Document:

Unassociated Document

    EXECUTION
COPY

    

    SECURITIES
PURCHASE AGREEMENT

     

    SECURITIES PURCHASE AGREEMENT
(the "Agreement"), dated
as of June 18, 2009, by and among A-Power Energy Generation Systems, Ltd., a
company organized under the laws of British Virgin Islands, with headquarters
located at No. 44 Jingxing Road, Tiexi District, Shenyang Liaoning Province,
China 110021 (the "Company") and the investors
listed on the Schedule of Buyers attached hereto (individually, a "Buyer" and collectively, the
"Buyers").

     

    WHEREAS:

     

    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 a new series of senior convertible notes of the Company,
in substantially the form attached hereto as Exhibit A (the "Notes"), which notes shall be
convertible into, subject to the Shareholder Approval (as defined herein), the
Company's common shares, par value $0.0001 per share (the "Common Shares") (the Notes 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) that aggregate principal amount of
Notes, set forth opposite such Buyer's name in column (3) on the Schedule of
Buyers attached hereto (which aggregate amount for all Buyers shall be
$40,000,000) and (ii) Warrants, in substantially the form attached hereto as
Exhibit B,
representing the right, subject to Shareholder Approval, to acquire initially up
to that number of Common Shares set forth opposite such Buyer's name in column
(4) on the Schedule of Buyers (the "Warrants") (as exercised,
collectively, the "Warrant
Shares").

     

    D.           The
Notes bear interest which, subject to certain conditions, may be paid in Common
Shares (the "Interest
Shares").

     

    E.           Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially 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 will rank senior to all outstanding and future indebtedness of the Company
(other than certain Permitted Indebtedness (as defined in the Notes) of the
Company pursuant to the terms of the Notes) and the obligation of Mr. Jinxiang
Lu, the Chairman of the Board of Directors of the Company and the Chief
Executive Officer of the Company ("Mr. Lu") to deliver the Lu
Conversion Shares, the Lu Warrant Shares and the Lu Additional Conversion Shares
(as such terms are defined below) upon exercise of each Buyer's rights pursuant
to the Put Agreement (as defined below) shall each be secured by a first
priority, perfected security interest in certain Common Shares pledged by Mr. Lu
to Hudson Bay Fund LP, as collateral agent for the Buyers (in such capacity, and
not in its capacity as a Buyer or a holder of Notes or Warrants, the "Collateral Agent" which term
includes any successor collateral agent appointed pursuant to Section 4(y)
hereof) as evidenced by the pledge agreement attached hereto as Exhibit D (the "Pledge Agreement" and any
ancillary documents related thereto, collectively the "Security
Documents").

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    G.           At
Closing (as defined in Section 1(a)), the Company, the Collateral Agent and Mr.
Lu, in his individual capacity, shall execute and deliver a Put Agreement to
each Buyer, substantially in the form attached hereto as Exhibit E (each a
"Put Agreement" and,
collectively, the "Put
Agreements"), pursuant to which if the Shareholder Approval (as defined
in Section 4(r)) is not obtained on or prior to the six (6) month anniversary of
the Closing Date (as defined in Section 1(b)), each Buyer shall have the option,
but not the obligation, to put some or all of its Notes and/or Warrants to Mr.
Lu for certain Common Shares owned by Mr. Lu (the Common Shares delivered by Mr.
Lu upon a put of Notes, the "Lu
Conversion Shares," the Common Shares delivered by Mr. Lu upon a put of
Warrants accompanied by delivery of the exercise price of the Warrants to Mr. Lu
(unless the put is exercised on a "cashless" basis in accordance with the terms
set forth in the Put Agreements), the "Lu Warrant Shares", and the
Common Shares delivered by Mr. Lu in satisfaction of the Company's obligation to
pay the Additional Conversion Obligations (as defined in the Put Agreements) to
such Holder, the "Lu Additional
Conversion Shares") pursuant to the terms and conditions set forth in the
Put Agreements.

     

    H.           The
Notes, the Conversion Shares, the Warrants, the Warrant Shares and the Interest
Shares collectively are referred to herein as the "Company Securities" and the
Company Securities, the Lu Conversion Shares, the Lu Warrant Shares and the Lu
Additional Conversion Shares are referred to herein as the "Securities".

     

    NOW, THEREFORE, the Company
and each Buyer hereby agree as follows:

     

    1.           PURCHASE AND SALE OF NOTES
AND WARRANTS.

     

    (a)           Purchase of 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, agrees to purchase
from the Company on the Closing Date (as defined below), (x) a principal amount
of Notes as is set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers attached hereto (which aggregate amount for all Buyers shall
be $40,000,000) and (y) Warrants to acquire up to that number of Warrant Shares
as is set forth opposite such Buyer's name in column (4) on the Schedule of
Buyers (the "Closing").

     

    (b)           Closing.  The
date and time of the Closing (the "Closing Date") shall be 10:00
a.m., New York City time, on the date hereof (or such other date and time as is
mutually agreed to by the Company and each Buyer) after notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 below, at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue,
New York, New York 10022.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (c)           Prepaid
Interest.  The Company shall prepay a portion of interest
payable under the Notes in an amount that is set forth opposite such Buyer's
name in column (6) of the Schedule of Buyers (for each Buyer, its "Prepaid Interest"), which
Prepaid Interest shall be nonrefundable.

     

    (d)           Purchase
Price.  The aggregate purchase price for the Notes and the
Warrants to be purchased by each such Buyer at the Closing (the "Purchase Price") shall be the
amount set forth opposite each Buyer's name in column (5) of the Schedule of
Buyers.  Each Buyer shall pay $1,000 for each $1,000 of principal
amount of Notes and related Warrants to be purchased by such Buyer at the
Closing.  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").  On or prior
to the Closing Date, the Buyers and the Company shall agree as to their
determination of 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), 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.

     

    (e)           Form of
Payment.  On the Closing Date, (i) each Buyer shall pay its
Purchase Price less its Prepaid Interest (such net amount as set forth opposite
such Buyer's name in Column (7) of the Schedule of Buyers, its "Net Purchase Price") to the
Company for the Notes and the Warrants to be issued and sold to such Buyer at
the Closing (less, in the case of Hudson Bay Fund LP ("Hudson Bay"), the amounts
withheld pursuant to Section 4(g)), 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 the Notes (allocated in the
principal amounts as such Buyer shall request) which such Buyer is then
purchasing hereunder along with the Warrants (allocated in the amounts as such
Buyer shall request) which such Buyer is purchasing, in each case 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 with respect to only itself that, as of the date hereof and as of
the Closing Date:

     

    (a)           No Public Sale or
Distribution.  Such Buyer is (i) acquiring the Notes and the
Warrants, (ii) upon conversion of the Notes and exercise of the Warrants will
acquire the Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants and (iii) upon exercise of
such Buyer's put rights under the Put Agreement will acquire the Lu Conversion
Shares, the Lu Warrant Shares or the Lu Additional Conversion Shares, in each
case, for its own account (or in connection with, or pursuant to, one or more
participation agreements by such Buyer with, and for the benefit of, one or more
funds or managed accounts that are "accredited investors" (as defined in Rule
501(a) of Regulation D) that are managed by the investment manager of such
Buyer) and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales registered or exempted
under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree 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 (as defined in Section
3(s)) to distribute any of the Securities.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

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

     

    (c)           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.

     

    (d)           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 that have been requested by such
Buyer.  Such Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of and receive answers from the Company and to
obtain any additional information which the Company possesses or can acquire
without undue effort or expense, and all such questions have been answered to
the satisfaction of such Buyer.  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.  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.

     

    (e)           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.

     

    (f)           Transfer or
Resale.  Such Buyer understands that except as provided in the
Registration Rights Agreement: (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 an
opinion of counsel, in a form reasonably satisfactory 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, as amended, (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 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.  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 and such 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 (as
defined in Section 3(b)), including, without limitation, this Section
2(f).

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (g)           Legends.  Such
Buyer understands that the certificates or other instruments representing the
Notes and the Warrants and, until such time as the resale of the Conversion
Shares and the Warrant Shares (or the Lu Conversion Shares and the Lu Warrant
Shares, as the case may be) have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares and the Warrant Shares, except as set forth
below, 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 IN A FORM REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A, IF APPLICABLE, 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. [On the Note only: 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.]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at The Depository Trust Company ("DTC"), if, unless otherwise
required by state securities laws, (i) such Securities are registered for resale
under the 1933 Act, (ii) in connection with a sale, assignment or other
transfer, such holder provides the Company with an opinion of counsel, in a form
reasonably satisfactory to the Company, 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 (iii) the Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A, if applicable; provided, that such
holder provides the Company with reasonable assurance that such Securities can
be sold, assigned or transferred pursuant to Rule 144 or Rule 144A, if
applicable.  The Company shall be responsible for the fees of its
transfer agent and all DTC fees associated with such issuance.

     

    (h)           Validity;
Enforcement.  This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Buyer and shall constitute 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.

     

    (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) 
          Residency.  Such
Buyer is a resident of that jurisdiction specified below its address on the
Schedule of Buyers.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (k)           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
which had knowledge of the transactions contemplated hereby, (x) has or shares
discretion relating to such Buyer's investments and trading or information
concerning such Buyer's investments or (y) is subject to such Buyer's review or
input concerning such Person's investments or trading (the foregoing, "Buyer Trading Affiliates"),
engaged in any sale or purchase in the securities of the Company (including,
without limitation, any Short Sales involving the Company's securities) since
the time that such Buyer was first contacted by the Company regarding the
investment in the Company contemplated herein. "Short Sales" include, without
limitation, all "short sales" as defined in Rule 200 promulgated under
Regulation SHO under the Securities Exchange Act of 1934, as amended (the "1934 Act") ("Regulation SHO") and all types
of direct and indirect stock pledges, forward sale contracts, options, puts,
calls, swaps and similar arrangements (including on a total return basis), and
sales and other transactions through non-U.S. broker dealers or foreign
regulated brokers (but shall not be deemed to include the location and/or
reservation of borrowable Common Shares).  Notwithstanding the
foregoing, for the avoidance of doubt, nothing contained herein shall constitute
a representation or warranty, or preclude any actions, with respect to the
identification of the availability of, or securing of, available shares to
borrow in order to effect short sales or similar transactions in the future.
 Such Buyer is not as of the date hereof, and will not be immediately
following the Closing, a "beneficial owner" (as defined pursuant to Rule 13d-3
of 1934 Act) of more than 10% of the Company's issued and outstanding Common
Shares (calculated based on the assumption that all Common Shares Equivalents
(as defined in Section 4(o)(i)(3)) 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
contained therein).

     

    (l)
           General
Solicitation.  Such Buyer is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar.

     

    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 its "Subsidiaries" (which for
purposes of this Agreement means any entity in which the Company, directly or
indirectly, owns a majority of the capital stock or holds a majority of the
equity or similar interest) are entities duly organized and validly existing 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.  Each of the Company and 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
reasonably be expected to have a Material Adverse Effect.  As used in
this Agreement, "Material
Adverse Effect" means any material adverse effect on the business,
properties, assets, operations, results of operations, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, individually or
taken as a whole, or on the transactions contemplated hereby or on the other
Transaction Documents or by the agreements and instruments to be entered into in
connection herewith or therewith, or on the authority or ability of the Company
to perform its obligations under the Transaction Documents.  The
Company has no Subsidiaries except as set forth on Schedule
3(a).  Notwithstanding the foregoing, the entities in which the
Company, directly or indirectly, owns any of the capital shares or holds an
equity or similar interest which are not Subsidiaries, taken as whole, do not
have operations, income or assets which are material to the Company and its
Subsidiaries taken as a whole.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (b)           Authorization; Enforcement;
Validity.  The Company has the requisite power and authority to
enter into and perform its obligations under this Agreement, the Notes, the
Registration Rights Agreement, the Voting Agreement (as defined in Section
4(s)), the Lock-Up Agreements (as defined in Section 4(t)), the Irrevocable
Transfer Agent Instructions (as defined in Section 5(b)), the Security
Documents, the Warrants, the Put Agreements and each of the other agreements
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement (collectively, the "Transaction Documents") to
which the Company is a party and to issue the Company Securities in accordance
with the terms hereof and thereof.  The execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation, the
issuance of the Notes and the Warrants, the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion
of the Notes and the reservation for issuance and the issuance of the Interest
Shares issuable pursuant to the terms of the Notes, the reservation for issuance
and issuance of Warrant Shares issuable upon exercise of the Warrants have been
duly authorized by the Company's Board of Directors and (other than (i) the
filing with the SEC of one or more Registration Statements in accordance with
the requirements of the Registration Rights Agreement, (ii) other filings as may
be required by state securities agencies, (iii) the filing with the Principal
Market of a "Notification: Listing of Additional Shares," (iv) the receipt of
Shareholder Approval, (v) the filing of an amended Memorandum and Articles of
Association of the Company with the Registrar of Corporate Affairs, British
Virgin Islands to reflect the amendments described in Section 4(u)(ii), (vi) the
furnishing of one or more reports on Form 6-K to the SEC with the documents
distributed to solicit Shareholder Approval and as contemplated by Section 4(i),
(vii) the filing of Form D as contemplated by Section 4(b) and (viii) the filing
of one or more amendments to Schedule 13D by Mr. Lu) no further filing, consent,
or authorization is required by the Company, its Board of Directors or its
shareholders.  This Agreement and the other Transaction Documents to
which the Company is a party have been duly executed and delivered by the
Company, and constitute 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.

     

    (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 and free from all taxes, liens
and charges with respect to the issue thereof.  As of the Shareholder
Approval Date (as defined below), a number of Common Shares shall have been duly
authorized and reserved and maintained for issuance which equals or exceeds 130%
of the aggregate of the maximum number of Common Shares (the "Required Reserved Amount")
issuable (i) upon conversion of the Notes and upon exercise of the Warrants
(without taking into account any limitations on the Conversion of the Notes or
exercise of the Warrants set forth in the Notes and Warrants, respectively) and
(ii) as Interest Shares pursuant to the terms of the Notes.  Upon
conversion or payment in accordance with the Notes or exercise and payment of
the exercise price, unless exercised pursuant to Cashless Exercise (as defined
in the Warrants) 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 and charges with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Shares.  Assuming the accuracy of each of the
representations and warranties set forth in Section 2 of this Agreement and in
Section 5 of the Put Agreements, 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 the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Notes and the Warrants and, subject to Shareholder Approval,
reservation for issuance and issuance of the Conversion Shares, the Interest
Shares, and the Warrant Shares) will not (i) result in a violation of any
memorandum of association, certificate of incorporation, certificate of
formation, any certificate of designations or other constituent documents of the
Company or any of its Subsidiaries, any capital stock of the Company or any of
its Subsidiaries or the articles of association or bylaws of the Company or any
of its Subsidiaries or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) in any
respect 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 Global Select Market (the "Principal Market") and
applicable laws of the British Virgin Islands and of the People's Republic of
China ("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 clause (iii) above, to the extent such conflicts,
defaults or violations could not reasonably be expected to have a Material
Adverse Effect.

     

    (e)           Consents.  Except
as provided in Section 3(b), neither the Company nor any of its Subsidiaries is
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or
thereof.  All consents, authorizations, orders, filings and
registrations which the Company is required to obtain prior to the Closing Date
pursuant to the preceding sentence have been obtained or effected on or prior to
the Closing Date, and the Company and its Subsidiaries are unaware of any facts
or circumstances that might prevent the Company from obtaining or effecting any
of the registration, application or filings pursuant to the preceding
sentence.  The Company is not in violation of the listing requirements
of the Principal Market and has no knowledge of any facts that would reasonably
lead to delisting or suspension of the Common Shares in the foreseeable
future.  The issuance by the Company of the Company Securities and the
delivery of the Lu Conversion Shares, the Lu Warrant Shares and the Lu
Additional Conversion Shares pursuant to the terms of the Put Agreements shall
not have the effect of delisting or suspending the Common Shares from the
Principal Market.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (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" of the Company or
any of its Subsidiaries (as defined in Rule 144) or (iii) to the knowledge of
the Company, a "beneficial owner" of more than 10% of the Common Shares (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 decision to enter
into the Transaction Documents has been based solely on the independent
evaluation by the Company and its 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, including, without
limitation, placement agent fees payable to Oppenheimer Asia, as placement agent
(the "Placement Agent")
in connection with the sale of the Company Securities.  The Company
acknowledges that it has engaged the Placement Agent in connection with the sale
of the Company Securities.  Other than 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 Company Securities.

     

    (h)           No Integrated
Offering.  None of the Company, its Subsidiaries, any of their
affiliates, and 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, except for the Shareholder Approval, cause this
offering of the Securities to require approval of shareholders of the Company
for purposes of the 1933 Act or any applicable shareholder 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 and 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
the Securities to be integrated with other offerings for purposes of any such
applicable shareholder approval provisions.

     

    (i)
           Dilutive
Effect.  The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances.  The Company further acknowledges that subject to
receipt of Shareholder Approval, its obligation to issue Conversion Shares upon
conversion of the Notes in accordance with this Agreement and the Notes and its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants is, in each case, is absolute
and unconditional regardless of the dilutive effect that such issuance may have
on the ownership interests of other shareholders 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 Company's Memorandum of Association or
Articles of Association, or the laws of the jurisdiction of its formation 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 Company Securities and any Buyer's ownership of the
Securities.  The Company has not adopted a shareholder rights plan or
similar arrangement relating to accumulations of beneficial ownership of Common
Shares or a change in control of the Company.

     

    (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 or prior to the date of the Closing, 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 the SEC
Documents not available on the EDGAR system.  As of their respective
filing 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 filing 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 at the time
of filing.  Such financial statements have been prepared in accordance
with generally accepted accounting principles, consistently applied ("GAAP"), 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).  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(d) of this Agreement or in the disclosure schedules to 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.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (l)
           Absence of Certain
Changes.  Except as disclosed in the Company's press release
regarding fourth quarter 2008 earnings, as furnished to the SEC under cover of
Form 6-K dated April 9, 2009 and in Schedule 3(l), since
December 31, 2007, there has been no material adverse change and no material
adverse development in the business, assets, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiaries.  Except as disclosed in the Company's press release
regarding fourth quarter 2008 earnings, as furnished to the SEC under cover of
Form 6-K dated April 9, 2009 and in Schedule 3(l), since
December 31, 2007, neither the Company nor any of its Subsidiaries has (i)
declared or paid any dividends, (ii) sold any assets to a third party,
individually or in the aggregate, in excess of $100,000 outside of the ordinary
course of business or (iii) had capital expenditures, individually or in a
series of related payments in the aggregate, in excess of
$350,000.  Neither the Company nor any of its Subsidiaries has taken
any steps to seek protection pursuant to any bankruptcy law nor does the Company
have any knowledge or reason to believe that its 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, with respect
to any Person, (i) the present fair saleable value of such Person's assets is
less than the amount required to pay such Person's total Indebtedness (as
defined in Section 3(s)), (ii) such Person is unable to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now
conducted.

     

    (m)          No Undisclosed Events,
Liabilities, Developments or Circumstances.  No event,
liability, development or circumstance has occurred or exists, or is reasonably
expected to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form F-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Shares and which
has not been publicly announced.

     

    (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 any certificate
of designations of any outstanding series of preferred stock of the Company, its
Memorandum of Association or Articles of Association or their organizational
charter or memorandum of association or certificate of incorporation or articles
of association 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,
reasonably be expected to 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 would reasonably lead to delisting
or suspension of the Common Shares by the Principal Market in the foreseeable
future.  Since June 2, 2008 the Common Shares have been listed on the
Principal Market and from January 22, 2008 until June 2, 2008, the Common Shares
were listed on The NASDAQ Capital Market.  During the two (2) years
prior to the date hereof, (i) trading in the Common Shares have not been
suspended by the SEC, The NASDAQ Capital Market 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 Shares from
the Principal Market.  The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign 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 is in compliance with any and all applicable
requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date
hereof, and any and all applicable rules and regulations promulgated by the SEC
thereunder that are effective as of the date hereof.

     

    (q)           Transactions With
Affiliates.  Except as set forth on Schedule 3(q) and
except as set forth in the Put Agreements, 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 in which the amount
involved exceeds $300,000 individually or in the aggregate (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.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (r)           Equity
Capitalization.  As of the date hereof, the authorized capital
stock of the Company consists of (i) 50,000,000 Common Shares, of which as of
the date hereof, 33,706,938 shares are issued and outstanding, 2,000,000 shares
are reserved and maintained for issuance pursuant to the Company's stock option
and purchase plans, and 8,000,000 shares are issuable to Mr. Lu upon the Company
achieving certain operating milestones pursuant to a stock purchase agreement
dated April 14, 2007, and no shares are reserved for issuance pursuant to
securities (other than the aforementioned options, the Notes and the Warrants)
exercisable or exchangeable for, or convertible into, Common Shares and (ii)
1,000,000 preferred shares, par value $0.0001 per share, of which as of the date
hereof, none of such preferred shares are issued and outstanding.  All
of such outstanding shares have been, or upon issuance will be, validly issued
and are fully paid and nonassessable.  Except as disclosed in Schedule 3(r): (i)
none of the Company's capital stock is subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company; (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
shares of 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 shares of 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
shares of 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 material amounts, either singly or in the aggregate,
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 Company Securities or by the delivery of the Lu Conversion Shares, the Lu
Warrant Shares and the Lu Additional Conversion Shares pursuant to the terms of
the Put Agreements; (viii) the Company does not have any stock appreciation
rights or "phantom stock" plans or agreements or any similar plan or agreement;
and (ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's or
any of its Subsidiary's' respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect.  The
Company has furnished or made available to the Buyers true, correct and complete
copies of the Company's Memorandum of Association, as amended and as in effect
on the date hereof (the "Memorandum of Association"),
and the Company's Articles of Association, as amended and as in effect on the
date hereof (the "Articles of
Association"), and the terms of all securities convertible into, or
exercisable or exchangeable for, Common Shares and the material rights of the
holders thereof in respect thereto.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (s)           Indebtedness and Other
Contracts.  Except as disclosed in 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 would 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.  Schedule 3(s)
provides a detailed description of the material terms of any such outstanding
Indebtedness.  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 United States GAAP (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 GAAP,
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 and a government or any department or
agency thereof, including in China.

     

    (t)           Absence of
Litigation.  There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries, the Common Shares or any of the Company's Subsidiaries or any
of the Company's or its Subsidiaries' officers or directors in their capacities
as such, except as set forth in Schedule 3(t). Except
as described therein, the matters set forth in Schedule 3(t) would
not would reasonably be expected to have a Material Adverse
Effect.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (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 not be able 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.

     

    (i)           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 and its
Subsidiaries believe that their relations with their employees are
good.  No executive officer of the Company or any of its Subsidiaries
(as defined in Rule 501(f) of the 1933 Act) 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 of the Company or any of its
Subsidiaries, to the knowledge 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, to the
Company's knowledge, does not subject the Company or any of its Subsidiaries to
any liability with respect to any of the foregoing matters.

     

    (ii)          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 land use rights as permitted under China law with
respect 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 and 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 and its
Subsidiaries.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (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, original works of authorship,
patents, patent rights, copyrights, 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, except for
any such Intellectual Property Rights the non-ownership or non-possession of
which would not reasonably be expected to result in a Material Adverse
Effect.  All of the Company's material Intellectual Property Rights
and relevant applications therefor have been duly registered by the China Patent
and Trademark Office, or the equivalent offices of non-US jurisdictions, and
have been properly maintained in accordance with applicable law in China and
such other jurisdictions.  None of the Company's material Intellectual
Property Rights have expired or terminated or have been abandoned or are
expected to expire or terminate or are expected to be abandoned, within three
years from the date of this Agreement.  The Company does not have any
knowledge of any infringement by the Company or 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 its material Intellectual Property Rights.  Neither the
Company nor any of its Subsidiaries is aware of any facts or circumstances which
might give rise to any of the foregoing infringements or claims, actions or
proceedings.  The Company and 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 any and all Environmental Laws (as hereinafter defined), (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 and receive any such permit, license or other approval 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.

     

    (aa)         Investment Company
Status.  The Company is not, and upon consummation of the sale
of the Securities, and for so long any Buyer holds any Securities, will not be,
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.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (bb)         Tax
Status.  The Company and each of its Subsidiaries (i) has made
or filed all China and other foreign, U.S. federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject, (ii) has 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, except in each case where the failure to
file, pay or set aside would not reasonably be expected to have a Material
Adverse Effect.  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 know of no basis for any such claim.

     

    (cc)         Internal Accounting and
Disclosure Controls.  The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance 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
GAAP 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 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 in 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.  Except for the qualified report the Company expects to
receive from its independent auditors in connection with the Company's upcoming
annual report filing on Form 20-F for fiscal year ended December 31, 2008,
during the twelve months prior to the date hereof neither the Company nor any of
its Subsidiaries has received any notice or correspondence from any accountant
relating to any material weakness in any part of the system of internal
accounting controls of the Company or any of its Subsidiaries.

     

    (dd)         Off Balance Sheet
Arrangements.  There is no transaction, arrangement, or other
relationship between the Company 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 would be reasonably likely to
have a Material Adverse Effect.

     

    (ee)         Ranking of
Notes.  Except as set forth in Schedule 3(ee), no
Indebtedness of the Company is senior to or ranks pari passu with the Notes in
right of payment, whether with respect of payment of redemptions, interest,
damages or upon liquidation or dissolution or otherwise.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (ff)         Eligibility for
Registration.  The Company is eligible to register the
Conversion Shares, the Interest Shares, if any, and the Warrant Shares for
resale by the Buyers using Form F-3 promulgated under the 1933 Act.

     

    (gg)       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.

     

    (hh)       Manipulation of
Price.  The Company has not, and to its knowledge no one acting
on its 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 to facilitate the sale or resale of any of the
Securities, (ii) other than the Placement Agent, sold, bid for, purchased, or
paid any compensation for soliciting purchases of, any of the Securities, or
(iii) other than the Placement Agent, paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.

     

    (ii)          Acknowledgement Regarding
Buyers' Trading Activity.  It is understood and acknowledged by
the Company that (i) none of the Buyers has been asked to agree by the Company,
any of its Subsidiaries or any of their respective officers, directors,
employees or agents, nor has any Buyer agreed with the Company, any of its
Subsidiaries or any of their respective officers, directors, employees or
agents, 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) 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
Shares which was established (excluding the location and/or reservation of
borrowable Common Shares) prior to such Buyer's knowledge of the transactions
contemplated by the Transaction Documents, and (iii) each Buyer shall not be
deemed to have any affiliation with or control over any arm's length
counter-party in any "derivative" transaction.  The Company further
understands and acknowledges that 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 Conversion Shares, the Warrant Shares and/or the Interest Shares
are being determined and (b) such hedging and/or trading activities, if any, can
reduce the value of the existing shareholders' 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 of the documents executed in connection
herewith.

     

    (jj)      
   U.S.
Real Property Holding Corporation.  The Company is not, has
never been, and so long as any Securities remain outstanding, shall not 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 shall so certify
upon any Buyer's request.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (kk)   
   Bank
Holding Company Act.  Neither the Company nor any of its
Subsidiaries or affiliates 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  entity
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.

     

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

     

    (mm)     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, nonpublic
information 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 made on the date hereof and as of the Closing Date in effecting
transactions in securities of the Company.  All disclosure provided to
the Buyers regarding the Company, or any of its Subsidiaries, their business and
the transactions contemplated hereby, including the disclosure schedules to this
Agreement, furnished by or on behalf of the Company 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 were 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, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed, other than the occurrence of the Closing under
this Agreement.  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 and in Section 5 of the Put Agreement.

     

    (nn)     
  China
Subsidiaries.

     

    (i)            
     Schedule 3(nn) sets
forth, for each Subsidiary that is incorporated in China, not including Hong
Kong (a "China
Subsidiary"), (i) the legal classification of such entity under the
applicable company laws and foreign investment laws of China, including true and
correct copies of the relevant currently effective business license by the
relevant China governmental approval authority for the location in which the
Subsidiary maintains an office or premises for business operations; (ii) the
total registered capital; (iii) the holders of record of the registered capital;
(iv) the authorized legal representative, directors, officers, legal address and
each business address, as well as the original China approval authority and
China governmental authority with current jurisdiction over the entity; and (v)
any agreements with respect to the registered capital, including outstanding
securities, contracts, commitments or arrangements granting any party the right
to obtain any equity ownership of the Subsidiary.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (ii)              
     For each China Subsidiary the holders of record of
its registered capital have contributed in full its subscribed share of the
entity's registered capital pursuant to the articles of association and, as
applicable, relevant joint venture contracts, and all such contributions have
been verified and certified by a Chinese registered public accountant according
to applicable China law, approved by all relevant China governmental authorities
and fully paid, and verification certificates have been issued to each such
holder of record or previous investor accordingly.  All previous
transfers or assignments of registered capital have been approved by the
relevant China governmental authorities and all necessary corporate
action.

     

    (iii)             
     Each Subsidiary incorporated in China is a limited
liability company duly organized, validly existing and in good standing under
the applicable company laws and, as applicable, the foreign investment laws of
China, has, as applicable, the status of a foreign investment enterprise, and is
a legal person with all requisite corporate power to own (to the extent
permitted under the laws of China), lease and operate its properties and to
carry on its business as now being conducted in each place where its business is
conducted.  Each China Subsidiary and its business operations are in
compliance with the terms and conditions of its business license, joint venture
contract (where applicable) and articles of association.  The
construction of the China Subsidiary's operating facilities and operation of its
business is and has been in full compliance with its relevant feasibility study
and business license, as applicable.  Each Subsidiary has received all
authorizations, approvals, license, permits and other rights from China
governmental authorities necessary and appropriate for the continued operation
of the Company's business.

     

    (iv)                 
  All necessary approvals from China governmental authorities have
been received to ensure that each China Subsidiary will continue to enjoy, to
the extent permitted by applicable China law, all of the tax clearances,
concessions and other benefits available to such China Subsidiary prior to the
Closing Date, or otherwise available under applicable China law to foreign
investment enterprises similarly situated.

     

    (v)                
   Each Subsidiary is and has been in compliance with applicable
China laws relating to its relationship to its employees or suppliers or to any
governmental taxing or customs authority, and relating to any other aspect of
its business.  Each Subsidiary is in compliance with applicable China
law relating to anti-competitive practices, price fixing, and environmental
matters, respectively, and, to its knowledge, there are no proceedings pending
or threatened regarding any violation by it of applicable China law, including
work safety, environmental and employment laws.

     

    (vi)               
    Each Subsidiary has obtained all required China product
registrations for the products related to its business.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (oo)     Stock Option Plans.
Each stock option granted by the Company was granted (i) in accordance with the
terms of the applicable Company stock option plan and (ii) with an exercise
price at least equal to the fair market value of the Common Stock on the date
such stock option would be considered granted under GAAP of the United States
and applicable law. No stock option granted under the Company's stock option
plan has been backdated.  The Company has not knowingly granted, and
there is no and has been no Company policy or practice to knowingly grant, stock
options prior to, or otherwise knowingly coordinate the grant of stock options
with, the release or other public announcement of material information regarding
the Company or its Subsidiaries or their financial results or
prospects.

     

    (pp)     Rule
144(i).  For purposes of confirming the availability to the
Buyers of Rule 144 upon satisfaction of the requisite holding period, the
Company hereby represents and warrants that it (i) has ceased to be an issuer
described in Rule 144(i)(1)(i); (ii) is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act; (iii) has filed all reports and other
materials required to be filed by Section 13 or 15(d) of the 1934 Act, as
applicable, during the preceding 12 months (or for such shorter period that the
Company was required to file such reports and materials), other than Form 8-K or
Form 6-K reports; and (iv) has filed current "Form 10 information" with the SEC
reflecting its status as an entity that is no longer an issuer described in Rule
144 (i)(1)(i) at least six months prior to the date hereof.

     

    4.     COVENANTS.

     

    (a)          Best
Efforts.  Each party shall use its reasonable best efforts
timely to satisfy each of the covenants and the conditions to be satisfied by it
as provided in Sections 5, 6 and 7 of this Agreement.

     

    (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 Investors (as defined in
the Registration Rights Agreement) shall have sold all the Conversion Shares,
the Interest Shares, if any, and Warrant Shares and none of the Notes
or Warrants are
outstanding (the "Reporting
Period"), the Company shall timely file all reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would no longer require or otherwise
permit such termination, and the Company shall take all actions necessary to
maintain its eligibility to register the Conversion Shares, Warrant Shares and
Interest Shares, if any, for resale by the Investors on Form F-3.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (d)          Use of
Proceeds.  The Company will use the proceeds from the sale of
the Securities for general corporate and for working capital purposes and not
for (i) the repayment of any outstanding Indebtedness of the Company or any of
its Subsidiaries or (ii) the redemption or repurchase of any of its or its
Subsidiaries' equity securities.

     

    (e)          Financial
Information.  The Company agrees to send the following to each
Investor during the Reporting Period unless the following are filed with the SEC
through EDGAR and are available to the public through the EDGAR system,
(i)  within one (1) Business Day after the filing thereof with the
SEC, a copy of its Annual Reports on Form 20-F, any Reports on Form 6-K and any
registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, (ii) on the same day as the release thereof, facsimile or e-mailed
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 shareholders of the Company generally, contemporaneously with the making
available or giving thereof to the shareholders.  As used herein,
"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)          Listing.

     

    (i)     The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which the Common Shares
are then listed (subject to official notice of issuance) and shall maintain such
listing 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 authorization for
quotation of the Common Shares on the Principal Market.  Neither the
Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common
Shares on the Principal Market.  The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section
4(f).

     

    (ii)     In
addition, the Company shall take all necessary actions to cause the Warrants to
be listed for quotation on (A) the OTC Bulletin Board, including, without
limitation, using its reasonable best efforts to obtain the agreement of at
least one broker-dealer that is a member of the Financial Industry Regulatory
Authority to act as a market maker with respect to the Warrants, or (B) at the
Company's discretion, on any other Eligible Market (as defined in the Notes), in
each case as soon as practicable, but in no event later than the one (1) year
anniversary of the Closing Date, and to maintain such listing until the earlier
to occur of (x) the expiration date of the Warrants and (y) such time as all of
the Warrants have been exercised in full.  The Buyers shall use their
reasonable best efforts to assist the Company in complying with its obligations
pursuant to this Section 4(f)(ii), including, without limitation, providing such
information as is reasonably requested by the Company.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (g)          Fees.  The
Company shall reimburse Hudson Bay (a Buyer) or its designee(s) (in addition to
any other expense amounts paid to any Buyer or its counsel prior to the date of
this Agreement) for all reasonable costs and expenses incurred in connection
with the transactions contemplated by the Transaction Documents (including all
reasonable legal fees and disbursements in connection therewith, documentation
and implementation of the transactions contemplated by the Transaction Documents
and due diligence in connection therewith) in an amount not to exceed $275,000,
which amount may be withheld by Hudson Bay from its Purchase Price 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 or
commissions payable to the Placement Agent.  The Company shall pay,
and hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney's fees and out-of-pocket expenses)
arising in connection with any claim relating to any such
payment.  Except as otherwise set forth in the Transaction Documents,
each party to this Agreement shall bear its own expenses in connection with the
sale of the Securities to the Buyers.

     

    (h)          Pledge of
Securities.  The Company acknowledges and agrees that the
Securities may be pledged by an Investor 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 except as may otherwise
be required under applicable securities laws, and no Investor 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, including, without limitation, Section 2(f) hereof;
provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee.  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 an Investor.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (i)          Disclosure of Transactions
and Other Material Information.  On or before 8:30 a.m., New
York City time, on the first Business Day after this Agreement has been
executed, the Company shall issue a press release and file a Current Report on
Form 6-K describing the material terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and attaching the
material Transaction Documents (including, without limitation, this Agreement,
the form of the Notes, the form of Warrant, the form the Registration Rights
Agreement, the form of Put Agreements, the Security Documents, the form of
Voting Agreement and the form of Lock-Up Agreement as exhibits to such filing)
(including all attachments, the "6-K Filing").  From
and after the filing of the 6-K Filing with the SEC, no Buyer shall be in
possession of any material, nonpublic information received from the Company, any
of its Subsidiaries or any of their respective officers, directors, employees or
agents, that is not disclosed in the 6-K Filing.  The Company shall
not, and shall cause each of its Subsidiaries and its and each of their
respective officers, directors, employees and agents, not to, provide any Buyer
with any material, nonpublic information regarding the Company or any of its
Subsidiaries from and after the filing of the 6-K Filing with the SEC without
the prior express written consent of such Buyer.  If a Buyer has, or
believes it has, received any such material, nonpublic information regarding the
Company or any of its Subsidiaries from the Company or a "person" acting on
behalf of the Company" within the meaning of Rule 101(c) of Regulation FD in
breach of the immediately preceding sentence (and not including any such
information made available to such Buyer in connection with a Subsequent
Placement after such Buyer requested an Offer Notice pursuant to the procedure
set forth in Section 4(o)(iii)(1)), it may provide the Company with written
notice thereof.  If the Company and its counsel agree that such
information is material, nonpublic information, the Company shall, within two
(2) Trading Days (as defined in the Notes) of receipt of such notice, make
public disclosure of such material, nonpublic information (the "MNPI
Disclosure").  In the event the Company fails to make the MNPI
Disclosure, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public disclosure,
in the form of a press release, public advertisement or otherwise, of such
material, nonpublic information without the prior approval by the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees
or agents.  No Buyer shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees,
shareholders 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, that 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 6-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 any applicable Buyer,
neither the Company nor any of its Subsidiaries or affiliates shall disclose the
name of such Buyer in any filing (other than in the exhibits to the 6-K Filing),
announcement, release or otherwise, except as otherwise required by any law,
rule or regulation applicable to the Company after consultation with such
Buyer.

    

    (j)          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, the Common Shares without the prior express written
consent of the Required Holders (as defined in the Notes).

     

    (k)          Additional Notes; Variable
Securities; Dilutive Issuances.  So long as any Buyer
beneficially owns any Securities, the Company will not 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.  For so long as any Notes or Warrants remain outstanding, the
Company shall not, in any manner, issue or sell any rights, warrants or options
to subscribe for or purchase Common Shares or directly or indirectly convertible
into or exchangeable or exercisable for Common Shares at a price which varies or
may vary with the market price of the Common Shares, including by way of one or
more reset(s) to any fixed price unless the conversion, exchange or exercise
price of any such security cannot be less than the then applicable Conversion
Price (as defined in the Notes) with respect to the Common Shares into which any
Note is convertible or the then applicable Exercise Price (as defined in the
Warrants) with respect to the Common Shares into which any Warrant is
exercisable.  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 Note or exercise of
any Warrant any Common Shares in excess of that number of Common Shares 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 or any applicable Eligible Market (as defined in the
Registration Rights Agreement).

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (l)          Corporate
Existence.  So long as any Buyer beneficially owns any
Securities, the Company shall maintain its corporate existence and 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.

     

    (m)          Reservation of
Shares.  So long as any Buyer owns any Securities, the Company
shall take all action necessary to at all times after the Shareholder Approval
(as defined below) have authorized, and reserved and maintained for the purpose
of issuance, no less than 130% of the sum of the number of Common Shares
issuable (A) upon conversion of the Notes, (B) upon exercise of the Warrants
then outstanding (without taking into account any limitations on the conversion
of the Notes or exercise of the Warrants set forth in the Notes and Warrants,
respectively) and (C) as Interest Shares pursuant to the terms of the
Notes.  If at any time the number of Common Shares authorized and
reserved and maintained for issuance is not sufficient to meet the Required
Reserved Amount, the Company will promptly take all corporate action necessary
to authorize and reserve and maintain for issuance a sufficient number of
shares, including, without limitation, calling a special meeting of shareholders
to authorize additional shares to meet the Company's obligations under Section
3(c), in the case of an insufficient number of authorized shares, obtain
shareholder approval of an increase in such authorized number of shares of the
Company in favor of an increase in the authorized shares of the Company to
ensure that the number of authorized shares is sufficient to meet the Required
Reserved Amount.

     

    (n)          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.

     

    (o)          Additional Issuances of
Securities.

     

    (i)              For
purposes of this Section 4(o), the following definitions shall
apply.

     

    (1)          "Common Shares Equivalents" means,
collectively, Options and Convertible Securities.

     

    (2)          "Convertible Securities" means
any stock or securities (other than Options) convertible into or exercisable or
exchangeable for Common Shares.

     

    (3)          "Options" means any rights,
warrants or options to subscribe for or purchase Common Shares or Convertible
Securities.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (ii)              From
the date hereof until thirty (30) days after the date when all Registrable
Securities (as defined in the Registration Rights Agreement) have been
registered (the "Trigger
Date"), the Company will not, directly or indirectly, file any
registration statement with the SEC other than the Registration Statement (as
defined in the Registration Rights Agreement).  From the date hereof
until the Trigger Date, the Company will not, (A) directly or indirectly, offer,
sell, grant any option to purchase, or otherwise dispose of (or announce any
offer, sale, grant or any option to purchase or other disposition of) any of its
or its Subsidiaries' equity or equity equivalent securities, including without
limitation any debt, preferred stock or other instrument or security that is, at
any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for Common Shares or Common Shares Equivalents (any
such offer, sale, grant, disposition or announcement being referred to as a
"Subsequent Placement")
or (B) be party to any solicitations, negotiations or discussions with regard to
the foregoing.

     

    (iii)              From
the Trigger Date until the second anniversary of the Closing Date, the Company
will not, directly or indirectly, effect any Subsequent Placement unless the
Company shall have first complied with this Section 4(o)(iii).

     

    (1)     The
Company shall deliver to each Buyer a written notice stating that the Company
may have information to share with such Buyer and requesting the Buyer to inform
the Company if it is willing to receive a notice of such
information.  If such Buyer indicates its willingness to receive such
information, then the Company shall deliver promptly, but in any event no later
than one (1) Business Day after being informed by such Buyer of its willingness
to receive the information, a 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 or entities (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 Buyers fifty percent (50%) of the
Offered Securities, allocated among such Buyers (a) based on such Buyer's pro
rata portion of the aggregate principal amount of Notes purchased hereunder (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"),
which process shall be repeated no more than one time so that the Buyers shall
have an opportunity to subscribe for any remaining Undersubscription
Amount.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (2)     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 ninth (9th)
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 each 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, that 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"), each 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 its deems reasonably
necessary.  Notwithstanding anything to
the contrary contained herein, 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 the Buyers a new Offer Notice and the Offer Period
shall expire on the tenth (10th) Business Day after such Buyer's receipt of such
new Offer Notice.

     

    (3)     The
Company shall have seven (7) Business Days from the expiration of the Offer
Period above to (i) 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 the
Buyers (the "Refused
Securities") pursuant to a definitive agreement (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 6-K with such Subsequent Placement Agreement
and any documents contemplated therein filed as exhibits thereto.

     

    (4)     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)(3) above), then each 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)(iii)(2) 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 Section 4(o)(iii)(3) above 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)(iii)(1)
above.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (5)     Upon
the closing of the issuance, sale or exchange of all or less than all of the
Refused Securities, the Buyers shall acquire from the Company, and the Company
shall issue to the Buyers, the number or amount of Offered Securities specified
in the Notices of Acceptance, as reduced pursuant to Section 4(o)(iii)(3) above
if the Buyers have so elected, upon the terms and conditions specified in the
Offer.  The purchase by the Buyers of any Offered Securities is
subject in all cases to the preparation, execution and delivery by the Company
and the Buyers of a purchase agreement relating to such Offered Securities
reasonably satisfactory in form and substance to the Buyers and their respective
counsel. The Buyers and the Company shall each use their reasonable best efforts
to consummate such offering as promptly as commercially
practicable.

     

    (6)     Any
Offered Securities not acquired by the Buyers or other persons in accordance
with Section 4(o)(iii)(3) above may not be issued, sold or exchanged until they
are again offered to the Buyers under the procedures specified in this
Agreement.

     

    (7)     The
Company and the Buyers agree that if any Buyer elects to participate in the
Offer, (x) 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 provisions whereby any Buyer shall
be required to agree to any restrictions in trading as to any securities of the
Company owned by such Buyer prior to such Subsequent Placement, and (y) any
registration rights set forth in such Subsequent Placement Documents shall be
similar in all material respects to the registration rights contained in the
Registration Rights Agreement.

     

    (8)     Notwithstanding
anything to the contrary in this Section 4(o) and unless otherwise agreed to by
the Buyers, the Company shall either confirm in writing to the Buyers 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 the Buyers will not be in possession of material
non-public information, by the sixteenth (16th)
Business Day following delivery of the Offer Notice.  If by the
sixteenth (16th)
Business Day following delivery of the Offer Notice 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
the Buyers, such transaction shall be deemed to have been abandoned and the
Buyers shall not be deemed to be in possession of any material, non-public
information with respect to the Company.  Should the Company decide to
pursue such transaction with respect to the Offered Securities, the Company
shall provide each Buyer with another Offer Notice and each Buyer will again
have the right of participation set forth in this Section
4(o)(iii).  The Company shall not be permitted to deliver more than
one such Offer Notice to the Buyers in any 60 day period.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (iv)          The
restrictions contained in subsections (ii) and (iii) of this Section 4(o) shall
not apply (x) in connection with the issuance of any Excluded Securities (as
defined in the Notes) and (y) pursuant to a bona fide firm commitment
underwritten public offering with a nationally recognized underwriter which
generates gross proceeds to the Company in excess of the greater of (i)
$25,000,000 and (ii) the aggregate principal amount of Notes then outstanding
other than any Notes beneficially owned, directly or indirectly, by Mr. Lu (or
any of his family members, affiliates or agents), the Company or any of its
Subsidiaries. (other than an "at-the-market offering" as defined in Rule
415(a)(4) under the 1933 Act or equity lines).

     

    (p)          Trading in Common
Shares.

     

    (i)     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 Shares 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 Shares or
contract for the foregoing.  For purposes of determining whether a
Buyer has an equivalent offsetting long position in the Common Shares, all
Common Shares (A) that are owned by such Buyer, (B) that may be issued as
Interest Shares pursuant to the terms of the Notes to the Buyer, (C) that would
be issuable upon conversion or exercise in full of all Securities 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) or (D) that could be issuable pursuant to the Put
Agreements (assuming no restriction on issuance, notwithstanding any provision
to the contrary) shall be deemed to be held long by such Buyer.

     

    (ii)     During
the period commencing twenty (20) Trading Days immediately preceding the
Adjustment Date (as defined in the Notes) and ending with the close of trading
on the Principal Market on the Adjustment Date (such period, the "Restricted Period"), each
Buyer, severally and not jointly with the other Buyers, covenants that neither
it nor any of its Buyer Trading Affiliates will engage in any sale of the Common
Shares, including "short sales" as defined in Rule 200 of Regulation SHO under
the 1934 Act.

     

    (iii)     Except
as set forth in the Put Agreements, during the Restricted Period, neither the
Company nor any of its Subsidiaries, and no one acting on any of their behalf
(including, without limitation, any officer, director, employee, affiliate,
attorney or agent) shall purchase, directly or indirectly, any Common Shares or
any securities convertible, exercisable or exchangeable for Common
Shares.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (iv)     Except
as set forth in the Put Agreements, during the Restricted Period, neither the
Company nor any of its Subsidiaries, and no one acting on any of their behalf
(including, without limitation, any officer, director, employee, affiliate,
attorney or agent) shall, directly or indirectly, (A) take any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company, (B) sell, bid for, purchase, or pay any compensation
for soliciting any sale, bid for or purchase of any security of the Company,
including, without limitation, any Common Share, any of the Securities and any
short sales (as defined in Rule 200 of Regulation SHO under the 1934 Act)
related thereto (other than the offer, sale and issuance by the Company of
Excluded Securities to officers, directors and employees of the Company in the
ordinary course of business), (C) issue or offer any security of the Company or
any of its Subsidiaries to any Person (other than the offer, sale and issuance
by the Company of Excluded Securities to officers, directors and employees of
the Company in the ordinary course of business), (D) pay or agree to pay to any
Person any compensation for soliciting another to purchase or sell any
securities of the Company, or (E) enter into any agreement or other writing or
make any offer with respect to the foregoing actions.

     

    (q)          Public
Information.  At any time during the period commencing from the
six (6) month anniversary of the Closing Date (the "Shareholder Approval
Deadline") and ending, if a registration statement is not available for
the resale of all of the Registrable Securities, at such time that all of the
Securities may be sold without restriction or limitation pursuant to Rule 144
and without the requirement to be in compliance with Rule 144(c)(1), if the
Company shall fail for any reason to satisfy the current public information
requirement under Rule 144(c) (a "Public Information Failure")
then, as partial relief for the damages to any holder of Securities by reason of
any such delay in or reduction of its ability to sell the Securities (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to each such holder an amount in cash equal to
two percent (2.0%) of the aggregate Purchase Price of such holder's Company
Securities on the day of a Public Information Failure and on every thirtieth day
(pro rated for periods totaling less than thirty days) thereafter until the
earlier of (i) the date such Public Information Failure is cured and (ii) such
time that such public information is no longer required pursuant to Rule
144.  The payments to which a holder shall be entitled pursuant to
this Section 4(q) are referred to herein as "Public Information Failure
Payments."  Public Information Failure Payments shall be paid
on the earlier of (I) the last day of the calendar month during which such
Public Information Failure Payments are incurred
and (II) the third Business Day after the event or failure giving rise to the
Public Information Failure Payments is
cured.  In the event the Company fails to make Public Information
Failure Payments in
a timely manner, such Public Information Failure Payments shall bear
interest at the rate of 1.5% per month (prorated for partial months) until paid
in full.

     

    (r)          Shareholder Approval.
The Company shall provide each shareholder entitled to vote at a special or
annual meeting of shareholders of the Company (the "Shareholder Meeting"), which
shall be called as promptly as practicable after the date hereof, but in no
event later than August 24, 2009 (the "Shareholder Meeting
Deadline"), a proxy statement, in a form reasonably acceptable to the
Buyers meeting the requirements of the laws of the British Virgin Islands after
review by Schulte Roth & Zabel LLP at the expense of the Company, not to
exceed $7,500, soliciting each such shareholder's affirmative vote at the
Shareholder Meeting for approval of resolutions (the "Resolutions") providing for
the issuance of all of the Securities as described in the Transaction Documents
in accordance with applicable law, the provisions of the Articles of Association
and the rules and regulations of the Principal Market (such affirmative approval
being referred to herein as the "Shareholder Approval" and the
date such approval is obtained, the "Shareholder Approval Date"),
and the Company shall use its reasonable best efforts to solicit its
shareholders' approval of such Resolutions and to cause the Board of Directors
of the Company to recommend to the shareholders that they approve the
Resolutions.  The Company shall be obligated to seek to obtain the
Shareholder Approval by the Shareholder Meeting Deadline.  If, despite
the Company's reasonable best efforts, the Shareholder Approval is not obtained
at the Shareholder Meeting, the Company shall cause an additional Shareholder
Meeting to be held each calendar quarter thereafter until Shareholder Approval
is obtained, unless all of the Notes and the Warrants have been put to Mr. Lu
pursuant to the Put Agreements for the Lu Conversion Shares and the Lu Warrant
Shares, respectively.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (s)          Voting
Agreement.  The Company shall use its reasonable best efforts
to effectuate the transactions contemplated by the Voting Agreement,
substantially in the form attached hereto as Exhibit F (the "Voting Agreement"), executed
by the Company, Mr. Lu and Mr. John S. Lin ("Mr. Lin" and, collectively
with Mr. Lu, the "Principal
Shareholders").  The Company shall not amend or waive any
provision of the Voting Agreement and shall enforce the provisions of the Voting
Agreement in accordance with its terms. If the Principal Shareholders breach any
provisions of the Voting Agreement, the Company shall promptly use its
reasonable best efforts to seek specific performance of the terms of the Voting
Agreement in accordance with Section 4.02 thereof.  In addition, if
the Company receives any notice from the Principal Shareholders pursuant to the
Voting Agreement, the Company shall promptly, but in no event later than two (2)
Business Days, deliver a copy of such notice to each Buyer.

     

    (t)          Lock-Up.  The
Company shall not amend or waive any provision of any of the Lock-Up Agreements
except to extend the term of the lock-up period.

     

    (u)          Buyers' Voting
Agreement.  While any Buyer holds any Common Shares, each such
Buyer hereby agrees to cast an affirmative vote at any shareholder meeting with
respect to resolutions providing for (i) Shareholder Approval, (ii) the
amendment of the Company's Articles of Association to remove the requirement for
shareholder approval for Common Shares issuances and repurchases pursuant to
Sections 3 and 17 of the Articles of Association, respectively, and (iii) the
issuance to Mr. Lu of a number of Common Shares issuable pursuant to the Notes
and Warrants (on the terms set forth therein) delivered to Mr. Lu by one or more
Buyers pursuant to the Put Agreements.  Notwithstanding the foregoing,
none of the Buyers shall be under any obligation to hold any Common Shares for
any length of time.

     

    (v)          Multiple
Certificates.  From and after the Closing Date, if the
Collateral Agent delivers Common Share certificates and/or stock powers
representing the Pledged Shares to the Company with instructions to reissue
multiple certificates and stock powers in replacement of one or more
certificates and stock powers in larger denominations, the Company shall cause
its transfer agent to comply with such request promptly, but in no event later
than three (3) Trading Days after receipt of the Common Share certificates
representing the Pledged Shares; provided, that the
Company shall not be required to break down the Pledged Shares into more than
twenty (20) Common Share certificates and stock powers at any one
time.

     

    (w)          No Refusal or Delay to
Transfer Shares.  Notwithstanding Section 11 of the Company's
Articles of Association, the Company hereby covenants not to refuse or delay the
registration of a share transfer with respect to transfers of the
Securities  (i) by Mr. Lu to any Buyer (or any of its successors or
assigns) pursuant to the Put Agreement or the Pledge Agreement or
(ii) by any Buyer (or any of its successors or assigns) to any
other Person, so long as such transfer is in compliance with Section 2(f)
hereof.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (x)          Collateral
Agent.

     

    (i)     Each
Buyer hereby (a) appoints the Collateral Agent, as the collateral agent under
the Put Agreements and under the Pledge Agreement, and (b) authorizes the
Collateral Agent (and its officers, directors, employees and agents) to take
such action on such Buyer's behalf in accordance with the terms hereof and
thereof.  The Collateral Agent shall not have, by reason hereof or the
Pledge Agreement, a fiduciary relationship in respect of any
Buyer.  Neither the Collateral Agent nor any of its officers,
directors, employees and agents shall have any liability to any Buyer for any
action taken or omitted to be taken in connection hereof or the Pledge Agreement
except to the extent caused by its own gross negligence or willful misconduct,
and each Buyer agrees to defend, protect, indemnify and hold harmless the
Collateral Agent and all of its officers, directors, employees and agents
(collectively, the "Collateral
Agent Indemnitees") from and against
any losses, damages, liabilities, obligations, penalties, actions, judgments,
suits, fees, costs and expenses (including, without limitation, reasonable
attorneys' fees, costs and expenses) incurred by such Collateral Agent
Indemnitee, whether direct, indirect or consequential, arising from or in
connection with the performance by such Collateral Agent Indemnitee of the
duties and obligations of Collateral Agent pursuant hereto or any of the
Security Documents.

     

    (ii)     The
Collateral Agent shall be entitled to rely upon any written notices, statements,
certificates, orders or other documents or any telephone message believed by it
in good faith to be genuine and correct and to have been signed, sent or made by
the proper Person, and with respect to all matters pertaining to this Agreement
or any of the other Transaction Documents and its duties hereunder or
thereunder, upon advice of counsel selected by it.

     

    (iii)     The
Collateral Agent may resign from the performance of all its functions and duties
hereunder and under the Notes, the Warrants and the Pledge Agreement at any time
by giving at least ten (10) Business Days prior written notice to the Company
and each holder of the Notes.  Such resignation shall take effect upon
the acceptance by a successor Collateral Agent of appointment as provided
below.  Upon any such notice of resignation, the Required Holders
shall appoint a successor Collateral Agent.  Upon the acceptance of
the appointment as Collateral Agent, such successor Collateral Agent shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Collateral Agent, and the retiring Collateral Agent shall be
discharged from its duties and obligations under this Agreement, the Notes and
the Pledge Agreement.  After any Collateral Agent's resignation
hereunder, the provisions of this Section 4(x) shall inure to its benefit. If a
successor Collateral Agent shall not have been so appointed within said ten (10)
Business Day period, the retiring Collateral Agent shall then appoint a
successor Collateral Agent who shall serve until such time, if any, as the
Required Holders appoint a successor Collateral Agent as provided
above.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (iv)     The
Collateral Agent hereby agrees to act, and the Company hereby agrees to take any
actions necessary to facilitate such necessary actions, in accordance with the
written instructions delivered to it by a Buyer, in substantially the form
attached as Schedule
I to Exhibit
I to the Put Agreements, including to deliver a share certificate (the
"Certificate")
representing a number of shares as requested by such Buyer (the "Exercise Notice Share Amount")
and a share power, duly executed by Mr. Lu with a medallion guarantee, each of
which is held by the Collateral Agent pursuant to the Pledge Agreement, to the
Company's Transfer Agent and to direct the Company's Transfer Agent, to (i)
issue the Exercise Notice Share Amount (as defined in the Put Agreements) of
such Common Shares in accordance with the Exercise Notice attached as Exhibit I to the Put
Agreements and (ii) if the number of Common Shares represented by the
Certificate exceeds the Exercise Notice Share Amount, deliver a certificate with
respect to such excess number of shares with an identical legend to any legend
set forth on the Certificate to the Collateral Agent.

     

    (y)          Successor Collateral
Agent.  The Company hereby covenants and agrees to take, or
cause to be taken, all actions reasonably requested by the Collateral Agent to
secure a successor Collateral Agent satisfactory to the Buyers, in their sole
discretion (it being acknowledged and agreed by the Buyers that The Bank of New
York Mellon is a satisfactory successor Collateral Agent), as promptly as
practicable but in no event later than sixty (60) days following the Closing
Date, including, without limitation, by paying all fees of such successor
Collateral Agent, by having the Company agree to indemnify any successor
Collateral Agent and by each of the Company and Mr. Lu executing a collateral
agency agreement or similar agreement and/or any amendment to the Pledge
Agreement reasonably requested or required by the successor Collateral
Agent.

     

    (z)          Closing
Documents.  On or prior to thirty (30) calendar days after the
Closing Date, the Company agrees to deliver, or cause to be delivered, to each
Buyer and Schulte Roth & Zabel LLP executed copies of the Transaction
Documents, Securities and other document required to be delivered to any party
pursuant to Section 7 hereof or otherwise.

     

    5.    
       REGISTER; TRANSFER AGENT
INSTRUCTIONS.

     

    (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 Notes held by such Person, the number of Conversion Shares issuable upon
conversion of the Notes and 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, to issue certificates
or credit shares to the applicable balance accounts at the DTC, registered in
the name of each Buyer or its respective nominee(s), for the Conversion Shares,
the Interest Shares and the Warrant Shares issued at the Closing or upon
conversion of the Notes or exercise of the Warrants in such amounts as specified
in such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Notes or exercise of the Warrants in the form of Exhibit G (the "Irrevocable Transfer Agent
Instructions").  The Company 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(f) hereof, will
be given by the Company to its transfer agent, and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
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(f), 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 the Conversion Shares, the Interest Shares or the Warrant
Shares sold, assigned or transferred pursuant to an effective registration
statement or pursuant to Rule 144, the transfer agent shall issue such
Securities to the Buyer, assignee or transferee, as the case may be, without any
restrictive legend.  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.

     

    6.       
    CONDITIONS TO THE COMPANY'S
OBLIGATION TO SELL.

     

    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 Transaction Documents to which it is a
party and delivered the same to the Company.

     

    (ii)     Such
Buyer shall have delivered to the Company the Net Purchase Price (less, in the
case of Hudson Bay, the amounts withheld, if any, 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.

     

    (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
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 specified 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.

     

    The
obligation of each Buyer hereunder to purchase the Notes and the 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 shall have duly executed and delivered to such Buyer (A) each of the
Transaction Documents, (B) the Notes (allocated in such principal amounts as
such Buyer shall request), being purchased by such Buyer at the Closing pursuant
to this Agreement and (C) the related Warrants (allocated in such amounts as
such Buyer shall request) being purchased by such Buyer at the Closing pursuant
to this Agreement.

     

    (ii)     Such
Buyer shall have received (A) the opinion of the New York Office of Baker &
McKenzie LLP, the Company's outside United States counsel, dated as of the
Closing Date, in substantially the form of Exhibit H-1
attached hereto, (B) the opinion of Maples and Calder, the Company's British
Virgin Islands outside counsel, dated as of the Closing Date, in substantially
the form of Exhibit H-2
attached hereto, (C) the opinion of the Hong Kong Office of Baker McKenzie LLP,
the Company's outside Hong Kong counsel, dated as of the Closing Date, in
substantially the form of Exhibit H-3
attached hereto and (D) the opinion of Tianyin Law Firm, the Company's outside
People's Republic of China counsel, dated as of the Closing Date, in
substantially the form of Exhibit H-4
attached hereto.

     

    (iii)     The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form of Exhibit G
attached hereto, 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 such
entity's jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction, 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 qualification as a foreign corporation and good standing issued by the
Secretary of State (or comparable office) of each jurisdiction in which the
Company conducts business, 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 Memorandum of
Association as certified by the Secretary of State (or comparable office) of the
British Virgin Islands within ten (10) days of the Closing Date.

     

    (vii)     The
Company shall have delivered to such Buyer a certificate, 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 Memorandum of
Association and (iii) the Articles of Association, each as in effect at the
Closing, in the form attached hereto as Exhibit I.

     

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

    (viii)        The
representations and warranties of the Company shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though 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 specified date)
and the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by the
Transaction Documents 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 attached hereto as Exhibit
J.

     

    (ix)           The
Company shall have delivered to such Buyer a letter from the Company's transfer
agent certifying the number of Common Shares outstanding as of a date within
five days of the Closing Date.

     

    (x)           The
Security Documents shall have been executed and delivered to such Buyer, and Mr.
Lu, in accordance with the terms of the Pledge Agreement, shall have delivered
to the Collateral Agent, with a copy to each Buyer, certificates representing
the Pledged Shares (as defined in the Pledge Agreement), along with duly
executed blank assignment form and/or stock powers for the Pledged Shares in a
form reasonably acceptable to the Company (and/or to the Company's transfer
agent or counsel, to the extent required or requested by the Company), including
a Medallion Guarantee on such assignment form and/or stock powers.

     

    (xi)           The
Common Shares (I) shall be designated for quotation or listed 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 listing 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 Company Securities required
to be obtained prior to Closing.

     

    (xiii)         The
Voting Agreement shall have been executed and delivered to such Buyer by the
Company and each of the Principal Shareholders.

     

    (xiv)         The
Company shall have delivered to each Buyer a lock-up agreement in the form
attached hereto as Exhibit K executed
and delivered by each of Mr. Lu and Mr. Lin (collectively, the "Lock Up
Agreements").

     

    (xv)         The
Company shall have delivered a Put Agreement to each Buyer duly executed and
delivered by each of the Company, Mr. Lu, the Collateral Agent and such
Buyer.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    (xvi)        The
Company 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 on or
before five (5) Business Days from the date hereof due to the Company's or such
Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above
(and the nonbreaching party's failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated pursuant to this Section 8, the Company shall remain
obligated to reimburse the non-breaching Buyers for the expenses described in
Section 4(g) above.

     

    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 C T 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, 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 be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if the
signature were an original.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    (c)           Headings.  The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.

     

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

     

    (e)           Entire Agreement;
Amendments.  This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers, the
Company, their affiliates and Persons acting on their behalf with respect to the
matters discussed herein, and this Agreement, the other Transaction Documents
and the instruments referenced herein and therein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, 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.  No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Required Holders, and any amendment to this Agreement made in
conformity with the provisions of this Section 9(e) shall be binding on all
Buyers and holders of Securities, as applicable.  No provision hereof
may be waived other than by an instrument in writing signed by the party against
whom enforcement is sought.  No such amendment shall be effective to
the extent that it applies to less than all of the holders of the applicable
Securities then outstanding.  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, holders of Notes
or 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 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 Business Day after deposit with an overnight courier
service, in each case properly addressed to the party to receive the
same.  The addresses and facsimile numbers for such communications
shall be:

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    
      
        	
                If
      to the Company:

              
	 
      
	
                A-Power
      Energy Generation Systems, Ltd.

              
	
                No.
      44 Jingxing Road

              
	
                Tiexi
      District

              
	
                Shenyang,
      Liaonong Province, China 110021

              
	
                Telephone:    86-24-85617888

              
	
                Facsimile:     
      86-24-85830606

              
	
                Attention:    
       John Lin

              
	 
      
	
                With
      a copy (for informational purposes only) to:

              
	 
      
	
                Baker
      & McKenzie LLP

              
	
                1114
      Avenue of the Americas

              
	
                New
      York, New York 10036

              
	
                Telephone:    (212)
      626-4965

              
	
                Facsimile:     
      (212) 310-1802

              
	
                Attention:    
       Omer Ozden, Esq.

              
	 
      
	
                If
      to the Transfer Agent:

              
	 
      
	
                Continental
      Stock Transfer & Trust Company

              
	
                17
      Battery Place

              
	
                New
      York, New York 10004

              
	
                Telephone:    (212)
      509-4000

              
	
                Facsimile:    
      (212) 616-7615

              
	
                Attention:     Account
      Administration: A-Power Energy

                                     Generation
      Systems, Ltd.

              

      

    

    

    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:

              
	 
      
	
                Schulte
      Roth & Zabel LLP

              
	
                919
      Third Avenue

              
	
                New
      York, New York  10022

              
	
                Telephone:    (212)
      756-2000

              
	
                Facsimile:     
      (212) 593-5955

              
	
                Attention:     
      Eleazer N. Klein, Esq.

              
	
                E-mail:          eleazer.klein@srz.com

              

      

    

     

    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.  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.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    Any
document shall be deemed to have been duly served if marked for the attention of
the agent for service of process at its address (as set forth in Section 9(a))
or such other address in the United States as may be notified to the party
wishing to serve the document and delivered in accordance with the notice
provisions set forth in this Section 9(f).

    

    If the
Company's agent for service of process at any time ceases for any reason to act
as such, the Company shall appoint a replacement agent having an address for
service in the United States and shall notify each Buyer in writing of the name
and address of the replacement agent.  Failing such appointment and
notification, each Buyer shall be entitled by notice to the Company to appoint a
replacement agent to act on the Company's behalf.  The provisions of
this Section 9(f) applying to service on an agent for service of process apply
equally to service on a replacement agent.

     

    (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
any purchasers of the Notes or the Warrants.  The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Required Holders, including by way of a Fundamental
Transaction (unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Notes and the
Warrants).  A Buyer may assign some or all of its rights hereunder
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.

     

    (i)            Survival.  Unless
this Agreement is terminated under Section 8, the representations and warranties
of the Company and the Buyers contained in Sections 2 and 3, and the agreements
and covenants set forth in Sections 4, 5 and 9 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.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    (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 other holder of
the Securities and all of their shareholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons' agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against
any and all actions, causes of action, suits, claims, losses, costs, penalties,
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents, (b) any breach of any covenant, agreement
or obligation of the Company contained in the Transaction Documents or (c) any
cause of action, suit or claim brought or made against such Indemnitee by a
third party (including for these purposes a derivative action brought on behalf
of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement 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 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, provided, however,
that the Company's obligations under this Section 9(k) with respect to
Indemnified Liabilities referred to in the preceding clauses (a) through (c) and
incurred under the Registration Rights Agreement shall be limited to the
Indemnified Liabilities for which indemnity is expressly provided pursuant to
Section 6 of the Registration Rights Agreement.  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 that 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)            No Strict
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 the Securities shall have all rights and remedies set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law.  Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.  Furthermore, the Company
recognizes that in the event that it fails to perform, observe, or discharge any
or all of its obligations under the Transaction Documents, any remedy at law may
prove to be inadequate relief to the Buyers.  The Company therefore
agrees that the Buyers shall be entitled to seek temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages and without posting a bond or other security.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

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

     

    (o)          Payment Set
Aside.  To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.

     

    (p)          Independent Nature of
Buyers' Obligations and Rights.  The obligations of each Buyer
under any Transaction Document 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 entity, or create a presumption that the Buyers are in any way
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 and the Company acknowledges that the Buyers are not
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents.  The Company
acknowledges and each Buyer confirms that it has independently participated 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.

     

    (q)          Currency.  Unless
otherwise indicated, all dollar amounts referred to in this Agreement are in
United States Dollars.  All amounts owing under this Agreement or any
Transaction Document 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.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    (r)           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(r) 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 Business Day
immediately preceding:

     

    (1)       the
date of 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 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(r)(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.

     

    (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.

     

    [Signature
Page Follows]

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

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

     

    
      
        	
                COMPANY:

              
	 
      
	
                A-POWER
      ENERGY GENERATION

              
	
                SYSTEMS,
      LTD.

              
	 
      
	
                By:

              	
                /s/ Jinxiang Lu

              
	 
      	
                Name:
      Jinxiang Lu

              
	 
      	
                Title:  Chief
      Executive Offier

              

      

    

    

    [Signature
Page to Securities Purchase Agreement]

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

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

     

    
      
        	
                BUYERS:

              
	 
      
	
                HUDSON
      BAY FUND LP

              
	 
      
	
                By:
      Hudson Bay Capital Management LP,

              
	
                as
      its Investment Manager

              
	 
      
	
                By:

              	
                /s/ Yoav Roth

              
	 
      	
                Name:  Yoav
      Roth

              
	 
      	
                Title:  Authorized
      Signatory

              

      

    

    

    [Signature
Page to Securities Purchase Agreement]

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

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

     

    
      
        	
                BUYERS:

              
	 
      
	
                HUDSON
      BAY OVERSEAS FUND LTD.

              
	 
      
	
                By:
      Hudson Bay Capital Management LP,

              
	
                as
      its Investment Manager

              
	 
      
	
                By:

              	
                /s/ Yoav Roth

              
	 
      	
                Name:  Yoav
      Roth

              
	 
      	
                Title:  Authorized
      Signatory

              

      

    

    

    [Signature
Page to Securities Purchase Agreement]

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

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

     

    
      
        	
                BUYERS:

              
	 
      
	
                RCG
      PB, LTD

              
	 
      
	
                By:

              	
                /s/ Owen Littman

              
	 
      	
                Name:  Owen
      Littman

              
	 
      	
                Title:
      Authorized Signatory

              

      

    

     

    [Signature
Page to Securities Purchase Agreement]

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

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

     

    
      
        	
                BUYERS:

              
	 
      
	
                RAMIUS
      ENTERPRISE MASTER FUND

              
	
                LTD

              
	 
      
	
                By:

              	
                /s/ Owen Littman

              
	 
      	
                Name:  Owen
      Littman

              
	 
      	
                Title:
      Authorized Signatory

              

      

    

     

    [Signature
Page to Securities Purchase Agreement]

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

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

     

    
      
        	
                BUYERS:

              
	 
      
	
                IROQUOIS
      MASTER FUND LTD.

              
	 
      
	
                By:

              	
                /s/ Joshua Silverman

              
	 
      	
                Name:
      Joshua Silverman

              
	 
      	
                Title:
      Authorized Signatory

              

      

    

    

    [Signature
Page to Securities Purchase Agreement]

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

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

     

    
      
        	
                BUYERS:

              
	 
      
	
                CAPITAL
      VENTURES INTERNATIONAL

              
	 
      
	
                By:

              	
                /s/ Martin Robinger

              
	 
      	
                Name:  Martin
      Robinger

              
	 
      	
                Title:
      Investment Manager

              

      

    

     

    [Signature
Page to Securities Purchase Agreement]

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    SCHEDULE
OF BUYERS

    

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	
                                        (1)

                                      	 	
                                        (2)

                                      	 	 	
                                        (3)

                                      	 	 	
                                        (4)

                                      	 	 	
                                        (5)

                                      	 	 	
                                        (6)

                                      	 	 	
                                        (7)

                                      	 	 	
                                        (8)

                                      	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                        
                                          Buyer

                                        

                                      	 	
                                        
                                          Address and

                                          Facsimile Number

                                        

                                      	 	 	
                                        
                                          Aggregate

                                          Principal

                                          Amount of

                                          Notes

                                        

                                      	 	 	
                                        
                                          Number of

                                          Warrant Shares

                                        

                                      	 	 	
                                        
                                          Purchase Price

                                        

                                      	 	 	
                                        
                                          Prepaid Interest

                                        

                                      	 	 	
                                        
                                          Net 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

                                        George
      Antonopoulos

                                        Facsimile: 
      646-214-7946

                                        Telephone:
      212-571-1244

                                        Residence:
      United States

                                        E-mail:
      investments@hudsonbaycapital.com

                                          

                                        operations@hudsonbaycapital.com

                                      	 	 	$	2,700,000	 	 	 	101,532	 	 	$	2,700,000	 	 	$	40,500	 	 	$	2,659,000	 	 	
                                        Schulte
      Roth & Zabel LLP

                                        919
      Third Avenue

                                        New
      York, New York 10022

                                        Attention: Eleazer
      Klein, Esq.

                                        Facsimile:
      (212) 593-5955

                                        Telephone: (212)
      756-2376

                                      	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                        Hudson
      Bay Overseas
      Fund, Ltd.

                                      	 	
                                        120
      Broadway, 40th Floor

                                        New
      York, New York 10271

                                        Attention:
      Yoav Roth

                                        George
      Antonopoulos

                                        Facsimile: 
      646-214-7946

                                        Telephone:
      212-571-1244

                                        Residence:
      Cayman Islands

                                        E-mail:
      investments@hudsonbaycapital.com

                                          

                                        operations@hudsonbaycapital.com

                                      	 	 	$	12,300,000	 	 	 	462,536	 	 	$	12,300,000	 	 	$	184,500	 	 	$	12,115,5
      00	 	 	
                                        Schulte
      Roth & Zabel LLP

                                        919
      Third Avenue

                                        New
      York, New York 10022

                                        Attention: Eleazer
      Klein, Esq.

                                        Facsimile:
      (212) 593-5955

                                        Telephone: (212)
      756-2376

                                      	 
	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                                        RCG
      PB, Ltd

                                      	 	
                                        c/o
      Ramius LLC

                                        599
      Lexington Avenue, 20th Floor

                                        New
      York, NY 10022

                                        Attention: 
      Jeffrey Smith

                                        Owen
      Littman

                                        Facsimile: (212)
      201-4802

                                        (212)
      845-7986

                                        Telephone:
      (212) 845-7955

                                        (212)
      201-4841

                                        Residence: Cayman
      Islands

                                      	 	 	$	7,000,000	 	 	$	263,232	 	 	$	7,000,000	 	 	$	105,000	 	 	$	6,895,000	 	 	 	 

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    
      
        
          
            
              
                
                  
                    
                      	
                              Ramius
      Enterprise Master Fund Ltd

                            	 	
                              c/o
      Ramius LLC

                              599
      Lexington Avenue, 20th Floor

                              New
      York, NY 10022

                              Attention:  Jeffrey
      Smith

                                                 Owen
      Littman

                              Facsimile:  (212)
      201-4802

                                                (212)
      845-7986

                              Telephone:
      (212) 845-7955

                                                 (212)
      201-4841

                              Residence:  Cayman
      Islands

                            	 	$	3,000,000	 	 	$	112,814	 	 	$	3,000,000	 	 	$	45,000	 	 	$	2,955,000	 
	 
      	 	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Iroquois
      Master Fund Ltd.

                            	 	
                              c/o
      Iroquois Capital

                              641
      Lexington Avenue, 26th Floor

                              New
      York, NY 10022

                              Attention:
      Joshua Silverman

                              Telephone:   212-974-3070

                              Facsimile:  212-207-3452

                              Email:
      jsilverman@icfund.com

                              Residence:  Cayman
      Islands

                            	 	$	10,000,000	 	 	$	376,046	 	 	$	10,000,000	 	 	$	150,000	 	 	$	9,850,000	 
	 
      	 	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                              Capital
      Ventures International

                            	 	
                              c/o
      Heights Capital Management, Inc.

                              101
      California Street, Suite 3250

                              San
      Francisco, CA  94111

                              Attention:  Martin
      Kobinger

                              Facsimile:  (415)
      403-6525

                              Telephone:
      (415) 403-6500

                              Residence:  Cayman
      Islands

                            	 	$	5,000,000	 	 	 	188,023	 	 	$	5,000,000	 	 	$	75,000	 	 	$	4,925,000	 
	 
      	 	 
      	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
      	 	
                              TOTAL

                            	 	$	40,000,000.00	 	 	$	1,504,184.00	 	 	$	40,000,000.00	 	 	$	600,000.00	 	 	$	39,400,000.00	 

                    

                  

                

              

            

          

        

      

    

    

    [Signature
Page to Securities Purchase Agreement]

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    EXHIBITS

     

    
      
        	
                Exhibit
      A

              	 
      	
                Form
      of Notes

              
	
                Exhibit
      B

              	 
      	
                Form
      of Warrant Agreement

              
	
                Exhibit
      C

              	 
      	
                Form
      of Registration Rights Agreement

              
	
                Exhibit
      D

              	 
      	
                Form
      of Pledge Agreement

              
	
                Exhibit
      E

              	 
      	
                Form
      of Put Agreement

              
	
                Exhibit
      F

              	 
      	
                Form
      of Voting Agreement

              
	
                Exhibit
      G

              	 
      	
                Form
      of Irrevocable Transfer Agent Instructions

              
	
                Exhibit
      H-1

              	 
      	
                Form
      of Opinion of Company's U.S. Counsel

              
	
                Exhibit
      H-2

              	 
      	
                Form
      of Opinion of Company's British Virgin Islands counsel

              
	
                Exhibit
      H-3

              	 
      	
                Form
      of Opinion of Company's Hong Kong counsel

              
	
                Exhibit
      H-4

              	 
      	
                Form
      of Opinion of Company's PRC counsel

              
	
                Exhibit
      I

              	 
      	
                Form
      of Secretary's Certificate

              
	
                Exhibit
      J

              	 
      	
                Form
      of Officer's Certificate

              
	
                Exhibit
      K

              	
                  

              	
                Form
      of Lock-Up Agreement

              

      

    

    

    SCHEDULES

     

    
      
        
          	
                  Schedule
      3(a)

                	 
      	
                  Subsidiaries

                
	
                  Schedule
      3(l)

                	 
      	
                  Absence
      of Certain Changes

                
	
                  Schedule
      3(q)

                	 
      	
                  Transactions
      with Affiliates

                
	
                  Schedule
      3(r)

                	 
      	
                  Equity
      Capitalization

                
	
                  Schedule
      3(s)

                	 
      	
                  Indebtedness
      and Other Contracts

                
	
                  Schedule
      3(t)

                	 
      	
                  Absence
      of Litigation

                
	
                  Schedule
      3(ee)

                	 
      	
                  Ranking
      of Notes

                
	
                  Schedule
      3(nn)

                	
                    

                	
                  China
      Subsidiaries

                

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      Exhibit
A

    

    [FORM
OF SENIOR 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 IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR 144A, AS
APPLICABLE, 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.

     

    A-Power
Energy Generation Systems, Ltd.

     

    SENIOR
CONVERTIBLE NOTE

     

    
      	
              Issuance
      Date:  _____________________

            	
              Original
      Principal Amount: U.S. $[__________]

            

    

    

    FOR VALUE RECEIVED, A-Power
Energy Generation Systems, Ltd., a Company organized under the laws of the
British Virgin Islands (the "Company"), hereby promises to
pay to ________ or registered assigns (the "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 (as defined below), acceleration, redemption or otherwise
(in each case in accordance with the terms hereof) and to pay interest ("Interest") on any outstanding
Principal at the applicable Interest Rate from the date set out above as the
Issuance Date (the "Issuance Date") until the same becomes
due and payable, whether upon an Interest Date (as defined below), the Maturity
Date, acceleration, conversion, redemption or otherwise (in each case in
accordance with the terms hereof).  This Senior Convertible Note
(including all Senior 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 on
the Closing Date (collectively, the "Notes" and such other Senior
Convertible Notes, the "Other Notes").  Certain
capitalized terms used herein are defined in Section 31.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (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.  The "Maturity Date" shall be June 19, 2014,
as may be extended at the option of the Holder (i) in the event that, and for so
long as, an Event of Default (as defined in Section 4(a)) shall have occurred
and be continuing on the Maturity Date (as may be extended pursuant to this
Section 1) or any event shall have occurred and be continuing on the Maturity
Date (as may be extended pursuant to this Section 1) that with the passage of
time and the failure to cure would result in an Event of Default and (ii) through the
date that is ten (10) Business Days after the consummation of a Change of
Control in the event that a Change of Control is publicly announced or a Change
of Control Notice (as defined in Section 5(b)) is delivered prior to the
Maturity Date.  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 quarterly on each January 1, April 1, July 1 and
October 1 of each year after the Issuance Date (each, an "Interest Date") with the first Interest
Date being July 1, 2009.  Interest shall be payable on each Interest
Date, to the record holder of this Note on the applicable Interest Date, in
Common Shares ("Interest
Shares") so long as there has been no Equity 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
the Holder on or prior to the applicable Interest Notice Due Date (the date such
notice is delivered to the Holder of Notes, 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 Equity Conditions Failure.  If the Equity Conditions
are not satisfied 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 Equity Conditions, the Interest shall
be paid as Cash Interest.  If the Equity Conditions were satisfied as
of the Interest Notice Date but the Equity Conditions are no longer satisfied at
any time prior to the Interest Date, the Company shall provide the Holder a
subsequent notice to that effect indicating that unless the Holder waives the
Equity Conditions, 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 Common Shares (rounded to the nearest whole share in
accordance with Section 3(a)) equal to the quotient of (1) the amount of
Interest payable on such Interest Date less any Cash Interest paid on such
Interest Date and (2) the Interest Conversion Price in effect on the applicable
Interest Date.  Notwithstanding anything herein to the contrary,
contemporaneously with the execution of this Note, the Company has paid or
prepaid $__________ in Interest due hereunder (the "Pre-paid Interest") pursuant
to the Securities Purchase Agreement, which Pre-paid Interest shall be applied
to pay accrued and unpaid Interest due on the Interest Date commencing on July
1, 2009 and each subsequent Interest Date until the Pre-paid Interest has been
applied in full.

     

    
      
         

      

      
        - 2
-

        
          

        

      

      
         

      

    

     

    (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 Agent Commission 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. 

     

    (c)           Prior
to the payment of Interest on an Interest Date, Interest on this Note shall
accrue at the Interest Rate and be payable on each Conversion Date in accordance
with Section 3(c)(i).  From and after the occurrence and during the
continuance of an Event of Default, the Interest Rate shall be increased to
fifteen percent (15%).  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
cure of such Event of Default.  The Company shall pay any and all
transfer, stamp and similar taxes (other than income and similar taxes) that are
required to be paid with respect to the issuance and delivery of Interest
Shares.

     

    (3)           CONVERSION OF
NOTES.  This Note shall be convertible into shares of the
Company's Common Shares, par value $0.0001 per share (the "Common Shares"), 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 Shareholder Approval Date (as defined in the Securities
Purchase Agreement), the Holder shall be entitled to convert any portion of the
outstanding and unpaid Conversion Amount (as defined below) into fully paid and
nonassessable Common Shares in accordance with Section 3(c), at the Conversion
Rate (as defined below).  The Company shall not issue any fraction of
a Common Share upon any conversion.  If the issuance would result in
the issuance of a fraction of a Common Share, the Company shall round such
fraction of a Common Share up to the nearest whole share.  The Company
shall pay any and all transfer, stamp and similar taxes (other than income and
similar taxes) that are required to be paid with respect to the issuance and
delivery of Common Shares upon conversion of any Conversion Amount.

     

    (b)           Conversion
Rate.  The number of Common Shares 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").

     

    
      
         

      

      
        - 3
-

        
          

        

      

      
         

      

    

     

    (i)           "Conversion Amount" means the
portion of the Principal to be converted, redeemed or otherwise with respect to
which this determination is being made.

     

    (ii)           "Conversion Price" means, as of
any Conversion Date (as defined below) or other date of determination, $10.637,
subject to adjustment as provided herein.

     

    (c)           Mechanics of
Conversion.

     

    (i)           Optional
Conversion.  To convert any Conversion Amount into Common
Shares on any date (a "Conversion Date"), the Holder
shall (A) transmit by facsimile (or otherwise deliver), 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 the Transfer Agent and (B) if required by Section 3(c)(iii),
surrender this Note to a common carrier for delivery to the Company as soon as
practicable on or following such date (or an indemnification undertaking with
respect to this Note in the case of its loss, theft or
destruction).  On or before the first (1st) Trading Day following the
date of receipt of a Conversion Notice, the Company shall transmit by facsimile
a confirmation of receipt of such Conversion Notice to the Holder and 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 (x)
provided that the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program and such Common Shares do not require the placement
of any legends restricting transfer of such Common Shares, credit such aggregate
number of Common Shares to which the Holder shall be entitled to the Holder's or
its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system or (y) if (I) the Transfer Agent is not participating in the
DTC Fast Automated Securities Transfer Program or (II) such Common Shares
require the placement of legends restricting the transfer of such Common Shares
as required by Section 2(g) of the Securities Purchase Agreement, issue and
deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the aggregate number
of Common Shares to which the Holder shall be entitled, which certificate shall,
in the case of clause (II), bear a legend in accordance with Section 2(g) of the
Securities Purchase Agreement.  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) Business Days after receipt of this Note and at its own expense,
issue and deliver to the holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal not converted.  The Person or
Persons entitled to receive the Common Shares issuable upon a conversion of this
Note shall be treated for all purposes as the record holder or holders of such
Common Shares on the Conversion Date.  In addition to the foregoing,
on such Share Delivery Date, the sum of (I) the Make-Whole Amount and (II) any
accrued and unpaid Interest and Late Charges, if any, (the "Additional Conversion
Obligations") on such Conversion Amount and Interest shall be paid to the
Holder in Common Shares ("Additional Conversion Shares")
so long as there has been no Equity Conditions Failure; provided however, that
the Company may, at its option following notice to the Holder, pay such
Additional Conversion Obligations on any Conversion Date in cash ("Cash Additional Conversion
Payment"), or in a combination of a Cash Additional Conversion Payment
and Additional Conversion Shares.  The Company shall deliver a written
notice (each, an "Additional
Conversion Election Notice") to the Holder on or prior to the applicable
Additional Conversion Notice Due Date (the date such notice is delivered to the
Holder, the "Additional
Conversion Notice Date") which notice (i) either (A) confirms that
Additional Conversion Obligations to be paid on such Conversion Date shall be
paid entirely in Additional Conversion Shares or (B) elects to pay the
Additional Conversion Obligations as a Cash Additional Conversion Payment or a
combination of a Cash Additional Conversion Payment and Additional Conversion
Shares and specifies the amount of the Additional Conversion Obligations, if
any, that shall be paid as a Cash Additional Conversion Payment and the amount
of Additional Conversion Obligations, if any, that shall be paid in Additional
Conversion Shares and (ii) certifies that there has been no Equity Conditions
Failure.  If the Equity Conditions are not satisfied as of the
Additional Conversion Notice Date, then unless the Company has elected to pay
such Additional Conversion Obligations as a Cash Additional Conversion Payment,
the Additional Conversion Notice shall indicate that unless the Holder waives
the Equity Conditions, the Additional Conversion Obligations shall be paid as a
Cash Additional Conversion Payment.  If the Equity Conditions were
satisfied as of the Additional Conversion Notice Date but the Equity Conditions
are no longer satisfied at any time prior to the Share Delivery Date, the
Company shall provide the Holder a subsequent notice to that effect indicating
that unless the Holder waives the Equity Conditions, the Additional Conversion
Obligations shall be paid in cash.  The Additional Conversion
Obligations to be paid on such Share Delivery Date in Additional Conversion
Shares shall be paid in a number of fully paid and nonassessable Common Shares
(rounded to the nearest whole share in accordance with Section 3(a)) equal to
the quotient of (1) the amount of Additional Conversion Obligations payable on
the applicable Conversion Date less any Cash Additional Conversion Payment paid
on the applicable Conversion Date and (2) the Interest Conversion Price in
effect on the applicable Conversion Date.

     

    
      
         

      

      
        - 4
-

        
          

        

      

      
         

      

    

     

    (ii)           Company's Failure to Timely
Convert.  If the Company shall fail to issue a certificate to
the Holder or credit the Holder's balance account with DTC, as applicable, for
such number of Common Shares to which the Holder is entitled upon conversion of
any Conversion Amount on or prior to the date which is three (3) Trading Days
after the Conversion Date (a "Conversion Failure"), and if
on or after such Conversion Failure the Holder purchases (in an open market
transaction or otherwise) Common Shares to deliver in satisfaction of a sale by
the Holder of Common Shares issuable upon such conversion that the Holder
anticipated receiving from the Company (a "Buy-In"), then the Company
shall, within three (3) Trading Days after the Holder's request and in the
Holder's discretion, either (x) pay cash to the Holder in an amount equal to the
Holder's total purchase price (including brokerage commissions and other
reasonable out-of-pocket brokerage expenses, if any) for the Common Shares so
purchased (the "Buy-In
Price"), at which point the Company's obligation to issue and deliver a
certificate to the Holder (and to issue such Common Shares) or credit the
Holder's balance account with DTC for such Common Shares shall terminate, or (y)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Common Shares or credit such Holder's balance
account with DTC and pay cash to the Holder in an amount equal to the excess (if
any) of the Buy-In Price over the product of (I) such number of Common Shares,
times (II) the Closing Bid Price on 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 Principal 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 the dates of such conversions 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 Common
Shares issuable to the Holder in connection with a conversion of this Note, the
Company shall issue to the Holder the number of Common Shares not in dispute and
resolve such dispute in accordance with Section 23.

     

    
      
         

      

      
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    (d)           Limitations on
Conversions.  The Company shall not effect any conversion of
this Note or other issuance of Common Shares hereunder, and the Holder of this
Note shall not have the right to convert any portion of this Note pursuant to
Section 3(a), to the extent that after giving effect to such conversion or
issuance, the Holder (together with the Holder's affiliates) would beneficially
own in excess of 4.99% (the "Maximum Percentage") of the
number of Common Shares outstanding immediately after giving effect to such
conversion.  For purposes of the foregoing sentence, the aggregate
number of Common Shares beneficially owned by the Holder and its affiliates
shall include the number of Common Shares issuable upon conversion of this Note
with respect to which the determination of such sentence is being made, but
shall exclude the number of Common Shares which would be issuable upon (A)
conversion of the remaining, nonconverted portion of this Note beneficially
owned by the Holder or any of its affiliates and (B) exercise or conversion of
the unexercised or nonconverted portion of any other securities of the Company
beneficially owned by the Holder or any of its affiliates (including, without
limitation, any Other Notes or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein.  Except as
set forth in the preceding sentence, for purposes of this Section 3(d),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").  For
purposes of this Section 3(d), in determining the number of outstanding Common
Shares, the Holder may rely on the number of outstanding Common Shares as
reflected in (1) the Company's most recent Form 20-F, Report of Foreign Issuer
on Form 6-K of the Company or other public filing with the SEC, as the case may
be, (2) a more recent public announcement by the Company or (3) any other more
recent notice by the Company or the Transfer Agent setting forth the number of
Common Shares outstanding.  For any reason at any time, upon the
written or oral request of the Holder, the Company shall within two (2) Business
Days confirm in writing to the Holder the number of Common Shares then
outstanding.  In any case, the number of outstanding Common Shares
shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Note, by the Holder or its affiliates
since the date as of which such number of outstanding Common Shares was
reported.  By written notice to the Company, the Holder may from time
to time increase or decrease the Maximum Percentage to any other percentage not
in excess of 9.99% specified in such notice; provided that (x) any such increase
will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company, and (y) any such increase or
decrease will apply only to the Holder and not to any other holder of
Notes.  The provisions of this paragraph shall be construed and
implemented in a manner other than in strict conformity with the terms of this
Section 3(d) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended beneficial ownership limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation.

     

    (4)           RIGHTS UPON EVENT OF
DEFAULT.

     

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

     

    (i)           the
suspension from trading or failure of the Common Shares to be listed on an
Eligible Market for a period of seven (7) consecutive Trading Days or for more
than an aggregate of fifteen (15) Trading Days in any 365-day
period;

     

    (ii)           the
Company's (A) failure to cure a Conversion Failure by delivery of the required
number of Common Shares within ten (10) Business Days after the applicable
Conversion Date or (B) notice, written or oral, to any holder of the Notes,
including by way of public announcement or through any of its agents, at any
time, of its intention not to comply with a request for conversion of any Notes
into Common Shares that is tendered in accordance with the provisions of the
Notes, other than pursuant to Section 3(d);

     

    
      
         

      

      
        - 7
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    (iii)           at
any time following the tenth (10th)
consecutive Business Day that the Holder's Authorized Share Allocation is less
than the number of Common Shares 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);

     

    (iv)           the
Company'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 failure to pay any redemption amounts hereunder) or
any other Transaction Document (as defined in the Securities Purchase Agreement)
to which the Holder is a party, except, in the case of a failure to pay
Interest, Late Charges and/or other amounts (other than Principal) under this
Note when and as due, in which case only if such failure continues for a period
of at least five (5) Business Days;

     

    (v)           any
defaults in the payment when due, after the expiration of any applicable grace
period, of principal of, or interest on, Indebtedness of the Company or any of
its Subsidiaries (as defined in Section 3(a) of the Securities Purchase
Agreement), if such defaults relate to Indebtedness that in the aggregate has a
principal amount then outstanding of $1,000,000 or more, other than with respect
to any Other Notes;

     

    (vi)           the
Company or any of its Subsidiaries, pursuant to or within the meaning of Title
11, U.S. Code, or any similar Federal, foreign or state law for the relief of
debtors (collectively, "Bankruptcy Law"), (A)
commences a voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment of a
receiver, trustee, assignee, liquidator or similar official (a "Custodian"), (D) makes a
general assignment for the benefit of its creditors or (E) admits in writing
that it is generally unable to pay its debts as they become due;

     

    (vii)          a
court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that (A) is for relief against the Company or any of its Subsidiaries in an
involuntary case, (B) appoints a Custodian of the Company or any of its
Subsidiaries or (C) orders the liquidation of the Company or any of its
Subsidiaries;

     

    (viii)         a
final judgment or judgments for the payment of money aggregating in excess of
$1,000,000 are rendered against the Company or any of its Subsidiaries and which
judgments are not, within sixty (60) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within sixty (60)
days after the expiration of such stay; provided, however, that any judgment
which is covered by insurance or an indemnity from a credit worthy party shall
not be included in calculating the $1,000,000 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 will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such judgment;

     

    
      
         

      

      
        - 8
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    (ix)           other
than as specifically set forth in another clause of this Section 4(a), the
Company breaches any representation, warranty, covenant or other term or
condition of any Transaction Document, except, in the case of a breach of a
covenant or other term or condition of any Transaction Document which is
curable, only if such breach continues for a period of at least fifteen (15)
consecutive Business Days;

     

    (x)           the
Company, any of its Subsidiaries or Mr. Lu (as defined in the Securities
Purchase Agreement) shall fail to perform or comply with any covenant or
agreement contained in the Security Documents (as defined in the Securities
Purchase Agreement) or the Put Agreements (as defined in the Securities Purchase
Agreement), in any material respect, including, without limitation, Mr. Lu's
obligation to deliver additional Common Shares to the Collateral Agent (as
defined in the Securities Purchase Agreement) in accordance with the Pledge
Agreement (as defined in the Securities Purchase Agreement) and to exchange any
Note and/or any Warrant into Common Shares pursuant to the terms of the Put
Agreements;

     

    (xi)           any
material provision of any Security Document (as determined by the Collateral
Agent) or any Put 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 Mr. Lu, the Company or any Subsidiary or any governmental authority
having jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof, or Mr. Lu, the Company or any Subsidiary shall deny in
writing that it has any liability or obligation purported to be created under
any Security Document or any Put Agreement;

     

    (xii)           the
Security Documents 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 Collateral Agent for the benefit of the
holders of the Notes on the Common Shares or other assets purported to be
covered thereby;

     

    (xiii)         any
breach or failure in any respect to comply with either of Sections 8 or 14 of
this Note; or

     

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

     

    
      
         

      

      
        - 9
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    (b)           Redemption
Right.  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 (an "Event of Default Notice") to
the Holder.  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 (an "Event of Default Redemption")
all or any portion of this Note by delivering written notice thereof (the "Event of Default Redemption
Notice" and the date thereof, the "Event of Default Redemption Notice
Date") to the Company, which Event of Default Redemption Notice shall
indicate the Conversion Amount of this Note the Holder is electing to require
the Company 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 together with any accrued and unpaid Interest and Late
Charges, if any, on such Conversion Amount and Interest through the Event of
Default Redemption Date (as defined below) and (B) the Redemption
Premium and (ii) the sum of (x) the product of (A) the Conversion Rate with
respect to such Conversion Amount in effect at such time as the Holder delivers
an Event of Default Redemption Notice and (B) 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 and (y) any Make Whole Amount and accrued and unpaid
Interest on the Conversion Amount and Late Charges, if any, on such Conversion
Amount and Interest through the Event of Default Redemption Date (the "Event of Default Redemption
Price").  Redemptions required by this Section 4(b) shall be
made in accordance with the provisions of Section 12.  To the extent
redemptions required by this Section 4(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments.  The parties
hereto agree that in the event of the Company's redemption of any portion of the
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.

     

    (5)           RIGHTS UPON FUNDAMENTAL
TRANSACTION AND CHANGE OF CONTROL.

     

    (a)           Assumption.  The
Company shall not enter into or be party to a Fundamental Transaction unless
(i)  the Successor Entity (if a Person other than the Company (with the
Company being deemed to automatically so assume)) 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 reasonably satisfactory to the Required Holders
and approved by the Required Holders prior to such Fundamental Transaction
(which approval shall not be unreasonably withheld), including agreements to
deliver to each holder of Notes in exchange for such Notes a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates
of the Notes then outstanding held by such holder, having similar conversion
rights and having similar ranking to the Notes, and satisfactory to the Required
Holders and (ii) the Successor Entity (or its Parent Entity if such assumption
is effected by the Parent Entity) is a publicly traded corporation whose common
stock is quoted or listed on an Eligible Market.  Upon the occurrence
of any Fundamental Transaction, the Successor Entity (if a Person other than the
Company (with the Company being deemed to automatically so assume)) shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Note 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 with the same effect as if such Successor Entity had been named
as the Company herein.  Upon consummation of the Fundamental
Transaction, the Successor Entity (if a Person other than the Company (with the
Company being deemed to automatically so assume)) shall deliver to the Holder
confirmation that there shall be issued upon conversion of this Note at any time
after the consummation of the Fundamental Transaction, in lieu of the Common
Shares of the Company (or other securities, cash, assets or other property)
issuable upon the conversion 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), as adjusted in accordance with
the provisions of this Note.  The provisions of this Section shall
apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion or redemption of
this Note.

     

    
      
         

      

      
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    (b)           Redemption
Right.  No sooner than fifteen (15) days nor later than ten
(10) 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 during the period beginning after the Holder's receipt of a Change of
Control Notice and ending twenty (20) Trading Days after the date of the
consummation of such Change of Control, the Holder may require the Company to
redeem (a "Change of Control
Redemption") all or any portion of this Note by delivering written notice
thereof ("Change of Control
Redemption Notice", and the date thereof, the "Change of Control Redemption Notice
Date") to the Company, which Change of Control Redemption Notice shall
indicate the Conversion Amount the Holder is electing to require the Company to
redeem.  The portion of this Note subject to redemption pursuant to
this Section 5(b) shall be redeemed by the Company in cash at a price equal to
the greater of (i) the sum of (A) 110% of the Conversion Amount being redeemed,
(B) the Make-Whole Amount, and (C) any accrued and unpaid Interest and Late
Charges, if any, on such Conversion Amount and Interest through the Change of
Control Redemption Date (as defined below) and (ii) solely if an Equity
Conditions Failure has occurred at any time during the period commencing with
the Change of Control Redemption Notice Date and ending as of the Change of
Control Redemption Date, the product of (A) the Conversion Amount being redeemed
together with the Make-Whole Amount and any accrued and unpaid Interest and Late
Charges, if any, on such Conversion Amount and Interest through the applicable
Change of Control Redemption Date multiplied by (B) the quotient determined by
dividing (1) the greatest Closing Sale Price of the Common Shares during the
period beginning on the date immediately preceding the earlier to occur of (x)
the consummation of the Change of Control and (y) the public announcement of
such Change of Control and ending on the Change of Control Redemption Notice
Date by (2) the Conversion Price (the "Change of Control Redemption
Price").  Redemptions required by this Section 5 shall be made
in accordance with the provisions of Section 12 and shall have priority to
payments to shareholders in connection with a 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 the 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 is
paid in full, the Conversion Amount submitted for redemption under this Section
5(c) (together with any interest thereon) may be converted, in whole or in part,
by the Holder into Common Shares pursuant to Section 3 (or in the event the
Conversion Date is after the consummation of the Change of Control, such
securities or other assets received by the holders of Common Shares in
connection with the consummation of such Change of Control in such amounts as
the Noteholder would have been entitled to receive had such Note been converted
immediately prior to such Change of Control).  The parties hereto
agree that in the event of the Company's redemption of any portion of the 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 Change of Control
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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    (6)           RIGHTS UPON CERTAIN
ISSUANCES OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

     

    (a)           Purchase
Rights.  If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase shares, warrants,
securities or other property pro rata to the record holders of any class of
Common Shares (other than Pill Rights) (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 Common Shares 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 Shares are to be determined for the grant, issue or sale of such Purchase
Rights.

     

    (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 Common Shares are entitled to receive securities or
other assets with respect to or in exchange for Common Shares (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, at the Holder's option, (i)
in addition to the Common Shares receivable upon such conversion, such
securities or other assets to which the Holder would have been entitled with
respect to such Common Shares had such Common Shares 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 Common Shares otherwise receivable upon such conversion or exchange, such
securities or other assets received by the holders of Common Shares 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 Common
Shares) 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 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 Shares.  If and whenever on or
after the Subscription Date through the second (2nd) year anniversary of the
Issuance Date, the Company issues or sells, or in accordance with this Section
7(a) is deemed to have issued or sold, any Common Shares (including the issuance
or sale of Common Shares owned or held by or for the account of the Company, but
excluding Common Shares issued or sold by the Company or deemed to have been
issued or sold by the Company as, or in connection with, any Excluded Security)
for a consideration per share (the "New Issuance Price") less than
a price (the "Applicable
Price") equal to the Conversion Price in effect immediately prior to such
issue or sale or deemed issuance or sale (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.  If and
whenever after the second (2nd) year anniversary of the Issuance Date, the
Company issues or sells, or in accordance with this Section 7(a) is deemed to
have issued or sold, any Common Shares (including the issuance or sale of Common
Shares owned or held by or for the account of the Company, but excluding Common
Shares issued or sold by the Company or deemed to have been issued or sold by
the Company as, or in connection with, any Excluded Security) in a Dilutive
Issuance, then immediately after such Dilutive Issuance, the Conversion Price
then in effect shall be reduced to an amount equal the product of (A) the
Conversion Price in effect immediately prior to such Dilutive Issuance and
(B) the quotient determined by dividing (1) the sum of (I) the product
derived by multiplying the Conversion Price in effect immediately prior to such
Dilutive Issuance and the number of Common Shares Deemed Outstanding immediately
prior to such Dilutive Issuance plus (II) the consideration, if any,
received (or deemed to be received) by the Company upon such Dilutive Issuance,
by (2) the product derived by multiplying (I) the Conversion Price in
effect immediately prior to such Dilutive Issuance by (II) the number of
Common Shares Deemed Outstanding immediately after such Dilutive
Issuance.  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 Common Share is issuable
upon the exercise of any such Option or upon conversion or exchange or exercise
of any Convertible Securities issuable upon exercise of such Option is less than
the Applicable Price, then such Common Share 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 Common Share is
issuable upon the exercise of any such Option or upon conversion or exchange or
exercise of any Convertible Securities issuable upon exercise of such Option"
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one Common Share upon
granting or sale of the Option, upon exercise of the Option and upon conversion
or exchange or exercise of any Convertible Security issuable upon exercise of
such Option.  No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Share or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of such
Common Shares upon conversion or exchange or exercise of such Convertible
Securities.

     

    
      
         

      

      
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    (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 Common Share
is issuable upon such conversion or exchange or exercise thereof is less than
the Applicable Price, then such Common Share 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
Common Share is issuable upon such conversion or exchange or exercise" shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one Common Share upon the issuance
or sale of the Convertible Security and upon the conversion or exchange or
exercise of such Convertible Security.  No further adjustment of the
Conversion Price shall be made upon the actual issuance of such Common Share
upon conversion or exchange or exercise of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of the Conversion Price had been or are to be
made pursuant to other provisions of this Section 7(a), no further adjustment of
the Conversion Price shall be made by reason of such issue or sale.

     

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

     

    
      
         

      

      
        - 14
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    (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
value determined by use of the Black Scholes Option Pricing Model (the "Option Value") and (y) the
other securities issued or sold in such integrated transaction shall be deemed
to have been issued for the difference of (I) the aggregate consideration
received by the Company, less (II) the Option Value.  If any Common
Shares, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor.  If any Common
Shares, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such securities on the
date of receipt.  If any Common Shares, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Shares, Options or Convertible Securities, as the case may
be.  The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the Required
Holders.  If such parties are unable to reach agreement within ten
(10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair
value of such consideration will be determined within five (5) Business Days
after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders.  The determination
of such appraiser shall be deemed binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the
Company.

     

    (v)           Record
Date.  If the Company takes a record of the holders of Common
Shares for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Shares, Options or in Convertible Securities or
(B) to subscribe for or purchase Common Shares, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the Common Shares 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 Shares.  If the
Company at any time on or after the Subscription Date subdivides (by any share
dividend, share split, recapitalization or otherwise) one or more classes of its
outstanding Common Shares 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 share split or otherwise) one or more classes
of its outstanding Common Shares into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination will be proportionately
increased.

     

    (c)           Other
Events.  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 share appreciation rights,
phantom share rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Note; provided that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 7.

     

    (d)           De Minimis
Adjustments.  No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 in such price; provided, however, that any adjustment which by
reason of this Section 7(d) is not required to be made shall be carried forward
and taken into account in any subsequent adjustments under this Section
7.  All calculations under this Section 7 shall be made by the Company
in good faith and shall be made to the nearest cent or to the nearest one
hundredth of a share, as applicable.  No adjustment need be made for a
change in the par value or no par value of the Company's Common
Shares.

     

    
      
         

      

      
        - 15
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    (e)           Voluntary Adjustment By
Company. The Company may at any time during the term of this Note reduce
the then current Conversion Price to any amount and for any period of time
deemed appropriate by the Board of Directors of the Company.

     

    (f)           Adjustment.  If
the Market Price on the twentieth (20th) Trading Day following the thirtieth
(30th) calendar day after the earlier of (i) the Initial Effective Date (as
defined in the Registration Rights Agreement) and (ii) the date the Common
Shares issuable upon conversion of this Note may initially be sold by the Holder
(assuming the Holder is not an affiliate of the Company) in accordance with Rule
144 of the Securities Act (the "Adjustment Date"), is less
than the Conversion Price then in effect, the Conversion Price hereunder shall
be reset to the greater of (x) the Market Price as of the Adjustment Date and
(y) $4.835 (as adjusted for any share dividend, share split, share combination,
reclassification or similar transaction).  For the avoidance of doubt,
the adjusted Conversion Price, if any, hereunder shall not apply to any
Conversion Amount converted into Common Shares prior to the Adjustment
Date.

     

    (8)           NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Memorandum and Articles of Association 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.  For the avoidance of doubt, solicitation by the Company in
accordance with the requirements of the Notes and the Purchase Agreement of the
consents of the Required Holders to any amendment, modification or waiver of any
provision of the Notes shall not be or be deemed an avoidance of performance of
the terms of this Note.

     

    (9)           RESERVATION OF AUTHORIZED
SHARES.

     

    (a)           Reservation.  The
Company shall initially reserve out of its authorized and unissued Common Shares
a number of Common Shares for each of the Notes equal to 130% of the Conversion
Rate with respect to the 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 Shares,
solely for the purpose of effecting the conversion of the Notes, 130% of the
number of Common Shares 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 Common Shares 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 Common Shares 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
principal amount of the Notes held by each holder of the Notes at the Closing
(as defined in the Securities Purchase Agreement) or increase in the number of
reserved shares, as the case may be (the "Authorized Share
Allocation").  In the event that a holder of Notes 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 Common Shares 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.

     

    
      
         

      

      
        - 16
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    (b)           Insufficient Authorized
Shares.  If at any time while any of the Notes remain
outstanding the Company does not have a sufficient number of authorized and
unreserved Common Shares to satisfy its obligation to reserve for issuance upon
conversion of the Notes at least a number of Common Shares equal to the Required
Reserve Amount (an "Authorized
Share Failure"), then the Company shall as soon as practicable take all
action necessary to increase the Company's authorized Common Shares 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 ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall either (x)
obtain the vote or written consent of its shareholders for the approval of an
increase in the number of authorized Common Shares and provide each shareholder
with an information statement with respect thereto or (y) hold a meeting of its
shareholders for the approval of an increase in the number of authorized Common
Shares.  In connection with any such meeting, the Company shall
provide each shareholder with a proxy statement and shall use its reasonable
best efforts to solicit its shareholders' approval of such increase in
authorized Common Shares and to cause its Board of Directors to recommend to the
shareholders that they approve such proposal.

     

    (10)           OPTIONAL REDEMPTION AT THE
HOLDER'S ELECTION.  If the Shareholder Approval has not
occurred on or prior to the Shareholder Approval Deadline (as defined in the
Securities Purchase Agreement), the Holder shall have the right, in its sole
discretion, at any time thereafter until the later to occur of (i) the two (2)
month anniversary of the Shareholder Approval Deadline and (ii) the Initial
Effective Date of the Initial Registration Statement (as defined in the
Registration Rights Agreement) of the Company covering the resale of all of the
Lu Shares (as defined in the Registration Rights Agreement), to require that the
Company redeem (an "Holder
Optional Redemption") all or any portion of the Conversion Amount of this
Note then outstanding by delivering written notice thereof (an "Holder Optional Redemption
Notice" and the date the Holder delivers such notice, the "Holder Optional Redemption Notice
Date") which notice shall state (i) the portion of this Note that is
being redeemed (the "Holder
Optional Redemption Amount") and (ii) the date on which the Holder
Optional Redemption shall occur which date shall be not less than five (5)
Business Days from the Holder Optional Redemption Notice Date (the "Holder Optional Redemption
Date").  The portion of this Note subject to redemption
pursuant to this Section 10 shall be redeemed by the Company in cash at a price
(the "Holder Optional
Redemption Price") equal to 110% of 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 Holder Optional Redemption
Date.  Holder Optional Redemptions made pursuant to this Section 10
shall be made in accordance with Section 12.

     

    
      
         

      

      
        - 17
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    (11)           OPTIONAL REDEMPTION AT THE
COMPANY'S ELECTION.

     

    (a)           General.  If
at any time after the thirty (30) month anniversary of the Issuance Date (the
"Company Optional Redemption
Eligibility Date"), (i) the Market Price of the Common Shares listed on
the Principal Market exceeds 200% of the Conversion Price then in effect for a
period of twenty (20) consecutive Trading Days commencing after the Company
Optional Redemption Eligibility Date (the "Company Optional Redemption Measuring
Period"), (ii) the average daily dollar trading volume (as reported on
Bloomberg) of the Common Shares on the Principal Market over the twenty (20)
consecutive Trading Day period ending on the Trading Day immediately preceding
the Company Optional Redemption Notice Date exceeds $1 million and (iii) no
Equity Conditions Failure has occurred, 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") as designated in the Company Optional
Redemption Notice (as defined below) on the Company Optional Redemption Date
(each as defined below) (an "Company Optional
Redemption").  The portion of this Note subject to redemption
pursuant to this Section 11(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 the Make-Whole Amount and 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 11 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 up to three (3) Company
Optional Redemption Notices hereunder and each 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 twenty (20) Trading
Days nor more than sixty (60) Trading Days following the Company Optional
Redemption Notice Date, (y) certify that there has been no Equity Conditions
Failure and (z) state the aggregate Conversion Amount of the Notes which the
Company has elected to be subject to Company Optional Redemption from the Holder
and all of the other holders of the Notes pursuant to this Section 11(a) (and
analogous provisions under the Other Notes) on the Company Optional Redemption
Date.  Notwithstanding anything to the contrary in this Section 11, 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 11 shall be made in
accordance with Section 12.

     

    
      
         

      

      
        - 18
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    (b)           Pro Rata Redemption
Requirement.  If the Company elects to cause a Company Optional
Redemption pursuant to Section 11(a), then it must simultaneously take the same
action in the same proportion with respect to the Other Notes.  If the
Company elects to cause a Company Optional Redemption pursuant to Section 11(a)
(or similar provisions under the Other Notes) with respect to less than all of
the Conversion Amounts of the Notes then outstanding, then the Company shall
require redemption of a Conversion Amount from each of the holders of the Notes
equal to the product of (i) the aggregate Conversion Amount of Notes which the
Company has elected to cause to be redeemed pursuant to Section 11(a),
multiplied by (ii) the fraction, the numerator of which is the sum of the
aggregate Original Principal Amount of the Notes purchased by such holder of
outstanding Notes and the denominator of which is the sum of the aggregate
Original Principal Amount of the Notes purchased by all holders holding
outstanding Notes (such fraction with respect to each holder is referred to as
its "Redemption Allocation
Percentage", and such amount with respect to each holder is referred to
as its "Pro Rata Redemption
Amount"); provided, however that in the event that any holder's Pro Rata
Redemption Amount exceeds the outstanding Principal amount of such holder's
Note, then such excess Pro Rata Redemption Amount shall be allocated amongst the
remaining holders of Notes in accordance with the foregoing
formula.  In the event that the initial holder of any Notes shall sell
or otherwise transfer any of such holder's Notes, the transferee shall be
allocated a pro rata portion of such holder's Redemption Allocation Percentage
and Pro Rata Redemption Amount.

     

    (12)           REDEMPTIONS.

     

    (a)           Mechanics.  The
Company shall deliver the applicable Event of Default Redemption Price to the
Holder within five (5) Business Days after the Company's receipt of the Holder's
Event of Default Redemption Notice (the "Event of Default Redemption
Date").  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 (i) concurrently
with the consummation of such Change of Control if such notice is received prior
to the consummation of such Change of Control and (ii) within five (5) Business
Days after the Company's receipt of such notice otherwise (such date, the "Change of Control Redemption
Date"). The Company shall deliver the applicable Holder Optional
Redemption Price on the applicable Holder Optional Redemption Date. The Company
shall deliver the applicable Company Optional Redemption Price on the applicable
Company Optional 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 representing such Conversion Amount
to be redeemed and (z) the Conversion Price of this Note or such new Notes shall
be adjusted to the lesser of (A) the Conversion Price then in effect and (B) the
Market Price as of the date on which the applicable Redemption Notice is
delivered to the Company.  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.

     

    
      
         

      

      
        - 19
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    (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), Section 5(b), Section 10 or Section 11 (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 Redemption Notice and ending on and including the date which is three
(3) Business Days after the Company's receipt of the Holder's 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 Business Day period.

     

    (13)           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 laws
of the British Virgin Islands, and as expressly provided in this
Note.

     

    (14)           COVENANTS.

     

    (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 Indebtedness.

     

    (b)           Incurrence of
Indebtedness.  So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to, directly
or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness,
other than Permitted Indebtedness.

     

    (c)           Existence of
Liens.  So long as this Note is outstanding, the Company shall
not, and the Company shall not permit any of its Subsidiaries to, 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 not
permit any of its Subsidiaries to, 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 this Note and the Other 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, an event constituting, or that with the passage
of time and without being cured would constitute, an Event of Default has
occurred and is continuing.

     

    
      
         

      

      
        - 20
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    (e)           Restriction on Redemption
and Cash Dividends.  Until all of the Notes have been
converted, redeemed or otherwise satisfied in accordance with their terms, the
Company shall not, directly or indirectly, redeem, repurchase or declare or pay
any cash dividend or distribution on its capital stock without the prior express
written consent of the Required Holders.

     

    (f)           Change in Nature of
Business.  The Company shall not engage, or permit any of its
Subsidiaries to engage, in any material line of business substantially different
from those lines of business conducted by the Company and its Subsidiaries on
the date hereof or any business substantially related or incidental
thereto.  The Company shall not modify its corporate structure or
purpose.

     

    (g)           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, except where the failure to
maintain and preserve such existence, rights and privileges, or to become and
remain in good standing, would not reasonably be expected to have a Material
Adverse Effect.

     

    (h)           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, except (i) sales of
properties which, in the judgment of the Company's board of directors, are no
longer required for the conduct of the Company's business, the proceeds of which
are invested in other property for use in a business permitted by Section 14(f),
or (ii) where the failure to maintain and preserve any such properties or any
such loss or forfeiture would not reasonably be expected to have a Material
Adverse Effect.

     

    (i)           Maintenance of
Insurance.  The Company shall maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) 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.

     

    
      
         

      

      
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    (15)        PARTICIPATION.  The
Holder, as the holder of this Note, shall be entitled to receive such dividends
paid and distributions (other than Pill Rights) made to the holders of Common
Shares to the same extent as if the Holder had converted this Note into Common
Shares (without regard to any limitations on conversion herein or elsewhere) and
had held such Common Shares 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
Shares.  The Holder, as the holder of this Note, shall be entitled to
receive any Pill Rights (or, at the option of the Holder, to the extent such
Pill Rights become exercisable or have been exercised into equity interests of
the Company or any other distribution is made of equity interests of the Company
to holders of such Pill Rights, such equity interests of the Company) made to
the holders of Common Shares concurrently with any issuance of Common Shares
upon conversion of this Note or otherwise as Interest Shares hereunder to the
same extent as if the Holder had converted this Note into such Common Shares
(without regard to any limitations on conversion herein or elsewhere) and had
held such Common Shares on the record date for such dividend or distribution of
Pill Rights.

     

    (16)         VOTE TO ISSUE, OR CHANGE THE
TERMS OF, NOTES.  The affirmative vote at a meeting duly called
for such purpose or the written consent without a meeting of the Required
Holders shall be required for any change or amendment to this Note or the Other
Notes.

     

    (17)         TRANSFER.  This
Note and any Common Shares 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(f) 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 then 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.

     

    (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, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary 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.

     

    
      
         

      

      
        - 22
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    (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 $100,000) 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, if any, 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
damages for any failure by the Company to comply with the terms of this
Note.  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.

     

    (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, but not limited to,
attorneys' fees and disbursements.

     

    (21)         CONSTRUCTION;
HEADINGS.  This Note shall be deemed to be jointly drafted by
the Company and all the Purchasers 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.

     

    
      
         

      

      
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    (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.

     

    (23)         DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Conversion Rate, the Conversion Price or
any Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within one (1) Business Day of receipt, or
deemed receipt, of the Conversion Notice or Redemption Notice or other event
giving rise to such dispute, as the case may be, to the Holder.  If
the Holder and the Company are unable to agree upon such determination or
calculation within one (1) Business Day of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within one Business Day submit via facsimile (a) the disputed determination of
the Closing Bid Price, the Closing Sale Price or the Weighted Average Price to
an independent, reputable investment bank selected by the Company and approved
by the Holder, such approval not to be unreasonably withheld, or (b) the
disputed arithmetic calculation of the Conversion Rate, Conversion Price or any
Redemption Price to an independent, outside accountant, selected by the Company
and approved by the Holder, such approval not to be unreasonably
withheld.  The Company, at the Company's expense, shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than five (5) Business Days from the time it receives the
disputed determinations or calculations.  Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.

     

    (24)         NOTICES;
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 twenty (20)
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 Shares, (B)
with respect to any pro rata subscription offer to holders of Common Shares 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.

     

    
      
         

      

      
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    (b)           Payments.  Whenever
any payment of cash is to be made by the Company to any Person pursuant to this
Note, such payment shall be made in lawful money of the United States of America
by a check drawn on the account of the Company and sent via overnight courier
service to such Person at such address as previously provided to the Company in
writing (which address, in the case of each of the Purchasers, shall initially
be as set forth on the Schedule of Buyers attached to the Securities Purchase
Agreement); provided that the Holder may elect to receive a payment of 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.  Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date which is not the date on which this Note is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of Interest due on such date.  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 fifteen percent
(15%) per annum from the date such amount was due until the same is paid in full
("Late
Charge").

     

    (25)         CANCELLATION.  After
all Principal, accrued Interest 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
waives demand, notice, 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; JURISDICTION; JURY
TRIAL.  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.  The Company hereby appoints C T Corporation System, with
offices at 111 Eighth Avenue, New York, New York 10011, as its agent for service
of process in New York.  The Company 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 it set forth on the signature page hereto and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.  Nothing contained herein
shall be deemed or operate to preclude 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 IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE, 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.

     

    
      
         

      

      
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    (28)         CURRENCY;
TAXES.

     

    (a)           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 in the US dollar equivalent amount in accordance with the Exchange
Rate on the date of calculation.

     

    (b)           Taxes.

     

    (i)           Any
and all payments by the Company hereunder, including any amounts received on a
conversion or redemption of the Note and any amounts on account of interest or
deemed interest, shall be made free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, imposed under any law,
rule, code or regulation of the People's Republic of China, the British Virgin
Islands or any other non-U.S. governmental authority, including, without
limitation, any federal, state, local, provincial or other similar non-U.S.
governmental authority (collectively referred to as "International
Taxes").  If the Company shall be required to deduct any
International Taxes from or in respect of any sum payable hereunder to the
Holder, (i) the sum payable shall be increased by the amount by which the sum
payable would otherwise have to be increased (the "tax make-whole amount") to
ensure that after making all required deductions (including deductions
applicable to the tax make-whole amount) the Holder would receive an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Company shall make such deductions and (iii) the Company shall pay the full
amount withheld or deducted to the applicable governmental authority within the
time required.

     

    (ii)           In
addition, the Company agrees to pay to the relevant governmental authority in
accordance with applicable law any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies that arise from
any payment made hereunder or in connection with the execution, delivery,
registration or performance of, or otherwise with respect to, this Note ("Other Taxes").  The
Company shall deliver to the Holder official receipts, if any, in respect of any
International Taxes and Other Taxes payable hereunder promptly after payment of
such International Taxes, Other Taxes or other evidence of payment reasonably
acceptable to the Holder.

     

    (iii)          The
obligations of the Company under this Section 28(b) shall survive the
termination of this Note and the payment of the Note and all other amounts
payable hereunder.

     

    
      
         

      

      
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    (29)         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 29 referred to
as the "Judgment
Currency") an amount due in US dollars under this Note, the conversion
shall be made at the Exchange Rate prevailing on the business day immediately
preceding:

     

    (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 29(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 29(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.

     

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

     

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

     

    
      
         

      

      
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    (a)           "Additional Conversion Notice Due
Date" means the twenty-fifth (25th) Trading Day prior to the applicable
Conversion Date.

     

    (b)           "Approved Share Plan" means any
employee benefit plan which has been approved by the Board of Directors of the
Company prior or subsequent to the Subscription Date, pursuant to which the
Company's securities may be issued to any employee, officer or director for
services provided to the Company.

     

    (c)           "Bloomberg" means Bloomberg
Financial Markets.

     

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

     

    (e)           "Change of Control" means any
Fundamental Transaction other than (i) 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,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities, or (ii) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.

     

    (f)           "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 pursuant
to Section 23.  All such determinations shall be appropriately
adjusted for any share dividend, share split, share combination,
reclassification or similar transaction during the applicable calculation
period.

     

    
      
         

      

      
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    (g)           "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.

     

    (h)           "Common Shares Deemed
Outstanding" means, at any given time, the number of Common Shares
outstanding at such time, plus the number of Common Shares deemed to be
outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of
whether the Options or Convertible Securities are actually exercisable at such
time, but excluding any Common Shares owned or held by or for the account of the
Company or issuable upon conversion or exercise, as applicable, of the Notes and
the Warrants or issued as Interest Shares.

     

    (i)           "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.

     

    (j)           
"Convertible Securities"
means any shares or securities (other than Options) directly or indirectly
convertible into or exercisable or exchangeable for Common Shares.

     

    (k)           "Eligible Market" means the
Principal Market, The New York Stock Exchange, Inc., NYSE Amex, The NASDAQ
Global Market or The NASDAQ Capital Market.

     

    
      
         

      

      
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    (l)           "Equity Conditions" means that
each of the following conditions is satisfied:  (i) on each day during
the period beginning one hundred and twenty days (120) days prior to the
applicable date of determination and ending on and including the applicable date
of determination (the "Equity
Conditions Measuring Period"), either (x) the Registration Statement (as
defined in the Registration Rights Agreement, the "Registration Statement") filed
pursuant to the Registration Rights Agreement shall be effective and available
for the resale of all of the Registrable Securities in accordance with the terms
of the Registration Rights Agreement and no Grace Period (as defined in the
Registration Rights Agreement) shall have occurred during the Equity Conditions
Measuring Period or (y) all Common Shares issuable upon conversion of the Notes,
exercise of the Warrants and, to the extent the issuance covers Interest Shares,
as Interest Shares shall be eligible for sale without restriction and without
the need for registration under any applicable federal or state securities laws;
(ii) on each day during the Equity Conditions Measuring Period, the Common
Shares is designated for quotation on the Principal Market or any other Eligible
Market and shall not have been suspended from trading on such exchange or 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 such exchange or market been threatened or
pending either (A) in writing by such exchange or market or (B) by falling below
the then effective minimum listing maintenance requirements of such exchange or
market; (iii) during the one hundred and eighty (180) day period ending on and
including the date immediately preceding the applicable date of determination,
the Company shall have delivered Common Shares upon conversion of the Notes and
upon exercise of the Warrants to the holders on a timely basis as set forth in
Section 3(c)(ii) hereof (and analogous provisions under the Other Notes) and
Section 1(a) of the Warrants; (iv) during the Equity Conditions Measuring
Period, any applicable Common Shares to be issued in connection with the
event requiring determination may be issued in full without violating Section
3(d) hereof and the rules or regulations of the Principal Market or any
applicable Eligible Market; (v) during the Equity Conditions Measuring Period,
the Company shall not have failed to timely make any payments within five (5)
Business Days of when such payment is due pursuant to any Transaction Document;
(vi) during the Equity Conditions Measuring Period, there shall not have
occurred either (A) the public announcement of a pending, proposed or intended
Fundamental Transaction which has not been abandoned, terminated or consummated,
(B) an Event of Default or (C) an event that with the passage of time or giving
of notice would constitute an Event of Default; (vii) the Company shall have no
knowledge of any fact that would cause (x) the Registration Statements required
pursuant to the Registration Rights Agreement not to be effective and available
for the resale of all remaining Registrable Securities in accordance with the
terms of the Registration Rights Agreement or (y) any Common Shares issuable
upon conversion of the Notes, Common Shares issuable upon exercise of the
Warrants and, to the extent applicable, issuable as Interest Shares not to be
eligible for sale without restriction pursuant to Rule 144 and without the
requirement to be in compliance with Rule 144(c)(1) (or any successor thereto)
promulgated under the 1933 Act; (ix) the Company otherwise shall have been in
compliance with and shall not have breached any provision, covenant,
representation or warranty of any Transaction Document, (x) the Market Price on
the last Trading Day in the applicable Equity Conditions Measuring Period
exceeds $1.00 and (xi) the Shareholder Approval shall have
occurred.

     

    (m)          "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 ten (10) 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 with the Change of Control Redemption Notice Date and ending as of
the Change of Control Redemption Date, as applicable, the Equity Conditions have
not been satisfied (or waived in writing by the Holder).

     

    (n)           "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).

     

    
      
         

      

      
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    (o)           "Excluded Securities" means (i)
any Common Shares issued or issuable: (A) in connection with any Approved Share
Plan; (B) to Mr. Lu as incentive shares pursuant to that certain Stock Purchase
Agreement, dated April 14, 2007, between the Company and the other parties
listed on the signature pages thereto, which amount of Common Shares shall not
exceed an aggregate of 8,000,000 Common Shares; (C) upon conversion of the Notes
or the exercise of the Warrants or issued as Interest Shares; (D) upon exercise
of any Options or Convertible Securities which are outstanding on the day
immediately preceding the Subscription Date, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the Subscription Date so as to reduce the exercise price of such Options
or the conversion price of such Convertible Securities or to increase the number
of Common Shares issuable upon conversion or exercise thereof (but not including
any such reduction in the conversion price or exercise price or increase in the
number of Common Shares issuable upon conversion or exercise thereof, in each
case, in accordance with the terms of such options or Convertible Securities as
in effect on the Subscription Date) and (E) to Mr. Lu to reimburse him or make
him whole for his delivery of Common Shares to the Holders pursuant to the Put
Agreement (as defined in the Securities Purchase Agreement), which amount of
Common Shares shall not exceed the aggregate amount of Common Shares delivered
to holders of Notes pursuant to the Put Agreement and (ii) any Pill
Rights.

     

    (p)           "Fundamental Transaction" means
that (A) the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person or Persons, if the holders of the
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 consolidation or merger)
immediately prior to such consolidation or merger shall hold or have the right
to direct the voting of less than 50% of the Voting Stock of the Company or such
voting securities of such other surviving Person immediately following such
transaction, (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
(iii) allow another Person to make a purchase, tender or exchange offer that is
accepted by the holders of more than the 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),
(iv) consummate a securities 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 the 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 securities purchase agreement or other business
combination), or (v) reorganize, recapitalize or reclassify its Common Shares or
(B) any "person" or "group" (as these terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act) is or shall become the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
50% of the aggregate ordinary voting power represented by issued and outstanding
Common Shares.  Notwithstanding the foregoing, solely for the purpose
of the foregoing calculations, any director, officer or employee of the Company,
acting solely in its capacity as a director, officer or employee of the Company,
shall not be deemed to be making or party to, or associated or affiliated with
the Persons making or party to, such consolidation or merger.

     

    (q)           "GAAP" means United States
generally accepted accounting principles, consistently applied.

     

    
      
         

      

      
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    (r)           "Indebtedness" of any Person
means, without duplication (i) all indebtedness for borrowed money, (ii) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) "capital leases" in
accordance with GAAP (other than trade payables entered into in the ordinary
course of business), (iii) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (iv) 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, (v) 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), (vi) all monetary obligations under any
leasing or similar arrangement which, in connection with GAAP, consistently
applied for the periods covered thereby, is classified as a capital lease, (vii)
all indebtedness referred to in clauses (i) through (vi) 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 (viii) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (i)
through (vii) above.

     

    (s)           "Interest Adjustment Rate"
means the rate, per annum, as determined on each Interest Date, equal to (i) if
the Market Price as of the applicable Interest Date is greater than $8.703, 0%,
(ii) if the Market Price as of the applicable Interest Date is less than or
equal to $8.703 and greater than $7.833, 1%, (iii) if the Market Price as of the
applicable Interest Date is less than or equal to $7.833 and greater than
$7.049, 2%, (iv) if the Market Price as of the applicable Interest Date is less
than or equal to $7.049 and greater than $6.344, 3%, (v) if the Market Price as
of the applicable Interest Date less than or equal to $6.344 and greater than
$5.71, 4% or (v) if the Market Price as of the applicable Interest Date is less
than or equal to 5.71, 5%.  Each of the dollar amounts set forth above
in this definition shall be appropriately adjusted for any share dividend, share
split, share combination, reclassification or similar transaction that occurs
after the Issuance Date.

     

    (t)           "Interest Conversion Price"
means, the lower of (i) the applicable Conversion Price and (ii) that price
which shall be computed as 80% of the Market Price as of the applicable Interest
Date or Conversion Date, as applicable.

     

    (u)           "Interest Notice Due Date"
means the twenty-fifth (25th) Trading Day prior to the applicable Interest Date
(or the Closing Date solely with respect to the July 1, 2009 Interest
Date).

     

    (v)           "Interest Rate" means, (i) during the
period commencing on the Issuance Date and ending on the first anniversary of
the Issuance Date, the sum of (x) 3.0% per annum and (y) the Interest Adjustment
Rate, (ii) during the period commencing on the calendar day immediately
following the first anniversary of the Issuance Date and ending on the third
anniversary of the Issuance Date, the sum of (x) 5.0% per annum and (y) the
Interest Adjustment Rate, (iii) during the period commencing on the calendar day
immediately following the third anniversary of the Issuance Date and ending on
the Maturity Date, the sum of (x) 7.0% per annum and (y) the Interest Adjustment
Rate, in each case, subject to adjustment as set forth in Section
2(c).

     

    
      
         

      

      
        - 32
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    (w)          "Make-Whole Amount" means, as
to any Conversion Amount on any Conversion Date, as to any Company Optional
Redemption on any Company Optional Redemption Date, as to any Event of Default
Redemption on any Event of Default Redemption Date or as to any Change of
Control Redemption on any Change of Control Redemption Date, the amount of any
Interest that, but for (i) the Holder's exercise of its conversion right
pursuant to Section 3(c)(i), (ii) a Company Optional Redemption pursuant to
Section 11, (iii) an Event of Default Redemption pursuant to Section 4(b), or
(iv) a Change of Control Redemption pursuant to Section 5(b), would have accrued
with respect to the Conversion Amount being converted or redeemed under this
Note at the Interest Rate (assuming the Interest Adjustment Rate then in effect
as of the applicable Conversion Date, Company Optional Redemption Notice Date,
Event of Default Redemption Notice Date, Change of Control Redemption Notice
Date, as the case may be, is the Interest Adjustment Rate through the Maturity
Date) for the period from the applicable Conversion Date, Company Optional
Redemption Date, Event of Default Redemption Date, or Change of Control
Redemption Date, as the case may be, through the Maturity Date, discounted to
present value using the published yield on two year notes of the U.S. federal
government on the determination date.

     

    (x)           "Market Price" means, for any
given date, the arithmetic average of the Weighted Average Price of the Common
Shares for the twenty (20) consecutive Trading Day period (the "Market Price Measuring
Period") ending on the Trading Day immediately preceding such
date.  All such Weighted Average Prices shall be appropriately
adjusted for any share split, share dividend, share combination or other similar
transaction during the applicable Market Price Measuring Period.

     

    (y)          "Material Adverse Effect" means
(x) a Material Adverse Effect (as defined in the Securities Purchase Agreement
or (y) any material adverse effect on any Holder of the Notes (solely in its
capacity as a holder of Notes).

     

    (z)           "Options" means any rights,
warrants or options to subscribe for or purchase Common Shares or Convertible
Securities.

     

    (aa)         "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.

     

    
      
         

      

      
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    (bb)        "Permitted Indebtedness" means
(i) the Indebtedness outstanding on the Subscription Date described on Schedule I attached
hereto, (ii) Indebtedness evidenced by this Note and the Other Notes, (iii)
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 15% per annum, (iv) Indebtedness
secured by Permitted Liens described in clauses (iv), (v) and (viii) of the
definition of Permitted Liens, (v) Indebtedness constituting the extension,
renewal, refinancing or replacement of any Indebtedness referred to in the
preceding clauses (i) and (iv), provided that (A) the principal amount of the
Indebtedness being extended, renewed, refinanced or replaced does not increase
and (B) total interest and fees thereunder do not exceed 15% per annum, (vi)
additional Indebtedness incurred by the Company in connection with any
redemption by the Company of the Notes in full (or in part, upon the occurrence
of a Holder Optional Redemption (as defined in this Note and/or the Other Notes,
as applicable) solely to the extent that (A) the aggregate amount of such
Indebtedness does not exceed the sum of (x) the aggregate amount of the Holder
Optional Redemption Price (as defined in this Note and/or the Other Notes, as
applicable) due and payable with respect to such Holder Optional Redemptions and
(y) the reasonable fees and expenses of such offering of Indebtedness) and (B)
total interest and fees thereunder do not exceed 15% per annum) pursuant to
Section 11 of this Note and Section 11 of the Other Notes and (vii) any other
additional Indebtedness in a aggregate amount outstanding at any one time not in
excess of (A) during the period commencing on the Issuance Date and ending on
the first anniversary of the Issuance Date, $10 million, (B) during the period
commencing on the calendar day immediately following the first anniversary of
the Issuance Date and ending on the second anniversary of the Issuance Date, $25
million and (C) during the period commencing on the calendar day immediately
following the second anniversary of the Issuance Date and ending on the Maturity
Date, $45 million.

     

    (cc)         "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 on property
of, or on equity interests or Indebtedness of, any Person (A) incurred by the
Company or any of its Subsidiaries solely for the purpose of financing the
acquisition of such Person or (B) existing at the time such Person becomes, or
becomes a part of, any Subsidiary; provided that such Liens do
not extend to or cover any property or assets of the Company or any Subsidiary
other than the property or assets acquired and the proceeds and products thereof
and were not incurred in anticipation of such Person becoming a Subsidiary; (vi)
easements, rights-of-way, municipal and zoning and building ordinances and
similar charges, encumbrances, title defects or other irregularities,
governmental restrictions on the use of property or conduct of business, and
Liens in favor of governmental authorities and public utilities, that do not
materially interfere with the ordinary course of business of the Company and its
Subsidiaries, taken as a whole; (vii) any option or other agreement to purchase
any asset of the Company or any Subsidiary the purchase, sale or other
disposition of which is not prohibited by any other provision of this Note;
(viii) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company or any of
its Subsidiaries in the ordinary course of business of the Company or any of its
Subsidiaries; (ix) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (i) through (viii) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Liens and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase, (x) 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, (xi) 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, and (xii) Liens arising from
judgments, decrees or attachments in circumstances not constituting an Event of
Default under Section 4(a)(ix).

     

    
      
         

      

      
        - 34
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    (dd)        "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.

     

    (ee)         "Pill Rights" means any rights
issued by the Company pursuant to any so-called "poison pill" or similar Company
rights plan entitling all holders of equity interests of the Company to
subscribe for or purchase equity interests of the Company, which rights are not
exercisable until a determination by the Company's Board of Directors that one
or more Persons or "groups" (as defined in Rule 13d-5(b)(1) under the Exchange
Act) has acquired beneficial ownership of Common Shares in excess of the
percentage threshold specified in such plan.

     

    (ff)          "Principal Market" means The
NASDAQ Global Select Market.

     

    (gg)        "Redemption Notices" means,
collectively, the Event of Default Redemption Notices, the Change of Control
Redemption Notices, Holder Optional Redemption Notice and Company Optional
Redemption Notice, each of the foregoing, individually, a Redemption
Notice.

     

    (hh)        "Redemption Premium" means (i)
in the case of the Events of Default described in Section 4(a)(i) - (v) and
(viii) - (xiv), 115% or (ii) in the case of the Events of Default described in
Section 4(a)(vi) - (vii), 100%.

     

    (ii)           "Redemption Prices" means,
collectively, the Event of Default Redemption Price, Change of Control
Redemption Price, Holder Optional Redemption Price and Company Optional
Redemption Price, each of the foregoing, individually, a Redemption
Price.

     

    (jj)           "Registration Rights Agreement"
means that certain registration rights agreement dated as of the Subscription
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 Shares issuable
upon conversion of the Notes and exercise of the Warrants.

     

    
      
         

      

      
        - 35
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    (kk)           "Required Holders" means the
holders of Notes representing a majority of the aggregate principal amount of
the Notes then outstanding, but excluding any Notes beneficially owned, directly
or indirectly, by Mr. Lu (or any of his family members, affiliates or agents),
the Company or any of its Subsidiaries.

     

    (ll)           "SEC" means the United States
Securities and Exchange Commission.

     

    (mm)       "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.

     

    (nn)        "Subscription Date" means June
18, 2009.

     

    (oo)        "Successor Entity" means the
Person, which may be the Company, formed by, resulting from or surviving any
Fundamental Transaction or the Person with which such Fundamental Transaction
shall have been made, provided that if such Person is not a publicly traded
entity whose common stock or equivalent equity security is quoted or listed for
trading on an Eligible Market, Successor Entity shall mean such Person's Parent
Entity.

     

    (pp)        "Trading Day" means any day on
which the Common Shares is traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Shares, then on the
principal securities exchange or securities market on which the Common Shares is
then traded; provided that "Trading Day" shall not include any day on which the
Common Shares is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Shares 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).

     

    (qq)        "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).

     

    (rr)          "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.

     

    
      
         

      

      
        - 36
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    (ss)         "Weighted Average Price" means,
for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market during the period beginning at 9:30:01
a.m., New York Time (or such other time as the Principal Market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
Time (or such other time as the Principal Market publicly announces is the
official close of trading) as reported by Bloomberg through its "Volume at
Price" functions, or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York Time (or such other time as such market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
Time (or such other time as such market publicly announces is the official close
of trading) as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.).  If the Weighted
Average Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Weighted Average Price of such security on such date
shall be the fair market value 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 pursuant
to Section 23.  All such determinations shall be appropriately
adjusted for any share dividend, share split, share combination,
reclassification or similar transaction during the applicable calculation
period.

     

    (32)         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, nonpublic information
relating to the Company or its Subsidiaries, the Company shall within one (1)
Business Day after any such receipt or delivery publicly disclose such material,
nonpublic information on a Report of Foreign Issuer on Form 6-K or
otherwise.  In the event that the Company believes that a notice
contains material, nonpublic information relating to the Company or 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, nonpublic information relating to the Company or its
Subsidiaries.

     

    [Signature
Page Follows]

     

    
      
         

      

      
        - 37
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    IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the
Issuance Date set out above.

     

    
      
        
          	
                  A-Power
      Energy Generation Systems, Ltd.

                
	 
      	 
      
	
                  By:

                	 
      
	 
      	
                  Name:

                
	 
      	
                  Title:

                

        

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    EXHIBIT
I

    

    A-POWER
ENERGY GENERATION SYSTEMS, LTD.

    CONVERSION
NOTICE

     

    Reference
is made to the Senior Convertible Note (the "Note") issued to the
undersigned by A-Power Energy Generation Systems, Ltd., a company organized
under the laws of the British Virgin Islands (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 Common Shares par value $0.0001 per share (the "Common Shares") 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 Common Shares to be issued:

                    	_______________________________________

            

          

        

      

    

     

    Notwithstanding
anything to the contrary contained herein, this Conversion Notice shall
constitute a representation by the Holder of the Note submitting this Conversion
Notice that, after giving effect to the conversion provided for in this
Conversion Notice, such Holder (together with its affiliates) will not have
beneficial ownership (together with the beneficial ownership of such Person's
affiliates) of a number of Common Shares which exceeds the Maximum Percentage
(as defined in the Note) of the total outstanding Common Shares of the Company
as determined pursuant to the provisions of Section 3(d) of the
Note.

     

    Please
issue the Common Shares 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
Continental Stock Transfer & Trust Company to issue the above indicated
number of Common Shares in accordance with the Transfer Agent Instructions dated
__________ from the Company and acknowledged and agreed to by Continental Stock
Transfer & Trust Company.

     

    
      
        
          
            
              	
                      A-POWER
      ENERGY GENERATION

                      SYSTEMS,
      LTD.

                    
	 
      	 
      
	
                      By:

                    	 
      
	 
      	
                      Name:

                    
	 
      	
                      Title:

                    

            

             

            
              
                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

          

        

      

    

     

    Exhibit
B

     

    
      NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A, IF APPLICABLE, 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.

      

      A-POWER
ENERGY GENERATION SYSTEMS, LTD.

      

      Warrant
To Purchase Common Shares

      

      Warrant
No.: ________

      Number of
Common Shares: _______

      Date of
Issuance: _____________ ("Issuance Date")

      

      A-Power
Energy Generation Systems, Ltd., a company organized under the laws of British
Virgin Islands (the "Company"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, ___________, the registered holder hereof or its
permitted assigns (the "Holder"), is entitled, subject
to the terms set forth below, to purchase from the Company, at the Exercise
Price (as defined below) then in effect, upon surrender of this Warrant to
Purchase Common Shares (including any Warrants to Purchase Common Shares issued
in exchange, transfer or replacement hereof, the "Warrant"), at any time or
times on or after the Shareholder Approval Date (as defined in the Securities
Purchase Agreement) (the "Initial Exercisability Date"),
but not after 11:59 p.m., New York time, on the Expiration Date (as defined
below), _____________________________ fully paid nonassessable Common
Shares par value
$0.0001 per share (the "Warrant
Shares").  Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section
18.  This Warrant is one of the Warrants to purchase Common Shares
(the "SPA Warrants")
issued pursuant to Section 1 of that certain Securities Purchase Agreement,
dated as of June 18, 2009 (the "Subscription Date"), by and
among the Company and the investors (the "Buyers") referred to therein
(the "Securities Purchase
Agreement").

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      1.   EXERCISE OF WARRANT.

       

      (a)  Mechanics of
Exercise.  Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any time or times on or after the
Initial Exercisability Date, in whole or in part, by (i) delivery of a
written notice, in the form attached hereto as Exhibit A (the "Exercise Notice"), of the
Holder's election to exercise this Warrant and (ii) (A) payment to the
Company of an amount equal to the applicable Exercise Price multiplied by the
number of Warrant Shares as to which this Warrant is being exercised (the "Aggregate Exercise Price") in
cash or by wire transfer of immediately available funds or (B) by notifying the
Company that this Warrant is being exercised pursuant to a Cashless Exercise (as
defined in Section 1(d)).  The Holder shall not be required to deliver
the original Warrant in order to effect an exercise hereunder unless (A) this
Warrant is being exercised in full to purchase (or acquire by Cashless Exercise)
the total number of Warrant Shares issuable upon exercise of this Warrant or (B)
the Holder has provided the Company with prior written notice (which notice may
be included in an Exercise Notice) requesting the reissuance of this Warrant
upon physical surrender of this Warrant.  Execution and delivery of
the Exercise Notice with respect to less than all of the Warrant Shares shall
have the same effect as cancellation of the original Warrant and issuance of a
new Warrant evidencing the right to purchase the remaining number of Warrant
Shares.  On or before the first (1st)
Trading Day following the date on which the Company has received each of the
Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
Exercise) (the "Exercise
Delivery Documents"), the Company shall transmit by facsimile an
acknowledgment of confirmation of receipt of the Exercise Delivery Documents to
the Holder and the Company's transfer agent (the "Transfer
Agent").  On or before the third (3rd)
Trading Day following the date on which the Company has received all of the
Exercise Delivery Documents (the "Share Delivery Date"), the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, and such Common Shares do not require the placement
of any legends restricting transfer of such Common Shares, upon the request of
the Holder, credit such aggregate number of Warrant Shares to which the Holder
is entitled pursuant to such exercise to the Holder's or its designee's balance
account with DTC through its Deposit Withdrawal Agent Commission system, or (Y)
if (I) the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program or (II) such Common Shares require the placement of
legends restricting transfer of such Common Shares as required by Section 2(g)
of the Securities Purchase Agreement, issue and dispatch by overnight courier to
the address as specified in the Exercise Notice, a certificate, registered in
the Company's share register in the name of the Holder or its designee, for the
aggregate number of Common Shares to which the Holder is entitled pursuant to
such exercise, which certificate shall, in the case of clause (II), bear a
legend in accordance with Section 2(g) of the Securities Purchase
Agreement.  Upon delivery of the Exercise Delivery Documents, the
Holder shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date such Warrant Shares are credited to the
Holder's DTC account or the date of delivery of the certificates evidencing such
Warrant Shares, as the case may be.  If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise is greater
than the number of Warrant Shares being acquired upon an exercise, then the
Company shall as soon as practicable and in no event later than three (3)
Trading Days after any exercise and at its own expense, issue a new Warrant (in
accordance with Section 8(d)) representing the right to purchase the number of
Warrant Shares issuable immediately prior to such exercise under this Warrant,
less the number of Warrant Shares with respect to which this Warrant is
exercised.  No fractional Common Shares are to be issued upon the
exercise of this Warrant, but rather the number of Common Shares to be issued
shall be rounded up to the nearest whole number.  The Company shall
pay any and all transfer, stamp and similar taxes (other than income and similar
taxes) that are required to be paid with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.

      
        
           

        

        
          - 2
-

          
            

          

        

        
           

        

      

      (b)  Exercise
Price.  For purposes of this Warrant, "Exercise Price"
means  $10.637, subject to adjustment as provided herein.

       

      (c)  Company's Failure to Timely
Deliver Securities.  If the Company shall fail to issue a
certificate to the Holder or to credit the Holder's balance account with DTC, as
applicable, for such number of Common Shares to which the Holder is entitled
upon the Holder's exercise of this Warrant within three (3) Trading Days of
receipt of the Exercise Delivery Documents (an "Exercise Failure"), and if on or after
such Exercise Failure the Holder purchases (in an open market transaction or
otherwise) Common Shares to deliver in satisfaction of a sale by the Holder of
Common Shares issuable upon such exercise that the Holder anticipated receiving
from the Company (a "Buy-In"), then the Company
shall, within three (3) Trading Days after the Holder's request and in the
Holder's discretion, either (i) pay cash to the Holder in an amount equal to the
Holder's total purchase price (including brokerage commissions and other
reasonable out-of-pocket brokerage expenses, if any) for the Common Shares so
purchased (the "Buy-In
Price"), at which point the Company's obligation to issue and deliver
such certificate to the Holder or credit the Holder's balance account with DTC
for such Common Shares shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such Common
Shares or credit such Holder's balance account with DTC 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 Common Shares, times (B) the Closing Bid Price on
the date of exercise.

       

      (d)  Cashless Exercise.
 Notwithstanding
anything contained herein to the contrary, if, after the six month anniversary
of the Issuance Date, a Registration Statement (as defined in the Registration
Rights Agreement) covering the resale of the Warrant Shares that are the subject
of the Exercise Notice (the "Unavailable Warrant Shares")
is not available for the resale of such Unavailable Warrant Shares (other than
as a result of the occurrence of an Allowable Grace Period (as defined in the
Registration Rights Agreement) that occurs prior to the four year anniversary of
the date hereof), the Holder may, in its sole discretion, exercise this Warrant
in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such exercise the "Net
Number" of Common Shares determined according to the following formula (a "Cashless
Exercise"):

      
        
           

        

        
          - 3
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                              Net
      Number =

                            	
                               (A x B) - (A x C)

                            	 
	 
      	
                               

                              B

                            	 

                    

                  

                

              

            

          

        

      

       

      For purposes of the foregoing
formula:

       

      
        	
                 
      

              	
                A=

              	
                the
      total number of shares with respect to which this Warrant is then being
      exercised.

              

      

       

      
        	
                 
      

              	
                B=

              	
                the
      Weighted Average Price of the Common Shares (as reported by Bloomberg) for
      the five (5) consecutive Trading Days ending on the date immediately
      preceding the date of the Exercise
Notice.

              

      

       

      
        	
                 
      

              	
                C=

              	
                the
      Exercise Price then in effect for the applicable Warrant Shares at the
      time of such exercise.

              

      

      

      (e)  Disputes.  In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 13.

       

      (f)   Limitations on
Exercises.  The Company shall not effect any exercise of this
Warrant, and the Holder shall not have the right to exercise this Warrant, to
the extent that after giving effect to such exercise, such Holder (together with
the Holder's affiliates) would beneficially own in excess of 4.99% (the "Maximum Percentage") of the
number of Common Shares outstanding immediately after giving effect to such
exercise.  For purposes of the foregoing sentence, the aggregate
number of Common Shares beneficially owned by the Holder and its affiliates
shall include the number of Common Shares issuable upon exercise of this Warrant
with respect to which the determination of such sentence is being made, but
shall exclude the number of Common Shares which would be issuable upon (i)
exercise of the remaining, unexercised portion of this Warrant beneficially
owned by the Holder and any of its affiliates and (ii) exercise or conversion of
the unexercised or nonconverted portion of any other securities of the Company
beneficially owned by such Person and its affiliates (including, without
limitation, any convertible notes or convertible preferred stock or warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein.  Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934
Act").  For purposes of this Warrant, in determining the number
of outstanding Common Shares, the Holder may rely on the number of outstanding
Common Shares as reflected in (1) the Company's most recent Form 20-F, Report of
Foreign Private Issuer on Form 6-K of the Company or other public filing with
the Securities and Exchange Commission (the "SEC"), as the case may be, (2)
a more recent public announcement by the Company or (3) any other notice by the
Company or the Transfer Agent setting forth the number of Common Shares
outstanding.  For any reason at any time, upon the written or oral
request of the Holder, the Company shall within two (2) Business Days confirm in
writing to the Holder the number of Common Shares then
outstanding.  In any case, the number of outstanding Common Shares
shall be determined after giving effect to the conversion or exercise of
securities of the Company, including the SPA Warrants, by the Holder and its
affiliates since the date as of which such number of outstanding Common Shares
was reported.  By written notice to the Company, the Holder may from
time to time 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 sixty-first (61st) day
after such notice is delivered to the Company, and (ii) any such increase or
decrease will apply only to the Holder and not to any other holder of SPA
Warrants.  The provisions of this paragraph shall be construed and
implemented in a manner other than in strict conformity with the terms of this
Section 1(f) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended beneficial ownership limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation.

      
        
           

        

        
          - 4
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      (g)  Insufficient Authorized
Shares.  If at any time while this Warrant remains outstanding
the Company does not have a sufficient number of authorized and unreserved
Common Shares to satisfy its obligation to reserve for issuance upon exercise of
this Warrant at least a number of Common Shares equal to 130% (the "Required Reserve Amount") of
the number of Common Shares as shall from time to time be necessary to effect
the exercise of all of this Warrant then outstanding (an "Authorized Share Failure"),
then the Company shall as soon as practicable take all action necessary to
increase the Company's authorized Common Shares to an amount sufficient to allow
the Company to reserve the Required Reserve Amount for this Warrant 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 ninety (90) days after the
occurrence of such Authorized Share Failure, the Company shall either (x) obtain
the vote or written consent of its shareholders for the approval of an increase
in the number of authorized Common Shares and provide each shareholder with an
information statement with respect thereto or (y) hold a meeting of its
shareholders for the approval of an increase in the number of authorized Common
Shares.  In connection with such meeting, the Company shall provide
each shareholder with a proxy statement and shall use its reasonable best
efforts to solicit its shareholders' approval of such increase in authorized
Common Shares and to cause its Board of Directors to recommend to the
shareholders that they approve such proposal.

       

      2.   ADJUSTMENT OF EXERCISE PRICE
AND NUMBER OF WARRANT SHARES.  The Exercise Price and the
number of Warrant Shares shall be adjusted from time to time as
follows:

      
        
           

        

        
          - 5
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      (a)  Adjustment upon Issuance of
Common Shares.  If and whenever on or after the Subscription
Date through the second (2nd) year
anniversary of the Issuance Date, the Company issues or sells, or in accordance
with this Section 2 is deemed to have issued or sold, any Common Shares
(including the issuance or sale of Common Shares owned or held by or for the
account of the Company, but excluding Common Shares deemed to have been issued
by the Company in connection with any Excluded Securities (as defined in the SPA
Securities) for a consideration per share (the "New Issuance Price") less than
a price (the "Applicable
Price") equal to the Exercise Price in effect immediately prior to such
issue or sale or deemed issuance or sale (the foregoing a "Dilutive Issuance"), then
immediately after such Dilutive Issuance, the Exercise Price then in effect
shall be reduced to an amount equal to the New Issuance Price.  In the
event of any Dilutive Issuance after the second (2nd) year
anniversary of the Issuance Date, then immediately after such Dilutive Issuance,
the Exercise Price then in effect shall be reduced to an amount equal to the
product of (A) the Exercise Price in effect immediately prior to such Dilutive
Issuance and (B) the quotient determined by dividing (1) the sum of (I) the
product derived by multiplying the Exercise Price in effect immediately prior to
such Dilutive Issuance and the number of Common Shares Deemed Outstanding
immediately prior to such Dilutive Issuance plus (II) the consideration, if any,
received by the Company upon such Dilutive Issuance, by (2) the product derived
by multiplying (I) the Exercise Price in effect immediately prior to such
Dilutive Issuance by (II) the number of Common Shares Deemed Outstanding
immediately after such Dilutive Issuance. Upon each such adjustment of the
Exercise Price hereunder, the number of Warrant Shares shall be adjusted to the
number of Common Shares determined by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such
adjustment.  For purposes of determining the adjusted Exercise Price
under this Section 2(a), the following shall be applicable:

       

      (i)           Issuance of
Options.  If the Company in any manner grants any Options and
the lowest price per share for which one Common Share 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 Common Share 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 2(a)(i), the "lowest price per share for which one Common Share is
issuable upon exercise of such Options or upon conversion, exercise or exchange
of such 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 Common Share 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.  No further adjustment of the Exercise Price or number of
Warrant Shares shall be made upon the actual issuance of such Common Shares or
of such Convertible Securities upon the exercise of such Options or upon the
actual issuance of such Common Shares upon conversion, exercise or exchange of
such Convertible Securities.

      
        
           

        

        
          - 6
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      (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 Common Share
is issuable upon the conversion, exercise or exchange thereof is less than the
Applicable Price, then such Common Share 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 2(a)(ii), the "lowest price per share for which one
Common Share 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 Common Share upon the
issuance or sale of the Convertible Security and upon conversion, exercise or
exchange of such Convertible Security.  No further adjustment of the
Exercise Price or number of Warrant Shares shall be made upon the actual
issuance of such Common Shares 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 this
Warrant has been or is to be made pursuant to other provisions of this Section
2(a), no further adjustment of the Exercise Price or number of Warrant Shares
shall be made by reason of such issue or sale.

       

      (iii)           Change in Option Price or
Rate of Conversion.  If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exercise or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exercisable or
exchangeable for Common Shares increases or decreases at any time, the Exercise
Price and the number of Warrant Shares in effect at the time of such increase or
decrease shall be adjusted to the Exercise Price and the number of Warrant
Shares 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 2(a)(iii), if the terms of any Option or Convertible Security
that was outstanding as of the date of issuance of this Warrant are increased or
decreased in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the Common Shares 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 2(a) shall be made if such adjustment would result in an increase
of the Exercise Price then in effect or a decrease in the number of Warrant
Shares.

      
        
           

        

        
          - 7
-

          
            

          

        

        
           

        

      

      (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
value determined by use of the Black Scholes Option Pricing Model (the "Option Value") and (y) the
other securities issued or sold in such integrated transaction shall be deemed
to have been issued for the difference of (I) the aggregate consideration
received by the Company, less (II) the Option Value.  If any Common
Shares, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor.  If any Common
Shares, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of such consideration other than cash received by
the Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such securities on the
date of receipt.  If any Common Shares, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Shares, Options or Convertible Securities, as the case may
be.  The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the Required
Holders.  If such parties are unable to reach agreement within ten
(10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair
value of such consideration will be determined within five (5) Trading Days
after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders.  The determination
of such appraiser shall be final and binding upon all parties absent manifest
error and the fees and expenses of such appraiser shall be borne by the
Company.

      

      (v)           Record
Date.  If the Company takes a record of the holders of Common
Shares for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Shares, Options or in Convertible Securities or
(B) to subscribe for or purchase Common Shares, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the Common Shares 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)  Voluntary Adjustment By
Company.  The Company may at any time during the term of this
Warrant reduce the then current Exercise Price to any amount and for any period
of time deemed appropriate by the Board of Directors of the
Company.

       

      (c)  Adjustment upon Subdivision
or Combination of Common Shares.  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 Common
Shares into a greater number of shares, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced and the number of
Warrant Shares will be proportionately increased.  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 Common
Shares into a smaller number of shares, the Exercise Price in effect immediately
prior to such combination will be proportionately increased and the number of
Warrant Shares will be proportionately decreased.  Any adjustment
under this Section 2(c) shall become effective at the close of business on the
date the subdivision or combination becomes effective.

      
        
           

        

        
          - 8
-

          
            

          

        

        
           

        

      

      (d)  Other
Events.  If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of share appreciation rights,
phantom share rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise Price and
the number of Warrant Shares so as to protect the rights of the Holder; provided
that no such adjustment pursuant to this Section 2(d) will increase the Exercise
Price or decrease the number of Warrant Shares as otherwise determined pursuant
to this Section 2.

       

      (e)  De Minimis
Adjustments.  No adjustment in the Exercise Price or number of
issuable Warrant Shares shall be required unless such Exercise Price adjustment
would require an increase or decrease of at least $0.05 in such price; provided, however, that any
adjustment which by reason of this Section 2(e) is not required to be made shall
be carried forward and taken into account in any subsequent adjustments under
this Section 2.  All calculations under this Section 2 shall be made
by the Company in good faith and shall be made to the nearest cent or to the
nearest one hundredth of a share, as applicable.  No adjustment need
be made for a change in the par value or no par value of the Company's Common
Shares.

       

      3.   RIGHTS UPON DISTRIBUTION OF
ASSETS.  If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) (other than
Pill Rights) to holders of Common Shares, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction other than a dividend or distribution payable solely in
Common Shares for which an adjustment is made pursuant to Section 2(c)) (a
"Distribution"), at any
time after the issuance of this Warrant, then, in each such case:

       

      (a)  any
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of Common Shares entitled to
receive the Distribution shall be reduced, effective as of the close of business
on such record date, to a price determined by multiplying such Exercise Price by
a fraction of which (i) the numerator shall be the Closing Bid Price of the
Common Shares on the Trading Day immediately preceding such record date minus
the value of the Distribution (as determined in good faith by the Company's
Board of Directors) applicable to one share of Common Shares, and (ii) the
denominator shall be the Closing Bid Price of the Common Shares on the Trading
Day immediately preceding such record date; and

       

      
        
           

        

        
          - 9
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      (b)  the
number of Warrant Shares shall be increased to a number of shares equal to the
number of Common Shares obtainable immediately prior to the close of business on
the record date fixed for the determination of holders of Common Shares entitled
to receive the Distribution multiplied by the reciprocal of the fraction set
forth in the immediately preceding paragraph (a); provided that in the event
that the Distribution is of Common Shares (or common shares or common stock)
("Other Common Shares")
of a company whose common shares are traded on a national securities exchange or
a national automated quotation system, then the Holder may elect to receive a
warrant to purchase Other Common Shares in lieu of an increase in the number of
Warrant Shares, the terms of which shall be identical to those of this Warrant,
except that such warrant shall be exercisable into the number of shares of Other
Common Shares that would have been payable to the Holder pursuant to the
Distribution had the Holder exercised this Warrant immediately prior to such
record date and with an aggregate exercise price equal to the product of the
amount by which the exercise price of this Warrant was decreased with respect to
the Distribution pursuant to the terms of the immediately preceding paragraph
(a) and the number of Warrant Shares calculated in accordance with the first
part of this paragraph (b).  The Holder shall notify the Company
within two (2) Business Days of its receipt of notice of the record date for
such Distribution as to its election under this Section 3(b) and, in the absence
of any such notice from the Holder, Holder shall be deemed to have elected to
accept an increase in the number of Warrant Shares.

       

      4.   PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS.

       

      (a)  Purchase
Rights.  In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase shares, warrants, securities or
other property pro rata to the record holders of any class of Common Shares
(other than Pill Rights) (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 Common Shares acquirable upon complete
exercise of this Warrant (without regard to any limitations on the exercise of
this Warrant) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Shares are to be determined
for the grant, issue or sale of such Purchase Rights.

      
        
           

        

        
          - 10
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      (b)  Fundamental
Transactions.  The Company shall not enter into or be party to
a Fundamental Transaction unless (i)  the Successor Entity, if a Person
other than the Company (with the Company being deemed to automatically so
assume), assumes in writing all of the obligations of the Company under this
Warrant and the other Transaction Documents in accordance with the provisions of
this Section (4)(b) pursuant to written agreements in form and substance
reasonably satisfactory to the Required Holders and approved by the Required
Holders prior to such Fundamental Transaction (which approval shall not be
unreasonably withheld), including agreements to deliver to each holder of the
SPA Warrants in exchange for its Warrant a security of the Successor Entity
evidenced by a written instrument substantially similar in form and substance to
the SPA Warrants, including, without limitation, an adjusted exercise price
equal to the value for the Common Shares reflected by the terms of such
Fundamental Transaction, and exercisable for a corresponding number of shares of
capital stock equivalent to the Common Shares acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of
this Warrant) prior to such Fundamental Transaction, and satisfactory to the
Required Holders and (ii) the Successor Entity (or its Parent Entity if
such assumption is effected by the Parent 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, if a Person other than the Company (with the Company being
deemed to automatically so succeed), shall succeed to, and be substituted for
(so that from and after the date of such Fundamental Transaction, the provisions
of this Warrant 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 Warrant with the same effect as
if such Successor Entity had been named as the Company herein.  Upon
consummation of the Fundamental Transaction, the Successor Entity, if a Person
other than the Company (with the Company being deemed to automatically so be
required), shall deliver to the Holder confirmation that there shall be issued
upon exercise of this Warrant at any time after the consummation of the
Fundamental Transaction, in lieu of the Common Shares (or other securities,
cash, assets or other property) issuable upon the exercise of the Warrant prior
to such Fundamental Transaction such shares of the publicly traded common stock
or common shares (or its 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 Warrant been converted
immediately prior to such Fundamental Transaction, as adjusted in accordance
with the provisions of this Warrant.  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 Common Shares are entitled
to receive securities or other assets with respect to or in exchange for Common
Shares (a "Corporate
Event"), the Company shall make appropriate provision to insure that the
Holder will thereafter have the right to receive upon an exercise of this
Warrant at any time after the consummation of the Corporate Event but prior to
the Expiration Date, in lieu of Common Shares (or other securities, cash, assets
or other property) purchasable upon the exercise of this Warrant prior to such
Corporate Event, such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Corporate Event had this Warrant been exercised immediately prior to
such Corporate Event.  Provision made pursuant to the preceding
sentence shall be in a form and substance reasonably satisfactory to the
Required Holders.  The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied without regard to any limitations on the exercise of
this Warrant.

       

      (c)  Notwithstanding
the foregoing, in the event of a Fundamental Transaction, at the request of the
Holder delivered before the ninetieth (90th) day
after the consummation of such Fundamental Transaction, the Company (or the
Successor Entity) shall purchase this Warrant from the Holder by paying to the
Holder, within five (5) Business Days after such request (or, if later, on the
effective date of the Fundamental Transaction), cash in an amount equal to the
Black Scholes Value of the remaining unexercised portion of this Warrant on the
date of such Fundamental Transaction.

      
        
           

        

        
          - 11
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      5.    
 PARTICIPATION.  The
Holder, as the holder of this Warrant, shall be entitled to receive any Pill
Rights (or, at the option of the Holder, to the extent such Pill Rights become
exercisable or have been exercised into equity interests of the Company or any
other distribution is made of equity interests of the Company to holders of such
Pill Rights, such equity interests of the Company) made to the holders of Common
Shares concurrently with any issuance of Common Shares upon exercise of this
Warrant to the same extent as if the Holder had exercised this Warrant into such
Common Shares (without regard to any limitations on conversion herein or
elsewhere) and had held such Common Shares on the record date for such dividend
or distribution of Pill Rights.

       

      6.   NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Memorandum and Articles of Association 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 Warrant, and
will at all times in good faith carry out all the provisions of this Warrant and
take all action as may be required to protect the rights of the
Holder.  Without limiting the generality of the foregoing, the Company
(i) shall not increase the par value of any Common Shares receivable upon
the exercise of this Warrant above the Exercise 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 Common Shares upon the exercise of this Warrant, and (iii) shall,
so long as any of the SPA Warrants are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued Common Shares,
solely for the purpose of effecting the exercise of the SPA Warrants, 130% of
the number of Common Shares as shall from time to time be necessary to effect
the exercise of the SPA Warrants then outstanding (without regard to any
limitations on exercise).  For the avoidance of doubt, solicitation by
the Company in accordance with the requirements of the SPA Warrants and the
Securities Purchase Agreement of the consents of the Required Holders to any
amendment, modification or waiver of any provision of the SPA Warrants shall not
be or be deemed an avoidance of performance of the terms of this
Warrant.

       

      7.   WARRANT HOLDER NOT DEEMED A
SHAREHOLDER.  Except as otherwise specifically provided herein,
the Holder, solely in such Person's capacity as a holder of this Warrant, shall
not be entitled to vote or receive dividends or be deemed the holder of share
capital of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the Holder, solely in such Person's capacity
as the Holder of this Warrant, any of the rights of a shareholder of the Company
or any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which such Person is then entitled to receive upon the due
exercise of this Warrant.  In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on the Holder to purchase
any securities (upon exercise of this Warrant or otherwise) or as a shareholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company.  Notwithstanding this Section 7, to the
extent not available through the EDGAR filing system of the SEC, the Company
shall provide the Holder with copies of the same notices and other information
given to the shareholders of the Company generally, contemporaneously with the
giving thereof to the shareholders.

      
        
           

        

        
          - 12
-

          
            

          

        

        
           

        

      

      8.   REISSUANCE OF
WARRANTS.

       

      (a)  Transfer of
Warrant.  If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 8(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 8(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.

       

      (b)  Lost, Stolen or Mutilated
Warrant.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section 8(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

       

      (c)  Exchangeable for Multiple
Warrants.  This Warrant is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Warrant
or Warrants (in accordance with Section 8(d)) representing in the aggregate the
right to purchase the number of Warrant Shares then underlying this Warrant, and
each such new Warrant will represent the right to purchase such portion of such
Warrant Shares as is designated by the Holder at the time of such surrender;
provided, however, that no Warrants for fractional Common Shares shall be
given.

       

      (d)  Issuance of New
Warrants.  Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 8(a)
or Section 8(c), the Warrant Shares designated by the Holder which, when added
to the number of Common Shares underlying the other new Warrants issued in
connection with such issuance, does not exceed the number of Warrant Shares then
underlying this Warrant), (iii) shall have an issuance date, as indicated on the
face of such new Warrant which is the same as the Issuance Date, and (iv) shall
have the same rights and conditions as this Warrant.

      
        
           

        

        
          - 13
-

          
            

          

        

        
           

        

      

      9.   NOTICES.  Whenever
notice is required to be given under this Warrant, 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
Warrant, including in reasonable detail a description of such action and the
reason therefor.  Without limiting the generality of the foregoing,
the Company will give written notice to the Holder (i) immediately upon any
adjustment of the Exercise Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least fifteen (15)
days or such shorter period as may be permitted by the Principal Market for the
public announcement of any such record date 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 Shares, (B) with respect to any grants, issuances
or sales of any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property to holders of Common Shares 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.

       

      10. AMENDMENT AND
WAIVER.  Except as otherwise provided herein, the provisions of
this Warrant may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the affirmative vote at a meeting duly called
for such purpose or the written consent without a meeting of the Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the
Holder.  No such amendment shall be effective to the extent that it
applies to less than all of the holders of the SPA Warrants then
outstanding.

       

      11. GOVERNING
LAW.  This Warrant shall be governed by and construed and
enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant 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.

       

      12. CONSTRUCTION;
HEADINGS.  This Warrant shall be deemed to be jointly drafted
by the Company and all the Buyers and shall not be construed against any person
as the drafter hereof.  The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.

       

      13. DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within three (3) Business Days of receipt of the Exercise Notice
giving rise to such dispute, as the case may be, to the Holder.  If
the Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three (3)
Business Days of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within two (2) Business Days
submit via facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder, such approval not to be unreasonably withheld, or (b) the disputed
arithmetic calculation of the Warrant Shares 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 and notify the Company and the Holder of the
results no later than ten Business Days from the time it receives the disputed
determinations or calculations.  Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.

      
        
           

        

        
          - 14
-

          
            

          

        

        
           

        

      

      14. REMEDIES, OTHER OBLIGATIONS,
BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this
Warrant shall be cumulative and in addition to all other remedies available
under this Warrant and 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 right of the Holder to pursue damages for any
failure by the Company to comply with the terms of this Warrant.  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 of this Warrant 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.

       

      15. TRANSFER.    This
Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by Section 2(f) of
the Securities Purchase Agreement.

       

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

       

      17. TAXES.

       

      (a)  Any
and all payments by the Company hereunder, including any amounts received on a
exercise or redemption of the Warrant and any amounts on account of interest or
deemed interest, shall be made free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, imposed under any law,
rule, code or regulation of the People's Republic of China, the British Virgin
Islands or any other non-U.S. governmental authority, including, without
limitation, any federal, state, local, provincial or other similar non-U.S.
governmental authority (collectively referred to as "International
Taxes").  If the Company shall be required to deduct any
International Taxes from or in respect of any sum payable hereunder to the
Holder, (i) the sum payable shall be increased by the amount by which the sum
payable would otherwise have to be increased (the "tax make-whole amount") to
ensure that after making all required deductions (including deductions
applicable to the tax make-whole amount) the Holder would receive an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Company shall make such deductions and (iii) the Company shall pay the full
amount withheld or deducted to the applicable governmental authority within the
time required.

      
        
           

        

        
          - 15
-

          
            

          

        

        
           

        

      

      (b)  In
addition, the Company agrees to pay to the relevant governmental authority in
accordance with applicable law any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies that arise from
any payment made hereunder or in connection with the execution, delivery,
registration or performance of, or otherwise with respect to, this Warrant
("Other
Taxes").  The Company shall deliver to the Holder official
receipts, if any, in respect of any International Taxes and Other Taxes payable
hereunder promptly after payment of such International Taxes, Other Taxes or
other evidence of payment reasonably acceptable to the Holder.

       

      (c)  The
obligations of the Company under this Section 17(b) shall survive the
termination of this Warrant and the payment of the Warrant and all other amounts
payable hereunder.

       

      18.  CERTAIN
DEFINITIONS.  For purposes of this Warrant, the following terms
shall have the following meanings:

       

      (a)  "Approved Share Plan" means any
employee benefit plan which has been approved by the Board of Directors of the
Company prior or subsequent to the Subscription Date, pursuant to which the
Company's securities may be issued to any employee, officer or director for
services provided to the Company.

       

      (b)  "Black Scholes Value" means the
value of this Warrant based on the Black and Scholes Option Pricing Model
obtained from the "OV" function on Bloomberg determined as of the day of the
closing of the applicable Fundamental Transaction for pricing purposes and
reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate
for a period equal to the remaining term of this Warrant as of such date of
request, (ii) an expected volatility equal to the greater of 100% and the 100
day volatility obtained from the HVT function on Bloomberg as of the day
immediately following the public announcement of the applicable Fundamental
Transaction, (iii) the underlying price per share used in such calculation shall
be the sum of the price per share being offered in cash, if any, plus the value
of any non cash consideration, if any, being offered in the Fundamental
Transaction and (iv) a 365 day annualization factor.

       

      (c)  "Bloomberg" means Bloomberg
Financial Markets.

       

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

      
        
           

        

        
          - 16
-

          
            

          

        

        
           

        

      

      (e)  "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 the 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 pursuant to Section 13.  All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation period.

       

      (f)   "Common Shares" means
(i) the Company's Common Shares, par value $0.0001 per share, and
(ii) any share capital into which such Common Shares shall have been
changed or any share capital resulting from a reclassification of such Common
Shares.

       

      (g)  "Common Shares Deemed
Outstanding" means, at any given time, the number of Common Shares
actually outstanding at such time, plus the number of Common Shares deemed to be
outstanding pursuant to Sections 2(a)(i) and 2(a)(ii) hereof regardless of
whether the Options or Convertible Securities are actually exercisable at such
time, but excluding any Common Shares owned or held by or for the account of the
Company or issuable upon exercise of the SPA Warrants.

       

      (h)  "Convertible Securities" means
any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for Common Shares.

       

      (i)   "Eligible Market" means the
Principal Market, The NASDAQ Global Market, The NASDAQ Capital Market, The New
York Stock Exchange, Inc., or The NYSE Amex.

       

      (j)   "Expiration Date" means the
date sixty (60) months after the Initial Exercisability Date or, if such date
falls on a day other than a Business Day or on which trading does not take place
on the Principal Market (a "Holiday"), the next day that
is not a Holiday.

      
        
           

        

        
          - 17
-

          
            

          

        

        
           

        

      

      (k)  "Fundamental Transaction" means
that (A) the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person or Persons, if the holders of the
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 consolidation or merger)
immediately prior to such consolidation or merger shall hold or have the right
to direct the voting of less than 50% of the Voting Stock of the Company or such
voting securities of such other surviving Person immediately following such
transaction, (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
(iii) allow another Person to make a purchase, tender or exchange offer that is
accepted by the holders of more than the 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),
(iv) consummate a securities 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 the 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 securities purchase agreement or other business
combination), or (v) reorganize, recapitalize or reclassify its Common Shares or
(B) any "person" or "group" (as these terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act) is or shall become the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
50% of the aggregate ordinary voting power represented by issued and outstanding
Common Shares.  Notwithstanding the foregoing, solely for the purpose
of the foregoing calculations, any director, officer or employee of the Company,
acting solely in its capacity as a director, officer or employee of the Company,
shall not be deemed to be making or party to, or associated or affiliated with
the Persons making or party to, such consolidation or merger.

       

      (l)   "Options" means any rights,
warrants or options to subscribe for or purchase Common Shares or Convertible
Securities.

       

      (m) "Parent Entity" of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common shares or 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.

       

      (n)  "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.

       

      (o)  "Pill Rights" means any rights
issued by the Company pursuant to any so-called "poison pill" or similar Company
rights plan entitling all holders of equity interests of the Company to
subscribe for or purchase equity interests of the Company, which rights are not
exercisable until a determination by the Company's Board of Directors that one
or more Persons or "groups" (as defined in Rule 13d-5(b)(1) under the 1934 Act)
has acquired beneficial ownership of Common Shares in excess of the percentage
threshold specified in such plan.

      
        
           

        

        
          - 18
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      (p)  "Principal Market" means The
NASDAQ Global Select Market.

       

      (q)  "Registration Rights Agreement"
means that certain registration rights agreement by and among the Company and
the Buyers.

       

      (r)   "Required Holders" means the
holders of the SPA Warrants representing at least a majority of Common Shares
underlying the SPA Warrants then outstanding, but excluding any Notes
beneficially owned, directly or indirectly, by Mr. Lu (or any of his family
members, affiliates or agents), the Company or any of its
Subsidiaries..

       

      (s)  "SPA Securities" means the
Notes issued pursuant to the Securities Purchase Agreement.

       

      (t)   "Successor Entity" means the
Person, which may be the Company, formed by, resulting from or surviving any
Fundamental Transaction or the Person with which such Fundamental Transaction
shall have been made, provided that if such Person is not a publicly traded
entity whose common stock or equivalent equity security is quoted or listed for
trading on an Eligible Market, Successor Entity shall mean such Person's Parent
Entity.

       

      (u)  "Trading Day" means any day on
which the Common Shares are traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Shares, then on the
principal securities exchange or securities market on which the Common Shares
are then traded; provided that "Trading Day" shall not include any day on which
the Common Shares are scheduled to trade on such exchange or market for less
than 4.5 hours or any day that the Common Shares are 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).

       

      (v)  "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).

      
        
           

        

        
          - 19
-

          
            

          

        

        
           

        

      

      (w) "Weighted Average Price" means,
for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market during the period beginning at 9:30:01
a.m., New York City Time (or such other time as the Principal Market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
City Time (or such other time as the Principal Market publicly announces is the
official close of trading), as reported by Bloomberg through its "Volume at
Price" 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 City Time (or such other time as the Principal Market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
City Time (or such other time as the Principal Market publicly announces is the
official close of trading), as reported by Bloomberg, or, if no dollar
volume-weighted average price is reported for such security by Bloomberg for
such hours, the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for such security as reported in the "pink
sheets" by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.).  If the Weighted Average Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Weighted
Average Price of such security on such date shall be the fair market value 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 pursuant to Section 13 with the term "Weighted
Average Price" being substituted for the term "Exercise Price." All such
determinations shall be appropriately adjusted for any share dividend, share
split, share combination or other similar transaction during the applicable
calculation period.

       

      [Signature
Page Follows]

      
        
           

        

        
          - 20
-

          
            

          

        

        
           

        

      

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

      

      
        
          
            
              
                	 
      	
                        A-POWER
      ENERGY GENERATION SYSTEMS, LTD.

                      	 
	 
      	 
      	 
      	 
	 
      	
                        By:

                      	
                            

                      	 
	 
      	
                        Name:

                      	 
      	 
	 
      	
                        Title:

                      	 
      	 

              

            

          

        

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      EXHIBIT
A

      

      EXERCISE
NOTICE

       

      TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

      WARRANT
TO PURCHASE COMMON STOCK

      

      A-POWER
ENERGY GENERATION SYSTEMS, LTD.

       

      The undersigned holder hereby exercises
the right to purchase _________________ of the Common Shares ("Warrant Shares") of A-Power
Energy Generation Systems, Ltd., a company incorporated under the laws
of the British Virgin Islands (the "Company"), evidenced by the
attached Warrant to Purchase Common Shares (the "Warrant").  Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant.

      

      1.  Form of Exercise
Price.  The Holder intends that payment of the Exercise Price shall be
made as:

      

      
        	
                 
      

              	
                ____________
      a "Cash
      Exercise" with respect to _________________ Warrant Shares;
      and/or

              

      

      

      
        	
                 
      

              	
                ____________
      a "Cashless
      Exercise" with respect to _______________ Warrant
      Shares.

              

      

      

      2.  Payment of Exercise
Price.  In the event that the holder has elected a Cash Exercise with
respect to some or all of the Warrant Shares to be issued pursuant hereto, the
holder shall pay the Aggregate Exercise Price in the sum of $___________________
to the Company in accordance with the terms of the Warrant.

      

      3.  Delivery of Warrant
Shares.  The Company shall deliver to the holder __________ Warrant
Shares in accordance with the terms of the Warrant.

      

      4.  Notwithstanding anything
to the contrary contained herein, this Exercise Notice shall constitute a
representation by the Holder of the Warrant submitting this Exercise Notice
that, after giving effect to the exercise provided for in this Exercise Notice,
such Holder (together with its affiliates) will not have beneficial ownership
(together with the beneficial ownership of such Person's affiliates) of a number
of Common Shares which exceeds the Maximum Percentage (as defined in the
Warrant) of the total outstanding Common Shares of the Company as determined
pursuant to the provisions of Section 1(f) of the Warrant.

      

      Date:
_______________ __, ______

      

      
        
          
            
              
                
                  
                    
                      	_______________________________________	 
	
                              Name
      of Registered Holder

                            	 
	 
      	 
      	 
      	 
	
                              By:

                            	_______________________________________	 
	 
      	
                              Name:

                            	 
      	 
	 
      	
                              Title:

                            	 
      	 

                    

                  

                

              

            

          

        

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ACKNOWLEDGMENT

      

      The Company hereby acknowledges this
Exercise Notice and hereby directs Continental Stock Transfer & Trust
Company to issue
the above indicated number of Common Shares in accordance with the Transfer
Agent Instructions dated _____________ from the Company and acknowledged and
agreed to Continental Stock Transfer & Trust Company.

      

      
        
          	 	
                  A-POWER
      ENERGY GENERATION SYSTEMS, LTD.

                
	 	 
      	 
      	 
      
	 	
                  By:

                	
                     

                	 
      
	 	
                  Name:

                	 
      	 
      
	 	
                  Title:

                	 
      	 
      

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

    

     

    Exhibit
C

    
       

      REGISTRATION
RIGHTS AGREEMENT

       

      REGISTRATION RIGHTS AGREEMENT
(this "Agreement"),
dated as of ________, by and among A-Power Energy Generation Systems, Ltd., a
company incorporated under the laws of the British Virgin Islands, with
headquarters located at No. 44 Jingxing Road, Tiexi District, Shenyang, Liaoning
Province, China 110021(the "Company"), and the investors
listed on the Schedule of Buyers attached hereto (each, a "Buyer" and collectively, the
"Buyers").

       

      WHEREAS:

       

      A.           In
connection with the Securities Purchase Agreement by and among the parties
hereto of even date herewith (the "Securities Purchase
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Securities Purchase Agreement, to issue and sell to each Buyer
(i) senior convertible notes (the "Notes") which will, among
other things, be convertible into the Company's common shares, par value $0.0001
per share (the "Common
Shares") (as converted, collectively, the "Conversion Shares") and (ii)
warrants (the "Warrants"), to purchase Common
Shares (collectively, the "Warrant Shares").

       

      B.           The
Notes bear interest and require the payment of "Make-Whole Amounts (as defined
in the Notes) upon conversion, each of which, at the option of the Company,
subject to certain conditions, may be paid in Common Shares (the "Interest Shares" and
"Make-Whole Shares", respectively).

       

      C.           In
connection with the Securities Purchase Agreement, the Company, Mr. Jinxiang Lu
("Mr. Lu") and the
Collateral Agent (as defined in the Securities Purchase Agreement), are
executing and delivering a Put Agreement to each Buyer (each a "Put Agreement" and,
collectively, the "Put
Agreements").  Upon the terms and subject to the conditions of
the Put Agreements, ("Mr.
Lu") may deliver to the Buyers Common Shares of the Company held by him
(collectively, the "Exchange
Shares").

       

      D.           In
accordance with the terms of the Securities Purchase Agreement, the Company has
agreed to provide certain registration rights under the Securities Act of 1933,
as amended, and the rules and regulations thereunder, or any similar successor
statute (collectively, the "1933 Act"), and applicable
state securities laws.

       

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

       

      1.           Definitions.

       

      Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement. As used in this
Agreement, the following terms shall have the following
meanings:

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      (a)           "Additional Effective Date"
means the date the Additional Registration Statement is declared effective by
the SEC.

       

      (b)           "Additional Effectiveness
Deadline" means the date which is fifteen (15) calendar days after the
earlier of the Additional Filing Date and the Additional Filing Deadline or in
the event that the Registration Statement is subject to a full review by the
SEC, forty-five (45) calendar days after the earlier of the Additional Filing
Date and the Additional Filing Deadline.

       

      (c)           "Additional Filing Date" means
the date on which the Additional Registration Statement is filed with the
SEC.

       

      (d)           "Additional Filing Deadline"
means if Cutback Shares are required to be included in the Additional
Registration Statement, the later of (i) the date sixty (60) days after the date
substantially all of the Registrable Securities registered under the immediately
preceding Registration Statement are sold and (ii) the date six (6) months from
the Initial Effective Date or the last Additional Effective Date, as
applicable.

       

      (e)           "Additional Registrable
Securities" means, (i) any Cutback Shares not previously included on a
Registration Statement and (ii) any capital stock of the Company issued or
issuable with respect to the Notes, the Conversion Shares, the Warrant Shares,
the Warrants, the Exchange Shares or the Cutback Shares, as applicable, as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise, without regard to any limitations on conversion of the
Notes, exercise of the Put Agreements or exercise of the Warrants.

       

      (f)           "Additional Registration
Statement" means a registration statement or registration statements of
the Company filed under the 1933 Act covering any Additional Registrable
Securities.

       

      (g)           "Additional Required Registration
Amount" means (I) any Cutback Shares not previously included on a
Registration Statement, all subject to adjustment as provided in Section 2(g) or
(II) such other amount as may be required by the staff of the SEC pursuant to
Rule 415.

       

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

       

      (i)           "Closing Date" shall have the
meaning set forth in the Securities Purchase Agreement.

       

      (j)           "Cutback Shares" means any of
the Initial Required Registration Amount or the Additional Required Registration
Amount (without regard to clause (II) in the definition thereof) of Registrable
Securities not included in all Registration Statements previously declared
effective hereunder as a result of a limitation on the maximum number of Common
Shares of the Company permitted to be registered by the staff of the SEC
pursuant to Rule 415.  For the purpose of determining the Cutback
Shares, in order to determine any applicable Required Registration Amount,
unless an Investor gives written notice to the Company to the contrary with
respect to the allocation of its Cutback Shares, first the Interest Shares shall
be excluded on a pro rata basis until all of the Interest Shares have been
excluded, second, the Make-Whole Shares shall be excluded on a pro rata basis
until all of the Make-Whole Shares have been excluded, third, the Warrant Shares
shall be excluded on a pro rata basis until all of the Warrant Shares have been
excluded and, fourth, the Conversion Shares shall be excluded on a pro rata
basis until all of the Conversion Shares have been excluded.

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      (k)          "Effective Date" means the
Initial Effective Date, the Investor Demand Effective Date and the Additional
Effective Date, as applicable.

       

      (l)           "Effectiveness Deadline" means
the Initial Effectiveness Deadline, the Investor Demand Effectiveness Deadline
and the Additional Effectiveness Deadline, as applicable.

       

       

      (m)         "Filing Deadline" means the
Initial Filing Deadline, the Investor Demand Effectiveness Deadline and the
Additional Filing Deadline, as applicable.

       

      (n)          "Initial Effective Date" means
the date that the Initial Registration Statement has been declared effective by
the SEC.

       

      (o)          "Initial Effectiveness
Deadline" means the date (i) in the event that the Initial Registration
Statement is not subject to a full review by the SEC, forty-five (45) calendar
days after the earlier of (I) the Initial Filing Date and (II) the Initial
Filing Deadline or (ii) in the event that the Initial Registration Statement is
subject to a full review by the SEC, ninety (90) calendar days after the earlier
of (I) the Initial Filing Date and (II) the Initial Filing
Deadline.

       

      (p)          "Initial Filing Date" means the
date on which the Initial Registration Statement is filed with the
SEC.

       

      (q)          "Initial Filing Deadline" means
the date which is thirty (30) calendar days after the earlier of (i) the date
the Shareholder Approval (as defined in the Securities Purchase Agreement) is
obtained and (ii) the Shareholder Approval Deadline (as defined in the
Securities Purchase Agreement).

       

      (r)           "Initial Registrable
Securities" means (I) if the Company obtains the Shareholder Approval on
or prior to the Shareholder Approval Deadline (i) the Conversion Shares issued
or issuable upon conversion of the Notes, (ii) the Warrant Shares issued or
issuable upon exercise of the Warrants and (iii) any capital stock of the
Company issued or issuable, with respect to the Notes, the Conversion Shares,
the Warrant Shares or the Warrants as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise, without
regard to any limitations on conversion of the Notes, exercise of the Put
Agreements or exercise of the Warrants and (II) if the Company does not obtain
the Shareholder Approval on or prior to the Shareholder Approval Deadline,
7,000,000 Common Shares held by Mr. Lu (collectively, the "Lu Shares").

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      (s)          "Initial Registration
Statement" means a registration statement or registration statements of
the Company filed under the 1933 Act covering the Initial Registrable
Securities.

       

      (t)           "Initial Required Registration
Amount" means (I) if the Company obtains the Shareholder Approval on or
prior to the Shareholder Approval Deadline 130% of the sum of (i) the maximum
number of Conversion Shares issued and issuable pursuant to the Notes as of the
Trading Day immediately preceding the applicable date of determination and (ii)
the maximum number of Warrant Shares issued and issuable pursuant to the
Warrants as of the Trading Day immediately preceding the applicable date of
determination, all subject to adjustment as provided in Section 2(g), without
regard to any limitations on conversion of the Notes, exercise of the Put
Agreements or exercises of the Warrants and (II) if the Company does not obtain
the Shareholder Approval on or prior to the Shareholder Approval Deadline the
aggregate number of Lu Shares.

       

      (u)          "Investor" means a Buyer or any
transferee or assignee thereof to whom a Buyer assigns its rights under this
Agreement and who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 and any transferee or assignee thereof to whom a
transferee or assignee assigns its rights under this Agreement and who agrees to
become bound by the provisions of this Agreement in accordance with Section
9.

       

      (v)          "Investor Demand" means a
written request by an Investor to the Company that the Company prepare and file
an Investor Demand Registration Statement to register Investor Demand
Registrable Securities.

       

      (w)         "Investor Demand Effective
Date" means the date that the Investor Demand Registration Statement has
been declared effective by the SEC.

       

      (x)           "Investor Demand Effectiveness
Deadline" means the date (i) in the event that the Investor Demand
Registration Statement is not subject to a full review by the SEC, forty-five
(45) calendar days after the earlier of (I) the Investor Demand Filing Date and
(II) the Investor Demand Filing Deadline or (ii) in the event that the Investor
Demand Registration Statement is subject to a full review by the SEC, ninety
(90) calendar days after the earlier of (I) the Investor Demand Filing Date and
(II) the Investor Demand Filing Deadline.

       

      (y)          "Investor Demand Filing Date"
means the date on which the Investor Demand Registration Statement is filed with
the SEC.

       

      (z)           "Investor Demand Filing
Deadline" means the date which is thirty (30) calendar days after the
date of the applicable Investor Demand.

       

      (aa)        "Investor Demand Registrable
Securities" means (i) any Exchange Shares delivered to an Investor
pursuant to the terms of the Put Agreements that were not delivered pursuant to
an effective registration statement and (ii) any capital stock of the Company
issued or issuable with respect to the Exchange Shares as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or
otherwise.

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      (bb)       "Investor Demand Registration
Statement" means a registration statement or registration statements of
the Company filed under the 1933 Act covering the Investor Demand Registrable
Securities.

       

      (cc)        "Investor Demand Required Registration
Amount" has the meaning set forth in Section 2(c).

       

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

       

      (ee)        "register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415, and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.

       

      (ff)         "Registrable Securities" means
the Initial Registrable Securities, the Investor Demand Registrable Securities
and the Additional Registrable Securities.  Registrable Securities
shall cease to be Registrable Securities upon the earlier of a sale of
Registrable Securities pursuant to an effective Registration Statement or the
exemption provided by Rule 144 under the 1933 Act and the first day on which the
applicable Registrable Securities may be sold by the Investors without
restriction pursuant to Rule 144 and without the requirement to be in compliance
with Rule 144(c)(1) (or any successor thereto) promulgated under the 1933
Act.

       

       

      (gg)       "Registration Statement" means
the Initial Registration Statement, the Investor Demand Registration Statement
and the Additional Registration Statement, as applicable.

       

      (hh)       "Required Holders" means the
holders of at least a majority of the Registrable Securities but excluding any
Registrable Securities beneficially owned, directly or indirectly, by Mr. Lu (or
any of his family members, affiliates or agents), the Company or any of its
Subsidiaries.

       

      (ii)          "Required Registration Amount"
means either the Initial Required Registration Amount, the Investor Demand
Required Registration Amount or the Additional Required Registration Amount, as
applicable.

       

      (jj)          "Rule 415" means Rule 415
promulgated under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis.

       

       

      (kk)        "SEC" means the United States
Securities and Exchange Commission.

       

      (ll)           "Trading Day" means any day on
which the Common Shares are traded on the Principal Market, or, if the Principal
Market (as defined in the Securities Purchase Agreement)is not the principal
trading market for the Common Shares, then on the principal securities exchange
or securities market on which the Common Shares are then traded; provided that
"Trading Day" shall not include any day on which the Common Shares are scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Shares are 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).

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      2.           Registration.

       

      (a)           Initial Mandatory
Registration.  The Company shall prepare, and, as soon as
practicable but in no event later than the Initial Filing Deadline, file with
the SEC the Initial Registration Statement on Form F-3 covering the resale of
all of the Initial Registrable Securities.  In the event that Form F-3
is unavailable for such a registration, the Company shall use such other form as
is available for such a registration on another appropriate form reasonably
acceptable to the Required Holders, subject to the provisions of Section
2(f).  The Initial Registration Statement prepared pursuant hereto
shall register for resale at least the number of Common Shares equal to the
Initial Required Registration Amount determined as of the date the Initial
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 2(g).  In addition to the Initial Registrable
Securities, the Initial Registration Statement may cover such number of Interest
Shares and Make-Whole Shares as the Company determines to include
therein.  The Initial Registration Statement shall contain (except if
otherwise directed by the Required Holders) the "Plan of Distribution"
section in substantially the form attached hereto as Exhibit B and, other
than pursuant to the registration of the Lu Shares, the "Selling Shareholders"
section in substantially the form attached hereto as Exhibit B, unless
otherwise required by the SEC. The Company shall use its reasonable best efforts
to have the Initial Registration Statement declared effective by the SEC as soon
as practicable, but in no event later than the Initial Effectiveness
Deadline.  The Company shall use reasonable best efforts to file with
the SEC in accordance with Rule 424 under the 1933 Act the final prospectus to
be used in connection with sales pursuant to such Initial Registration Statement
by 9:30 am on the Business Day following the Effective Date, but in any case no
later than the deadline required by Rule 424.

       

      (b)           Additional Mandatory
Registrations.  The Company shall prepare, and, as soon as
practicable but in no event later than the Additional Filing Deadline, file with
the SEC an Additional Registration Statement on Form F-3 covering the resale of
all of the Additional Registrable Securities not previously registered on an
Additional Registration Statement hereunder.  To the extent the staff
of the SEC does not permit the Additional Required Registration Amount to be
registered on an Additional Registration Statement, the Company shall file
Additional Registration Statements successively trying to register on each such
Additional Registration Statement the maximum number of remaining Additional
Registrable Securities until the Additional Required Registration Amount has
been registered with the SEC.  In addition to the Additional
Registrable Securities, the Additional Registration Statement may cover such
number of Interest Shares and Make-Whole Shares as the Company determines to
include therein.  In the event that Form F-3 is unavailable for such a
registration, the Company shall use such other form as is available for such a
registration on another appropriate form reasonably acceptable to the Required
Holders, subject to the provisions of Section 2(f).  Each Additional
Registration Statement prepared pursuant hereto shall register for resale at
least that number of Common Shares equal to the Additional Required Registration
Amount determined as of the date such Additional Registration Statement is
initially filed with the SEC, subject
to adjustment as provided in Section 2(g).  Each Additional
Registration Statement shall contain (except if otherwise directed by the
Required Holders) the "Plan of Distribution"
section in substantially the form attached hereto as Exhibit B and, other
than pursuant to the registration of the Lu Shares, the "Selling Shareholders"
section in substantially the form attached hereto as Exhibit B, unless
otherwise required by the SEC.  The Company shall use reasonable best
efforts to have each Additional Registration Statement declared effective by the
SEC as soon as practicable, but in no event later than the Additional
Effectiveness Deadline.  The Company shall use reasonable best efforts
to file with the SEC in accordance with Rule 424 under the 1933 Act the final
prospectus to be used in connection with sales pursuant to such Additional
Registration Statement by 9:30 am on the Business Day following the Effective
Date, but in any case no later than the deadline required by Rule
424.

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      

      (c)           Investor Demand
Registration. If the Initial Registrable Securities covered by the
Initial Registration Statement are the Lu Shares pursuant to clause (II) of the
definition of Initial Registrable Securities and such Lu Shares were transferred
without an effective registration statement and are not eligible for sale
without restriction and without the need for registration under any applicable
federal or state securities laws by an Investor, an Investor successively may
deliver to the Company an Investor Demand requesting that the Company prepare
and file with the SEC an Investor Demand Registration Statement to register any
Investor Demand Registrable Securities until the earlier of the date of when (x)
all Investor Demand Registrable Securities have been registered on Investor
Demand Registration Statements and (y) all Investor Demand Registrable
Securities not previously registered on an Investor Demand Registration
Statement may be sold by the Investors without restriction pursuant to Rule 144
and without the requirement to be in compliance with Rule 144(c)(1) (or any
successor thereto) promulgated under the 1933 Act.  Upon receipt of an
Investor Demand, the Company shall (x) promptly send a copy of such Investor
Demand to all other Investors and (y) prepare and as soon as practicable but in
no event later than the Investor Demand Filing Deadline, file with the SEC such
Investor Demand Registration Statement on Form F-3 covering the resale of the
number of Investor Demand Registrable Securities set forth on the Investor
Demand and in any additional Investor Demand received at least five (5) Business
Days prior to the applicable Investor Demand Filing Deadline (the "Investor Demand Required Registration
Amount").  In the event that Form F-3 is unavailable for such a
registration, the Company shall use such other form as is available for such a
registration on another appropriate form reasonably acceptable to the Required
Holders, subject to the provisions of Section 2(f).  The Investor
Demand Registration Statement prepared pursuant hereto shall register for resale
at least the number of Common Shares equal to the Investor Demand Required
Registration Amount determined as of date the Investor Demand Registration
Statement is initially filed with the SEC, subject to the provisions of Section
2(g).  The Investor Demand Registration Statement shall contain
(except if otherwise directed by the Required Holders) the "Selling Shareholders"
and "Plan of
Distribution" sections in substantially the form attached hereto as Exhibit
B.  The Company shall use its reasonable best efforts to have
the Investor Demand Registration Statement declared effective by the SEC as soon
as practicable, but in no event later than the Investor Demand Effectiveness
Deadline.  The Company shall use reasonable best efforts to file with
the SEC in accordance with Rule 424 under the 1933 Act the final prospectus to
be used in connection with sales pursuant to such Investor Demand Registration
Statement by 9:30 am on the Business Day following the Effective Date, but in
any case no later than the deadline required by Rule 424.

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      

      (d)           Allocation of Registrable
Securities.  The initial number of Registrable Securities
included in any Registration Statement and any increase or decrease in the
number of Registrable Securities included therein shall be allocated pro rata
among the Investors based on the number of Registrable Securities held by each
Investor at the time the Registration Statement covering such initial number of
Registrable Securities or increase or decrease thereof is declared effective by
the SEC.  In the event that an Investor sells or otherwise transfers
any of such Investor's Registrable Securities, each transferee that becomes an
Investor shall be allocated a pro rata portion of the then remaining number of
Registrable Securities included in such Registration Statement for such
transferor.  Any Common Shares included in a Registration Statement
and which remain allocated to any Person which ceases to hold any Registrable
Securities covered by such Registration Statement shall be allocated to the
remaining Investors, pro rata based on the number of Registrable Securities then
held by such Investors which are covered by such Registration
Statement.  Except for (i) up to 1,000,000 Common Shares held by the
parties (other than the Company) to the Registration Rights Agreement among the
Company (as successor to Chardan China Acquisition Corp. III) and Li Zhang,
Kerry Propper, Jiangnan Huang, Chardan Capital Partners and SUJG, Inc. and their
permitted transferees and assigns under such agreement and (ii) up to 750,000
Common Shares issued or issuable upon exercise of the Unit Purchase Option
issued by Chardan China Acquisition Corp. III to EarlyBirdCapital, Inc. and upon
exercise of the warrants included in the Units issued or issuable upon exercise
of such option (the "Other
Registrable Securities"), the Company shall not include any securities
other than Registrable Securities on any Registration Statement without the
prior written consent of the Required Holders; provided, however, before any
Registrable Securities may be excluded from a Registration Statement as a result
of a limitation on the maximum number of Common Shares permitted to be
registered by the Company on such Registration Statement by the staff of the SEC
pursuant to Rule 415, the Company shall first exclude all Other Registrable
Securities included on such Registration Statement.

      

      (e)           Legal
Counsel.  Subject to Section 5 hereof, the Required Holders
shall have the right to select one legal counsel to review and oversee any
registration pursuant to this Section 2 ("Legal Counsel"), which shall
be Schulte Roth & Zabel LLP or such other counsel as thereafter designated
by the Required Holders.  The Company and Legal Counsel shall
reasonably cooperate with each other in performing the Company's obligations
under this Agreement.

       

      (f)           Ineligibility for Form
F-3.  In the event that Form F-3 is not available for the
registration of the resale of Registrable Securities hereunder, the Company
shall (i) register the resale of the Registrable Securities on another
appropriate form reasonably acceptable to the Required Holders and (ii)
undertake to register the Registrable Securities on Form F-3 as soon as such
form is available, provided that the Company shall use its reasonable best
efforts to maintain the effectiveness of the Registration Statement then in
effect until such time as a Registration Statement on Form F-3 covering the
Registrable Securities has been declared effective by the SEC.

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

      (g)           Sufficient Number of Shares
Registered.  In the event the number of shares available under
a Registration Statement filed pursuant to Section 2(a), Section 2(b) or Section
2(c) is insufficient to cover all of the Registrable Securities required to be
covered by such Registration Statement or an Investor's allocated portion of the
Registrable Securities pursuant to Section 2(d), the Company shall amend the
applicable Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover at least
the Required Registration Amount as of the Trading Day immediately preceding the
date of the filing of such amendment or new Registration Statement, in each
case, as soon as practicable, but in any event not later than fifteen (15) days
after the necessity therefor arises.  The Company shall use its
reasonable best efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof.  For purposes of the foregoing provision, the number of
shares available under a Registration Statement shall be deemed "insufficient to
cover all of the Registrable Securities" if at any time the number of Common
Shares available for resale under the Registration Statement is less than the
product determined by multiplying (i) the Required Registration Amount as of
such time by (ii) 0.90.  The calculation set forth in the foregoing
sentence shall be made without regard to any limitations on the conversion of
the Notes or exercise of the Warrants and such calculation shall assume that the
Notes are then convertible into Common Shares at the then prevailing Conversion
Rate (as defined in the Notes), the Warrants are then exercisable for Common
Shares at the then prevailing Exercise Price (as defined in the Warrants)
assuming the outstanding principal amount of the Notes remains outstanding
through the scheduled Maturity Date (as defined in the Notes) and assuming no
conversions or redemptions of the Notes prior to the scheduled Maturity
Date.

      

      (h)           Effect of Failure to File
and Obtain and Maintain Effectiveness of Registration
Statement.  If (i) a Registration Statement covering all of the
Registrable Securities required to be covered thereby and required to be filed
by the Company pursuant to this Agreement is (A) not filed with the SEC on or
before the applicable Filing Deadline (a "Filing Failure") or (B) not
declared effective by the SEC on or before the applicable Effectiveness
Deadline, (an "Effectiveness
Failure") or
(ii) on any day after the applicable Effective Date sales of all of the
Registrable Securities required to be included on such Registration Statement
cannot be made (other than during an Allowable Grace Period (as defined in
Section 3(r)) pursuant to such Registration Statement or otherwise (including,
without limitation, because of the suspension of trading or any other limitation
imposed by an Eligible Market, a failure to keep such Registration Statement
effective, a failure to disclose such information as is necessary for sales to
be made pursuant to such Registration Statement, a failure to register a
sufficient number of Common Shares or a failure to maintain the listing of the
Common Stock) (a "Maintenance
Failure") then, as partial relief for the damages to any holder by reason
of any such delay in or reduction of its ability to sell the underlying Common
Shares (which remedy shall not be exclusive of any other remedies available at
law or in equity, including, without limitation, specific performance), (A) the
Company shall pay to each holder of Registrable Securities relating to such
Registration Statement an amount in cash equal to one and one-half percent
(1.5%) of the aggregate Purchase Price (as such term is defined in the
Securities Purchase Agreement) of such Investor's Registrable Securities
included in such Registration Statement on each of the following dates: (i) the
day of a Filing Failure; (ii) the day of an Effectiveness Failure; (iii) the
initial day of a Maintenance Failure; (iv) on the thirtieth day after the date
of a Filing Failure and every thirtieth day thereafter (pro rated for periods
totaling less than thirty days) until such Filing Failure is cured; (v) on the
thirtieth day after the date of an Effectiveness Failure and every thirtieth day
thereafter (pro rated for periods totaling less than thirty days) until such
Effectiveness Failure is cured; and (vi) on the thirtieth day after the date of
a Maintenance Failure and every thirtieth day thereafter (pro rated for periods
totaling less than thirty days) until such Maintenance Failure is
cured.  The payments to which a holder shall be entitled pursuant to
this Section 2(h) are referred to herein as "Registration Delay
Payments."  Registration Delay Payments shall be paid within
three (3) Business Days of the earlier of (I) the dates set forth above and (II)
the third Business Day after the event or failure giving rise to the
Registration Delay Payments is cured.  In the event the Company fails
to make Registration Delay Payments in a timely manner, such Registration Delay
Payments shall bear interest at the rate of one and one-half percent (1.5%) per
month (prorated for partial months) until paid in full.  In no event
shall aggregate payments of the Registration Delay Payments exceed 9% of the
Purchase Price (as defined in the Securities Purchase
Agreement).

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      3.           Related
Obligations.

      

      At such
time as the Company is obligated to file a Registration Statement with the SEC
pursuant to Section 2(a), 2(b), 2(c), 2(e) or 2(g), the Company will use its
reasonable best efforts to effect the registration of the Registrable Securities
in accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:

      

      (a)           The
Company shall promptly prepare and file with the SEC a Registration Statement
with respect to the Registrable Securities and use its reasonable best efforts
to cause such Registration Statement relating to the Registrable Securities to
become effective as soon as reasonably practicable after such filing (but in no
event later than the Effectiveness Deadline).  The Company shall keep
each Registration Statement effective pursuant to Rule 415 at all times until
the earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities covered by such Registration Statement without
restriction pursuant to Rule 144 and without the requirement to be in compliance
with Rule 144(c)(1) (or any successor thereto) promulgated under the 1933 Act or
(ii) the date on which the Investors shall have sold all of the Registrable
Securities covered by such Registration Statement (the "Registration
Period").  The Company shall ensure that each Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein (in the case of prospectuses, in the light of the
circumstances in which they were made) not misleading.  The term
"reasonable best efforts" shall mean, among other things, that the Company shall
submit to the SEC, within three (3) Business Days after the later of the date
that (i) the Company learns that no review of a particular Registration
Statement will be made by the staff of the SEC or that the staff has no further
comments on a particular Registration Statement, as the case may be, and (ii)
the approval of Legal Counsel pursuant to Section 3(c) (which approval is
promptly sought), a request for acceleration of effectiveness of such
Registration Statement to a time and date not later than two (2) Business Days
after the submission of such request.  The Company shall respond in
writing to comments made by the SEC in respect of a Registration Statement as
soon as practicable, but in no event later than fifteen (15) days after the
receipt of comments by or notice from the SEC that an amendment is required in
order for a Registration Statement to be declared effective.

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      (b)           The
Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration Statement and the
prospectus used in connection with such Registration Statement, which prospectus
is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be
necessary to keep such Registration Statement effective at all times during the
Registration Period, and, during such period, comply with the provisions of the
1933 Act with respect to the disposition of all Registrable Securities of the
Company covered by such Registration Statement until such time as all of such
Registrable Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
such Registration Statement.  In the case of amendments and
supplements to a Registration Statement which are required to be filed pursuant
to this Agreement (including pursuant to this Section 3(b)) by reason of the
Company filing a report on Form 20-F or Form 6-K or any analogous report under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Company shall
have incorporated such report by reference into such Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the 1934 Act report is filed which created the requirement for
the Company to amend or supplement such Registration Statement.

      

      (c)           The
Company shall (A) permit Legal Counsel to review and comment upon (i) a
Registration Statement at least five (5) Business Days prior to its filing with
the SEC and (ii) all amendments and supplements to all Registration Statements
(except for Annual Reports on Form 20-F, Current Reports on Form 6-K and any
similar or successor reports) within a reasonable number of days prior to their
filing with the SEC, and (B) not file any Registration Statement or amendment or
supplement thereto in a form to which Legal Counsel reasonably
objects.  The Company shall not submit a request for acceleration of
the effectiveness of a Registration Statement or any amendment or supplement
thereto without the prior approval of Legal Counsel, which consent shall not be
unreasonably withheld.  The Company shall furnish to Legal Counsel,
without charge, (i) copies of any correspondence from the SEC or the staff of
the SEC to the Company or its representatives relating to any Registration
Statement, (ii) unless the following are filed with the SEC through EDGAR and
are available to the public through the EDGAR system promptly after the same is
prepared and filed with the SEC, one copy of any Registration Statement and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, if requested by an Investor, and
all exhibits and (iii) upon the effectiveness of any Registration Statement, one
copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto.  The Company shall reasonably
cooperate with Legal Counsel in performing the Company's obligations pursuant to
this Section 3.

      

      (d)           The
Company shall furnish to each Investor whose Registrable Securities are included
in any Registration Statement, without charge, (i) promptly after the same is
prepared and filed with the SEC, at least one copy of such Registration
Statement and any amendment(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference, if requested by an
Investor, all exhibits and each preliminary prospectus, (ii) upon the
effectiveness of any Registration Statement, ten (10) copies of the prospectus
included in such Registration Statement and all amendments and supplements
thereto (or such other number of copies as such Investor may reasonably request)
and (iii) such other documents, including copies of any preliminary or final
prospectus, as such Investor may reasonably request from time to time in order
to facilitate the disposition of the Registrable Securities owned by such
Investor.

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      (e)           The
Company shall use its reasonable best efforts to (i) register and qualify,
unless an exemption from registration and qualification applies, the resale by
Investors of the Registrable Securities covered by a Registration Statement
under such other securities or "blue sky" laws of all applicable jurisdictions
in the United States, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (x) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(e), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction.  The Company shall promptly notify Legal Counsel and
each Investor who holds Registrable Securities of the receipt by the Company of
any notification with respect to the suspension of the registration or
qualification of any of the Registrable Securities for sale under the securities
or "blue sky" laws of any jurisdiction in the United States or its receipt of
actual notice of the initiation or threatening of any proceeding for such
purpose.

      

      (f)           The
Company shall notify Legal Counsel and each Investor in writing of the happening
of any event, as promptly as practicable after becoming aware of such event, as
a result of which the prospectus included in a Registration Statement, as then
in effect, includes an untrue statement of a material fact or omission to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (provided that in no event shall such notice contain any
material, nonpublic information), and, subject to Section 3(r), promptly prepare
a supplement or amendment to such Registration Statement to correct such untrue
statement or omission, and deliver one (1) copies of such supplement or
amendment to Legal Counsel and each Investor (or such other number of copies as
Legal Counsel or such Investor may reasonably request).  The Company
shall also promptly notify Legal Counsel and each Investor who holds Registrable
Securities being sold which has provided in writing to the Company a facsimile
number or mailing address for notices in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.  The Company shall use
reasonable best efforts to file with the SEC in accordance with Rule 424 under
the 1933 Act the final prospectus to be used in connection with sales pursuant
to such Registration Statement by 9:30 am on the Business Day following the
Effective Date, but in any case no later than the deadline required by Rule
424.

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      (g)           The
Company shall use its reasonable best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement, or
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest practicable
moment and to notify Legal Counsel and each Investor who holds Registrable
Securities being sold which has provided in writing to the Company a facsimile
number or mailing address for notices of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.

      

      (h)           If
any Investor is required under applicable securities laws or otherwise to be
described in the Registration Statement as an underwriter, at the reasonable
request of such Investor, the Company shall furnish to such Investor, on the
date of the effectiveness of the Registration Statement and thereafter from time
to time on such dates as an Investor may reasonably request (i) a letter, dated
such date, from the Company's independent certified public accountants in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
Investors, and (ii) an opinion, dated as of such date, of counsel representing
the Company for purposes of such Registration Statement, in form, scope and
substance as is customarily given in an underwritten public offering, addressed
to the Investors.

      

      (i)           If
any Investor is required under applicable securities laws or otherwise to be
described in the Registration Statement as an underwriter, the Company shall
make available for inspection by (i) such Investor, (ii) Legal Counsel and (iii)
one firm of accountants or other agents retained by the Investors (collectively,
the "Inspectors"), all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall be
reasonably deemed necessary by each Inspector, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request; provided, however, that each Inspector shall agree to hold
in strict confidence and shall not make any disclosure (except to an Investor)
or use of any Record or other information which the Company determines in good
faith to be confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required under the 1933 Act, (b) the release of such Records is ordered pursuant
to a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
Agreement.  Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential.  Nothing herein (or in any other confidentiality
agreement between the Company and any Investor) shall be deemed to limit the
Investors' ability to sell Registrable Securities in a manner which is otherwise
consistent with applicable laws and regulations.

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      (j)           The
Company shall hold in confidence and not make any disclosure of information
concerning an Investor provided to the Company unless (i) disclosure of such
information is necessary to comply with federal or state securities laws, (ii)
the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement.  The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt written notice to such Investor and allow such Investor, at the
Investor's expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.

      

      (k)           The
Company shall use its reasonable best efforts either to (i) cause all of the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or (iii) if,
despite the Company's reasonable best efforts, the Company is unsuccessful in
satisfying the preceding clause (i), to secure the inclusion for quotation on,
The New York Stock Exchange, The NASDAQ Capital Market, NASDAQ Global Market or
NYSE Amex for such Registrable Securities and, without limiting the generality
of the foregoing, to use its reasonable best efforts to arrange for at least two
market makers to register with the Financial Industry Regulatory Authority, Inc.
("FINRA") as such with
respect to such Registrable Securities.  The Company shall pay all
fees and expenses in connection with satisfying its obligation under this
Section 3(k).

      

      (l)           The
Company shall cooperate with the Investors who hold Registrable Securities being
offered and, to the extent applicable, facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the Investors may reasonably request and registered in such names as the
Investors may request.

      

      (m)           If
requested by an Investor, the Company shall as soon as practicable (i)
incorporate in a prospectus supplement or post-effective amendment such
information as an Investor reasonably requests to be included therein relating
to the sale and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such offering;
(ii) make all required filings of such prospectus supplement or post-effective
amendment after being notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and (iii) supplement or make
amendments to any Registration Statement relating to the sale or distribution of
Registrable Securities if reasonably requested by an Investor holding any
Registrable Securities.

      

      (n)           The
Company shall use its reasonable best efforts to cause the Registrable
Securities covered by a Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to
consummate the disposition of such Registrable Securities.

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      (o)           The
Company shall make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with, and in the
manner provided by, the provisions of Rule 158 under the 1933 Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the applicable Effective Date of a Registration
Statement.

       

      (p)           The
Company shall otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC in connection with any registration
hereunder.

      

      (q)           Within
two (2) Business Days after a Registration Statement which covers Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel for the Company to deliver, to the transfer agent for such
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) confirmation that such
Registration Statement has been declared effective by the SEC in the form
attached hereto as Exhibit
A.

      

      (r)           Notwithstanding
anything to the contrary herein, at any time after the Effective Date, the
Company may delay the disclosure of material, non-public information concerning
the Company the disclosure of which at the time is not, in the good faith
opinion of the Board of Directors of the Company and its counsel, in the best
interest of the Company and, in the opinion of counsel to the Company, otherwise
required (a "Grace
Period"); provided, that the Company shall promptly (i) notify the
Investors in writing of the existence of material, non-public information giving
rise to a Grace Period (provided that in each notice the Company will not
disclose the content of such material, non-public information to the Investors)
and the date on which the Grace Period will begin, and (ii) notify the Investors
in writing of the date on which the Grace Period ends; and, provided further,
that no Grace Period shall exceed ten (10) consecutive days and during any three
hundred sixty five (365) day period such Grace Periods shall not exceed an
aggregate of forty (40) days and the first day of any Grace Period must be at
least five (5) Trading Days after the last day of any prior Grace Period (each,
an "Allowable Grace
Period").  For purposes of determining the length of a Grace
Period above, the Grace Period shall begin on and include the date the Investors
receive the notice referred to in clause (i) and shall end on and include the
later of the date the Investors receive the notice referred to in clause (ii)
and the date referred to in such notice.  The provisions of Section
3(g) hereof shall not be applicable during the period of any Allowable Grace
Period.  Upon expiration of the Grace Period, the Company shall again
be bound by the first sentence of Section 3(f) with respect to the information
giving rise thereto unless such material, non-public information is no longer
applicable.  Notwithstanding anything to the contrary, the Company
shall cause its transfer agent to deliver unlegended Common Shares to a
transferee of an Investor in accordance with the terms of the Securities
Purchase Agreement in connection with any sale of Registrable Securities with
respect to which an Investor has entered into a contract for sale, prior to the
Investor's receipt of the notice of a Grace Period and for which the Investor
has not yet settled.

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

      

      (s)           Neither
the Company nor any Subsidiary or affiliate thereof shall identify any Buyer as
an underwriter without its prior written consent in any public disclosure or
filing with the SEC, the Principal Market (as defined in the Securities Purchase
Agreement) or any Eligible Market and any Buyer being deemed an underwriter by
the SEC shall not relieve the Company of any obligations it has under this
Agreement or any other Transaction Document (as defined in the Securities
Purchase Agreement); provided, however, that the
foregoing shall not prohibit the Company from including the disclosure found in
the "Plan of Distribution" section attached hereto as Exhibit B in the
Registration Statement.  In addition, and notwithstanding anything to
the contrary contained herein, if the Company has received a comment by the SEC
requiring an Investor to be named as an underwriter in the Registration
Statement (which notwithstanding the reasonable best efforts of the Company is
not withdrawn by the SEC) and such Investor elects in writing not to be named as
a selling stockholder in the Registration Statement, the Investor shall not be
entitled to any Registration Delay Payments with respect to such Registration
Statement.

      

      4.           Obligations of the
Investors.

      

      (a)           At
least five (5) Business Days prior to the first anticipated filing date of a
Registration Statement, the Company shall notify each Investor in writing of the
information the Company requires from each such Investor if such Investor elects
to have any of such Investor's Registrable Securities included in such
Registration Statement.  It shall be a condition precedent to the
obligations of the Company to complete any registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it, and such other
information, if any, as shall be reasonably required to effect and maintain the
effectiveness of the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.

      

      (b)           Each
Investor, by such Investor's acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection
with the preparation and filing of any Registration Statement hereunder, unless
such Investor has notified the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from such Registration
Statement.

      

      (c)           Each
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(g) or the first
sentence of 3(f) or if the Investor receives a notice from the Company that a
Grace Period is in effect, such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of copies of
the supplemented or amended prospectus as contemplated by Section 3(g) or the
first sentence of 3(f) or receipt of notice that no supplement or amendment is
required.  Notwithstanding anything to the contrary, the Company shall
cause its transfer agent to deliver unlegended Common Shares to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f) and for which the Investor has not
yet settled.

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

      

      (d)           Each
Investor covenants and agrees that it will comply with the prospectus delivery
requirements of the 1933 Act as applicable to it or an exemption therefrom in
connection with sales of Registrable Securities pursuant to the Registration
Statement.

      

      5.           Expenses of
Registration.

      

      All
reasonable expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company shall be paid by the Company.  The Company
shall also reimburse the Investors for the fees and disbursements of Legal
Counsel in connection with registration, filing or qualification pursuant to
Sections 2 and 3 of this Agreement which amount shall be limited to $20,000 for
each such registration, filing or qualification.

      

      6.           Indemnification.

      

      In the
event any Registrable Securities are included in a Registration Statement under
this Agreement:

      

      (a)           To
the fullest extent permitted by law, the Company will, and hereby does,
indemnify, hold harmless and defend each Investor, the directors, officers,
partners, members, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the 1933 Act or the 1934
Act (each, an "Indemnified
Person"), against any losses, claims, damages, liabilities, judgments,
fines, penalties, charges, costs, reasonable attorneys' fees, amounts paid in
settlement or expenses, joint or several (collectively, "Claims"), incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("Indemnified Damages"), to
which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon:  (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other "blue sky" laws of any jurisdiction
in which Registrable Securities are offered ("Blue Sky Filing"), or the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, "Violations").  Subject
to Section 6(c), the Company shall reimburse the Indemnified Persons, promptly
as such expenses are incurred and are due and payable, for any legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim.  Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section
6(a):  (i) shall not apply to a Claim by an Indemnified Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by such Indemnified Person
for such Indemnified Person expressly for use in connection with the preparation
of the Registration Statement or any such amendment thereof or supplement
thereto, if such prospectus was timely made available by the Company pursuant to
Section 3(d); and (ii) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld or
delayed.  Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.

      
        
           

        

        
          17

          
            

          

        

        
           

        

      

      (b)           In
connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly indemnify,
hold harmless and defend, to the same extent and in the same manner as is set
forth in Section 6(a), the Company, each of its directors, each of its officers
who signs the Registration Statement and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each, an "Indemnified Party"), against
any Claim or Indemnified Damages to which any of them may become subject, under
the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified
Damages arise out of or are based upon any Violation, in each case to the
extent, and only to the extent, that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and, subject
to Section 6(c), such Investor will reimburse the Indemnified Party for any
legal or other expenses reasonably incurred by an Indemnified Party in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) and the agreement
with respect to contribution contained in Section 7 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld or delayed; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim or Indemnified
Damages as does not exceed the net proceeds to such Investor as a result of the
sale of Registrable Securities pursuant to such Registration
Statement.  Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.

      
        
           

        

        
          18

          
            

          

        

        
           

        

      

      

      (c)           Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving a Claim, such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses of not
more than one counsel for all such Indemnified Person or Indemnified Party to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnified party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding.  In the case of an Indemnified Person,
legal counsel referred to in the immediately preceding sentence shall be
selected by the Investors holding at least a majority in interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates.  The Indemnified Party or Indemnified Person shall cooperate
reasonably with the indemnifying party in connection with any negotiation or
defense of any such action or Claim by the indemnifying party and shall furnish
to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or
Claim.  The indemnifying party shall keep the Indemnified Party or
Indemnified Person fully apprised at all times as to the status of the defense
or any settlement negotiations with respect thereto.  No indemnifying
party shall be liable for any settlement of any action, claim or proceeding
effected without its prior written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent.  No indemnifying party shall, without the prior written
consent of the Indemnified Party or Indemnified Person, consent to entry of any
judgment or enter into any settlement or other compromise which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such Claim or litigation and such settlement shall not include any
admission as to fault on the part of the Indemnified Party.  Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made.  The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to
the Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.

      

      (d)           The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when reasonably detailed and itemized bills are received or Indemnified Damages
are incurred.

      

      (e)           The
indemnity agreements contained herein shall be in addition to (i) any cause of
action or similar right of the Indemnified Party or Indemnified Person against
the indemnifying party or others, and (ii) any liabilities the indemnifying
party may be subject to pursuant to the law.

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

      

      7.           Contribution.

      

      To the
extent any indemnification by an indemnifying party is prohibited or limited by
law, the indemnifying party agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided, however, that:  (i) no
Person involved in the sale of Registrable Securities which Person is guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) in connection with such sale shall be entitled to contribution from any
Person involved in such sale of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the amount of net proceeds received by
such seller from the sale of such Registrable Securities pursuant to such
Registration Statement.

      

      8.           Reports Under the 1934
Act.

      

      With a
view to making available to the Investors the benefits of Rule 144 promulgated
under the 1933 Act or any other similar rule or regulation of the SEC that may
at any time permit the Investors to sell securities of the Company to the public
without registration ("Rule
144"), the Company agrees to:

      

      (a)           make
and keep public information available, as those terms are understood and defined
in Rule 144;

      

      (b)           file
with the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains
subject to such requirements and the filing of such reports and other documents
is required for the applicable provisions of Rule 144; and

      

      (c)           furnish
to each Investor so long as such Investor owns Registrable Securities, promptly
upon request, (i) a written statement by the Company, if true, that it has
complied with the reporting requirements of Rule 144, the 1933 Act and the 1934
Act, (ii) unless the following are filed with the SEC through EDGAR and are
available to the public through the EDGAR system, a copy of the most recent
annual or quarterly report (if the Company files quarterly reports) of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.

      

      9.           Assignment of Registration
Rights.

      

      The
rights under this Agreement shall be automatically assignable by the Investors
to any transferee of all or any portion of such Investor's Registrable
Securities if:  (i) the Investor agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished to
the Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act or applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to assume and be bound by all of the provisions contained herein; and
(v) such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.

      
        
           

        

        
          20

          
            

          

        

        
           

        

      

      10.           Amendment of Registration
Rights.

      

      Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Required
Holders.  Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.  No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Registrable Securities.  No consideration shall
be offered or paid to any Person to amend or consent to a waiver or modification
of any provision of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.

      

      11.           Miscellaneous.

      

      (a)           A
Person is deemed to be a holder of Registrable Securities whenever such Person
owns or is deemed to own of record such Registrable Securities.  If
the Company receives conflicting instructions, notices or elections from two or
more Persons with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from such record
owner of such Registrable Securities.

      

      (b)           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 Business Day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same.  The addresses and facsimile numbers for such
communications shall be:

      

      If to the
Company:

      

      A-Power
Energy Generation Systems, Ltd.

      No. 44
Jingxing Road

      Tiexi
District

      Shenyang,
Liaoning Province, China 110021

      
        	 	
                Telephone:

              	
                86-24-85617888

              

      

      
        	 	
                Facsimile:

              	
                86-24-85830606

              

      

      
        	 	
                Attention:

              	
                John
      Lin

              

      

      
        	 	
                Email:

              	
                john@apowerenergy.com

              

      

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      With a
copy (for informational purposes only) to:

      

      Baker
& McKenzie LLP

      1114
Avenue of the Americas

      New York,
New York 10036

      
        	  	
                Telephone: 

              	
                (212)
      626-4965

              

      

      
        	 	
                Facsimile: 

              	
                (212)
      310-1802

              

      

      
        	 	
                Attention: 

              	
                Omer
      Ozden, Esq.

              

      

      Email:        Omer.Ozden@BAKERNET.com

      

      If to the
Transfer Agent:

       

      Continental
Stock Transfer & Trust Company

      17
Battery Place

      New York,
New York 10004

      
        	 	
                Telephone: 

              	
                212-509-4000

              

      

      
        	 	
                Facsimile: 

              	
                212-616-7615

              

      

      
        	 	
                Attention:

              	
                Account
      Administration: A-Power Energy Generation Systems, Ltd. 

              

      

      

      If to
Legal Counsel:

       

      Schulte
Roth & Zabel LLP

      919 Third
Avenue

      New York,
New York  10022

      
        	 	
                Telephone:

              	
                (212)
      756-2000

              

      

      
        	 	
                Facsimile:

              	
                (212)
      593-5955

              

      

      
        	 	
                Attention:

              	
                Eleazer
      Klein, Esq.

              

      

      
         

        If to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers, 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.  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 a courier or overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

         

        (c)           Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as a
waiver thereof.

        
          
             

          

          
            22

            
              

            

          

          
             

          

        

         

        (d)           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.  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 appoints C T
Corporation System, with offices at 111 Eighth Avenue, New York, New York 10011,
as its agent for service of process in New York.  EACH PARTY HEREBY IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

         

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

         

        (f)           This
Agreement, the other Transaction Documents (as defined in the Securities
Purchase Agreement) and the instruments referenced herein and therein constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof and thereof.  There are no restrictions, promises, warranties
or undertakings, other than those set forth or referred to herein and
therein.  This Agreement, the other Transaction Documents and the
instruments referenced herein and therein supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.

         

        (g)           Subject
to the requirements of Section 9, this Agreement shall inure to the benefit of
and be binding upon the permitted successors and assigns of each of the parties
hereto.

        
          
             

          

          
            23

            
              

            

          

          
             

          

        

         

        (h)          The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.

         

        (i)           This
Agreement may be executed in identical counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same
agreement.  This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

         

        (j)      
     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.

         

        (k)           All
consents and other determinations required to be made by the Investors pursuant
to this Agreement shall be made, unless otherwise specified in this Agreement,
by the Required Holders.

         

        (l)     
      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)          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.

         

        (n)           The
obligations of each Investor hereunder are several and not joint with the
obligations of any other Investor, and no provision of this Agreement is
intended to confer any obligations on any Investor vis-à-vis any other
Investor.  Nothing contained herein, and no action taken by any
Investor pursuant hereto, shall be deemed to constitute the Investors as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Investors are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated
herein.

         

        (o)           Unless
otherwise indicated, all dollar amounts referred to in this Agreement are in
United States Dollars.  All amounts owing under this Agreement 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 11(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 Business Day immediately preceding:

        
          
             

          

          
            24

            
              

            

          

          
             

          

        

         

        a.           the
date of actual payment of the amount due, in the case of any proceeding in the
courts of New York or in the courts of any other jurisdiction that will give
effect to such conversion being made on such date: or

         

        b.           the
date on which the foreign court determines, in the case of any proceeding in the
courts of any other jurisdiction (the date as of which such conversion is made
pursuant to this Section 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 11(p)(i)(b) 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.

         

        (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.

         

        * * * * *
*

         

        [Signature
Page Follows]

        
          
             

          

          
            25

            
              

            

          

          
             

          

        

         

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

        

        
          
            
              
                	 
      	
                        COMPANY:

                      
	 
      	 
      
	 
      	
                        A-POWER
      ENERGY GENERATION

                      
	 
      	
                        SYSTEMS,
      LTD.

                      
	 	 
	 
      	
                        By:

                      	
                         

                      
	 
      	 
      	
                        Name:
      Jinxiang Lu

                      
	 
      	 
      	
                        Title:  Chief
      Executive Officer

                      

              

            

          

        

         

        
          [Signature
Page to Registration Rights Agreement]

        

         

        
          
             

          

          
            
            

            
              

            

          

          
             

          

        

         

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

        

        
          
            
              
                	 
      	
                        BUYERS:

                      
	 
      	 
      
	 
      	
                         

                      
	 
      	 
      
	 
      	
                        By:

                      	
                         

                      
	 
      	 
      	
                        Name: 

                      
	 
      	 
      	
                         

                      
	 
      	 
      	
                        Title:

                      
	 
      	 
      	
                         

                      

              

            

          

        

         

        
          [Signature
Page to Registration Rights Agreement]

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

      

      SCHEDULE
OF BUYERS

      

      
        
          	
                  Buyer

                	 	
                  Buyer
      Address

                  and Facsimile Number

                	 	
                  Buyer's
      Representative's Address

                  and Facsimile Number

                
	 
      	 
      	 
      	 
      	 
      
	
                  Hudson
      Bay Fund, LP

                	 
      	
                  120
      Broadway, 40th Floor

                  New
      York, New York 10271

                  Attention:
      Yoav Roth

                  George
      Antonopolous

                  Facsimile:  646-214-7946

                  Telephone:
      212-571-1244

                  Residence:
      Cayman Islands

                  E-mail:
      investments@hudsonbaycapital.com

                  operations@hudsonbaycapital.com

                	 
      	
                  Schulte
      Roth & Zabel LLP

                  919
      Third Avenue

                  New
      York, NY 10022

                  Attn:  Eleazer
      Klein, Esq.

                  Facsimile:  (212)
      593-5955

                  Telephone:  (212)
      756-2000

                
	
                  Hudson
      Bay Overseas Fund, Ltd.

                	 
      	
                  120
      Broadway, 40th Floor

                  New
      York, New York 10271

                  Attention:
      Yoav Roth

                  George
      Antonopolous

                  Facsimile:  646-214-7946

                  Telephone:
      212-571-1244

                  Residence:
      Cayman Islands

                  E-mail:
      investments@hudsonbaycapital.com

                  operations@hudsonbaycapital.com

                	 
      	
                  Schulte
      Roth & Zabel LLP

                  919
      Third Avenue

                  New
      York, NY 10022

                  Attn:  Eleazer
      Klein, Esq.

                  Facsimile:  (212)
      593-5955

                  Telephone:  (212)
      756-2000

                
	 
      	 
      	 
      	 
      	 
      
	
                  RCG
      PB, Ltd

                	 
      	
                  c/o
      Ramius LLC

                  599
      Lexington Avenue, 20th Floor

                  New
      York, NY 10022

                  Attention:  Jeffrey
      Smith

                  Owen
      Littman

                  Facsimile:  (212)
      201-4802

                  (212)
      845-7986

                  Telephone:
      (212) 845-7955

                  (212)
      201-4841

                  Residence:  Cayman
      Islands

                	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                  Ramius
      Enterprise Master Fund Ltd

                	 
      	
                  c/o
      Ramius LLC

                  599
      Lexington Avenue, 20th Floor

                  New
      York, NY 10022

                  Attention:  Jeffrey
      Smith

                  Owen
      Littman

                  Facsimile:  (212)
      201-4802

                  (212)
      845-7986

                  Telephone:
      (212) 845-7955

                  (212)
      201-4841

                  Residence:  Cayman
      Islands

                	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	
                  Iroquois
      Master Fund Ltd.

                	
                    

                	
                  c/o
      Iroquois Capital

                  641
      Lexington Avenue, 26th Floor

                  New
      York, NY 10022

                  Attention:
      Joshua Silverman

                  Telephone:   212-974-3070

                  Facsimile:  212-207-3452

                  Email:
      jsilverman@icfund.com

                  Residence:  Cayman
      Islands

                	
                    

                	 
      

        

      

       

      
        
          
             

          

          
            
            

            
              

            

          

          
             

          

        

      

      

      EXHIBIT
A

       

      FORM
OF NOTICE OF EFFECTIVENESS

      OF
REGISTRATION STATEMENT

      

      
        Continental
Stock Transfer & Trust Company

      

      17
Battery Place

      New York,
New York 10004

      Attention:  Account
Administration: A-Power Energy Generation Systems, Ltd.

       

      Re:           A-Power Energy Generation
Systems, Ltd.

       

      Ladies
and Gentlemen:

       

      [We
are][I am] counsel to A-Power Energy Generation Systems, Ltd., a company
incorporated under the laws of the British Virgin Islands (the "Company"), and have
represented the Company in connection with that certain Securities Purchase
Agreement, dated as of June 18, 2009 (the "Securities Purchase Agreement"), entered
into by and among the Company and the buyers named therein (collectively, the
"Holders") pursuant to
which the Company issued to the Holders senior convertible notes (the "Notes") which shall be
convertible into the Company's common shares, par value $0.0001 per share (the
"Common Shares") and
warrants exercisable for Common Shares (the "Warrants").  Pursuant
to the Securities Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Holders (the "Registration Rights
Agreement") pursuant to which the Company agreed, among other things, to
register the resale of the Registrable Securities (as defined in the
Registration Rights Agreement), including the Common Shares issuable upon
conversion of the Notes, the Common Shares issuable as interest on the Notes,
the Common Shares issuable upon exercise of the Warrants, the Common Shares held
by Mr. Jinxiang Lu and the Common Shares, if any, to be delivered pursuant to
the Put Agreements (as defined in the Registration Rights Agreement), under the
Securities Act of 1933, as amended (the "1933 Act").  In
connection with the Company's obligations under the Registration Rights
Agreement, on ____________ ___, 2009, the Company filed a Registration Statement
on Form F-3 (File No. 333-_____________) (the "Registration Statement") with
the Securities and Exchange Commission (the "SEC") relating to the
Registrable Securities which names each of the Holders as a selling shareholder
thereunder.

       

      In
connection with the foregoing, [we][I] advise you that a member of the SEC's
staff has advised [us][me] by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF
EFFECTIVENESS] and
[we][I] have no knowledge, after telephonic inquiry of a member of the SEC's
staff, that any stop order suspending its effectiveness has been issued or that
any proceedings for that purpose are pending before, or threatened by, the SEC
and the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.

       

      This
letter shall serve as our standing instruction to you that the Common Shares are
freely transferable by the Holders pursuant to the Registration
Statement.  You need not require further letters from us to effect any
future legend-free issuance or reissuance of Common Shares to the Holders as
contemplated by the Company's Irrevocable Transfer Agent Instructions dated
__________________.

      

      
        
          
            
              	 
      	
                      Very
      truly yours,

                    
	 	 
	 
      	
                      [ISSUER'S COUNSEL]

                    
	 	 
	 
      	
                      By:

                    	
                      _______________________    

                    	 
      

            

          

        

      

       

      CC:           [LIST NAMES OF HOLDERS]

      

      
        
          
             

          

          
            A-1

            
              

            

          

          
             

          

        

      

      

      EXHIBIT
B

      SELLING
SHAREHOLDERS

       

      The
common shares being offered by the selling shareholders are those [previously
issued to the selling shareholders] [issuable to the selling shareholders upon
conversion of the convertible notes[, as interest pursuant to the terms of the
convertible notes] and upon exercise of the warrants].  For additional
information regarding the issuance of the convertible notes and warrants, see
"Private Placement of Convertible Notes and Warrants" above.  We are
registering the common shares in order to permit the selling shareholders to
offer the shares for resale from time to time.  Except for the
ownership of the common shares, the convertible notes and the warrants issued
pursuant to the Securities Purchase Agreement, the selling shareholders have not
had any material relationship with us within the past three years.

       

      The table
below lists the selling shareholders and other information regarding the
beneficial ownership of the common shares by each of the selling
shareholders.  The second column lists the number of common shares
beneficially owned by each selling shareholder, based on its ownership of the
convertible notes and warrants, as of ________, 2009.

       

      The third
column lists the common shares being offered by this prospectus by the selling
shareholders.

       

      In
accordance with the terms of a registration rights agreement with the selling
shareholders, this prospectus generally covers the resale of [at least 130% of
the sum of (i) the maximum number of common shares issuable upon conversion of
the convertible notes as of the Trading Day immediately preceding the date the
registration statement is initially filed with the SEC and (ii) the maximum
number of common shares issuable upon exercise of the related warrants as of the
Trading Day immediately preceding the date the registration statement is
initially filed with the SEC.  Because the conversion price of the
convertible notes and the exercise price of the warrants may be adjusted, the
number of shares that will actually be issued may be more or less than the
number of shares being offered by this prospectus][the number of common shares
the selling shareholders requested that we register].  The fourth
column assumes the sale of all of the shares offered by the selling shareholders
pursuant to this prospectus.

       

      Under the
terms of the convertible notes and the warrants, a selling shareholder may not
convert the convertible notes or exercise the warrants to the extent such
conversion or exercise would cause such selling shareholder, together with its
affiliates, to beneficially own a number of common shares which would exceed
4.99% of our then outstanding common shares following such conversion or
exercise, excluding for purposes of such determination common shares issuable
upon conversion of the convertible notes which have not been converted and upon
exercise of the warrants which have not been exercised.  The number of
shares in the second column reflects this limitation.  The selling
shareholders may sell all, some or none of their shares in this
offering.  See "Plan of Distribution."

      

      
        
          
             

          

          
            Annex
I-1

            
              

            

          

          
             

          

        

      

       

      
        	
                Name of Selling shareholder

              	 
      	
                Number of Common shares

                Owned Prior to Offering

              	 
      	
                Maximum Number of

                Common shares to
      be Sold

                Pursuant to this Prospectus

              	 
      	
                Number of Common

                shares Owned After

                Offering

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Hudson
      Bay Fund LP  (1)

              	 
      	 
      	 
      	 
      	 
      	
                0

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Hudson
      Bay Overseas Fund Ltd. (2)

              	 
      	 
      	 
      	 
      	 
      	
                0

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Capital
      Ventures International (3)

              	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                RCG
      PB, Ltd (4)

              	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Ramius
      Enterprise Master Fund Ltd (5)

              	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Iroquois
      Master Fund Ltd. (6)

              	
                  

              	 
      	
                  

              	 
      	
                  

              	 
      

      

       

      (1)
Sander Gerber shares voting and investment power over these securities. Sander
Gerber disclaims beneficial ownership over the securities held by Hudson Bay
Fund LP. The selling shareholder acquired the securities offered for its own
account in the ordinary course of business, and at the time it acquired the
securities, it had no agreements, plans or understandings, directly or
indirectly to distribute the securities.

       

      (2)
Sander Gerber shares voting and investment power over these securities. Sander
Gerber disclaims beneficial ownership over the securities held by Hudson Bay
Overseas Fund LTD. The selling shareholder acquired the securities offered for
its own account in the ordinary course of business, and at the time it acquired
the securities, it had no agreements, plans or understandings, directly or
indirectly to distribute the securities.

       

      (3)
Ramius Advisors, LLC (“Ramius Advisors”) is the investment adviser of RCG PB,
Ltd (“RCG PB”) and consequently has voting control and investment discretion
over securities held by RCG PB.  Ramius Advisors disclaims beneficial
ownership of these securities.  Ramius LLC ("Ramius") is the sole
managing member of Ramius Advisors and may be considered the beneficial owner of
any securities deemed to be beneficially owned by Ramius
Advisors.  Ramius disclaims beneficial ownership of these
securities.  C4S & Co., L.L.C. (“C4S”) is the managing member of
Ramius and may be considered the beneficial owner of any securities deemed to be
beneficially owned by Ramius.  C4S disclaims beneficial ownership of
these securities.  Peter A. Cohen, Morgan B. Stark, Thomas W. Strauss
and Jeffrey M. Solomon are the sole managing members of C4S and may be
considered beneficial owners of any securities deemed to be beneficially owned
by C4S.  Messrs. Cohen, Stark, Strauss and Solomon disclaim beneficial
ownership of these securities.

      

      
        
          
             

          

          
            Annex
I-2

            
              

            

          

          
             

          

        

      

      

      (4)
Ramius Advisors, LLC (“Ramius Advisors”) is the investment adviser of Ramius
Enterprise Master Fund Ltd (“Enterprise”) and consequently has voting control
and investment discretion over securities held by Enterprise.  Ramius
Advisors disclaims beneficial ownership of these securities.  Ramius
LLC ("Ramius") is the sole managing member of Ramius Advisors and may be
considered the beneficial owner of any securities deemed to be beneficially
owned by Ramius Advisors.  Ramius disclaims beneficial ownership of
these securities.  C4S & Co., L.L.C. (“C4S”) is the managing
member of Ramius and may be considered the beneficial owner of any securities
deemed to be beneficially owned by Ramius.  C4S disclaims beneficial
ownership of these securities.  Peter A. Cohen, Morgan B. Stark,
Thomas W. Strauss and Jeffrey M. Solomon are the sole managing members of C4S
and may be considered beneficial owners of any securities deemed to be
beneficially owned by C4S.  Messrs. Cohen, Stark, Strauss and Solomon
disclaim beneficial ownership of these securities.

       

      (6)

      

      
        
          
             

          

          
            Annex
I-3

            
              

            

          

          
             

          

        

      

      

      PLAN
OF DISTRIBUTION

       

      We are
registering the common shares [previously issued to the selling shareholders]
[issuable upon conversion of the convertible notes[, as interest pursuant to the
terms of the convertible notes] and upon exercise of the warrants] to permit the
resale of these common shares by the holders of the common shares from time to
time after the date of this prospectus.  We will not receive any of
the proceeds from the sale by the selling shareholders of the common
shares.  We will bear all fees and expenses incident to our obligation
to register the common shares.

       

      The
selling shareholders may sell all or a portion of the common shares beneficially
owned by them and offered hereby from time to time directly or through one or
more underwriters, broker-dealers or agents.  If the common shares are
sold through underwriters or broker-dealers, the selling shareholders will be
responsible for underwriting discounts or commissions or agent's
commissions.  The common shares may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated
prices.  These sales may be effected in transactions, which may
involve crosses or block transactions,

       

      
        	
                 
      

              	
                ·

              	
                on
      any national securities exchange or quotation service on which the
      securities may be listed or quoted at the time of
  sale;

              

      

       

      
        	
                 
      

              	
                ·

              	
                in
      the over-the-counter market;

              

      

       

      
        	
                 
      

              	
                ·

              	
                in
      transactions otherwise than on these exchanges or systems or in the
      over-the-counter market;

              

      

       

      
        	
                 
      

              	
                ·

              	
                through
      the writing of options, whether such options are listed on an options
      exchange or otherwise;

              

      

       

      
        	
                 
      

              	
                ·

              	
                ordinary
      brokerage transactions and transactions in which the broker-dealer
      solicits purchasers;

              

      

       

      
        	
                 
      

              	
                ·

              	
                block
      trades in which the broker-dealer will attempt to sell the shares as agent
      but may position and resell a portion of the block as principal to
      facilitate the transaction;

              

      

       

      
        	
                 
      

              	
                ·

              	
                purchases
      by a broker-dealer as principal and resale by the broker-dealer for its
      account;

              

      

       

      
        	
                 
      

              	
                ·

              	
                an
      exchange distribution in accordance with the rules of the applicable
      exchange;

              

      

       

      
        	
                 
      

              	
                ·

              	
                privately
      negotiated transactions;

              

      

       

      
        	
                 
      

              	
                ·

              	
                short
      sales;

              

      

       

      
        	
                 
      

              	
                ·

              	
                sales
      pursuant to Rule 144;

              

      

       

      
        
          
             

          

          
            Annex
I-4

            
              

            

          

          
             

          

        

      

      

      
        	
                 
      

              	
                ·

              	
                broker-dealers
      may agree with the selling securityholders to sell a specified number of
      such shares at a stipulated price per
share;

              

      

       

      
        	
                 
      

              	
                ·

              	
                a
      combination of any such methods of sale;
and

              

      

       

      
        	
                 
      

              	
                ·

              	
                any
      other method permitted pursuant to applicable
  law.

              

      

       

      If the
selling shareholders effect such transactions by selling common shares to or
through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling shareholders or commissions from
purchasers of the common shares for whom they may act as agent or to whom they
may sell as principal (which discounts, concessions or commissions as to
particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved).  In connection with
sales of the common shares or otherwise, the selling shareholders may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the common shares in the course of hedging in positions they
assume.  The selling shareholders may also sell common shares short
and deliver common shares covered by this prospectus to close out short
positions and to return borrowed shares in connection with such short
sales.  The selling shareholders may also loan or pledge common shares
to broker-dealers that in turn may sell such shares.

       

      The
selling shareholders may pledge or grant a security interest in some or all of
the convertible notes, warrants or common shares owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the common shares from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, as amended, amending, if
necessary, the list of selling shareholders to include the pledgee, transferee
or other successors in interest as selling shareholders under this
prospectus.  The selling shareholders also may transfer and donate the
common shares in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling beneficial owners
for purposes of this prospectus.

       

      The
selling shareholders and any broker-dealer participating in the distribution of
the common shares may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commission paid, or any discounts or concessions allowed
to, any such broker-dealer may be deemed to be underwriting commissions or
discounts under the Securities Act.  At the time a particular offering
of the common shares is made, a prospectus supplement, if required, will be
distributed which will set forth the aggregate amount of common shares being
offered and the terms of the offering, including the name or names of any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling shareholders and any discounts,
commissions or concessions allowed or reallowed or paid to
broker-dealers.

       

      Under the
securities laws of some states, the common shares may be sold in such states
only through registered or licensed brokers or dealers.  In addition,
in some states the common shares may not be sold unless such shares have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with.

      

      
        
          
             

          

          
            Annex
I-5

            
              

            

          

          
             

          

        

      

      

      There can
be no assurance that any selling shareholder will sell any or all of the common
shares registered pursuant to the registration statement, of which this
prospectus forms a part.

       

      The
selling shareholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the common shares by the selling shareholders and
any other participating person.  Regulation M may also restrict the
ability of any person engaged in the distribution of the common shares to engage
in market-making activities with respect to the common shares.  All of
the foregoing may affect the marketability of the common shares and the ability
of any person or entity to engage in market-making activities with respect to
the common shares.

       

      We will
pay all expenses of the registration of the common shares pursuant to the
registration rights agreement, estimated to be $[     ]
in total, including, without limitation, Securities and Exchange Commission
filing fees and expenses of compliance with state securities or "blue sky" laws;
provided, however, that a selling shareholder will pay all underwriting
discounts and selling commissions, if any.  We will indemnify the
selling shareholders against liabilities, including some liabilities under the
Securities Act, in accordance with the registration rights agreements, or the
selling shareholders will be entitled to contribution.  We may be
indemnified by the selling shareholders against civil liabilities, including
liabilities under the Securities Act, that may arise from any written
information furnished to us by the selling shareholder specifically for use in
this prospectus, in accordance with the related registration rights agreement,
or we may be entitled to contribution.

       

      Once sold
under the registration statement, of which this prospectus forms a part, the
common shares will be freely tradable in the hands of persons other than our
affiliates.

       

      
        
          
          

        

        
          Annex I-6

          
            

          

        

        
          
          

        

      

    

     

    
      Exhibit
D

    

     

    
      PLEDGE
AGREEMENT

       

      PLEDGE AGREEMENT (this "Agreement"), dated as of
_________________, made by Jinxiang Lu, a natural person in his personal
capacity and not in his capacity as an officer, director, employee or agent of
the Company or any of its Subsidiaries, with a principal residence at Building
No. 45, Hepan Garden, No. 215, Qingnian Street, Shenhe District, Shenyang,
People's Republic of China (the "Pledgor"), in favor of Hudson
Bay Fund LP, in its capacity as collateral agent (in such capacity, the "Collateral Agent") for the
"Buyers" (as defined below) party to the Securities Purchase Agreement, dated as
of even date herewith (as amended, restated or otherwise modified from time to
time, the "Securities Purchase
Agreement").

       

      WITNESSETH:

       

      WHEREAS,
A-Power Energy Generation Systems, Ltd., a company incorporated under the laws
of the British Virgin Islands, with headquarters located at No. 44 Jingxing
Road, Tiexi District, Shenyang, Liaoning Province, China 110021 (the "Company") and each party
listed as a "Buyer" on the Schedule of Buyers attached to the Securities
Purchase Agreement (collectively, with all successors and assigns, the "Buyers") are parties to the
Securities Purchase Agreement, pursuant to which the Company has agreed to sell,
and the Buyers have agreed to purchase, among other things, the “Notes” (as
defined therein);

       

      WHEREAS,
the Pledgor as a major shareholder of the Company has agreed to pledge the
Pledged Collateral (as defined below) to secure all of the Secured Obligations
(as defined below);

       

      WHEREAS,
it is a condition precedent to the Buyers purchasing the Notes that the Pledgor
shall have executed and delivered to the Collateral Agent for the benefit of the
Buyers this Agreement;

       

      NOW,
THEREFORE, in consideration of the premises and the agreements herein and in
order to induce Buyers to purchase the Notes, the Pledgor agrees with the
Collateral Agent as follows:

       

      SECTION
1.          Definitions and Rules of
Interpretation.

       

      (a)           Definitions.  Reference
is made to the Securities Purchase Agreement and the Notes for a statement of
terms thereof.  All terms used in this Agreement which are defined in
the Securities Purchase Agreement or the Notes or in Article 8 or Article 9 of
the Uniform Commercial Code as in effect from time to time in the State of New
York (the "Code") and
which are not otherwise defined herein shall have the same meanings herein as
set forth therein; provided, that terms
used herein which are defined in the Code as in effect in the State of New York
on the date hereof shall continue to have the same meaning notwithstanding any
replacement or amendment of such statute except as the Collateral Agent may
otherwise determine.  In the event that any such term is defined in
both the Securities Purchase Agreement, the Notes and the Code, the definition
of such term in the Securities Purchase Agreement or the Notes shall
control.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      (b)           Rules of
Interpretation.  Except as otherwise expressly provided in this
Agreement, the following rules of interpretation apply to this Agreement: (i)
the singular includes the plural and the plural includes the singular; (ii) “or”
and “any” are not exclusive and “include” and “including” are not limiting;
(iii) a reference to any agreement or other contract includes permitted
supplements and amendments; (iv) a reference to a law includes any amendment or
modification to such law and any rules or regulations issued thereunder; (v) a
reference to a person includes its permitted successors and assigns; and (vi) a
reference in this Agreement to an Article, Section, Annex, Exhibit or Schedule
is to the Article, Section, Annex, Exhibit or Schedule of this
Agreement.

       

      SECTION
2.          Pledge and Grant of Security
Interest.  As collateral security for all of the Secured
Obligations (as defined in Section 3 hereof),
the Pledgor hereby pledges and assigns and grants to the Collateral Agent a
continuing security interest in, and Lien on, all of his right, title and
interest in and to the following (collectively, the "Pledged
Collateral"):

       

      (a)           The
Pledgor’s Common Shares as set forth in Schedule I (as such
Schedule is amended from time to time in accordance with the terms hereof), and
all future, issued and outstanding common shares, or other equity or investment
securities of, or partnership, membership, or joint venture interests in, the
Company that are required to be pledged from time to time in accordance with the
terms hereof including, without limitation, any Additional Pledged Shares
required to be pledged in accordance with Section 4(a) of this Agreement,
whether now owned or hereafter acquired by the Pledgor and whether or not
evidenced or represented by any stock certificate, certificated security or
other instrument, together with the certificates representing such equity
interests, all options and other rights, contractual or otherwise, in respect
thereof and all dividends, distributions, cash, instruments, investment property
and any other property (including, but not limited to, any share dividend and
any distribution in connection with a share split) from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the foregoing and all cash and noncash proceeds thereof (collectively, the
"Pledged
Shares");

       

      (b)           all
present and future increases, profits, combinations, reclassifications, and
substitutes and replacements for all or part of the Pledged Shares;

       

      (c)           all
investment property, financial assets, securities, shares, other equity
interests, share options and commodity contracts of the Pledgor, all notes,
debentures, bonds, promissory notes or other evidences of indebtedness payable
or owing to the Pledgor, and all other assets now or hereafter received or
receivable with respect to the foregoing;

       

      (d)           all
securities entitlements of the Pledgor in any and all of the foregoing;
and

       

      (e)           all
proceeds (including proceeds of proceeds) of any and all of the
foregoing;

       

      in each
case, whether now owned or hereafter acquired by the Pledgor and howsoever his
interest therein may arise or appear (whether by ownership, security interest,
Lien, claim or otherwise).

       

      
        
           

        

        
          -2-

          
            

          

        

        
           

        

      

       

      SECTION
3.          Security for Secured
Obligations.  The security interest created hereby in the
Pledged Collateral constitutes continuing collateral security for the prompt
performance and observance of all liabilities, obligations, or undertakings
owing by Pledgor to the Collateral Agent or the Buyers under this Agreement and
the Put Agreement, including the delivery of Lu Conversion Shares, Lu Warrant
Shares and/or Lu Additional Conversion Shares and/or, at such time as the
Company has notified the Buyers of its election to deliver “Make-Whole Shares”
and “Interest Shares” (as defined in the Registration Rights Agreement) and
failed to deliver such shares, Make-Whole Shares and Interest Shares
(collectively, the "Secured
Obligations")

       

      SECTION
4.          Delivery of the Pledged
Collateral.

       

      (a)           The
Market Price (as defined in the Note) of the Pledged Shares as of each date of
determination (the "Pledged
Share Value"), shall at all times equal or exceed the aggregate principal
amount outstanding under the Notes (whether or not then due and
payable).  The Pledgor shall, within five business days following the
receipt of notice from the Collateral Agent on behalf of all of the Buyers, that
the Pledged Share Value is less than the aggregate principal amount outstanding
under the Notes, deliver additional shares ("Additional Pledged Shares") to
the Collateral Agent in accordance with the terms of this Section 4 such that
the Pledged Share Value shall be no less than the aggregate principal amount at
any time and from time to time outstanding under the Notes; provided that the
maximum number of Additional Pledged Shares that the Pledgor shall be required
to deliver under this Agreement and any other Transaction Document shall not
exceed 1,000,000.

       

      (b)           All
certificates representing Pledged Shares on the date hereof shall be delivered
to the Collateral Agent or prior to the execution and delivery of this
Agreement.  All other certificates and instruments constituting
Pledged Collateral from time to time or required to be pledged to the Collateral
Agent pursuant to the terms of this Agreement or the Securities Purchase
Agreement, including without limitation, any Additional Pledged Shares required
to be pledged in accordance with Section 4(a) above (collectively the "Additional Collateral") shall
be delivered to the Collateral Agent promptly upon receipt thereof by or on
behalf of the Pledgor.  All such certificates and instruments shall be
held by the Collateral Agent pursuant hereto and shall be delivered in suitable
form for transfer by delivery or shall be accompanied by duly executed
instruments of transfer or assignment or undated share transfer forms executed
in blank, all in form and substance reasonably satisfactory to the
Buyers.  If any Pledged Collateral consists of uncertificated
securities, unless the immediately following sentence is applicable thereto, the
Pledgor shall cause the Collateral Agent (or its designated custodian, nominee
or other designee) to become the registered holder thereof, or cause each issuer
of such securities to agree that it will comply with instructions originated by
the Collateral Agent (or its designated custodian, nominee or other designee),
acting upon the written direction of the Buyers, with respect to such securities
without further consent by the Pledgor.  If any Pledged Collateral
consists of securities entitlements, the Pledgor shall transfer such securities
entitlements to the Collateral Agent (or its designated custodian, nominee or
other designee) or cause the applicable securities intermediary to agree that it
will comply with entitlement orders by the Collateral Agent (or its designated
custodian, nominee or other designee) without further consent by the
Pledgor.

       

      
        
           

        

        
          -3-

          
            

          

        

        
           

        

      

       

      (c)           Promptly
upon the receipt by the Pledgor of any Additional Collateral and
contemporaneously with any delivery of Additional Pledged Shares in accordance
with Section 4(a), a Pledge Amendment, duly executed by the Pledgor, in
substantially the form of Annex I hereto (a
"Pledge Amendment"),
shall be delivered to the Collateral Agent, in respect of the Additional
Collateral which is or are to be pledged pursuant to this Agreement and the
Securities Purchase Agreement, which Pledge Amendment shall from and after
delivery thereof constitute part of Schedule I
hereto.  The Pledgor hereby authorizes the Collateral Agent to attach
each Pledge Amendment to this Agreement and agrees that all promissory notes,
certificates or instruments listed on any Pledge Amendment shall for all
purposes hereunder constitute Pledged Collateral and the Pledgor shall be deemed
upon delivery thereof to have made the representations and warranties set forth
in Section 6
with respect to such Additional Collateral.

       

      (d)           If
the Pledgor shall receive, by virtue of the Pledgor’s being or having been an
owner of any Pledged Share, any (i) share certificate (including, without
limitation, any certificate representing a share dividend or distribution in
connection with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, share split, spin-off or
split-off), promissory note or other instrument, (ii) option or right, whether
as an addition to, substitution for, or in exchange for, any Pledged Collateral,
or otherwise, (iii) dividends payable in cash (except such dividends
permitted to be retained by the Pledgor pursuant to Section 8 hereof) or
in securities or other property or (iv) dividends, distributions, cash,
instruments, investment property and other property in connection with a partial
or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in surplus, the Pledgor shall receive such
share certificate, promissory note, instrument, option, right, payment or
distribution in trust for the benefit of the Collateral Agent, shall segregate
it from the Pledgor’s other property and shall deliver it forthwith to the
Collateral Agent in the exact form received, with any necessary endorsement
and/or appropriate stock powers duly executed in blank, to be held by the
Collateral Agent as Pledged Collateral and as further collateral security for
the Secured Obligations.

       

      (e)           The
Pledgor shall use its reasonable best efforts to procure the entry in the
register of members of the Company pursuant to section 66(8) of the BVI Business
Companies Act, 2004 (British Virgin Islands) the details of this Pledge and of
any Pledge Amendment.

       

      SECTION
5.          Taxes.

       

      (a)           All
payments made by the Pledgor hereunder or under the Put Agreement shall be made
in accordance with the terms of the Put Agreement and shall be made without
set-off, counterclaim, deduction or other defense.  All such payments
shall be made free and clear of and without deduction for any present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding taxes
imposed on the net income of any Buyer by the jurisdiction in which such Buyer
is organized or where it has its principal lending office (all such nonexcluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities,
collectively or individually, "Taxes").  If the
Pledgor shall be required to deduct or to withhold any Taxes from or in respect
of any amount payable hereunder or under the Put Agreement:

       

      
        
           

        

        
          -4-

          
            

          

        

        
           

        

      

       

      (i)           the
amount so payable shall be increased to the extent necessary so that after
making all required deductions and withholdings (including Taxes on amounts
payable to any Buyer pursuant to this sentence) each Buyer receives an amount
equal to the sum it would have received had no such deduction or withholding
been made,

       

      (ii)          the
Pledgor shall make such deduction or withholding,

       

      (iii)         the
Pledgor shall pay the full amount deducted or withheld to the relevant taxation
authority in accordance with applicable law, and

       

      (iv)         as
promptly as possible thereafter, the Pledgor shall send the Buyers an official
receipt (or, if an official receipt is not available, such other documentation
as shall be satisfactory to the Buyers, as the case may be) showing
payment.  In addition, the Pledgor agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies that arise from any payment made hereunder or from the execution,
delivery, registration or enforcement of, or otherwise with respect to, this
Agreement or Put Agreement (collectively, "Other Taxes").

       

      (b)           The
Pledgor hereby indemnifies and agrees to hold the Collateral Agent and each
Buyer (each an "Indemnified Party") harmless
from and against Taxes or Other Taxes (including, without limitation, any Taxes
or Other Taxes imposed by any jurisdiction on amounts payable under this Section 5) paid
by any Indemnified Party  as a result of any payment made hereunder or from
the execution, delivery, registration or enforcement of, or otherwise with
respect to, this Agreement or Put Agreement, and any liability (including
penalties, interest and expenses for nonpayment, late payment or otherwise)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted.  This indemnification shall be
paid within 30 days from the date on which the Collateral Agent or such Buyer
makes written demand therefor, which demand shall identify the nature and amount
of such Taxes or Other Taxes.

       

      (c)           If
the Pledgor fails to perform any of its obligations under this Section 5, the
Pledgor shall indemnify the Collateral Agent and each Buyer for any taxes,
interest or penalties that may become payable as a result of any such
failure.  The obligations of the Pledgor under this Section 5 shall
survive the termination of this Pledge Agreement and the payment of the
Obligations and all other amounts payable hereunder.

       

      SECTION
6.          Representations and
Warranties.  The Pledgor represents and warrants as
follows:

       

      (a)           The
Pledged Shares have been duly authorized and validly issued, are fully paid and
nonassessable and the holders thereof are not entitled to any preemptive first
refusal or other similar rights.  All other shares of stock
constituting Pledged Collateral will be, when issued, duly authorized and
validly issued, fully paid and nonassessable.

       

      (b)           The
Pledgor is and will be at all times the legal and beneficial owner of the
Pledged Collateral free and clear of any Lien, security interest, option or
other charge or encumbrance except for the security interest and Lien created by
this Agreement, restrictions on transfer imposed by the Securities Act of 1933,
as amended, (the “Securities Act”) or any Permitted Liens.

       

      
        
           

        

        
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      (c)           The
exercise by the Collateral Agent of any of its rights and remedies hereunder
will not contravene any law or any contractual restriction binding on or
affecting the Pledgor or any of the properties of the Pledgor and will not
result in or require the creation of any Lien, security interest or other charge
or encumbrance upon or with respect to any of the properties of the Pledgor
other than pursuant to this Agreement and the Put Agreement.

       

      (d)           Except
for the filing of an amendment to Pledgor’s Schedule 13D filed with the SEC, no
authorization or approval or other action by, and no notice to or filing with,
any governmental authority is required to be obtained or made by the Pledgor for
(i) the due execution, delivery and performance by the Pledgor of this
Agreement, (ii) the grant by the Pledgor, or the perfection, of the security
interest and Lien purported to be created hereby in the Pledged Collateral or
(iii) the exercise by the Collateral Agent of any of its rights and remedies
hereunder, except as may be required in connection with any sale of any Pledged
Collateral by laws affecting the offering and sale of securities
generally.

       

      (e)           This
Agreement creates a valid security interest and Lien in favor of the Collateral
Agent in the Pledged Collateral, as security for the Secured
Obligations.  The Collateral Agent’s having possession of the
certificates representing the Pledged Shares and all other certificates,
instruments and cash constituting Pledged Collateral from time to time results
in the perfection of such security interest and Lien.  Such security
interest and Lien is, or in the case of Pledged Collateral in which the Pledgor
obtains rights after the date hereof, will be, a perfected Lien, subject only to
the Permitted Liens.  All action necessary or desirable to perfect and
protect such security interest and Lien has been duly taken, except for the
Collateral Agent’s having possession of certificates, instruments and cash
constituting Pledged Collateral after the date hereof and entry of the details
of this Pledge and of any Pledge Amendment in the register of members of the
Company.

       

      SECTION
7.          Covenants as to the Pledged
Collateral.  So long as any Secured Obligations shall remain
outstanding, the Pledgor will, unless the Collateral Agent, acting pursuant to
the written direction of the Buyers, shall otherwise consent in
writing:

       

      (a)           keep
adequate records concerning the Pledged Collateral and permit the Collateral
Agent, or any designees or representatives thereof at any time or from time to
time during reasonable hours after prior written notice to examine and make
copies of and abstracts from such records;

       

      (b)           at
the Pledgor’s expense, promptly deliver to the Collateral Agent a copy of each
material notice or other material communication received by the Pledgor in
respect of the Pledged Collateral;

       

      (c)           at
the Pledgor’s expense, defend the Collateral Agent’s right, title and security
interest in and to the Pledged Collateral against the claims of any
Person;

       

      
        
           

        

        
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      (d)           at
the Pledgor’s expense, at any time and from time to time, promptly execute and
deliver all further instruments and documents and take all further action that
may be necessary or desirable or that the Collateral Agent may reasonably
request in order to (i) perfect and protect, or maintain the perfection of,
the security interest and Lien purported to be created hereby, (ii) enable the
Collateral Agent to exercise and enforce its rights and remedies hereunder in
respect of the Pledged Collateral or (iii) otherwise effect the purposes of this
Agreement, including, without limitation, delivering to the Collateral Agent
irrevocable proxies in respect of the Pledged Collateral;

       

      (e)           not
sell, assign (by operation of law or otherwise), exchange or otherwise dispose
of any Pledged Collateral or any interest therein except as expressly required
or permitted by the Put Agreement or this Agreement;

       

      (f)           not
create or suffer to exist any Lien, upon or with respect to any Pledged
Collateral except for the Lien created hereby, restrictions on transfer imposed
by the Securities Act or any Permitted Lien;

       

      (g)           not
make or consent to any amendment or other modification or waiver with respect to
any Pledged Collateral or enter into any agreement or permit to exist any
restriction with respect to any Pledged Collateral; and

       

      (h)           not
take or fail to take any action which would in any manner impair the validity or
enforceability of the Collateral Agent’s security interest in and Lien on any
Pledged Collateral.

       

      SECTION
8.          Voting Rights, Dividends,
Etc. in Respect of the Pledged Collateral.

       

      (a)           So
long as no Event of Default shall have occurred and be continuing:

       

      (i)           the
Pledgor may exercise any and all voting and other consensual rights pertaining
to any Pledged Collateral for any purpose not inconsistent with the terms of
this Agreement, the Securities Purchase Agreement or the Notes;

       

      (ii)           the
Pledgor may receive and retain any and all dividends, interest or other
distributions paid in respect of the Pledged Collateral to the extent permitted
hereby and by the Put Agreement; provided, however, that any and
all (A) dividends and interest paid or payable other than in cash in respect of,
and instruments and other property received, receivable or otherwise distributed
in respect of or in exchange for, any Pledged Collateral, (B) dividends and
other distributions paid or payable in cash in respect of any Pledged Collateral
in connection with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or paid-in surplus, and
(C) cash paid, payable or otherwise distributed in redemption of, or in exchange
for, any Pledged Collateral, together with any dividend, distribution, interest
or other payment which at the time of such dividend, distribution, interest or
other payment was not permitted by the Securities Purchase Agreement, shall be,
and shall forthwith be delivered to the Collateral Agent to hold as, Pledged
Collateral and shall, if received by the Pledgor, be received in trust for the
benefit of the Collateral Agent, shall be segregated from the other property or
funds of the Pledgor, and shall be forthwith delivered to the Collateral Agent
in the exact form received with any necessary endorsement and/or appropriate
share transfer forms duly executed in blank, to be held by the Collateral Agent
as Pledged Collateral and as further collateral security for the Secured
Obligations; and

       

      
        
           

        

        
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      (iii)         the
Collateral Agent will execute and deliver (or cause to be executed and
delivered) to the Pledgor all such proxies and other instruments as the Pledgor
may reasonably request for the purpose of enabling the Pledgor to exercise the
voting and other rights which it is entitled to exercise pursuant to paragraph
(i) of this Section
8(a) and to receive the dividends, distributions, interest and other
payments which it is authorized to receive and retain pursuant to paragraph (ii)
of this Section
8(a), in each case, to the extent that the Collateral Agent has
possession of such Pledged Collateral.

       

      (b)           As
used in this Agreement, an “Event of Default” shall mean
the Pledgor’s failure to perform or comply with any covenant or agreement
contained in this Agreement or the Put Agreement in any material respect,
including, without limitation, Pledgor’s obligation to deliver Additional
Pledged Shares to the Collateral Agent in accordance with this Agreement or to
exchange any Note and/or any Warrant into Common Shares or exchange any
Additional Conversion Obligations (as defined in the Put Agreement) into Common
Shares, in each case, pursuant to the terms of the Put Agreement and the
continuation of such failure of performance or compliance for three (3) Business
Days.  Upon the occurrence and during the continuance of an Event of
Default:

       

      (i)           all
rights of the Pledgor to exercise the voting and other consensual rights which
he would otherwise be entitled to exercise pursuant to paragraph (i) of
subsection (a) of this Section 8, and to
receive the dividends, distributions, interest and other payments which he would
otherwise be authorized to receive and retain pursuant to paragraph (ii) of
subsection (a) of this Section 8, shall
cease, and all such rights shall thereupon become vested in the Collateral Agent
which shall thereupon have the sole right to exercise such voting and other
consensual rights and to receive and hold as Pledged Collateral such dividends,
distributions, interest and other payments;

       

      (ii)          without
limiting the generality of the foregoing, the Collateral Agent may at his option
exercise any and all rights of conversion, exchange, subscription or any other
rights, privileges or options pertaining to any of the Pledged Collateral as if
it were the absolute owner thereof, including, without limitation, the right to
exchange, in its discretion, any and all of the Pledged Collateral upon the
merger, consolidation, reorganization, recapitalization or other adjustment of
any issuer of the Pledged Collateral or upon the exercise by any issuer of the
Pledged Collateral of any right, privilege or option pertaining to any Pledged
Collateral, and, in connection therewith, to deposit and deliver any and all of
the Pledged Collateral with any committee, depository, transfer agent, registrar
or other designated agent upon such terms and conditions as the Buyers may
determine; and

       

      (iii)         all
dividends, distributions, interest and other payments which are received by the
Pledgor contrary to the provisions of paragraph (i) of this Section 8(b) shall be
received in trust for the benefit of the Collateral Agent, shall be segregated
from other funds of the Pledgor, and shall be forthwith paid over to the
Collateral Agent as Pledged Collateral in the exact form received with any
necessary indorsement and/or appropriate stock powers duly executed in blank, to
be held by the Collateral Agent as Pledged Collateral and as further collateral
security for the Secured Obligations.

       

      
        
           

        

        
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      SECTION
9.          Additional Provisions
Concerning the Pledged Collateral.

       

      (a)           The
Pledgor hereby (i) authorizes the Buyers or the Collateral Agent to file one or
more financing or continuation statements, and amendments thereto, relating to
the Pledged Collateral, without the signature of the Pledgor where permitted by
law, (ii) ratifies such authorization to the extent that the Buyers or the
Collateral Agent has filed any such financing or continuation statements, or
amendments thereto, without the signature of the Pledgor prior to the date
hereof and (iii) authorizes the Collateral Agent to execute any agreements,
instruments or other documents in the Pledgor’s name and to file such
agreements, instruments or other documents that are related to the security
interest and Lien of the Collateral Agent in the Pledged Collateral or as
provided under Article 8 or Article 9 of the Code or any other applicable
uniform commercial code or other law in any appropriate filing office. Not
withstanding anything to the contrary contained herein, the Collateral Agent
shall have no responsibility for the preparing, recording, filing, re-recording,
or re-filing of any financing statement, continuation statement or other
instrument in any public office.

       

      (b)           The
Pledgor hereby irrevocably appoints the Collateral Agent as his attorney-in-fact
and proxy, with full authority in the place and stead and in his name or
otherwise, from time to time in the Buyers’ discretion to take any action and to
execute any instrument which the Buyers may deem necessary or advisable to
accomplish the purposes of this Agreement (subject to the rights of the Pledgor
under Section
8(a) hereof), including, without limitation, to receive, indorse and
collect all instruments made payable to the Pledgor representing any dividend,
interest payment or other distribution in respect of any Pledged Collateral and
to give full discharge for the same.  This power is coupled with an
interest and is irrevocable until the termination of this
Agreement.

       

      (c)           If
the Pledgor fails to perform any agreement or obligation contained herein, the
Collateral Agent itself may perform, or cause performance of, such agreement or
obligation, and the expenses of the Collateral Agent incurred in connection
therewith shall be payable by the Pledgor pursuant to Section 11 hereof and
shall be secured by the Pledged Collateral.

       

      (d)           Other
than the exercise of reasonable care to assure the safe custody of the Pledged
Collateral while held hereunder, the Collateral Agent shall have no duty or
liability to preserve rights pertaining thereto and shall be relieved of all
responsibility for the Pledged Collateral upon surrendering it or tendering
surrender of it to any of the Pledgor.  The Collateral Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Pledged Collateral in its possession if the Pledged Collateral is accorded
treatment substantially equal to that which the Collateral Agent accords its own
property, it being understood that the Collateral Agent shall not have
responsibility for (i) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relating to any
Pledged Collateral, whether or not the Collateral Agent has or is deemed to have
knowledge of such matters, or (ii) taking any necessary steps to preserve rights
against any parties with respect to any Pledged Collateral.

       

      
        
           

        

        
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      (e)           The
powers conferred on the Collateral Agent hereunder are solely to protect its
interest in the Pledged Collateral and shall not impose any duty upon it to
exercise any such powers.  Except for the safe custody of any Pledged
Collateral in its possession and the accounting for monies actually received by
it hereunder, the Collateral Agent shall have no duty as to any Pledged
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Pledged
Collateral.

       

      (f)           Upon
the occurrence and during the continuation of any Default or Event of Default,
the Collateral Agent may at any time in its discretion (i) without notice to the
Pledgor, transfer or register in the name of the Collateral Agent or any of its
nominees any or all of the Pledged Collateral, subject only to the revocable
rights of the Pledgor under Section 8(a) hereof,
and (ii) exchange certificates or instruments constituting Pledged Collateral
for certificates or instruments of smaller or larger denominations.

       

      SECTION
10.        Remedies Upon
Default.  If any Event of Default shall have occurred and be
continuing:

       

      (a)           The
Collateral Agent may exercise in respect of the Pledged Collateral, in addition
to other rights and remedies provided for herein or otherwise available to it,
all of the rights and remedies of a secured party on default under the Code then
in effect in the State of New York; and without limiting the generality of the
foregoing and without notice except as specified below, sell the Pledged
Collateral or any part thereof in one or more parcels at public or private sale,
at any exchange or broker’s board or elsewhere, at such price or prices and on
such other terms as the Collateral Agent may deem commercially reasonable, or
deliver Pledged Collateral to the Holders of the Notes and the Holders of the
Warrants in accordance with the Put Agreement.  The Pledgor agrees
that, to the extent notice of sale shall be required by law, at least ten (10)
days’ notice to any of the Pledgor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification.  The Collateral Agent shall not be obligated to make any
sale of Pledged Collateral regardless of notice of sale having been
given.  The Collateral Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned.

       

      (b)           The
Pledgor recognizes that it may be impracticable to effect a public sale of all
or any part of the Pledged Shares or any other securities constituting Pledged
Collateral and that the Collateral Agent may, therefore, determine to make one
or more private sales of any such securities to a restricted group of purchasers
who will be obligated to agree, among other things, to acquire such securities
for its own account, for investment and not with a view to the distribution or
resale thereof.  The Pledgor acknowledges that any such private sale
may be at prices and on terms less favorable to the seller than the prices and
other terms which might have been obtained at a public sale and, notwithstanding
the foregoing, agrees that such private sales shall be deemed to have been made
in a commercially reasonable manner and that unless a registration statement is
in effect with respect to the resale of the Pledged Shares, the Collateral Agent
shall have no obligation to delay sale of any such securities for the period of
time necessary to permit the issuer of such securities to register such
securities for public sale under the Securities Act.  The Pledgor
further acknowledges and agrees that any offer to sell such securities which has
been (i) publicly advertised on a bona fide basis in a newspaper or other
publication of general circulation in the financial community of New York, New
York (to the extent that such an offer may be so advertised without prior
registration under the Securities Act) or (ii) made privately in the manner
described above to not less than fifteen (15) bona fide offerees shall
be deemed to involve a “public disposition” for the purposes of Section 9-610 of
the Code (or any successor or similar, applicable statutory provision) as then
in effect in the State of New York, notwithstanding that such sale may not
constitute a “public offering” under the Securities Act, and that the Collateral
Agent may, in such event, bid for the purchase of such securities.

       

      
        
           

        

        
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      (c)           Any
cash held by the Collateral Agent as Pledged Collateral and all cash proceeds
received by the Collateral Agent in respect of any sale of, collection from, or
other realization upon, all or any part of the Pledged Collateral shall be
applied (after payment of any amounts payable to the Collateral Agent pursuant
to Section 11
hereof) by the Collateral Agent against, all or any part of the Secured
Obligations in such order as the Collateral Agent shall elect consistent with
the provisions of the Put Agreement.

       

      (d)           In
the event that the proceeds of any such sale, collection or realization are
insufficient to pay all amounts to which the Collateral Agent is legally
entitled, the Pledgor shall be liable for the deficiency, together with interest
thereon at the highest rate specified in the Notes for interest on overdue
principal thereof or such other rate as shall be fixed by applicable law,
together with the costs of collection and the reasonable fees, costs and
expenses of any attorneys employed by the Collateral Agent to collect such
deficiency.

       

      SECTION
11.        Indemnity and
Expenses.

       

      (a)           The
Pledgor hereby agrees to indemnify and hold the Collateral Agent (and all of its
officers, directors, employees, attorneys, consultants) harmless from and
against any and all claims, damages, losses, liabilities, obligations,
penalties, fees, costs and expenses (including, without limitation, reasonable
legal fees and disbursements of counsel) to the extent that they arise out of or
otherwise result from this Agreement (including, without limitation, enforcement
of this Agreement), except claims, losses or liabilities arising or resulting
directly from such Person’s gross negligence or willful misconduct as determined
by a court of competent jurisdiction.

       

      (b)           The
Pledgor shall be obligated for, and will upon demand pay to the Collateral Agent
the reasonable amount of any and all out-of-pocket costs and expenses, including
the reasonable fees and disbursements of the Collateral Agent’s counsel and of
any experts which the Collateral Agent may incur in connection with (i) the
preparation, negotiation, execution, delivery, recordation, administration,
amendment, waiver or other modification or termination of this Agreement, (ii)
the custody, preservation, use or operation of, or the sale of, collection from,
or other realization upon, any Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of the Collateral Agent hereunder, or (iv) the
failure by the Pledgor to perform or observe any of the provisions
hereof.

       

      
        
           

        

        
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      SECTION
12.        Notices,
Etc.  All notices and other communications provided for
hereunder shall be in writing and shall be mailed (by certified mail, postage
prepaid and return receipt requested), sent by Federal Express or other
recognized courier service (return receipt requested), telecopied or delivered,
if to the Pledgor, to him at the address specified in the Put Agreement or if to
the Collateral Agent, to it at the address specified in the Securities Purchase
Agreement; or as to either such Person at such other address as shall be
designated by such Person in a written notice to such other Person complying as
to delivery with the terms of this Section
12.  All such notices and other communications shall be
effective (i) if sent by certified mail, postage prepaid, return receipt
requested, when received or three (3) Business Days after mailing, whichever
first occurs, (ii) if telecopied, when transmitted and confirmation is received,
provided same
is on a Business Day and, if not, on the next Business Day or (iii) if delivered
or sent by Federal Express or other recognized courier service (return receipt
requested), upon delivery, provided same is on a
Business Day and, if not, on the next Business Day.

       

      SECTION
13.        Security Interest
Absolute.  All rights of the Collateral Agent, all Liens and
all obligations of the Pledgor hereunder shall be absolute and unconditional
irrespective of:  (i) any lack of validity or enforceability of the
Securities Purchase Agreement, the Notes or any other Transaction Document, (ii)
any change in the time, manner or place of payment of, or in any other term in
respect of, all or any of the Secured Obligations, or any other amendment or
waiver of or consent to any departure from the Securities Purchase Agreement,
the Notes or any other Transaction Document, (iii) any exchange or release of,
or non-perfection of any Lien on any Collateral, or any release or amendment or
waiver of or consent to departure from any guaranty, for all or any of the
Secured Obligations, or (iv) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the Pledgor in respect of
the Secured Obligations (other than the payment in full of the Secured
Obligations).  All authorizations and agencies contained herein with
respect to any of the Pledged Collateral are irrevocable and powers coupled with
an interest.

       

      SECTION
14.        Beneficial
Ownership.  The Collateral Agent shall not have the right to
exercise its rights under this Agreement, to the extent that after giving effect
to such exercise, any Buyer (together with such Buyer's affiliates) would
beneficially own in excess of 4.99% (the "Maximum Percentage") of the
shares of Common Stock outstanding immediately after giving effect to such
exercise. In connection herewith, the Collateral Agent shall have the right to
inquire as to the beneficial ownership of any Buyer, before exercising any
rights hereunder with respect to such Buyer.  For purposes of the
foregoing sentence, the aggregate number of shares of Common Stock beneficially
owned by any Buyer and its affiliates shall include the number of shares of
Common Stock subject to the exercise of the rights under this Agreement, but
shall exclude shares of Common Stock which would be issuable upon exercise or
conversion of the unexercised or unconverted portion of any securities of the
Company beneficially owned by such Buyer and its affiliates (including, without
limitation, any convertible notes or convertible preferred stock or warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein.  Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended.  For purposes of this Agreement, in determining the number of
outstanding shares of Common Stock, the Buyers may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 20-F, Form 6-K or other public filing with the Securities and Exchange
Commission, as the case may be, (2) a more recent public announcement by the
Company or (3) any other notice by the Company or the Transfer Agent setting
forth the number of shares of Common Stock outstanding.  For any
reason at any time, upon the written or oral request of the Collateral Agent or
the Buyers, the Company shall within two (2) Business Days confirm orally and in
writing to such Person the number of shares of Common Stock then
outstanding.  In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company by the Buyers and its affiliates since the date as of
which such number of outstanding shares of Common Stock was
reported.  By written notice to the Company and the Collateral Agent,
the Buyers may from time to time increase or decrease the Maximum Percentage to
any other percentage not in excess of 9.99% specified in such notice; provided
that any such increase will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company and the Collateral
Agent.  The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 14 to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended beneficial ownership limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation.

       

      
        
           

        

        
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      SECTION
15.        Miscellaneous.

       

      (a)           No
amendment of any provision of this Agreement shall be effective unless it is in
writing and signed by the Pledgor and the Collateral Agent, and no waiver of any
provision of this Agreement, and no consent to any departure by the Pledgor
therefrom, shall be effective unless it is in writing and signed by the
Collateral Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.

       

      (b)           No
failure on the part of the Collateral Agent to exercise, and no delay in
exercising, any right hereunder or under the Put Agreement shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right.  The rights and remedies of the Collateral Agent provided
herein and in the Put Agreement are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law.  The rights of
the Collateral Agent under the Put Agreement against any party thereto are not
conditional or contingent on any attempt by the Collateral Agent to exercise any
of its rights under the Put Agreement against such party or against any other
Person.

       

      (c)           Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction.

       

      (d)           This
Agreement shall create a continuing security interest in and Lien on the Pledged
Collateral and shall (i) remain in full force and effect until the termination
of this Agreement in accordance with the terms hereof and (ii) be binding
on the Pledgor and his heirs and assigns and shall inure, together with all
rights and remedies of the Collateral Agent, to the benefit of the Collateral
Agent and its successors, transferees and assigns.  Without limiting
the generality of clause (ii) of the immediately preceding sentence, the
Collateral Agent may assign or otherwise transfer its rights and obligations
under this Agreement and the Put Agreement to any other Person pursuant to the
terms of the Securities Purchase Agreement, and such other Person shall
thereupon become vested with all of the benefits in respect thereof granted to
the Collateral Agent herein or otherwise.  Upon any such assignment or
transfer, all references in this Agreement to the Collateral Agent shall mean
the assignee of the Collateral Agent.  None of the rights or
obligations of the Pledgor hereunder may be assigned or otherwise transferred
without the prior written consent of the Collateral Agent, and any such
assignment or transfer without such consent shall be null and void.

       

      
        
           

        

        
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      (e)           Notwithstanding
anything to the contrary in this Agreement, (i) this Agreement (along with all
powers of attorney granted hereunder) and the security interests and Lien
created hereby shall terminate and all rights to the Pledged Collateral shall
revert to the Pledgor upon expiration or termination of the Put Agreement, and
(ii) the Collateral Agent will, upon the Pledgor’s request and at the Pledgor’s
expense, (A) return to the Pledgor such of the Pledged Collateral (to the extent
delivered to the Collateral Agent) as shall not have been sold or otherwise
disposed of or applied pursuant to the terms hereof or delivered pursuant to the
Put Agreement, and (B) execute and deliver to the Pledgor, without recourse,
representation or warranty, such documents as the Pledgor shall reasonably
request to evidence such termination.

       

      (f)           The
internal laws, and not the laws of conflicts, of the State of New York shall
govern the enforceability and validity of this Agreement, the construction of
its terms and the interpretation of the rights and duties of the parties, except
as required by mandatory provisions of law and except to the extent that the
validity and perfection or the perfection and the effect of perfection or
non-perfection of the security interest and Lien created hereby, or remedies
hereunder, in respect of any particular Pledged Collateral are governed by the
law of a jurisdiction other than the State of New York.

       

      (g)           Each
party to this Agreement hereby irrevocably and unconditionally submits, for
itself and its property, to the exclusive jurisdiction of the United States
District Court for the Southern District of New York sitting in Manhattan or the
Commercial Division, Civil Branch of the Supreme Court of the State of New York
sitting in New York County in connection with any suit, action or proceeding
directly or indirectly arising out of, under or in connection with this
Agreement or the other Transaction Documents or the transactions contemplated
hereby or thereby.  No party to this Agreement may move to (i)
transfer any such suit, action or proceeding brought in such New York court or
federal court to another jurisdiction, (ii) consolidate any such suit, action or
proceeding brought in such New York court or federal court with a suit, action
or proceeding in another jurisdiction or (iii) dismiss any such suit, action or
proceeding brought in such New York court or federal court for the purpose of
bringing the same in another jurisdiction.  Each party to this
Agreement agrees that a final judgment in any such suit, action or proceeding
shall be conclusive and may be enforced in any other jurisdiction by suit on the
judgment or in any other manner provided by law.  Each party to this
Agreement hereby irrevocably and unconditionally waives, to the fullest extent
it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement, or the other Transaction Documents in any
New York court sitting in New York County or any federal court sitting in the
Southern District of New York.

       

      (h)           The
Pledgor hereby appoints C T 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 affect the right of the
Collateral Agent to serve process in any other manner permitted by law or
commence legal proceedings or otherwise proceed against the Pledgor or any
property of the Pledgor in any other jurisdiction.

       

      
        
           

        

        
          -14-

          
            

          

        

        
           

        

      

       

      (i)           The
Pledgor irrevocably and unconditionally waives any right he may have to claim or
recover in any legal action, suit or proceeding referred to in this Section any
special, exemplary, punitive or consequential damages.

       

      (j)           Notwithstanding
anything to the contrary contained in this Agreement or in the Transaction
Documents (i) except as expressly provided in the Put Agreement and this
Agreement, no recourse may be taken  pursuant to this Agreement or the Put
Agreement or pursuant to any other Transaction Document to the extent arising
from the provisions of this Agreement or the Put Agreement, directly or
indirectly, against Pledgor (solely in its capacity as a holder of Common
Shares) or against any assets of the Pledgor for the payment of principal
of, interest on, or any amount due under, the Notes or for any claim with
respect to the obligations of the Company under or based on any Transaction
Document or any failure by the Company to perform or observe any of the terms
and conditions of the Transaction Documents, and (ii) the recourse of the
Collateral Agent for the Secured Obligations under the Put Agreement and under
this Agreement (including, without limitation, Secured Obligations under Section
5, Taxes, Section 10, Remedies Upon Default and Section 11, Indemnity and
Expenses, of this Agreement), shall be limited solely to the Pledgor’s equity
interests in the Pledged Collateral and any Additional
Collateral. 

       

      (k)           EACH
PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR OTHER TRANSACTION DOCUMENTS.

       

      (l)           The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.  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)           This
Agreement may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and the same
agreement.

       

       [Signature
Page Follows]

       

      
        
           

        

        
          -15-

          
            

          

        

        
           

        

      

      In
Witness Whereof, the Pledgor has executed and delivered this Agreement as
of the date first above written.

      

      
        	 
      	
                By:

              	
                 

              
	 
      	
                Name:

              	
                Jinxiang
      Lu

              

      

      

      ACCEPTED
BY:

       

      HUDSON
BAY FUND LP,

      as
Collateral Agent

      

      
        	
                By:

              	
                 

              	 
      
	 
      	
                Name:  HUDSON
      BAY CAPITAL MANAGEMENT LP / BY: YOAV ROTH

              
	 
      	
                Title:  INVESTMENT
      MANAGER / AUTHORIZED SIGNATORY

              

      

       

      or

       

      
        
          	
                  A-POWER
      ENERGY GENERATION SYSTEMS, LTD.

                
	 
      	 
      	 
      
	
                  By:

                	
                   

                	 
      
	 
      	
                  Name:  Jinxiang
      Lu

                	 
      
	 
      	
                  Title:  Chief
      Executive Officer

                	 
      

        

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      SCHEDULE I TO PLEDGE
AGREEMENT

       

      Pledged
Shares

       

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            	
                                    Pledgor

                                  	 	
                                    Name of Issuer

                                  	 	
                                    Number of Shares

                                  	 	 	
                                    % of Shares

                                  	 	
                                    Class

                                  	 	
                                    Certificate

                                    No.(s)

                                  
	 
      	 	 
      	 	 	 	 	 	 	 
      	 	 
      
	
                                    Jinxiang
      Lu

                                  	 	
                                    A-Power
      Energy Generation Systems, Ltd.

                                  	 	 	4,000,000	 	 	 	11.87	 	
                                    Common
      Stock

                                  	 	
                                    AP
      22

                                  
	 
      	 	 
      	 	 	 	 	 	 	 	 	 
      	 	 
      
	
                                    Jinxiang
      Lu

                                  	 	
                                    A-Power
      Energy Generation Systems, Ltd.

                                  	 	 	1,000,000	 	 	 	2.97	%	
                                    Common
      Stock

                                  	 	
                                    AP
      23

                                  
	 
      	 	 
      	 	 	 	 	 	 	 	 	 
      	 	 
      
	
                                    Jinxiang
      Lu

                                  	 	
                                    A-Power
      Energy Generation Systems, Ltd.

                                  	 	 	1,000,000	 	 	 	2.97	%	
                                    Common
      Stock

                                  	 	
                                    AP
      24

                                  

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ANNEX
I

       

      TO

       

      PLEDGE
AGREEMENT

       

      PLEDGE
AMENDMENT

       

      This
Pledge Amendment, dated ___________, is delivered pursuant to Section 4 of the
Pledge Agreement referred to below.  The undersigned hereby agrees
that this Pledge Amendment may be attached to the Pledge Agreement, dated as of
_______________, made by ___________ in favor of Hudson Bay Fund LP, as
Collateral Agent for the Buyers, (the "Collateral Agent") as it may
heretofore have been or hereafter may be amended or otherwise modified or
supplemented from time to time and that the shares or other equity interests
listed on this Pledge Amendment shall be hereby pledged and assigned to the
Collateral Agent and become part of the Pledged Collateral referred to in such
Pledge Agreement and shall secure all of the obligations referred to in such
Pledge Agreement.

       

      Pledged
Shares

      

      
        
          
            
              
                
                  	
                          Pledgor

                        	 
      	
                          Name of Issuer

                        	 
      	
                          Number of Shares or Other

                          Equity Interests

                        	 
      	
                          Class

                        	 
      	
                          Certificate No(s)

                        
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 

                

              

            

          

        

      

      

      
        
          	 
      	
                  [PLEDGOR]

                
	 
      	 
      
	 
      	
                  By:

                	
                     

                	 
      
	 
      	 
      	
                  [SHAREHOLDER]

                	 
      

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Exhibit
E

       

      PUT
AGREEMENT

       

      PUT
AGREEMENT (the "Agreement"), dated as of June
19, 2009, by and among Jinxiang Lu, a natural person in his personal capacity
and not in his capacity as an officer, director, employee or agent of the
Company or any of its Subsidiaries (the "Shareholder"), _________ (the
"Investor") and A-Power
Energy Generation Systems, Ltd., a company incorporated under the laws of the
British Virgin Islands, with headquarters located at No. 44 Jingxing Road, Tiexi
District, Shenyang, Liaoning Province, China 110021 (the "Company").

       

      WHEREAS:

       

      A.           In
connection with the Securities Purchase Agreement, by and among the Company, the
Investor and the other investors listed on the Schedule of Investors attached
thereto (each, a "Buyer"
and collectively, the "Buyers") of even date herewith
(the "Securities Purchase
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Securities Purchase Agreement, to issue and sell to each Buyer
(i) senior convertible notes (the "Notes") which will be
convertible into the Company's common shares, par value $0.0001 per share (the
"Common Shares") (as
converted, collectively, the "Conversion Shares") and (ii)
warrants (the "Warrants"), which will be
exercisable to purchase Common Shares (as exercised collectively, the "Warrant Shares").

       

      B.           Concurrently
herewith, the Company, the Shareholder and Hudson Bay Fund LP, as collateral
agent for the Buyers (in such capacity, and not in its capacity as a Buyer or a
holder of Notes or Warrants, the "Collateral Agent," which term
includes the successor collateral agent appointed pursuant to Section 4(y) of
the Securities Purchase Agreement) have entered into that certain Pledge
Agreement, pursuant to which the Shareholder has agreed to pledge certain Common
Shares owned by the Shareholder (the "Pledged Shares") to the
Collateral Agent including shares deliverable pursuant to this
Agreement.

       

      C.           As
a condition to the Investor's extending credit to the Company pursuant to the
Note, the Shareholder and the Investor desire, at the option of the Investor,
from time to time, to exchange any Notes of the Investor and/or Warrants of the
Investor, in whole or in part, for the Pledged Shares and/or, under certain
circumstances, the Investor's right to forgo Additional Conversion Obligations
(as defined below) in exchange for Pledged Shares (as exchanged, collectively,
the "Exchange Shares")
in accordance with the terms and conditions set forth herein.

       

      D.           Concurrently
herewith the Buyers (other than the Investor) (the "Other Buyers") are also entering into
agreements identical to this Agreement (the "Other Agreements") with the
Company.

       

      E.           Capitalized
terms not defined herein shall have the meaning as set forth in the Securities
Purchase Agreement.

       

      NOW, THEREFORE, the
Shareholder, the Investor and the Company hereby agree as follows:

      

      
        
          
             

          

          
             

            
              

            

          

          
             

          

        

      

       

      1.           EXCHANGE OF NOTES AND
WARRANTS.  Subject to the terms of this Agreement, each Note
and each Warrant of the Investor shall be exchangeable into Exchange Shares from
time to time, on the terms and conditions set forth in this Agreement and shall
not be limited by any event or circumstance affecting the Company or whether or
not the Company is in compliance with its obligations under the Notes and/or
Warrants, except as expressly set forth herein.

       

      (a)           Exchange
Right.  Subject to the limitations set forth in Section 1(h)
below and in accordance with the applicable provisions of Section 1(b) below,
during the Exchange Period (as defined below), each holder of a Note or Warrant
subject to this Agreement (each, a "Holder") shall be entitled to
(i) exchange any portion of the outstanding and unpaid Conversion Amount (as
defined in the Note) of such Holder's Note into such number of fully paid and
nonassessable Exchange Shares equal to the Note Exchange Amount (as defined
below) (each, a "Note
Exchange"), (ii) exchange any unexercised portion of such Holder's
Warrants into such number of fully paid and nonassessable Exchange Shares equal
to the applicable Warrant Exchange Amount (as defined below) (each, a "Warrant Exchange"), and/or
(iii) forgo such Holder's right to receive Additional Conversion Obligations in
exchange for such number of fully paid and nonassessable Exchange Shares equal
to the Payment Default Exchange Amount (as defined below).  The
Shareholder shall not deliver any fraction of a share of Exchange Shares upon
any exchange.  If the delivery would result in the transfer of a
fraction of a share of Exchange Shares, the Shareholder shall round such
fraction of a share of Exchange Shares up to the nearest whole
share.  The Company shall pay any and all transfer, stamp and similar
taxes (other than income and similar taxes) that are required to be paid with
respect to the transfer and delivery of Exchange Shares upon any exchange
hereunder.  For purposes hereof, "Exchange Period" means the
period beginning on the first day immediately after the six month anniversary of
the Closing Date and ending on the earlier of (I) forty-five (45) days after the
later of (A) the Adjustment Date (as defined in the Note) and (B) the
Shareholder Approval Date and (II) the date when (i) all obligations of the
Company to deliver Conversion Shares (as defined in the Note) pursuant to the
Note have been satisfied and the Note is no longer held by an Unaffiliated
Holder (as defined below), (ii) all obligations of the Shareholder to deliver
Exchange Shares hereunder in connection with any Note Exchange, Warrant Exchange
or Payment Default Exchange have been satisfied, (iii) all payment obligations
of the Company hereunder owed to the Holder have been satisfied and (iv) all
obligations of the Company to deliver Warrant Shares (as defined in the Warrant)
pursuant to the Warrant have been satisfied and the Warrant is no longer
outstanding.

      

      
        
          
             

          

          
            2

            
              

            

          

          
             

          

        

      

      

      (b)           Mechanics of
Exchange.

       

    

    
      
        (i)           Optional Exchange.  To (A)
exchange any Note or Warrant, in whole or in part, into Exchange Shares or (B)
forgo the Holder's right to receive Additional Conversion Obligations in
exchange for Exchange Shares pursuant to a Payment Default Exchange as
contemplated in Section 1(b)(iii) below, on any date (the date of the delivery
of the applicable notice set forth below, each an "Exchange Date"), a Holder shall (A) transmit by
facsimile (or otherwise deliver in accordance with Section 15(f)), for receipt
on or prior to 11:59 p.m., New York Time, on such date, a copy of an executed
notice of exchange in the form attached hereto as Exhibit I (the "Exchange Notice") and a copy of the Written
Direction in the form attached hereto as Schedule I to Exhibit I to the Company, the transfer
agent of the Company (the "Transfer
Agent"), the Shareholder and the Collateral Agent, and (B) if such
Exchange Notice includes a Warrant Exchange, either (x) pay to the Shareholder
an amount equal to the applicable Exercise Price (as defined in the Warrant)
multiplied by the number of Warrant Shares as to which such Warrant is being
exchanged (the "Aggregate Exchange
Price") in cash or by wire transfer of immediately available funds or (y)
notify the Shareholder that such Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(b)(ii) below) and (C) with respect to
an exchange of any Note or Warrant, if required by Section 1(f) below, surrender
the applicable Note and/or Warrant to a common carrier for delivery to the
Shareholder as soon as practicable on or following such date (or an
indemnification undertaking reasonably acceptable to the Company with respect to
the applicable Note and/or Warrant in the case of its loss, theft or
destruction).  On or before the first (1st) Trading Day following the
date of receipt of an Exchange Notice, the Company and the Shareholder shall
transmit by facsimile a confirmation of receipt of such Exchange Notice to such
Holder, the Collateral Agent and the Transfer Agent.  On or before the
second (2nd) Trading Day following the date of receipt of an Exchange Notice
(the "Share Delivery Date"), the
Shareholder shall request the Collateral Agent to release from the Pledged
Collateral (as defined in the Pledge Agreement) and deliver, and the Company
shall facilitate such release and delivery, (x) provided that the Transfer Agent
is participating in the DTC Fast Automated Securities Transfer Program, and such
Exchange Shares do not require the placement of any legends restricting transfer
of such Exchange Shares, upon the request of such Holder, by crediting such
aggregate number of Exchange Shares to which such Holder shall be entitled to
such Holder's or its designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system, or (y) if (I) the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program or (II) such
Exchange Shares require the placement of legends restricting transfer of such
Exchange Shares as required by Section 1(e) below, by transferring and
delivering to the address as specified in the Exchange Notice, of a certificate,
registered in the name of such Holder or its designee, for the aggregate number
of Exchange Shares to which such Holder shall be entitled, which certificate
shall, in the case of clause (II), bear a legend in accordance with Section
1(e).  Upon any such transfer of any Exchange Shares to such Holder,
such Holder shall have good and marketable title to such shares, free and clear
of any liens, encumbrances, restrictions, rights of first refusal or rights of
any other Person (including, without limitation, the pledge of such Exchange
Shares pursuant to the Pledge Agreement which shall be automatically released
solely with respect to such shares upon the consummation of such exchange),
except with respect to any restrictions on transfer pursuant to applicable
securities laws.  If the applicable Note is physically surrendered for
exchange as required by Section 1(f) and the outstanding Principal (as defined
in the Note) of such Note is greater than the Principal portion of the
Conversion Amount being exchanged, then the Company shall as soon as practicable
and in no event later than Share Delivery Date and at its own expense, issue and
deliver to such Holder a new Note (in accordance with Section 18(d) of such
Note) representing the outstanding Principal not exchanged.  If a
Warrant is physically surrendered for exchange as required by Section 1(f) and
the number of Warrant Shares represented by such Warrant is greater than the
number of Warrant Shares being acquired upon such exchange, then the Company
shall as soon as practicable and in no event later than the Share Delivery Date
and at its own expense, issue a new Warrant (in accordance with Section 8(d) of
such Warrant) representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exchange under such Warrant, less the
number of Exchange Shares with respect to which such Warrant is
exchanged.  The Company, the Shareholder and the Transfer Agent shall
treat for all purposes the Person or Persons entitled to receive the Exchange
Shares as the transferee or transferees of such Exchange Shares on the Exchange
Date.

      
        
          
             

          

          
            3

            
              

            

          

          
             

          

        

      

       

      (ii)           Cashless Exchange of a
Warrant.  After the six month
anniversary of the date of this Agreement, if a Registration Statement (as
defined in the Registration Rights Agreement) covering the delivery to the
Holder pursuant to such Registration Statement of the Warrant Shares that are
subject to an applicable Exchange Notice is not available for such registered
delivery by Mr. Lu (the "Unavailable Warrant Shares")
(other than as a result of the occurrence of an Allowable Grace Period (as
defined in the Registration Rights Agreement) that occurs prior to the four year
anniversary of the date hereof), each Holder, in its sole discretion, during the
Exchange Period, may exercise the Warrant in whole or in part and, in lieu of
making the cash payment otherwise contemplated to be made to Mr. Lu upon such
exercise in payment of the Aggregate Exchange Price, elect instead to receive
upon such exercise the "Net Number" of Common Shares determined according to the
following formula (a "Cashless
Exercise"):

       

      Net Number = (A x B) - (A x
C)

       

      B

       

      For purposes of the foregoing
formula:

       

      
        	
                 
      A=  

              	
                the
      total number of shares with respect to which the Warrant is then being
      exercised.

              

      

       

      
        	
                 
      B=  

              	
                the
      Weighted Average Price of the Common Shares (as reported by Bloomberg) for
      the five (5) consecutive Trading Days ending on the date immediately
      preceding the date of the Exchange
Notice.

              

      

       

      
        	
                 
      C= 

              	
                the
      Exercise Price then in effect for the applicable Warrant Shares at the
      time of such exercise.

              

      

       

      (iii)           Additional Conversion
Obligations Payable in a Note Exchange.

       

      (A)           In
addition to the foregoing, in connection with any Note Exchange, on the
applicable Share Delivery Date, to the extent the Company has not satisfied such
obligation pursuant to the Note, the Company shall pay to the exchanging Holder
in cash the Additional Conversion Obligations. For purposes of this Agreement
(i) "Additional Conversion
Obligations" means the sum of (I) the Exchange Make-Whole Amount (as
defined below) and (II) any accrued and unpaid Interest (as defined in the Note)
on the Conversion Amount of the Holder's Note subject to such Note Exchange and
Late Charges (as defined in the Note), if any on such Conversion Amount and
Interest, and (ii)  "Exchange Make-Whole Amount"
means the amount of any Interest that, but for such Holder's Note Exchange,
would have accrued with respect to the Conversion Amount of the Holder's Note
subject to such Note Exchange at the Interest Rate (as defined in the Note)
(assuming the Interest Adjustment Rate (as defined in the Note) then in effect
as of the applicable Exchange Date is the Interest Adjustment Rate through the
Maturity Date) for the period from the applicable Exchange Date through the
Maturity Date, discounted to present value, using the published yield on two
year notes of the U.S. federal government on the Exchange Date.

      

      
        
          
             

          

          
            4

            
              

            

          

          
             

          

        

      

       

      (B) Notwithstanding the foregoing, if
the Company shall fail to pay to such Holder any Additional Conversion
Obligations when due in connection with a Note Exchange (a "Payment Default"), the Holder
shall be entitled to forgo the Holder's right to receive Additional Conversion
Obligations from the Company in exchange for such number of fully paid and
nonassessable Exchange Shares at the Payment Default Exchange Rate (a "Payment Default
Exchange").  The Exchange Shares delivered by Mr. Lu in
satisfaction of the Company's obligation to pay Additional Conversion
Obligations shall be referred to as "Lu Additional Conversion
Shares". To exercise such right, the Holder shall deliver the notices and
follow the procedures set forth in Section 1(b)(i) above.

       

      (c)           Note Exchange Rate; Warrant
Exchange Amount; Payment Default Exchange Rate.

       

      (i)           The
number of Exchange Shares to be delivered pursuant to a Note Exchange shall be
determined by dividing (x) the applicable Conversion Amount subject to the Note
Exchange by (y) the Conversion Price (as defined in the Note) (the "Note Exchange
Amount").

       

      (ii)           The
number of Exchange Shares to be delivered pursuant to a Warrant Exchange shall
equal the number of Warrant Shares issuable upon exercise of the Warrant being
transferred (as adjusted to the extent such Holder elects to effect a cashless
exchange) (the "Warrant
Exchange Amount").

       

      (iii)           The
number of Exchange Shares to be delivered pursuant to a Payment Default Exchange
shall be determined by dividing (x) the amount of the Additional Conversion
Obligations subject to the Payment Default that a Holder has agreed to forgo by
(y) the Payment Default Conversion Price (the "Payment Default Exchange
Amount").  As used herein, "Payment Default Conversion
Price" means the lowest of (i) the then applicable Conversion Price (as
defined in the Note), (ii) that price which shall be computed as 80% of the
Market Price (as defined in the Note) as of the date of delivery of the
applicable Exchange Notice requiring the payment of the Additional Conversion
Obligations that resulted in such Payment Default and (iii) that price which
shall be computed as 80% of the Market Price as of the date of delivery of the
Exchange Notice with respect to the applicable Payment Default
Exchange.  All such prices shall be appropriately adjusted for any
share split, share dividend, share combination or other similar transaction that
proportionately decreases or increases the market price of the Common Shares
either during any period in which a Market Price is determined or prior to the
applicable Exchange Date.

      

      
        
          
             

          

          
            5

            
              

            

          

          
             

          

        

      

      

      (d)           Company's Failure to Timely
Exchange.  If the Shareholder shall fail to deliver a
certificate to the Holder or credit the Holder's balance account with DTC, as
applicable, for such number of Common Shares to which the Holder is entitled
upon a Note Exchange, Warrant Exchange and/or Payment Default Exchange on or
prior to the date which is three (3) Trading Days after the Exchange Date (an
"Exchange Failure"), and
if on or after such Exchange Failure the Holder purchases (in an open market
transaction or otherwise) Common Shares to deliver in satisfaction of a sale by
the Holder of Exchange Shares issuable upon such exchange that the Holder
anticipated receiving from the Shareholder (an "Exchange Shares Buy-In"), then
within three (3) Trading Days after the Holder's request and in the Holder's
discretion, either (x) the Company shall pay cash to the Holder in an amount
equal to the Holder's total purchase price (including brokerage commissions and
other reasonable out-of-pocket brokerage expenses, if any) for the Common Shares
so purchased (the "Exchange
Shares Buy-In Price"), at which point the Shareholder's obligation to
deliver a certificate to the Holder (and to deliver such Exchange Shares) or
credit the Holder's balance account with DTC for such Exchange Shares shall
terminate, or (y) the Shareholder shall promptly honor its obligation to deliver
to the Holder a certificate or certificates representing such Exchange Shares or
credit such Holder's balance account with DTC and the Company shall pay cash to
the Holder in an amount equal to the excess (if any) of the Exchange Shares
Buy-In Price over the product of (I) such number of Exchange Shares, times (II)
the Closing Bid Price (as defined in the Note) on the Exchange
Date.

       

      (e)           Legends.  The
Investor understands that, unless the Exchange Shares are transferred to the
Investor by Mr. Lu pursuant to an effective registration statement, until such
time as the delivery of the Exchange Shares has been registered under the
1933 Act as contemplated by the Registration Rights Agreement, the certificates
representing the Exchange Shares, except as set forth below, 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):

       

      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 IN A FORM REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A, IF APPLICABLE, 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.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      The
legend set forth above shall be removed and the Shareholder shall deliver, or
the Company shall re-issue, as applicable, a certificate without such legend to
the holder of the Exchange Shares upon which it is stamped or issue to such
holder by electronic delivery at the applicable balance account at DTC if,
unless otherwise required by state securities laws, (i) such Exchange
Shares are registered for resale under the 1933 Act, (ii) in connection
with a sale, assignment or other transfer, such holder provides the Company with
an opinion of counsel to the holder, in a form reasonably satisfactory to the
Company, to the effect that such sale, assignment or transfer of
the Exchange Shares may be made without registration under the
applicable requirements of the 1933 Act, (iii) the Exchange Shares can
be sold, assigned or transferred pursuant to Rule 144 or Rule 144A, if
applicable; provided, that such holder provides the Company with reasonable
assurance that such Exchange Shares can be sold, assigned or
transferred pursuant to Rule 144 or Rule 144A, if applicable, or (iv) the
Exchange Shares are transferred to the Investors by Mr. Lu pursuant to an
effective resale registration statement.  The Company shall be
responsible for the fees of its transfer agent and all DTC fees associated with
such issuance or delivery.

       

      (f)           Book-Entry.  Notwithstanding
anything to the contrary set forth herein, upon exchange of any portion of a
Note and/or Warrant in accordance with the terms hereof, a Holder shall not be
required to physically surrender such Note or Warrant to the Company or the
Shareholder, as applicable, unless (A) with respect to any Note, the full
Conversion Amount represented by such Note is being exchanged, (B) with respect
to any Warrant, the entire Warrant is being exchanged or (C) such Holder has
provided the Company and the Shareholder with prior written notice (which notice
may be included in an Exchange Notice) requesting reissuance of such Note and/or
Warrant upon physical surrender of such Note and/or Warrant.  Such
Holder, the Shareholder and the Company shall maintain records showing the
Principal and Interest of any Note exchanged, the number of Warrant Shares
issuable upon any Warrant exchanged and the dates of such exchanges or shall use
such other method, reasonably satisfactory to such Holder and the Shareholder,
so as not to require physical surrender of any Note or Warrant upon
exchange.

       

      (g)           Disputes.  In
the event of a dispute as to the number of Exchange Shares transferable to such
Holder in connection with a Note Exchange, a Warrant Exchange and/or a Payment
Default Exchange, the Shareholder and the Company shall cause the transfer and
delivery to such Holder of the number of Exchange Shares not in dispute and
resolve such dispute in accordance with Section 11.

      

      
        
          
             

          

          
            7

            
              

            

          

          
             

          

        

      

      

      (h)           Limitations on
Exchanges.

       

      (i)           Beneficial
Ownership.  The Shareholder shall not effect, and the Company
shall not recognize, facilitate or effect, any exchange of any Note or Warrant,
and a Holder of any Note or Warrant shall not have the right to exchange any
portion of any Note or Warrant, pursuant to this Section 1 or otherwise, to the
extent that after giving effect to such exchange, such Holder (together with
such Holder's affiliates) would beneficially own in excess of 4.99% ("Maximum Percentage") of the
number of Common Shares outstanding immediately after giving effect to such
exchange.  For purposes of the foregoing sentence, the number of
Common Shares beneficially owned by such Holder and its affiliates shall include
the maximum number of Common Shares deliverable upon exchange of the Note and
Warrant of such Holder with respect to which the determination of such sentence
is being made, but shall exclude the number of Common Shares which would be
deliverable upon (A) exchange of the remaining, nonexchanged portion of the Note
and Warrant beneficially owned by such Holder or any of its affiliates and (B)
exercise, conversion or exchange of the unexercised, unconverted or nonexchanged
portion of any other securities of the Company (including, without limitation,
any Notes or Warrants of any other Holder) subject to a limitation on exchange,
conversion or exercise analogous to the limitation contained herein beneficially
owned by such Holder or any of its affiliates.  Except as set forth in
the preceding sentence, for purposes of this Section 1(h)(i), beneficial
ownership shall be calculated in accordance with Section 13(d) of the 1934
Act.  For purposes of this Section 1(h)(i), in determining the number
of outstanding Common Shares, the Company, the Shareholder and such Holder may
rely on the number of outstanding Common Shares as reflected in (x) the most
recent Annual and Transition report of Foreign Private Issuers on Form 20-F or
Report of Foreign Issuer on Form 6-K of the Company or other public filing with
the SEC, as the case may be, (y) a more recent public announcement by the
Company or (z) any other more recent notice by the Company or the Transfer Agent
setting forth the number of Common Shares outstanding.  For any reason
at any time, upon the written or oral request of such Holder, the Company shall
within two (2) Business Days confirm in writing to such Holder the number of
Common Shares then outstanding.  In any case, the number of
outstanding Exchange Shares shall be determined after giving effect to the
conversion, exchange or exercise of securities of the Shareholder, including any
Note or Warrant, by such Holder or its affiliates since the date as of which
such number of outstanding Common Shares was reported.  By written
notice to the Company, the Holder may increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% specified in such
notice; provided that (x) any such increase will not be effective until the
sixty-first (61st) day
after such notice is delivered to the Company and the Shareholder and (y) any
such increase or decrease will apply only to the Holder and not to any other
holder of Notes or Warrants.  The provisions of this paragraph shall
be construed and implemented in a manner other than in strict conformity with
the terms of this Section 1(h)(i) to correct this paragraph (or any portion
hereof) which may be defective or inconsistent with the intended beneficial
ownership limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such limitation.

       

      (ii)           Maximum Shareholder
Shares.  The Shareholder shall not deliver any Exchange Shares
upon exchange of any Note or Warrant, whether pursuant to the applicable Section
1, the Pledge Agreement or otherwise, if the delivery of such Exchange Shares
would require the delivery of more than the sum of (x) 6,000,000 and (y) the
number of Additional Pledged Shares (as defined in the Pledge Agreement) pledged
pursuant to the Pledge Agreement, up to a maximum number of 1,000,000 Additional
Pledged Shares, in the aggregate (in each case, as adjusted for any stock
dividend, stock split, stock combination or other similar transaction affecting
the Exchange Shares after the Issuance Date) (the "Maximum Share
Cap").  No Buyer shall have delivered to it, upon exchange of
Notes or Warrants, a number of Exchange Shares in an amount greater than the
product of the Maximum Share Cap multiplied by a fraction, the numerator of
which is the principal amount of Notes issued to such Buyer pursuant to the
Securities Purchase Agreement on the Closing Date and the denominator of which
is the aggregate 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 "Maximum Share 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 Maximum Share Cap Allocation, and the
restrictions of the prior sentence shall apply to such transferee with respect
to the portion of the Maximum Share Cap Allocation allocated to such
transferee.  In the event that any such holder shall have converted
and exchanged such holder's Notes and Warrants in their entirety (such that such
holder no longer has any Notes or Warrants) and such holder shall have received
a number of Exchange Shares which, in the aggregate, is less than such holder's
Maximum Share Cap Allocation, then the difference between such holder's Maximum
Share Cap Allocation and the number of Exchange Shares actually delivered to
such holder shall be allocated to the respective Maximum Share Cap Allocations
of the remaining holders of Notes on a pro rata basis in proportion to the
aggregate principal amount of the Notes then held by each such
holder.

      

      
        
          
             

          

          
            8

            
              

            

          

          
             

          

        

      

       

      2.      PURCHASE
RIGHTS.  If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase shares, warrants,
securities or other property pro rata to the record holders of any class of
Common Shares  (other than Pill Rights (as defined in the Note)) (the
"Purchase Rights"), then
such Holder will be entitled to receive from the Shareholder, but only to the
extent such Holder has not already received such Purchase Rights from the
Company, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights that the Shareholder is entitled to, which such Holder could
have acquired if such Holder had held the number of Common Shares acquirable
upon complete exchange of the Note of such Holder (without taking into account
any limitations or restrictions on the convertibility or exchange of such Note)
and/or Warrant of such Holder (without taking into account any limitations or
restrictions on the exercisability or exchange of such Warrant) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Shares are to be determined for the grant, issue or
sale of such Purchase Rights.

       

      3.      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 Common Shares are entitled to receive securities or
other assets with respect to or in exchange for Common Shares (a "Corporate Event"), the Company
and the Shareholder shall make appropriate provision to insure that such Holder
will thereafter have the right to receive upon an exchange of any Note or
Warrant, at such Holder's option, (i) in addition to the Common Shares
receivable upon such exchange, such securities or other assets to which such
Holder would have been entitled with respect to such Common Shares had such
Common Shares been held by such Holder upon the consummation of such Corporate
Event (without taking into account any limitations or restrictions on the
convertibility, exercisability or exchange of any Note or Warrant) or (ii) in
lieu of the Common Shares otherwise receivable upon such exchange, such
securities or other assets received by such holders of Common Shares in
connection with the consummation of such Corporate Event in such amounts as such
Holder would have been entitled to receive had this Agreement initially included
exchange rights for the form of such consideration (as opposed to Common Shares)
at a conversion rate for such consideration commensurate with the Note Exchange
Rate, the Warrant Exchange Amount or the Payment Default Amount, as applicable,
but only to the extent such Holder has not already received the securities or
assets contemplated to be received pursuant to such Corporate Event pursuant to
the Notes or Warrants.  Provision made pursuant to the preceding
sentence shall be in a form and substance satisfactory to the holders of a
majority of the Registrable Securities.  The provisions of this
Section shall apply similarly and equally to successive Corporate Events and
shall be applied without regard to any limitations on the conversion, exercise,
exchange or redemption of any Note or Warrant.

      

      
        
          
             

          

          
            9

            
              

            

          

          
             

          

        

      

      

      4.      PARTICIPATION.  Each
Holder, as a Holder of Notes and/or Warrants, shall be entitled to receive upon
a Note Exercise or Warrant Exercise such dividends paid and distributions (other
than Pill Rights) made to the Shareholder in his capacity as a holder of the
Exchange Shares to the same extent as if such Holder had exchanged its Note and
Warrant into Exchange Shares (without regard to any limitations on exchange
herein or elsewhere (other than Section 1(h)(ii) hereof)) and had held such
Exchange Shares on the record date for such dividends and distributions;
provided, that such payments shall be made if and only to the extent such Holder
receives Exchange Shares in a Note Exchange, Warrant Exchange and/or Payment
Default Exchange but only to the extent the Holder does not receive such payment
or distribution from the Company on or prior to the applicable Share Delivery
Date.  Until Exchange Shares are exchanged in a Note Exchange, Warrant
Exchange and/or Payment Default Exchange, any such dividends paid or
distributions made with respect to such Exchange Shares shall be Pledged
Collateral pursuant to, and delivered by the Company to the Collateral Agent to
be held in accordance with the Pledge Agreement.  Each Holder, as a
Holder of Notes and/or Warrants, shall be entitled to receive any Pill Rights
(or, at the option of such Holder, to the extent such Pill Rights become
exercisable or have been exercised into equity interests of the Company or any
other distribution is made of equity interests of the Company to holders of such
Pill Rights, such equity interests of the Company) from the Shareholder, but
only to the extent such Holder has not already received such Pill Rights from
the Company, made to the holders of Common Shares concurrently with any Note
Exchange, Warrant Exchange and/or Payment Default Exchange hereunder to the same
extent as if the Holder had held such Common Shares on the record date for such
dividend or distribution of Pill Rights.

       

      5.      REPRESENTATIONS AND
WARRANTIES.

       

      (a)           The
Shareholder hereby represents and warrants to the Investor as
follows:

       

      (i)           The
Shareholder has the legal capacity and right to execute, deliver, enter into,
consummate and perform this Agreement.

       

      (ii)           The
Shareholder is an "accredited investor" (as that term is defined in Rule 501 of
Regulation D promulgated under the 1933Act) and he is acting for his own account
and will acquire any Notes and Warrants for his own account and not with a view
to, or for sale in connection with, any distribution or resale of the Notes and
Warrants or his or her rights thereunder except pursuant to a registration
statement declared effective under, or an exemption from the registration
requirements of, the 1933 Act.

       

      (iii)           The
Shareholder understands that, except as provided in the Registration Rights
Agreement, the Notes and Warrants have not been and is not being registered
under the 1933 Act or any state securities laws, and may not be offered for
sale, sold, assigned or transferred unless subsequently registered thereunder or
an exemption from such registration is available.

       

      (iv)           The
Shareholder has all requisite power and authority to execute, deliver this
Agreement and to carry out and perform all of its obligations under the terms of
this Agreement.  This Agreement has been duly and validly executed and
delivered by the Shareholder and constitutes the legal, valid and binding
obligation of the Shareholder, enforceable against him in accordance with its
terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and any other laws of general
application affecting enforcement of creditors' rights generally, or (b) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.

      

      
        
          
             

          

          
            10

            
              

            

          

          
             

          

        

      

       

      (v)           The
execution and delivery by the Shareholder of this Agreement does not and the
consummation by the Shareholder of the transactions contemplated hereby will not
(a) 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 Shareholder is a party, or (b)
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 Global Select Market (the "Principal Market") and
applicable laws of the British Virgin Islands and of the People's Republic of
China ("China"))
applicable to the Shareholder, except 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 the Shareholder to
perform its obligations hereunder.

       

      (vi)           No
consent, approval, permit, order, notification or authorization of, or any
exemption from registration, declaration or filing with, any person
(governmental or private) is required in connection with the execution, delivery
and performance by the Shareholder of this Agreement or the consummation by the
Shareholder of the transactions contemplated hereby, except for the filing of
one or more amendments to the Schedule 13D previously filed by the
Shareholder.

       

      (vii)           There
is no action, suit, proceeding, judgment, claim or investigation pending, or to
the knowledge of the Shareholder, threatened against the Shareholder, which
could reasonably be expected in any manner to challenge or seek to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this
Agreement.

       

      (viii)           The
Shareholder has good and valid title to the Exchange Shares free and clear of
lien, mortgage, security interest, pledge, charge or encumbrance of any kind
("Liens"), other than
restrictions on transfer arising under the 1933 Act.  Delivery of the
Exchange Shares to the Investor will pass to the Investor good and valid title
to the Exchange Shares, free and clear of Liens other than those of the Investor
or under securities laws.

      

      
        
          
             

          

          
            11

            
              

            

          

          
             

          

        

      

      

      (ix)           The
Shareholder (i) is a sophisticated person with respect to the Note Exchanges,
the Warrant Exchanges and the Payment Default Exchanges, (ii) has adequate
information concerning the business and financial condition of the Company to
make an informed decision regarding the Note Exchanges, the Warrant Exchanges
and the Payment Default Exchanges; and (iii) has independently and without
reliance upon the Investors or the Buyers, and based on such information as the
Shareholder has deemed appropriate, made its own analysis and decision to enter
into this Agreement.  The Shareholder is acting solely for the
Shareholder's own account, and has made the Shareholder's own independent
decision to enter into this Agreement and as to whether this Agreement is
appropriate or proper for the Shareholder based upon the Shareholder's own
judgment and upon advice of such advisors as the Shareholder deems
necessary.  The Shareholder acknowledges and agrees that the
Shareholder is not relying, and has not relied, upon any communication (written
or oral) of the Investor or any affiliate, employee or agent of the Investor
with respect to the legal, accounting, tax or other implications of this
Agreement and that the Shareholder has conducted the Shareholder's own analyses
of the legal, accounting, tax and other implications hereof and thereof; it
being understood that information and explanations related to the terms and
conditions of this Agreement shall not be considered investment advice or a
recommendation to enter into this Agreement.  The Shareholder
acknowledges that the Investor has not given Shareholder any investment advice,
credit information or opinion on whether to consummate the Note Exchanges, the
Warrant Exchanges and the Payment Default Exchanges.  The Shareholder
acknowledges that neither the Investor nor any affiliate, employee or agent of
the Investor is acting as a fiduciary for or an advisor to the Shareholder in
respect of this Agreement.

       

      (x)           The
Shareholder understands that the Notes and Warrants are being offered and
exchanged to him or her in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws.

       

      (xi)           The
Shareholder understands that the Notes and the Warrants shall bear the legends
set forth in Section 2(g) of the Securities Purchase Agreement and, except as
consented to by the Company, such legends shall not be removed except in
accordance with Section 2(g) of the Securities Purchase Agreement.

       

      (xii)           The
Shareholder is not acquiring the Notes or Warrants as a result of any
advertisement, article, notice or other communication regarding the Notes or
Warrants published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or any other general
solicitation or general advertisement.

       

      (xiii)          The
Shareholder has not, and to his knowledge no one acting on his or her behalf,
has 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.

       

      (xiv)          The
Shareholder has not taken any action that would give rise to any claim by any
person for brokerage commissions, finder's fees or similar payments relating to
this Agreement or the transactions contemplated hereby.

       

      (xv)           The
Shareholder understands and acknowledges that the Note Exchange Rate, the
Warrant Exchange Amount and the Payment Default Exchange Rate will increase in
certain circumstances.  The Shareholder further acknowledges that its
obligation to exchange the Exchange Shares for the Notes and/or the Warrants in
accordance with this Agreement is absolute and unconditional regardless of the
dilutive effect (subject to the Maximum Share Cap) that such issuance may have
on the ownership interests of the Shareholder or other shareholders of the
Company.

      

      
        
          
             

          

          
            12

            
              

            

          

          
             

          

        

      

      

      (b)           Representations and
Warranties of the Investor.  The Investor hereby represents and
warrants to the Shareholder as follows:

       

      (i)           The
Investor is an entity duly organized and validly existing under the laws of the
jurisdiction of its formation.

       

      (ii)           The
Investor is an "accredited investor" (as that term is defined in Rule 501 of
Regulation D promulgated under the 1933 Act and the Investor will acquire the
Exchange Shares solely for its own account (or in connection with, or pursuant
to, one or more participation agreements by such Buyer with, and for the benefit
of, one or more funds or managed accounts that are "accredited investors" (as
defined in Rule 501(a) of Regulation D) that are managed by the investment
manager of such Buyer)  and not with a view to, or for sale in
connection with, any distribution or resale of the Exchange Shares or its rights
thereunder except pursuant to a registration statement declared effective under,
or an exemption from the registration requirements of, the 1933
Act.

       

      (iii)           The
Investor understands that, except as provided in the Registration Rights
Agreement, the Exchange Shares have not been and is not being registered under
the 1933 Act or any state securities laws, and may not be offered for sale,
sold, assigned or transferred unless subsequently registered thereunder or an
exemption from such registration is available.

       

      (iv)           The
Investor has the requisite power and authority to execute and deliver this
Agreement and to carry out and perform all of its obligations under the terms of
this Agreement.  This Agreement has been duly and validly authorized,
executed and delivered by the Investor and shall constitute the legal, valid and
binding obligation of the Investor enforceable against the Investor in
accordance with its terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and any other
laws of general application affecting enforcement of creditors' rights
generally, or (b) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.

       

      (v)           The
execution, delivery and performance by the Investor of this Agreement and the
consummation by the Investor of the transactions contemplated hereby will not
(a) 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 Investor is a party, or (b)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to the Investor, except
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 the Investor to perform its obligations hereunder.

       

      (vi)           No
consent, approval, permit, order, notification or authorization of, or any
exemption from registration, declaration or filing with, any person
(governmental or private) is required in connection with the execution, delivery
and performance by the Investor of this Agreement or the consummation by the
Investor of the transactions contemplated hereby.

      

      
        
          
             

          

          
            13

            
              

            

          

          
             

          

        

      

      

      (vii)         There
is no action, suit, proceeding, judgment, claim or investigation pending, or to
the knowledge of the Investor, threatened against the Investor, which could
reasonably be expected in any manner to challenge or seek to prevent, enjoin,
alter or materially delay any of the transactions contemplated by this
Agreement.

       

      (viii)        The
Investor has good and valid title to the Notes and the Warrants free and clear
of any Liens, other than restrictions on transfers arising under the 1933
Act.  Delivery of the Notes and the Warrants to the Shareholder will
pass to the Shareholder good and valid title to the Notes and the Warrants, free
and clear of Liens other than those of the Shareholder or under securities
laws.

       

      (ix)           The
Investor (i) is a sophisticated person with respect to the Note Exchanges, the
Warrant Exchanges and the Payment Default Exchanges, (ii) has adequate
information concerning the business and financial condition of the Company to
make an informed decision regarding the Note Exchanges, the Warrant Exchanges
and the Payment Default Exchanges; and (iii) has independently and without
reliance upon the Shareholders, and based on such information as the Investor
has deemed appropriate, made its own analysis and decision to enter into this
Agreement.  The Investor has made the Investor's own independent
decision to enter into this Agreement and as to whether this Agreement is
appropriate or proper for the Investor based upon the Investor's own judgment
and upon advice of such advisors as the Investor deems necessary.  The
Investor acknowledges and agrees that the Investor is not relying, and has not
relied, upon any communication (written or oral) of the Shareholder or any
affiliate, employee or agent of the Shareholder with respect to the legal,
accounting, tax or other implications of this Agreement and that the Investor
has conducted the Investor's own analyses of the legal, accounting, tax and
other implications hereof and thereof; it being understood that information and
explanations related to the terms and conditions of this Agreement shall not be
considered investment advice or a recommendation to enter into this
Agreement.  The Investor acknowledges that the Shareholder has not
given Investor any investment advice, credit information or opinion on whether
to consummate the Note Exchanges, the Warrant Exchanges and the Payment Default
Exchanges.  The Investor acknowledges that neither the Shareholder nor
any affiliate, employee or agent of the Shareholder is acting as a fiduciary for
or an advisor to the Investor in respect of this Agreement.

       

      (x)           The
Investor understands that, unless the Exchange Shares are transferred to the
Investor by Mr. Lu pursuant to an effective registration statement, the Exchange
Shares will be offered and exchanged with the Investor in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws.

       

      (xi)           The
Investor is not acquiring the Exchange Shares as a result of any advertisement,
article, notice or other communication regarding the Exchange Shares published
in any newspaper, magazine or similar media or broadcast over television or
radio or presented at any seminar or, to the Investor's knowledge, any other
general solicitation or general advertisement.

      

      
        
          
             

          

          
            14

            
              

            

          

          
             

          

        

      

      

      6.      COVENANTS OF THE
SHAREHOLDER.

       

      (a)           Additional Share
Powers.

       

      (i)           If
at any time the Collateral Agent holds less than ten (10) share powers for the
Pledged Shares, duly executed and delivered by the Shareholder and including a
Medallion Guarantee, except to the extent the Company's Transfer Agent has
agreed in writing to transfer the Pledged Shares without any such Medallion
Guarantee (each, a "Share
Power"), then no later than three (3) Business Days after the Company's
or the Shareholder's receipt of a written request by the Collateral Agent for
additional Share Powers, the Shareholder shall deliver to the Collateral Agent
such number of Share Powers requested.

       

      (ii)           Upon
any Note Exchange, Warrant Exchange or Payment Default Exchange in which a
Holder receives certificated Exchange Shares, the Shareholder shall, no later
than the Share Delivery Date, cause a replacement Share Power to be delivered to
the Collateral Agent.

       

      (b)           Lock-Up Agreement.
The Shareholder shall not amend or waive any provision of any of the Lock-Up
Agreement between the Shareholder and the Company except to extend the term of
the lock-up period.

       

      (c)           Noncircumvention.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Memorandum and Articles of Association, 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 Agreement, and
will at all times in good faith carry out all of the provisions of this
Agreement and take all action as may be required to protect the rights of the
Investor and the Holders of the Notes and Warrants set forth
herein.  The Shareholder hereby covenants and agrees that he will not
avoid or seek to avoid the observance or performance of any of the terms of this
Agreement, and will at all times in good faith carry out all of the provisions
of this Agreement and take all actions as may be reasonably required to protect
the rights of the Investor as the Holder of the Notes and Warrants set forth
herein. For the avoidance of doubt, solicitation by the Company in accordance
with the requirements of the Notes and the Securities Purchase Agreement of the
consents of the Required Noteholders to any amendment, modification or waiver of
any provision of the Notes shall not be deemed an avoidance of performance of
the terms of this Agreement.

       

      7.           REMEDIES, CHARACTERIZATIONS,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The
remedies provided in this Agreement shall be cumulative and in addition to all
other remedies available under this Agreement 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 a Holder's right to
pursue damages for any failure by the Company or the Shareholder to comply with
the terms of this Agreement.  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 a Holder and shall not, except as
expressly provided herein, be subject to any other obligation of the Company or
the Shareholder(or the performance thereof).  The Company and the
Shareholder each acknowledge that a breach by it of its obligations hereunder
will cause irreparable harm to each Holder and that the remedy at law for any
such breach may be inadequate.  The Company and the Shareholder each
therefore agree that, in the event of any such breach or threatened breach, each
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.

      

      
        
          
             

          

          
            15

            
              

            

          

          
             

          

        

      

       

      8.           PAYMENT OF COLLECTION,
ENFORCEMENT AND OTHER COSTS.  If (a) this Agreement is placed
in the hands of an attorney for collection or enforcement or is collected or
enforced through any legal proceeding or a Holder otherwise takes action to
collect amounts due under this Agreement or to enforce the provisions of this
Agreement or (b) there occurs any bankruptcy, reorganization, receivership of
the Company or the Shareholder or other proceedings affecting Company or the
Shareholder creditors' rights and involving a claim under this Agreement, then
the Company shall pay the costs incurred by such Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to, attorneys' fees
and disbursements.

       

      9.           CONSTRUCTION;
HEADINGS.  This Agreement shall be deemed to be jointly drafted
by the Shareholder, the Investor and the Company and shall not be construed
against any person as the drafter hereof.  The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.

       

      10.           FAILURE OR INDULGENCE NOT
WAIVER.  No failure or delay on the part of a 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.

       

      11.           DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Note Exchange Rate, any Warrant Exchange
Amount or any Payment Default Exchange Rate, the Shareholder shall submit the
disputed determinations or arithmetic calculations via facsimile within one (1)
Business Day of receipt, or deemed receipt, of the Exchange Notice or other
event giving rise to such dispute, as the case may be, to the applicable
Holder.  If such Holder and the Shareholder are unable to agree upon
such determination or calculation within one (1) Business Day of such disputed
determination or arithmetic calculation being submitted to such Holder, then the
Shareholder shall, within one Business Day submit via facsimile (a) the disputed
determination of the Closing Bid Price, the Closing Sale Price or the Weighted
Average Price to an independent, reputable investment bank selected by such
Shareholder and approved by the Holder, such consent not to be unreasonably
withheld, or (b) the disputed arithmetic calculation of the Note Exchange Rate,
Warrant Exchange Amount or Payment Default Exchange Rate to an independent,
outside accountant, selected by such Shareholder and approved by the Holder,
such consent not to be unreasonably withheld.  The Shareholder, at the
Company's expense, shall cause the investment bank or the accountant, as the
case may be, to perform the determinations or calculations and notify the
Shareholder and such Holder of the results no later than five (5) Business Days
from the time it receives the disputed determinations or
calculations.  Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.

      

      
        
          
             

          

          
            16

            
              

            

          

          
             

          

        

      

      

      12.           TERMINATION.  Upon
the expiration of the Exchange Period, this Agreement, other than the provisions
of Sections 14 and 15 hereof (which shall survive) shall automatically terminate
and shall be null and void.

       

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

       

      14.           AGREEMENT TO RESTRICT VOTING
RIGHTS; SUCCESSOR COLLATERAL AGENT.

       

      (a)           Definitions.

       

      (i)           "Bankruptcy Case" means any
proceeding commenced by or against the Company under any provision of the
Bankruptcy Code or under any other federal or state bankruptcy or insolvency
law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extensions generally with its creditors, or proceedings
seeking reorganization, arrangement, or other similar relief, and all converted
or succeeding cases in respect thereof.

       

      (ii)           "Bankruptcy Code" means the
United States Bankruptcy Code (11 U.S.C. § 101, et seq.), as amended,
and any successor statute.

       

      (iii)           "Required Unaffiliated Holders"
means holders of a majority of the principal amount of Notes held by
Unaffiliated Holders.

       

      (iv)           "Shareholder Affiliate" means
any of the Shareholder's family members, affiliates or agents, the Company and
any Subsidiary.

       

      (v)           "Shareholder Obligations" means
any and all indebtedness, claims, debts, liabilities, obligations, fees and
expenses of the Company owing to the Shareholder or any Shareholder Affiliates
pursuant to the Notes held or owned, beneficially or of record, by the
Shareholder and all Shareholder Affiliates.

       

      (vi)           "Unaffiliated Holders" means
the holders of Notes, other than those held or owned, beneficially or of record,
by the Shareholder or any Shareholder Affiliates.

       

      (b)           In
any Bankruptcy Case by or against the Company,

       

      (i)           the
Required Unaffiliated Holders of the Notes may, and are hereby irrevocably
authorized and empowered (in the name of the Unaffiliated Holders or in the name
of the Shareholder, a Shareholder Affiliate or otherwise), but shall have no
obligation, to (x) demand, sue for, collect and receive every payment or
distribution referred to in this Section 14 and give acquittance therefor and
(y) file claims and proofs of claim in respect of any Shareholder
Obligations and take such other action (including, without limitation, voting
such Shareholder Obligations or enforcing any security interest or other lien
securing payment of any Shareholder Obligations) as the Unaffiliated Holders may
reasonably deem necessary or advisable for the exercise or enforcement of any of
the rights or interests of the Unaffiliated Holders hereunder;

      

      
        
          
             

          

          
            17

            
              

            

          

          
             

          

        

      

      (ii)           the
Shareholder and each Shareholder Affiliate (each, solely in his or its capacity
as a holder of Notes) hereby agrees to (i) file all claims and/or proofs of
claim with respect to the Shareholder Obligations as directed by the Required
Unaffiliated Holders, (ii) vote as directed by the Required Unaffiliated Holders
with respect to any plan of reorganization proposed by the Required Unaffiliated
Holders, the Company or any other party and (iii) promptly take such action as
the Required Unaffiliated Holders may reasonably request (x) to collect the
respective Shareholder Obligations for the account of the Unaffiliated Holders
and to file appropriate claims or proofs of claim with respect thereto and (y)
to execute and deliver to the Required Unaffiliated Holders such powers of
attorney, assignments or other instruments as the Required Unaffiliated Holders
may reasonably request in order to enable them to enforce any and all claims
with respect to such Shareholder Obligations; and

       

      (iii)          no
objection will be raised by the Shareholder or any Shareholder Affiliate (each,
solely in his or its capacity as a holder of Notes) to any motion made by the
Required Unaffiliated Holders in a Bankruptcy Case of the Company, including
without limitation, a motion by the Required Unaffiliated Holders (or any agent
thereof, if applicable) for relief from the automatic stay in any proceeding
under the Bankruptcy Code to foreclose on or sell any collateral of the
Company.

       

      (iv)          Notwithstanding
anything to the contrary contained herein, each Note, whether held by the
Shareholder, a Shareholder Affiliate or an Unaffiliated Holder, shall be parri passu in right of
payment with all other Notes.

       

      (c)           Successor Collateral
Agent.  The Shareholder hereby covenants and agrees to take all
actions reasonably requested by the Collateral Agent to secure a successor
Collateral Agent satisfactory to the Buyers in their sole discretion (it being
acknowledged and agreed by the Buyers that The Bank of New York Mellon is a
satisfactory successor collateral agent), as promptly as practicable, including,
without limitation, by executing a collateral agency agreement or similar
agreement and/or amendment to the Pledge Agreement reasonably requested or
required by the successor Collateral Agent. Any fees in connection therewith
shall be paid by the Company.

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

         

      

      15.           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.  Each of the Company and the Shareholder hereby
appoints C T 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, 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;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if the
signature were an original, not a facsimile signature.

       

      (c)        Headings.  The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.

       

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

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

         

      

      (e)        Entire Agreement;
Amendments.  This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Investor, the
Shareholder, the Company, their affiliates and Persons acting on their behalf
with respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Shareholder, the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters.  No
provision of this Agreement may be amended other than by an instrument in
writing signed by the Shareholder, the Company and such Holders of at least a
majority of the aggregate number of Registrable Securities issued and issuable
pursuant to the Securities Purchase Agreement and under the Notes, and any
amendment to this Agreement and the Other Agreements made in conformity with the
provisions of this Section 15(e) shall be binding on the Investor and holders of
Securities, as applicable.  No provision hereof may be waived other
than by an instrument in writing signed by the party against whom enforcement is
sought.  No such amendment shall be effective to the extent that it
applies to less than all of such Holders of the applicable Securities then
outstanding.  No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of this
Agreement or any Other Agreement unless the same consideration also is offered
to all of the parties to this Agreement, any Other Agreement and the Holders of
Notes or Holders of the Warrants, as the case may be.  Neither the
Shareholder nor the Company has, 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.

       

      (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 Business Day after deposit with an overnight courier
service, in each case properly addressed to the party to receive the
same.  The addresses and facsimile numbers for such communications
shall be:

       

      If to the
Company:

       

      A-Power
Energy Generation Systems, Ltd.

      No. 44
Jingxing Road

      Tiexi
District

      Shenyang,
Liaoning Province

      China
110021

      Telephone:      86-24-85617888

      Facsimile:       86-24-85830606

      Attention:      
 John Lin

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

         

      

      With a
copy (for informational purposes only) to:

       

      Baker
& McKenzie LLP

      1114
Avenue of the Americas

      New York,
New York 10036

      Telephone:      (212)
626-4965

      Facsimile:       (212)
310-1802

      Attention:       Omer
Ozden, Esq.

       

      If to the
Shareholder:

       

      c/o
A-Power Energy Generation Systems, Ltd.

      No. 44
Jingxing Road

      Tiexi
District

      Shenyang,
Liaoning Province

      China
110021

      Telephone:      86-24-85617888

      Facsimile:       86-24-85830606

       

      With a
copy (for informational purposes only) to:

       

      Baker
& McKenzie LLP

      1114
Avenue of the Americas

      New York,
New York 10036

      Telephone:      (212)
626-4965

      Facsimile:       (212)
310-1802

      Attention:       Omer
Ozden, Esq.

       

      If to the
Transfer Agent:

      

      Continental
Stock Transfer & Trust Company

      17
Battery Place

      New York,
New York 10004

      Telephone:    
 (212) 509-4000

      Facsimile:       (212)
616-7615

      Attention:       Account
Administration: A-Power Energy

                             Generation
Systems, Ltd.

       

      If to the
Investor, to its address and facsimile number set forth on the Schedule of
Investors, with copies to the Investor's representatives as set forth on the
Schedule of Investors,

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      with a
copy (for informational purposes only) to:

       

      Schulte
Roth & Zabel LLP

      919 Third
Avenue

      New York,
New York  10022

      Telephone:     
(212) 756-2000

      Facsimile:       (212)
593-5955

      Attention:       Eleazer
N. Klein, Esq.

      E-mail:           eleazer.klein@srz.com

       

      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.  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.

       

      Any
document shall be deemed to have been duly served if marked for the attention of
the agent for service of process at its address (as set forth in Section 9(a) of
the Securities Purchase Agreement) or such other address in the United States as
may be notified to the party wishing to serve the document and delivered in
accordance with the notice provisions set forth in this Section
15(f).

      

      If the
Company's or the Shareholder's agent for service of process at any time ceases
for any reason to act as such, the Company or the Shareholder, as applicable,
shall appoint a replacement agent having an address for service in the United
States and shall notify the Investor in writing of the name and address of the
replacement agent.  Failing such appointment and notification, the
Investor shall be entitled by notice to the Company or the Shareholder, as
applicable, to appoint a replacement agent to act on the Company's or the
Shareholder's, as applicable, behalf.  The provisions of this Section
15(f) applying to service on an agent for service of process apply equally to
service on a replacement agent.

      

       (g)        Payments.  Whenever
any payment of cash is to be made by the Company or the Shareholder to any
Person pursuant to this Agreement, such payment shall be made in lawful money of
the United States of America by a check drawn on the account of the Company or
the Shareholder, as applicable, and sent via overnight courier service to such
Person at such address as previously provided to the Company or the Shareholder,
as applicable, in writing (which address, in the case of each of the Purchasers,
shall initially be as set forth on the Schedule of Buyers attached to the
Securities Purchase Agreement); provided that such Holder may elect to receive a
payment of cash via wire transfer of immediately available funds by providing
the Company or the Shareholder, as applicable, with prior written notice setting
out such request and such Holder's wire transfer
instructions.  Whenever any amount expressed to be due by the terms of
this Agreement 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 due by the Company or the Shareholder under this
Agreement 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 fifteen percent (15%) per annum from the date such amount
was due until the same is paid in full ("Late Charge").

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

         

      

      (h)        Successors and
Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including
any purchasers of the Notes and/or the Warrants.  Neither the Company
nor the Shareholder shall assign this Agreement or any rights or obligations
hereunder without the prior written consent of such Holders of at least a
majority of the aggregate number of Registrable Securities issued and issuable
hereunder, including by way of a Fundamental Transaction (as defined in the Note
and the Warrant) (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Notes and the
Warrants).  The Investor may assign some or all of its rights
hereunder without the consent of the Company or the Shareholder, in which event
such assignee shall be deemed to be an Investor hereunder with respect to such
assigned rights.

       

      (i)         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.

       

      (j)         Survival.  The
representations and warranties of the parties hereto, and the agreements and
covenants set forth herein shall survive the Closing.

       

      (k)        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.

       

      (l)         No Strict
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.  The
Investor and each Holder 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 and the
Shareholder recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Investor and the
Holders.  The Company and the Shareholder each therefore agree that
the Investor and the Holders shall be entitled to seek temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages and without posting a bond or other security.

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

         

      

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

       

      (o)        Payment Set
Aside.  To the extent that the Company or the Shareholder makes
a payment or payments to the Investor or the Holders hereunder or pursuant to
any of the other Transaction Documents or the Investor or the Holders 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 the Shareholder, as applicable, 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.

       

      (p)        Independent Nature of
Buyers' Obligations and Rights.  The obligations of the
Investor, each Other Buyer and each Holder under any Transaction Document are
several and not joint with the obligations of the Investor, any Other Buyer or
other Holder, and no Investor, Buyer or Holder shall be responsible in any way
for the performance of the obligations of any Investor, Other Buyer or other
Holder under any Transaction Document.  Nothing contained herein or in
any other Transaction Document, and no action taken by any Investor, Other Buyer
or Holder pursuant hereto or thereto, shall be deemed to constitute the
Investor, the Other Buyers or the Holders as, and the Company and the
Shareholder each acknowledge that the Investor, the Other Buyers and the Holders
do not so constitute, a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Investor, the Other
Buyers and Holders are in any way acting in concert or as a group, and neither
the Company nor the Shareholder shall assert any such claim with respect to such
obligations or the transactions contemplated by the Transaction Documents and
the Company and the Shareholder each acknowledge that the Investor, the Other
Buyers and Holders are not acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction
Documents.  The Company and the Shareholder each acknowledge and the
Investor, each Other Buyer and each Holder confirms that it has independently
participated in the negotiation of the transaction contemplated hereby with the
advice of its own counsel and advisors.  The Investor, each Other
Buyer and each Holder 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
Investor, Other Buyer or other Holder to be joined as an additional party in any
proceeding for such purpose.

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

         

      

      (q)        Currency.  Unless
otherwise indicated, all dollar amounts referred to in this Agreement are in
United States Dollars.  All amounts owing under this Agreement or any
Transaction Document 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 Currency Exchange Rate on the date of
calculation.  "Currency Exchange Rate" means,
in relation to any amount of currency to be converted into US dollars pursuant
to this Agreement, the US dollar Currency Exchange Rate as published in The Wall
Street Journal on the relevant date of calculation.

       

      (r)         Judgment
Currency.

       

       (i)           If
for the purpose of obtaining or enforcing judgment against the Company or the
Shareholder in any court in any jurisdiction it becomes necessary to convert
into any other currency (such other currency being hereinafter in this Section
15(r) referred to as the "Judgment Currency") an amount
due in US Dollars under this Agreement, the conversion shall be made at the
Currency Exchange Rate prevailing on the Business Day immediately
preceding:

       

      (1)      the
date of 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 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 15(r)(i)(2) above, there is a change in the Currency 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 Currency 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
Currency Exchange Rate prevailing on the Judgment Conversion Date.

       

       (iii) 
      Any amount due from the Company or the
Shareholder 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.

       

      (s)        MOST FAVORED
NATION.  The Company and the Shareholder each hereby represent
and warrant as of the date hereof and covenant and agree from and after the date
hereof that none of the terms offered to any of the Buyers (or any successor or
assign thereof) with respect to any amendment, settlement or waiver (each a
"Settlement Document")
relating to the terms, conditions and transactions contemplated hereby or under
any Other Agreement, is or will be more favorable to such Person than those of
the Investor and this Agreement shall be, without any further action by the
Investor or the Company or the Shareholder, deemed amended and modified in an
economically and legally equivalent manner such that the Investor shall receive
the benefit of the more favorable terms contained in such Settlement
Document.  Notwithstanding the foregoing, the Company and the
Shareholder agrees, at the Company's expense, to take such other actions (such
as entering into amendments to the Transaction Documents) as the Investor may
reasonably request to further effectuate the foregoing.

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

         

      

      (t)         DISCLOSURE. Upon
receipt or delivery by the Company or the Shareholder of any notice in
accordance with the terms of this Agreement, unless the Company has in good
faith determined that the matters relating to such notice do not constitute
material, nonpublic information relating to the Company or its Subsidiaries, the
Company shall within one (1) Business Day after any such receipt or delivery
publicly disclose such material, nonpublic information on a Report of Foreign
Issuer on Form 6-K or otherwise.  In the event that the Company or the
Shareholder believes that a notice contains material, nonpublic information
relating to the Company or its Subsidiaries, the Company or the Shareholder, as
applicable, so shall indicate to such Holder contemporaneously with delivery of
such notice, and in the absence of any such indication, such Holder shall be
allowed to presume that all matters relating to such notice do not constitute
material, nonpublic information relating to the Company or its
Subsidiaries.

       

      [Signature
Page Follows]

       

      
        
          
          

        

        
          26

          
            

          

        

        
          
          

        

      

       

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

       

      
        
          
            
              
                
                  
                    
                      	
                              COMPANY:

                            
	 
	
                              A-POWER
      ENERGY GENERATION SYSTEMS,
      LTD.

                            
	 
      	 
      
	
                              By:    

                            	 	 
      
	 
      	
                              Name:

                            
	 
      	
                              Title:

                            

                    

                  

                

              

            

          

        

      

      
         

        [Signature
page to Put Agreement]

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

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

       

      
        
          
            
              
                
                  	 
      	 
	
                          JINXIANG
    LU

                        	 

                

              

            

          

        

      

       

      
        [Signature
page to Put Agreement]

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

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

       

      
        
          
            
              
                
                  
                    
                      	
                              THE
      INVESTOR:

                            
	 
      
	
                              By:   

                            	 	 
      
	 
      	
                              Name:

                            
	 
      	
                              Title:

                            

                    

                  

                

              

            

          

        

      

       

      
        [Signature
page to Put Agreement]

         

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
I

      

      A-POWER
ENERGY GENERATION SYSTEMS, LTD.

      EXCHANGE
NOTICE

       

      Reference
is made to the Senior Convertible Note (the "Note") and Warrant (the "Warrant") issued to the
undersigned by A-Power Energy Generation Systems, Ltd., a Company organized
under the laws of the British Virgin Islands (the "Company").  In
accordance with and pursuant to that certain Put Agreement, dated as of June 19,
2009 (the "Put
Agreement"), by and among, the undersigned, the Company and Jinxiang Lu
(the "Shareholder"), the
undersigned hereby elects to consummate a Note Exchange, a Warrant Exchange
and/or Payment Default Exchange into Exchange Shares as described
below.  Capitalized terms not defined herein shall have the meaning as
set forth in the Put Agreement.

      

      Date of Exchange:                                                                                                                       
         

       

      Please
confirm the following information:

       

      Number of Exchange Shares to be
delivered:                                                                                                               

       

      If Exchange includes a Note
Exchange:

       

      Aggregate
Conversion Amount being exchanged____________________

       

      If Exchange includes a Warrant
Exchange:

       

      1.  Form of Exercise
Price.  The Holder intends that payment of the Aggregate
Exchange Price shall be made as:

       

      ____________                                a
"Cash Exercise" with respect to _________________ Warrant

      Shares;
and/or

       

      ____________                                a
"Cashless Exercise" with respect to _______________ Warrant

      Shares.

       

      2.  Payment of Exercise
Price.  In the event that the Holder has elected a Cash
Exercise with respect to some or all of the Exchange Shares to be exchanged
pursuant hereto, the Holder shall pay the Aggregate Exchange Price in the sum of
$___________________ to the Shareholder in accordance with the terms of the Put
Agreement.

       

      If Exchange includes a Payment Default
Exchange:

       

      Additional
Conversion Obligations being forgone ____________________

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      Notwithstanding

      anything
to the contrary contained herein, this Exchange Notice shall constitute a
representation by the Holder submitting this Exchange Notice that, after giving
effect to the exchange provided for in this Exchange Notice, such Holder
(together with its affiliates) will not have beneficial ownership (together with
the beneficial ownership of such Person's affiliates) of a number of Common
Shares which exceeds the Maximum Percentage (as defined in the Put Agreement) of
the total outstanding Common Shares of the Company as determined pursuant to the
provisions of Section 1(h)(i) of the Put Agreement.

      

      Please
issue the Exchange Shares 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)

                                                              
	 
      	 
      

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              	
                                      [INVESTOR]

                                    
	 
	
                                      By:

                                    	 ________________________________________________________	 
      
	 
	Name:
	Title:

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Schedule
I to Exhibit I

      

      Written
Direction to Collateral Agent and Transfer Agent

       

      This
Written Direction (this "Written Direction"), dated as
of [      __, 200__], refers to (i) that certain
Pledge Agreement, dated ____________ (the "Pledge Agreement"), by and
among A-Power Energy Generation Systems, Ltd., a company incorporated under the
laws of the British Virgin Islands, with headquarters located at No.44 Jingxing
Road, Tiexi District, Shenyang, Liaoning Province, China, 110021 (the "Company"), Jinxiang Lu, a
natural person in his personal capacity and not in his capacity as an officer,
director, employee or agent of the Company or any of its Subsidiaries (the
"Shareholder") and
Hudson Bay Fund LP, as collateral agent (the "Collateral Agent") and (ii)
that certain Put Agreement, dated ____________ (the "Put Agreement"), by and among
the undersigned, the Shareholder and the Company.  Capitalized terms
used but not defined herein shall have the meaning given to them in the Put
Agreement.

      
      

      1.           In
accordance with Section 1 of the Put Agreement, the undersigned hereby directs
the Collateral Agent to deliver a certificate (the "Certificate") representing at
least _______ Common Shares (the "Exchange Notice Share Amount")
and a share power, duly executed by the Shareholder with a medallion guarantee,
each of which is held by the Collateral Agent pursuant to the Pledge Agreement,
to the Transfer Agent at the following address:

      

      Continental
Stock Transfer & Trust Company

      17
Battery Place

      New York,
New York 10004

      Telephone:     (212)
509-4000

      Facsimile:   
   (212) 616-7615

      Attention:      Account
Administration: A-Power Energy Generation Systems, Ltd.

       

      2.           In
accordance with Section 1 of the Put Agreement, the undersigned hereby directs
the Transfer Agent, to (i) issue the Exchange Notice Share Amount of such Common
Shares in accordance with the attached Exchange Notice and (ii) if the number of
Common Shares represented by the Certificate exceeds the Exchange Notice Share
Amount, deliver a certificate with respect to such excess number of shares with
an identical legend to any legend set forth on the Certificate to the Collateral
Agent at the following address:

      

      Hudson
Bay Fund LP

      120
Broadway, 40th Floor

      New York,
New York 10271

      Facsimile:     646-214-7946

      Attention:    
 Yoav Roth

                                               George
Antonopolous

      

      Very truly yours,

       

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      	
                                              [INVESTOR]

                                            
	 	 
	
                                              By:

                                            	_____________________________ 	
                                               

                                            
	Name:
	Title:

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      ACKNOWLEDGMENT

       

      The
Company and the Shareholder hereby acknowledge this Exchange Notice and Written
Direction and hereby directs Continental Stock Transfer & Trust Company to
issue the above indicated number of Common Shares in accordance with the
Transfer Agent Instructions dated ____________ from the Shareholder and the
Company and acknowledged and agreed to by Continental Stock Transfer & Trust
Company.

       

      

      
        
          
            
              
                
                  
                    
                      	
                              A-POWER
      ENERGY GENERATION SYSTEMS,
      LTD.

                            
	 
	
                              By:   

                            	________________________ 
      
	 
      	
                              Name:

                            
	 
      	
                              Title:

                            
	 
      	________________________ 
      
	 
      	
                              JINXIANG
      LU

                            

                    

                  

                

              

            

          

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        Exhibit
F

         

        
          EXECUTION
COPY

          

          VOTING
AGREEMENT

           

          VOTING
AGREEMENT, dated as of ____________ (this "Agreement"), by and among
A-Power Energy Generation Systems, Ltd., a company incorporated under the laws
of the British Virgin Islands (the "Company"), and the
stockholders listed on the signature pages hereto under the heading "Stockholders" (each, a "Stockholder" and collectively,
the "Stockholders").

           

          WHEREAS, the Company and certain
investors (each, an "Investor", and collectively, the "Investors") have entered into a Securities
Purchase Agreement, dated as of June 18, 2009 (the "Securities Purchase
Agreement"), pursuant to
which, among other things, the Company has agreed to issue and sell to the
Investors and the Investors have agreed to purchase, (i) senior convertible
notes (the "Notes") which will, among other things, be
convertible into the Company's common shares, par value $0.0001 per share (the
"Common
Shares") and (ii) warrants
(the "Warrants"), which will be exercisable to
purchase Common Shares;

           

          WHEREAS,
as of the date hereof, the Stockholders own collectively 11,994,666 Common
Shares, which represent in the aggregate approximately 35.58%of the total issued
and outstanding capital stock of the Company; and

           

          WHEREAS,
as a condition to the willingness of the Investors to enter into the Securities
Purchase Agreement and to consummate the transactions contemplated thereby
(collectively, the "Transaction"), the Investors
have required that each Stockholder agrees, and in order to induce the Investors
to enter into the Securities Purchase Agreement, each Stockholder has agreed, to
enter into this Agreement with respect to all the Common Shares now owned and
which may hereafter be acquired by the Stockholders and any other securities, if
any, which such Stockholder is currently entitled to vote, or after the date
hereof, becomes entitled to vote, at any meeting of stockholders of the Company
(the "Other
Securities").

           

          NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:

           

          ARTICLE
I

           

          VOTING AGREEMENT OF THE
STOCKHOLDER

           

          SECTION
1.01.   Voting
Agreement.  Subject to the last sentence of this
Section 1.01, each Stockholder hereby agrees that at any meeting of the
stockholders of the Company, however called, and in any action by written
consent of the Company's stockholders, each of the Stockholders shall vote the
Common Shares and the Other Securities:  (a) in favor of the
Shareholder Approval (as defined in the Securities Purchase Agreement) as
described in Section 4(r) of the Securities Purchase Agreement; (b) against any
proposal or any other corporate action or agreement that would result in a
breach of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Securities Purchase Agreement or which could
result in any of the conditions to the Company's obligations under the
Securities Purchase Agreement not being fulfilled and (c) in favor of an
increase in the authorized number of Common Shares if at any time the number of
Common Shares authorized and reserved for issuance is not sufficient to meet the
Required Reserved Amount (as defined in the Securities Purchase
Agreement).  Each Stockholder acknowledges receipt and review of a
copy of the Securities Purchase Agreement and the other Transaction Documents
(as defined in the Securities Purchase Agreement).

          
            
               

            

            
               

              
                

              

            

            
               

            

          

           

          ARTICLE
II

           

          REPRESENTATIONS AND
WARRANTIES OF THE STOCKHOLDER

           

          Each
Stockholder hereby represents and warrants, severally but not jointly, to each
of the Investors as follows:

           

          SECTION
2.01.   Authority Relative to This
Agreement.  Each Stockholder has all necessary legal capacity,
power and authority to execute and deliver this Agreement, to perform his or its
obligations hereunder and to consummate the transactions contemplated
hereby.  This Agreement has been duly executed and delivered by such
Stockholder and constitutes a legal, valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its terms,
except (a) as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
now or hereafter in effect relating to, or affecting generally the enforcement
of creditors' and other obligees' rights, (b) where the remedy of specific
performance or other forms of equitable relief may be subject to certain
equitable defenses and principles and to the discretion of the court before
which the proceeding may be brought, and (c) where rights to indemnity and
contribution thereunder may be limited by applicable law and public
policy.

           

          SECTION
2.02.    No
Conflict.  (a)  The execution and delivery of this
Agreement by such Stockholder does not, and the performance of this Agreement by
such Stockholder shall not, (i) conflict with or violate any federal, state or
local law, statute, ordinance, rule, regulation, order, judgment or decree
applicable to such Stockholder or by which the Common Shares or the Other
Securities owned by such Stockholder are bound or affected or (ii) result in any
breach of or constitute a default (or an event that 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, or result in the
creation of a lien or encumbrance on any of the Common Shares or the Other
Securities owned by such Stockholder pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which such Stockholder is a party or by which such
Stockholder or the Common Shares or Other Securities owned by such Stockholder
are bound.

           

          (b)           The
execution and delivery of this Agreement by such Stockholder does not, and the
performance of this Agreement by such Stockholder shall not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental entity by such Stockholder, other than the filing of an
amendment to the Schedule 13D previously filed by Jinxiang Lu.

          
            
               

            

            
              2

              
                

              

            

            
               

            

          

          

           

          SECTION
2.03.   Title to the
Stock.  As of the date hereof, each Stockholder is the owner of
the number of Common Shares set forth opposite its name on Appendix A attached
hereto, entitled to vote, without restriction, on all matters brought before
holders of capital stock of the Company, which Common Shares represent on the
date hereof the percentage of the outstanding stock and voting power of the
Company set forth on such Appendix.  Such Common Shares are all the
securities of the Company owned, either of record or beneficially, by such
Stockholder.  Such Common Shares are owned free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on such Stockholder's voting rights, charges and other
encumbrances of any nature whatsoever, other than restrictions on transfer
arising under the Securities Act of 1933, as amended.  No Stockholder
has appointed or granted any proxy, which appointment or grant is still
effective, with respect to the Common Shares or Other Securities owned by such
Stockholder.

           

          ARTICLE
III

           

          COVENANTS

           

          SECTION
3.01.   No Disposition or
Encumbrance of Stock.  Each Stockholder hereby covenants and
agrees that, until the Shareholder Approval has been obtained, except as
contemplated by this Agreement, the Lock-Up Agreements, the Put Agreements and the Pledge Agreement (as each
such term is defined in the Securities Purchase Agreement), such
Stockholder shall not offer or agree to sell, transfer, tender, assign,
hypothecate or otherwise dispose of, grant a proxy or power of attorney with
respect to, or create or permit to exist any security interest, lien, claim,
pledge, option, right of first refusal, agreement, limitation on such
Stockholder's voting rights, charge or other encumbrance of any nature
whatsoever ("Encumbrance") with respect to
the Common Shares or Other Securities, directly or indirectly, initiate, solicit
or encourage any person to take actions which could reasonably be expected to
lead to the occurrence of any of the foregoing; provided, however, that any
such Stockholder may assign, sell or transfer any Common Shares or Other
Securities provided that any such recipient of the Common Shares or Other
Securities has delivered to the Company and each Investor a written agreement in
a form reasonably satisfactory to the Investors that the recipient shall be
bound by, and the Common Shares and/or Other Securities so transferred, assigned
or sold shall remain subject to this Agreement; and, provided, further, that
such shareholder may grant a proxy or power of attorney in connection with a
stockholders meeting to vote in accordance with Section 1.01
hereof.

           

          SECTION
3.02.   Company
Cooperation.  The Company hereby covenants and agrees that it
will not, and such Stockholder irrevocably and unconditionally acknowledges and
agrees that the Company will not (and waives any rights against the Company in
relation thereto), recognize any Encumbrance or agreement on any of the Common
Shares or Other Securities subject to this Agreement unless the provisions of
Section 3.01 have been complied with.

           

          ARTICLE
IV

           

          MISCELLANEOUS

           

          SECTION
4.01.   Further
Assurances.  Each Stockholder will execute and deliver such
further documents and instruments and take all further action as may be
reasonably necessary in order to consummate the transactions contemplated
hereby.

          
            
               

            

            
              3

              
                

              

            

            
               

            

          

          

           

          SECTION
4.02.   Specific
Performance.  The parties hereto agree that irreparable damage
would occur in the event any provision of this Agreement was not performed in
accordance with the terms hereof and that any Investor (without being joined by
any other Investor) shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or in equity.  Any
Investor shall be entitled to its reasonable attorneys' fees in any action
brought to enforce this Agreement in which it is the prevailing
party.

           

          SECTION
4.03.   Entire
Agreement.  This Agreement constitutes the entire agreement
among the Company and the Stockholders with respect to the subject matter hereof
and supersedes all prior agreements and understandings, both written and oral,
among the Company and the Stockholders with respect to the subject matter
hereof.

           

          SECTION
4.04.    Amendment.  The
provisions of this Agreement may not be amended or waived, nor may this
Agreement be terminated by the Company other than pursuant to the provisions of
Section 4.07.

           

          SECTION
4.05.   Severability.  If
any term or other provision of this Agreement is invalid, illegal or incapable
of being enforced by any rule of law, or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of this Agreement is not affected in
any manner materially adverse to any party.  Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the terms of this
Agreement remain as originally contemplated to the fullest extent
possible.

           

          SECTION
4.06.   Governing
Law.  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.  The parties hereby
agree that all actions or proceedings arising directly or indirectly from or in
connection with this Agreement shall be litigated only in the Supreme Court of
the State of New York or the United States District Court for the Southern
District of New York located in New York County, New York.  The
parties consent to the jurisdiction and venue of the foregoing courts and
consent that any process or notice of motion or other application to any of said
courts or a judge thereof may be served inside or outside the State of New York
or the Southern District of New York by registered mail, return receipt
requested, directed to the party being served at its address set forth on the
signature pages to this Agreement (and service so made shall be deemed complete
three (3) days after the same has been posted as aforesaid) or by personal
service or in such other manner as may be permissible under the rules of said
courts.  Each of the Company and each Stockholder irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such suit, action, or
proceeding brought in such a court and any claim that suit, action, or
proceeding has been brought in an inconvenient forum.  EACH PARTY HEREBY IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE, 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.

          
            
               

            

            
              4

              
                

              

            

            
               

            

          

           

          SECTION
4.07.    Termination.  This
Agreement shall terminate immediately when the Notes and Warrants cease to be
outstanding.

           

          [Signature
Page Follows]

          
            
               

            

            
              5

              
                

              

            

            
               

            

          

           

          IN
WITNESS WHEREOF, each Stockholder and the Company has duly executed this
Agreement.

           

          
            
              
                	 
      	
                         
      THE COMPANY:

                      
	 
      	 
      
	 
      	
                         
      A-POWER ENERGY GENERATION 

                         
      SYSTEMS, LTD.

                      
	 
      	 
      
	 
      	
                        By:

                      	
                         
      

                      
	 
      	 
      	
                         
      Name:  Jinxiang Lu

                      
	 
      	 
      	
                         
      Title: Chief Executive
Officer

                      

              

            

          

          

          
            
              
                
                  	
                          Dated:
      

                        	 
      
	 
      	
                          Address:

                        	
                          No.
      44 Jingxing Road

                          Tiexi District, Shenyang

                          Liaoning
      Province 110021

                          China

                        

                

              

            

          

           

          
            
               

            

            
               

              
                

              

            

            
               

            

          

          

          
            
              
                	 
      	
                         
      STOCKHOLDERS:

                      
	 
      	 
      
	 
      	
                         

                      
	 
      	
                         
      Jinxiang Lu

                      

              

            

          

          

          
            
              
                
                  
                    	
                            Dated:  

                          	 
      
	 
      	
                            Address:

                          	
                            c/o
      A-Power Energy Generation

                            Systems,
      Ltd.

                          
	 
      	 
      	
                            No.
      44 Jingxing Road

                            Tiexi District, Shenyang

                          
	 
      	 
      	
                            Liaoning
      Province 110021

                            China

                          

                  

                

              

            

          

           

          
            
               

            

            
               

              
                

              

            

            
               

            

          

          

          
            
              
                	 
      	
                         
      STOCKHOLDERS:

                      
	 
      	 
      
	 
      	
                         

                      
	 
      	
                         
      John S. Lin

                      

              

            

          

          

          
            
              
                
                  	
                          Dated:  

                        	 
      
	 
      	
                          Address:

                        	
                          c/o
      A-Power Energy Generation 

                          Systems,
      Ltd.

                        
	 
      	 
      	
                          No.
      44 Jingxing Road

                          Tiexi District, Shenyang

                          Liaoning
      Province 110021

                          China

                        

                

              

            

          

           

          
            
               

            

            
               

              
                

              

            

            
               

            

          

          

          APPENDIX
A

           

          
            
              
                
                  
                    
                      
                        
                          	
                                  Stockholder

                                	 	
                                  Common Stock 

                                  Owned

                                	 	 	
                                  Percentage of Stock

                                  Outstanding

                                	 	 	
                                  Voting Percentage 

                                  of Stock

                                  Outstanding

                                	 
	 	 	 	 	 	 	 	 	 	 
	
                                  Jinxiang Lu

                                	 	 	10,386,333	 	 	 	30.81	%	 	 	30.81	%
	
                                  John S. Lin

                                	 	 	1,608,333	 	 	 	4.77	%	 	 	4.77	%

                        

                      

                    

                  

                

              

            

          

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

           

          Exhibit K

          
            A-POWER
ENERGY GENERATION SYSTEMS, LTD.

             

            ____________

             

            A-Power
Energy Generation Systems, Ltd.

            No. 44
Jingxing Road

            Tiexi
District

            Shenyang,
Liaoning Province, China, 110021

             

            
              	
                    	
                      Re: 

                    	
                      A-Power Energy
      Generation Systems, Ltd.– Lock-Up
      Agreement

                    

            

             

            Dear
Sirs:

             

            This Lock-Up Agreement is being
delivered to you in connection with the Securities Purchase Agreement (the
"Purchase Agreement"),
dated as of June 18, 2009 by and among A-Power Energy Generation Systems, Ltd.
(the "Company") and the
investors party thereto (the "Buyers"), with respect to the
issuance of (i) senior convertible
notes of the Company (the "Notes"), which will, among other things, be
convertible into shares of the Company's common shares, $0.0001 par value per
share (the "Common
Shares", as converted, the
"Conversion
Shares") in accordance with
the terms of the Notes and (ii) warrants which will be exercisable to
purchase Common Shares.  Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings set forth in the
Purchase Agreement.

             

            In order to induce the Buyers to enter
into the Purchase Agreement, the undersigned agrees that, commencing on the date hereof and ending
on the earlier to occur of (A) the date upon which all of the Notes are no
longer outstanding and (B) the later to occur of (x) sixty (60 ) days after the
Initial Effective Date (as defined in the Registration Rights Agreement) and (y)
two hundred and seventy (270) days after the date hereof (the "Lock-Up Period"), the
undersigned will not, except as contemplated by the Transaction Documents (i)
sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any
option to purchase, make any short sale or otherwise dispose of or agree to
dispose of, directly or indirectly, any Common Shares, or establish or increase
a put equivalent position or liquidate or decrease a call equivalent position
within the meaning of Section 16 of the Securities and Exchange Act of 1934, as
amended and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder with respect to any Common Shares owned directly by the
undersigned (including holding as a custodian) or with respect to which the
undersigned has beneficial ownership within the rules and regulations of the
Securities and Exchange Commission, or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of any Common Shares, owned directly by the
undersigned (including holding as a custodian) or with respect to which the
undersigned has beneficial ownership within the rules and regulations of the
Securities and Exchange Commission, whether any such transaction is to be
settled by delivery of such securities, in cash or otherwise, (collectively, the
"Undersigned’s
Shares").

             

            The foregoing restriction is expressly
agreed to preclude the undersigned or any affiliate of the undersigned from
engaging in any hedging or other transaction which is designed to or which
reasonably could be expected to lead to or result in a sale or disposition of
the Undersigned’s Shares even if the Undersigned’s Shares would be disposed of
by someone other than the undersigned.  Such prohibited hedging or
other transactions would include, without limitation, any short sale or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any of the Undersigned’s Shares or with respect to
any security that includes, relates to, or derives any significant part of its
value from the Undersigned’s Shares, except as contemplated by the Transaction
Documents.

             

            
              
                
                

              

              
                
                

                
                  

                

              

              
                
                

              

            

             

            Notwithstanding the foregoing and
subject to any limits in any other Transaction Documents, the undersigned may
transfer the Undersigned’s Shares (i) as a bona fide gift or gifts,
provided that the donee or donees thereof agree to be bound in writing by the
restrictions set forth herein or (ii) to any trust for the direct or indirect
benefit of the undersigned or the immediate family of the undersigned, provided
that the trustee of the trust agrees to be bound in writing by the restrictions
set forth herein, and provided further that any such transfer shall not involve
a disposition for value.  For purposes of this Lock-Up Agreement,
“immediate family” shall mean any relationship by blood, marriage or adoption,
not more remote than first cousin.  Notwithstanding anything to the
contrary set forth herein, effective upon thirty (30) days after the Shareholder
Approval Date, this Lock-Up Agreement and the restrictions contained herein
shall not apply to shares acquired by the undersigned subsequent to the date
hereof upon the exercise of options granted pursuant to a Company's Approved
Share Plan (as defined in the Notes); provided, however, that such
number of shares shall not exceed ________. Except as set forth in the
Transaction Documents, the undersigned now has, and, except as contemplated by
clauses (i) and (ii) above, for the duration of this Lock-Up Agreement will
have, good and marketable title to the Undersigned’s Shares, free and clear of
all liens, encumbrances, and claims whatsoever.  The undersigned also
agrees and consents to the entry of stop transfer instructions with the
Company’s transfer agent and registrar against the transfer of the Undersigned’s
Shares except in compliance with the foregoing restrictions.

             

            Except as contemplated by the
Transaction Documents, during the Restricted Period, the undersigned shall not,
and no one acting on his behalf (including, without limitation, any employee,
attorney or agent) shall, directly or indirectly, (i) take any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company, (ii) sell, bid for, purchase, or pay any compensation
for soliciting any sale, bid for or purchase of any security of the Company,
including, without limitation, any Common Share, any of the Securities and any
short sales (as defined in Rule 200 of Regulation SHO under the 1934 Act)
related thereto (other than purchases of Excluded Securities (as defined in the
Notes)), (iii) issue or offer any security of the Company or any of its
subsidiaries to any Person, (iv) pay or agree to pay to any person any
compensation for soliciting another to purchase or sell any securities of the
Company, or (v) enter into any agreement or other writing or make any offer with
respect to the foregoing actions.

             

            The undersigned understands and agrees
that this Lock-Up Agreement is irrevocable and shall be binding upon the
undersigned’s heirs, legal representatives, successors, and
assigns.

             

            This Lock-Up Agreement may be executed
in two counterparts, each of which shall be deemed an original but both of which
shall be considered one and the same instrument.

             

            This Lock-Up Agreement will be governed
by and construed in accordance with the laws of the State of New York, without
giving effect to any choice of law or conflicting provision or rule (whether of
the State of New York, or any other jurisdiction) that would cause the laws of
any jurisdiction other than the State of New York to be applied.  In
furtherance of the foregoing, the internal laws of the State of New York will
control the interpretation and construction of this Lock-Up Agreement, even if
under such jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.

             

            Each of the Company and the undersigned
hereby appoints C T Corporation System, with offices at 111 Eighth Avenue, New
York, NY 10011, as its agent for service of process in New York.

             

            [Remainder
of page intentionally left blank]

             

            
              
                
                

              

              
                2

                
                  

                

              

              
                
                

              

            

             

            
              	 
      	
                      Very
      truly yours,

                    	 
	 	 	 
	 
      	
                             
      

                    	 
	 
      	
                      Exact
      Name of Stockholder

                    	 
	 	 	 
	 
      	
                               
      

                    	 
	 
      	
                      Authorized
      Signature

                    	 
	 	 	 
	 
      	
                                     
      

                    	 
	 
      	
                      Title

                    	 

            

             

            Agreed to
and Acknowledged:

             

            A-POWER
ENERGY GENERATION SYSTEMS LTD.

             

            
              	
                      By:

                    	
                                   
      

                    	 
      
	 
      	
                      Name:

                    	 
      
	 
      	
                      Title:

                    	 
      

            

             

            
              
                
                

              

              
                3[FORM
OF SENIOR 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 IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR 144A, AS
APPLICABLE, 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.

     

    A-Power
Energy Generation Systems, Ltd.

     

    SENIOR
CONVERTIBLE NOTE

     

    
      	
              Issuance
      Date:  June 19, 2009

            	
              Original
      Principal Amount: U.S. $[__________]

            

    

    

    FOR VALUE RECEIVED, A-Power
Energy Generation Systems, Ltd., a Company organized under the laws of the
British Virgin Islands (the "Company"), hereby promises to
pay to ________ or registered assigns (the "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 (as defined below), acceleration, redemption or otherwise
(in each case in accordance with the terms hereof) and to pay interest ("Interest") on any outstanding
Principal at the applicable Interest Rate from the date set out above as the
Issuance Date (the "Issuance Date") until the same becomes
due and payable, whether upon an Interest Date (as defined below), the Maturity
Date, acceleration, conversion, redemption or otherwise (in each case in
accordance with the terms hereof).  This Senior Convertible Note
(including all Senior 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 on
the Closing Date (collectively, the "Notes" and such other Senior
Convertible Notes, the "Other Notes").  Certain
capitalized terms used herein are defined in Section 31.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (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.  The "Maturity Date" shall be June 19, 2014,
as may be extended at the option of the Holder (i) in the event that, and for so
long as, an Event of Default (as defined in Section 4(a)) shall have occurred
and be continuing on the Maturity Date (as may be extended pursuant to this
Section 1) or any event shall have occurred and be continuing on the Maturity
Date (as may be extended pursuant to this Section 1) that with the passage of
time and the failure to cure would result in an Event of Default and (ii) through the
date that is ten (10) Business Days after the consummation of a Change of
Control in the event that a Change of Control is publicly announced or a Change
of Control Notice (as defined in Section 5(b)) is delivered prior to the
Maturity Date.  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 quarterly on each January 1, April 1, July 1 and
October 1 of each year after the Issuance Date (each, an "Interest Date") with the first Interest
Date being July 1, 2009.  Interest shall be payable on each Interest
Date, to the record holder of this Note on the applicable Interest Date, in
Common Shares ("Interest
Shares") so long as there has been no Equity 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
the Holder on or prior to the applicable Interest Notice Due Date (the date such
notice is delivered to the Holder of Notes, 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 Equity Conditions Failure.  If the Equity Conditions
are not satisfied 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 Equity Conditions, the Interest shall
be paid as Cash Interest.  If the Equity Conditions were satisfied as
of the Interest Notice Date but the Equity Conditions are no longer satisfied at
any time prior to the Interest Date, the Company shall provide the Holder a
subsequent notice to that effect indicating that unless the Holder waives the
Equity Conditions, 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 Common Shares (rounded to the nearest whole share in
accordance with Section 3(a)) equal to the quotient of (1) the amount of
Interest payable on such Interest Date less any Cash Interest paid on such
Interest Date and (2) the Interest Conversion Price in effect on the applicable
Interest Date.  Notwithstanding anything herein to the contrary,
contemporaneously with the execution of this Note, the Company has paid or
prepaid $__________ in Interest due hereunder (the "Pre-paid Interest") pursuant
to the Securities Purchase Agreement, which Pre-paid Interest shall be applied
to pay accrued and unpaid Interest due on the Interest Date commencing on July
1, 2009 and each subsequent Interest Date until the Pre-paid Interest has been
applied in full.

     

    
      
         

      

      
        - 2
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    (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 Agent Commission 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. 

     

    (c)           Prior
to the payment of Interest on an Interest Date, Interest on this Note shall
accrue at the Interest Rate and be payable on each Conversion Date in accordance
with Section 3(c)(i).  From and after the occurrence and during the
continuance of an Event of Default, the Interest Rate shall be increased to
fifteen percent (15%).  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
cure of such Event of Default.  The Company shall pay any and all
transfer, stamp and similar taxes (other than income and similar taxes) that are
required to be paid with respect to the issuance and delivery of Interest
Shares.

     

    (3)           CONVERSION OF
NOTES.  This Note shall be convertible into shares of the
Company's Common Shares, par value $0.0001 per share (the "Common Shares"), 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 Shareholder Approval Date (as defined in the Securities
Purchase Agreement), the Holder shall be entitled to convert any portion of the
outstanding and unpaid Conversion Amount (as defined below) into fully paid and
nonassessable Common Shares in accordance with Section 3(c), at the Conversion
Rate (as defined below).  The Company shall not issue any fraction of
a Common Share upon any conversion.  If the issuance would result in
the issuance of a fraction of a Common Share, the Company shall round such
fraction of a Common Share up to the nearest whole share.  The Company
shall pay any and all transfer, stamp and similar taxes (other than income and
similar taxes) that are required to be paid with respect to the issuance and
delivery of Common Shares upon conversion of any Conversion Amount.

     

    (b)           Conversion
Rate.  The number of Common Shares 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").

     

    
      
         

      

      
        - 3
-

        
          

        

      

      
         

      

    

     

    (i)           "Conversion Amount" means the
portion of the Principal to be converted, redeemed or otherwise with respect to
which this determination is being made.

     

    (ii)           "Conversion Price" means, as of
any Conversion Date (as defined below) or other date of determination, $10.637,
subject to adjustment as provided herein.

     

    (c)           Mechanics of
Conversion.

     

    (i)           Optional
Conversion.  To convert any Conversion Amount into Common
Shares on any date (a "Conversion Date"), the Holder
shall (A) transmit by facsimile (or otherwise deliver), 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 the Transfer Agent and (B) if required by Section 3(c)(iii),
surrender this Note to a common carrier for delivery to the Company as soon as
practicable on or following such date (or an indemnification undertaking with
respect to this Note in the case of its loss, theft or
destruction).  On or before the first (1st) Trading Day following the
date of receipt of a Conversion Notice, the Company shall transmit by facsimile
a confirmation of receipt of such Conversion Notice to the Holder and 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 (x)
provided that the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program and such Common Shares do not require the placement
of any legends restricting transfer of such Common Shares, credit such aggregate
number of Common Shares to which the Holder shall be entitled to the Holder's or
its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system or (y) if (I) the Transfer Agent is not participating in the
DTC Fast Automated Securities Transfer Program or (II) such Common Shares
require the placement of legends restricting the transfer of such Common Shares
as required by Section 2(g) of the Securities Purchase Agreement, issue and
deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the aggregate number
of Common Shares to which the Holder shall be entitled, which certificate shall,
in the case of clause (II), bear a legend in accordance with Section 2(g) of the
Securities Purchase Agreement.  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) Business Days after receipt of this Note and at its own expense,
issue and deliver to the holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal not converted.  The Person or
Persons entitled to receive the Common Shares issuable upon a conversion of this
Note shall be treated for all purposes as the record holder or holders of such
Common Shares on the Conversion Date.  In addition to the foregoing,
on such Share Delivery Date, the sum of (I) the Make-Whole Amount and (II) any
accrued and unpaid Interest and Late Charges, if any, (the "Additional Conversion
Obligations") on such Conversion Amount and Interest shall be paid to the
Holder in Common Shares ("Additional Conversion Shares")
so long as there has been no Equity Conditions Failure; provided however, that
the Company may, at its option following notice to the Holder, pay such
Additional Conversion Obligations on any Conversion Date in cash ("Cash Additional Conversion
Payment"), or in a combination of a Cash Additional Conversion Payment
and Additional Conversion Shares.  The Company shall deliver a written
notice (each, an "Additional
Conversion Election Notice") to the Holder on or prior to the applicable
Additional Conversion Notice Due Date (the date such notice is delivered to the
Holder, the "Additional
Conversion Notice Date") which notice (i) either (A) confirms that
Additional Conversion Obligations to be paid on such Conversion Date shall be
paid entirely in Additional Conversion Shares or (B) elects to pay the
Additional Conversion Obligations as a Cash Additional Conversion Payment or a
combination of a Cash Additional Conversion Payment and Additional Conversion
Shares and specifies the amount of the Additional Conversion Obligations, if
any, that shall be paid as a Cash Additional Conversion Payment and the amount
of Additional Conversion Obligations, if any, that shall be paid in Additional
Conversion Shares and (ii) certifies that there has been no Equity Conditions
Failure.  If the Equity Conditions are not satisfied as of the
Additional Conversion Notice Date, then unless the Company has elected to pay
such Additional Conversion Obligations as a Cash Additional Conversion Payment,
the Additional Conversion Notice shall indicate that unless the Holder waives
the Equity Conditions, the Additional Conversion Obligations shall be paid as a
Cash Additional Conversion Payment.  If the Equity Conditions were
satisfied as of the Additional Conversion Notice Date but the Equity Conditions
are no longer satisfied at any time prior to the Share Delivery Date, the
Company shall provide the Holder a subsequent notice to that effect indicating
that unless the Holder waives the Equity Conditions, the Additional Conversion
Obligations shall be paid in cash.  The Additional Conversion
Obligations to be paid on such Share Delivery Date in Additional Conversion
Shares shall be paid in a number of fully paid and nonassessable Common Shares
(rounded to the nearest whole share in accordance with Section 3(a)) equal to
the quotient of (1) the amount of Additional Conversion Obligations payable on
the applicable Conversion Date less any Cash Additional Conversion Payment paid
on the applicable Conversion Date and (2) the Interest Conversion Price in
effect on the applicable Conversion Date.

     

    
      
         

      

      
        - 4
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    (ii)           Company's Failure to Timely
Convert.  If the Company shall fail to issue a certificate to
the Holder or credit the Holder's balance account with DTC, as applicable, for
such number of Common Shares to which the Holder is entitled upon conversion of
any Conversion Amount on or prior to the date which is three (3) Trading Days
after the Conversion Date (a "Conversion Failure"), and if
on or after such Conversion Failure the Holder purchases (in an open market
transaction or otherwise) Common Shares to deliver in satisfaction of a sale by
the Holder of Common Shares issuable upon such conversion that the Holder
anticipated receiving from the Company (a "Buy-In"), then the Company
shall, within three (3) Trading Days after the Holder's request and in the
Holder's discretion, either (x) pay cash to the Holder in an amount equal to the
Holder's total purchase price (including brokerage commissions and other
reasonable out-of-pocket brokerage expenses, if any) for the Common Shares so
purchased (the "Buy-In
Price"), at which point the Company's obligation to issue and deliver a
certificate to the Holder (and to issue such Common Shares) or credit the
Holder's balance account with DTC for such Common Shares shall terminate, or (y)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Common Shares or credit such Holder's balance
account with DTC and pay cash to the Holder in an amount equal to the excess (if
any) of the Buy-In Price over the product of (I) such number of Common Shares,
times (II) the Closing Bid Price on the Conversion Date.

     

    
      
         

      

      
        - 5
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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 Principal 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 the dates of such conversions 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 Common
Shares issuable to the Holder in connection with a conversion of this Note, the
Company shall issue to the Holder the number of Common Shares not in dispute and
resolve such dispute in accordance with Section 23.

     

    
      
         

      

      
        - 6
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    (d)           Limitations on
Conversions.  The Company shall not effect any conversion of
this Note or other issuance of Common Shares hereunder, and the Holder of this
Note shall not have the right to convert any portion of this Note pursuant to
Section 3(a), to the extent that after giving effect to such conversion or
issuance, the Holder (together with the Holder's affiliates) would beneficially
own in excess of 4.99% (the "Maximum Percentage") of the
number of Common Shares outstanding immediately after giving effect to such
conversion.  For purposes of the foregoing sentence, the aggregate
number of Common Shares beneficially owned by the Holder and its affiliates
shall include the number of Common Shares issuable upon conversion of this Note
with respect to which the determination of such sentence is being made, but
shall exclude the number of Common Shares which would be issuable upon (A)
conversion of the remaining, nonconverted portion of this Note beneficially
owned by the Holder or any of its affiliates and (B) exercise or conversion of
the unexercised or nonconverted portion of any other securities of the Company
beneficially owned by the Holder or any of its affiliates (including, without
limitation, any Other Notes or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein.  Except as
set forth in the preceding sentence, for purposes of this Section 3(d),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").  For
purposes of this Section 3(d), in determining the number of outstanding Common
Shares, the Holder may rely on the number of outstanding Common Shares as
reflected in (1) the Company's most recent Form 20-F, Report of Foreign Issuer
on Form 6-K of the Company or other public filing with the SEC, as the case may
be, (2) a more recent public announcement by the Company or (3) any other more
recent notice by the Company or the Transfer Agent setting forth the number of
Common Shares outstanding.  For any reason at any time, upon the
written or oral request of the Holder, the Company shall within two (2) Business
Days confirm in writing to the Holder the number of Common Shares then
outstanding.  In any case, the number of outstanding Common Shares
shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Note, by the Holder or its affiliates
since the date as of which such number of outstanding Common Shares was
reported.  By written notice to the Company, the Holder may from time
to time increase or decrease the Maximum Percentage to any other percentage not
in excess of 9.99% specified in such notice; provided that (x) any such increase
will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company, and (y) any such increase or
decrease will apply only to the Holder and not to any other holder of
Notes.  The provisions of this paragraph shall be construed and
implemented in a manner other than in strict conformity with the terms of this
Section 3(d) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended beneficial ownership limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation.

     

    (4)           RIGHTS UPON EVENT OF
DEFAULT.

     

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

     

    (i)           the
suspension from trading or failure of the Common Shares to be listed on an
Eligible Market for a period of seven (7) consecutive Trading Days or for more
than an aggregate of fifteen (15) Trading Days in any 365-day
period;

     

    (ii)           the
Company's (A) failure to cure a Conversion Failure by delivery of the required
number of Common Shares within ten (10) Business Days after the applicable
Conversion Date or (B) notice, written or oral, to any holder of the Notes,
including by way of public announcement or through any of its agents, at any
time, of its intention not to comply with a request for conversion of any Notes
into Common Shares that is tendered in accordance with the provisions of the
Notes, other than pursuant to Section 3(d);

     

    
      
         

      

      
        - 7
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    (iii)           at
any time following the tenth (10th)
consecutive Business Day that the Holder's Authorized Share Allocation is less
than the number of Common Shares 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);

     

    (iv)           the
Company'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 failure to pay any redemption amounts hereunder) or
any other Transaction Document (as defined in the Securities Purchase Agreement)
to which the Holder is a party, except, in the case of a failure to pay
Interest, Late Charges and/or other amounts (other than Principal) under this
Note when and as due, in which case only if such failure continues for a period
of at least five (5) Business Days;

     

    (v)           any
defaults in the payment when due, after the expiration of any applicable grace
period, of principal of, or interest on, Indebtedness of the Company or any of
its Subsidiaries (as defined in Section 3(a) of the Securities Purchase
Agreement), if such defaults relate to Indebtedness that in the aggregate has a
principal amount then outstanding of $1,000,000 or more, other than with respect
to any Other Notes;

     

    (vi)           the
Company or any of its Subsidiaries, pursuant to or within the meaning of Title
11, U.S. Code, or any similar Federal, foreign or state law for the relief of
debtors (collectively, "Bankruptcy Law"), (A)
commences a voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment of a
receiver, trustee, assignee, liquidator or similar official (a "Custodian"), (D) makes a
general assignment for the benefit of its creditors or (E) admits in writing
that it is generally unable to pay its debts as they become due;

     

    (vii)          a
court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that (A) is for relief against the Company or any of its Subsidiaries in an
involuntary case, (B) appoints a Custodian of the Company or any of its
Subsidiaries or (C) orders the liquidation of the Company or any of its
Subsidiaries;

     

    (viii)         a
final judgment or judgments for the payment of money aggregating in excess of
$1,000,000 are rendered against the Company or any of its Subsidiaries and which
judgments are not, within sixty (60) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within sixty (60)
days after the expiration of such stay; provided, however, that any judgment
which is covered by insurance or an indemnity from a credit worthy party shall
not be included in calculating the $1,000,000 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 will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such judgment;

     

    
      
         

      

      
        - 8
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    (ix)           other
than as specifically set forth in another clause of this Section 4(a), the
Company breaches any representation, warranty, covenant or other term or
condition of any Transaction Document, except, in the case of a breach of a
covenant or other term or condition of any Transaction Document which is
curable, only if such breach continues for a period of at least fifteen (15)
consecutive Business Days;

     

    (x)           the
Company, any of its Subsidiaries or Mr. Lu (as defined in the Securities
Purchase Agreement) shall fail to perform or comply with any covenant or
agreement contained in the Security Documents (as defined in the Securities
Purchase Agreement) or the Put Agreements (as defined in the Securities Purchase
Agreement), in any material respect, including, without limitation, Mr. Lu's
obligation to deliver additional Common Shares to the Collateral Agent (as
defined in the Securities Purchase Agreement) in accordance with the Pledge
Agreement (as defined in the Securities Purchase Agreement) and to exchange any
Note and/or any Warrant into Common Shares pursuant to the terms of the Put
Agreements;

     

    (xi)           any
material provision of any Security Document (as determined by the Collateral
Agent) or any Put 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 Mr. Lu, the Company or any Subsidiary or any governmental authority
having jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof, or Mr. Lu, the Company or any Subsidiary shall deny in
writing that it has any liability or obligation purported to be created under
any Security Document or any Put Agreement;

     

    (xii)           the
Security Documents 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 Collateral Agent for the benefit of the
holders of the Notes on the Common Shares or other assets purported to be
covered thereby;

     

    (xiii)         any
breach or failure in any respect to comply with either of Sections 8 or 14 of
this Note; or

     

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

     

    
      
         

      

      
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    (b)           Redemption
Right.  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 (an "Event of Default Notice") to
the Holder.  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 (an "Event of Default Redemption")
all or any portion of this Note by delivering written notice thereof (the "Event of Default Redemption
Notice" and the date thereof, the "Event of Default Redemption Notice
Date") to the Company, which Event of Default Redemption Notice shall
indicate the Conversion Amount of this Note the Holder is electing to require
the Company 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 together with any accrued and unpaid Interest and Late
Charges, if any, on such Conversion Amount and Interest through the Event of
Default Redemption Date (as defined below) and (B) the Redemption
Premium and (ii) the sum of (x) the product of (A) the Conversion Rate with
respect to such Conversion Amount in effect at such time as the Holder delivers
an Event of Default Redemption Notice and (B) 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 and (y) any Make Whole Amount and accrued and unpaid
Interest on the Conversion Amount and Late Charges, if any, on such Conversion
Amount and Interest through the Event of Default Redemption Date (the "Event of Default Redemption
Price").  Redemptions required by this Section 4(b) shall be
made in accordance with the provisions of Section 12.  To the extent
redemptions required by this Section 4(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of the Note by the Company, such
redemptions shall be deemed to be voluntary prepayments.  The parties
hereto agree that in the event of the Company's redemption of any portion of the
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.

     

    (5)           RIGHTS UPON FUNDAMENTAL
TRANSACTION AND CHANGE OF CONTROL.

     

    (a)           Assumption.  The
Company shall not enter into or be party to a Fundamental Transaction unless
(i)  the Successor Entity (if a Person other than the Company (with the
Company being deemed to automatically so assume)) 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 reasonably satisfactory to the Required Holders
and approved by the Required Holders prior to such Fundamental Transaction
(which approval shall not be unreasonably withheld), including agreements to
deliver to each holder of Notes in exchange for such Notes a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates
of the Notes then outstanding held by such holder, having similar conversion
rights and having similar ranking to the Notes, and satisfactory to the Required
Holders and (ii) the Successor Entity (or its Parent Entity if such assumption
is effected by the Parent Entity) is a publicly traded corporation whose common
stock is quoted or listed on an Eligible Market.  Upon the occurrence
of any Fundamental Transaction, the Successor Entity (if a Person other than the
Company (with the Company being deemed to automatically so assume)) shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Note 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 with the same effect as if such Successor Entity had been named
as the Company herein.  Upon consummation of the Fundamental
Transaction, the Successor Entity (if a Person other than the Company (with the
Company being deemed to automatically so assume)) shall deliver to the Holder
confirmation that there shall be issued upon conversion of this Note at any time
after the consummation of the Fundamental Transaction, in lieu of the Common
Shares of the Company (or other securities, cash, assets or other property)
issuable upon the conversion 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), as adjusted in accordance with
the provisions of this Note.  The provisions of this Section shall
apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion or redemption of
this Note.

     

    
      
         

      

      
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    (b)           Redemption
Right.  No sooner than fifteen (15) days nor later than ten
(10) 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 during the period beginning after the Holder's receipt of a Change of
Control Notice and ending twenty (20) Trading Days after the date of the
consummation of such Change of Control, the Holder may require the Company to
redeem (a "Change of Control
Redemption") all or any portion of this Note by delivering written notice
thereof ("Change of Control
Redemption Notice", and the date thereof, the "Change of Control Redemption Notice
Date") to the Company, which Change of Control Redemption Notice shall
indicate the Conversion Amount the Holder is electing to require the Company to
redeem.  The portion of this Note subject to redemption pursuant to
this Section 5(b) shall be redeemed by the Company in cash at a price equal to
the greater of (i) the sum of (A) 110% of the Conversion Amount being redeemed,
(B) the Make-Whole Amount, and (C) any accrued and unpaid Interest and Late
Charges, if any, on such Conversion Amount and Interest through the Change of
Control Redemption Date (as defined below) and (ii) solely if an Equity
Conditions Failure has occurred at any time during the period commencing with
the Change of Control Redemption Notice Date and ending as of the Change of
Control Redemption Date, the product of (A) the Conversion Amount being redeemed
together with the Make-Whole Amount and any accrued and unpaid Interest and Late
Charges, if any, on such Conversion Amount and Interest through the applicable
Change of Control Redemption Date multiplied by (B) the quotient determined by
dividing (1) the greatest Closing Sale Price of the Common Shares during the
period beginning on the date immediately preceding the earlier to occur of (x)
the consummation of the Change of Control and (y) the public announcement of
such Change of Control and ending on the Change of Control Redemption Notice
Date by (2) the Conversion Price (the "Change of Control Redemption
Price").  Redemptions required by this Section 5 shall be made
in accordance with the provisions of Section 12 and shall have priority to
payments to shareholders in connection with a 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 the 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 is
paid in full, the Conversion Amount submitted for redemption under this Section
5(c) (together with any interest thereon) may be converted, in whole or in part,
by the Holder into Common Shares pursuant to Section 3 (or in the event the
Conversion Date is after the consummation of the Change of Control, such
securities or other assets received by the holders of Common Shares in
connection with the consummation of such Change of Control in such amounts as
the Noteholder would have been entitled to receive had such Note been converted
immediately prior to such Change of Control).  The parties hereto
agree that in the event of the Company's redemption of any portion of the 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 Change of Control
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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    (6)           RIGHTS UPON CERTAIN
ISSUANCES OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

     

    (a)           Purchase
Rights.  If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase shares, warrants,
securities or other property pro rata to the record holders of any class of
Common Shares (other than Pill Rights) (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 Common Shares 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 Shares are to be determined for the grant, issue or sale of such Purchase
Rights.

     

    (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 Common Shares are entitled to receive securities or
other assets with respect to or in exchange for Common Shares (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, at the Holder's option, (i)
in addition to the Common Shares receivable upon such conversion, such
securities or other assets to which the Holder would have been entitled with
respect to such Common Shares had such Common Shares 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 Common Shares otherwise receivable upon such conversion or exchange, such
securities or other assets received by the holders of Common Shares 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 Common
Shares) 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 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 Shares.  If and whenever on or
after the Subscription Date through the second (2nd) year anniversary of the
Issuance Date, the Company issues or sells, or in accordance with this Section
7(a) is deemed to have issued or sold, any Common Shares (including the issuance
or sale of Common Shares owned or held by or for the account of the Company, but
excluding Common Shares issued or sold by the Company or deemed to have been
issued or sold by the Company as, or in connection with, any Excluded Security)
for a consideration per share (the "New Issuance Price") less than
a price (the "Applicable
Price") equal to the Conversion Price in effect immediately prior to such
issue or sale or deemed issuance or sale (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.  If and
whenever after the second (2nd) year anniversary of the Issuance Date, the
Company issues or sells, or in accordance with this Section 7(a) is deemed to
have issued or sold, any Common Shares (including the issuance or sale of Common
Shares owned or held by or for the account of the Company, but excluding Common
Shares issued or sold by the Company or deemed to have been issued or sold by
the Company as, or in connection with, any Excluded Security) in a Dilutive
Issuance, then immediately after such Dilutive Issuance, the Conversion Price
then in effect shall be reduced to an amount equal the product of (A) the
Conversion Price in effect immediately prior to such Dilutive Issuance and
(B) the quotient determined by dividing (1) the sum of (I) the product
derived by multiplying the Conversion Price in effect immediately prior to such
Dilutive Issuance and the number of Common Shares Deemed Outstanding immediately
prior to such Dilutive Issuance plus (II) the consideration, if any,
received (or deemed to be received) by the Company upon such Dilutive Issuance,
by (2) the product derived by multiplying (I) the Conversion Price in
effect immediately prior to such Dilutive Issuance by (II) the number of
Common Shares Deemed Outstanding immediately after such Dilutive
Issuance.  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 Common Share is issuable
upon the exercise of any such Option or upon conversion or exchange or exercise
of any Convertible Securities issuable upon exercise of such Option is less than
the Applicable Price, then such Common Share 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 Common Share is
issuable upon the exercise of any such Option or upon conversion or exchange or
exercise of any Convertible Securities issuable upon exercise of such Option"
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one Common Share upon
granting or sale of the Option, upon exercise of the Option and upon conversion
or exchange or exercise of any Convertible Security issuable upon exercise of
such Option.  No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Share or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of such
Common Shares upon conversion or exchange or exercise of such Convertible
Securities.

     

    
      
         

      

      
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    (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 Common Share
is issuable upon such conversion or exchange or exercise thereof is less than
the Applicable Price, then such Common Share 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
Common Share is issuable upon such conversion or exchange or exercise" shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one Common Share upon the issuance
or sale of the Convertible Security and upon the conversion or exchange or
exercise of such Convertible Security.  No further adjustment of the
Conversion Price shall be made upon the actual issuance of such Common Share
upon conversion or exchange or exercise of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of the Conversion Price had been or are to be
made pursuant to other provisions of this Section 7(a), no further adjustment of
the Conversion Price shall be made by reason of such issue or sale.

     

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

     

    
      
         

      

      
        - 14
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    (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
value determined by use of the Black Scholes Option Pricing Model (the "Option Value") and (y) the
other securities issued or sold in such integrated transaction shall be deemed
to have been issued for the difference of (I) the aggregate consideration
received by the Company, less (II) the Option Value.  If any Common
Shares, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor.  If any Common
Shares, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such securities on the
date of receipt.  If any Common Shares, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Shares, Options or Convertible Securities, as the case may
be.  The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the Required
Holders.  If such parties are unable to reach agreement within ten
(10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair
value of such consideration will be determined within five (5) Business Days
after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Required Holders.  The determination
of such appraiser shall be deemed binding upon all parties absent manifest error
and the fees and expenses of such appraiser shall be borne by the
Company.

     

    (v)           Record
Date.  If the Company takes a record of the holders of Common
Shares for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Shares, Options or in Convertible Securities or
(B) to subscribe for or purchase Common Shares, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the Common Shares 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 Shares.  If the
Company at any time on or after the Subscription Date subdivides (by any share
dividend, share split, recapitalization or otherwise) one or more classes of its
outstanding Common Shares 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 share split or otherwise) one or more classes
of its outstanding Common Shares into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination will be proportionately
increased.

     

    (c)           Other
Events.  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 share appreciation rights,
phantom share rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holder under this Note; provided that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 7.

     

    (d)           De Minimis
Adjustments.  No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.05 in such price; provided, however, that any adjustment which by
reason of this Section 7(d) is not required to be made shall be carried forward
and taken into account in any subsequent adjustments under this Section
7.  All calculations under this Section 7 shall be made by the Company
in good faith and shall be made to the nearest cent or to the nearest one
hundredth of a share, as applicable.  No adjustment need be made for a
change in the par value or no par value of the Company's Common
Shares.

     

    
      
         

      

      
        - 15
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    (e)           Voluntary Adjustment By
Company. The Company may at any time during the term of this Note reduce
the then current Conversion Price to any amount and for any period of time
deemed appropriate by the Board of Directors of the Company.

     

    (f)           Adjustment.  If
the Market Price on the twentieth (20th) Trading Day following the thirtieth
(30th) calendar day after the earlier of (i) the Initial Effective Date (as
defined in the Registration Rights Agreement) and (ii) the date the Common
Shares issuable upon conversion of this Note may initially be sold by the Holder
(assuming the Holder is not an affiliate of the Company) in accordance with Rule
144 of the Securities Act (the "Adjustment Date"), is less
than the Conversion Price then in effect, the Conversion Price hereunder shall
be reset to the greater of (x) the Market Price as of the Adjustment Date and
(y) $4.835 (as adjusted for any share dividend, share split, share combination,
reclassification or similar transaction).  For the avoidance of doubt,
the adjusted Conversion Price, if any, hereunder shall not apply to any
Conversion Amount converted into Common Shares prior to the Adjustment
Date.

     

    (8)           NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Memorandum and Articles of Association 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.  For the avoidance of doubt, solicitation by the Company in
accordance with the requirements of the Notes and the Purchase Agreement of the
consents of the Required Holders to any amendment, modification or waiver of any
provision of the Notes shall not be or be deemed an avoidance of performance of
the terms of this Note.

     

    (9)           RESERVATION OF AUTHORIZED
SHARES.

     

    (a)           Reservation.  The
Company shall initially reserve out of its authorized and unissued Common Shares
a number of Common Shares for each of the Notes equal to 130% of the Conversion
Rate with respect to the 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 Shares,
solely for the purpose of effecting the conversion of the Notes, 130% of the
number of Common Shares 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 Common Shares 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 Common Shares 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
principal amount of the Notes held by each holder of the Notes at the Closing
(as defined in the Securities Purchase Agreement) or increase in the number of
reserved shares, as the case may be (the "Authorized Share
Allocation").  In the event that a holder of Notes 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 Common Shares 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.

     

    
      
         

      

      
        - 16
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    (b)           Insufficient Authorized
Shares.  If at any time while any of the Notes remain
outstanding the Company does not have a sufficient number of authorized and
unreserved Common Shares to satisfy its obligation to reserve for issuance upon
conversion of the Notes at least a number of Common Shares equal to the Required
Reserve Amount (an "Authorized
Share Failure"), then the Company shall as soon as practicable take all
action necessary to increase the Company's authorized Common Shares 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 ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall either (x)
obtain the vote or written consent of its shareholders for the approval of an
increase in the number of authorized Common Shares and provide each shareholder
with an information statement with respect thereto or (y) hold a meeting of its
shareholders for the approval of an increase in the number of authorized Common
Shares.  In connection with any such meeting, the Company shall
provide each shareholder with a proxy statement and shall use its reasonable
best efforts to solicit its shareholders' approval of such increase in
authorized Common Shares and to cause its Board of Directors to recommend to the
shareholders that they approve such proposal.

     

    (10)           OPTIONAL REDEMPTION AT THE
HOLDER'S ELECTION.  If the Shareholder Approval has not
occurred on or prior to the Shareholder Approval Deadline (as defined in the
Securities Purchase Agreement), the Holder shall have the right, in its sole
discretion, at any time thereafter until the later to occur of (i) the two (2)
month anniversary of the Shareholder Approval Deadline and (ii) the Initial
Effective Date of the Initial Registration Statement (as defined in the
Registration Rights Agreement) of the Company covering the resale of all of the
Lu Shares (as defined in the Registration Rights Agreement), to require that the
Company redeem (an "Holder
Optional Redemption") all or any portion of the Conversion Amount of this
Note then outstanding by delivering written notice thereof (an "Holder Optional Redemption
Notice" and the date the Holder delivers such notice, the "Holder Optional Redemption Notice
Date") which notice shall state (i) the portion of this Note that is
being redeemed (the "Holder
Optional Redemption Amount") and (ii) the date on which the Holder
Optional Redemption shall occur which date shall be not less than five (5)
Business Days from the Holder Optional Redemption Notice Date (the "Holder Optional Redemption
Date").  The portion of this Note subject to redemption
pursuant to this Section 10 shall be redeemed by the Company in cash at a price
(the "Holder Optional
Redemption Price") equal to 110% of 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 Holder Optional Redemption
Date.  Holder Optional Redemptions made pursuant to this Section 10
shall be made in accordance with Section 12.

     

    
      
         

      

      
        - 17
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    (11)           OPTIONAL REDEMPTION AT THE
COMPANY'S ELECTION.

     

    (a)           General.  If
at any time after the thirty (30) month anniversary of the Issuance Date (the
"Company Optional Redemption
Eligibility Date"), (i) the Market Price of the Common Shares listed on
the Principal Market exceeds 200% of the Conversion Price then in effect for a
period of twenty (20) consecutive Trading Days commencing after the Company
Optional Redemption Eligibility Date (the "Company Optional Redemption Measuring
Period"), (ii) the average daily dollar trading volume (as reported on
Bloomberg) of the Common Shares on the Principal Market over the twenty (20)
consecutive Trading Day period ending on the Trading Day immediately preceding
the Company Optional Redemption Notice Date exceeds $1 million and (iii) no
Equity Conditions Failure has occurred, 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") as designated in the Company Optional
Redemption Notice (as defined below) on the Company Optional Redemption Date
(each as defined below) (an "Company Optional
Redemption").  The portion of this Note subject to redemption
pursuant to this Section 11(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 the Make-Whole Amount and 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 11 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 up to three (3) Company
Optional Redemption Notices hereunder and each 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 twenty (20) Trading
Days nor more than sixty (60) Trading Days following the Company Optional
Redemption Notice Date, (y) certify that there has been no Equity Conditions
Failure and (z) state the aggregate Conversion Amount of the Notes which the
Company has elected to be subject to Company Optional Redemption from the Holder
and all of the other holders of the Notes pursuant to this Section 11(a) (and
analogous provisions under the Other Notes) on the Company Optional Redemption
Date.  Notwithstanding anything to the contrary in this Section 11, 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 11 shall be made in
accordance with Section 12.

     

    
      
         

      

      
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    (b)           Pro Rata Redemption
Requirement.  If the Company elects to cause a Company Optional
Redemption pursuant to Section 11(a), then it must simultaneously take the same
action in the same proportion with respect to the Other Notes.  If the
Company elects to cause a Company Optional Redemption pursuant to Section 11(a)
(or similar provisions under the Other Notes) with respect to less than all of
the Conversion Amounts of the Notes then outstanding, then the Company shall
require redemption of a Conversion Amount from each of the holders of the Notes
equal to the product of (i) the aggregate Conversion Amount of Notes which the
Company has elected to cause to be redeemed pursuant to Section 11(a),
multiplied by (ii) the fraction, the numerator of which is the sum of the
aggregate Original Principal Amount of the Notes purchased by such holder of
outstanding Notes and the denominator of which is the sum of the aggregate
Original Principal Amount of the Notes purchased by all holders holding
outstanding Notes (such fraction with respect to each holder is referred to as
its "Redemption Allocation
Percentage", and such amount with respect to each holder is referred to
as its "Pro Rata Redemption
Amount"); provided, however that in the event that any holder's Pro Rata
Redemption Amount exceeds the outstanding Principal amount of such holder's
Note, then such excess Pro Rata Redemption Amount shall be allocated amongst the
remaining holders of Notes in accordance with the foregoing
formula.  In the event that the initial holder of any Notes shall sell
or otherwise transfer any of such holder's Notes, the transferee shall be
allocated a pro rata portion of such holder's Redemption Allocation Percentage
and Pro Rata Redemption Amount.

     

    (12)           REDEMPTIONS.

     

    (a)           Mechanics.  The
Company shall deliver the applicable Event of Default Redemption Price to the
Holder within five (5) Business Days after the Company's receipt of the Holder's
Event of Default Redemption Notice (the "Event of Default Redemption
Date").  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 (i) concurrently
with the consummation of such Change of Control if such notice is received prior
to the consummation of such Change of Control and (ii) within five (5) Business
Days after the Company's receipt of such notice otherwise (such date, the "Change of Control Redemption
Date"). The Company shall deliver the applicable Holder Optional
Redemption Price on the applicable Holder Optional Redemption Date. The Company
shall deliver the applicable Company Optional Redemption Price on the applicable
Company Optional 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 representing such Conversion Amount
to be redeemed and (z) the Conversion Price of this Note or such new Notes shall
be adjusted to the lesser of (A) the Conversion Price then in effect and (B) the
Market Price as of the date on which the applicable Redemption Notice is
delivered to the Company.  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.

     

    
      
         

      

      
        - 19
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    (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), Section 5(b), Section 10 or Section 11 (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 Redemption Notice and ending on and including the date which is three
(3) Business Days after the Company's receipt of the Holder's 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 Business Day period.

     

    (13)           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 laws
of the British Virgin Islands, and as expressly provided in this
Note.

     

    (14)           COVENANTS.

     

    (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 Indebtedness.

     

    (b)           Incurrence of
Indebtedness.  So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to, directly
or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness,
other than Permitted Indebtedness.

     

    (c)           Existence of
Liens.  So long as this Note is outstanding, the Company shall
not, and the Company shall not permit any of its Subsidiaries to, 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 not
permit any of its Subsidiaries to, 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 this Note and the Other 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, an event constituting, or that with the passage
of time and without being cured would constitute, an Event of Default has
occurred and is continuing.

     

    
      
         

      

      
        - 20
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    (e)           Restriction on Redemption
and Cash Dividends.  Until all of the Notes have been
converted, redeemed or otherwise satisfied in accordance with their terms, the
Company shall not, directly or indirectly, redeem, repurchase or declare or pay
any cash dividend or distribution on its capital stock without the prior express
written consent of the Required Holders.

     

    (f)           Change in Nature of
Business.  The Company shall not engage, or permit any of its
Subsidiaries to engage, in any material line of business substantially different
from those lines of business conducted by the Company and its Subsidiaries on
the date hereof or any business substantially related or incidental
thereto.  The Company shall not modify its corporate structure or
purpose.

     

    (g)           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, except where the failure to
maintain and preserve such existence, rights and privileges, or to become and
remain in good standing, would not reasonably be expected to have a Material
Adverse Effect.

     

    (h)           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, except (i) sales of
properties which, in the judgment of the Company's board of directors, are no
longer required for the conduct of the Company's business, the proceeds of which
are invested in other property for use in a business permitted by Section 14(f),
or (ii) where the failure to maintain and preserve any such properties or any
such loss or forfeiture would not reasonably be expected to have a Material
Adverse Effect.

     

    (i)           Maintenance of
Insurance.  The Company shall maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) 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.

     

    
      
         

      

      
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    (15)        PARTICIPATION.  The
Holder, as the holder of this Note, shall be entitled to receive such dividends
paid and distributions (other than Pill Rights) made to the holders of Common
Shares to the same extent as if the Holder had converted this Note into Common
Shares (without regard to any limitations on conversion herein or elsewhere) and
had held such Common Shares 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
Shares.  The Holder, as the holder of this Note, shall be entitled to
receive any Pill Rights (or, at the option of the Holder, to the extent such
Pill Rights become exercisable or have been exercised into equity interests of
the Company or any other distribution is made of equity interests of the Company
to holders of such Pill Rights, such equity interests of the Company) made to
the holders of Common Shares concurrently with any issuance of Common Shares
upon conversion of this Note or otherwise as Interest Shares hereunder to the
same extent as if the Holder had converted this Note into such Common Shares
(without regard to any limitations on conversion herein or elsewhere) and had
held such Common Shares on the record date for such dividend or distribution of
Pill Rights.

     

    (16)         VOTE TO ISSUE, OR CHANGE THE
TERMS OF, NOTES.  The affirmative vote at a meeting duly called
for such purpose or the written consent without a meeting of the Required
Holders shall be required for any change or amendment to this Note or the Other
Notes.

     

    (17)         TRANSFER.  This
Note and any Common Shares 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(f) 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 then 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.

     

    (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, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary 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.

     

    
      
         

      

      
        - 22
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    (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 $100,000) 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, if any, 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
damages for any failure by the Company to comply with the terms of this
Note.  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.

     

    (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, but not limited to,
attorneys' fees and disbursements.

     

    (21)         CONSTRUCTION;
HEADINGS.  This Note shall be deemed to be jointly drafted by
the Company and all the Purchasers 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.

     

    
      
         

      

      
        - 23
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    (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.

     

    (23)         DISPUTE
RESOLUTION.  In the case of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the Weighted Average Price
or the arithmetic calculation of the Conversion Rate, the Conversion Price or
any Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within one (1) Business Day of receipt, or
deemed receipt, of the Conversion Notice or Redemption Notice or other event
giving rise to such dispute, as the case may be, to the Holder.  If
the Holder and the Company are unable to agree upon such determination or
calculation within one (1) Business Day of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within one Business Day submit via facsimile (a) the disputed determination of
the Closing Bid Price, the Closing Sale Price or the Weighted Average Price to
an independent, reputable investment bank selected by the Company and approved
by the Holder, such approval not to be unreasonably withheld, or (b) the
disputed arithmetic calculation of the Conversion Rate, Conversion Price or any
Redemption Price to an independent, outside accountant, selected by the Company
and approved by the Holder, such approval not to be unreasonably
withheld.  The Company, at the Company's expense, shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than five (5) Business Days from the time it receives the
disputed determinations or calculations.  Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.

     

    (24)         NOTICES;
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 twenty (20)
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 Shares, (B)
with respect to any pro rata subscription offer to holders of Common Shares 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.

     

    
      
         

      

      
        - 24
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    (b)           Payments.  Whenever
any payment of cash is to be made by the Company to any Person pursuant to this
Note, such payment shall be made in lawful money of the United States of America
by a check drawn on the account of the Company and sent via overnight courier
service to such Person at such address as previously provided to the Company in
writing (which address, in the case of each of the Purchasers, shall initially
be as set forth on the Schedule of Buyers attached to the Securities Purchase
Agreement); provided that the Holder may elect to receive a payment of 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.  Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest Date which is not the date on which this Note is paid in full, the
extension of the due date thereof shall not be taken into account for purposes
of determining the amount of Interest due on such date.  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 fifteen percent
(15%) per annum from the date such amount was due until the same is paid in full
("Late
Charge").

     

    (25)         CANCELLATION.  After
all Principal, accrued Interest 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
waives demand, notice, 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; JURISDICTION; JURY
TRIAL.  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.  The Company hereby appoints C T Corporation System, with
offices at 111 Eighth Avenue, New York, New York 10011, as its agent for service
of process in New York.  The Company 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 it set forth on the signature page hereto and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.  Nothing contained herein
shall be deemed or operate to preclude 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 IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE, 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.

     

    
      
         

      

      
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    (28)         CURRENCY;
TAXES.

     

    (a)           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 in the US dollar equivalent amount in accordance with the Exchange
Rate on the date of calculation.

     

    (b)           Taxes.

     

    (i)           Any
and all payments by the Company hereunder, including any amounts received on a
conversion or redemption of the Note and any amounts on account of interest or
deemed interest, shall be made free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, imposed under any law,
rule, code or regulation of the People's Republic of China, the British Virgin
Islands or any other non-U.S. governmental authority, including, without
limitation, any federal, state, local, provincial or other similar non-U.S.
governmental authority (collectively referred to as "International
Taxes").  If the Company shall be required to deduct any
International Taxes from or in respect of any sum payable hereunder to the
Holder, (i) the sum payable shall be increased by the amount by which the sum
payable would otherwise have to be increased (the "tax make-whole amount") to
ensure that after making all required deductions (including deductions
applicable to the tax make-whole amount) the Holder would receive an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Company shall make such deductions and (iii) the Company shall pay the full
amount withheld or deducted to the applicable governmental authority within the
time required.

     

    (ii)           In
addition, the Company agrees to pay to the relevant governmental authority in
accordance with applicable law any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies that arise from
any payment made hereunder or in connection with the execution, delivery,
registration or performance of, or otherwise with respect to, this Note ("Other Taxes").  The
Company shall deliver to the Holder official receipts, if any, in respect of any
International Taxes and Other Taxes payable hereunder promptly after payment of
such International Taxes, Other Taxes or other evidence of payment reasonably
acceptable to the Holder.

     

    (iii)          The
obligations of the Company under this Section 28(b) shall survive the
termination of this Note and the payment of the Note and all other amounts
payable hereunder.

     

    
      
         

      

      
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    (29)         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 29 referred to
as the "Judgment
Currency") an amount due in US dollars under this Note, the conversion
shall be made at the Exchange Rate prevailing on the business day immediately
preceding:

     

    (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 29(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 29(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.

     

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

     

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

     

    
      
         

      

      
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    (a)           "Additional Conversion Notice Due
Date" means the twenty-fifth (25th) Trading Day prior to the applicable
Conversion Date.

     

    (b)           "Approved Share Plan" means any
employee benefit plan which has been approved by the Board of Directors of the
Company prior or subsequent to the Subscription Date, pursuant to which the
Company's securities may be issued to any employee, officer or director for
services provided to the Company.

     

    (c)           "Bloomberg" means Bloomberg
Financial Markets.

     

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

     

    (e)           "Change of Control" means any
Fundamental Transaction other than (i) 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,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities, or (ii) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.

     

    (f)           "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 pursuant
to Section 23.  All such determinations shall be appropriately
adjusted for any share dividend, share split, share combination,
reclassification or similar transaction during the applicable calculation
period.

     

    
      
         

      

      
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    (g)           "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.

     

    (h)           "Common Shares Deemed
Outstanding" means, at any given time, the number of Common Shares
outstanding at such time, plus the number of Common Shares deemed to be
outstanding pursuant to Sections 7(a)(i) and 7(a)(ii) hereof regardless of
whether the Options or Convertible Securities are actually exercisable at such
time, but excluding any Common Shares owned or held by or for the account of the
Company or issuable upon conversion or exercise, as applicable, of the Notes and
the Warrants or issued as Interest Shares.

     

    (i)           "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.

     

    (j)           
"Convertible Securities"
means any shares or securities (other than Options) directly or indirectly
convertible into or exercisable or exchangeable for Common Shares.

     

    (k)           "Eligible Market" means the
Principal Market, The New York Stock Exchange, Inc., NYSE Amex, The NASDAQ
Global Market or The NASDAQ Capital Market.

     

    
      
         

      

      
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    (l)           "Equity Conditions" means that
each of the following conditions is satisfied:  (i) on each day during
the period beginning one hundred and twenty days (120) days prior to the
applicable date of determination and ending on and including the applicable date
of determination (the "Equity
Conditions Measuring Period"), either (x) the Registration Statement (as
defined in the Registration Rights Agreement, the "Registration Statement") filed
pursuant to the Registration Rights Agreement shall be effective and available
for the resale of all of the Registrable Securities in accordance with the terms
of the Registration Rights Agreement and no Grace Period (as defined in the
Registration Rights Agreement) shall have occurred during the Equity Conditions
Measuring Period or (y) all Common Shares issuable upon conversion of the Notes,
exercise of the Warrants and, to the extent the issuance covers Interest Shares,
as Interest Shares shall be eligible for sale without restriction and without
the need for registration under any applicable federal or state securities laws;
(ii) on each day during the Equity Conditions Measuring Period, the Common
Shares is designated for quotation on the Principal Market or any other Eligible
Market and shall not have been suspended from trading on such exchange or 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 such exchange or market been threatened or
pending either (A) in writing by such exchange or market or (B) by falling below
the then effective minimum listing maintenance requirements of such exchange or
market; (iii) during the one hundred and eighty (180) day period ending on and
including the date immediately preceding the applicable date of determination,
the Company shall have delivered Common Shares upon conversion of the Notes and
upon exercise of the Warrants to the holders on a timely basis as set forth in
Section 3(c)(ii) hereof (and analogous provisions under the Other Notes) and
Section 1(a) of the Warrants; (iv) during the Equity Conditions Measuring
Period, any applicable Common Shares to be issued in connection with the
event requiring determination may be issued in full without violating Section
3(d) hereof and the rules or regulations of the Principal Market or any
applicable Eligible Market; (v) during the Equity Conditions Measuring Period,
the Company shall not have failed to timely make any payments within five (5)
Business Days of when such payment is due pursuant to any Transaction Document;
(vi) during the Equity Conditions Measuring Period, there shall not have
occurred either (A) the public announcement of a pending, proposed or intended
Fundamental Transaction which has not been abandoned, terminated or consummated,
(B) an Event of Default or (C) an event that with the passage of time or giving
of notice would constitute an Event of Default; (vii) the Company shall have no
knowledge of any fact that would cause (x) the Registration Statements required
pursuant to the Registration Rights Agreement not to be effective and available
for the resale of all remaining Registrable Securities in accordance with the
terms of the Registration Rights Agreement or (y) any Common Shares issuable
upon conversion of the Notes, Common Shares issuable upon exercise of the
Warrants and, to the extent applicable, issuable as Interest Shares not to be
eligible for sale without restriction pursuant to Rule 144 and without the
requirement to be in compliance with Rule 144(c)(1) (or any successor thereto)
promulgated under the 1933 Act; (ix) the Company otherwise shall have been in
compliance with and shall not have breached any provision, covenant,
representation or warranty of any Transaction Document, (x) the Market Price on
the last Trading Day in the applicable Equity Conditions Measuring Period
exceeds $1.00 and (xi) the Shareholder Approval shall have
occurred.

     

    (m)          "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 ten (10) 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 with the Change of Control Redemption Notice Date and ending as of
the Change of Control Redemption Date, as applicable, the Equity Conditions have
not been satisfied (or waived in writing by the Holder).

     

    (n)           "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).

     

    
      
         

      

      
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    (o)           "Excluded Securities" means (i)
any Common Shares issued or issuable: (A) in connection with any Approved Share
Plan; (B) to Mr. Lu as incentive shares pursuant to that certain Stock Purchase
Agreement, dated April 14, 2007, between the Company and the other parties
listed on the signature pages thereto, which amount of Common Shares shall not
exceed an aggregate of 8,000,000 Common Shares; (C) upon conversion of the Notes
or the exercise of the Warrants or issued as Interest Shares; (D) upon exercise
of any Options or Convertible Securities which are outstanding on the day
immediately preceding the Subscription Date, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the Subscription Date so as to reduce the exercise price of such Options
or the conversion price of such Convertible Securities or to increase the number
of Common Shares issuable upon conversion or exercise thereof (but not including
any such reduction in the conversion price or exercise price or increase in the
number of Common Shares issuable upon conversion or exercise thereof, in each
case, in accordance with the terms of such options or Convertible Securities as
in effect on the Subscription Date) and (E) to Mr. Lu to reimburse him or make
him whole for his delivery of Common Shares to the Holders pursuant to the Put
Agreement (as defined in the Securities Purchase Agreement), which amount of
Common Shares shall not exceed the aggregate amount of Common Shares delivered
to holders of Notes pursuant to the Put Agreement and (ii) any Pill
Rights.

     

    (p)           "Fundamental Transaction" means
that (A) the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person or Persons, if the holders of the
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 consolidation or merger)
immediately prior to such consolidation or merger shall hold or have the right
to direct the voting of less than 50% of the Voting Stock of the Company or such
voting securities of such other surviving Person immediately following such
transaction, (ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
(iii) allow another Person to make a purchase, tender or exchange offer that is
accepted by the holders of more than the 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),
(iv) consummate a securities 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 the 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 securities purchase agreement or other business
combination), or (v) reorganize, recapitalize or reclassify its Common Shares or
(B) any "person" or "group" (as these terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act) is or shall become the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
50% of the aggregate ordinary voting power represented by issued and outstanding
Common Shares.  Notwithstanding the foregoing, solely for the purpose
of the foregoing calculations, any director, officer or employee of the Company,
acting solely in its capacity as a director, officer or employee of the Company,
shall not be deemed to be making or party to, or associated or affiliated with
the Persons making or party to, such consolidation or merger.

     

    (q)           "GAAP" means United States
generally accepted accounting principles, consistently applied.

     

    
      
         

      

      
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    (r)           "Indebtedness" of any Person
means, without duplication (i) all indebtedness for borrowed money, (ii) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) "capital leases" in
accordance with GAAP (other than trade payables entered into in the ordinary
course of business), (iii) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (iv) 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, (v) 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), (vi) all monetary obligations under any
leasing or similar arrangement which, in connection with GAAP, consistently
applied for the periods covered thereby, is classified as a capital lease, (vii)
all indebtedness referred to in clauses (i) through (vi) 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 (viii) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (i)
through (vii) above.

     

    (s)           "Interest Adjustment Rate"
means the rate, per annum, as determined on each Interest Date, equal to (i) if
the Market Price as of the applicable Interest Date is greater than $8.703, 0%,
(ii) if the Market Price as of the applicable Interest Date is less than or
equal to $8.703 and greater than $7.833, 1%, (iii) if the Market Price as of the
applicable Interest Date is less than or equal to $7.833 and greater than
$7.049, 2%, (iv) if the Market Price as of the applicable Interest Date is less
than or equal to $7.049 and greater than $6.344, 3%, (v) if the Market Price as
of the applicable Interest Date less than or equal to $6.344 and greater than
$5.71, 4% or (v) if the Market Price as of the applicable Interest Date is less
than or equal to 5.71, 5%.  Each of the dollar amounts set forth above
in this definition shall be appropriately adjusted for any share dividend, share
split, share combination, reclassification or similar transaction that occurs
after the Issuance Date.

     

    (t)           "Interest Conversion Price"
means, the lower of (i) the applicable Conversion Price and (ii) that price
which shall be computed as 80% of the Market Price as of the applicable Interest
Date or Conversion Date, as applicable.

     

    (u)           "Interest Notice Due Date"
means the twenty-fifth (25th) Trading Day prior to the applicable Interest Date
(or the Closing Date solely with respect to the July 1, 2009 Interest
Date).

     

    (v)           "Interest Rate" means, (i) during the
period commencing on the Issuance Date and ending on the first anniversary of
the Issuance Date, the sum of (x) 3.0% per annum and (y) the Interest Adjustment
Rate, (ii) during the period commencing on the calendar day immediately
following the first anniversary of the Issuance Date and ending on the third
anniversary of the Issuance Date, the sum of (x) 5.0% per annum and (y) the
Interest Adjustment Rate, (iii) during the period commencing on the calendar day
immediately following the third anniversary of the Issuance Date and ending on
the Maturity Date, the sum of (x) 7.0% per annum and (y) the Interest Adjustment
Rate, in each case, subject to adjustment as set forth in Section
2(c).

     

    
      
         

      

      
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    (w)          "Make-Whole Amount" means, as
to any Conversion Amount on any Conversion Date, as to any Company Optional
Redemption on any Company Optional Redemption Date, as to any Event of Default
Redemption on any Event of Default Redemption Date or as to any Change of
Control Redemption on any Change of Control Redemption Date, the amount of any
Interest that, but for (i) the Holder's exercise of its conversion right
pursuant to Section 3(c)(i), (ii) a Company Optional Redemption pursuant to
Section 11, (iii) an Event of Default Redemption pursuant to Section 4(b), or
(iv) a Change of Control Redemption pursuant to Section 5(b), would have accrued
with respect to the Conversion Amount being converted or redeemed under this
Note at the Interest Rate (assuming the Interest Adjustment Rate then in effect
as of the applicable Conversion Date, Company Optional Redemption Notice Date,
Event of Default Redemption Notice Date, Change of Control Redemption Notice
Date, as the case may be, is the Interest Adjustment Rate through the Maturity
Date) for the period from the applicable Conversion Date, Company Optional
Redemption Date, Event of Default Redemption Date, or Change of Control
Redemption Date, as the case may be, through the Maturity Date, discounted to
present value using the published yield on two year notes of the U.S. federal
government on the determination date.

     

    (x)           "Market Price" means, for any
given date, the arithmetic average of the Weighted Average Price of the Common
Shares for the twenty (20) consecutive Trading Day period (the "Market Price Measuring
Period") ending on the Trading Day immediately preceding such
date.  All such Weighted Average Prices shall be appropriately
adjusted for any share split, share dividend, share combination or other similar
transaction during the applicable Market Price Measuring Period.

     

    (y)          "Material Adverse Effect" means
(x) a Material Adverse Effect (as defined in the Securities Purchase Agreement
or (y) any material adverse effect on any Holder of the Notes (solely in its
capacity as a holder of Notes).

     

    (z)           "Options" means any rights,
warrants or options to subscribe for or purchase Common Shares or Convertible
Securities.

     

    (aa)         "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.

     

    
      
         

      

      
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    (bb)        "Permitted Indebtedness" means
(i) the Indebtedness outstanding on the Subscription Date described on Schedule I attached
hereto, (ii) Indebtedness evidenced by this Note and the Other Notes, (iii)
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 15% per annum, (iv) Indebtedness
secured by Permitted Liens described in clauses (iv), (v) and (viii) of the
definition of Permitted Liens, (v) Indebtedness constituting the extension,
renewal, refinancing or replacement of any Indebtedness referred to in the
preceding clauses (i) and (iv), provided that (A) the principal amount of the
Indebtedness being extended, renewed, refinanced or replaced does not increase
and (B) total interest and fees thereunder do not exceed 15% per annum, (vi)
additional Indebtedness incurred by the Company in connection with any
redemption by the Company of the Notes in full (or in part, upon the occurrence
of a Holder Optional Redemption (as defined in this Note and/or the Other Notes,
as applicable) solely to the extent that (A) the aggregate amount of such
Indebtedness does not exceed the sum of (x) the aggregate amount of the Holder
Optional Redemption Price (as defined in this Note and/or the Other Notes, as
applicable) due and payable with respect to such Holder Optional Redemptions and
(y) the reasonable fees and expenses of such offering of Indebtedness) and (B)
total interest and fees thereunder do not exceed 15% per annum) pursuant to
Section 11 of this Note and Section 11 of the Other Notes and (vii) any other
additional Indebtedness in a aggregate amount outstanding at any one time not in
excess of (A) during the period commencing on the Issuance Date and ending on
the first anniversary of the Issuance Date, $10 million, (B) during the period
commencing on the calendar day immediately following the first anniversary of
the Issuance Date and ending on the second anniversary of the Issuance Date, $25
million and (C) during the period commencing on the calendar day immediately
following the second anniversary of the Issuance Date and ending on the Maturity
Date, $45 million.

     

    (cc)         "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 on property
of, or on equity interests or Indebtedness of, any Person (A) incurred by the
Company or any of its Subsidiaries solely for the purpose of financing the
acquisition of such Person or (B) existing at the time such Person becomes, or
becomes a part of, any Subsidiary; provided that such Liens do
not extend to or cover any property or assets of the Company or any Subsidiary
other than the property or assets acquired and the proceeds and products thereof
and were not incurred in anticipation of such Person becoming a Subsidiary; (vi)
easements, rights-of-way, municipal and zoning and building ordinances and
similar charges, encumbrances, title defects or other irregularities,
governmental restrictions on the use of property or conduct of business, and
Liens in favor of governmental authorities and public utilities, that do not
materially interfere with the ordinary course of business of the Company and its
Subsidiaries, taken as a whole; (vii) any option or other agreement to purchase
any asset of the Company or any Subsidiary the purchase, sale or other
disposition of which is not prohibited by any other provision of this Note;
(viii) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company or any of
its Subsidiaries in the ordinary course of business of the Company or any of its
Subsidiaries; (ix) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (i) through (viii) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Liens and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase, (x) 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, (xi) 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, and (xii) Liens arising from
judgments, decrees or attachments in circumstances not constituting an Event of
Default under Section 4(a)(ix).

     

    
      
         

      

      
        - 34
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    (dd)        "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.

     

    (ee)         "Pill Rights" means any rights
issued by the Company pursuant to any so-called "poison pill" or similar Company
rights plan entitling all holders of equity interests of the Company to
subscribe for or purchase equity interests of the Company, which rights are not
exercisable until a determination by the Company's Board of Directors that one
or more Persons or "groups" (as defined in Rule 13d-5(b)(1) under the Exchange
Act) has acquired beneficial ownership of Common Shares in excess of the
percentage threshold specified in such plan.

     

    (ff)          "Principal Market" means The
NASDAQ Global Select Market.

     

    (gg)        "Redemption Notices" means,
collectively, the Event of Default Redemption Notices, the Change of Control
Redemption Notices, Holder Optional Redemption Notice and Company Optional
Redemption Notice, each of the foregoing, individually, a Redemption
Notice.

     

    (hh)        "Redemption Premium" means (i)
in the case of the Events of Default described in Section 4(a)(i) - (v) and
(viii) - (xiv), 115% or (ii) in the case of the Events of Default described in
Section 4(a)(vi) - (vii), 100%.

     

    (ii)           "Redemption Prices" means,
collectively, the Event of Default Redemption Price, Change of Control
Redemption Price, Holder Optional Redemption Price and Company Optional
Redemption Price, each of the foregoing, individually, a Redemption
Price.

     

    (jj)           "Registration Rights Agreement"
means that certain registration rights agreement dated as of the Subscription
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 Shares issuable
upon conversion of the Notes and exercise of the Warrants.

     

    
      
         

      

      
        - 35
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    (kk)           "Required Holders" means the
holders of Notes representing a majority of the aggregate principal amount of
the Notes then outstanding, but excluding any Notes beneficially owned, directly
or indirectly, by Mr. Lu (or any of his family members, affiliates or agents),
the Company or any of its Subsidiaries.

     

    (ll)           "SEC" means the United States
Securities and Exchange Commission.

     

    (mm)       "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.

     

    (nn)        "Subscription Date" means June
18, 2009.

     

    (oo)        "Successor Entity" means the
Person, which may be the Company, formed by, resulting from or surviving any
Fundamental Transaction or the Person with which such Fundamental Transaction
shall have been made, provided that if such Person is not a publicly traded
entity whose common stock or equivalent equity security is quoted or listed for
trading on an Eligible Market, Successor Entity shall mean such Person's Parent
Entity.

     

    (pp)        "Trading Day" means any day on
which the Common Shares is traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Shares, then on the
principal securities exchange or securities market on which the Common Shares is
then traded; provided that "Trading Day" shall not include any day on which the
Common Shares is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Shares 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).

     

    (qq)        "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).

     

    (rr)          "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.

     

    
      
         

      

      
        - 36
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    (ss)         "Weighted Average Price" means,
for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market during the period beginning at 9:30:01
a.m., New York Time (or such other time as the Principal Market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
Time (or such other time as the Principal Market publicly announces is the
official close of trading) as reported by Bloomberg through its "Volume at
Price" functions, or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York Time (or such other time as such market publicly
announces is the official open of trading), and ending at 4:00:00 p.m., New York
Time (or such other time as such market publicly announces is the official close
of trading) as reported by Bloomberg, or, if no dollar volume-weighted average
price is reported for such security by Bloomberg for such hours, the average of
the highest closing bid price and the lowest closing ask price of any of the
market makers for such security as reported in the "pink sheets" by Pink Sheets
LLC (formerly the National Quotation Bureau, Inc.).  If the Weighted
Average Price cannot be calculated for a security on a particular date on any of
the foregoing bases, the Weighted Average Price of such security on such date
shall be the fair market value 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 pursuant
to Section 23.  All such determinations shall be appropriately
adjusted for any share dividend, share split, share combination,
reclassification or similar transaction during the applicable calculation
period.

     

    (32)         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, nonpublic information
relating to the Company or its Subsidiaries, the Company shall within one (1)
Business Day after any such receipt or delivery publicly disclose such material,
nonpublic information on a Report of Foreign Issuer on Form 6-K or
otherwise.  In the event that the Company believes that a notice
contains material, nonpublic information relating to the Company or 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, nonpublic information relating to the Company or its
Subsidiaries.

     

    [Signature
Page Follows]

     

    
      
         

      

      
        - 37
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    IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the
Issuance Date set out above.

     

    
      
        
          	
                  A-Power
      Energy Generation Systems, Ltd.

                
	 
      	 
      
	
                  By:

                	 
      
	 
      	
                  Name:

                
	 
      	
                  Title:

                

        

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    EXHIBIT
I

    

    A-POWER
ENERGY GENERATION SYSTEMS, LTD.

    CONVERSION
NOTICE

     

    Reference
is made to the Senior Convertible Note (the "Note") issued to the
undersigned by A-Power Energy Generation Systems, Ltd., a company organized
under the laws of the British Virgin Islands (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 Common Shares par value $0.0001 per share (the "Common Shares") 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 Common Shares to be issued:

                    	_______________________________

            

          

        

      

    

     

    Notwithstanding
anything to the contrary contained herein, this Conversion Notice shall
constitute a representation by the Holder of the Note submitting this Conversion
Notice that, after giving effect to the conversion provided for in this
Conversion Notice, such Holder (together with its affiliates) will not have
beneficial ownership (together with the beneficial ownership of such Person's
affiliates) of a number of Common Shares which exceeds the Maximum Percentage
(as defined in the Note) of the total outstanding Common Shares of the Company
as determined pursuant to the provisions of Section 3(d) of the
Note.

     

    Please
issue the Common Shares 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
Continental Stock Transfer & Trust Company to issue the above indicated
number of Common Shares in accordance with the Transfer Agent Instructions dated
June 19, 2009 from the Company and acknowledged and agreed to by
Continental Stock Transfer & Trust Company.

     

    
      
        
          
            
              	
                      A-POWER
      ENERGY GENERATION

                      SYSTEMS,
      LTD.

                    
	 
      	 
      
	
                      By:

                    	 
      
	 
      	
                      Name:

                    
	 
      	
                      Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00166-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00166-of-00352.parquet"}]]