares and rights to acquire Common Shares to Persons other than the
Guarantor, the Corporation and their Subsidiaries; plus

(b)      100% of the aggregate amount of net cash
proceeds received by the Guarantor, the Corporation and their Subsidiaries
since the most recent Measurement Date from the sale of Qualifying Capital
Securities to Persons other than the Guarantor, the Corporation and their
Subsidiaries.

Section 3.  Covered Debt.  (a) The Corporation and the
Guarantor represent and warrant that the Initial Covered Debt is Eligible Debt.

(b)        On or during the 30-day period
immediately preceding any Redesignation Date with respect to the Covered Debt
then in effect, the Corporation shall identify the series, if any, of Eligible
Debt that will become the Covered Debt on and after such Redesignation Date in
accordance with the following procedures:

(i)    the Corporation shall identify each series
of its then outstanding long-term indebtedness for money borrowed that is
Eligible Debt;

(ii)   if only one series of the Corporation’s then
outstanding long-term indebtedness for money borrowed is Eligible Debt, such
series shall become the Covered Debt commencing on the related Redesignation
Date;

(iii)  if the Corporation has more than one
outstanding series of long-term indebtedness for money borrowed that is
Eligible Debt, then the Corporation shall identify the series that has the
latest occurring final maturity date as of the date the Corporation is applying
the procedures in this Section 3(b) and such series shall become the Covered
Debt commencing on the related Redesignation Date;

(iv)  if the Corporation has no outstanding series
of long-term indebtedness for money borrowed that is Eligible Debt, and the
Guarantor 

 2
 

 

 

has only one outstanding
series of long-term indebtedness for money borrowed that is Eligible Debt, such
series shall become the Covered Debt commencing on the related Redesignation
Date;

(v)   if the Corporation has no outstanding series
of long-term indebtedness for money borrowed that is Eligible Debt, but the
Guarantor has more than one outstanding series of long-term indebtedness for
money borrowed that is Eligible Debt, then the Corporation shall identify the
series that has the latest occurring final maturity date as of the date the
Corporation is applying the procedures in this Section 3(b) and such series
shall become the Covered Debt commencing on the related Redesignation Date;

(vi)  the series of outstanding long-term
indebtedness for money borrowed that is determined to be Covered Debt pursuant
to clause (ii), (iii), (iv) or (v) above shall be the Covered Debt for purposes
of this Replacement Capital Covenant for the period commencing on the related
Redesignation Date and continuing to but not including the Redesignation Date
as of which a new series of outstanding long-term indebtedness is next
determined to be the Covered Debt pursuant to the procedures set forth in this
Section 3(b); and

(vii) in connection with such identification of a new
series of Covered Debt, the Corporation shall give the notice provided for in
Section 3(c) within the time frame provided for in such section.

(c)   Notice. In
order to give effect to the intent of the Corporation and the Guarantor
described in Recital C, the Corporation and the Guarantor covenant that (i)
simultaneously with the execution of this Replacement Capital Covenant or as
soon as practicable after the date hereof, notice shall be given to the Holders
of the Initial Covered Debt, in the manner provided in the indenture relating
to the Initial Covered Debt, of this Replacement Capital Covenant and the
rights granted to such Holders hereunder; (ii) so long as the Guarantor or the
Corporation is a reporting company under the Securities Exchange Act, the
Guarantor or the Corporation, as applicable, will include, or cause to be
included, in each annual report filed with the Commission on Form 10-K under
the Securities Exchange Act a description of the covenant set forth in Section
2 and identify the series of long-term indebtedness for borrowed money that is
Covered Debt as of the date such Form 10-K is filed with the Commission; (iii)
if a series of the Guarantor’s or the Corporation’s long-term indebtedness for
money borrowed (1) becomes Covered Debt or (2) ceases to be Covered Debt,
notice of such occurrence will be given within 30 days to the holders of such
long-term indebtedness for money borrowed in the manner provided for in the
indenture, fiscal agency agreement or other instrument under which such
long-term indebtedness for money borrowed was issued and such change shall be
reported in the Guarantor’s or the Corporation’s next quarterly report on Form
10-Q or annual report on Form 10-K, as applicable; (iv) if, and only if,
neither the Guarantor nor the Corporation is a 

 3
 

 

 

reporting company under the Securities Exchange Act,
the Guarantor will post on its website (or the Corporation’s website if the
Guarantor does not maintain a website at that time) the information otherwise
required to be included in Securities Exchange Act filings pursuant to clauses
(ii) and (iii) of this Section 3(c); and (v) promptly upon request by any
Holder of Covered Debt, the Corporation and the Guarantor will provide such
Holder with an executed copy of this Replacement Capital Covenant.

Section 4.  Termination, Amendment and
Waiver.  (a) The obligations
of the Guarantor and the Corporation pursuant to this Replacement Capital
Covenant shall remain in full force and effect until the earliest date (the “Termination Date”) to occur of (i) December 15, 2046, (ii)
the date, if any, on which the Holders of at least a majority of the
outstanding principal amount of the then-effective series of Covered Debt
consent or agree in writing to the termination of this Replacement Capital
Covenant and the obligations of the Guarantor and the Corporation hereunder and
(iii) the date on which neither the Corporation nor the Guarantor has any
series of outstanding Eligible Senior Debt or Eligible Subordinated Debt (in
each case without giving effect to the rating requirement in clause (b) of the
definition of each such term). From and after the Termination Date, the
obligations of the Guarantor and the Corporation pursuant to this Replacement
Capital Covenant shall be of no further force and effect.

(b)   This Replacement Capital Covenant may be
amended or supplemented from time to time by a written instrument signed by the
Guarantor and the Corporation with the consent of the Holders of at least a
majority of the outstanding principal amount of the then-effective series of
Covered Debt, provided that this Replacement
Capital Covenant may be amended or supplemented from time to time by a written
instrument signed by the Guarantor and the Corporation (and without the consent
of the Holders of the then-effective series of Covered Debt) if (i) the effect
of such amendment or supplement is solely to impose additional restrictions on
the ability of (x) the Corporation to redeem or repurchase Capital Securities
or (y) the Guarantor or its Subsidiaries to purchase Capital Securities, or
(ii) such amendment or supplement is not adverse to the Holders of the
then-effective series of Covered Debt and an officer of the Guarantor or the
Corporation has delivered to the Holders of the then-effective series of
Covered Debt in the manner provided for in the indenture, fiscal agency
agreement or other instrument with respect to such Covered Debt a written
certificate stating that, in his or her determination, such amendment or supplement
is not adverse to the Holders of the then-effective series of Covered Debt.

(c)   For purposes of Sections 4(a) and 4(b), the
Holders whose consent or agreement is required to terminate, amend or
supplement the obligations of the Guarantor and the Corporation under this
Replacement Capital Covenant shall be the Holders of the then-effective Covered
Debt as of a record date established by the Guarantor and the Corporation that
is not more than 30 days prior to the date on which the Guarantor and the Corporation
propose that such termination, amendment or supplement becomes effective.

 4
 

 

 

Section 5.  Miscellaneous.  (a) This
Replacement Capital Covenant shall be governed by and construed in accordance
with the laws of the State of New York.

(b)   This Replacement Capital Covenant shall be
binding upon the Guarantor and the Corporation and their successors and assigns
and shall inure to the benefit of the Covered Debtholders as they exist from
time-to-time (it being understood and agreed by the Guarantor and the
Corporation that any Person who is a Covered Debtholder at the time such Person
acquires, holds or sells Covered Debt shall retain its status as a Covered
Debtholder for so long as the series of long-term indebtedness for borrowed
money owned by such Person is Covered Debt and, if such Person initiates a
claim or proceeding to enforce its rights under this Replacement Capital
Covenant after the Guarantor or the Corporation has violated their respective
covenants in Section 2 and before the series of long-term indebtedness for
money borrowed held by such Person is no longer Covered Debt, such Person’s
rights under this Replacement Capital Covenant shall not terminate by reason of
such series of long-term indebtedness for money borrowed no longer being Covered
Debt).

(c)   All demands, notices, requests and other
communications to the Guarantor or the Corporation under this Replacement
Capital Covenant shall be deemed to have been duly given and made if in writing
and (i) if served by personal delivery upon the Guarantor or the Corporation,
on the day so delivered (or, if such day is not a Business Day, the next
succeeding Business Day), (ii) if delivered by registered post or certified
mail, return receipt requested, or sent to the Guarantor or the Corporation by
a national or international courier service, on the date of receipt by the
Guarantor or the Corporation, as applicable (or, if such date of receipt is not
a Business Day, the next succeeding Business Day), or (iii) if sent by
telecopier, on the day telecopied, or if not a Business Day, the next
succeeding Business Day, provided that
the telecopy is promptly confirmed by telephone confirmation thereof, and in
each case to the Guarantor and the Corporation at the address set forth below,
or at such other address as the Guarantor and the Corporation may thereafter
notify Covered Debtholders of or post on its website as the address for notices
under this Replacement Capital Covenant:

Assured Guaranty US Holdings Inc.

1325 Avenue of the Americas

New York, NY  10019

Facsimile:  (212) 445-8701

Attention:  General Counsel

 5
 

 

 

Assured Guaranty Ltd.

30 Woodbourne Avenue

Hamilton, HM 08 Bermuda  

Facsimile:  (441) 296-1083

Attention:  General Counsel

 6
 

 

 

IN
WITNESS WHEREOF, the Guarantor and the Corporation have each caused this
Replacement Capital Covenant to be executed by a duly authorized officer, as of
the day and year first above written.

	
  

  	
  ASSURED GUARANTY U.S.

  HOLDINGS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  ASSURED GUARANTY
  LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 7

Schedule 1

Definitions

“Applicable Percentage” means one divided by (a) 75% with
respect to any redemption, repurchase or purchase on or prior to December 15,
2016, and (b) 50% with respect to any redemption, repurchase or purchase after
December 15, 2016.

“Business Day” means each day other than (a) a Saturday or
Sunday or (b) a day on which banking institutions in The City of New York are
authorized or required by law or executive order to remain closed or, on or
after December 15, 2016, a day that is not a London business day. A “London business day” is any day on which dealings in
deposits in U.S. dollars are transacted in the London interbank market.

“Capital Securities” has the meaning specified in Recital A.

“Commission” means the United States Securities and Exchange
Commission.

“Common Equity Units” means a security or combination of
securities that (i) gives the holders a beneficial interest in (a) a fixed
income security of the Corporation or the Guarantor (including a debt security,
a trust preferred security of a subsidiary trust or preferred stock) that has a
maturity no greater than six years and (b) a fractional interest in a stock
purchase contract; (ii) includes a remarketing feature pursuant to which the
fixed income security is required to be remarketed to new investors within four
years from the date of issuance of the security; (iii) provides for the
proceeds raised in the remarketing to be used to purchase a determinable number
of Common Shares (which may be determinable within a range) pursuant to the
stock purchase contract; (iv) includes a provision granting the Corporation or
the Guarantor a security interest in the fixed income securities referred to in
clause (i)(a) to secure the holders’ obligation to purchase Common Shares; and
(v) includes a provision defining a failed remarketing and specifying that the
consequences of a failed remarketing will be that the Common Shares will be
acquired in exchange for the fixed income securities.

“Common Shares” means common shares of the Guarantor
(including treasury shares and common shares issued pursuant to the Guarantor’s
dividend reinvestment plan and employee benefit plans).

“Corporation” has the meaning specified in the introduction
to this instrument.

“Covered Debt” means (a) at the date of this Replacement
Capital Covenant and continuing to but not including the first Redesignation
Date, the Initial Covered Debt and (b) thereafter, commencing with each
Redesignation Date and continuing to but not including the next succeeding
Redesignation Date, 

 

 

the Eligible Debt identified pursuant to Section 3(b)
as the Covered Debt for such period.

“Covered Debtholder” means each Person (whether a Holder or a
beneficial owner holding through a participant in a clearing agency) that owns
or holds long-term indebtedness for money borrowed of the Guarantor or the
Corporation during the period that such long-term indebtedness for money
borrowed is Covered Debt.

“Distribution Date” means, as to any security or combination
of securities, the dates on which periodic Distributions on such securities are
scheduled to be made.

“Distribution Period” means, as to any security or
combination of securities, each period from and including a Distribution Date
for such securities to but not including the next succeeding Distribution Date
for such securities.

“Distributions” means, as to a security or combination of
securities, dividends, interest payments or other income distributions to the
holders thereof that are not Subsidiaries of the Guarantor.

“Eligible Debt” means, at any time, Eligible Subordinated
Debt or, if no Eligible Subordinated Debt is then outstanding, Eligible Senior
Debt.

“Eligible Senior Debt” means, at any time in respect of any
issuer, each series of the issuer’s then-outstanding long-term indebtedness for
money borrowed of such issuer that (a) upon a bankruptcy, liquidation,
dissolution or winding up of the issuer, ranks most senior among the issuer’s
then outstanding classes of indebtedness for money borrowed, (b) is then
assigned a rating by at least one NRSRO (provided that
this clause (b) shall apply on a Redesignation Date only if on such date the
issuer has outstanding senior long-term indebtedness for money borrowed that
satisfies the requirements of clauses (a), (c) and (d) that is then assigned a
rating by at least one NRSRO), (c) has an outstanding principal amount of not
less than $100,000,000, and (d) was issued through or with the assistance of a
commercial or investment banking firm or firms acting as underwriters, initial
purchasers or placement or distribution agents. For purposes of this definition
as applied to securities with a CUSIP number, each issuance of long-term
indebtedness for money borrowed that has (or, if such indebtedness is held by a
trust or other intermediate entity established directly or indirectly by the
issuer, the securities of such intermediate entity that have) a separate CUSIP
number shall be deemed to be a series of the issuer’s long-term indebtedness
for money borrowed that is separate from each other series of such
indebtedness.

“Eligible Subordinated Debt” means, at any time in respect of
any issuer, each series of the issuer’s then-outstanding long-term indebtedness
for money borrowed that (a) upon a bankruptcy, liquidation, dissolution or
winding up of the issuer, ranks subordinate to the issuer’s then outstanding
series of indebtedness 

 9
 

 

 

for money borrowed that ranks most senior, (b) is then
assigned a rating by at least one NRSRO (provided that
this clause (b) shall apply on a Redesignation Date only if on such date the
issuer has outstanding subordinated long-term indebtedness for money borrowed
that satisfies the requirements in clauses (a), (c) and (d) that is then
assigned a rating by at least one NRSRO), (c) has an outstanding principal
amount of not less than $100,000,000, and (d) was issued through or with the
assistance of a commercial or investment banking firm or firms acting as
underwriters, initial purchasers or placement or distribution agents. For
purposes of this definition as applied to securities with a CUSIP number, each
issuance of long-term indebtedness for money borrowed that has (or, if such
indebtedness is held by a trust or other intermediate entity established
directly or indirectly by the issuer, the securities of such intermediate entity
that have) a separate CUSIP number shall be deemed to be a series of the
issuer’s long-term indebtedness for money borrowed that is separate from each
other series of such indebtedness.

“Guarantor” shall have the meaning specified in the
introduction to this instrument.

“Holder” means, as to the Covered Debt then in effect, each
holder of such Covered Debt as reflected on the securities register maintained
by or on behalf of the Corporation with respect to such Covered Debt.

“Indenture” shall have the meaning specified in Recital A.

“Initial Covered Debt” means the Corporation’s 7.0% Senior
Notes Due 2034.

“Intent-Based Replacement Disclosure”
means, as to any security or combination of securities, that the issuer has
publicly stated its intention, either in the prospectus or other offering
document under which such securities were initially offered for sale or in
filings with the Commission made by the issuer under the Securities Exchange
Act prior to or contemporaneously with the issuance of such securities, to
redeem or repurchase such securities only with the proceeds of specified
replacement capital securities that have terms and provisions at the time of
redemption or repurchase that are as or more equity-like than the securities
then being redeemed or repurchased, raised within 180 days prior to the
applicable redemption or repurchase date.

“Limitation on Claims Provision” means, as to any security or
combination of securities that include provisions requiring the Guarantor or
the Corporation to issue Common Shares, rights to acquire Common Shares and/or
Qualifying Non-Cumulative Preferred Stock (in this definition, “eligible securities”) and to apply the proceeds to pay
unpaid Distributions, a provision that, if the issuer becomes subject to a bankruptcy,
insolvency, receivership or similar proceeding prior to the redemption or
repayment of such securities, the holders of such securities will have no claim
to any deferred and unpaid 

 10
 

 

 

Distributions exceeding (x) if the eligible securities
include only Common Shares or rights to acquire Common Shares and do not
include Qualifying Non-Cumulative Preferred Stock, 25% of the principal or
stated amount of such securities then outstanding and (y) if the eligible
securities include Qualifying Non-Cumulative Preferred Stock, two years of
Distributions on such securities.

“Mandatorily Convertible Preferred Stock” means cumulative
preferred stock with (a) no prepayment obligation on the part of the issuer
thereof, whether at the election of the holders or otherwise, and (b) a
requirement that the preferred stock convert into Common Shares of the
Guarantor within three years from the date of its issuance at a conversion
ratio within a range established at the time of issuance of the preferred
stock.

“Mandatory Trigger Provision”
means, as to any security or combination of securities (together in this
definition, “securities”),
provisions in the terms thereof or of the related transaction agreements that
(A) require, or at its option in the case of non-cumulative perpetual
preferred stock permit, the issuer of such securities to make payment of
Distributions on such securities only pursuant to the issuance and sale of
Common Shares, rights to purchase Common Shares or Qualifying Non-Cumulative
Preferred Stock, within two years of a failure of the issuer to satisfy one or
more financial tests set forth in the terms of such securities or related
transaction agreements, in an amount such that the net proceeds of such sale
are at least equal to the amount of unpaid Distributions on such securities
(including without limitation all deferred and accumulated amounts) and in
either case require the application of the net proceeds of such sale to pay
such unpaid Distributions, provided that
(i) the number of Common Shares or the number of Common Shares underlying
the rights to purchase Common Shares, the net proceeds of which the issuer must
apply to pay such Distributions pursuant to such provision, may not exceed 2%
of the total number of issued and outstanding shares of the Guarantor’s Common
Shares as of the date of the Guarantor’s then most recent publicly available
consolidated financial statements, and (ii) the amount of Qualifying
Non-Cumulative Preferred Stock the net proceeds of which the issuer may apply
to pay such Distributions pursuant to such provision may not exceed 25% of the
liquidation or principal amount of such securities, (B) prohibit the
Corporation or the Guarantor or their Subsidiaries from repurchasing any of the
Guarantor’s Common Shares prior to the date six months after the issuer applies
the net proceeds of the sales described in clause (A) to pay such unpaid
Distributions in full, provided that if the Mandatory Trigger Provision
requires such issuance and sale within one year of such failure and the
securities include an Optional Deferral Provision, such Mandatory Trigger
Provision need not limit the repurchase of Common Shares, and (C) upon any
liquidation, dissolution, winding up or reorganization or in connection with
any insolvency, receivership or proceeding under any bankruptcy law with
respect to the issuer, limit the claim of the holders of such securities (other
than non-cumulative perpetual preferred stock) to Distributions that accumulate
during a period in which the issuer fails to satisfy one or more financial
tests set forth in the terms of such securities or related transaction
agreements to (x) 25% of the 

 11
 

 

 

stated or principal amount of such securities then
outstanding in the case of securities not permitting the issuance and sale pursuant
to the provisions described in clause (A) above of securities other than
Common Shares or rights to acquire Common Shares or (y) two years of
accumulated and unpaid Distributions in all other cases. No remedy other than
Permitted Remedies will arise by the terms of such securities or related
transaction agreements in favor of the holders of such securities as a result
of the issuer’s failure to pay Distributions because of the Mandatory Trigger
Provision or as a result of the issuer’s exercise of its right under an
Optional Deferral Provision until Distributions have been deferred for one or
more Distribution Periods that total together at least ten years.

“Market Disruption Events” means one or more events or
circumstances described in the Supplemental Indenture as “Market Disruption
Events.”

“Measurement Date” means, with respect to any redemption or
repurchase of Capital Securities or any purchase of Capital Securities by the
Guarantor or a Subsidiary of the Guarantor, the date six months prior to the
delivery of notice of such redemption or prior to the date of such repurchase
or purchase.

“Non-Cumulative” means with respect to any securities that
the issuer thereof may elect not to make any number of periodic Distributions
or interest payments without any remedy arising under the terms of the
securities or related agreements in favor of the holders, other than one or
more Permitted Remedies. Securities that include either (i) provisions
requiring the Guarantor or the Corporation to issue Qualifying Non-Cumulative
Preferred Stock, rights to purchase Common Shares and/or other equity
securities and apply the proceeds to pay unpaid Distributions, provided that (x) the amount of Qualifying
Non-Cumulative Preferred Stock the net proceeds of which the issuer may apply
to pay such Distributions pursuant to such provision may not exceed 25% of the
liquidation or principal amount of such securities, (y) the number of Common
Shares or the number of Common Shares underlying the rights to purchase Common
Shares, the net proceeds of which the issuer must apply to pay such
Distributions pursuant to such provision, may not exceed 2% of the total number
of issued and outstanding shares of the Guarantor’s Common Shares as of the
date of the Guarantor’s then most recent publicly available consolidated
financial statements, and (z) if any deferral period lasts longer than one
year, the Corporation and the Guarantor may not, unless required to do so by
any applicable regulatory authority, repurchase, or permit any Subsidiary to
purchase, the Guarantor’s Common Shares for a one-year period following the
date on which all deferred interest has been paid, or (ii) a Mandatory Trigger
Provision, shall also be deemed to be “Non-Cumulative” securities for all
purposes of this Replacement Capital Covenant other than the definition of
“Qualifying Non-Cumulative Preferred Stock.”

“NRSRO” means a nationally recognized statistical rating
organization within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the
Securities Exchange Act.

 12
 

 

 

“Optional Deferral Provision” means, as to any securities, a
provision in the terms thereof or of the related transaction agreements to the
following effect:

(a)           the issuer of such securities thereof
may, in its sole discretion, defer in whole or in part payment of Distributions
on such securities for one or more consecutive Distribution Periods of up to
five years or, if an event substantially similar to a Market Disruption Event
is continuing, ten years, without any remedy other than Permitted Remedies and the
obligation described in clause (b) below; and

(b)           if the issuer of such securities has
deferred Distributions for up to five years and no event substantially similar
to a Market Disruption Event is continuing, the issuer will be obligated to
issue and sell shares of its common shares and/or rights to purchase common
shares and/or Qualifying Non-Cumulative Preferred Stock in an amount such that
the net proceeds of such sale equal or exceed the amount of unpaid
Distributions on such securities (including without limitation all deferred and
accumulated amounts) and to apply the net proceeds of such sale to pay such
unpaid Distributions in full.

“Permitted Remedies” means, with respect to any securities,
one or more of the following remedies:

(a)           rights in favor of the holders of
such securities permitting such holders to elect one or more directors of the
issuer (including any such rights required by the listing requirements of any
stock or securities exchange on which such securities may be listed or traded),
and

(b)           complete or partial prohibitions on
the issuer paying Distributions on or repurchasing common shares or other
securities that rank pari passu with
or junior as to Distributions to such securities for so long as Distributions
on such securities, including unpaid Distributions, remain unpaid.

“Person” means any individual, corporation, partnership,
joint venture, trust, limited liability company or corporation, unincorporated
organization or government or any agency or political subdivision thereof.

“Prospectus” has the meaning specified in Recital B.

“Qualifying Capital Securities” means securities (other than
Common Shares and rights to acquire Common Shares) that in the determination of
the Guarantor’s and the Corporation’s Board of Directors reasonably construing
the terms of this Replacement Capital Covenant, meet one of the following
criteria:

(i)            in connection with any redemption or
repurchase of Capital Securities on or prior to December 15, 2016:

                (A)          securities issued by the Guarantor or the Corporation or
their Subsidiaries that (1) rank pari passu with
or junior to the Capital Securities upon 

 13
 

 

 

a liquidation, dissolution or winding up of the
Guarantor or the Corporation, (2) are Non-Cumulative, (3) have a Limitation on
Claims Provision, (4) have no maturity or a maturity of greater than 50 years
and (5) are subject to a replacement capital covenant substantially similar to
this Replacement Capital Covenant or have a Mandatory Trigger Provision and are
subject to Intent-Based Replacement Disclosure; or

                (B)           Common Equity Units or Mandatorily Convertible Preferred
Stock;

(ii)           in connection with any redemption or
repurchase of Capital Securities after December 15, 2016 and on or prior to
December 15, 2036:

                (A)          all securities described under clause (i) of this
definition;

                (B)           securities issued by the Guarantor or the Corporation or
their Subsidiaries that (1) rank pari passu with
or junior to the Capital Securities upon a liquidation, dissolution or winding
up of the Guarantor or the Corporation, (2) have no maturity or a maturity of
greater than 50 years, (3) are subject to a replacement capital covenant
substantially similar to this Replacement Capital Covenant and (4) have an
Optional Deferral Provision;

                (C)           securities issued by the Guarantor or the Corporation or
their Subsidiaries that (1) rank pari passu with
or junior to the Capital Securities upon a liquidation, dissolution or winding
up of the Guarantor or the Corporation, (2) are Non-Cumulative, (3) have a
Limitation on Claims Provision, (4) have no maturity or a maturity of greater
than 50 years, and (5) have Intent-Based Replacement Disclosure;

                (D)          securities issued by the Guarantor or the Corporation or
their Subsidiaries that (1) rank pari passu with
or junior to the Capital Securities upon a liquidation, dissolution or winding
up of the Guarantor or the Corporation, (2) are Non-Cumulative, (3) have a
Limitation on Claims Provision, (4) have no maturity or a maturity of greater
than 40 years and (5) are subject to a replacement capital covenant
substantially similar to this Replacement Capital Covenant; or

                (E)           cumulative preferred stock issued by the Guarantor or the
Corporation or their Subsidiaries that (A) has no prepayment obligation on the
part of the issuer thereof, whether at the election of the holders or
otherwise, and (B) (1) has no maturity or a maturity of greater than 50 years
and (2) is subject to a replacement capital covenant substantially similar to
this Replacement Capital Covenant; or

(iii)          in connection with any redemption or
repurchase of Capital Securities at any time after December 15, 2036:

                (A)          all securities described under clause (ii) of this
definition;

 14
 

 

 

                (B)           preferred stock issued by the Guarantor or the Corporation
that (1) has no maturity or a maturity of greater than 50 years, (2) has an
Optional Deferral Provision, and (3) has Intent-Based Replacement Disclosure;

                (C)           securities issued by the Guarantor or the Corporation or
their Subsidiaries that (1) rank pari passu with
or junior to the Capital Securities upon a liquidation, dissolution or winding
up of the Guarantor or the Corporation, (2) either (A) have no maturity or a
maturity of greater than 50 years or (B) have no maturity or a maturity of
greater than 30 years and are subject to a replacement capital covenant
substantially similar to this Replacement Capital Covenant, (3) have an
Optional Deferral Provision, and (4) have Intent-Based Replacement Disclosure;
or

                (D)          cumulative preferred stock issued by the Guarantor or the
Corporation or their Subsidiaries that either (1) has no maturity or a maturity
of greater than 50 years and has Intent-Based Replacement Disclosure or (2) has
a maturity of greater than 40 years and is subject to a replacement capital
covenant substantially similar to this Replacement Capital Covenant.

“Qualifying Non-Cumulative Preferred Stock”
means non-cumulative perpetual preferred stock of the Corporation or the
Guarantor or their Subsidiaries that (i) ranks pari passu with or junior to all other outstanding preferred
stock of the issuer and (ii) contains no remedies other than Permitted
Remedies and either is subject to Intent-Based Replacement Disclosure and
provides for mandatory deferral tied to the breach of certain financial
triggers or is subject to a replacement capital covenant substantially similar
to this Replacement Capital Covenant.

“Redesignation Date” means, as to the Covered Debt in effect
at any time, the earliest of (a) the date that is two years prior to the final
maturity date of such Covered Debt, (b) if the Corporation elects to redeem, or
the Corporation or a Subsidiary of the Corporation elects to repurchase, or if
the Guarantor or a Subsidiary of the Guarantor elects to purchase, such Covered
Debt either in whole or in part with the consequence that after giving effect
to such redemption or repurchase the outstanding principal amount of such
Covered Debt is less than $100,000,000, the applicable redemption or repurchase
date and (c) if such Covered Debt is not Eligible Subordinated Debt of the
Guarantor or the Corporation, the date on which the Guarantor or the
Corporation issues long-term indebtedness for money borrowed that is Eligible
Subordinated Debt.

“Replacement Capital Covenant” has the meaning specified in
the introduction to this instrument.

“Supplemental Indenture” shall have the meaning specified in
Recital A.

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

“Subsidiary” means, at any time, any Person the shares of
stock or other ownership interests of which having ordinary voting power to
elect a majority of the board of directors or other managers of such Person are
at the time owned, or the management or policies of which are otherwise at the
time controlled, directly or indirectly through one or more intermediaries
(including other Subsidiaries) or both, by another Person.

“Termination Date” has the meaning specified in Section 4(a).

“Trustee” shall have the meaning specified in Recital A.

 15

 

 

IN WITNESS
WHEREOF, the Guarantor and the Corporation have each caused this Replacement
Capital Covenant to be executed by a duty authorized officer, as of the day and
year first above written.

	
  

  	
  ASSURED GUARANTY U.S.

  
	
   

  	
  HOLDINGS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ RH B Mills

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Assured Guaranty LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ RH B Mills

  
	
   

  	
   

  	
  Name

  
	
   

  	
   

  	
  Title:EXHIBIT 4.3

THIS WARRANT AND THE UNDERLYING SHARES OF COMMON STOCK HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY OTHER SECURITIES
LAWS, HAVE BEEN TAKEN FOR INVESTMENT, AND MAY NOT BE SOLD OR TRANSFERRED OR
OFFERED FOR SALE OR TRANSFER UNLESS A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND OTHER APPLICABLE SECURITIES LAWS WITH RESPECT TO SUCH
SECURITIES IS THEN IN EFFECT, OR IN THE OPINION OF COUNSEL TO THE ISSUER OF
THESE SECURITIES, SUCH REGISTRATION UNDER THE SECURITIES ACT AND OTHER
APPLICABLE SECURITIES LAWS IS NOT REQUIRED.

                             Date: December 15, 2006

                      WARRANT FOR THE PURCHASE OF SHARES OF

                  COMMON STOCK OF ECOSPHERE TEC HNOLOGIES, INC.

         THIS IS TO CERTIFY that, for value received, _____________, their
successors and assigns (collectively, the "Holder"), are entitled to purchase,
subject to the terms and conditions hereinafter set forth, ______________ shares
of Ecosphere Technologies, Inc. , a Delaware corporation (the "Company") common
stock, $0.01 par value per share ("Common Stock"), and to receive certificates
for the Common Stock so purchased. The exercise price of this Warrant is $0.451
on the Exercise Date (as defined below) per share, subject to adjustment as
provided below (the "Exercise Price").

         1. EXERCISE PERIOD AND VESTING. This Warrant shall vest and become
exercisable by the Holder beginning upon the date listed above (the "Issuance
Date"), and ending at 5:00 p.m., New York, New York time, December 15, 2009 (the
"Exercise Period"). This Warrant will terminate automatically and immediately
upon the expiration of the Exercise Period.

         2. EXERCISE OF WARRANT; CASHLESS EXERCISE. This Warrant may be
exercised, in whole or in part, at any time and from time to time during the
Exercise Period. Such exercise shall be accomplished by tender to the Company of
an amount equal to the Exercise Price multiplied by number of underlying shares
being purchased (the "Purchase Price"), either (a) in cash, by wire transfer or
by certified check or bank cashier's check, payable to the order of the Company,
or (b) by surrendering such number of shares of Common Stock received upon
exercise of this Warrant with an aggregate Fair Market Value (as defined below)
equal to the Purchase Price (as described in the following paragraph (a
"Cashless Exercise"), together with presentation and surrender to the Company of
this Warrant with an executed subscription agreement in substantially the form
attached hereto as Exhibit A (the "Subscription"). Upon receipt of the

                                       1
<PAGE>

foregoing, the Company will deliver to the Holder, as promptly as possible, a
certificate or certificates representing the shares of Common Stock so
purchased, registered in the name of the Holder or its transferee (as permitted
under Section 3 below). With respect to any exercise of this Warrant, the Holder
will for all purposes be deemed to have become the holder of record of the
number of shares of Common Stock purchased hereunder on the date a properly
executed Subscription and payment of the Purchase Price is received by the
Company (the "Exercise Date"), irrespective of the date of delivery of the
certificate evidencing such shares, except that, if the date of such receipt is
a date on which the stock transfer books of the Company are closed, such person
will be deemed to have become the holder of such shares at the close of business
on the next succeeding date on which the stock transfer books are open.
Fractional shares of Common Stock will not be issued upon the exercise of this
Warrant. In lieu of any fractional shares that would have been issued but for
the immediately preceding sentence, the Holder will be entitled to receive cash
equal to the current market price of such fraction of a share of Common Stock on
the trading day immediately preceding the Exercise Date. In the event this
Warrant is exercised in part, the Company shall issue a new Warrant to the
Holder covering the aggregate number of shares of Common Stock as to which this
Warrant remains exercisable for.

         If the Holder elects to conduct a Cashless Exercise, the Company shall
cause to be delivered to the Holder a certificate or certificates representing
the number of shares of Common Stock computed using the following formula:

         X = Y (A-B)
                ---
                 A

         Where:
                    X    =   the number of shares of Common Stock to be issued
                             to Holder;

                    Y    =   the portion of the Warrant (in number of shares
                             of Common Stock) being exercised by Holder (at the
                             date of such calculation);

                    A    =   the Fair Market Value (as defined below) of one
                             share of Common Stock on the Exercise Date,
                             calculated by taking the average Fair Market Value
                             over the last 30 trading days (not including the
                             Exercise Date); and

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

         For purposes of the foregoing calculation, Fair Market Value shall
mean: (i) if the principal trading market for such securities is a national
securities exchange, The Nasdaq Stock Market or the Over-the-Counter Bulletin
Board ("OTCBB") (or a similar system then in use), the last reported sales price
on the principal market the trading day immediately prior to such Exercise Date;
or (ii) if (i) is not applicable, and if bid and ask prices for shares of Common
Stock are reported by the principal trading market or the National Quotation
Bureau, the average of the high bid and low ask prices so reported for the
trading day immediately prior to such Exercise Date. Notwithstanding the
foregoing, if there is no last reported sales price or bid and ask prices, as

                                       2
<PAGE>

the case may be, for the day in question, then Fair Market Value shall be
determined as of the latest day prior to such day for which such last reported
sales price or bid and ask prices, as the case may be, are available, unless
such securities have not been traded on an exchange or in the over-the-counter
market for 30 or more days immediately prior to the day in question, in which
case the Fair Market Price shall be determined in good faith by, and reflected
in a formal resolution of, the board of directors of the Company. The Company
acknowledges and agrees that this Warrant was issued on the Issuance Date.

         3. TRANSFERABILITY AND EXCHANGE.

         (a) This Warrant, and the Common Stock issuable upon the exercise
hereof, may not be sold, transferred, pledged or hypothecated unless the Company
shall have been provided with an opinion of counsel reasonably satisfactory to
the Company that such transfer is not in violation of the Securities Act, and
any applicable state securities laws. Subject to the satisfaction of the
aforesaid condition, this Warrant and the underlying shares of Common Stock
shall be transferable from time to time by the Holder upon written notice to the
Company. If this Warrant is transferred, in whole or in part, the Company shall,
upon surrender of this Warrant to the Company, deliver to each transferee a
Warrant evidencing the rights of such transferee to purchase the number of
shares of Common Stock that such transferee is entitled to purchase pursuant to
such transfer. The Company may place a legend similar to the legend at the top
of this Warrant on any replacement Warrant and on each certificate representing
shares issuable upon exercise of this Warrant or any replacement Warrants. Only
a registered Holder may enforce the provisions of this Warrant against the
Company. A transferee of the original registered Holder becomes a registered
Holder only upon delivery to the Company of the original Warrant and an original
Assignment, substantially in the form set forth in Exhibit B attached hereto.

         (b) This Warrant is exchangeable upon its surrender by the Holder to
the Company for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of shares purchasable hereunder, each
of such new Warrants to represent the right to purchase such number of shares as
may be designated by the Holder at the time of such surrender (not to exceed the
aggregate number of shares underlying this Warrant).

         4. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SHARES SUBJECT TO
WARRANT. The Exercise Price and the number of shares of Common Stock purchasable
upon the exercise of this Warrant are subject to adjustment from time to time
upon the occurrence of any of the events specified in this Section 4. For the
purpose of this Section 4, "Common Stock" means shares now or hereafter
authorized of any class of common stock of the Company, however designated, that
has the right to participate in any distribution of the assets or earnings of
the Company without limit as to per share amount (excluding, and subject to any
prior rights of, any class or series of preferred stock).

         (a) In case the Company shall (i) pay a dividend or make a distribution
in shares of Common Stock to holders of shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock into a greater number of shares, (iii)
combine its outstanding shares of Common Stock into a smaller number of shares,
or (iv) issue by reclassification of its shares of Common Stock other securities
of the Company, then the Exercise Price in effect at the time of the record date
for such dividend or on the effective date of such subdivision, combination or
reclassification, and/or the number and kind of securities issuable on such

                                       3
<PAGE>

date, shall be proportionately adjusted so that the Holder of the Warrant
thereafter exercised shall be entitled to receive the aggregate number and kind
of shares of Common Stock (or such other securities other than Common Stock) of
the Company, at the same aggregate Exercise Price, that, if such Warrant had
been exercised immediately prior to such date, the Holder would have owned upon
such exercise and been entitled to receive by virtue of such dividend,
distribution, subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.

         (b) In case the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
surviving corporation) of cash, evidences of indebtedness or assets, or
subscription rights or warrants, the Exercise Price to be in effect after such
record date shall be determined by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the Fair Market Value per share of Common Stock on such record date,
less the amount of cash so to be distributed or the Fair Market Value (as
determined in good faith by, and reflected in a formal resolution of, the board
of directors of the Company) of the portion of the assets or evidences of
indebtedness so to be distributed, or of such subscription rights or warrants,
applicable to one share of Common Stock, and the denominator of which shall be
the Fair Market Value per share of Common Stock. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Exercise Price shall again be adjusted to be
the Exercise Price which would then be in effect if such record date had not
been fixed.

         (c) Notwithstanding any provision herein to the contrary, no adjustment
in the Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Exercise Price; provided, however,
that any adjustments which by reason of this Section 4 (c) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 4 shall be made to the nearest
cent or the nearest one-hundredth of a share, as the case may be.

         (d) In the event that at any time, as a result of an adjustment made
pursuant to Section 4(a) above, the Holder of any Warrant thereafter exercised
shall become entitled to receive any shares of capital stock of the Company
other than shares of Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares of Common Stock contained in this Section
4, and the other provisions of this Warrant shall apply on like terms to any
such other shares.

         (e) If the Company merges or consolidates into or with another
corporation or entity, or if another corporation or entity merges into or with
the Company (excluding such a merger in which the Company is the surviving or
continuing corporation and which does not result in any reclassification,
conversion, exchange, or cancellation of the outstanding shares of Common
Stock), or if all or substantially all of the assets or business of the Company
are sold or transferred to another corporation, entity, or person, then, as a
condition to such consolidation, merger, or sale (any a "Transaction"), lawful
and adequate provision shall be made whereby the Holder shall have the right
from and after the Transaction to receive, upon exercise of this Warrant and
upon the terms and conditions specified herein and in lieu of the shares of the
Common Stock that would have been issuable if this Warrant had been exercised

                                       4
<PAGE>

immediately before the Transaction, such shares of stock, securities, or assets
as the Holder would have owned immediately after the Transaction if the Holder
had exercised this Warrant immediately before the effective date of the
Transaction.

         (f) In case any event shall occur as to which the other provisions of
this Section 4 are not strictly applicable but the failure to make any
adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles hereof, then, in
each such case, the Company shall effect such adjustment, on a basis consistent
with the essential intent and principles established in this Section 4, as may
be necessary to preserve, without dilution, the purchase rights represented by
this Warrant.

         5. REGISTRATION RIGHTS.

         (a) No Registration Under the Securities Act. The Warrant has not been
registered under the Securities Act. When exercised, the stock certificates
shall bear the following legend unless two years have elapsed since the date of
issuance of this Warrant and the shares of Common Stock are issued in a cashless
exercise pursuant to Section 2 hereof.

         "The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Securities Act"), and may not
be offered for sale or sold except pursuant to (i) an effective registration
statement under the Securities Act, or (ii) an opinion of counsel, if such
opinion and counsel shall be reasonably satisfactory to counsel to the issuer,
that an exemption from registration under the Securities Act is available".

         (b) Piggyback Registration. The Holder is not entitled to any
registration rights.

         6. RESERVATION OF SHARES. The Company agrees at all times to reserve
and hold available out of its authorized but unissued shares of Common Stock the
number of shares of Common Stock issuable upon the full exercise of this
Warrant. The Company further covenants and agrees that all shares of Common
Stock that may be delivered upon the exercise of this Warrant will, upon
delivery, be fully paid and nonassessable and free from all taxes, liens and
charges with respect to the purchase thereof hereunder.

         7. NOTICES TO HOLDER. Upon any adjustment of the Exercise Price (or
number of shares of Common Stock issuable upon the exercise of this Warrant)
pursuant to Section 4, the Company shall promptly thereafter cause to be given
to the Holder written notice of such adjustment. Such notice shall include the
Exercise Price (and/or the number of shares of Common Stock issuable upon the
exercise of this Warrant) after such adjustment, and shall set forth in
reasonable detail the Company's method of calculation and the facts upon which
such calculations were based. Where appropriate, such notice shall be given in
advance and included as a part of any notice required to be given under the
other provisions of this Section 7.

         In the event of (a) any fixing by the Company of a record date with
respect to the holders of any class of securities of the Company for the purpose
of determining which of such holders are entitled to dividends or other
distributions, or any rights to subscribe for, purchase or otherwise acquire any

                                       5
<PAGE>

shares of capital stock of any class or any other securities or property, or to
receive any other right, (b) any capital reorganization of the Company, or
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all of the assets or business of the Company
to, or consolidation or merger of the Company with or into, any other entity or
person, or (c) any voluntary or involuntary dissolution or winding up of the
Company, then and in each such event the Company will give the Holder a written
notice specifying, as the case may be (i) the record date for the purpose of
such dividend, distribution, or right, and stating the amount and character of
such dividend, distribution, or right; or (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, conveyance, dissolution, liquidation, or winding up is to take place and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or such capital stock or securities receivable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock securities) for securities or other property deliverable upon such
event. Any such notice shall be given at least 10 days prior to the earliest
date therein specified.

         8. NO RIGHTS AS A STOCKHOLDER. This Warrant does not entitle the Holder
to any voting rights or other rights as a stockholder of the Company, nor to any
other rights whatsoever except the rights herein set forth. Provided, however,
the Company shall not enter into any merger agreement in which it is not the
surviving entity, or sell all or substantially all of its assets unless the
Company shall have first provided the Holder with 20 days prior written notice.

         9. ADDITIONAL COVENANTS OF THE COMPANY. For so long as the Common Stock
is listed for trading or trades on any national securities exchange or The
Nasdaq Stock Market, the Company shall, upon issuance of any shares for which
this Warrant is exercisable, at its expense, promptly obtain and maintain the
listing or qualifications for trading of such shares.

         The Company shall comply with the reporting requirements of Sections 13
and 15(d) of the Securities Exchange Act of 1934 for so long as and to the
extent that such requirements apply to the Company.

         The Company shall not, by amendment of its Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issuance or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant. Without limiting the generality of the foregoing, the Company (a) will
at all times reserve and keep available, solely for issuance and delivery upon
exercise of this Warrant, shares of Common Stock issuable from time to time upon
exercise of this Warrant, (b) will not increase the par value of any shares of
Common Stock issuable upon exercise of this Warrant above the amount payable
therefor upon such exercise, and (c) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable stock.

         10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the Company, the Holder and their respective successors
and permitted assigns.

         11. NOTICES. The Company agrees to maintain a ledger of the ownership
of this Warrant (the "Ledger"). Any notice hereunder shall be given by Federal
Express or other overnight delivery service for delivery on the next business
day if to the Company, at its principal executive office and, if to the Holder,

                                       6
<PAGE>

to its address shown in the Ledger of the Company; provided, however, that
either the Company or the Holder may at any time on three days written notice to
the other designate or substitute another address where notice is to be given.
Notice shall be deemed given and received after a Federal Express or other
overnight delivery service is delivered to the carrier.

         12. SEVERABILITY. Every provision of this Warrant is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the remainder of this
Warrant.

         13. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
principles of choice of laws thereof.

         14. ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Warrant, the prevailing party shall be entitled to recover
reasonable attorneys' fees in addition to its costs and expenses and any other
available remedies.

         15. ENTIRE AGREEMENT. This Warrant (including the Exhibits attached
hereto) constitutes the entire understanding between the Company and the Holder
with respect to the subject matter hereof, and supersedes all prior
negotiations, discussions, agreements and understandings relating to such
subject matter. This Warrant may be evidenced by a warrant certificate.

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

                                              Ecosphere Technologies, Inc.

                                              By: _______________________
                                                  James C. Rushing III
                                                  Chief Financial Officer

                                       7
<PAGE>
                                    Exhibit A

                                SUBSCRIPTION FORM

(To be Executed by the Holder to Exercise the Rights To Purchase Common Stock
Evidenced by the Within Warrant)

         The undersigned hereby irrevocably subscribes for _______ shares of the
Common Stock (the "Stock") of Ecosphere Technologies, Inc. (the "Company")
pursuant to and in accordance with the terms and conditions of the attached
Warrant (the "Warrant"), and hereby makes payment of $_______ therefor by
[tendering cash, wire transferring or delivering a certified check or bank
cashier's check, payable to the order of the Company] [surrendering _______
shares of Common Stock received upon exercise of the Warrant, which shares have
an aggregate fair market value equal to such payment as required in Section 2 of
the Warrant]. The undersigned requests that a certificate for the Stock be
issued in the name of the undersigned and be delivered to the undersigned at the
address stated below. If the Stock is not all of the shares purchasable pursuant
to the Warrant, the undersigned requests that a new Warrant of like tenor for
the balance of the remaining shares purchasable thereunder be delivered to the
undersigned at the address stated below.

         In connection with the issuance of the Stock, I hereby represent to the
Company that I am acquiring the Stock for my own account for investment and not
with a view to, or for resale in connection with, a distribution of the shares
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").

         I understand that if at this time the Stock has not been registered
under the Securities Act, I must hold such Stock indefinitely unless the Stock
is subsequently registered and qualified under the Securities Act or is exempt
from such registration and qualification. I shall make no transfer or
disposition of the Stock unless (a) such transfer or disposition can be made
without registration under the Securities Act by reason of a specific exemption
from such registration and such qualification, or (b) a registration statement
has been filed pursuant to the Securities Act and has been declared effective
with respect to such disposition. I agree that each certificate representing the
Stock delivered to me shall bear substantially the same as set forth on the
front page of the Warrant.

         I further agree that the Company may place stop transfer orders with
its transfer agent same effect as the above legend. The legend and stop transfer
notice referred to above shall be removed only upon my furnishing to the Company
of an opinion of counsel (reasonably satisfactory to the Company) to the effect
that such legend may be removed.

Date:_______________________________     Signed: _____________________________
                                         Print Name:__________________________
                                         Address:_____________________________

Date:_______________________________     Signed: _____________________________
                                         Print Name:__________________________
                                         Address:_____________________________

<PAGE>
                                    Exhibit B

                                   ASSIGNMENT

(To be Executed by the Holder to Effect Transfer of the Attached Warrant)

For Value Received __________________________ hereby sells, assigns and
transfers to _________________________ the Warrant attached hereto and the
rights represented thereby to purchase _________ shares of Common Stock in
accordance with the terms and conditions hereof, and does hereby irrevocably
constitute and appoint ___________________________ as attorney to transfer such
Warrant on the books of the Company with full power of substitution.

Dated:________________________             Signed: ____________________________

Please print or typewrite                          Please insert Social Security
name and address of                                or other Tax Identification
assignee:                                          Number of Assignee:

Dated:________________________             Signed: ____________________________

Please print or typewrite                          Please insert Social Security
name and address of                                or other Tax Identification
assignee:                                          Number of Assignee:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}]]