Document:

Exhibit
10.1

       

      SECURITIES
PURCHASE AGREEMENT

       

      This
SECURITIES PURCHASE
AGREEMENT (the “Agreement”), dated as of
January 21, 2010, is by and among Kandi Technologies, Corp., a Delaware
corporation with offices 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 is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the “1933 Act”), and Rule 506 of
Regulation D (“Regulation D”) as
promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933
Act.

       

      B.           The
Company has authorized senior secured convertible notes, in the form attached
hereto as Exhibit
A (the “Notes”),
which Notes shall be convertible into shares of the Company’s common stock,
$0.001 par value per share (the “Common Stock”) (as converted,
collectively, the “Conversion
Shares”), in accordance with the terms of the Notes.

      

      C.           Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) a Note in the aggregate original
principal amount set forth opposite such Buyer’s name in column (3) on the
Schedule of Buyers and (ii) a warrant to acquire up to that aggregate number of
additional 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
B (the “Warrants”) (as exercised,
collectively, the “Warrant
Shares”).

      

      D.          The
Notes may be entitled to interest and certain other amounts, which, at the
option of the Company and subject to certain conditions, may be paid in shares
of Common Stock that have been registered for resale (the "Interest Shares") or in
cash.

      

      E.           At
the Closing, the parties hereto shall execute and deliver a Registration Rights
Agreement, in the form attached hereto as Exhibit
C (the “Registration
Rights Agreement”), pursuant to which the Company has agreed to provide
certain registration rights with respect to the Registrable Securities (as
defined in the Registration Rights Agreement), under the 1933 Act and the rules
and regulations promulgated thereunder, and applicable state securities
laws.

      

      F.           The
Notes, the Conversion Shares, the Interest Shares, the Warrants and the Warrant
Shares are collectively referred to herein as the “Securities.”

       

      G.           The
Notes will rank senior to all outstanding and future indebtedness of the Company
(other than Permitted Senior Indebtedness (as defined in the Notes)), secured by
a first priority, perfected security interest in certain of the shares of Common
Stock of Excelvantage Group Limited, a company organized under the laws of the
British Virgin Islands (the “Principal Stockholder”), as
evidenced by the pledge agreement attached hereto as Exhibit D (the "Pledge Agreement", and
together with any ancillary documents related thereto, the “Security
Documents”).

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      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 NOTES AND
WARRANTS.

                

        

      

       

      
        (a)          Notes and
Warrants. Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, 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), a Note in the original principal amount as is set forth opposite such
Buyer’s name in column (3) on the Schedule of Buyers along with Warrants to
acquire up to that 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 Notes and the Warrants by the Buyers shall occur at the
offices of Greenberg Traurig, LLP, MetLife Building, 200 Park Avenue, New York,
NY 10166. The date and time of the Closing (the “Closing Date”) shall be 10:00
a.m., New York time, on the first (1st)
Business Day on which the conditions to the Closing set forth in Sections 6 and
7 below are satisfied or waived (or such later 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.

       

      (i)       The
aggregate purchase price for the Notes 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.

       

      (ii)      The
Buyers and the Company agree that the Notes and the Warrants constitute an
"investment unit" for purposes of Section 1273(c)(2) of the Internal Revenue
Code of 1986, as amended (the "Code").  The Buyers
and the Company mutually agree that the allocation of the issue price of such
investment unit between the Notes and the Warrants in accordance with Section
1273(c)(2) of the Code and Treasury Regulation Section 1.1273-2(h) shall be an
aggregate amount of $[      ] allocated to the
Warrants and the balance of the Purchase Price allocated to the Notes, and
neither the Buyers nor the Company shall take any position inconsistent with
such allocation in any tax return or in any judicial or administrative
proceeding in respect of taxes.

      
        
           

        

        
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      (d)          Form of
Payment. On the
Closing Date, (i) each Buyer shall pay its respective Purchase Price to the
Company for the Notes 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 and (ii) the Company shall deliver
to each Buyer (A) a Note in the aggregate original principal amount as is set
forth opposite such Buyer’s name in column (3) of the Schedule of Buyers and (B)
a Warrant pursuant to which such Buyer shall have the right to acquire up to
such aggregate number of Warrant Shares as is set forth opposite such Buyer’s
name in column (4) of the Schedule of Buyers, in all cases, duly executed on
behalf of the Company and registered in the name of such Buyer or its
designee.

       

      
        	
                2.

              	
                BUYER’S
      REPRESENTATIONS AND WARRANTIES.

              

      

       

      Each
Buyer, severally and not jointly, represents and warrants to the Company with
respect to only itself that, as of the date hereof and as of the Closing
Date:

       

      (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 to which it is a party and otherwise to carry out its
obligations hereunder and thereunder.

       

      (b)          No Public Sale or
Distribution. Such
Buyer is (i) acquiring its Note and Warrants, (ii) upon conversion of its Note
will acquire the Conversion Shares issuable upon conversion thereof, and
(iii) upon exercise of its Warrants will acquire the Warrant Shares
issuable upon exercise thereof, in each case, for its own account and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof in violation of applicable securities laws, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, by making the
representations herein, such Buyer does not agree, or make any representation or
warranty, to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
Such Buyer is acquiring the Securities hereunder in the ordinary course of its
business. Such Buyer does not presently have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities in
violation of applicable securities laws.

       

      (c)          Accredited Investor
Status.  Such
Buyer is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D.

       

      (d)          Reliance on
Exemptions. Such
Buyer understands that the Securities are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in part
upon the truth and accuracy of, and such Buyer’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the
Securities.

      
        
           

        

        
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      (e)          Information. Such
Buyer and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by such Buyer.
Such Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained herein or any representations
and warranties contained in any other Transaction Document or any other document
or instrument executed and/or delivered in connection with this Agreement or the
consummation of the transaction contemplated hereby. Such Buyer understands that
its investment in the Securities involves a high degree of risk. Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Securities.

       

      (f)           No Governmental
Review.  Such
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.

       

      (g)          Transfer or
Resale. Such
Buyer understands that except as provided in the Registration Rights Agreement
and Section 4(h) hereof: (i) the Securities have not been and are not being
registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company (if
requested by the Company) an opinion of counsel to such Buyer, in a form
reasonably acceptable to the Company, to the effect that such Securities to be
sold, assigned or transferred may be sold, assigned or transferred pursuant to
an exemption from such registration, or (C) such Buyer provides the Company with
reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act (or a successor
rule thereto) (collectively, “Rule 144”); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144, and further, if Rule 144 is not applicable, any resale of
the Securities under circumstances in which the seller (or the Person (as
defined below) through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC promulgated
thereunder; and (iii) neither the Company nor any other Person is under any
obligation to register the Securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption thereunder.

       

      (h)         
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 their respective terms,
except as such enforceability may be limited by general principles of equity or
to 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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      (i)           No
Conflicts.  The
execution, delivery and performance by such Buyer of this Agreement and the
Registration Rights Agreement and the consummation by such Buyer of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the organizational documents of such Buyer or (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.

       

      (j)           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 involving the Company’s securities) during the
period commencing as of the time that such Buyer was first contacted by the
Placement Agent (as defined below) regarding the specific investment in the
Company contemplated by this Agreement and ending immediately prior to the
execution of this Agreement by such Buyer. “Short Sales” means all “short
sales” as defined in Rule 200 promulgated under Regulation SHO under the 1934
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock). Such Buyer does not as of the date hereof,
and will not immediately following the Closing, own 10% or more of the Company’s
issued and outstanding shares of Common Stock (calculated based on the
assumption that all Equivalents (as defined below) owned by such Buyer, whether
or not presently exercisable or convertible, have been fully exercised or
converted (as the case may be) but taking into account any limitations on
exercise or conversion (including “blockers”) contained therein).

       

      
        	
                3.

              	
                REPRESENTATIONS
      AND WARRANTIES OF THE COMPANY.

              

      

       

      The
Company represents and warrants to each of the Buyers that, as of the date
hereof and as of the Closing Date:

       

      (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. As used in this Agreement, “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, 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 or any of
its Subsidiaries to perform any of their respective obligations under any of the
Transaction Documents (as defined below). Other than its Subsidiaries, there is
no Person in which the Company, directly or indirectly, owns capital stock or
holds an equity or similar interest. “Subsidiaries” means any Person
in which the Company, directly or indirectly, (I) owns any of the outstanding
capital stock or holds any equity or similar interest of such Person or (II)
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. Each
Subsidiary has the requisite power and authority to enter into and perform its
obligations under the Transaction Documents to which it is a party. The
execution and delivery of this Agreement and the other Transaction Documents by
the Company and its Subsidiaries, and the consummation by the Company and its
Subsidiaries of the transactions contemplated hereby and thereby (including,
without limitation, the issuance of the Notes and the reservation for issuance
and issuance of the Conversion Shares issuable upon conversion of the Notes and
the reservation for issuance and issuance of any Interest Shares issuable
pursuant to the terms of the Notes and 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 each of its Subsidiaries’ board of directors or other governing
body, as applicable, and (other than the filing with the SEC of one or more
Registration Statements in accordance with the requirements of the Registration
Rights Agreement, a Form D with the SEC 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 Subsidiaries, their respective boards of directors
or their stockholders or other governing body. This Agreement and the other
Transaction Documents to which it is a party have been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as such enforceability may be limited by 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. The Transaction Documents to which each Subsidiary is a party
have been duly executed and delivered by each such Subsidiary, and constitutes
the legal, valid and binding obligations of each such Subsidiary, enforceable
against each such Subsidiary in accordance with their 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 Notes, the Warrants, the Security Documents,
the Registration Rights Agreement, the Irrevocable Transfer Agent Instructions
(as defined below) and each of the other agreements and instruments entered into
by 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. The
issuance of the Notes and the Warrants are duly authorized and upon issuance in
accordance with the terms of the Transaction Documents shall be validly issued,
fully paid and non-assessable and free from all 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 130% of
the sum of (i) the maximum number of Conversion Shares issuable upon conversion
of the Notes (assuming for purposes hereof that the Notes are convertible at the
initial Conversion Price (as defined in the Notes) and without taking into
account any limitations on the conversion of the Notes set forth in the Notes),
(ii) the maximum number of Interest Shares issuable pursuant to the terms of the
Notes from the Closing Date through the eighteen month anniversary of the
Closing Date (determined as if issued on the Trading Day immediately preceding
the Closing Date without taking into account any limitations on the issuance of
securities set forth in the Notes) and (iii) the maximum number of Warrant
Shares issuable upon exercise of the Warrants (without taking into account any
limitations on the exercise of the Warrants set forth therein). Upon issuance or
conversion in accordance with the Notes or exercise in accordance with the
Warrants (as the case may be), the Conversion Shares, the Interest Shares and
the Warrant Shares, respectively, when issued, will be validly issued, fully
paid and nonassessable 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.
Subject to the accuracy of the representations and warranties of the Buyers in
this Agreement, the offer and issuance by the Company of the Securities is
exempt from registration under the 1933 Act.

       

      (d)          No
Conflicts. The
execution, delivery and performance of the Transaction Documents by the Company
and its Subsidiaries and the consummation by the Company and its Subsidiaries of
the transactions contemplated hereby and thereby (including, without limitation,
the issuance of the Notes, the Warrants, the Conversion Shares, the Interest
Shares and Warrant Shares and the reservation for issuance of the Conversion
Shares, the Interest Shares and the Warrant Shares) will not (i) result in a
violation of the Certificate of Incorporation (as defined below) or other
organizational documents of the Company or any of its Subsidiaries, any capital
stock of the Company or any of its Subsidiaries or Bylaws (as defined below) of
the Company or any of its Subsidiaries, (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
foreign, federal and state securities laws and regulations and the rules and
regulations of the Nasdaq Capital Market (the “Principal Market”) and
including all applicable federal and provincial laws, rules and regulations of
The People’s Republic of China) 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.

       

      (e)          Consents.  Neither
the Company nor any Subsidiary is 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 one or more Registration Statements in accordance
with the requirements of the Registration Rights Agreement, a Form D with the
SEC 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
respective 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 or any
Subsidiary is required to obtain pursuant to the preceding sentence 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 or any Subsidiary 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.

      
        
           

        

        
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      (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) 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 Securities Exchange Act of 1934,
as amended (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 and each Subsidiary’s decision to
enter into the Transaction Documents to which it is a party has been based
solely on the independent evaluation by the Company, each Subsidiary and their
respective representatives.

       

      (g)          No General Solicitation;
Placement Agent’s Fees. Neither
the Company, nor any of its Subsidiaries or affiliates, nor any Person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Securities. 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 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 require registration of the issuance of any of the Securities under the
1933 Act, whether through integration with prior offerings or otherwise, or
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. None of the Company, its Subsidiaries, their affiliates nor any
Person acting on their behalf will take any action or steps referred to in the
preceding sentence that would require registration of the issuance of any of the
Securities under the 1933 Act or cause the offering of any of the Securities to
be integrated with other offerings.

      
        
           

        

        
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      (i)           Dilutive
Effect. The
Company understands and acknowledges that the number of Conversion Shares,
Interest Shares and Warrant Shares will increase in certain circumstances. The
Company further acknowledges that its obligation to issue the Conversion Shares
upon conversion of the Notes in accordance with this Agreement and the Notes,
the Interest Shares in accordance with this Agreement and the Notes and the
Warrant Shares upon exercise of the Warrants in accordance with this Agreement,
the Notes and the Warrants is, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.

       

      (j)           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, business
combination, poison pill (including 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.

       

      (k)          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”). The Company
has delivered to the Buyers or their respective representatives true, correct
and complete copies of each of the SEC Documents not available on the EDGAR
system. 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 the
Buyers which is not included in the SEC Documents (including, without
limitation, information referred to in Section 2(e) of this Agreement) 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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      (l)           Absence of Certain
Changes. Since
the date of the Company’s most recent audited or reviewed financial statements
contained in a 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, individually or in the aggregate, 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, 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). For purposes of this Section
3(l), “Insolvent” means,
(I) with respect to the Company and its Subsidiaries, on a consolidated basis,
(i) 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), (ii) 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 (iii) 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 (II) with respect to the Company and each Subsidiary,
individually, (i) 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, (ii) 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 (iii) 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 business or in any transaction, and is not
about to engage in business or in any transaction, for which the Company’s or
such Subsidiary’s remaining assets constitute unreasonably small
capital.

       

      (m)          No Undisclosed Events,
Liabilities, Developments or Circumstances. No
event, liability, development or circumstance has occurred or exists, or is
reasonably expected to exist or occur with respect to the Company, any of its
Subsidiaries or their respective business, 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 or (ii) could have a material adverse effect on
any Buyer’s investment hereunder or could have a Material Adverse
Effect.

      
        
           

        

        
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      (n)          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 March of 2008, the Common Stock has been listed or designated for
quotation on the Principal Market.  During the two years prior to the
date hereof (i) trading in the Common Stock has not been suspended by the SEC or
the Principal Market and (ii) 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.

       

      (o)          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.

       

      (p)          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.

       

      (q)          Transactions With
Affiliates. Other
than the grant of stock options disclosed on Schedule 3(q), 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 entity in which any
such officer, director, or employee has a substantial interest or is an officer,
director, trustee or partner.

      
        
           

        

        
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      (r)           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, 19,961,000 are issued and
outstanding and 4,200,000 shares are reserved for issuance pursuant to
securities (other than the Notes and the Warrants) exercisable or exchangeable
for, or convertible into, shares of Common Stock and (ii) 10,000,000 shares of
preferred stock, of which 0 are issued and outstanding.  No 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 nonassessable. 12,000,000 shares of the Company’s issued and
outstanding Common Stock on the date hereof are as of the date hereof 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.
To the Company’s knowledge, except as disclosed in the SEC Documents, no Person
owns 10% or more of the Company’s issued and outstanding shares of Common Stock
(calculated based on the assumption that all Equivalents, 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. Except as
disclosed in Schedule 3(r): (i) 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;
(ii) 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; (iii) 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; (iv) there are no financing statements securing obligations in any
amounts filed in connection with the Company or any of its Subsidiaries; (v)
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 (except pursuant to the Registration Rights Agreement); (vi) 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; (vii) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities; (viii) neither the Company nor any Subsidiary has
any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement; and (ix) 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 “Certificate 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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      (s)          Indebtedness and Other
Contracts. Except
as disclosed on Schedule 3(s), neither the Company nor any of its Subsidiaries
(i) 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: (x) “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; (y) “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 (z) “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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      (t)           Absence of
Litigation. Except
as set forth on Schedule 3(t), 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 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.

       

      (u)          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.

       

      (v)          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.

       

      (w)         Title. The
Company and its Subsidiaries have good and marketable title in fee simple to all
real property and 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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      (x)          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.

       

      (y)          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.  The term
“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.

       

      (z)          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.

      
        
           

        

        
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      (aa)        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.

       

      (bb)       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.

       

      (cc)        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.

       

      (dd)       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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      (ee)        Acknowledgement Regarding
Buyers’ Trading Activity. It is
understood and acknowledged by the Company (i) that 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 purchasing or selling, long
and/or short, securities of the Company, or “derivative” securities based on
securities issued by the Company or to hold the Securities for any specified
term; (ii) that any Buyer, and counter parties 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 were established prior to such
Buyer’s knowledge of the transactions contemplated by the Transaction Documents,
and (iii) that each Buyer shall not be deemed to have any affiliation with or
control over any arm’s length counter party 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 of the Warrant Shares, the Interest Shares or Conversion Shares,
as applicable, deliverable with respect to the Securities are being determined
and (b) 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, the Notes, the Warrants or any other
Transaction Document or any of the documents executed in connection herewith or
therewith.

       

      (ff)         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, (i) taken, directly or
indirectly, 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.

       

      (gg)       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.

       

      (hh)       Registration
Eligibility. The Company is eligible to register the Registrable
Securities for resale by the Buyers using Form S-3 promulgated under the 1933
Act.

       

      (ii)          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 sale and
transfer 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.

      
        
           

        

        
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      (jj)          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.

       

      (kk)        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.

       

      (ll)          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.

       

      (mm)      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.

       

      (nn)       Ranking of Notes.
Except as set forth on Schedule 3(nn), no Indebtedness of the Company, at the
Closing, will be senior to, or pari passu with, the Notes in
right of payment, whether with respect to payment or redemptions, interest,
damages, upon liquidation or dissolution or otherwise.

       

      (oo)       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 announced or
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.

      
        
           

        

        
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                4.

              	
                COVENANTS.

              

      

       

      (a)          Best
Efforts. Each
Buyer shall use its best efforts to timely satisfy each of the conditions to be
satisfied by it as provided in Section 6. The Company shall use its best efforts
to timely satisfy each of the conditions to be satisfied by it as provided in
Section 7.

       

      (b)          Form D and Blue
Sky.  The
Company agrees to file a Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof to each Buyer promptly after such
filing. The Company shall, on or before the Closing Date, 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.  The Company shall make all
filings and reports relating to the offer and sale of the Securities required
under applicable securities or “Blue Sky” laws of the states of the United
States following the Closing Date.

       

      (c)          Reporting
Status. Until
the date on which the Buyers shall have sold all of the Registrable Securities
(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.  From the time Form S-3 is available to the
Company for the registration of the Conversion Shares, the Interest Shares and
the Warrant Shares, the Company shall take all actions necessary to maintain its
eligibility to register the Conversion Shares, the Interest Shares and the
Warrant Shares for resale by the Buyers on Form S-3.

       

      (d)          Use of
Proceeds. The
Company will (i) reserve at least $300,000 of the proceeds from the sale of the
Securities for the payment of salary of a senior officer of the Company with
responsibility for (A) the management of the U.S. capital market operations of
the Company and (B) all necessary legal, investor relations, accounting and
associated expenses related the listing of the Common Stock on the Principal
Market and (ii) use the remaining proceeds from the sale of the Securities for
working capital purposes, and not for the (i) repayment of any other outstanding
Indebtedness of the Company or any of its Subsidiaries or (ii) redemption or
repurchase of any of equity securities of the Company or any of its
Subsidiaries.

       

      (e)          Financial
Information. The
Company agrees to send the following to each Investor (as defined in the
Registration Rights Agreement) 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 Registrable Securities 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) and shall maintain such listing or designation for
quotation (as the case may be) of all Registrable Securities 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 authorization for quotation (as the case may be)
on the Principal Market, the New York Stock Exchange, NYSE Amex, the Nasdaq
Global Market or the Nasdaq Global Select 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 Hudson Bay Fund, LP (“Hudson Bay”) 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, documentation and implementation of the transactions contemplated by
the Transaction Documents and due diligence and regulatory filings in connection
therewith) in an amount not to exceed $50,000, which amount shall be withheld by
Hudson Bay from its Purchase Price at the Closing or paid by the Company upon
termination of this Agreement on demand by Hudson Bay so long as such
termination did not occur as a result of a material breach by Hudson Bay of any
of its obligations hereunder (as the case may be), less $15,000 which was
previously advanced to Hudson Bay by the Company. If the amount so withheld at
Closing by Hudson Bay was less than the aggregate amount of costs and expenses
actually incurred by it or its affiliates in connection with the
transactions contemplated by the Transaction Documents, the Company shall
promptly reimburse Hudson Bay on demand for all such costs and expenses not so
reimbursed through such withholding at the Closing. 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.

      
        
           

        

        
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      (h)           Pledge of
Securities.
Notwithstanding anything to the contrary contained in Section 2(g), 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.

       

      (i)           Disclosure of Transactions
and Other Material Information. The
Company shall, on or before 8:30 a.m., New York time, on the first (1st)
Business Day after the date of this Agreement, 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. On or before 8:30 a.m., New York
time, on the second (2nd)
Business Day following the date of this Agreement, the Company shall 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), the form of
Notes, the form of the Warrants, the form of Pledge Agreement and the form of
the Registration Rights Agreement) (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 or agreements contained in the Transaction
Documents 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 breach or such material, non-public
information, as applicable, 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 (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) 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, announcement, release or otherwise.

      
        
           

        

        
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    (j)           Additional Registration
Statements. Until the Applicable Date (as defined below) and at any time
thereafter while any Registration Statement is not effective or the prospectus
contained therein is not available for use, the Company shall not file a
registration statement under the 1933 Act relating to securities that are not
the Registrable Securities. “Applicable Date” means the
first date on which the resale by the Buyers of all Registrable Securities is
covered by one or more effective Registration Statements (as defined in the
Registration Rights Agreement) (and each prospectus contained therein is
available for use on such date).

     

    (k)          Additional Issuance of
Securities. So long
as any Buyer beneficially owns any Securities, the Company will not, without the
prior written consent of Buyers holding a majority in aggregate principal amount
of the Notes then outstanding, issue any Notes (other than to the Buyers as
contemplated hereby) and the Company shall not issue any other securities that
would cause a breach or default under the Notes or the Warrants.  The
Company agrees that for the period commencing on the date hereof and ending on
the date immediately following the ninety (90) Trading Day (as defined in the
Warrants) anniversary of the Applicable 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 any 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 to purchase, or otherwise dispose of (or announce any issuance,
offer, sale, grant or any option to purchase or other disposition of) any of
their respective equity or equity equivalent securities, including, without
limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time and under any circumstances convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, capital
stock and other securities of the Company (including, without limitation, any
securities of the Company or any Subsidiary which entitle the holder thereof to
acquire Common Stock at any time, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is at any
time convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock or other securities that entitle the holder to
receive, directly or indirectly, Common Stock) (collectively with such capital
stock or other securities of the Company, “Equivalents”) (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(k) shall not apply in respect of
the issuance of (A) shares of Common Stock or standard options to purchase
Common Stock to directors, officers, consultants or employees of the Company in
their capacity as such pursuant to an Approved Stock Plan (as defined below),
provided that (1) 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 (A) do not, in the aggregate, exceed more than 15% of the Common
Stock issued and outstanding immediately prior to the date hereof and (2) such
options are not amended to increase the number of shares issuable thereunder or
to lower the exercise price thereof or to otherwise materially change the terms
or conditions thereof in any manner that adversely affects any of the Buyers,
(B) shares of Common Stock issued upon the conversion or exercise of Equivalents
issued prior to the date hereof, provided that such Equivalents have not been
amended since the date of this Agreement to increase the number of shares
issuable thereunder or to lower the exercise or conversion price thereof or
otherwise materially change the terms or conditions thereof in any manner that
adversely affects any of the Buyers, (C) the Conversion Shares, (D) the Interest
Shares, (E) the Warrant Shares and (F) shares of Common Stock issued or issuable
in connection with strategic alliances, acquisitions, mergers, and strategic
partnerships, provided, that (x) the primary purpose of such issuance is not to
raise capital as determined in good faith by the holders of a majority of the
Registrable Securities, (y) the purchaser or acquirer of the securities in such
issuance solely consists of either (I) the actual participants in such strategic
alliance or strategic partnership, (II) the actual owners of such assets or
securities acquired in such acquisition or merger or (III) the stockholders,
partners or members of the foregoing Persons and (z) the number or amount of
securities 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 (each of the foregoing in clauses (A) through (F),
collectively the “Excluded
Securities”). “Approved
Stock 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, consultant or director for
services provided to the Company in their capacity as such.

     

    
      
        
        

      

      
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    (l)           Reservation of
Shares. So long
as any Notes or 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 130% of (i) the maximum number of shares of Common Stock
issuable upon conversion of all the Notes (assuming for purposes hereof, that
the Notes are convertible at the Conversion Price (as defined in the Notes) and
without regard to any limitations on the conversion of the Notes set forth
therein), (ii) the maximum number of Interest Shares issuable pursuant to the
terms of the Notes from the Closing Date through the eighteen month anniversary
of the Closing Date (determined as if issued on the Trading Day immediately
preceding the applicable date of determination and without regard to any
limitations on the issuance of securities set forth in the Notes) and (iii) 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).

     

    (m)         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.

     

    (n)          Variable Rate
Transaction. Until all of the Registrable Securities have been sold by
the Buyers, 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 Equivalents 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
Equivalents, 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
Equivalents 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) 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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    (o)          Participation Right.
From the date hereof until 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(o). The Company acknowledges and agrees that the right set
forth in this Section 4(o) 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: (i) a statement that the Company
proposes or intends to effect a Subsequent Placement, (ii) a statement that the
statement in clause (i) 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 (w)
identify and describe the Offered Securities, (x) 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, (y) identify
the Persons (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with such Buyer in accordance with the terms of the Offer such Buyer’s
pro rata portion of 75% of the Offered Securities (a) based on such Buyer’s pro
rata portion of the aggregate original principal amount of the Notes 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”).

     

    
      
         

      

      
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    (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.

    

    (iii)           The
Company shall have five (5) days from the expiration of the Offer Period above
(i) 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 (ii) to publicly announce (a) the execution of
such Subsequent Placement Agreement, and (b) either (x) the consummation of the
transactions contemplated by such Subsequent Placement Agreement or (y) 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(o)(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(o)(ii) above multiplied by a fraction, (i) 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(o) prior to such reduction) and
(ii) 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(o)(i) above.

     

    
      
         

      

      
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    (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.

    

    (vi)         Any
Offered Securities not acquired by a Buyer or other Persons in accordance with
this Section 4(o) 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(o) 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 deemed to 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 and such Buyer will again have the right of
participation set forth in this Section 4(o). The Company shall not be permitted
to deliver more than one such Offer Notice to such Buyer in any sixty (60) day
period.

     

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

     

    (p)         Dilutive
Issuances.  For
so long as any Notes or Warrants remain outstanding, the Company shall not, in
any manner, enter into or affect any Dilutive Issuance (as defined in the Notes)
if the effect of such Dilutive Issuance is to cause the Company to be required
to issue upon conversion of any Notes or exercise of any Warrant any shares of
Common Stock in excess of that number of shares of Common Stock which the
Company may issue upon conversion of the Notes and exercise of the Warrants
without breaching the Company's obligations under the rules or regulations of
the Principal Market.

     

    
      
         

      

      
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    (q)         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.

     

    (r)          Restriction on Redemption
and Cash Dividends. So long as any Notes are outstanding, the Company
shall not, directly or indirectly, redeem, or declare or pay any cash dividend
or distribution on, any capital stock of the Company without the prior express
written consent of the Buyers.

     

    (s)          Corporate
Existence.  So long as any Buyer beneficially owns any Notes or
Warrants, the Company shall not be party to any Fundamental Transaction (as
defined in the Notes) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants.

     

    (t)          Closing
Documents.  As soon as practicable following the Closing, the
Company agrees to deliver, or cause to be delivered, to each Buyer and Greenberg
Traurig, LLP a complete closing set of the Transaction Documents, Securities and
any other document reasonably required to be delivered to any party pursuant to
Section 7 hereof or otherwise.

     

    (u)         Trading in Common
Stock.  Each Buyer hereby agrees, severally and not jointly,
for so long as such Buyer owns any Notes, such Buyer shall not maintain a Net
Short Position.  For purposes hereof, a "Net Short Position" by a
person means a position whereby such person has executed one or more sales of
Common Stock that is marked as a short sale and that is executed at a time when
such Buyer has no equivalent offsetting long position in the Common Stock (or is
deem or contract for the foregoing.  For purposes of determining
whether a Buyer has an equivalent offsetting long position in the Common Stock,
all Common Stock (A) that is owned by such Buyer, (B) that may be issued as
Interest Shares pursuant to the terms of the Notes issuable to such Buyer on the
Closing Date or, after the Closing Date, then held by such Buyer or (C) that
would be issuable upon conversion or exercise in full of all Securities issuable
to such Buyer on the Closing Date or, after the Closing Date, then held by such
Buyer (assuming that such Securities were then fully convertible or exercisable,
notwithstanding any provisions to the contrary, and giving effect to any
conversion or exercise price adjustments that would take effect given only the
passage of time) shall be deemed to be held long by such Buyer.

     

    
      
         

      

      
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    (v)         Stockholder
Approval.  The Company shall prepare and file with the SEC, as
promptly as practicable after the date hereof but in no event later than
February 28, 2010, an information statement (the "Information Statement"),
substantially in the form that has been previously reviewed by and is reasonably
acceptable to the Buyers, informing the stockholders of the Company of the
receipt of the consents, in form and substance reasonably acceptable to the
Buyers, of the requisite stockholders (the "Stockholder Consent" and the
date such Stockholder consent is effective pursuant to applicable law and
regulation, the "Stockholder
Consent Effective Date") including resolutions (the "Resolutions") approving the
Company's issuance of all of the Securities as described in the Transaction
Documents in accordance with applicable law and the rules and regulations of the
Principal Market.  In addition to the foregoing, if otherwise required
by applicable law, rule or regulation, the Company shall prepare and file with
the SEC a preliminary proxy statement with respect to a special or annual
meeting of the stockholders of the Company (the "Stockholder Meeting"), which
shall be promptly called and held not later than the earlier to occur of (i) the
date of the first meeting of the stockholders of the Company held after the
Closing Date and (ii) June 30, 2010 (the "Stockholder Meeting Deadline")
soliciting each such stockholder's affirmative vote for approval of, to the
extent not previously adopted, the resolutions set forth in the Stockholder
Consent (such affirmative approval being referred to herein as the "Stockholder Approval"), and
the Company shall use its best efforts to solicit its stockholders' approval of
such resolutions and to cause the Board of Directors of the Company to recommend
to the stockholders that they approve the Resolutions.  The Company
shall be obligated to seek to obtain the Stockholder Approval by the Stockholder
Meeting Deadline.  If, despite the Company’s best efforts the
Shareholder Approval is not obtained on or prior to the Shareholder Meeting
Deadline, the Company shall cause two additional Shareholder Meetings to be held
each calendar year thereafter until such Shareholder Approval is
obtained.

     

    (w)         No Waiver of Voting
Agreements.  The Company shall not amend, waive or modify any
provision of any of the Voting Agreements (as defined below).

     

    (x)          Post Closing
Conditions.

     

    (i)           On
or prior to the fifth Business Day after the date hereof, the Company shall
deliver, or cause to be delivered, to each Buyer an opinion, in the form
attached hereto as Exhibit E, of a legal
counsel licensed to practice law in the jurisdiction of organization of the
Principal Stockholder, which opinion and legal counsel shall be reasonably
satisfactory to the Buyers and dated as of the date of delivery of such legal
opinion to the Buyers.

     

    (ii)          On
or prior to the fifth Business Day after the date hereof, the Company shall
deliver, or cause to be delivered, to each Buyer a certificate with respect to
the Pledged Shares (as defined in the Pledge Agreement) to be held by each such
Buyer duly manually endorsed for transfer on the back of the stock certificate
or on a stock power to be attached to such stock certificate, in each case duly
executed in the name that appears on the face of such certificate, including a
Medallion Guarantee stamp placed below the signature on the back of such
certificate or below the signature on any accompanying stock power.

     

    (iii)         On
or prior to the third Business Day after the date hereof, the Company shall
deliver, or cause to be delivered, to each Buyer a certificate, in the form
acceptable to such Buyer, executed by the Secretary of each Subsidiary and dated
as the date of delivery of such certificate to such Buyer, as to (i) the
resolutions consistent with Section 3(b) as adopted by each Subsidiary’s board
of directors in a form reasonably acceptable to such Buyer, (ii) the
organizational documents of each Subsidiary and (iii) the bylaws of each
Subsidiary, each as in effect as of the date of delivery of such certificate to
such Buyer.

     

    
      
        
        

      

      
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              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 Notes and the Warrants in which the Company
shall record the name and address of the Person in whose name the Notes and the Warrants have been
issued (including the name and address of each transferee), the principal amount
of the Notes held by such Person, the number of Conversion Shares issuable upon
conversion of the Notes, the number of Interest Shares issuable with respect to
the Notes 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.

     

    (b)         Transfer Agent
Instructions. The
Company shall issue irrevocable instructions to its transfer agent and any
subsequent transfer agent in a form acceptable to each of the Buyers (the “Irrevocable Transfer Agent
Instructions”) to issue certificates or credit shares to the applicable
balance accounts at The Depository Trust Company (“DTC”), registered in the name
of each Buyer or its respective nominee(s), for the Conversion Shares, the
Interest Shares and the Warrant Shares in such amounts as specified from time to
time by each Buyer to the Company upon conversion of the Notes 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), and stop transfer instructions to give effect to
Section 2(g) hereof, will be given by the Company to its transfer agent with
respect to the Securities, and that the Securities shall otherwise be freely
transferable on the books and records of the Company, as applicable, to the
extent provided in this Agreement and the other Transaction Documents. If a
Buyer effects a sale, assignment or transfer of the Securities in accordance
with Section 2(g), the Company shall permit the transfer and shall promptly
instruct its 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. In the
event that such sale, assignment or transfer involves Conversion Shares,
Interest Shares or Warrant Shares sold, assigned or transferred pursuant to an
effective registration statement or in compliance with Rule 144, the transfer
agent shall issue such shares to such Buyer, assignee or transferee (as the case
may be) without any restrictive legend in accordance with Section 5(d) below.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to a 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 a 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. The Company shall cause its counsel to issue the legal opinion
referred to in the Irrevocable Transfer Agent Instructions to the Company’s
transfer agent on each Effective Date (as defined in the Registration Rights
Agreement). Any fees (with respect to the transfer agent, counsel to the Company
or otherwise) associated with the issuance of such opinion or the removal of any
legends on any of the Securities shall be borne by the Company.

     

    
      
        
        

      

      
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    (c)      
   Legends. Each
Buyer understands that the Securities have been issued (or will be issued in
the case of the Conversion Shares, Interest Shares and the Warrant Shares)
pursuant to an exemption from registration or qualification under the 1933 Act
and applicable state securities laws, and except as set forth below, the
Securities shall bear any legend as required by the “blue sky” laws of any state
and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock
certificates):

     

    [NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE
BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER
SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

     

    
      (d)         Removal of
Legends.
Certificates evidencing Securities shall not be required to contain
the legend set forth in Section 5(c) above or any other legend (i) while a
registration statement (including a Registration Statement) covering the resale
of such Securities is effective under the 1933 Act, (ii) following any sale of
such Securities pursuant to Rule 144 (assuming the transferor is not an
affiliate of the Company), (iii) if such Securities are eligible to be sold,
assigned or transferred under Rule 144 (provided that a Buyer provides the
Company with reasonable assurances that such Securities are eligible for sale,
assignment or transfer under Rule 144 which shall not include an opinion of
counsel), (iv) in connection with a sale, assignment or other transfer (other
than under Rule 144), provided that such Buyer provides the Company with an
opinion of counsel to such Buyer, in a generally acceptable form, to the effect
that such sale, assignment or transfer of the Securities may be made without
registration under the applicable requirements of the 1933 Act or (v) if such
legend is not required under applicable requirements of the 1933 Act (including,
without limitation, controlling judicial interpretations and pronouncements
issued by the SEC). If a legend is not required pursuant to the foregoing, the
Company shall no later than two (2) Trading Days following the delivery by a
Buyer to the Company or the transfer agent (with notice to the Company) of a
legended certificate representing such Securities (endorsed or with stock powers
attached, signatures guaranteed, and otherwise in form necessary to affect the
reissuance and/or transfer, if applicable), together with any other deliveries
from such Buyer as may be required above in this Section 5(d), as directed by
such Buyer, either: (A) provided that the Company’s transfer agent is
participating in the DTC Fast Automated Securities Transfer Program and such
Securities are Conversion Shares, Interest Shares or Warrant Shares, credit the
aggregate number of shares of Common Stock to which such Buyer shall be entitled
to such Buyer’s or its designee’s balance account with DTC through its
Deposit/Withdrawal at Custodian system or (B) if the Company’s transfer agent is
not participating in the DTC Fast Automated Securities Transfer Program, issue
and deliver (via reputable overnight courier) to such Buyer, a certificate
representing such Securities that is free from all restrictive and other
legends, registered in the name of such Buyer or its designee (the date by which
such credit is so required to be made to the balance account of such Buyer’s or
such Buyer’s nominee with DTC or such certificate is required to be delivered to
such Buyer pursuant to the foregoing is referred to herein as the “Required Delivery
Date”).

    

     

    
      
        
        

      

      
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    (e)          Failure to Timely Deliver;
Buy-In. If the
Company fails to (i) issue and deliver (or cause to be delivered) to a Buyer by
the Required Delivery Date a certificate representing the Securities so
delivered to the Company by such Buyer that is free from all restrictive and
other legends or (ii) credit the balance account of such Buyer’s or such Buyer’s
nominee with DTC for such number of shares of Conversion Shares, Interest Shares
or Warrant Shares so delivered to the Company, and if on or after the Required
Delivery Date such Buyer purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by such Buyer of
shares of Common Stock that such Buyer anticipated receiving from the Company
without any restrictive legend, then, in addition to all other remedies
available to such Buyer, the Company shall, within three (3) Trading Days after
such Buyer’s request and in such Buyer’s sole discretion, either (i) pay cash to
such Buyer in an amount equal to such Buyer’s total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In Price”), at
which point the Company’s obligation to deliver such certificate or credit such
Buyer’s balance account shall terminate and such shares shall be cancelled, or
(ii) promptly honor its obligation to deliver to such Buyer a certificate or
certificates or credit such Buyer’s DTC account representing such number of
shares of Common Stock that would have been issued if the Company timely
complied with its obligations hereunder and pay cash to such Buyer in an amount
equal to the excess (if any) of the Buy-In Price over the product of (A) such
number of shares of Conversion Shares, Interest Shares or Warrant Shares (as the
case may be) that the Company was required to deliver to such Buyer by the
Required Delivery Date times (B) the Closing Sale Price (as defined in the
Warrants) of the Common Stock on the Trading Day immediately preceding the
Required Delivery Date.

     

    
      	
              6.

            	
              CONDITIONS
      TO THE COMPANY’S OBLIGATION TO
SELL.

            

    

     

    (a)         The
obligation of the Company hereunder to issue and sell the Notes and the related Warrants
to each Buyer at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Company’s sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:

     

    (i)           Such
Buyer shall have executed each of the other Transaction Documents to which it is
a party and delivered the same to the Company.

     

    (ii)          Such
Buyer and each other Buyer shall have delivered to the Company the Purchase
Price (less, in the case of Hudson Bay, the amounts withheld pursuant to Section
4(g)) for the Notes and the related Warrants being purchased by such Buyer at
the Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.

     

    
      
         

      

      
        31

        
          

        

      

      
         

      

    

    (iii)           The
representations and warranties of such Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
originally made at that time (except for representations and warranties that
speak as of a specific date, which shall be true and correct as of such date),
and such Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Buyer at or prior
to the Closing Date.

     

    
      	
              7.

            	
              CONDITIONS
      TO EACH BUYER’S OBLIGATION TO
PURCHASE.

            

    

     

    (a)          The
obligation of each Buyer hereunder to purchase its Note and its related Warrants
at the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for each
Buyer’s sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice
thereof:

     

    (i)           The
Company and each Subsidiary (as the case may be) shall have duly executed and
delivered to such Buyer each of the Transaction Documents to which it is a party
and the Company shall have duly executed and delivered to such Buyer such a Note
(in such original principal amount as is set forth across from such Buyer’s name
in column (3) of the Schedule of Buyers) and the related Warrants
(for such aggregate number of shares of Common Stock as is set forth across from
such Buyer’s name in column (4) of the Schedule of Buyers) being purchased by
such Buyer at the Closing pursuant to this Agreement.

     

    (ii)          Such
Buyer shall have received the opinion of K&L Gates LLP , the Company’s
counsel, dated as of the Closing Date, and in the form acceptable to such
Buyer.

     

    (iii)         The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form acceptable to such Buyer, which instructions
shall have been delivered to and acknowledged in writing by the Company’s
transfer agent.

     

    (iv)         The
Company shall have delivered to such Buyer 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.

     

    (v)          The
Company shall have delivered to such Buyer a certificate evidencing the
Company’s and each Subsidiary’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 and each Subsidiary conducts business and is
required to so qualify, as of a date within ten (10) days of the Closing
Date.

     

    (vi)         The
Company shall have delivered to such Buyer a certified copy of the Certificate
of Incorporation as certified by the Delaware Secretary of State within ten (10)
days of the Closing Date.

     

    
      
         

      

      
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    (vii)        Each
Subsidiary shall have delivered to such Buyer a certified copy of its
certificate of incorporation as certified by the Secretary of State (or
comparable office) of such Subsidiary’s jurisdiction of incorporation within ten
(10) days of the Closing Date.

     

    (viii)       The
Company shall have delivered to such Buyer a certificate, in the form acceptable
to such Buyer, executed by the Secretary 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 of the Company and the
organizational documents of each Subsidiary and (iii) the Bylaws of the Company
as in effect at the Closing.

     

    (ix)        
Each and every representation and warranty of the Company shall be true and
correct as of the date when made and as of the Closing Date as though originally
made at that time (except for representations and warranties that speak as of a
specific date, which shall be true and correct as of such date) and the Company
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required to be performed, satisfied or
complied with by the Company at or prior to the Closing Date. Such Buyer shall
have received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer in the form
acceptable to such Buyer.

     

    (x)           The
Company shall have delivered to such Buyer a letter from the Company’s transfer
agent certifying the number of shares of Common Stock outstanding on the Closing
Date immediately prior to the Closing.

     

    (xi)          The
Common Stock (I) shall be designated for quotation or listed (as applicable) on
the Principal Market and (II) shall not have been suspended, as of the Closing
Date, by the SEC or the Principal Market from trading on the Principal Market
nor shall suspension by the SEC or the Principal Market have been threatened, as
of the Closing Date, either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum maintenance requirements of the Principal
Market.

     

    (xii)         The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, necessary for the sale of the Securities, including
without limitation, those required by the Principal Market.

     

    (xiii)        No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any of
the transactions contemplated by the Transaction Documents.

     

    (xiv)       Since
the date of execution of this Agreement, no event or series of events shall have
occurred that reasonably would have or result in a Material Adverse
Effect.

     

    (xv)        The
Company shall have obtained approval of the Principal Market to list or
designate for quotation (as the case may be) the Conversion Shares, the Interest
Shares and the Warrant Shares.

     

    
      
         

      

      
        33

        
          

        

      

      
         

      

    

     

    (xvi)       The
Company shall have delivered or caused to be delivered to each Buyer true copies
of UCC search results, listing all effective financing statements which name as
debtor the Company filed in the prior five years to perfect an interest in any
assets thereof, together with copies of such financing statements, none of
which, except as otherwise agreed in writing by the Buyers, shall cover any of
assets of the Company or any of its Subsidiaries and the results of searches for
any tax lien and judgment lien filed against such Person or its property, which
results, except as otherwise agreed to in writing by the Buyers shall not show
any such Liens (as defined in the Notes).

     

    (xvii)      The
Company shall have duly executed and delivered to such Buyer the voting
agreements in the forms of Exhibit
E hereof (the “Voting
Agreements”), by and between the Company and the Principal Stockholder
and the Principal Stockholder shall have duly executed and delivered to such
Buyer the Voting Agreement and the Stockholder Consent.

     

    (xviii)     The
Pledge Agreement shall have been executed and delivered to such Buyer by the
Principal Stockholder, the Company and the other Buyers.

     

    (xix)        The
Company and its Subsidiaries shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as such
Buyer or its counsel may reasonably request.

     

    
      	
              8.

            	
              TERMINATION.

            

    

     

    In the
event that the Closing shall not have occurred with respect to a Buyer within
five (5) days of 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, (i) the right to terminate this
Agreement under this Section 8 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 (ii) the abandonment of the sale and purchase of the Notes 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 8 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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              9.

            	
              MISCELLANEOUS.

            

    

    (a)          Governing Law; Jurisdiction;
Jury Trial. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. 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 shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.  Notwithstanding anything to the contrary contained in
this Agreement or any other Transaction Document (and without implication that
the following is required or applicable), it is the intention of the parties
that in no event shall amounts and value paid by the Company and/or its
Subsidiaries (as the case may be), or payable to or received by the Buyers,
under the Transaction Documents (including without limitation, any amounts that
would be characterized as “interest” under applicable law) exceed amounts
permitted under any such applicable law. Accordingly, if any obligation to pay,
payment made to such Buyer, or collection by such Buyer pursuant the Transaction
Documents is finally judicially determined to be contrary to any such applicable
law, such obligation to pay, payment or collection shall be deemed to have been
made by mutual mistake of such Buyer, the Company and its Subsidiaries and such
amount shall be deemed to have been adjusted with retroactive effect to the
maximum amount or rate of interest, as the case may be, as would not be so
prohibited by the applicable law. Such adjustment shall be effected, to the
extent necessary, by reducing or refunding, at the option of such Buyer, the
amount of interest or any other amounts which would constitute unlawful amounts
required to be paid or actually paid to such Buyer under the Transaction
Documents. For greater certainty, to the extent that any interest, charges,
fees, expenses or other amounts required to be paid to or received by such Buyer
under any of the Transaction Documents or related thereto are held to be within
the meaning of “interest” or another applicable term to otherwise be violative
of applicable law, such amounts shall be pro-rated over the period of time to
which they relate.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    (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, its Subsidiaries, 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 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 or waived other than by an instrument in writing signed by the Company
and the holders of a majority of the Registrable Securities (excluding any
Registrable Securities held by the Company or any of its Subsidiaries) issued or
issuable hereunder or pursuant to the Notes or Warrants, provided that any party
may give a waiver in writing as to itself. 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
the Notes 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.

     

    (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:

     

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    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

    Telephone:  (303)
282-4800

    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

    MetLife
Building

    200 Park
Avenue

    New York,
NY 10166

    Telephone:  (212)
801-9200

    Facsimile:  (212)
805-9222

    Attention:  Michael
A. Adelstein, Esq.

     

    
      
         

      

      
        37

        
          

        

      

      
         

      

    

     

    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
Hudson Bay. 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
holders of a majority of the Registrable Securities (excluding any Registrable
Securities held by the Company or any of its Subsidiaries) issued or issuable
hereunder or pursuant to the Notes or Warrants, 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) or a Fundamental Transaction (as defined
in the Notes) (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the
Notes).  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 9(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.

     

    
      
         

      

      
        38

        
          

        

      

      
         

      

    

    (k)          Indemnification.  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 or any Subsidiary in any of the Transaction Documents, (b) any breach of
any covenant, agreement or obligation of the Company or any Subsidiary 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 or any Subsidiary)
and arising out of or resulting from (i) the execution, delivery, performance or
enforcement of any of the Transaction Documents, (ii) any transaction financed
or to be financed in whole or in part, directly or indirectly, with the proceeds
of the issuance of the Securities, (iii) any disclosure properly made by such
Buyer pursuant to Section 4(i), or (iv) 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. Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 9(k) shall be the same as those set
forth in Section 6 of the Registration Rights Agreement.

     

    (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.

     

    (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 or any Subsidiary fails to perform, observe, or
discharge any or all of its or such Subsidiary’s (as the case may be)
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
or any Subsidiary 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 or such
Subsidiary (as the case may be), any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights

     

    
      
         

      

      
        39

        
          

        

      

      
         

      

    

     

    (o)         Payment Set
Aside. To the
extent that the Company or any Subsidiary 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 or any Subsidiary, 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.  Unless otherwise expressly indicated, all dollar
amounts referred to in this Agreement and the other Transaction Documents are in
United States Dollars (“US
Dollars”), and all amounts owing under this Agreement and all other
Transaction Documents shall be paid in US Dollars. All amounts denominated in
other currencies shall be converted in the US 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 US Dollars pursuant to this
Agreement, the US Dollar exchange rate as published in the Wall Street Journal
on the relevant date of calculation.

     

    (p)         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 9(p) referred to
as the “Judgment Currency”) an amount due in US Dollars under this Agreement,
the conversion shall be made at the Exchange Rate prevailing on the Trading Day
immediately preceding:

     

    
      	
               
      

            	
              (1)

            	
              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

            

    

     

    
      	
               
      

            	
              (2)

            	
              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 9(p)(i)(2) 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 9(p)(i)(2)  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 US 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.

     

    
      
         

      

      
        40

        
          

        

      

      
         

      

    

     

    (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.

     

    (q)         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 and its
Subsidiaries 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 its
Subsidiaries 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, each Subsidiary and a Buyer, solely, and not between the Company,
its Subsidiaries and the Buyers collectively and not between and among the
Buyers.

     

    [signature pages
follow]

     

    
      
         

      

      
        41

        
          

        

      

      
         

      

    

     

    
      IN WITNESS WHEREOF, each 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:

              

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

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

       

      
        	 
      	
                BUYERS:

              
	 
      	 
      
	 
      	
                HUDSON
      BAY FUND, LP

              
	 
      	 
      
	 
      	
                By:

              	
                   

              
	 
      	 
      	
                Name:

              
	 
      	 
      	
                Title:

              

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

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

       

      
        	 
      	
                HUDSON
      BAY OVERSEAS FUND, LTD.

              
	 
      	 
      
	 
      	
                By:

              	
                   

              
	 
      	 
      	
                Name:

              
	 
      	 
      	
                Title:

              

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

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

       

      
        	 
      	
                CAPITAL
      VENTURES INTERNATIONAL

              
	 
      	 
      
	 
      	
                By:

              	
                   

              
	 
      	 
      	
                Name:

              
	 
      	 
      	
                Title:

              

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    SCHEDULE
OF BUYERS

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      	
                                              (1)

                                            	 	
                                              (2)

                                            	 	 	
                                              (3)

                                            	 	 	
                                              (4)

                                            	 	 	
                                              (5)

                                            	 	 	
                                              (6)

                                            	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                              
                                                 

                                                Buyer

                                              

                                            	  	
                                              
                                                Address and Facsimile Number

                                              

                                            	 	 	
                                              
                                                Original Principal

                                                Amount of Notes

                                              

                                            	 	 	
                                              
                                                Aggregate

                                                Number of

                                                 Warrant Shares

                                              

                                            	 	 	
                                              
                                                Purchase Price

                                              

                                            	 	 	
                                              
                                                Legal Representative’s

                                                Address and Facsimile Number

                                              

                                            	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                              Hudson
      Bay Fund, LP

                                            	 	
                                              120
      Broadway, 40th Floor

                                              New
      York, New York 10271

                                              Attention:
      Yoav Roth

                                              Facsimile: (646)
      214-7946

                                              Telephone:
      (212) 571-1244

                                              Residence:
      United States

                                              E-mail:
      investments@hudsonbaycapital.com

                                            	 	 	$	2,050,000	 	 	 	164,000	 	 	$	2,050,000	 	 	
                                              Greenberg
      Traurig, LLP

                                              MetLife
      Building

                                              200
      Park Avenue

                                              New
      York, NY 10166

                                              Telephone: (212)
      801-9200

                                              Facsimile: (212)
      805-9222

                                              Attention: Michael
      A. Adelstein, Esq.

                                            	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                              Hudson
      Bay Overseas Fund, Ltd.

                                            	 	
                                              120
      Broadway, 40th Floor

                                              New
      York, New York 10271

                                              Attention:
      Yoav Roth

                                              Facsimile: 
      (646) 214-7946

                                              Telephone:
      (212) 571-1244

                                              Residence:
      Cayman Islands

                                              E-mail:
      investments@hudsonbaycapital.com

                                            	 	 	$	2,950,000	 	 	 	236,000	 	 	$	2,950,000	 	 	
                                              Greenberg
      Traurig, LLP

                                              MetLife
      Building

                                              200
      Park Avenue

                                              New
      York, NY 10166

                                              Telephone: (212)
      801-9200

                                              Facsimile: (212)
      805-9222

                                              Attention: Michael
      A. Adelstein, Esq.

                                            	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                              Capital
      Ventures International

                                            	 	
                                              c/o
      Heights Capital Management

                                              101
      California Street, Suite 3250

                                              San
      Francisco, CA 94111

                                              Attention:
      Martin Kobinger,

                                              Investment
      Manager

                                              Facsimile:
      415-403-6525

                                              Telephone:
      415-403-6500

                                              Residence:
      Cayman Islands

                                            	 	 	$	5,000,000	 	 	 	400,000	 	 	$	5,000,000	 	 	
                                              Elected
      not to provide.Exhibit
10.2

     

    [FORM
OF SENIOR SECURED CONVERTIBLE NOTE]

     

    NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO
THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR
ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD
CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a)
HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND,
ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE
AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.

     

    Kandi
Technologies, Corp.

     

    Senior
Secured Convertible Note

     

    
      	
              Issuance
      Date:  January __, 2010

            	
              Original
      Principal Amount: U.S.
      $[         ]       
      

            

    

    

    FOR VALUE RECEIVED, Kandi
Technologies, Corp., a Delaware corporation (the “Company”), hereby promises to
pay to the order of [HUDSON BAY FUND, LP][HUDSON BAY OVERSEAS FUND, LTD.],
[OTHER BUYERS] or its registered assigns (“Holder”) the amount set out
above as the Original Principal Amount (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether
upon the Maturity Date, acceleration, redemption or otherwise (in each case in
accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding
Principal (as defined below) at the applicable Interest Rate (as defined below)
from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes
due and payable, whether upon the Maturity Date or acceleration, conversion,
redemption or otherwise (in each case in accordance with the terms hereof). This
Senior Secured Convertible Note (including all Senior Secured Convertible Notes
issued in exchange, transfer or replacement hereof, this “Note”) is one of an issue of
Senior Convertible Notes issued pursuant to the Securities Purchase Agreement
(as defined below) on the Closing Date (as defined below) (collectively, the
“Notes” and such other
Senior Secured Convertible Notes, the “Other Notes”). Certain capitalized
terms used herein are defined in Section 30.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    1.           PAYMENTS OF
PRINCIPAL. On the Maturity Date, the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, accrued and unpaid
Interest and accrued and unpaid Late Charges on such Principal and
Interest.  Other than as specifically permitted by this Note, the
Company may not prepay any portion of the outstanding Principal, accrued and
unpaid Interest or accrued and unpaid Late Charges on Principal and Interest, if
any.

     

    2.           INTEREST; INTEREST
RATE.  (a) Interest on this Note shall commence accruing on the
Issuance Date and shall be computed on the basis of a 360-day year and twelve
30-day months and shall be payable in arrears for each Quarter on January 15,
April 15, July 15 and October 15 of each year (each, an “Interest Date”) with the first Interest
Date being April 15, 2010.  Interest shall be payable on each Interest
Date, to the record holder of this Note on the applicable Interest Date, in
shares of Common Stock (“Interest Shares”) so long as
there has been no Interest Conditions Failure; provided however, that the
Company may, at its option following notice to the Holder, pay Interest on any
Interest Date in cash (“Cash
Interest”) or in a combination of Cash Interest and Interest
Shares.  The Company shall deliver a written notice (each, an “Interest Election Notice”) to
each holder of the Notes on or prior to the Interest Notice Due Date (the date
such notice is delivered to all of the holder, the “Interest Notice Date”) which
notice (i) either (A) confirms that Interest to be paid on such Interest Date
shall be paid entirely in Interest Shares or (B) elects to pay Interest as Cash
Interest or a combination of Cash Interest and Interest Shares and specifies the
amount of Interest that shall be paid as Cash Interest and the amount of
Interest, if any, that shall be paid in Interest Shares and (ii) certifies that
there has been no Interest Conditions Failure.  If an Interest
Conditions Failure has occurred as of the Interest Notice Date, then unless the
Company has elected to pay such Interest as Cash Interest, the Interest Notice
shall indicate that unless the Holder waives the Interest Conditions Failure,
the Interest shall be paid as Cash Interest.  Notwithstanding anything
herein to the contrary, if no Interest Conditions Failure has occurred as of the
Interest Notice Date but an Interest Conditions Failure occurs at any time prior
to the Interest Date, (A) the Company shall provide the Holder a subsequent
notice to that effect and (B) unless the Holder waives the Interest Conditions
Failure, the Interest shall be paid in cash.  Interest to be paid on
an Interest Date in Interest Shares shall be paid in a number of fully paid and
nonassessable shares (rounded to the nearest whole share in accordance with
Section 3(a)) of Common Stock equal to the quotient of (1) the amount of
Interest payable on such Interest Date less any Cash Interest paid and (2) the
Interest Conversion Price in effect on the applicable Interest
Date.

     

    (b)           When
any Interest Shares are to be paid on an Interest Date, the Company shall (i)
(A) provided that the Company's transfer agent (the “Transfer Agent”) is
participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, credit such aggregate number of Interest Shares to
which the Holder shall be entitled to the Holder's or its designee's balance
account with DTC through its Deposit/Withdrawal at Custodian system, or (B) if
the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver on the applicable Interest Date, to the
address set forth in the register maintained by the Company for such purpose
pursuant to the Securities Purchase Agreement or to such address as specified by
the Holder in writing to the Company at least two (2) Business Days prior to the
applicable Interest Date, a certificate, registered in the name of the Holder or
its designee, for the number of Interest Shares to which the Holder shall be
entitled and (ii) with respect to each Interest Date, pay to the Holder, in cash
by wire transfer of immediately available funds, the amount of any Cash
Interest. 

     

    
      
         

      

      
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    (c)           Prior
to the payment of Interest on an Interest Date, Interest on this Note shall
accrue at the Interest Rate and be payable by way of inclusion of the Interest
in the Conversion Amount on each Conversion Date
in accordance with Section 3(b)(i) or upon any redemption in accordance with
Section 11.  From and after the occurrence and during the continuance
of any Event of Default, the Interest Rate shall automatically be increased to
eighteen percent (18.0%).  In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding sentence shall
cease to be effective as of the date of such cure; provided that the Interest as
calculated and unpaid at such increased rate during the continuance of such
Event of Default shall continue to apply to the extent relating to the days
after the occurrence of such Event of Default through and including the date of
such cure of such Event of Default.  The Company shall pay any and all
taxes that may be payable with respect to the issuance and delivery of Interest
Shares.

     

    3.           CONVERSION OF NOTES.
This Note shall be convertible into shares of Common Stock (as defined below),
on the terms and conditions set forth in this Section 3.

     

    (a)           Conversion Right.
Subject to the provisions of Section 3(d), at any time or times on or after the
Issuance Date, the Holder shall be entitled to convert any portion of the
outstanding and unpaid Conversion Amount (as defined below) into fully paid and
nonassessable shares of Common Stock in accordance with Section 3(c), at the
Conversion Rate (as defined below).  The Company shall not issue any
fraction of a share of Common Stock upon any conversion.  If the
issuance would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all transfer, stamp, issuance
and similar taxes that may be payable with respect to the issuance and delivery
of Common Stock upon conversion of any Conversion Amount.

     

    (b)           Conversion Rate. The
number of shares of Common Stock issuable upon conversion of any Conversion
Amount pursuant to Section 3(a) shall be determined by dividing (x) such
Conversion Amount by (y) the Conversion Price (the “Conversion
Rate”).

     

    (i)           “Conversion Amount” means the
portion of the Principal to be converted, redeemed or otherwise with respect to
which this determination is being made, plus all accrued and unpaid Interest
with respect to such portion of the Principal amount and accrued and unpaid Late
Charges with respect to such portion of such Principal and such
Interest.

     

    (ii)           “Conversion Price” means, as of
any Conversion Date or other date of determination, $6.25, subject to adjustment
as provided herein.

     

    
      
         

      

      
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    (c)           Mechanics of
Conversion.

     

    (i)           Optional Conversion.
To convert any Conversion Amount into shares of Common Stock on any date (a
“Conversion Date”), the
Holder shall (A) deliver (whether via facsimile or otherwise), for receipt on or
prior to 11:59 p.m., New York time, on such date, a copy of an executed notice
of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the
Company and (B) if required by Section 3(c)(iii), surrender this Note to a
nationally recognized overnight delivery service for delivery to the Company (or
an indemnification undertaking with respect to this Note in the case of its
loss, theft or destruction as contemplated by Section 18(b)). On or before the
first (1st) Trading Day following the date of receipt of a Conversion Notice,
the Company shall transmit by facsimile an acknowledgment of confirmation of
receipt of such Conversion Notice to the Holder and the Company’s transfer agent
(the “Transfer Agent”).
On or before the third (3rd)
Trading Day following the date of receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall (1)
provided that the Transfer Agent is participating in The Depository Trust
Company’s (“DTC”) Fast
Automated Securities Transfer Program, credit such aggregate number of shares of
Common Stock to which the Holder shall be entitled to the Holder’s or its
designee’s balance account with DTC through its Deposit Withdrawal at Custodian
system or (2) if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program, issue and deliver (via reputable
overnight courier) to the address as specified in the Conversion Notice, a
certificate, registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder shall be entitled. If this
Note is physically surrendered for conversion as required by Section 3(c)(iii)
and the outstanding Principal of this Note is greater than the Principal portion
of the Conversion Amount being converted, then the Company shall as soon as
practicable and in no event later than three (3) Trading Days after receipt of
this Note and at its own expense, issue and deliver to the Holder (or its
designee) a new Note (in accordance with Section 18(d)) representing the
outstanding Principal not converted. The Person or Persons entitled to receive
the shares of Common Stock issuable upon a conversion of this Note shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.

     

    (ii)           Company’s Failure to Timely
Convert. If the Company shall fail, for any reason or for no reason, to
issue to the Holder within three (3) Trading Days after the Company’s receipt of
a Conversion Notice (whether via facsimile or otherwise), a certificate for the
number of shares of Common Stock to which the Holder is entitled and register
such shares of Common Stock on the Company’s share register or to credit the
Holder’s or its designee’s balance account with DTC for such number of shares of
Common Stock to which the Holder is entitled upon the Holder’s conversion of any
Conversion Amount (as the case may be) (a “Conversion Failure”), and if
on or after such third (3rd)
Trading Day the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
shares of Common Stock issuable upon such conversion that the Holder anticipated
receiving from the Company, then, in addition to all other remedies available to
the Holder, the Company shall, within three (3) Trading Days after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions and other out-of-pocket expenses, if any) for the shares of Common
Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such
certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder’s conversion hereunder (as the case may be)
and pay cash to the Holder in an amount equal to the excess (if any) of the
Buy-In Price over the product of (A) such number of shares of Common Stock
multiplied by (B) the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the Conversion Date.

     

    
      
         

      

      
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    (iii)           Registration;
Book-Entry.  The Company shall maintain a register (the “Register”) for the recordation
of the names and addresses of the holders of each Note and the principal amount
of the Notes held by such holders (the “Registered
Notes”).  The entries in the Register shall be conclusive and
binding for all purposes absent manifest error.  The Company and the
holders of the Notes shall treat each Person whose name is recorded in the
Register as the owner of a Note for all purposes, including, without limitation,
the right to receive payments of Principal and Interest hereunder,
notwithstanding notice to the contrary.  A Registered Note may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register.  Upon its receipt of a request to assign or sell
all or part of any Registered Note by a Holder, the Company shall record the
information contained therein in the Register and issue one or more new
Registered Notes in the same aggregate principal amount as the principal amount
of the surrendered Registered Note to the designated assignee or transferee
pursuant to Section 18.  Notwithstanding anything to the contrary set
forth herein, upon conversion of any portion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this Note
to the Company unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting
reissuance of this Note upon physical surrender of this Note.  The
Holder and the Company shall maintain records showing the Principal, Interest
and Late Charges, if any, converted and/or paid (as the case may be) the dates
of such conversions and/or payments (as the case may be) or shall use such other
method, reasonably satisfactory to the Holder and the Company, so as not to
require physical surrender of this Note upon conversion

     

    (iv)           Pro Rata Conversion;
Disputes. In the event that the Company receives a Conversion Notice from
more than one holder of Notes for the same Conversion Date and the Company can
convert some, but not all, of such portions of the Notes submitted for
conversion, the Company, subject to Section 3(d), shall convert from each holder
of Notes electing to have Notes converted on such date a pro rata amount of such
holder’s portion of its Notes submitted for conversion based on the principal
amount of Notes submitted for conversion on such date by such holder relative to
the aggregate principal amount of all Notes submitted for conversion on such
date. In the event of a dispute as to the number of shares of Common Stock
issuable to the Holder in connection with a conversion of this Note, the Company
shall issue to the Holder the number of shares of Common Stock not in dispute
and resolve such dispute in accordance with Section 23.

     

    
      
         

      

      
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    (d)           Limitations on
Conversions.

     

    (i)           Beneficial
Ownership.  Notwithstanding anything to the contrary contained
in this Note, this Note shall not be convertible by the Holder hereof, and the
Company shall not effect any conversion of this Note or otherwise issue any
shares of Common Stock pursuant hereto, to the extent (but only to the extent)
that the Holder or any of its affiliates would beneficially own in excess of
4.99% (the “Maximum
Percentage”) of the Common Stock. To the extent the above limitation
applies, the determination of whether this Note shall be convertible (vis-à-vis
other convertible, exercisable or exchangeable securities owned by the Holder)
shall, subject to such Maximum Percentage limitation, be determined on the basis
of the first submission to the Company for conversion, exercise or exchange (as
the case may be). No prior inability to convert this Note, or to issue shares of
Common Stock, pursuant to this paragraph shall have any effect on the
applicability of the provisions of this paragraph with respect to any
subsequent determination of convertibility. For purposes of this paragraph,
beneficial ownership and all determinations and calculations (including, without
limitation, with respect to calculations of percentage ownership) shall be
determined in accordance with Section 13(d) of the 1934 Act (as defined in the
Securities Purchase Agreement) and the rules and regulations promulgated
thereunder. The provisions of this paragraph shall be implemented in a manner
otherwise than in strict conformity with the terms of this paragraph to correct
this paragraph (or any portion hereof) which may be defective or inconsistent
with the intended Maximum Percentage beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such Maximum Percentage limitation. The limitations contained in
this paragraph shall apply to a successor Holder of this Note. The holders of
Common Stock shall be third party beneficiaries of this paragraph and the
Company may not waive this paragraph without the consent of holders of a
majority of its Common Stock. For any reason at any time, upon the written or
oral request of the Holder, the Company shall within one (1) Business Day
confirm orally and in writing to the Holder the number of shares of Common Stock
then outstanding, including by virtue of any prior conversion or exercise of
convertible or exercisable securities into Common Stock, including, without
limitation, pursuant to this Note or securities issued pursuant to the
Securities Purchase Agreement.  By written notice to the Company, any
Holder may increase or decrease the Maximum Percentage to any other percentage
not in excess of 9.99% specified in such notice; provided that (i) any such
increase will not be effective until the 61st day after such notice is delivered
to the Company, and (ii) any such increase or decrease will apply only to the
Holder sending such notice and not to any other holder of Notes.

     

    
      
         

      

      
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    (ii)           Principal Market
Regulation. The Company shall not issue any shares of Common Stock upon
conversion of this Note or otherwise pursuant to the terms of this Note if the
issuance of such shares of Common Stock would exceed the aggregate number of
shares of Common Stock which the Company may issue upon conversion or exercise
(as the case may be) of the Notes and the SPA Warrants or otherwise pursuant to
the terms of this Note without breaching the Company’s obligations under the
rules or regulations of the Principal Market (the number of shares which may be
issued without violating such rules and regulations, the “Exchange Cap”), except that
such limitation shall not apply in the event that the Company (A) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market for issuances of shares of Common Stock in excess of such
amount or (B) obtains a written opinion from outside counsel to the Company that
such approval is not required, which opinion shall be reasonably satisfactory to
the Holder. Until such approval or such written opinion is obtained, no Buyer
shall be issued in the aggregate, upon conversion or exercise (as the case may
be) of any Notes or any of the SPA Warrants or otherwise pursuant to the terms
of this Note, shares of Common Stock in an amount greater than the product of
(i) the Exchange Cap multiplied by (ii) the quotient of (1) the original
principal amount of Notes issued to such Buyer pursuant to the Securities
Purchase Agreement on the Closing Date divided by (2) the aggregate original
principal amount of all Notes issued to the Buyers pursuant to the Securities
Purchase Agreement on the Closing Date (with respect to each Buyer, the “Exchange Cap Allocation”). In
the event that any Buyer shall sell or otherwise transfer any of such Buyer’s
Notes, the transferee shall be allocated a pro rata portion of such Buyer’s
Exchange Cap Allocation with respect to such portion of such Notes so
transferred, and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation so
allocated to such transferee.  Upon conversion and exercise in full of
a holder’s Notes and SPA Warrants, the difference (if any) between such holder’s
Exchange Cap Allocation and the number of shares of Common Stock actually issued
to such holder upon such holder’s conversion in full of such holder’s Notes and
exercise in full of such SPA Warrants shall be allocated to the respective
Exchange Cap Allocations of the remaining holders of Notes and SPA Warrants on a
pro rata basis in proportion to the shares of Common Stock underlying the Notes
and SPA Warrants then held by each such holder.

     

    4.           RIGHTS UPON EVENT OF
DEFAULT.

     

    (a)           Event of
Default.  Each of the following events shall constitute an
“Event of
Default”:

     

    (i)           the
failure of the applicable Registration Statement (as defined in the Registration
Rights Agreement) to be filed with the SEC on or prior to the date that is ten
(10) days after the applicable Filing Deadline (as defined in the Registration
Rights Agreement) or the failure of the applicable Registration Statement to be
declared effective by the SEC on or prior to the date that is ten (10) days
after the applicable Effectiveness Deadline (as defined in the Registration
Rights Agreement);

     

    (ii)           while
the applicable Registration Statement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the effectiveness of
the applicable Registration Statement lapses for any reason (including, without
limitation, the issuance of a stop order) or such Registration Statement (or the
prospectus contained therein) is unavailable to any holder of Registrable
Securities (as defined in the Registration Rights Agreement) for sale of all of
such holder’s Registrable Securities in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for a
period of five (5) consecutive days or for more than an aggregate of ten (10)
days in any 365-day period (excluding days during an Allowable Grace Period (as
defined in the Registration Rights Agreement));

     

    
      
         

      

      
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    (iii)           the
suspension from trading or the failure of the Common Stock to be trading or
listed (as applicable) on an Eligible Market for a period of five (5)
consecutive days or for more than an aggregate of ten (10) days in any 365-day
period;

     

    (iv)           the
Company’s (A) failure to cure a Conversion Failure or a Delivery Failure (as
defined in the Warrants) by delivery of the required number of shares of Common
Stock within five (5) Trading Days after the applicable Conversion Date or
exercise date (as the case may be) or (B) notice, written or oral, to any holder
of the Notes or Warrants, including, without limitation, by way of public
announcement or through any of its agents, at any time, of its intention not to
comply, as required, with a request for conversion of any Notes into shares of
Common Stock that is requested in accordance with the provisions of the Notes,
other than pursuant to Section 3(d), or a request for exercise of any Warrants
for Warrant Shares in accordance with the provisions of the
Warrants;

     

    (v)           at
any time following the tenth (10th)
consecutive day that the Holder’s Authorized Share Allocation is less than the
number of shares of Common Stock that the Holder would be entitled to receive
upon a conversion of the full Conversion Amount of this Note (without regard to
any limitations on conversion set forth in Section 3(d) or
otherwise);

     

    (vi)           the
Company’s or any Subsidiary’s failure to pay to the Holder any amount of
Principal, Interest, Late Charges or other amounts when and as due under this
Note (including, without limitation, the Company’s or any Subsidiary’s failure
to pay any redemption payments or amounts hereunder) or any other Transaction
Document (as defined in the Securities Purchase Agreement) or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated hereby and thereby, except, in the case of a
failure to pay Interest and Late Charges when and as due, in which case only if
such failure remains uncured for a period of at least five (5)
days;

     

    (vii)          the
Company fails to remove any restrictive legend on any certificate or any shares
of Common Stock issued to the Holder upon conversion or exercise (as the case
may be) of any Securities acquired by the Holder under the Securities Purchase
Agreement (including this Note) as and when required by such Securities or the
Securities Purchase Agreement, unless otherwise then prohibited by applicable
federal securities laws, and any such failure remains uncured for at least five
(5) days;

     

    (viii)         the
occurrence of any default under, redemption of or acceleration prior to maturity
of any Indebtedness (as defined in the Securities Purchase Agreement) of the
Company or any of its Subsidiaries, other than with respect to (A) Permitted
Senior Indebtedness and (B) any Other Notes;

     

    (ix)           bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings for
the relief of debtors shall be instituted by or against the Company or any
Subsidiary and, if instituted against the Company or any Subsidiary by a third
party, shall not be dismissed within thirty (30) days of their
initiation;

     

    
      
         

      

      
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    (x)          
 the commencement by the Company or any Subsidiary of a voluntary case or
proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree, order, judgment or other similar document in respect of
the Company or any Subsidiary in an involuntary case or proceeding under any
applicable federal, state or foreign bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or the
occurrence of any other similar federal, state or foreign proceeding, or the
admission by it in writing of its inability to pay its debts generally as they
become due, the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action or the taking of any action by any Person to
commence a UCC foreclosure sale or any other similar action under federal, state
or foreign law;

     

    (xi)           the
entry by a court of (i) a decree, order, judgment or other similar document in
respect of the Company or any Subsidiary of a voluntary or involuntary case or
proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or (ii) a decree, order,
judgment or other similar document adjudging the Company or any Subsidiary as
bankrupt or insolvent, or approving as properly filed a petition seeking
liquidation, reorganization, arrangement, adjustment or composition of or in
respect of the Company or any Subsidiary under any applicable federal, state or
foreign law or (iii) a decree, order, judgment or other similar document
appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or any Subsidiary or of any substantial
part of its property, or ordering the winding up or liquidation of its affairs,
and the continuance of any such decree, order, judgment or other similar
document or any such other decree, order, judgment or other similar document
unstayed and in effect for a period of thirty (30) consecutive
days;

     

    (xii)           a
final judgment or judgments for the payment of money aggregating in excess of
$300,000 are rendered against the Company and/or any of its Subsidiaries and
which judgments are not, within thirty (30) days after the entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within thirty
(30) days after the expiration of such stay; provided, however, any judgment
which is covered by insurance or an indemnity from a credit worthy party shall
not be included in calculating the $300,000 amount set forth above so long as
the Company provides the Holder a written statement from such insurer or
indemnity provider (which written statement shall be reasonably satisfactory to
the Holder) to the effect that such judgment is covered by insurance or an
indemnity and the Company or such Subsidiary (as the case may be) will receive
the proceeds of such insurance or indemnity within thirty (30) days of the
issuance of such judgment;

     

    
      
         

      

      
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    (xiii)         the
Company and/or any Subsidiary, individually or in the aggregate, either (i)
fails to pay, when due, or within any applicable grace period, any payment with
respect to any Indebtedness in excess of $300,000 due to any third party (other
than, with respect to unsecured Indebtedness only, payments contested by the
Company and/or such Subsidiary (as the case may be) in good faith by proper
proceedings and with respect to which adequate reserves have been set aside for
the payment thereof in accordance with GAAP) or is otherwise in breach or
violation of any agreement for monies owed or owing in an amount in excess of
$300,000, which breach or violation permits the other party thereto to declare a
default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist
any other circumstance or event that would, with or without the passage of time
or the giving of notice, result in a default or event of default under any
agreement binding the Company or any Subsidiary, which default or event of
default would or is likely to have a material adverse effect on the business,
assets, operations (including results thereof), liabilities, properties,
condition (including financial condition) or prospects of the Company or any of
its Subsidiaries, individually or in the aggregate;

     

    (xiv)         other
than as specifically set forth in another clause of this Section 4(a), the Company or any
Subsidiary breaches any representation, warranty, covenant or other term or
condition of any Transaction Document (including, without limitation, any
Security Document (as defined in the Securities Purchase Agreement)), except, in
the case of a breach of a covenant or other term or condition that is curable,
only if such breach remains uncured for a period of five (5) consecutive Trading
Days;

     

    (xv)          any
strike, lockout, labor dispute, embargo, condemnation, act of God or public
enemy, or other casualty which causes, for more than fifteen (15) consecutive
days, the cessation or substantial curtailment of revenue producing activities
at any facility of the Company or any Subsidiary, if any such event or
circumstance could reasonably be expected to have a Material Adverse Effect (as
defined in the Securities Purchase Agreement);

     

    (xvi)         a
false or inaccurate certification (including a false or inaccurate deemed
certification) by the Company that the Equity Conditions are satisfied, that
there has been no Interest Conditions Failure, Redemption Conditions Failure,
Equity Conditions Failure, Dollar Failure, Volume Failure or Price Failure or as
to whether any Event of Default has occurred;

     

    (xvii)        any
breach or failure in any respect by the Company or any Subsidiary to comply with
any provision of Section 13 of this Note;

     

    (xviii)       any
Material Adverse Effect (as defined in the Securities Purchase Agreement)
occurs;

     

    
      
         

      

      
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    (xix)          any
provision of any Transaction Document (including, without limitation, the Pledge
Agreement (as defined in the Securities Purchase Agreement)) shall at any time
for any reason (other than pursuant to the express terms thereof) cease to be
valid and binding on or enforceable against the parties thereto, or the validity
or enforceability thereof shall be contested by any party thereto, or a
proceeding shall be commenced by the Pledgor (as defined in the Pledge
Agreement), the Company or any Subsidiary or any governmental authority having
jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof, or the Pledgor, the Company or any Subsidiary shall
deny in writing that it has any liability or obligation purported to be created
under any Transaction Document (including, without limitation, the Pledge
Agreement);

     

    (xx)           the
Pledgor shall fail to perform or comply with any covenant or agreement contained
in the Pledge Agreement;

     

    (xxi)          the
Pledge Agreement shall for any reason fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien in favor of the Secured Parties (as defined in the Pledge
Agreement) on the shares of Common Stock or other assets purported to be covered
thereby; or

     

    (xxii)         any
Event of Default (as defined in the Other Notes) occurs with respect to any
Other Notes.

     

    Upon the
occurrence of an Event of Default with respect to this Note or any Other Note,
the Company shall within one (1) Business Day deliver written notice thereof via
facsimile and overnight courier (with next day delivery specified) (an “Event of Default Notice”) to
the Holder.

     

    (b)           Redemption Right. At
any time after the earlier of the Holder’s receipt of an Event of Default Notice
and the Holder becoming aware of an Event of Default, the Holder may require the
Company to redeem (regardless of whether such Event of Default has been cured)
all or any portion of this Note by delivering written notice thereof (the “Event of Default Redemption
Notice”) to the Company, which Event of Default Redemption Notice shall
indicate the portion of this Note the Holder is electing to redeem. Each portion
of this Note subject to redemption by the Company pursuant to this Section 4(b)
shall be redeemed by the Company at a price equal to the greater of (i) the
product of (A) the Conversion Amount to be redeemed multiplied by (B) the
Redemption Premium and (ii) the product of (X) the Conversion Rate with respect
to the Conversion Amount in effect at such time as the Holder delivers an Event
of Default Redemption Notice multiplied by (Y) the product of (1) the Equity
Value Redemption Premium multiplied by (2) the greatest Closing Sale Price of
the Common Shares during the period beginning on the date immediately preceding
such Event of Default and ending on the date the Holder delivers the Event of
Default Redemption Notice (the “Event of Default Redemption Price”).
Redemptions required by this Section 4(b) shall be made in accordance with the
provisions of Section 11. To the extent redemptions required by this Section
4(b) are deemed or determined by a court of competent jurisdiction to be
prepayments of this Note by the Company, such redemptions shall be deemed to be
voluntary prepayments. Notwithstanding anything to the contrary in this Section
4, but subject to Section 3(d), until the Event of Default Redemption Price
(together with any Late Charges thereon) is paid in full, the Conversion Amount
submitted for redemption under this Section 4(b) (together with any Late Charges
thereon) may be converted, in whole or in part, by the Holder into Common Stock
pursuant to Section 3.  In the event of the Company’s redemption of
any portion of this Note under this Section 4(b), the Holder’s damages would be
uncertain and difficult to estimate because of the parties’ inability to predict
future interest rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the Holder. Accordingly, any redemption
premium due under this Section 4(b) is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.

     

    
      
         

      

      
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    5.           RIGHTS UPON FUNDAMENTAL
TRANSACTION.

     

    (a)           Assumption. The
Company shall not enter into or be party to a Fundamental Transaction unless
(i) the Successor Entity assumes in writing all of the obligations of the
Company under this Note and the other Transaction Documents in accordance with
the provisions of this Section 5(a) pursuant to written agreements in form and
substance satisfactory to the Holder and approved by the Holder prior to such
Fundamental Transaction, including, without limitation, having a principal
amount and interest rate equal to the principal amounts then outstanding and the
interest rates of the Notes held by such holder, having similar conversion
rights as the Notes and having similar ranking to the Notes, and satisfactory to
the Holder and (ii) the Successor Entity is a publicly traded corporation
whose common stock is quoted on or listed for trading on an Eligible Market.
Upon the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Note and the other Transaction
Documents referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume
all of the obligations of the Company under this Note and the other Transaction
Documents with the same effect as if such Successor Entity had been named as the
Company herein. Upon consummation of a Fundamental Transaction, the Successor
Entity shall deliver to the Holder confirmation that there shall be issued upon
conversion or redemption of this Note at any time after the consummation of such
Fundamental Transaction, in lieu of the shares of the Company’s Common Stock (or
other securities, cash, assets or other property (except such items still
issuable under Sections 6 and 15, which shall continue to be receivable
thereafter) issuable upon the conversion or redemption of the Notes prior to
such Fundamental Transaction, such shares of the publicly traded common stock
(or their equivalent) of the Successor Entity (including its Parent Entity)
which the Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had this Note been converted immediately prior to such
Fundamental Transaction (without regard to any limitations on the conversion of
this Note), as adjusted in accordance with the provisions of this Note.
Notwithstanding the foregoing, the Holder may elect, at its sole option, by
delivery of written notice to the Company to waive this Section 5(a) to permit
the Fundamental Transaction without the assumption of this Note.  The
provisions of this Section 5 shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
on the conversion of this Note.

     

    
      
         

      

      
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    (b)           Redemption Right. No
sooner than twenty (20) Trading Days nor later than ten (10) Trading Days prior
to the consummation of a Change of Control, but not prior to the public
announcement of such Change of Control, the Company shall deliver written notice
thereof via facsimile and overnight courier to the Holder (a “Change of Control
Notice”).  At any time and from time to time during the period
commencing on the earlier to occur of (x) any oral or written agreement by the
Company or any of its Subsidiaries, which upon consummation of the transaction
contemplated thereby would reasonably be expected to result in a Change of
Control and (y) the Holder's receipt of a Change of Control Notice and ending on
the later of twenty (20) Trading Days after (A) consummation of such Change of
Control or (B) the date of receipt of such Change of Control Notice, the Holder
may require the Company to redeem all or any portion of this Note by delivering
written notice thereof (“Change
of Control Redemption Notice”) to the Company, which Change of Control
Redemption Notice shall indicate the Conversion Amount the Holder is electing to
redeem.  The portion of this Note subject to redemption pursuant to
this Section 5 shall be redeemed by the Company in cash at a price equal to the
greater of (i) the product of (x) the Change of Control Redemption Premium
multiplied by (y) the Conversion Amount being redeemed, (ii) the product of (x)
the Equity Value Redemption Premium multiplied by (y) the product of (A) the
Conversion Amount being redeemed multiplied by (B) the quotient determined by
dividing (I) the greatest Closing Sale Price of the Common Shares during the
period beginning on the date immediately preceding the earlier to occur of (1)
the consummation of the Change of Control and (2) the public announcement of
such Change of Control and ending on the date the Holder delivers the Change of
Control Redemption Notice by (II) the Conversion Price then in
effect and (iii) the product of (y) the Equity Value Redemption Premium
multiplied by (z) the product of (A) the Conversion Amount being redeemed
multiplied by (B) the quotient of (I) the aggregate cash consideration and the
aggregate cash value of any non-cash consideration per share of Common Stock to
be paid to the holders of the shares of Common Stock upon consummation of such
Change of Control (any such non-cash consideration constituting publicly-traded
securities shall be valued at the highest of the Closing Sale Price of such
securities as of the Trading Day immediately prior to the consummation of such
Change of Control, the Closing Sale Price of such securities on the Trading Day
immediately following the public announcement of such proposed Change of Control
and the Closing Sale Price of such securities on the Trading Day immediately
prior to the public announcement of such proposed Change of Control) divided by
(II) the Conversion Price then in effect (the “Change of Control Redemption
Price”). Redemptions required by this Section 5 shall be made in
accordance with the provisions of Section 11 and shall have priority to payments
to stockholders in connection with such Change of Control. To the extent
redemptions required by this Section 5(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of this Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 5, but subject to Section 3(d), until
the Change of Control Redemption Price (together with any Late Charges thereon)
is paid in full, the Conversion Amount submitted for redemption under this
Section 5(b) (together with any Late Charges thereon) may be converted, in whole
or in part, by the Holder into Common Stock pursuant to Section 3. In the event
of the Company’s redemption of any portion of this Note under this Section 5(b),
the Holder’s damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any redemption premium due under this Section 5(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder’s
actual loss of its investment opportunity and not as a penalty.

     

    
      
         

      

      
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    (c)           Adjustment to the Conversion
Rate Upon a Change of Control.

     

    (i)           In
connection with a Change of Control, if the Holder converts its Note at any time
beginning on the date of the Change of Control Notice and ending at the close of
business on the Trading Day immediately prior to the applicable Change of
Control Date, the Company will increase the Conversion Rate by a number of
additional shares (the “Additional Shares”) for such
Note as described in Section 5(c)(ii) hereof; provided that (A) such increase in
the Conversion Rate shall not take place if such Change of Control is not
consummated, (B) the Company shall issue Common Shares at the Conversion Rate
(excluding such increase) on the earlier to occur of (x) the third (3rd) Trading
Day after the Conversion Date and (y) the time immediately prior to such Change
of Control and (C) the Company shall issue such Additional Shares at the time
immediately prior to such Change of Control; provided, that if the issuance of
any Additional Shares would cause the Holder or any of its affiliates to
beneficially own Common Shares (or securities of the Successor Entity or other
issuer upon the consummation of the Change of Control) in excess of the Maximum
Percentage (a “Maximum
Percentage Event”), the Holder shall have the right, exercisable by the
delivery of one or more written notices to the Company, to cause the Company to
alternatively issue to the Holder such Additional Shares (or the cash,
securities and/or other consideration to be issued in exchange for such
Additional Shares in such Change of Control, if applicable), or such portion
thereof as set forth in the applicable notice, on or prior to the third (3rd)
Trading Day after the Holder delivers the applicable notice to the Company (or
the Public Successor Entity or other issuer, as applicable) that the issuance of
such Additional Shares (or the cash, securities and/or other consideration to be
issued in exchange for such Additional Shares in such Change of Control, if
applicable), or such portion thereof as set forth in the applicable Notice,
would not result in a Maximum Percentage Event.

     

    (ii)           The
number of Additional Shares will be determined by the quotient of (x) the
Additional Share Amount and (y) the lowest of (A) the Conversion Price as in
effect on the Trading Day immediately prior to the applicable Conversion Date,
(B) 90% of the lowest Closing Bid Price of the Common Stock during the period
beginning on and including the earlier to occur of (I) any oral or written
agreement by the Company or any of its Subsidiaries, which upon consummation of
the transaction contemplated thereby would reasonably be expected to result in a
Change of Control and (II) the Holder's receipt of a Change of Control Notice
and ending on and including the Trading Day immediately prior to the applicable
Conversion Date and (C) 90% of the VWAP for the five (5) Trading Day period
immediately preceding the applicable Conversion Date.

     

    
      
         

      

      
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    6.           RIGHTS UPON ISSUANCE OF
PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

     

    (a)           Purchase Rights. In
addition to any adjustments pursuant to Section 7 below, if at any time the
Company grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the “Purchase Rights”), then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired if
the Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights (provided, however, to the extent that the Holder’s right to participate
in any such Purchase Right would result in the Holder exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to such extent (or beneficial ownership of such shares of Common
Stock as a result of such Purchase Right to such extent) and such Purchase Right
to such extent shall be held in abeyance for the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Maximum
Percentage).

     

    (b)           Other Corporate
Events. In addition to and not in substitution for any other rights
hereunder, prior to the consummation of any Fundamental Transaction pursuant to
which holders of shares of Common Stock are entitled to receive securities or
other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company
shall make appropriate provision to insure that the Holder will thereafter have
the right to receive upon a conversion of this Note (i) in addition to the
shares of Common Stock receivable upon such conversion, such securities or other
assets to which the Holder would have been entitled with respect to such shares
of Common Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a conversion rate for such consideration commensurate with
the Conversion Rate. Provision made pursuant to the preceding sentence shall be
in a form and substance satisfactory to the Required Holders.  The
provisions of this Section 6 shall apply similarly and equally to successive
Corporate Events and shall be applied without regard to any limitations on the
conversion or redemption of this Note.

     

    
      
         

      

      
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    7.           RIGHTS UPON ISSUANCE OF
OTHER SECURITIES.

     

    (a)           Adjustment of Conversion
Price upon Issuance of Common Stock.  If and whenever on or
after the Subscription Date the Company issues or sells, or in accordance with
this Section 7(a) is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding any Excluded Securities issued or
sold or deemed to have been issued or sold) for a consideration per share (the
“New Issuance Price”)
less than a price equal to the Conversion Price in effect immediately prior to
such issue or sale or deemed issuance or sale (such Conversion Price then in
effect is referred to herein as the “Applicable Price”) (the
foregoing a “Dilutive
Issuance”), then, immediately after such Dilutive Issuance, the
Conversion Price then in effect shall be reduced to an amount equal to the New
Issuance Price. For purposes of determining the adjusted Conversion Price under
this Section 7(a), the following shall be applicable:

     

    (i)           Issuance of
Options.  If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 7(a)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. Except as contemplated below, no
further adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock or of such Convertible Securities upon
the exercise of such Options or upon the actual issuance of such share of Common
Stock upon conversion, exercise or exchange of such Convertible
Securities.

     

    (ii)           Issuance of Convertible
Securities.  If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this Section 7(a)(ii), the “lowest price per share for which
one share of Common Stock is issuable upon the conversion, exercise or exchange
thereof” shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. Except as contemplated below,
no further adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock upon conversion, exercise or exchange of
such Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Conversion Price has been or is to be made pursuant to other provisions of this
Section 7(a), except as contemplated below, no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.

     

    
      
         

      

      
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    (iii)           Change in Option Price or
Rate of Conversion. If the purchase or exercise price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exercise or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at any time, the
Conversion Price in effect at the time of such increase or decrease shall be
adjusted to the Conversion Price which would have been in effect at such time
had such Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased or decreased
conversion rate (as the case may be) at the time initially granted, issued or
sold. For purposes of this Section 7(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the Subscription Date are
increased or decreased in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the shares of Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 7(a) shall be made if such adjustment would
result in an increase of the Conversion Price then in effect.

     

    (iv)           Calculation of Consideration
Received. In case any Option is issued in connection with the issue or
sale of other securities of the Company, together comprising one integrated
transaction, (x) the Options will be deemed to have been issued for a
consideration equal to the Black-Scholes Consideration Value and (y) the other
securities issued or sold in such integrated transaction shall be deemed to have
been issued for the difference of (I) the aggregate consideration received by
the Company, less (II) the Black-Scholes Consideration Value.  If any
shares of Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received therefor
will be deemed to be the net amount received by the Company therefor. If any
shares of Common Stock, Options or Convertible Securities are issued or sold for
a consideration other than cash, the amount of such consideration received by
the Company will be the fair value of such consideration, except where such
consideration consists of publicly traded securities, in which case the amount
of consideration received by the Company for such securities will be the average
VWAP of such security for the five (5) Trading Day period immediately preceding
the date of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such shares of Common Stock, Options or Convertible Securities (as the case may
be). The fair value of any consideration other than cash or publicly traded
securities will be determined jointly by the Company and the Holder. If such
parties are unable to reach agreement within ten (10) days after the occurrence
of an event requiring valuation (the “Valuation Event”), the fair
value of such consideration will be determined within five (5) Trading Days
after the tenth (10th) day
following such Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Holder. The determination of such appraiser
shall be final and binding upon all parties absent manifest error and the fees
and expenses of such appraiser shall be borne by the Company.

     

    
      
         

      

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

     

    (b)           Adjustment of Conversion
Price upon Subdivision or Combination of Common Stock.  If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time on or after the Subscription
Date combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
will be proportionately increased. Any adjustment pursuant to this Section 7(b)
shall become effective immediately after the effective date of such subdivision
or combination. If any event requiring an adjustment under this Section 7(b)
occurs during the period that a Conversion Price is calculated hereunder, then
the calculation of such Conversion Price shall be adjusted appropriately to
reflect such event.

     

    (c)           Other Events. In the
event that the Company (or any direct or indirect Subsidiary thereof) shall
take any action to which the provisions hereof are not strictly applicable, or,
if applicable, would not operate to protect the Holder from dilution or if any
event occurs of the type contemplated by the provisions of this Section 7 but
not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company’s board of directors shall in good faith
determine and implement an appropriate adjustment in the Conversion Price so as
to protect the rights of the Holder, provided that no such adjustment pursuant
to this Section 7(c) will increase the Conversion Price as otherwise determined
pursuant to this Section 7, provided further that if the Holder does not accept
such adjustments as appropriately protecting its interests hereunder against
such dilution, then the Company’s board of directors and the Holder shall agree,
in good faith, upon an independent investment bank of nationally recognized
standing to make such appropriate adjustments, whose determination shall be
final and binding and whose fees and expenses shall be borne by the
Company.

     

    
      
         

      

      
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    (d)           Adjustment.  If
immediately following the close of business on the twenty-first consecutive
Trading Day immediately following (i) such date the applicable Registration
Statement filed pursuant to the Registration Rights Agreement shall be effective
and the prospectus contained therein shall be available for the resale by the
Holder of all of the Registrable Securities (which, solely for clarification
purposes, includes all shares of Common Stock issuable upon conversion of the
Notes or otherwise pursuant to the terms of the Notes and upon exercise of the
Warrants (without regard for any limitations on conversion, issuance or exercise
set forth therein) in accordance with the terms of the Registration Rights
Agreement) or, (ii) if earlier, each of (x)
[     ]1 or such later date
thereafter when the Company shall have satisfied its current public information
requirement under Rule 144(c)(1) and (y) the Initial Effective Date (as defined
in the Registration Rights Agreement) (each, as applicable, an “Adjustment Date”), the
Conversion Price then in effect exceeds the Market Price as of such Adjustment
Date (the “Adjusted Conversion
Price”), the Conversion Price hereunder shall be reset to the Adjusted
Conversion Price as of such Adjustment Date (each, a “Conversion Price
Adjustment”).  Notwithstanding the foregoing, to the extent the
Holder delivers one or more Conversion Notices to the Company during the Market
Price Measuring Period with respect to a Conversion Price Adjustment, in
addition to the shares of Common Stock issued or issuable to the Holder with
respect to each such Conversion Notice, on the later of (A) the applicable Share
Delivery Date with respect to such Conversion Notice and (B) the applicable
Adjustment Date, the Holder shall receive an additional number of shares of
Common Stock equal to the difference of (x) the quotient of (I) the Conversion
Amount with respect to such Conversion Notice, divided by (II) the Adjusted
Conversion Price, less (y) the number of shares of Common Stock issued or
otherwise issuable to the Holder with respect to such Conversion
Notice.  Except as otherwise provided in this Section 7(d), the
Adjusted Conversion Price, if any, shall not apply to any Conversion Amount
converted into Common Stock prior to such Adjustment Date.

     

    
      
        

    

    
      1 Insert
six month anniversary of the Issuance Date

        
          
             

          

          
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    8.           REDEMPTIONS AT THE COMPANY'S
ELECTION.

     

    (a)           Company Optional
Redemption.  If at any time after the six month anniversary of
the Effective Date (the “Company Redemption Eligibility
Date”), (i) the Closing Sale Price of the Common Shares listed on the
Principal Market exceeds 175% of the Conversion Price as of the Issuance Date
(as adjusted for stock splits, stock dividends, stock combinations or other
similar transactions) for each of the fifteen (15) consecutive Trading Day
period following the applicable Company Redemption Eligibility Date (the “Company Optional Redemption Measuring
Period”), and (ii) no Redemption Conditions Failure exists, the Company
shall have the right to redeem all, but not less than all, of the Conversion
Amount then remaining under this Note (the “Company Optional Redemption
Amount”) on the Company Optional Redemption Date (each as defined below)
(a “Company Optional
Redemption”).  The portion of this Note subject to redemption
pursuant to this Section 9(a) shall be redeemed by the Company in cash at a
price (the “Company Optional
Redemption Price”) equal to the Conversion Amount being redeemed together
with any accrued and unpaid Interest and Late Charges, if any, on such
Conversion Amount and Interest through the Company Optional Redemption Date (as
defined below).  The Company may exercise its right to require
redemption under this Section 9(a) by delivering a written notice thereof by
facsimile and overnight courier to all, but not less than all, of the holders of
Notes (the “Company Optional
Redemption Notice” and the date all of the holders of Notes received such
notice is referred to as the “Company Optional Redemption Notice
Date”).  The Company may deliver only one Company Optional
Redemption Notice hereunder and such Company Optional Redemption Notice shall be
irrevocable.  The Company Optional Redemption Notice shall (x) state
the date on which the Company Optional Redemption shall occur (the “Company Optional Redemption
Date”) which date shall not be less than ten (10) Trading Days nor more
than thirty (30) Trading Days following the Company Optional Redemption Notice
Date, (y) certify that there has been no Redemption Conditions Failure, and (z)
state the aggregate Conversion Amount of the Notes which is being redeemed in
such Company Optional Redemption from the Holder and all of the other holders of
the Notes pursuant to this Section 9(a) (and analogous provisions under the
Other Notes) on the Company Optional Redemption Date.  Notwithstanding
anything herein to the contrary, (i) if no Redemption Conditions Failure has
occurred as of the Company Optional Redemption Notice Date but a Redemption
Conditions Failure  occurs at any time prior to the Company Optional
Redemption Date, (A) the Company shall provide the Holder a subsequent notice to
that effect and (B) unless the Holder waives the Redemption Conditions Failure,
the Company Optional Redemption shall be cancelled and the applicable Company
Optional Redemption Notice shall be null and void and (ii) at any time prior to
the date the Company Optional Redemption Price is paid, in full, the Company
Optional Redemption Amount may be converted, in whole or in part, by the Holders
into Common Shares pursuant to Section 3.  All Conversion Amounts
converted by the Holder after the Company Optional Redemption Notice Date shall
reduce the Company Optional Redemption Amount of this Note required to be
redeemed on the Company Optional Redemption Date.  Redemptions made
pursuant to this Section 9(a) shall be made in accordance with Section
11.

     

    (b)           Company Call
Redemption.  At any time after the Company Redemption
Eligibility Date, provided that no Redemption Conditions Failure exists, the
Company shall have the right to redeem all, but not less than all, of the
Conversion Amount then remaining under this Note (the “Company Call Redemption
Amount”) on the Company Call Redemption Date (each as defined below) (a
“Company Call
Redemption”).  The portion of this Note subject to redemption
pursuant to this Section 9(b) shall be redeemed by the Company in cash at a
price (the “Company Call
Redemption Price”) equal to 125% of the sum of (x) the Conversion Amount
being redeemed and (y) any accrued and unpaid Interest and Late Charges, if any,
on such Conversion Amount and Interest through the Company Call Redemption Date
(as defined below).  The Company may exercise its right to require
redemption under this Section 9(b) by delivering a written notice thereof by
facsimile and overnight courier to all, but not less than all, of the holders of
Notes (the “Company Call
Redemption Notice” and the date all of the holders of Notes received such
notice is referred to as the “Company Call Redemption Notice
Date”).  The Company may deliver only one Company Call
Redemption Notice hereunder and such Company Call Redemption Notice shall be
irrevocable.  The Company Call Redemption Notice shall (x) state the
date on which the Company Call Redemption shall occur (the “Company Call Redemption Date”)
which date shall not be less than ten (10) Trading Days nor more than thirty
(30) Trading Days following the Company Call Redemption Notice Date, (y) certify
that there has been no Redemption Conditions Failure and (z) state the aggregate
Conversion Amount of the Notes which is being redeemed in such Company Call
Redemption from the Holder and all of the other holders of the Notes pursuant to
this Section 9(b) (and analogous provisions under the Other Notes) on the
Company Call Redemption Date.  Notwithstanding anything herein to the
contrary, (i) if no Redemption Conditions Failure has occurred as of the Company
Call Redemption Notice Date but a Redemption Conditions Failure occurs at any
time prior to the Company Call Redemption Date, (A) the Company shall provide
the Holder a subsequent notice to that effect and (B) unless the Holder waives
the Redemption Conditions Failure, the Company Optional Redemption shall be
cancelled and the applicable Company Call Redemption Notice shall be null and
void and (ii) at any time prior to the date the Company Call Redemption Price is
paid, in full, the Company Call Redemption Amount may be converted, in whole or
in part, by the Holders into Common Shares pursuant to Section 3.  All
Conversion Amounts converted by the Holder after the Company Call Redemption
Notice Date shall reduce the Company Call Redemption Amount of this Note
required to be redeemed on the Company Call Redemption
Date.  Redemptions made pursuant to this Section 9(b) shall be made in
accordance with Section 11.

     

    
      
         

      

      
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    (c)           Pro Rata Redemption
Requirement.  If the Company elects to cause a Company Optional
Redemption or a Company Call Redemption of this Note pursuant to Section 9(a) or
9(b), then it must simultaneously take the same action with respect to all of
the Other Notes.

     

    9.           NONCIRCUMVENTION. The
Company hereby covenants and agrees that the Company will not, by amendment of
its Certificate of Incorporation (as defined in the Securities Purchase
Agreement), Bylaws (as defined in the Securities Purchase Agreement) or through
any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares
of Common Stock receivable upon conversion of this Note above the Conversion
Price then in effect, (ii) shall take all such actions as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock upon the conversion of this Note,
and (iii) shall, so long as any of the Notes are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Notes, the maximum number of shares of Common Stock as shall from time to
time be necessary to effect the conversion of the Notes then outstanding
(without regard to any limitations on conversion).

     

    
      
         

      

      
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    10.           RESERVATION OF AUTHORIZED
SHARES.

     

    (a)           Reservation. The
Company shall initially reserve out of its authorized and unissued Common Stock
a number of shares of Common Stock for each of the Notes equal to 130% of the
entire Conversion Rate with respect to the entire Conversion Amount of each such
Note as of the Issuance Date.  So long
as any of the Notes are outstanding, the Company shall take all action necessary
to reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes, 130% of the
number of shares of Common Stock as shall from time to time be necessary to
effect the conversion of all of the Notes then outstanding, provided that at no
time shall the number of shares of Common Stock so reserved be less than the
number of shares required to be reserved by the previous sentence (without
regard to any limitations on conversions) (the “Required Reserve
Amount”).  The initial number of shares of Common Stock
reserved for conversions of the Notes and each increase in the number of shares
so reserved shall be allocated pro rata among the holders of the Notes based on
the original principal amount of the Notes held by each holder on the Closing
Date or increase in the number of reserved shares (as the case may be) (the
“Authorized Share
Allocation”). In the event that a holder shall sell or otherwise transfer
any of such holder’s Notes, each transferee shall be allocated a pro rata
portion of such holder’s Authorized Share Allocation. Any shares of Common Stock
reserved and allocated to any Person which ceases to hold any Notes shall be
allocated to the remaining holders of Notes, pro rata based on the principal
amount of the Notes then held by such holders.

     

    (b)           Insufficient Authorized
Shares. If, notwithstanding Section 10(a), and not in limitation thereof,
at any time while any of the Notes remain outstanding the Company does not have
a sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon conversion of the Notes at
least a number of shares of Common Stock equal to the Required Reserve Amount
(an “Authorized Share
Failure”), then the Company shall immediately take all action necessary
to increase the Company’s authorized shares of Common Stock to an amount
sufficient to allow the Company to reserve the Required Reserve Amount for the
Notes then outstanding. Without limiting the generality of the foregoing
sentence, as soon as practicable after the date of the occurrence of an
Authorized Share Failure, but in no event later than sixty (60) days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of
its stockholders for the approval of an increase in the number of authorized
shares of Common Stock.  In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its best
efforts to solicit its stockholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.

     

    
      
         

      

      
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    11.           REDEMPTIONS.

     

    (a)           Mechanics. The
Company shall deliver the applicable Event of Default Redemption Price to the
Holder in cash within five (5) Business Days after the Company’s receipt of the
Holder’s Event of Default Redemption Notice. If the Holder has submitted a
Change of Control Redemption Notice in accordance with Section 5(b), the Company
shall deliver the applicable Change of Control Redemption Price to the Holder in
cash concurrently with the consummation of such Change of Control if such notice
is received prior to the consummation of such Change of Control and within five
(5) Business Days after the Company’s receipt of such notice
otherwise.  The Company shall deliver the applicable Company Optional
Redemption Price on the Company Optional Redemption Date.  The Company
shall deliver the applicable Company Call Redemption Price on the Company Call
Redemption Date.  In the event of a redemption of less than all of the
Conversion Amount of this Note, the Company shall promptly cause to be issued
and delivered to the Holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal which has not been redeemed. In the event
that the Company does not pay the applicable Redemption Price to the Holder
within the time period required, at any time thereafter and until the Company
pays such unpaid Redemption Price in full, the Holder shall have the option, in
lieu of redemption, to require the Company to promptly return to the Holder all
or any portion of this Note representing the Conversion Amount that was
submitted for redemption and for which the applicable Redemption Price (together
with any Late Charges thereon) has not been paid. Upon the Company’s receipt of
such notice, (x) the applicable Redemption Notice shall be null and void with
respect to such Conversion Amount, (y) the Company shall immediately return this
Note, or issue a new Note (in accordance with Section 18(d)), to the Holder, and
in each case the principal amount of this Note or such new Note (as the
case may be) shall be increased by an amount equal to the difference between (1)
the applicable Event of Default Redemption Price, Change of Control Redemption
Price, Company Optional Redemption Price or Company Call Redemption Price (as
the case may be) minus (2) the Conversion Amount submitted for redemption and
(z) the Conversion Price of this Note or such new Notes (as the case may be)
shall be adjusted to the lowest of (A) the Conversion Price as in effect on the
date on which the applicable Redemption Notice is voided, (B) 90% of the lowest
Closing Bid Price of the Common Stock during the period beginning on and
including the date on which the applicable Redemption Notice is delivered to the
Company and ending on and including the date on which the applicable Redemption
Notice is voided and (C) 90% of the VWAP for the five (5) Trading Day period
immediately preceding the Conversion Date of the applicable conversion. The
Holder’s delivery of a notice voiding a Redemption Notice and exercise of its
rights following such notice shall not affect the Company’s obligations to make
any payments of Late Charges which have accrued prior to the date of such notice
with respect to the Conversion Amount subject to such notice.

     

    (b)           Redemption by Other
Holders. Upon the Company’s receipt of notice from any of the holders of
the Other Notes for redemption or repayment as a result of an event or
occurrence substantially similar to the events or occurrences described in
Section 4(b) or Section 5(b) (each, an “Other Redemption Notice”), the
Company shall immediately, but no later than one (1) Business Day of its receipt
thereof, forward to the Holder by facsimile a copy of such notice. If the
Company receives a Redemption Notice and one or more Other Redemption Notices,
during the seven (7) Business Day period beginning on and including the date
which is three (3) Business Days prior to the Company’s receipt of the Holder’s
applicable Redemption Notice and ending on and including the date which is three
(3) Business Days after the Company’s receipt of the Holder’s applicable
Redemption Notice and the Company is unable to redeem all principal, interest
and other amounts designated in such Redemption Notice and such Other Redemption
Notices received during such seven (7) Business Day period, then the Company
shall redeem a pro rata amount from each holder of the Notes (including the
Holder) based on the principal amount of the Notes submitted for redemption
pursuant to such Redemption Notice and such Other Redemption Notices received by
the Company during such seven (7) Business Day period.

     

    
      
         

      

      
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    12.           VOTING RIGHTS. The
Holder shall have no voting rights as the holder of this Note, except as
required by law, including but not limited to the Delaware General Corporation
Law, and as expressly provided in this Note.

     

    13.           COVENANTS. Until all
of the Notes have been converted, redeemed or otherwise satisfied in accordance
with their terms:

     

    (a)           Rank. All payments
due under this Note (a) shall rank pari passu with all Other
Notes and (b) shall be senior to all other Indebtedness of the Company and its
Subsidiaries other than Permitted Senior Indebtedness .

     

    (b)           Incurrence of
Indebtedness. The Company shall not, and the Company shall cause each of
its Subsidiaries to not, directly or indirectly, incur or guarantee, assume or
suffer to exist any Indebtedness (other than (i) the Indebtedness evidenced by
this Note and the Other Notes and (ii) Permitted Indebtedness).

     

    (c)           Existence of Liens.
The Company shall not, and the Company shall cause each of its Subsidiaries to
not, directly or indirectly, allow or suffer to exist any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in any property
or assets (including accounts and contract rights) owned by the Company or any
of its Subsidiaries (collectively, “Liens”) other than Permitted
Liens.

     

    (d)           Restricted Payments.
The Company shall not, and the Company shall cause each of its Subsidiaries to
not, directly or indirectly, redeem, defease, repurchase, repay or make any
payments in respect of, by the payment of cash or cash equivalents (in whole or
in part, whether by way of open market purchases, tender offers, private
transactions or otherwise), all or any portion of any Indebtedness (other than
Permitted Senior Indebtedness or the Notes), whether by way of payment in
respect of principal of (or premium, if any) or interest on, such Indebtedness
if at the time such payment is due or is otherwise made or, after giving effect
to such payment, (i) an event constituting an Event of Default has occurred and
is continuing or (ii) an event that with the passage of time and without being
cured would constitute an Event of Default has occurred and is
continuing.

     

    (e)           Restriction on Redemption
and Cash Dividends. The Company shall not, and the Company shall cause
each of its Subsidiaries to not, directly or indirectly, redeem, repurchase or
declare or pay any cash dividend or distribution on any of its capital stock
without the prior express written consent of the Holder.

     

    (f)           Restriction on Transfer of
Assets. The Company shall not, and the Company shall cause each of its
Subsidiaries to not, directly or indirectly, sell, lease, license, assign,
transfer, convey or otherwise dispose of any assets or rights of the Company or
any Subsidiary owned or hereafter acquired whether in a single transaction or a
series of related transactions, other than (i) sales, leases, licenses,
assignments, transfers, conveyances and other dispositions of such assets or
rights by the Company and its Subsidiaries that, in the aggregate, do not have a
fair market value in excess of $100,000 in any twelve (12) month period and (ii)
sales of inventory in the ordinary course of business.

     

    
      
         

      

      
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    (g)           Maturity of
Indebtedness. The Company shall not, and the Company shall cause each of
its Subsidiaries to not, directly or indirectly, permit any Indebtedness of the
Company or any of the Subsidiaries to mature or accelerate prior to the Maturity
Date, other than Permitted Senior Indebtedness.

     

    (h)           New Subsidiaries.
Simultaneously with the acquisition or formation of each New Subsidiary, the
Company shall cause such New Subsidiary to execute, and deliver to each holder
of Notes, Guaranties that the Current Subsidiaries are required to execute in
connection with the transactions contemplated by the Securities Purchase
Agreement.

     

    (i)           Change in Nature of
Business. The Company shall not, and the Company shall cause each of
its Subsidiaries to not, directly or indirectly, engage in any material line of
business substantially different from those lines of business conducted by the
Company and each of its Subsidiaries on the Issuance Date or any business
substantially related or incidental thereto.  The Company shall not,
and the Company shall cause each of its Subsidiaries to not, directly or
indirectly, modify its or their corporate structure or purpose.

     

    (j)           Preservation of Existence,
Etc.  The Company shall maintain and preserve, and cause each
of its Subsidiaries to maintain and preserve, its existence, rights and
privileges, and become or remain, and cause each of its Subsidiaries to become
or remain, duly qualified and in good standing in each jurisdiction in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary.

     

    (k)           Maintenance of Properties,
Etc.  The Company shall maintain and preserve, and cause each
of its Subsidiaries to maintain and preserve, all of its properties which are
necessary or useful in the proper conduct of its business in good working order
and condition, ordinary wear and tear excepted, and comply, and cause each of
its Subsidiaries to comply, at all times with the provisions of all leases to
which it is a party as lessee or under which it occupies property, so as to
prevent any loss or forfeiture thereof or thereunder.

     

    (l)           Maintenance of
Insurance.  The Company shall maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations with respect to its properties (including all real
properties leased or owned by it) and business, in such amounts and covering
such risks as is required by any governmental authority having jurisdiction with
respect thereto or as is carried generally in accordance with sound business
practice by companies in similar businesses similarly situated.

     

    14.           SECURITY. This Note
and the Other Notes are secured to the extent and in the manner set forth in the
Transaction Documents (including, without limitation, the Pledge
Agreement).

     

    
      
         

      

      
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    15.         PARTICIPATION. In
addition to any adjustments pursuant to Section 7, the Holder, as the holder of
this Note, shall be entitled to receive such dividends paid and distributions
made to the holders of Common Stock to the same extent as if the Holder had
converted this Note into Common Stock (without regard to any limitations on
conversion herein or elsewhere) and had held such shares of Common Stock on the
record date for such dividends and distributions. Payments under the preceding
sentence shall be made concurrently with the dividend or distribution to the
holders of Common Stock (provided, however, to the extent that the Holder’s
right to participate in any such dividend or distribution would result in the
Holder exceeding the Maximum Percentage, then the Holder shall not be entitled
to participate in such dividend or distribution to such extent (or the
beneficial ownership of any such shares of Common Stock as a result of such
dividend or distribution to such extent) and such dividend or distribution to
such extent shall be held in abeyance for the benefit of the Holder until such
time, if ever, as its right thereto would not result in the Holder exceeding the
Maximum Percentage).

     

    16.         AMENDING THE TERMS OF THIS
NOTE. The prior written consent of the Company and the Required Holders
shall be required for any change or amendment to the Notes; provided, that the
prior consent of the Holder shall be required to (i) change the Maturity Date or
Interest Date of this Note, (ii) reduce the Principal, Interest Rate, or any
amount payable upon redemption of this Note or amend or modify in any manner
adverse to the Holder the Company's obligation to make such payments, whether
through an amendment or waiver of provisions in the covenants, definitions or
otherwise, (iii) change the currency of payment of Principal, Interest or any
other amounts outstanding under this Note, (iv) impair the right of the Holder
to institute suit for the enforcement of any payment on or with respect to this
Note, (vi) modify any of the provisions of this Section 16, except to provide
that certain other provisions of this Note cannot be modified or waived without
the consent of the Holder, or (vi) modify the right of the Holder to cause the
Company to redeem this Note upon a Change of Control or Event of
Default.  No consideration shall be offered or paid to the Holder to
amend or consent to a waiver or modification of any provision of this Note
unless the same consideration is also offered to all of the holders of the Other
Notes. The Holder shall be entitled, at its option, to the benefit of any
amendment to any of the Other Notes.

     

    17.         TRANSFER. This Note
and any shares of Common Stock issued upon conversion of this Note may be
offered, sold, assigned or transferred by the Holder without the consent of the
Company, subject only to the provisions of Section 2(g) of the Securities
Purchase Agreement.

     

    18.         REISSUANCE OF THIS
NOTE.

     

    (a)           Transfer. If this
Note is to be transferred, the Holder shall surrender this Note to the Company,
whereupon the Company will forthwith issue and deliver upon the order of the
Holder a new Note (in accordance with Section 18(d)), registered as the Holder
may request, representing the outstanding Principal being transferred by the
Holder and, if less than the entire outstanding Principal is being transferred,
a new Note (in accordance with Section 18(d)) to the Holder representing the
outstanding Principal not being transferred. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the provisions
of Section 3(c)(iii) following conversion or redemption of any portion of this
Note, the outstanding Principal represented by this Note may be less than the
Principal stated on the face of this Note.

    
      
         

      

      
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    (b)           Lost, Stolen or Mutilated
Note. Upon receipt by the Company of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Note (as to
which a written certification and the indemnification contemplated below shall
suffice as such evidence), and, in the case of loss, theft or destruction, of
any indemnification undertaking by the Holder to the Company in customary and
reasonable form and, in the case of mutilation, upon surrender and cancellation
of this Note, the Company shall execute and deliver to the Holder a new Note (in
accordance with Section 18(d)) representing the outstanding
Principal.

     

    (c)           Note Exchangeable for
Different Denominations. This Note is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Note or
Notes (in accordance with Section 18(d) and in principal amounts of at least
$10,000) representing in the aggregate the outstanding Principal of this Note,
and each such new Note will represent such portion of such outstanding Principal
as is designated by the Holder at the time of such surrender.

     

    (d)           Issuance of New
Notes. Whenever the Company is required to issue a new Note pursuant to
the terms of this Note, such new Note (i) shall be of like tenor with this Note,
(ii) shall represent, as indicated on the face of such new Note, the Principal
remaining outstanding (or in the case of a new Note being issued pursuant to
Section 18(a) or Section 18(c), the Principal designated by the Holder which,
when added to the principal represented by the other new Notes issued in
connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued and unpaid
Interest and Late Charges on the Principal and Interest of this Note, from the
Issuance Date.

     

    19.         REMEDIES, CHARACTERIZATIONS,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided
in this Note shall be cumulative and in addition to all other remedies available
under this Note and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the Holder’s right to pursue actual and consequential
damages for any failure by the Company to comply with the terms of this
Note.  The Company covenants to the Holder that there shall be no
characterization concerning this instrument other than as expressly provided
herein. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by the Holder and shall not, except as expressly provided herein, be
subject to any other obligation of the Company (or the performance thereof). The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required. The Company shall provide all information and documentation to the
Holder that is requested by the Holder to enable the Holder to confirm the
Company’s compliance with the terms and conditions of this Note (including,
without limitation, compliance with Section 7).

    
      
         

      

      
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    20.         PAYMENT OF COLLECTION,
ENFORCEMENT AND OTHER COSTS.  If (a) this Note is placed in the
hands of an attorney for collection or enforcement or is collected or enforced
through any legal proceeding or the Holder otherwise takes action to collect
amounts due under this Note or to enforce the provisions of this Note or (b)
there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting Company creditors’ rights and involving a claim
under this Note, then the Company shall pay the costs incurred by the Holder for
such collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, without limitation,
attorneys’ fees and disbursements. The Company expressly acknowledges and agrees
that no amounts due under this Note shall be affected, or limited, by the fact
that the Purchase Price paid for this Note was less than the original Principal
amount hereof.

     

    21.         CONSTRUCTION;
HEADINGS.  This Note shall be deemed to be jointly drafted by
the Company and the Holder and shall not be construed against any Person as the
drafter hereof. The headings of this Note are for convenience of reference and
shall not form part of, or affect the interpretation of, this Note. Terms used
in this Note but defined in the other Transaction Documents shall have the
meanings ascribed to such terms on the Closing Date in such other Transaction
Documents unless otherwise consented to in writing by the Holder.

     

    22.         FAILURE OR INDULGENCE NOT
WAIVER. No failure or delay on the part of the Holder in the exercise of
any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege. No waiver shall be effective unless it is in writing and signed by an
authorized representative of the waiving party.

     

    23.         DISPUTE RESOLUTION.
In the case of a dispute as to the determination of the Conversion Price, the
Closing Bid Price, the Closing Sale Price or fair market value (as the case may
be) or the arithmetic calculation of the Conversion Rate or the applicable
Redemption Price (as the case may be), the Company or the Holder (as the case
may be) shall submit the disputed determinations or arithmetic calculations (as
the case may be) via facsimile (i) within two (2) Business Days after receipt of
the applicable notice giving rise to such dispute to the Company or the Holder
(as the case may be) or (ii) if no notice gave rise to such dispute, at any time
after the Holder learned of the circumstances giving rise to such dispute
(including, without limitation, as to whether any issuance or sale or deemed
issuance or sale was an issuance or sale or deemed issuance or sale of Excluded
Securities). If the Holder and the Company are unable to agree upon such
determination or calculation within two (2) Business Days of such disputed
determination or arithmetic calculation (as the case may be) being submitted to
the Company or the Holder (as the case may be), then the Company shall, within
two (2) Business Days, submit via facsimile (a) the disputed determination of
the Conversion Price, the Closing Bid Price, the Closing Sale Price or fair
market value (as the case may be) to an independent, reputable investment bank
selected by the Company and approved by the Holder or (b) the disputed
arithmetic calculation of the Conversion Rate or any Redemption Price (as the
case may be) to the Company’s independent, outside accountant. The Company shall
cause at its expense the investment bank or the accountant (as the case may be)
to perform the determinations or calculations (as the case may be) and notify
the Company and the Holder of the results no later than ten (10) Business Days
from the time it receives such disputed determinations or calculations (as the
case may be). Such investment bank’s or accountant’s determination or
calculation (as the case may be) shall be binding upon all parties absent
demonstrable error.

    
      
         

      

      
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    24.         NOTICES; CURRENCY;
PAYMENTS.

     

    (a)           Notices. Whenever
notice is required to be given under this Note, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt
written notice of all actions taken pursuant to this Note, including in
reasonable detail a description of such action and the reason therefore. Without
limiting the generality of the foregoing, the Company will give written notice
to the Holder (i) immediately upon any adjustment of the Conversion Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen (15) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any grant, issuances, or
sales of any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property to holders of shares of Common Stock or
(C) for determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder.

     

    (b)           Currency.  All
principal, interest and other amounts owing under this Note or any Transaction
Document that, in accordance with their terms, are paid in cash shall be paid in
US dollars.   All amounts denominated in other currencies shall
be converted to the US 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 US dollars pursuant to
this Note, the US dollar exchange rate as published in the Wall Street Journal
on the relevant date of calculation (it being understood and agreed that where
an amount is calculated with reference to, or over, a period of time, the date
of calculation shall be the final date of such period of time).

     

    (c)           Payments. Whenever
any payment of cash is to be made by the Company to any Person pursuant to this
Note, unless otherwise expressly set forth herein, such payment shall be made in
lawful money of the United States of America in cash via wire transfer of
immediately available funds by providing the Company with prior written notice
setting out such request and the Holder’s wire transfer instructions, which the
Holder shall deliver to the Company as soon as commercially practicable
following any written request of the Company therefor. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is
a Business Day. Any amount of Principal or other amounts due under the
Transaction Documents which is not paid when due shall result in a late charge
being incurred and payable by the Company in an amount equal to interest on such
amount at the rate of eighteen percent (18%) per annum from the date such amount
was due until the same is paid in full (“Late
Charge”).

    
      
         

      

      
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    25.         CANCELLATION. After
all Principal, accrued Interest, Late Charges and other amounts at any time owed
on this Note have been paid in full, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued.

     

    26.         WAIVER OF
NOTICE.  To the extent permitted by law, the Company hereby
irrevocably waives demand, notice, presentment, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note and the Securities Purchase Agreement.

     

    27.         GOVERNING
LAW.  This Note shall be construed and enforced in accordance
with, and all questions concerning the construction, validity, interpretation
and performance of this Note shall be governed by, the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. The Company hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper.  Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law.  In the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law.  Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Note.
Nothing contained herein shall be deemed or operate to preclude the Holder from
bringing suit or taking other legal action against the Company in any other
jurisdiction to collect on the Company’s obligations to the Holder, to realize
on any collateral or any other security for such obligations, or to enforce a
judgment or other court ruling in favor of the Holder.  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 the United
States.  If service of process is effected pursuant to the above
sentence, such service will be deemed sufficient under New York law and the
Company shall not assert otherwise. Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  THE COMPANY
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 NOTE OR ANY TRANSACTION CONTEMPLATED
HEREBY.

     

    28.         JUDGMENT
CURRENCY.

     

    (a)           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 28 referred to
as the “Judgment
Currency”) an amount due in U.S. dollars under this Note, the conversion
shall be made at the Exchange Rate prevailing on the Trading Day immediately
preceding:

    
      
         

      

      
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    (i)           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

     

    (ii)          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 28(a)(ii) being hereinafter referred to as the “Judgment Conversion
Date”).

     

    (b)           If
in the case of any proceeding in the court of any jurisdiction referred to in
Section 28(a)(ii) 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 US 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.

     

    (c)           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 Note.

     

    29.         MAXIMUM
PAYMENTS.  Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law.  In the event that
the rate of interest required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Holder and thus refunded to
the Company.

     

    30.         CERTAIN
DEFINITIONS.  For purposes of this Note, the following terms
shall have the following meanings:

     

    (a)           “Additional Share Amount”
means, as to any Conversion Amount being converted in connection with a Change
of Control, an amount equal to the present value of the difference between (i)
Interest that, but for the applicable conversion, would have been paid to the
Holder on such Conversion Amount from the Issuance Date through the Maturity
Date and (ii) the amount of Interest already paid to the Holder through the
applicable Conversion Date.

     

    (b)           “Approved Stock 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, consultant or director for services provided to the Company
in their capacity as such.

    
      
         

      

      
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    (c)           “Black Scholes Consideration
Value” means the value of the applicable Options based on the Black and
Scholes Option Pricing Model obtained from the “OV” function on Bloomberg
determined as of the close of business on the Trading Day immediately preceding
the public announcement of the execution of definitive documents with respect to
the sale of such Options and reflecting (i) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of such Options as of the date of issuance of the such Options and (ii) an
expected volatility equal to the greater of 100% and the 30 day volatility
obtained from the HVT function on Bloomberg as of the Trading Day immediately
following the date of issuance of the such Options.

     

    (d)           “Bloomberg” means Bloomberg,
L.P.

     

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

     

    (f)           “Change of Control” means any
Fundamental Transaction other than (i) any merger of the Company or any of its,
direct or indirect, wholly-owned Subsidiaries with or into any of the foregoing
Persons, (ii) any reorganization, recapitalization or reclassification of the
Common Shares in which holders of the Company’s voting power immediately prior
to such reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, are, in all material respects, the
holders of the voting power of the surviving entity (or entities with the
authority or voting power to elect the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities)
after such reorganization, recapitalization or reclassification, or (iii)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company or any of its
Subsidiaries.

     

    (g)           “Change of Control Redemption
Premium” means 135%.

     

    (h)           “Closing Bid Price” and “Closing Sale Price” means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price
(as the case may be) then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the “pink sheets” by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price (as the case may be) of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved in accordance with the
procedures in Section 23. All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar
transaction during such period.

    
      
         

      

      
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    (i)           
“Closing Date” shall
have the meaning set forth in the Securities Purchase Agreement, which date is
the date the Company initially issued Notes pursuant to the terms of the
Securities Purchase Agreement.

     

    (j)           
“Common Stock” means
(i) the Company’s shares of common stock, $0.001 par value per share, and
(ii) any capital stock into which such common stock shall have been changed or
any share capital resulting from a reclassification of such common
stock.

     

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

     

    (l)           
“Current Subsidiaries”
means any Person in which the Company on the Subscription Date, directly or
indirectly, (i) owns any of the outstanding capital stock or holds any equity or
similar interest of such Person or (ii) controls or operates all or any part of
the business, operations or administration of such Person, and each of the
foregoing, individually, a “Current Subsidiary.”

     

    (m)           “Dollar Failure” means, that
(i) on any day during the period commencing ten (10) Trading Days prior to the
applicable Interest Date through the applicable Interest Date, (ii) on any day
during the period commencing fifteen (15) Trading Days prior to the applicable
Company Optional Redemption Notice Date through the applicable Company Optional
Redemption Date, or (iii) on any day during the period commencing fifteen (15)
Trading Days prior to the applicable Company Call Redemption Notice Date through
the applicable Company Call Redemption Date, that the aggregate dollar trading
volume (as reported on Bloomberg) of the Common Stock on the Eligible Market on
which the Common Stock is listed or designated for quotation as of such date of
determination over the fifteen (15) consecutive Trading Day period ending on the
Trading Day immediately preceding such date of determination is less than
$1,000,000.

     

    (n)           “Effective Date” means such
date either (x) the applicable Registration Statement filed pursuant to the
Registration Rights Agreement shall be effective and the prospectus contained
therein shall be available for the resale by the Holder of all of the
Registrable Securities (which, solely for clarification purposes, includes all
shares of Common Stock issuable upon conversion of the Notes or otherwise
pursuant to the terms of the Notes and upon exercise of the Warrants (without
regard for any limitations on conversion, issuance or exercise set forth
therein) in accordance with the terms of the Registration Rights Agreement) or
(y) all Registrable Securities shall be eligible for sale without restriction
under Rule 144 (as defined in the Securities Purchase Agreement) (including,
without limitation, volume restrictions) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) and
without the need for registration under any applicable federal or state
securities laws (in each case, disregarding any limitation on conversion of the
Notes, other issuance of securities  with respect to the Notes and
exercise of the Warrants).

    
      
         

      

      
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    (o)           “Eligible Market” means The New
York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market,
the NYSE Amex or the Principal Market.

     

    (p)           “Equity Conditions” means: (i)
on each day during the period beginning one month prior to the applicable date
of determination and ending on and including the applicable date of
determination either (x) the applicable Registration Statement filed pursuant to
the Registration Rights Agreement shall be effective and the prospectus
contained therein shall be available for the resale by the Holder of all of the
Registrable Securities (which, solely for clarification purposes, includes all
shares of Common Stock issuable upon conversion of this Note or otherwise
pursuant to the terms of this Note) in accordance with the terms of the
Registration Rights Agreement and there shall not have been during such period
any Grace Periods (as defined in the Registration Rights Agreement) or (y)
all Registrable Securities shall be eligible for sale without restriction under
Rule 144 (as defined in the Securities Purchase Agreement) (including, without
limitation, volume restrictions) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) and
without the need for registration under any applicable federal or state
securities laws (in each case, disregarding any limitation on conversion of the
Notes, other issuance of securities  with respect to the Notes and
exercise of the Warrants); (ii) on each day during the period beginning six
months prior to the applicable date of determination and ending on and including
the applicable date of determination (the “Equity Conditions Measuring
Period”), the Common Stock (including all Registrable Securities) is
listed or designated for quotation (as applicable) on an Eligible Market and
shall not have been suspended from trading on an Eligible Market (other than
suspensions of not more than two (2) days and occurring prior to the applicable
date of determination due to business announcements by the Company) nor shall
delisting or suspension by an Eligible Market have been threatened (with a
reasonable prospect of delisting occurring) or pending either (A) in writing by
such Eligible Market or (B) by falling below the minimum listing maintenance
requirements of the Eligible Market on which the Common Stock is then listed or
designated for quotation (as applicable); (iii) on each day during the Equity
Conditions Measuring Period, the Company shall have delivered all shares of
Common Stock issuable upon conversion of this Note on a timely basis as set
forth in Section 3 hereof and all other shares of capital stock required to be
delivered by the Company on a timely basis as set forth in the other Transaction
Documents; (iv) any shares of Common Stock to be issued in connection with the
event requiring determination may be issued in full without violating Section
3(d) hereof; (v) any shares of Common Stock to be issued in connection with the
event requiring determination may be issued in full without violating the rules
or regulations of the Eligible Market on which the Common Stock is then listed
or designated for quotation (as applicable); (vi) on each day during the Equity
Conditions Measuring Period, no public announcement of a pending, proposed or
intended Fundamental Transaction shall have occurred which has not been
abandoned, terminated or consummated; (vii) the Company shall have no knowledge
of any fact that would reasonably be expected to cause (1) the applicable
Registration Statement required to be filed pursuant to the Registration Rights
Agreement to not be effective or the prospectus contained therein to not be
available for the resale of all of the Registrable Securities in accordance with
the terms of the Registration Rights Agreement or (2) any Registrable Securities
to not be eligible for sale without restriction pursuant to Rule 144 (including,
without limitation, volume restrictions) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or any
applicable state securities laws (in each case, disregarding any limitation on
conversion of the Notes, other issuance of securities  with respect to
the Notes and exercise of the Warrants); (viii) the Holder shall not be in (and
no other Buyer shall be in) possession of any material, non-public information
provided to any of them by the Company, any of its affiliates or any of their
respective employees, officers, representatives, agents or the like; (ix) on
each day during the Equity Conditions Measuring Period, the Company otherwise
shall have been in compliance with and shall not have breached any provision,
covenant, representation or warranty of any Transaction Document; and (x) on
each day during the Equity Conditions Measuring Period, there shall not have
occurred an Event of Default or an event that with the passage of time or giving
of notice would constitute an Event of Default.

    
      
         

      

      
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    (q)           “Equity Conditions Failure”
means that (i) on any day during the period commencing ten (10) Trading Days
prior to the applicable Interest Date through the applicable Interest Date, (ii)
on any day during the period commencing fifteen (15) Trading Days prior to the
applicable Company Optional Redemption Notice Date through the applicable
Company Optional Redemption Date, or (iii) on any day during the period
commencing fifteen (15) Trading Days prior to the applicable Company Call
Redemption Notice Date through the applicable Company Call Redemption Date, the
Equity Conditions have not been satisfied (or waived in writing by the
Holder).

     

    (r)    
       “Equity Value Redemption
Premium” means 135%.

     

    (s)           “Excluded Securities” means any
Common Stock issued or issuable: (i) to directors, officers, consultants or
employees of the Company in their capacity as such pursuant to an Approved Stock
Plan, provided that (A) all such issuances (taking into account the shares of
Common Stock issuable upon exercise of Options) after the date hereof pursuant
to this clause (i) do not, in the aggregate, exceed more than 15% of the Common
Stock issued and outstanding immediately prior to the date hereof, and (B) such
Options are not amended to increase the number of shares issuable thereunder or
to lower the exercise price thereof or to otherwise materially change the terms
or conditions thereof in any manner that adversely affects any of the Buyers;
(ii) upon the conversion or exercise of Options or Convertible Securities issued
prior to the date hereof, provided that such Options or Convertible Securities
have not been amended since the date of this Agreement to increase the number of
shares issuable thereunder or to lower the exercise or conversion price thereof
or otherwise materially change the terms or conditions thereof in any manner
that adversely affects any of the Buyer, (iii) upon conversion of the Notes or
the exercise of the Warrants and (iv) in connection with strategic alliances,
acquisitions, mergers, and strategic partnerships, provided, that (A) the
primary purpose of such issuance is not to raise capital as determined in good
faith by the Required Holders, (B) the purchaser or acquirer of the securities
in such issuance solely consists of either (x) the actual participants in such
strategic alliance or strategic partnership, (y) the actual owners of such
assets or securities acquired in such acquisition or merger or (z) the
stockholders, partners or members of the foregoing Persons and (C) the number or
amount of securities 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.

    
      
         

      

      
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    (t)     
      “Fundamental Transaction” means
that (i) the Company or any of its Subsidiaries shall, directly or indirectly,
in one or more related transactions, (1) consolidate or merge with or into
(whether or not the Company or any of its Subsidiaries is the surviving
corporation) another Person, or (2) sell, lease, license, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or
assets of the Company or any of its Subsidiaries to another Person, or (3) allow
another Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (4)
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than 50% of the outstanding shares of Voting Stock of the Company (not
including any shares of Voting Stock of the Company held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination), or (5) reorganize, recapitalize or reclassify its Common
Stock, or (ii) any “person” or “group” (as these terms are used for purposes of
Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations
promulgated thereunder) is or shall become the “beneficial owner” (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Voting Stock of the
Company.

     

    (u)           “GAAP” means United States
generally accepted accounting principles, consistently applied.

     

    (v)           “Holder Pro Rata Amount” means
a fraction (i) the numerator of which is the original Principal amount of this
Note on the Closing Date and (ii) the denominator of which is the aggregate
original principal amount of all Notes issued to the initial purchasers pursuant
to the Securities Purchase Agreement on the Closing Date.

     

    (w)          “Interest Conditions Failure”
means the occurrence of any Equity Conditions Failure, Volume Failure, Dollar
Failure or Price Failure.

    
      
         

      

      
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    (x)           “Interest Conversion Price”
means, with respect to any Interest Date that price which shall be the lower of
(i) the applicable Conversion Price and (ii) the price computed as 90% of the
quotient of (I) the sum of the VWAP of the Common Stock on each of the five (5)
consecutive Trading Days ending on the Trading Day immediately preceding the
applicable Interest Date, divided by (II) five (5) (such period, the “Interest Measuring
Period”).  All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination, reclassification or
similar transaction that proportionately decreases or increases the Common Stock
during such Interest Measuring Period.

     

    (y)           "Interest Notice Due Date"
means the twenty-fifth (25th) Trading Day prior to the applicable Interest
Date.

     

    (z)           “Interest Rate” means six percent (6%)
per annum, subject to adjustment as set forth in Section 2.

     

    (aa)         “Market Price” means, for any
given date, the greater of (x) $2.75 (as adjusted for any stock dividend, stock
split, stock combination, reclassification or similar transaction occurring
during the period commencing on the Subscription Date and ending on the
Adjustment Date) and (y) 90% of the quotient of (I) the sum of the VWAP of the
Common Stock on each of the ten (10) consecutive Trading Days ending and
including the Adjustment Date, divided by (II) ten (10) (such period, the “Market Price Measuring
Period”).  All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination, reclassification or
similar transaction during such Market Price Measuring Period.

     

    (bb)         “Maturity Date” shall mean January __,
2012; provided, however, the Maturity Date may be extended at the option of the
Holder (i) in the event that, and for so long as, an Event of Default shall have
occurred and be continuing or any event shall have occurred and be continuing
that with the passage of time and the failure to cure would result in an Event
of Default or (ii) through the date that is twenty (20) Business Days after the
consummation of a Fundamental Transaction in the event that a Fundamental
Transaction is publicly announced or a Change of Control Notice is delivered
prior to the Maturity Date, provided further that if a Holder elects to convert
some or all of this Note pursuant to Section 3 hereof, and the Conversion Amount
would be limited pursuant to Section 3(d) hereunder, the Maturity Date shall
automatically be extended until such time as such provision shall not limit the
conversion of this Note.

     

    (cc)         “New Subsidiaries” means, as of
any date of determination, any Person in which the Company after the
Subscription Date, directly or indirectly, (i) owns or acquires any of the
outstanding capital stock or holds any equity or similar interest of such Person
or (ii) controls or operates all or any part of the business, operations or
administration of such Person, and each of the foregoing, individually, a “New Subsidiary.”

     

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

    
      
         

      

      
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    (ee)         “Parent Entity” of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

     

    (ff)           Permitted Indebtedness" means
(i) Indebtedness evidenced by this Note and the Other Notes, (ii) unsecured
Indebtedness incurred by the Company that is made expressly subordinate in right
of payment to the Indebtedness evidenced by this Note, as reflected in a written
agreement acceptable to the Holder and approved by the Holder in writing, and
which Indebtedness does not provide at any time for (A) the payment, prepayment,
repayment, repurchase or defeasance, directly or indirectly, of any principal or
premium, if any, thereon until ninety-one (91) days after the Maturity Date or
later and (B) total interest and fees at a rate in excess of 6.00% per annum,
(iii) Indebtedness secured by Permitted Liens described in clauses (iv) and (v)
of the definition of Permitted Liens and (iv) Permitted
Senior Indebtedness.

     

    (gg)         "Permitted Liens" means (i) any
Lien for taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a liability that is not yet due or
delinquent, (iii) any Lien created by operation of law, such as materialmen's
liens, mechanics' liens and other similar liens, arising in the ordinary course
of business with respect to a liability that is not yet due or delinquent or
that are being contested in good faith by appropriate proceedings, (iv) Liens
(A) upon or in any equipment acquired or held by the Company or any of its
Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition or lease of such
equipment, or (B) existing on such equipment at the time of its acquisition,
provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment, (v) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clause (iv) above, provided that any
extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase, (vi) leases or
subleases and licenses and sublicenses granted to others in the ordinary course
of the Company's business, not interfering in any material respect with the
business of the Company and its Subsidiaries taken as a whole, (vii) Liens
in favor of customs and revenue authorities arising as a matter of law to secure
payments of custom duties in connection with the importation of goods, (viii)
Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Section 4(a)(xii) and (ix) Liens securing
Permitted Senior Indebtedness.

    
      
         

      

      
        38

        
          

        

      

      
         

      

    

    (hh)         “Permitted Senior
Indebtedness” means the principal of
(and premium, if any), interest on, and all fees and other amounts (including,
without limitation, any reasonable out-of-pocket costs, enforcement expenses
(including reasonable out-of-pocket legal fees and disbursements), collateral
protection expenses and other reimbursement or indemnity obligations relating
thereto) payable by Company and/or its Subsidiaries under or in connection with
any credit facility entered into or to be entered into by the Company and/or its
Subsidiaries with one or more financial institutions (and on terms and
conditions), under commercially reasonably terms; provided, however, that the
aggregate outstanding amount of such Indebtedness permitted hereunder (taking
into account the maximum amounts which may be advanced under the loan documents
evidencing such Permitted Senior Indebtedness) does not at any time exceed RMB
220,000,000.

     

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

     

    (jj)           “Price Failure” means, with
respect to a particular date of determination, that the Interest Conversion
Price (determined under clause (ii) of the definition thereof and not clause (i)
of the definition thereof)  is less than $1.00 (as adjusted for stock
splits, stock dividends, stock combinations or other similar
transactions).

     

    (kk)         “Principal Market” means the
Nasdaq Capital Market.

     

    (ll)           “Quarter” means each of: (i)
the period beginning on and including January 1 and ending on and including
March 31; (ii) the period beginning on and including April 1 and ending on and
including June 30; (iii) the period beginning on and including July 1 and ending
on and including September 30; and (iv) the period beginning on and including
October 1 and ending on and including December 31.

     

    (mm)       “Redemption Conditions Failure”
means the occurrence of any Equity Conditions Failure, Volume Failure or Dollar
Failure.

     

    (nn)        “Redemption Notices” means,
collectively, the Event of Default Redemption Notice and the Change of Control
Redemption Notice, the Company Optional Redemption Notice, the Company Call
Redemption Notice and each of the foregoing, individually, a “Redemption
Notice.”

     

    (oo)        “Redemption Premium” means (i)
in the case of the Events of Default described in Section 4(a) (other than
Sections 4(a)(ix) through 4(a)(xi)), 135% or (ii) in the case of the Events of
Default described in Sections 4(a)(ix) through 4(a)(xi), 100%.

     

    (pp)        “Redemption Prices” means,
collectively, the Event of Default Redemption Price, the Change of Control
Redemption Price, the Company Optional Redemption Price and the Company Call
Redemption Price, and each of the foregoing, individually, a “Redemption
Price.”

     

    (qq)        “Registration Rights Agreement”
means that certain registration rights agreement, dated as of the Closing Date,
by and among the Company and the initial holders of the Notes relating to, among
other things, the registration of the resale of the Common Stock issuable upon
conversion of the Notes or otherwise pursuant to the terms of the Notes and
exercise of the Warrants, as may be amended from time to time.

    
      
         

      

      
        39

        
          

        

      

      
         

      

    

     

    (rr)           “Required Holders” means the
holders of Notes representing at least a majority of the aggregate principal
amount of the Notes then outstanding (excluding any Noted held by the Company or
any of its Subsidiaries).

     

    (ss)         “SEC” means the United States
Securities and Exchange Commission or the successor thereto.

     

    (tt)           “Securities Purchase Agreement”
means that certain securities purchase agreement, dated as of the Subscription
Date, by and among the Company and the initial holders of the Notes pursuant to
which the Company issued the Notes and Warrants, as may be amended from time to
time.

     

    (uu)         “Subscription Date” means
January __, 2010.

     

    (vv)         “Subsidiaries” means, as of any
date of determination, collectively, all Current Subsidiaries and all New
Subsidiaries, and each of the foregoing, individually, a “Subsidiary.”

     

    (ww)       “Successor Entity” means the
Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting
from or surviving any Fundamental Transaction or the Person (or, if so elected
by the Holder, the Parent Entity) with which such Fundamental Transaction shall
have been entered into.

     

    (xx)          “Trading Day” means any day on
which the Common Stock is traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is
then traded, provided that “Trading Day” shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York time) unless such
day is otherwise designated as a Trading Day in writing by the
Holder.

     

    (yy)        “VWAP” means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market (or, if the Principal Market is not the principal trading
market for such security, then on the principal securities exchange or
securities market on which such security is then traded) during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York
time, as reported by Bloomberg through its “Volume at Price” function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.). If the VWAP cannot be calculated for such security on such date on any of
the foregoing bases, the VWAP of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved in accordance with the procedures
in Section 23. All such determinations shall be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during such period.

    
      
         

      

      
        40

        
          

        

      

      
         

      

    

     

    (zz)          “Volume Failure” means, that
(i) on any day during the period commencing ten (10) Trading Days prior to the
applicable Interest Date through the applicable Interest Date, (ii) on any day
during the period commencing fifteen (15) Trading Days prior to the applicable
Company Optional Redemption Notice Date through the applicable Company Optional
Redemption Date, or (iii) on any day during the period commencing fifteen (15)
Trading Days prior to the applicable Company Call Redemption Notice Date through
the applicable Company Call Redemption Date, the average daily volume (as
reported on Bloomberg) of the Common Stock on the Eligible Market on which the
Common Stock is listed or designated for quotation as of such date of
determination over the fifteen (15) consecutive Trading Day period ending on the
Trading Day immediately preceding such date of determination is less than 75,000
shares per day (adjusted for any stock dividend, stock split, stock combination
or other similar transaction during such period).

     

    (aaa)       “Voting Stock” of a Person
means capital stock of such Person of the class or classes pursuant to which the
holders thereof have the general voting power to elect, or the general power to
appoint, at least a majority of the board of directors, managers or trustees of
such Person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).

     

    (bbb)      “Warrants” has the meaning
ascribed to such term in the Securities Purchase Agreement, and shall include
all warrants issued in exchange therefor or replacement thereof.

     

    31.         DISCLOSURE. Upon
receipt or delivery by the Company of any notice in accordance with the terms of
this Note, unless the Company has in good faith determined that the matters
relating to such notice do not constitute material, non-public information
relating to the Company or any of its Subsidiaries, the Company shall within one
(1) Business Day after any such receipt or delivery publicly disclose such
material, non-public information on a Current Report on Form 8-K or otherwise.
In the event that the Company believes that a notice contains material,
non-public information relating to the Company or any of its Subsidiaries, the
Company so shall indicate to such Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
non-public information relating to the Company or its Subsidiaries. Nothing
contained in this Section 31 shall limit any obligations of the Company, or any
rights of the Holder, under Section 4(i) of the Securities Purchase
Agreement.

    
      
         

      

      
        41

        
          

        

      

      
         

      

    

     

    [signature page
follows]

    
      
         

      

      
        42

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the
Issuance Date set out above.

    

    
      
        	
                Kandi
      Technologies, Corp.

              
	 
      	 
      
	
                By:

              	
                  

              
	 
      	
                  Name:

              
	 
      	
                  Title:

              

      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    EXHIBIT
I

     

    KANDI
TECHNOLOGIES, CORP.

    CONVERSION
NOTICE

     

    Reference
is made to the Senior Secured Convertible Note (the “Note”) issued to the
undersigned by Kandi Technologies, Corp., a Delaware corporation (the “Company”).  In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock, $0.001 par value per share (the “Common Stock”), of the
Company, as of the date specified below.

     

    
      	
              Date
      of Conversion:

            	 
      
	
               

              Aggregate
      Conversion Amount to be converted:

            	 
      
	
               

              Please
      confirm the following information:

            
	
               

              Conversion
      Price:

            	 
      
	
               

              Number
      of shares of Common Stock to be issued:

            	 
      
	
               

              Please
      issue the Common Stock into which the Note is being converted in the
      following name and to the following address:

            
	
               

              Issue to:

            	 
      
	
               

               

            	 
      
	
               

                 

            	 
      
	
               
      

              Facsimile
      Number:

            	 
      
	
               
      

              Authorization:

            	 
      
	
               

              By:

            	 
      
	
               

              Title:

            	 
      
	
               

              Dated:

            	 
      
	
               

              Account
      Number:

            	 
      
	
                (if
      electronic book entry transfer)

            	 
      
	
               

              Transaction
      Code Number:

            	 
      
	
                (if
      electronic book entry transfer)

            	 
      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ACKNOWLEDGMENT

     

    The
Company hereby acknowledges this Conversion Notice and hereby directs Corporate
Stock Transfer to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated January __, 2010 from the
Company and acknowledged and agreed to by Corporate Stock Transfer.

    

    
      
        	
                Kandi
      Technologies, Corp.

              
	 
      	 
      
	
                By:

              	
                  

              
	 
      	
                  Name:

              
	 
      	
                  Title:

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