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    PREFERRED STOCK PURCHASE
AGREEMENT

     

    This
Preferred Stock Purchase Agreement (“Agreement”) is
entered into and effective as of December 30, 2009 (“Effective Date”), by
and among Yasheng Eco-Trade Corporation, a Delaware corporation (“Company”), and Socius Capital Group, LLC, a Delaware
limited liability company, dba Socius Special Situations Capital Group,
LLC (including its designees, successors and assigns, “Investor”).

     

    RECITALS

     

    A.           The
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue to Investor, and Investor shall purchase from
the Company, from time to time as provided herein, up to $5,000,000.00 of shares
of Series D Preferred Stock; and

     

    B.           The
offer and sale of the Securities provided for herein are being made without
registration under the Act, in reliance upon the provisions of Section 4(2) of
the Act, Regulation D promulgated under the Act, and such other exemptions from
the registration requirements of the Act as may be available with respect to any
or all of the purchases of Securities to be made hereunder.

     

    AGREEMENT

     

    In
consideration of the premises, the mutual provisions of this Agreement, and
other good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, Company and Investor agree as follows:

     

    ARTICLE 1

    DEFINITIONS

     

    In
addition to the terms defined elsewhere in this Agreement:  (a)
capitalized terms that are not otherwise defined herein have the meanings given
to such terms in the Certificate of Designations, and (b) the following terms
have the meanings indicated in this ARTICLE
1:

     

    “Act” means the
Securities Act of 1933, as amended.

     

    “Affiliate” means any
Person that, directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with a Person, as such
terms are used in and construed under Rule 144 under the Act.  With
respect to Investor, without limitation, any Person owning, owned by, or under
common ownership with Investor, and any investment fund or managed account that
is managed on a discretionary basis by the same investment manager as Investor
will  be deemed to be an Affiliate.

     

    “Agreement” means this
Preferred Stock Purchase Agreement.

     

    “Bloomberg” means
Bloomberg Financial Markets.

     

    “Change in Control”
has the meaning set forth within the definition of Fundamental Transaction,
below.

    
      
         

      

      
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    “Certificate of
Designations” means the certificate to be filed with the Secretary of
State of the State of Delaware, in the form attached hereto as Exhibit
B.

     

    “Closing” means any
one of (i) the Commitment Closing and (ii) each Tranche Closing.

     

    “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 Trading
Market, as reported by Bloomberg, or, if the Trading 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 p.m., Eastern time, as
reported by Bloomberg, or, if the Trading 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 Investor.  If the Company and Investor are unable to
agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section
6.7.  All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination or other similar transaction
during the applicable calculation period.

     

    “Commitment Closing”
has the meaning set forth in Section 2.2.

     

    “Commitment Fee” means
a non-refundable fee of $250,000.00 (5.0% of the Maximum Placement), payable by
the Company to Investor in consideration of Investor’s commitment to fund the
investment contemplated by this Agreement.  The Commitment Fee is
payable as follows: On the Effective Date, the Company will issue to Investor a
stock certificate evidencing shares of Common Stock equal in value to
$250,000.00, with such valuation based upon 82% of the volume-weighted average
price (VWAP) of the Common Stock for the five Trading Days preceding the
Effective Date.  On the first Tranche Closing Date, the Commitment Fee
shall be paid in cash, by offset from the proceeds of the first Tranche, and the
shares shall be returned to the Company.  However, if the Commitment
Fee has not been paid by the earlier of (i) the six-month anniversary of the
Effective Date, or (ii) the date that the Registration Statement is declared
effective by the SEC, whether because the first Tranche Closing has not occurred
or for any other reason, the shares will be retained by Investor as final
payment of the Commitment Fee and as part of such final payment the Company
shall issue any additional shares necessary, or the Investor shall return to the
Company for cancellation any excess shares necessary, to make the value of the
Commitment Fee Shares equal to (i) the total Commitment Fee, divided by (ii) the
then-applicable Commitment Share VWAP Price, with such valuation computed as of
the date the Commitment Fee first becomes payable.

    
      
         

      

      
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    “Commitment Fee
Shares” means any shares of Common Stock issued to Investor in payment of
the Commitment Fee.

     

    “Commitment Share VWAP
Price” means the lower of (1) 82% of the VWAP of the Common Stock for the
five Trading Days immediately preceding the Effective Date, or (2) 82% of the
VWAP of the Common Stock for the five Trading Days immediately preceding the
date of release of the Commitment Fee Shares to Investor.

     

    “Common Shares”
includes the Warrant Shares and any Commitment Fee Shares.

     

    “Common Stock” means
the common stock, par value $0.001 per share, of the Company, and any
replacement or substitute thereof, or any share capital into which such Common
Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.

     

    “Company Termination”
has the meaning set forth in Section
3.2.

     

    “Delisting Event”
means any time during the term of this Agreement, that the Common Stock is not
listed for and actively and/or regularly trading on a Trading Market, or is
suspended or delisted with respect to the trading of the shares of Common Stock
on a Trading Market.

     

    “Disclosure Schedules”
means the disclosure schedules of the Company delivered concurrently herewith,
attached hereto, and incorporated herein by reference.  The Disclosure
Schedules shall contain no material non-public information.

     

    “DTC” means The
Depository Trust Company, or any successor performing substantially the same
function for Company.

     

    “DWAC Shares” means
all Common Shares or other shares of Common Stock issued or issuable to Investor
or any Affiliate, successor or assign of Investor pursuant to any of the
Transaction Documents after the Registration Statement covering such shares is
declared effective, all of which shall be (a) issued in electronic form, (b)
freely tradable and without restriction on resale, and (c) timely credited by
Company to the specified Deposit/Withdrawal at Custodian (DWAC) account with DTC
under its Fast Automated Securities Transfer (FAST) Program or any similar
program hereafter adopted by DTC performing substantially the same function, in
accordance with irrevocable instructions issued to and countersigned by the
Transfer Agent, in the form attached hereto as Exhibit C or in such
other form agreed upon by the parties.

     

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

     

    “Fundamental
Transaction” means and shall be deemed to have occurred at such time upon
any of the following events:

     

    (i)           a
consolidation, merger or other business combination or event or transaction,
except for the transactions set forth on Schedule A to the
Disclosure Schedule, following which the holders of Common Stock immediately
preceding such consolidation, merger, combination or event either (a) no longer
hold a majority of the shares of Common Stock or (b) no longer have the ability
to elect a majority of the board of directors of the Company (a “Change in
Control”);

    
      
         

      

      
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    (ii)          the
sale or transfer of all or substantially all of the Company’s assets, other than
in the ordinary course of business; or

     

    (iii)         a
purchase, tender or exchange offer made to the holders of the outstanding shares
of Common Stock.

     

    “GAAP” means United
States generally accepted accounting principles applied on a consistent basis
during the periods involved.

     

    “Indebtedness” means
(a) any liabilities for borrowed money or amounts owed in excess of $250,000
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $250,000 due under leases required to be
capitalized in accordance with GAAP.

     

    “Liens” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.

     

    “Lock-Up Agreements”
means an agreement in the form attached as Exhibit D, executed
by each of the Company’s officers, directors and beneficial owners of 10% or
more of the Common Stock, precluding each such Person from participating in any
sale of the Common Stock from the Tranche Notice Date through the Tranche
Closing Date.

     

    “Material Adverse
Effect” means any material adverse effect on (i) the legality, validity
or enforceability of any Transaction Document, (ii) the results of operations,
assets, business, prospects or financial condition of the Company and the
Subsidiaries, taken as a whole, or (iii) a the Company’s ability to perform in
any material respect on a timely basis its obligations under any Transaction
Document.

     

    “Material Agreement”
means any material loan agreement, financing agreement, equity investment
agreement or securities instrument to which Company is a party, any agreement or
instrument to which Company and Investor or any Affiliate of Investor is a
party, and any other material agreement listed, or required to be listed, on any
of Company’s reports filed or required to be filed with the SEC, including
without limitation Forms 10-K, 10-Q or 8-K.

     

    “Maximum Placement”
means $5,000,000.00.

     

    “Maximum Tranche
Amount” means, subject to any other applicable limitations set forth in
this Agreement, the Maximum Placement less the amount of any previously noticed
and funded Tranches.

    
      
         

      

      
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     “Officer’s Closing
Certificate” means a certificate in customary form reasonably acceptable
to Investor, executed by an authorized officer of the Company.

     

    “Opinion” means an
opinion from Company’s independent legal counsel, in the form attached as Exhibit E or in such
other form agreed upon by the parties, to be delivered in connection with the
Commitment Closing and any Tranche Closing.

     

    “Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.

     

    “Preferred Shares”
means shares of Series D Preferred Stock of the Company provided for in the
Certificate of Designations, to be issued to Investor pursuant to this
Agreement.

     

    “Prospectus” includes
each prospectus and prospectus supplement (within the meaning of the Act)
related to the sale or offering of any Common Shares, including without
limitation any prospectus or prospectus supplement contained within the
Registration Statement.

     

    “Registration
Statement” means a valid, current and effective registration statement
registering for resale the shares of Common Stock to be issued as Warrant Shares
and Commitment Fee Shares hereunder, and except where the context otherwise
requires, means such registration statement, as amended, including (i) all
documents filed as a part thereof or incorporated by reference therein, and (ii)
any information contained or incorporated by reference in a prospectus filed
with the SEC in connection with such registration statement, to the extent such
information is deemed under the Act to be part of such registration
statement.

     

    “Regulation D” means
Regulation D promulgated under the Act.

     

    “Required Approval”
means any approval of the Trading Market or the Company’s stockholders required
to be obtained by Company prior to issuing the Securities pursuant to any
applicable rules of the Trading Market.

     

    “Required Tranche
Documents” has the meaning set forth in Section
2.3(e).

     

    “Rule 144” means Rule
144 promulgated by the SEC pursuant to the Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the SEC
having substantially the same effect.

     

    “Rule 144 Eligible”
means eligible for immediate resale under Rule 144 without limitation on the
amount of securities sold under Rule 144(e) and without  requiring
discharge by payment in full of any promissory notes given to the Company prior
to the sale of the securities under Rule 144(d)(2)(iii).

     

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

     

    “SEC Reports” includes
all reports required to be filed by the Company under the Act and/or the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two
years preceding the Effective Date (or such shorter period as the Company was
required by law to file such material) and for the period in which this
Agreement is in effect.

    
      
         

      

      
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    “Securities” includes
the Warrant, the Common Shares and the Preferred Shares issuable pursuant to
this Agreement.

     

    “Subsidiary” means any
Person the Company owns or controls, or in which the Company, directly or
indirectly, owns a majority of the capital stock or similar interest that would
be disclosable pursuant to Regulation S-K, Item 601(b)(21).

     

    “Termination” has the
meaning set forth in Section 3.1.

     

    “Termination Date”
means the earlier of (i) the date that is the two-year anniversary of the
Effective Date, or (ii) the Tranche Closing Date on which the sum of the
aggregate Tranche Purchase Price for all Tranche Shares equals the Maximum
Placement.

     

    “Termination Notice”
has the meaning as set forth in Section
3.2.

     

    “Trading Day” means
any day on which the Common Stock is traded on the Trading Market; provided that
it shall not include any day on which the Common Stock is (a) scheduled to trade
for less than 5 hours, or (b) suspended from trading.

     

    “Trading Market” means
the OTC Bulletin Board, the NASDAQ Capital Market, the NASDAQ Global Market, the
NASDAQ Global Select Market, the NYSE Amex, or the New York Stock Exchange,
whichever is at the time the principal trading system, exchange or market for
the Common Stock, but does not include the Pink Sheets inter-dealer electronic
quotation and trading system.

     

    “Tranche” has the
meaning set forth in Section
2.3(a).

     

    “Tranche Amount” means
the amount of any individual purchase of Preferred Shares under this Agreement,
as specified by the Company, and shall not exceed the Maximum Tranche
Amount.

     

    “Tranche Closing” has
the meaning set forth in Section
2.3(f)(iv).

     

    “Tranche Closing Date”
has the meaning set forth in Section
2.3(f)(i).

     

    “Tranche Notice” has
the meaning set forth in Section
2.3(b).

     

    “Tranche Notice Date”
has the meaning set forth in Section
2.3(b).

     

    “Tranche Purchase
Price” has the meaning set forth in Section 2.3(b), and
shall be specified in writing by the Company.

     

    “Tranche Share Price”
means $10,000.00 per Preferred Share.  The Company may not issue
fractional Preferred Shares.

    
      
         

      

      
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    “Tranche Shares” means
the Preferred Shares that are purchased by Investor pursuant to a
Tranche.  For the Maximum Placement, the Company shall issue 1,000
Preferred Shares to Investor.

     

    “Transaction
Documents” means this Agreement, the other agreements and documents
referenced herein, and the exhibits and schedules hereto and
thereto.

     

    “Transfer Agent” means
American Stock Transfer & Trust Company, LLC or any successor transfer agent
for the Common Stock.

     

    “Use of Proceeds
Certificate” means a certificate, in substantially the form attached as
Exhibit F,
signed by an officer of the Company, setting forth how the Tranche Purchase
Price will be applied by the Company.

     

    “VWAP” means, for any
date, the volume-weighted average price, calculated by dividing the aggregate
value of Common Stock traded on the Trading Market (price multiplied by number
of shares traded) by the total volume (number of shares) of Common Stock traded
on the Trading Market for such date, or the nearest preceding Trading
Day.

     

    “Warrant Shares” means
the shares of Common Stock issuable upon exercise of the Warrant.

     

    “Warrant” means the
warrant issuable under this Agreement, in the form attached hereto as Exhibit A, to
purchase shares of Common Stock with an aggregate exercise price equal to 135.0%
of the Maximum Placement (subject to adjustment as set forth
therein).

     

    ARTICLE 2

    PURCHASE
AND SALE

     

    2.1          Agreement to
Purchase.  Subject
to the terms and conditions herein and the satisfaction of the conditions to
closing set forth in this ARTICLE 2:

     

    (a)           Investor
hereby agrees to purchase such amounts of Preferred Shares as the Company may,
in its sole and absolute discretion, from time to time elect to issue and sell
to Investor according to one or more Tranches pursuant to Section 2.3 below;
and

     

    (b)           The
Company agrees to pay the Commitment Fee and to issue the Preferred Shares, the
Common Shares, the Commitment Fee Shares, and the Warrant to Investor as
provided herein.

     

    2.2          Investment
Commitment

     

    (a)           Investment
Commitment. The closing of this Agreement (the “Commitment Closing”)
shall be deemed to occur when this Agreement has been duly executed by both
Investor and the Company, and the other Conditions to the Commitment Closing set
forth in Section
2.2(c) have been met.

    
      
         

      

      
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    (b)           Commitment Fee
Shares.

     

    (i)           As
a condition to the Commitment Closing, on the Effective Date the Company shall
issue to Investor, as an estimate of the maximum number of Commitment Fee Shares
to which Investor may become entitled under this Agreement, 10,000,000
Commitment Fee Shares.  The Commitment Fee Shares shall be evidenced
by a stock certificate titled in the name of Investor or its
designee.  The stock certificate shall bear a legend substantially in
the form set forth in Section 5.1(b) hereof
and, at the Company’s option, an additional legend indicating that such shares
are subject to the contractual restrictions set forth in this
Agreement.

     

    (ii)          If
the Company fails to pay the Commitment Fee in cash by offset from the proceeds
of the first Tranche Amount on the first Tranche Closing Date for any reason,
then on the date that the Commitment Fee first becomes payable the legends shall
be removed from the stock certificate evidencing the Commitment Fee
Shares.  If necessary to make the aggregate number of shares delivered
to Investor equal to the total Commitment Fee divided by the then-applicable
Commitment Share VWAP Price, on the date the Commitment Fee is first payable the
Company shall deliver to Investor either (A) if more shares are required, a
second legend-free certificate for the balance of the required shares, or (B) if
less shares are required, a legend-free replacement certificate for the total
required number of shares and, in such case, the original certificate shall be
returned to the Company for cancellation.

     

    (iii)        Notwithstanding
clause (ii) above, if by the earlier of (i) the six-month anniversary of the
Effective Date, or (ii) the date that the Registration Statement is declared
effective by the SEC the Commitment Fee has not yet been paid (whether because
the first Tranche Closing has not yet occurred or for any other reason), then on
such date the legend shall be removed from the certificate for the Commitment
Fee Shares.  If necessary to make the aggregate number of shares
delivered to Investor equal to the total Commitment Fee divided by the
then-applicable Commitment Share VWAP Price, on the date the Commitment Fee is
first payable the Company shall deliver to Investor either (A) if more shares
are required, a second legend-free certificate for the balance of the required
shares, or (B) if less shares are required, a legend-free replacement
certificate for the total required number of shares and, in such case, the
original certificate shall be returned to the Company for
cancellation.

     

    (iv)         A
total of 10,000,000 shares of Common Stock shall be included in the Registration
Statement for potential use by the Company in satisfaction of the Commitment
Fee.  Any such shares that are registered for resale but are not used
in payment of the Commitment Fee shall be cancelled by the
Company.  Prior to the date (if any) that Investor is entitled to
receive legend-free certificates, neither Investor nor the Company shall be
entitled to sell, pledge, assign or otherwise transfer any of the Commitment Fee
Shares.

     

    (c)           Conditions to Investment
Commitment. As a condition precedent to the Commitment Closing, all of
the following (the “Conditions to Commitment
Closing”) shall have been satisfied prior to or concurrently with the
Company’s execution and delivery of this Agreement:

    
      
         

      

      
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    (i)           the
following documents shall have been delivered to Investor:  (A) this
Agreement, executed by the Company; (B) a Secretary’s Certificate as to (x) the
resolutions of the Company’s board of directors authorizing this Agreement and
the Transaction Documents, and the transactions contemplated hereby and thereby,
and (y) a copy of the Company’s current Articles of Incorporation and other
governing documents; (C) the Certificate of Designations executed by the Company
and filed with the Delaware Secretary of State; (D) the Opinion; and (E) a copy
of (1) the Company’s press release (if any) announcing the transactions
contemplated by this Agreement; and (F) a copy of the Company’s Current Report
on Form 8-K, as filed with the SEC, describing the transaction contemplated by,
and attaching a complete copy of, the Transaction Documents;

     

    (ii)         other
than for losses incurred in the ordinary course of business, there has not been
any Material Adverse Effect on the Company since the date of the last SEC Report
filed by the Company, including but not limited to incurring material
liabilities;

     

    (iii)        the
representations and warranties of the Company in this Agreement shall be true
and correct in all material respects and the Company shall have delivered an
Officer’s Closing Certificate to such effect to Investor, signed by an officer
of the Company;

     

    (iv)         the
Warrant to purchase shares of Common Stock with an aggregate exercise price
equal to 135.0% of the Maximum Placement (subject to adjustment as set forth
therein) shall have been delivered to Investor;

     

    (v)          the
Commitment Fee Shares shall have been delivered into escrow; and

     

    (vi)         any
Required Approval has been obtained.

     

    (d)           Investor’s Obligation to
Purchase. Subject to the prior satisfaction of all conditions set forth
in this Agreement, following Investor’s receipt of a validly delivered Tranche
Notice, Investor shall be required to purchase from the Company a number of
Tranche Shares equal to the permitted Tranche Share Amount, in the manner
described below.

     

    2.3          Tranches to
Investor

     

    (a)           Procedure to Elect a
Tranche. Subject to the Maximum Tranche Amount, the Maximum Placement and
the other conditions and limitations set forth in this Agreement, at any time
beginning on the effective date of the Registration Statement, the Company may,
in its sole and absolute discretion, elect to exercise one or more individual
purchases of Preferred Shares under this Agreement (each a “Tranche”) according
to the following procedure.

     

    (b)           Delivery of Tranche
Notice.  The Company shall deliver an irrevocable written
notice (the “Tranche
Notice”), in the form attached hereto as Exhibit G, to
Investor stating that the Company shall exercise a Tranche and stating the
number of Preferred Shares which the Company will sell to Investor at the
Tranche Share Price, and the aggregate purchase price for such Tranche (the
“Tranche Purchase
Price”).  A Tranche Notice delivered by the Company to Investor
by 4:30 p.m. Eastern time on any Trading Day shall be deemed delivered on the
same day.  A Tranche Notice delivered by the Company to Investor after
4:30 p.m. Eastern time on any Trading Day, or at any time on a non-Trading Day,
shall be deemed delivered on the next Trading Day.  The date that the
Tranche Notice is deemed delivered is the “Tranche Notice
Date”.  Each Tranche Notice shall be delivered via facsimile or
electronic mail, with confirming copy by overnight carrier, in each case to the
address set forth in Section
6.2.  Except for the first Tranche Closing, the Company may not
give a Tranche Notice unless the Tranche Closing for the prior Tranche has
occurred or has been cancelled by the Company pursuant to Section
2.3(g).

    
      
         

      

      
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    (c)           Warrant.  On
each Tranche Notice Date, that portion of the Warrant equal to 135% of the
Tranche Amount shall vest and become exercisable, and such vested portion may be
exercised at any time on or after such Tranche Notice Date.  Any
portion of the Warrant that becomes exercisable in connection with the delivery
of the Tranche Notice and is exercised by Investor in accordance with Section 1.1 of the
Warrant shall be deemed exercised (i) on the applicable Tranche Notice Date, if
the Company receives the Exercise Delivery Documents from Investor by 6:30 p.m.
Eastern time on the Tranche Notice Date, or (ii) on the next Trading Day, if the
Company receives the Exercise Delivery Documents from Investor after 6:30 p.m.
Eastern Time on the applicable Tranche Notice Date or on any subsequent
date.

     

    (d)           Conditions Precedent to
Right to Deliver a Tranche Notice.  The right of the Company to
deliver a Tranche Notice is subject to the satisfaction (or written waiver by
Investor in its sole discretion), on the date of delivery of such Tranche
Notice, of each of the following conditions:

     

    (i)           the
Common Stock (including without limitation any shares of Common Stock that may
be issued to Investor in payment of the Commitment Fee) shall be listed for and
currently trading on the Trading Market, and to the Company’s knowledge there is
no notice of any suspension or delisting with respect the trading of the shares
of Common Stock on such Trading Market;

     

    (ii)          the
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all material respects as if made on such date (except for
any representations and warranties that are expressly made as of a particular
date, in which case such representations and warranties shall be true and
correct as of such particular date), and no default shall have occurred under
this Agreement, or any other agreement with Investor or any Affiliate of
Investor, or any other Material Agreement, and the Company shall deliver an
Officer’s Closing Certificate to such effect to Investor, signed by an officer
of the Company;

     

    (iii)        other
than losses incurred in the ordinary course of business, there has been no
Material Adverse Effect on the Company since the Commitment
Closing;

     

    (iv)         the
Company is not, and will not be as a result of the applicable Tranche, in
default of this Agreement, any other agreement with Investor or any Affiliate of
Investor, or any other Material Agreement;

     

    (v)           there
is not then in effect any law, rule or regulation prohibiting or restricting the
transactions contemplated in this Agreement or any other Transaction Document,
or requiring any consent or approval which shall not have been obtained, nor is
there any pending or threatened proceeding or investigation which may have the
effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement; no statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
adopted by any court or governmental authority of competent jurisdiction that
prohibits the transactions contemplated by this Agreement, and no actions, suits
or proceedings shall be in progress, pending or, to the Company’s knowledge
threatened, by any person (other than Investor or any Affiliate of Investor),
that seek to enjoin or prohibit the transactions contemplated by this
Agreement;

    
      
         

      

      
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    (vi)         all
Common Shares shall have been timely delivered at the times provided for in this
Agreement, including all Warrant Shares issuable pursuant to any Exercise Notice
delivered to Company prior to the Tranche Notice Date;

     

    (vii)        all
previously-issued and issuable Warrant Shares and (except with respect to the
first Tranche Closing) all previously issued and issuable Commitment Fee Shares
are DWAC Shares, are DTC eligible, and can be immediately converted into
electronic form without restriction on resale;

     

    (viii)      Company
is in compliance with all requirements to maintain its then-current listing on
the Trading Market;

     

    (ix)         Company
has a current, valid and effective Registration Statement permitting the lawful
resale of all previously-issued and issuable Common Shares (including without
limitation all Warrant Shares issuable upon exercise of the Warrant delivered in
connection with such Tranche and any Commitment Fee Shares);

     

    (x)          Company
has a sufficient number of duly authorized shares of Common Stock reserved for
issuance in such amount as may be required to fulfill its obligations pursuant
to the Transaction Documents and any outstanding agreements with Investor and
any Affiliate of Investor, including without limitation all Warrant Shares
issuable upon exercise of the Warrant issued in connection with such
Tranche;

     

    (xi)         Company
has provided notice of its delivery of the Tranche Notice to all signatories of
a Lock-Up Agreement as required under the Lock-Up Agreement;

     

    (xii)        the
aggregate number of Warrant Shares issuable upon exercise of the Warrant issued
on the Tranche Notice Date, when aggregated with all other shares of Common
Stock deemed beneficially owned by Investor and its Affiliates (whether acquired
in connection with the transactions contemplated by the Transaction Documents or
otherwise), would not result in Investor owning more than 9.99% of all Common
Stock outstanding on the Tranche Notice Date, as determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder; and

     

    (xiii)      for
any Tranche Notice delivered after the earlier of (A) the first Tranche Closing,
or (B) the six-month anniversary of the Effective Date, Investor shall have
previously received the Commitment Fee.

     

    (e)           Documents to be Delivered at
Tranche Closing. The Closing of any Tranche and Investor’s obligations
hereunder shall additionally be conditioned upon the delivery to Investor of
each of the following (the “Required Tranche
Documents”) on or before the applicable Tranche Closing
Date:

    
      
         

      

      
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    (i)           a
number of Preferred Shares equal to the Tranche Purchase Price divided by the
Tranche Share Price shall have been delivered to Investor or an account
specified by Investor for the Tranche Shares;

     

    (ii)          the
following executed documents:  Opinion, Officer’s Certificate and
Lock-Up Agreements;

     

    (iii)        a
Use of Proceeds Certificate, signed by an officer of the Company, and setting
forth how the Tranche Purchase Price will be applied by the Company; provided that no
portion of the Tranche Purchase Price may be used for working capital of the
Company and such funds may be used only for designated investments that the
Company’s Board of Directors has approved (which designated investments may
include working capital for such designated investments);

     

    (iv)         all
Warrant Shares shall have been timely delivered in accordance with any Exercise
Notice delivered to Company prior to the Tranche Closing Date;

     

    (v)           all
documents, instruments and other writings required to be delivered by the
Company to Investor on or before the Tranche Closing Date pursuant to any
provision of this Agreement or in order to implement and effect the transactions
contemplated herein; and

     

    (vi)         payment
of a $5,000.00 non-refundable administrative fee to Investor’s counsel, by
offset against the Tranche Amount, or wire transfer of immediately available
funds.

     

    (f)           Mechanics of Tranche
Closing.

     

    (i)           Each
of the Company and Investor shall deliver all documents, instruments and
writings required to be delivered by either of them pursuant to Section 2.3(e) of
this Agreement at or prior to each Tranche Closing. Subject to such delivery and
the satisfaction of the conditions set forth in Section 2.3(c) as of
the Tranche Closing Date, the closing of the purchase by Investor of Preferred
Shares shall occur by 5:00 p.m. Eastern time, on the date which is 10 (ten)
Trading Days following (and not counting) the Tranche Notice Date (each a “Tranche Closing
Date”) at the offices of Investor.

     

    (ii)          If
any portion of the Warrant is exercised by Investor on or after the Tranche
Notice Date and prior to or on the Tranche Closing Date (which exercise shall be
effected by Investor sending the Exercise Delivery Documents to the Company in
accordance with Section 1.1 of the
Warrant), the Company shall send Investor an electronic copy of its share
issuance instructions to the Transfer Agent and shall cause the requisite number
of Warrant Shares to be credited to Investor’s account with DTC as DWAC Shares
by 12:00 p.m. Eastern time on the Trading Day after the date the Company
receives the Exercise Delivery Documents from Investor.  If DWAC
shares are not timely credited pursuant to this Section 2.3(f)(ii), then the
Tranche Closing Date shall be extended by one Trading Day for each Trading Day
that such timely credit of DWAC Shares is not made.

    
      
         

      

      
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    (iii)        On
or before each Tranche Closing Date, Investor shall deliver to the Company, in
cash or immediately available funds, the Tranche Purchase Price to be paid for
such Tranche Shares.

     

    (iv)         The
closing (each a “Tranche Closing”) for
each Tranche shall occur on the date that both (i) the Company has delivered to
Investor all Required Tranche Documents, and (ii) Investor has delivered to the
Company the Tranche Purchase Price.

     

    (g)           Limitation on Obligations to
Purchase and Sell.  Notwithstanding any other provision, in the
event the Closing Bid Price of the Common Stock during any one or more of the 9
Trading Days following the Tranche Notice Date is below 75.0% of the initial
exercise price of the Warrant issued on the Effective Date, except as otherwise
agreed in writing between the Company and Investor: (i) the Company may, at its
option, and without penalty, terminate the Tranche Notice and decline to sell
any Tranche Shares on the Tranche Closing Date; and (ii) Investor may, at its
option, decline to purchase any Tranche Shares on the Tranche Closing
Date.

     

    2.4           Maximum
Placement.  Investor
shall not be obligated to purchase any additional Tranche Shares once the
aggregate Tranche Purchase Price paid by Investor equals the Maximum
Placement.

     

    2.5           Share
Sufficiency.  On
or before the date on which any portion of the Warrant become exercisable, the
Company shall have a sufficient number of duly authorized shares of Common Stock
for issuance in such amount as may be required to fulfill its obligations
pursuant to the Transaction Documents and any outstanding agreements with
Investor and any Affiliate of Investor.

     

    ARTICLE 3

    TERMINATION

     

    3.1           Termination.  The
Investor may elect to terminate this Agreement and the Company’s right to
initiate subsequent Tranches to Investor under this Agreement (each, a “Termination”) upon
the occurrence of any of the following:

     

    (a)           if,
at any time, either the Company or any director or executive officer of the
Company has engaged in a transaction or conduct related to the Company that has
resulted in (i) a SEC enforcement action, including without limitation such
director or executive officer being sanctioned by the SEC, or (ii) a civil
judgment or criminal conviction for fraud or misrepresentation, or for any other
offense that, if prosecuted criminally, would constitute a felony under
applicable law;

     

    (b)           on
any date after a Delisting Event that lasts for an aggregate of 20 Trading Days
during any calendar year;

     

    (c)           if
at any time the Company has filed for and/or is subject to any bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings for
relief under any bankruptcy law or any law for the relief of debtors instituted
by or against the Company or any Subsidiary of the Company;

    
      
         

      

      
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    (d)           the
Company is in breach or default of any Material Agreement, which breach or
default could have a Material Adverse Effect;

     

    (e)           the
Company is in breach or default of this Agreement, any Transaction Document, or
any agreement with Investor or any Affiliate of Investor;

     

    (f)           upon
the occurrence of a Fundamental Transaction;

     

    (g)           so
long as any Preferred Shares are outstanding, the Company effects or publicly
announces its intention to create a security senior to the Series D Preferred
Stock, or substantially altering the capital structure of the Company in a
manner that materially adversely affects the rights or preferences of the Series
D Preferred Stock except as disclosed in this Agreement or in a schedule;
and

     

    (h)           on
the Termination Date.

     

    3.2           Company
Termination.  The
Company may at any time in its sole discretion terminate (a “Company Termination”)
this Agreement and its right to initiate future Tranches by providing thirty
(30) days advance written notice (“Termination Notice”)
to Investor.

     

    3.3           Effect of
Termination.  Except
as otherwise provided herein, the termination of this Agreement will have no
effect on any Common Shares, Preferred Shares, Commitment Fee Shares, Warrant,
Warrant Shares, or DWAC Shares previously issued, delivered or credited, or on
any then-existing rights of any holder thereof; provided, however, upon
termination of this Agreement, any outstanding but unexercised portions of the
Warrant shall be automatically cancelled.  Notwithstanding any other
provision of this Agreement and regardless of whether the first Tranche has
closed, the Commitment Fee is payable despite any termination of this Agreement
and all fees paid to Investor or its counsel are non-refundable.

     

    ARTICLE 4

    REPRESENTATIONS
AND WARRANTIES

     

    4.1           Representations and
Warranties of the Company.  Except
as set forth under the corresponding section of the Disclosure Schedules, which
shall be deemed a part hereof and which shall not contain any material
non-public information, the Company hereby represents and warrants to, and as
applicable covenants with, Investor as of each Closing:

     

    (a)           Subsidiaries.  All
of the direct and indirect subsidiaries of the Company are set forth on Section 4.1(a) to the
Disclosure Schedule.  All entities with which the Company is presently
in discussion with regarding a potential acquisition or similar transaction are
set forth under Section 4.1(a) to the
Disclosure Schedule.  The Company owns, directly or indirectly, all of
the capital stock or other equity interests of each Subsidiary, and all of such
directly or indirectly owned capital stock or other equity interests are owned
free and clear of any Liens.  All the issued and outstanding shares of
capital stock of each Subsidiary are duly authorized, validly issued, fully
paid, non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities.

    
      
         

      

      
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    (b)           Organization and
Qualification.  Each of the Company and each Subsidiary is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, as applicable, with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any Subsidiary is in violation or
default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter
documents.  Each of the Company and each Subsidiary is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in a Material Adverse Effect and no
proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.

     

    (c)           Authorization;
Enforcement.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
hereunder or thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby or thereby have been duly authorized by all
necessary action on the part of the Company and no further consent or action is
required by the Company other than the filing of the Certificate of
Designations.  Each of the Transaction Documents has been, or upon
delivery will be, duly executed by the Company and, when delivered in accordance
with the terms hereof, will constitute the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.  Neither the Company nor
any Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, by-laws or other organizational or
charter documents.

     

    (d)           No
Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Securities
and the consummation by the Company of the other transactions contemplated
thereby do not and will not (i) conflict with or violate any provision of the
Company’s or any Subsidiary’s certificate or articles of incorporation, articles
of association, bylaws, or other organizational or charter documents, or (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary, or give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary debt or
otherwise) or other understanding to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) conflict with or result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or affected,
or (iv) conflict with or violate the terms of any agreement by which the Company
or any Subsidiary is bound or to which any property or asset of the Company or
any Subsidiary is bound or affected; except in the case of each of clauses (ii)
and (iii), such as could not have or reasonably be expected to result in a
Material Adverse Effect.

    
      
         

      

      
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    (e)           Filings, Consents and
Approvals.  Neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than the filing of the Certificate of Designations and required federal
and state securities filings and such filings and approvals as are required to
be made or obtained under the applicable Trading Market rules in connection with
the transactions contemplated hereby, each of which has been, or (if not yet
required to be filed) shall be, timely filed.

     

    (f)           Issuance of the
Securities.  The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens.  The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock and Preferred Stock for issuance of the
Securities at least equal to the number of Securities which could be issued
pursuant to the terms of the Transaction Documents, based on the
then-anticipated exercise prices of the Warrant.

     

    (g)           Capitalization.  The
capitalization of the Company is as described in the Company’s most recently
filed periodic SEC Report.  There are no shares of Series A Preferred
Stock or Series B  Preferred Stock issued or
outstanding.  Other than as set forth in Section 4.1(g) to the
Disclosure Schedule, the Company has not issued any capital stock since such
filing.  No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.  Except as a result of the
purchase and sale of the Securities or as set forth in the SEC Reports or on
Section 4.1(g)
to the Disclosure Schedule, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or securities convertible into or
exercisable for shares of Common Stock.  The issuance and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than Investor) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange, or reset price under such securities. All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and nonassessable,
have been issued in compliance with all federal and state securities laws, and
none of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities.  No further
approval or authorization of any stockholder, the Board of Directors of the
Company or others is required for the issuance and sale of the
Securities.  Except as set forth in the SEC Reports, there are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.

    
      
         

      

      
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    (h)           SEC Reports; Financial
Statements.  Except as set forth on Section 4.1(h) to the
Disclosure Schedule, the Company has filed all required SEC Reports for the two
years preceding the Effective Date (or such shorter period as the Company was
required by law to file such SEC Reports) on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension.  As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Act and the Exchange Act and the rules and regulations of the SEC
promulgated thereunder, as applicable, and none of the SEC Reports, when filed,
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 light of the circumstances under which they were made, not
misleading.  The financial statements of the Company included in the
SEC Reports comply in all material respects with applicable accounting
requirements and the 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 GAAP, except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present in
all material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.

     

    (i)           Material
Changes.  Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports and on Section 4(i) to the
Disclosure Schedule, (i) there has been no event, occurrence or development that
has had, or that could reasonably be expected to result in, a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice, and (B) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or required to be disclosed in filings made with the SEC, (iii) the Company
has not altered its method of accounting, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its stockholders
or purchased, redeemed or made any agreements to purchase or redeem any shares
of its capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company equity
incentive plans as disclosed in the SEC Reports.  The Company does not
have pending before the SEC any request for confidential treatment of
information.

     

    (j)           Litigation.  Except
as specifically disclosed in the SEC Reports, there is no action, suit, inquiry,
notice of violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state, county, local
or foreign) (collectively, an “Action”), which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities, or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect.  Neither the Company nor any Subsidiary, nor to the
knowledge of the Company any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary
duty.  There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the SEC involving the
Company or any current or former director or officer of the
Company.  The SEC has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Act.

    
      
         

      

      
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    (k)           Labor
Relations.  No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company, which could reasonably be expected to result in a Material Adverse
Effect.

     

    (l)           Compliance.  Neither
the Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other similar agreement or instrument to which it is a party or
by which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business, except in each case under clauses (i)-(iii) above as could not have a
Material Adverse Effect.

     

    (m)           Regulatory
Permits.  The Company and each Subsidiary possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect (“Material Permits”),
and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.

     

    (n)           Title to
Assets.  The Company and each Subsidiary have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and each Subsidiary and good and
marketable title in all personal property owned by them that is material to the
business of the Company and each Subsidiary, in each case free and clear of all
Liens, except for Liens that do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and each Subsidiary and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties.  Any real property and facilities held under
lease by the Company and each Subsidiary are held by them under valid,
subsisting and enforceable leases of which the Company and each Subsidiary are
in compliance.

     

    (o)           Patents and
Trademarks.  The Company and each Subsidiary have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have could have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”).  Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person.
To the knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights of the Company or each
Subsidiary.

    
      
         

      

      
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    (p)           Insurance.  The
Company and each Subsidiary are insured as needed by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which the Company and each
Subsidiary are engaged.  To the best of Company’s knowledge, such
insurance contracts and policies are accurate and complete.  Neither
the Company nor any 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 without a significant increase in cost.

     

    (q)           Transactions With Affiliates
and Employees.  Except as set forth in the SEC Reports, none of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and 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
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $120,000 other than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) for other employee benefits, including stock option agreements under any
equity incentive plan of the Company.

     

    (r)           Sarbanes-Oxley; Internal
Accounting Controls.  The Company is in material compliance
with all provisions of the Sarbanes-Oxley Act of 2002, which are applicable to
it as of the date of the Commitment Closing.  The Company and each
Subsidiary 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 accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.  The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s most recently
filed periodic report under the Exchange Act, as the case may be, is being
prepared.  The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the date
prior to the filing date of the most recently filed periodic report under the
Exchange Act (such date, the “Evaluation
Date”).  The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the Company’s disclosure controls and
procedures based on their evaluations as of the Evaluation
Date.  Since the Evaluation Date, there have been no significant
changes in the Company’s internal accounting controls or its disclosure controls
and procedures or, to the Company’s knowledge, in other factors that could
materially affect the Company’s internal accounting controls or its disclosure
controls and procedures.

    
      
         

      

      
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    (s)           Certain
Fees.  Except for the payment of the Commitment Fee, no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement.  Investor shall have no obligation
with respect to any fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section 4.1(s) that
may be due in connection with the transactions contemplated by this Agreement or
the other Transaction Documents.

     

    (t)           Private Placement.
Assuming the accuracy of Investor representations and warranties set forth in
Section 4.2, no
registration under the Act is required for the offer and sale of the Securities
by the Company to Investor as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of any
Trading Market.

     

    (u)           Investment Company.
The Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as
amended.  The Company shall conduct its business in a manner so that
it will not become subject to the Investment Company Act.

     

    (v)           Registration
Rights.  No Person (other than Investor pursuant to the
Transaction Documents) has any right to cause the Company to effect the
registration under the Act of any securities of the Company.

     

    (w)           Listing and Maintenance
Requirements.  The Common Stock is registered pursuant to
Section 12 of the Exchange Act, and the Company has taken no action designed to,
or which to its knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act nor has the Company
received any notification that the SEC is contemplating terminating such
registration.  The Company has not, in the 12 months preceding the
Effective Date, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market.
The Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance
requirements.

     

    (x)           Application of Takeover
Protections.  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
Certificate of Incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to Investor as a
result of Investor and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation the
Company’s issuance of the Securities and Investor’s ownership of the
Securities.

    
      
         

      

      
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    (y)           Disclosure; Non-Public
Information.  Except with respect to the information that will
be, and to the extent that it actually is timely publicly disclosed by the
Company pursuant to Section 2.2(c)(i),
and notwithstanding any other provision in this Agreement or the other
Transaction Documents, neither the Company nor any other Person acting on its
behalf has provided Investor or its agents or counsel with any information that
constitutes or might constitute material, non-public information, including
without limitation this Agreement and the Exhibits, Appendices and Schedules
hereto, unless prior thereto Investor shall have executed a written agreement
regarding the confidentiality and use of such information.  The
Company understands and confirms that neither Investor nor any Affiliate of
Investor shall have any duty of trust or confidence that is owed directly,
indirectly, or derivatively to the Company or the shareholders of the Company or
to any other Person who is the source of material non-public information
regarding the Company.  No information contained in the Disclosure
Schedules constitutes material non-public information.  There is no
adverse material information regarding the Company that has not been publicly
disclosed.  The Company understands and confirms that Investor will
rely on the foregoing representations and covenants in effecting transactions in
securities of the Company.  All disclosure provided to Investor
regarding the Company, its business and the transactions contemplated hereby,
including the Disclosure Schedules to this Agreement, furnished by or on behalf
of the Company with respect to the representations and warranties made herein
are true and correct in all material respects and do 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 light of the circumstances under
which they were made, not misleading.

     

    (z)           No Integrated
Offering. Neither the Company, nor any of its Affiliates, nor any Person
acting on its or their behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under
circumstances that would cause this offering of the Securities to be integrated
with prior offerings by the Company for purposes of the Act or which could
violate any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of the Trading Market.

     

    (aa)           Financial
Condition.  Based on the financial condition of the Company as
of the date of the Commitment Closing:  the Company’s assets do not
constitute unreasonably small capital to carry on its business for the current
fiscal year as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of the
business conducted by the Company and projected capital requirements and capital
availability thereof.  Except as set forth on Section 4(aa) to the
Disclosure Schedule, the Company does not intend to incur debts beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances, which lead it to believe that it will
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the date of the Commitment
Closing.  The SEC Reports set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any Subsidiary,
or for which the Company or any Subsidiary has commitments.  Neither
the Company nor any Subsidiary is in default with respect to any
Indebtedness.  In connection with the transactions contemplated by the
Transaction Documents, the Company (i) did not and does not have any intent to
hinder, delay, or defraud any of its creditors, (ii) had a valid business reason
for such transactions, (iii) received new value therefor and consideration
therefor constituting reasonably equivalent value and fair market value
consideration, and (iv) was not rendered insolvent by such transactions and,
after giving effect to such transactions, is able to pay its debts as they
mature.

    
      
         

      

      
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    (bb)           Tax
Status.  The Company and each of its Subsidiaries has made or
filed all federal, state and foreign income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and 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 has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply.  There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim.  The
Company has not executed a waiver with respect to the statute of limitations
relating to the assessment or collection of any foreign, federal, statue or
local tax.  None of the Company’s tax returns is presently being
audited by any taxing authority.

     

    (cc)           No General Solicitation or
Advertising.  Neither the Company nor, to the knowledge of the
Company, any of its directors or officers (i) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation D) or
general advertising with respect to the sale of the Securities, or (ii) made any
offers or sales of any security or solicited any offers to buy any security
under any circumstances that would require registration of the Securities under
the Act or made any “directed selling efforts” as defined in Rule 902 of
Regulation S.

     

    (dd)           Foreign Corrupt
Practices.  Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any corrupt funds for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is  in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.

     

    (ee)           Acknowledgment Regarding
Investor’s Purchase of Securities.  The Company acknowledges
and agrees that Investor is acting solely in the capacity of arm’s length
purchaser with respect to this Agreement and the transactions contemplated
hereby.  The Company further acknowledges that Investor is not acting
as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated hereby and any
statement made by Investor or any of its representatives or agents in connection
with this Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to Investor’s purchase of the
Securities.  The Company further represents to Investor that the
Company’s decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.

    
      
         

      

      
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    (ff)           Accountants.  The
Company’s accountants are set forth in the SEC Reports and such accountants are
an independent registered public accounting firm as required by the
Act.

     

    (gg)         No Disagreements with
Accountants and Lawyers.  There are no disagreements of any
kind presently existing, or reasonably anticipated by the Company to arise,
between the accountants and lawyers formerly or presently employed by the
Company, and the Company is current with respect to any fees owed to its
accountants and lawyers, except for any past-due amounts that may be owed in the
ordinary course of business.

     

    (hh)         Registration
Statements and Prospectuses.

     

    (i)           The
offer and sale of the Common Shares as contemplated hereby complies with the
requirements of Rule 415 under the Act.

     

    (ii)         The
Company has not, directly or indirectly, used or referred to any “free writing
prospectus” (as defined in Rule 405 under the Act) except in compliance with
Rules 164 and 433 under the Act.

     

    (iii)        The
Company is not an “ineligible issuer” (as defined in Rule 405 under the Act) as
of the eligibility determination date for purposes of Rules 164 and 433 under
the Act with respect to the offering of the Common Shares contemplated by any
Registration Statement filed or to be filed, without taking into account any
determination by the SEC pursuant to Rule 405 under the Act that it is not
necessary under the circumstances that the Company be considered an “ineligible
issuer.”

     

    (ii)           Section 5 Compliance.
No representation or warranty or other statement made by Company in the
Transaction Documents contains any untrue statement or omits to state a material
fact necessary to make any of them, in light of the circumstances in which it
was made, not misleading. The Company
is not aware of any facts or circumstances that would cause the transactions
contemplated by the Transaction Documents, when consummated, to violate Section
5 of the Act or other federal or state securities laws or
regulations.

     

    4.2          Representations
and Warranties of Investor. Investor hereby represents and warrants as of
the Effective Date as follows:

     

    (a)           Organization;
Authority.  Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with full right, company power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations thereunder.  The execution,
delivery and performance by Investor of the transactions contemplated by this
Agreement have been duly authorized by all necessary company or similar action
on the part of Investor.  Each Transaction Document to which it is a
party has been (or will be) duly executed by Investor, and when delivered by
Investor in accordance with the terms hereof, will constitute the valid and
legally binding obligation of Investor, enforceable against it in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.

    
      
         

      

      
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    (b)           Investor
Status.  At the time Investor was offered the Securities, it
was, and at the Effective Date it is an “accredited investor” as defined in Rule
501(a) under the Act.

     

    (c)           Experience of
Investor.  Investor, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment.  Investor is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.

     

    (d)           General
Solicitation.  Investor 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 or any other
general solicitation or general advertisement.

     

    The
Company acknowledges and agrees that Investor does not make or has not made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section
4.2.

     

    ARTICLE 5

    OTHER
AGREEMENTS OF THE PARTIES

     

    5.1          Transfer
Restrictions

     

    (a)           The
Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any transfer of Securities other
than (i) pursuant to an effective Registration Statement or Rule 144, (ii) to
the Company, (iii) to an Affiliate of Investor, or (iv) in connection with a
pledge as contemplated in Section 5.1(b), the
Company may require the transferor thereof to provide to the Company an opinion
of Luce Forward Hamilton & Scripps LLP (“Luce Forward”), or
other counsel selected by the transferor and reasonably acceptable to the
Company, to the effect that such transfer does not require registration of such
transferred Securities under the Act.

     

    (b)           Investor
agrees to the imprinting, so long as is required by this Section 5.1, of the following
legend, or substantially similar legend, on any certificate evidencing
Securities other than DWAC Shares:

    
      
         

      

      
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    NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

     

    The
Company agrees to cause such legend to be removed immediately upon effectiveness
of a Registration Statement, or when any Common Shares are eligible for sale
under Rule 144.  Company further acknowledges and agrees that Investor
may from time to time pledge pursuant to a bona fide margin agreement with a
registered broker-dealer or grant a security interest in some or all of the
Securities to a financial institution that is an “accredited investor” as
defined in Rule 501(a) under the Act and who agrees to be bound by the
provisions of this Agreement and, if required under the terms of such
arrangement, Investor may transfer pledged or secured Securities to the pledgees
or secured parties.  Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection
therewith.  Further, no notice shall be required of such
pledge.  At Investor’s reasonable expense, the Company will execute
and deliver such documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the
Securities.

     

    5.2           Furnishing of
Information.  As
long as Investor owns Securities, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the Effective Date
pursuant to the Exchange Act.  Upon the request of Investor, the
Company shall deliver to Investor a written certification of a duly authorized
officer as to whether it has complied with the preceding sentence. As long as
Investor owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to Investor and make publicly
available in accordance with Rule 144(c) such information as is required for
Investor to sell the Securities under Rule 144.  The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request, all to the extent required from time to time to enable such
Person to sell such Securities without registration under the Act within the
limitation of the exemptions provided by Rule 144.

     

    5.3           Integration.  The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Act) that
would be integrated with the offer or sale of the Securities in a manner that
would require the registration under the Act of the sale of the Securities to
Investor or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of any Trading Market such that it
would require stockholder approval prior to the closing of such other
transaction unless stockholder approval is obtained before the closing of such
subsequent transaction.

    
      
         

      

      
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    5.4           Securities Laws Disclosure;
Publicity.  The
Company shall timely file a Current Report on Form 8-K as required by this
Agreement, and in the Company’s discretion shall file a press release, in each
case reasonably acceptable to Investor, disclosing the material terms of the
transactions contemplated hereby.  The Company and Investor shall
consult with each other in issuing any press releases with respect to the
transactions contemplated hereby, and neither the Company nor Investor shall
issue any such press release or otherwise make any such public statement without
the prior consent of the Company, with respect to any such press release of
Investor, or without the prior consent of Investor, with respect to any such
press release of the Company, which consent shall not unreasonably be withheld
or delayed, except if such disclosure is required by law or Trading Market
regulations, in which case the disclosing party shall promptly provide the other
party with prior notice of such public statement or
communication.  Notwithstanding the foregoing, the Company shall not
publicly disclose the name of Investor, or include the name of Investor in any
filing with the SEC or any regulatory agency or Trading Market, without the
prior written consent of Investor, except (i) as contained in the Current Report
on Form 8-K and press release described above, (ii) as required by federal
securities law in connection with any registration statement under which the
Common Shares are registered, (iii) to the extent such disclosure is required by
law or Trading Market regulations, in which case the Company shall provide
Investor with prior notice of such disclosure, or (iv) to the extent such
disclosure is required in any SEC Report filed by the Company.

     

    5.5           Shareholders Rights
Plan.  No
claim will be made or enforced by the Company or, to the knowledge of the
Company, any other Person that Investor is an “Acquiring Person” under any
shareholders rights plan or similar plan or arrangement in effect or hereafter
adopted by the Company, or that Investor could be deemed to trigger the
provisions of any such plan or arrangement, by virtue of receiving Securities
under the Transaction Documents or under any other agreement between the Company
and Investor. The Company shall conduct its business in a manner so that it will
not become subject to the Investment Company Act of 1940, as
amended.

     

    5.6           Non-Public
Information.  The
Company covenants and agrees that neither it nor any other Person acting on its
behalf will provide Investor or its agents or counsel with any information that
the Company believes or reasonably should believe constitutes material
non-public information, unless prior thereto Investor shall have executed a
written agreement regarding the confidentiality and use of such
information.  On and after the Effective Date, neither Investor nor
any Affiliate Investor shall have any duty of trust or confidence that is owed
directly, indirectly, or derivatively, to the Company or the shareholders of the
Company, or to any other Person who is the source of material non-public
information regarding the Company.  The Company understands and
confirms that Investor shall be relying on the foregoing in effecting
transactions in securities of the Company.

    
      
         

      

      
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    5.7         Reimbursement.  If
Investor becomes involved in any capacity in any proceeding by or against any
Person who is a stockholder of the Company (except as a result of sales,
pledges, margin sales and similar transactions by Investor to or with any
current stockholder), solely as a result of Investor’s acquisition of the
Securities under this Agreement, the Company will reimburse Investor for its
reasonable legal and other expenses (including the cost of any investigation
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred, or will assume the defense of Investor
in such matter.  The reimbursement obligations of the Company under
this Section
5.7 shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of
Investor who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of Investor and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, Investor and any such Affiliate and any such
Person.  The Company also agrees that neither Investor nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.

     

    5.8         Indemnification of
Investor

     

    (a)           Company Indemnification
Obligation.  Subject to the provisions of this Section 5.8, the
Company will indemnify and hold Investor and any Warrant holder, their
Affiliates and attorneys, and each of their directors, officers, shareholders,
partners, employees, agents, and any person who controls Investor within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act
(collectively, the “Investor Parties” and
each an “Investor
Party”), harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation (collectively, “Losses”) that any
Investor Party may suffer or incur as a result of or relating to (i) any breach
of any of the representations, warranties, covenants or agreements made by the
Company in this Agreement or in the other Transaction Documents, (ii) any action
instituted against any Investor Party, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of an
Investor Party, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of Investor’s
representations, warranties or covenants under the Transaction Documents or any
agreements or understandings Investor may have with any such stockholder or any
violations by Investor of state or federal securities laws or any conduct by
Investor which constitutes fraud, gross negligence, willful misconduct or
malfeasance), (iii)  any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement (or in a Registration
Statement as amended by any post-effective amendment thereof by the Company) or
arising out of or based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and/or (iv) any untrue statement or alleged untrue
statement of a material fact included in any Prospectus ( or any amendments or
supplements to any Prospectus ), in any free writing prospectus, in any “issuer
information” (as defined in Rule 433 under the Act) of the Company, or in any
Prospectus together with any combination of one or more of the  free
writing prospectuses, if any, or arising out of or based upon any omission or
alleged omission to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

     

    (b)           Indemnification
Procedures.  If any action shall be brought against an Investor
Party in respect of which indemnity may be sought pursuant to this Agreement,
such Investor Party shall promptly notify the Company in writing, and the
Company shall have the right to assume the defense thereof with counsel of its
own choosing.  The Investor Parties shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and
expenses of such counsel shall be at the expense of the Investor Parties except
to the extent that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a reasonable period
of time to assume such defense and to employ counsel or (iii) in such action
there is, in the reasonable opinion of such separate counsel, a material
conflict with respect to the dispute in question on any material issue between
the position of the Company and the position of the Investor Parties such that
it would be inappropriate for one counsel to represent the Company and the
Investor Parties.  The Company will not be liable to the Investor
Parties under this Agreement (i) for any settlement by an Investor Party
effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is either attributable to Investor’s
breach of any of the representations, warranties, covenants or agreements made
by Investor in this Agreement or in the other Transaction
Documents.

     

    
      
        
        

      

      
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    5.9         Reservation of
Securities.  The
Company shall maintain a reserve from its duly authorized shares of Common Stock
for issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations in full under the Transaction
Documents.

     

    5.10       Limited
Standstill.  The
Company will deliver to Investor on or before each Tranche Closing Date, and
will honor and enforce, and will take reasonable actions to assist Investor in
enforcing, the provisions of, the Lock-Up Agreements with the Company’s
officers, directors and beneficial owners of 10% or more of the Common
Stock.

     

    5.11       Prospectus Availability and
Changes.  The
Company will make available to Investor upon request, and thereafter from time
to time will furnish Investor, as many copies of any Prospectus (or of the
Prospectus as amended or supplemented if the Company shall have made any
amendments or supplements thereto after the effective date of the applicable
Registration Statement) as Investor may request for the purposes contemplated by
the Act; and in case Investor is required to deliver  a prospectus
after the nine-month period referred to in Section 10(a)(3) of the Act in
connection with the sale of the Common Shares, or after the time a
post-effective amendment to the applicable Registration Statement is required
pursuant to Item 512(a) of Regulation S-K under the Act, the Company will
prepare, at its expense, promptly upon request such amendment or amendments to
the Registration Statement and the Prospectus as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act or Item 512(a)
of Regulation S-K under the Act, as the case may be.

     

    The
Company will advise Investor promptly of the happening of any event within the
time during which a Prospectus is required to be delivered under the Act which
could require the making of any change in the Prospectus then being used so that
the Prospectus would not include an untrue statement of material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading, and to
advise Investor promptly if, during such period, it shall become necessary to
amend or supplement any Prospectus to cause such Prospectus to comply with the
requirements of the Act, and in each case, during such time, to prepare and
furnish, at the Company’s expense, to Investor promptly such amendments or
supplements to such Prospectus as may be necessary to reflect any such change or
to effect such compliance.

    
      
         

      

      
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    5.12       Required
Approval.  No transactions contemplated under this Agreement or
the Transaction Documents shall be consummated for an amount that would require
approval by any Trading Market or Company stockholders under any approval
provisions, rules or regulations of any Trading Market applicable to the
Company, unless and until such approval is obtained.  Company shall
use best efforts to obtain any required approval as soon as
possible.

     

    5.13       Activity
Restrictions.  For so long as Investor or any of its Affiliates
holds any Preferred Shares, Commitment Fee Shares, Warrant, Warrant Shares, or
DWAC Shares, neither Investor nor any Affiliate will: (i) vote any shares of
Common Stock owned or controlled by it, solicit any proxies, or seek to advise
or influence any Person with respect to any voting securities of the Company;
(ii) engage or participate in any actions, plans or proposals which relate to or
would result in (a) acquiring additional securities of the Company, alone or
together with any other Person, which would result in beneficially owning or
controlling more than 9.99% of the total outstanding Common Stock or other
voting securities of the Company, (b) an extraordinary corporate transaction,
such as a merger, reorganization or liquidation, involving Company or any of its
subsidiaries, (c) a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries, (d) any change in the present board of
directors or management of the Company, including any plans or proposals to
change the number or term of directors or to fill any existing vacancies on the
board, (e) any material change in the present capitalization or dividend policy
of the Company, (f) any other material change in the Company’s business or
corporate structure, including but not limited to, if the Company is a
registered closed-end investment company, any plans or proposals to make any
changes in its investment policy for which a vote is required by Section 13 of
the Investment Company Act of 1940, (g) changes in the Company’s charter, bylaws
or instruments corresponding thereto or other actions which may impede the
acquisition of control of the Company by any Person, (h) causing a class of
securities of the Company to be delisted from a national securities exchange or
to cease to be authorized to be quoted in an inter-dealer quotation system of a
registered national securities association, (i) a class of equity securities of
the Company becoming eligible for termination of registration
pursuant  to Section 12(g)(4) of the Act, or (j) any action,
intention, plan or arrangement similar to any of those enumerated above; or
(iii) request the Company or its directors, officers, employees, agents or
representatives to amend or waive any provision of this Section
5.13.

     

    5.14       Registration
Statements and Prospectuses.

     

    (a)           The
Company will use its best efforts to file within 45 calendar days after the
Effective Date (or as soon as possible thereafter), to cause to become effective
as soon as possible thereafter, and to remain effective until all Common Shares
have been sold or are Rule 144 Eligible, a Registration Statement for the resale
of all Common Shares issued hereunder (including without limitation all Warrant
Shares underlying the Warrant and any Common Shares that may be issued to
Investor in payment of the Commitment Fee).  Each Registration
Statement shall comply when it becomes effective, and, as amended or
supplemented, at the time of any Tranche Notice Date, Tranche Closing Date, or
issuance of any Common Shares, and at all times during which a prospectus is
required by the Act to be delivered in connection with any sale of Common
Shares, will comply, in all material respects, with the requirements of the
Act.

     

    (b)           Each
Registration Statement, as of its respective effective time, will not, as
applicable, 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 not misleading.

    
      
         

      

      
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    (c)          Each
Prospectus will comply, as of its date and the date it  will be filed
with the SEC,  and, at the time of any Tranche Notice Date, Tranche
Closing Date, or issuance of any Common Shares, and at all times during which a
prospectus is required by the Act to be delivered in connection with any sale of
Common Shares, will comply, in all material respects, with the requirements of
the Act.

     

    (d)          At
no time during the period that begins on the date a Prospectus is filed with the
SEC and ends at the time a Prospectus is no longer required by the Act to be
delivered in connection with any sale of Common Shares will any such Prospectus,
as then amended or supplemented, include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

     

    (e)          Each
Registration Statement will meet, and the offering and sale of the Common Shares
as contemplated hereby will comply with, the requirements of Rule 415 under the
Act.

     

    (f)           The
Company will not, directly or indirectly, use or refer to any “free writing
prospectus” (as defined in Rule 405 under the Act) except in compliance with
Rules 164 and 433 under the Act.

     

    (g)          The
Company will not be an “ineligible issuer” (as defined in Rule 405 under the
Act) as of the eligibility determination date for purposes of Rules 164 and 433
under the Act with respect to the offering of the Common Shares contemplated by
any Registration Statement that is filed, without taking into account any
determination by the SEC pursuant to Rule 405 under the Act that it is not
necessary under the circumstances that the Company be considered an “ineligible
issuer.”

     

    5.15      
Investor
Due Diligence.  Investor shall have the right and opportunity
to conduct due diligence, at its own expense, with respect to any Registration
Statement or Prospectus in which the name of Investor or any Affiliate of
Investor appears.

     

    ARTICLE 6

    MISCELLANEOUS

     

    6.1         Fees and
Expenses.  Except
for the $20,000.00 non-refundable document preparation fee previously paid by
the Company to counsel for Investor, the receipt of which is hereby
acknowledged, the $5,000.00 non-refundable administrative fee payable to counsel
for Investor at each Tranche Closing, the $5,000.00 non-refundable fee payable
to counsel for Investor with respect to the exchange transaction described in
Section 5.16,
or as may be otherwise provided in this Agreement, each party shall pay the fees
and expenses of its own advisers, counsel, accountants and other experts, if
any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of the Transaction
Documents.  The Company acknowledges and agrees that Luce Forward
solely represents Investor, and does not represent the Company or its interests
in connection with the Transaction Documents or the transactions contemplated
thereby.  The Company shall pay all stamp and other taxes and duties
levied in connection with the sale of the Securities, if any.

    
      
         

      

      
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    6.2           Notices.  Unless
a different time of day or method of delivery is set forth in the Transaction
Documents, any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given
and effective on the earliest of:  (a) the date of transmission, if
such notice or communication is delivered via facsimile or electronic mail prior
to 5:30 p.m. Eastern time on a Trading Day and an electronic confirmation of
delivery is received by the sender, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered later than 5:30 p.m.
Eastern time or on a day that is not a Trading Day, (c) three Trading Days
following the date of mailing, if sent by U.S. nationally recognized overnight
courier service, or (d) upon actual receipt by the party to whom such notice is
required to be given.  The addresses for such notices and
communications are those set forth following the signature page hereof, or such
other address as may be designated in writing hereafter, in the same manner, by
such Person.

     

    6.3           Amendments;
Waivers.  No
provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and Investor or,
in the case of a waiver, by the party against whom enforcement of any such
waiver is sought.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

     

    6.4           Headings.  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

     

    6.5           Successors and
Assigns.  This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns.  The Company may not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of Investor, which consent shall not be unreasonably withheld or
delayed.  Investor may assign any or all of its rights under this
Agreement (a) to any Affiliate, or (b) to any Person to whom Investor assigns or
transfers any Securities.

     

    6.6           No Third-Party
Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set forth
in Section
5.8.

    
      
         

      

      
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    6.7           Governing Law; Dispute
Resolution.  All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law that would require or permit the application of
the laws of any other jurisdiction.  Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective affiliates, directors,
officers, shareholders, employees or agents) shall be commenced exclusively in
the state and federal courts sitting in the City 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 (including with respect to the enforcement of any of the Transaction
Documents), 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 improper
or inconvenient venue for such proceeding.  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 via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by
law.  The parties hereby waive all rights to a trial by
jury.  If either party shall commence an action or proceeding to
enforce any provisions of the Transaction Documents, then the prevailing party
in such action or proceeding shall be reimbursed by the other party for its
reasonable attorneys’ fees and other costs and expenses reasonably incurred in
connection with the investigation, preparation and prosecution of such action or
proceeding.

     

    6.8           Survival.  The
representations and warranties contained herein shall survive the Closing and
the delivery and exercise of the Securities.

     

    6.9           Execution.  This
Agreement may be executed in two or more counterparts, all of which when taken
together 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, it being understood that both parties need not sign the same
counterpart.  In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

     

    6.10    
    Severability.  If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.

     

    6.11     
   Replacement of
Securities.  If
any certificate or instrument evidencing any Securities is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt of
evidence reasonably satisfactory to the Company of such loss, theft or
destruction and customary and reasonable indemnity, if requested.  The
applicants for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs associated with the issuance of such
replacement Securities.

     

    6.12      
  Remedies.  In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of Investor and the Company will be
entitled to specific performance under the Transaction Documents.  The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be
adequate.

    
      
         

      

      
        32

        
          

        

      

      
         

      

    

     

    6.13         Payment Set
Aside.  To
the extent that the Company makes a payment or payments to Investor pursuant to
any Transaction Document or Investor enforces or exercises its rights
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, 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.

     

    6.14         Liquidated
Damages.  The
Company’s obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of the Company
and shall not terminate until all unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security
pursuant to which such partial liquidated damages or other amounts are due and
payable shall have been cancelled.

     

    6.15         Time of the
Essence.  Time
is of the essence with respect to all provisions of this Agreement that specify
a time for performance.

     

    6.16   
     Construction.  The
parties agree that each of them and/or their respective counsel has reviewed and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto. 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.

     

    6.17         Entire
Agreement.  This
Agreement, together with the Exhibits, Appendices and Schedules hereto, contains
the entire agreement and understanding of the parties, and supersedes all prior
and contemporaneous agreements, term sheets, letters, discussions,
communications and understandings, both oral and written, which the parties
acknowledge have been merged into this Agreement.  No party,
representative, attorney or agent has relied upon any collateral contract,
agreement, assurance, promise, understanding or representation not expressly set
forth hereinabove.  The parties hereby expressly waive all rights and
remedies, at law and in equity, directly or indirectly arising out of or
relating to, or which may arise as a result of, any Person’s reliance on any
such assurance.

    
      
         

      

      
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    IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.

    

    YASHENG
ECO-TRADE CORPORATION

     

    
      
        
          
            
              	
                      By:  

                    	
                      /s/

                    

            

          

        

      

      Name:
Yossi Attia

      Title:   CEO

      

      SOCIUS
SPECIAL SITUATIONS CAPITAL GROUP, LLC

      

      
        
          
            	
                    By:  

                  	
                    /s/

                  

          

        

      

      
        
          
            
              
                
                  
                    	
                            Name:  

                          	
                              

                          
	
                            Title:  

                          	
                              

                          

                  

                

              

            

          

        

      

      

        
          
             

          

          
            
            

            
              

            

          

          
             

          

        

      

    

     

    Addresses
for Notice

    

    To
Company:

    

    Yasheng
Eco-Trade Corporation

    1061-1/2
Spaulding Avenue

    West
Hollywood, California 90046

    Attention:
Yossi Attia, CEO

    Fax
No.:  (323) 822-1784

    Email:  yossi@asholdings.com

    

    with a
copy to:

    

    Law
Offices of Stephen M. Fleming PLLC

    49 Front
Street, Suite 206

    Rockville
Centre, New York  11570

    Attention:
Stephen M. Fleming

    Fax No.:
(516) 977-1209

    Email:
smf@flemingpllc.com

    

    To
Investor:

     

    Socius
Special Situations Capital Group, LLC

    11150
Santa Monica Boulevard, Suite 1500

    Los
Angeles, California 90025

    Fax
No.:  (310) 444-5300

    Email:
info@sociuscg.com

     

    with a
copy to:

     

    Luce
Forward Hamilton & Scripps LLP

    601 South
Figueroa Street, Suite 3900

    Los
Angeles, California 90017

    Attention:  John
C. Kirkland, Esq.

    Fax
No.:  (213) 452-8035

    Email:  jkirkland@luce.com

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    Exhibit
A

     

    Form
of Warrant

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

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

     

    Yasheng
Eco-Trade Corporation

     

    Warrant
To Purchase Common Stock

     

    
      	
              Warrant
      No.: 2009-1

            	 
      	
              Issuance
      Date:   December 30,
2009

            

    

    

    Number of
Warrant Shares:  306,818,182

    

    Initial
Exercise Price:  $0.022 per share

    

    Yasheng
Eco-Trade Corporation, a Delaware corporation (“Company”), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Socius CG II, Ltd., a Bermuda exempted
company, the holder hereof or its designees or assigns (“Holder”), is
entitled, subject to the terms set forth herein, to purchase from the Company,
at the Exercise Price then in effect, upon exercise of this Warrant to Purchase
Common Stock (including any Warrant to Purchase Common Stock issued in exchange,
transfer or replacement hereof, the “Warrant”), at any
time or times after issuance of the Warrant and until 11:59 p.m. Eastern time on
the fifth anniversary of the Tranche Notice Date for each applicable Warrant
Tranche, subject to acceleration pursuant to Section 3.3 hereof,
that number of duly authorized, validly issued, fully paid and non-assessable
shares of Common Stock set forth above and as adjusted herein (the “Warrant Shares”);
provided, however, that this
Warrant may only be exercised, from time to time, for that number of shares of
Common Stock equal to 135% of the cumulative amount of Tranche Purchase Prices
under Tranche Notices delivered prior to or on the date of
exercise.  Except as otherwise defined herein, capitalized terms in
this Warrant shall have the meanings set forth in ARTICLE 13
hereof.

     

    This
Warrant is issued pursuant to the Preferred Stock Purchase Agreement dated
December 30, 2009, by and among the Company and the investor referred to therein
(the “Purchase Agreement”).

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    This
Warrant shall consist of and be exercisable in tranches (each, a “Warrant
Tranche”), with a separate tranche being created upon each delivery of a Tranche
Notice under the Purchase Agreement.  Each Warrant Tranche will grant
to the Holder the right, for a five-year period commencing on the applicable
Tranche Notice Date, to exercise the Warrant and purchase up to a number of
shares of Common Stock with an Aggregate Exercise Price equal to 135% of the
Tranche Purchase Price for the applicable Tranche Notice.  Attached to
this Warrant is a schedule (the “Warrant Tranche Schedule”) that sets forth the
issuance date, the number of Warrant Shares, and the Exercise Price for each
Warrant Tranche.  The Warrant Tranche Schedule shall be updated by the
Company, with an updated copy provided to the Holder, promptly following each
exercise of this Warrant.  No portion of this Warrant shall vest or be
exercisable except under the Warrant Tranches.

     

    ARTICLE 1

    EXERCISE
OF WARRANT.

     

    1.1    
    Mechanics
of Exercise.

     

    1.1.1          Subject
to the terms and conditions hereof, this Warrant may be exercised by the Holder
on any day on or after the Issuance Date, in whole or in part, by (i) delivery
of a written notice to the Company, in the form attached hereto as Appendix 1
(the “Exercise Notice”), of the Holder’s election to exercise this Warrant, and
(ii) 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”), with such payment made, at
Investor’s option, (x) in cash or by wire transfer of immediately available
funds, (y) by the issuance and delivery of a recourse promissory note
substantially in the form attached hereto as Appendix 2 (each, a “Recourse
Note”), or (z) if applicable, by cashless exercise pursuant to Section
1.3.

     

    1.1.2          The
Holder shall not be required to deliver the original Warrant in order to effect
an exercise hereunder.  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.

     

    1.1.3          On
the Trading Day on which the Company has received each of the Exercise Notice
and the Aggregate Exercise Price (the “Exercise Delivery Documents”) from the
Holder by 6:30 p.m. Eastern time, or on the next Trading Day if the Exercise
Delivery Documents are received after 6:30 p.m. Eastern time or on a non-Trading
Day (in each case, the “Exercise Delivery Date”), the Company shall transmit (i)
a facsimile acknowledgment of confirmation of receipt of the Exercise Delivery
Documents to the Holder, and (ii) an electronic copy of its share issuance
instructions to the Holder and to the Company’s transfer agent (the “Transfer
Agent”), with such transmissions to comply with the notice provisions contained
in Section 6.2 of the Purchase Agreement, and shall instruct and authorize the
Transfer Agent to credit such aggregate number of freely-tradable Warrant Shares
to which the Holder is entitled to receive upon such exercise to the Holder’s or
its designee’s balance account with The Depository Trust Company (DTC) through
the Fast Automated Securities Transfer (FAST) Program through its Deposit
Withdrawal Agent Commission (DWAC) system, with such credit to occur no later
than 12:00 p.m. Eastern Time on the Trading Day following the Exercise Delivery
Date, time being of the essence; provided, however, that if the Warrant Shares
are not credited as DWAC Shares by 12:00 p.m. Eastern Time on the Trading Day
following the Exercise Delivery Date, then the Tranche Closing Date applicable
to the Exercise Notice shall be extended by one Trading Day for each Trading Day
that timely credit of DWAC Shares is not made.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    1.1.4          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.  Any
Warrant delivered in connection with a Tranche Notice and exercised by Holder
shall be deemed exercised (i) on the Tranche Notice Date, if exercised by 6:30
p.m. Eastern time on the Tranche Notice Date, or (ii) on the next Trading Day,
if exercised by Investor after 6:30 p.m. Eastern Time on the Tranche Notice Date
or on any other date, in each case with Holder deemed to be a holder of record
as of such date.

     

    1.1.5          If
this Warrant is exercised and the number of Warrant Shares represented by this
Warrant is greater than the number of Warrant Shares being acquired upon such
exercise, then the Company shall, as soon as practicable and in no event later
than one Trading Day after such exercise, update the Tranche Exercise Schedule
to reflect the revised number of Warrant Shares for which this Warrant is then
exercisable and deliver a copy of the updated Tranche Exercise Schedule to the
Holder.  No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock to
be issued shall be rounded up to the nearest whole number.  The
Company shall pay any and all taxes which may be payable with respect to the
issuance and delivery of Warrant Shares upon exercise of this
Warrant.

     

    1.2         Adjustments
to Exercise Price and Number of Shares.  In addition to other
adjustments specified herein, the Exercise Price of this Warrant and the number
of shares of Common Stock issuable upon exercise shall be adjusted as
follows:

     

    1.2.1          Exercise
Price.  The “Exercise Price” per share of Common Stock
underlying this Warrant, subject to further adjustment as provided herein, shall
be as follows: (i) with
respect to the portion of this Warrant issued on the Effective Date and until
the first Tranche Notice Date, the amount per Warrant Share set forth on the
face of this Warrant, which is equal to Closing Bid Price for the Common Stock
on the Trading Day prior to the Effective Date, and (ii) with respect to the
portion of this Warrant that becomes exercisable on any Tranche Notice Date
(including the first Tranche Notice Date), an amount per Warrant Share equal to
the Closing Bid Price of a share of Common Stock on such Tranche Notice
Date.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    1.2.2          Number of
Shares.  The number of Warrant Shares underlying this Warrant
and each Warrant Tranche, subject to further adjustment as provided herein,
shall be as follows: (i) with respect to the portion of this Warrant issued on
the Effective Date and until the first Tranche Notice Date, the number of shares
set forth on the face of this Warrant, which is a number of shares of Common
Stock equal to the Maximum Placement multiplied by 135%, with the resulting sum
divided by the Closing Bid Price of a share of Common Stock on the Trading Day
prior to the Effective Date, and (ii) with respect to the portion of this
Warrant issued on any Tranche Notice Date including the first Tranche Notice
Date, a number of shares equal to the Tranche Purchase Price set forth in the
applicable Tranche Notice multiplied by 135%, with the resulting sum divided by
the Closing Bid Price of a share of Common Stock on the Tranche Notice
Date.  For example, if the Tranche Purchase Price is $1,000,000 and
the Closing Bid Price is $0.50, then the number of Warrant Shares underlying
that Warrant Tranche shall be $1,000,000 x 135% = $1,350,000 divided by $0.50 =
2,700,000 shares of Common Stock.  On each Tranche Notice Date, the
number of Warrant Shares underlying the related Warrant Tranche shall vest and
become exercisable, and the aggregate number of Warrant Shares underlying this
Warrant that are currently exercisable shall automatically adjust up or down to
account for the change in the number of Warrant Shares covered by the new
Warrant Tranche and for any Warrant Shares issued upon any prior or simultaneous
exercise of this Warrant.  If at any time the Holder reasonably
believes that the number of Warrant Shares included in the Registration
Statement is not sufficient to cover all exercises under this Warrant, then the
Company shall amend such Registration Statement to include the additional number
of Warrant Shares that may be required to provide such coverage.

     

    1.3         Cashless
Exercise.  Notwithstanding anything contained herein to the
contrary, if at any time there is not a current, valid and effective
registration statement covering the Warrant Shares that are the subject of the
Exercise Notice (the “Unavailable Warrant Shares”), 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 shares of Common Stock determined according to the
following formula (a “Cashless Exercise”):

     

    Net
Number = (B-C) x
A

                                    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
average of the Closing Sale Prices of the shares of Common Stock (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.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

    1.4           Company’s
Failure to Timely Deliver Securities.  If the Company shall
fail for any reason or for no reason to credit to the Holder’s balance account
with DTC, by 12:00 p.m. Eastern time on the Trading Day following the Exercise
Delivery Date, the number of shares of Common Stock to which the Holder is
entitled upon the Holder’s exercise of this Warrant, then, in addition to all
other remedies available to the Holder, the Company shall pay in cash to the
Holder on each day after such Trading Day that the issuance of such shares of
Common Stock is not timely effected an amount equal to 1.5% of the product of
(A) the sum of the number of shares of Common Stock not issued to the Holder on
a timely basis and to which the Holder is entitled and (B) the Closing Bid Price
of the shares of Common Stock on the Trading Day immediately preceding the last
possible date which the Company could have issued such shares of Common Stock to
the Holder without violating Section 1.1.  In addition to the
foregoing, if after the Company’s receipt of an Exercise Notice the Company
shall fail to timely (pursuant to Section 1.1.3 hereof) credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder’s exercise hereunder, and the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the
Company, then the Company shall, within one Trading Day 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, if any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to credit such Holder’s balance
account with DTC for the number of Warrant Shares to which the Holder is
entitled upon the Holder’s exercise hereunder and to issue such Warrant Shares
shall terminate, or (ii) promptly honor its obligation to credit such Holder’s
balance account with DTC for the number of Warrant Shares to which the Holder is
entitled upon the Holder’s exercise hereunder and pay cash to the Holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock sold by Holder in satisfaction of its
obligations, times (B) the Closing Bid Price on the date of
exercise.

     

    1.5           Exercise
Limitation.  Notwithstanding any other provision, at no time
may the Holder (a) exercise this Warrant such that the number of Warrant Shares
to be received pursuant to such exercise exceeds 135.0% of the aggregate of all
Tranche Purchase Prices under and in connection with all Tranche Notices
delivered pursuant to the Purchase Agreement prior to the date of exercise; or
(b) exercise this Warrant such that the number of Warrant Shares to be received
pursuant to such exercise, aggregated with all other shares of Common Stock then
owned by the Holder beneficially or deemed beneficially owned by the Holder,
would result in the Holder owning more than 4.99% of all of such Common Stock as
would be outstanding on the date of exercise, as determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder.  In addition, as of any date, the aggregate number of shares of
Common Stock into which this Warrant is exercisable within 61 days, together
with all other shares of Common Stock then beneficially owned (as such term is
defined in Rule 13(d) under the Exchange Act) by Holder and its affiliates,
shall not exceed 9.99% of the total outstanding shares of Common Stock as of
such date.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    1.6           Activity
Restrictions.  For so long as Holder or any of its affiliates
holds this Warrant or any Warrant Shares, neither Holder nor any affiliate
will:  (i) vote any shares of Common Stock owned or controlled by it,
solicit any proxies, or seek to advise or influence any Person with respect to
any voting securities of the Company; (ii) engage or participate in any actions,
plans or proposals which relate to or would result in (a) acquiring additional
securities of the Company, alone or together with any other Person, which would
result in beneficially owning or controlling more than 9.99% of the total
outstanding Common Stock or other voting securities of the Company, (b) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving Company or any of its subsidiaries, (c) a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries, (d) any change in the present board of directors or management of
the Company, including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the board, (e) any material
change in the present capitalization or dividend policy of the Company, (f) any
other material change in the Company’s business or corporate structure,
including but not limited to, if the Company is a registered closed-end
investment company, any plans or proposals to make any changes in its investment
policy for which a vote is required by Section 13 of the Investment Company Act
of 1940, (g) changes in the Company’s charter, bylaws or instruments
corresponding thereto or other actions which may impede the acquisition of
control of the Company by any Person, (h) causing a class of securities of the
Company to be delisted from a national securities exchange or to cease to be
authorized to be quoted in an inter-dealer quotation system of a registered
national securities association, (i) a class of equity securities of the Company
becoming eligible for termination of registration pursuant  to Section
12(g)(4) of the Act, or (j) any action, intention, plan or arrangement similar
to any of those enumerated above; or (iii) request the Company or its directors,
officers, employees, agents or representatives to amend or waive any provision
of this Section
1.6.

     

    1.7           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 12.

     

    1.8           Insufficient
Authorized Shares.  If at any time while any portion of this
Warrant remains outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon exercise of this Warrant at least a number of shares
of Common Stock equal to 110% of the number of shares of Common Stock as shall
from time to time be necessary to effect the exercise of the portion of the
Warrant then outstanding (the “Required Reserve Amount”) (an “Authorized Share
Failure”), then the Company shall immediately take all action necessary to
increase the Company’s authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for the portion of
the 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 90 days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of
its stockholders for the approval of an increase in the number of authorized
shares of Common Stock.  In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its best
efforts to solicit its stockholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.

    
      
         

      

      
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    ARTICLE 2

    ADJUSTMENT UPON SUBDIVISION
OR COMBINATION OF COMMON STOCK

     

    If the
Company at any time on or after the Issuance Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the 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 Issuance Date
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
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 ARTICLE 2 shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

     

    ARTICLE 3

    PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS

     

    3.1           Purchase
Rights.  In addition to any adjustments pursuant to ARTICLE 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete 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 shares of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.

    
      
         

      

      
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    3.2           Subsequent
Equity Sales. In addition to any adjustments made pursuant to ARTICLE 2
above, if the Company or any Subsidiary thereof, as applicable, at any time
while this Warrant is outstanding, shall sell or grant any option to purchase,
or sell or grant any right to reprice, or otherwise dispose of or issue (or
announce any offer, sale, grant or any option to purchase or other disposition)
any Common Stock or Common Stock Equivalents entitling any Person to acquire
shares of Common Stock, at an effective price per share less than the then
Exercise Price (such lower price, the “Base Share Price” and such issuances,
collectively, a “Dilutive Issuance”), then the Exercise Price shall be reduced
and only reduced to equal the Base Share Price and the number of Warrant Shares
issuable hereunder shall be increased such that the aggregate Exercise Price
payable hereunder, after taking into account the decrease in the Exercise Price,
shall be equal to the aggregate Exercise Price prior to such
adjustment.  Such adjustment shall be made whenever such Common Stock
or Common Stock Equivalents are issued.  If the holder of the Common
Stock or Common Stock Equivalents so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
per share which are issued in connection with such issuance, be entitled to
receive shares of Common Stock at an effective price per share which is less
than the Exercise Price, such issuance shall be deemed to have occurred for less
than the Exercise Price on such date of the Dilutive
Issuance.  Notwithstanding the foregoing, no adjustments shall be
made, paid or issued under this Section 3.2 in respect of an Exempt Issuance,
subject to adjustment for reverse and forward stock splits, stock dividends,
stock combinations and other similar transactions of the Common Stock that occur
after the date of the Purchase Agreement. The Company shall notify the Holder in
writing, no later than the Trading Day following the issuance of any Common
Stock or Common Stock Equivalents subject to this Section 3.2, indicating
therein the applicable issuance price, or applicable reset price, exchange
price, conversion price and other pricing terms (such notice the “Dilutive
Issuance Notice”).  For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to this Section 3.2, upon
the occurrence of any Dilutive Issuance, after the date of such Dilutive
Issuance the Holder is entitled to receive a number of Warrant Shares based upon
the Base Share Price regardless of whether the Holder accurately refers to the
Base Share Price in the Notice of Exercise.

     

    3.3           Fundamental
Transactions.  The Company shall not enter into or be party to
a Fundamental Transaction unless the Successor Entity assumes in writing all of
the obligations of the Company under this Warrant in accordance with the
provisions of this Section 3.3 pursuant to written agreements in form and
substance satisfactory to the Required Holders and approved by the Required
Holders prior to such Fundamental Transaction, including agreements to deliver
to each Holder of this Warrant in exchange for such Warrant a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to this Warrant, including, without limitation, an adjusted
exercise price equal to the value for the shares of Common Stock reflected by
the terms of such Fundamental Transaction, and exercisable for a corresponding
number of shares of capital stock equivalent to the shares of Common Stock
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.  Upon the
occurrence of any Fundamental Transaction, the Successor Entity shall succeed
to, and be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this 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 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 shares of the Common Stock (or other
securities, cash, assets or other property) purchasable upon the exercise of
this Warrant prior to such Fundamental Transaction, 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 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 shares of Common Stock
are entitled to receive securities or other assets with respect to or in
exchange for shares of Common Stock (a “Corporate Event”), the Company shall
make appropriate provision to insure that the Holder will thereafter have the
right to receive upon an exercise of this Warrant at any time after the
consummation of the Fundamental Transaction, in lieu of the shares of the Common
Stock (or other securities, cash, assets or other property) purchasable upon the
exercise of this Warrant prior to such Fundamental Transaction, 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 Fundamental Transaction had
this Warrant been exercised immediately prior to such Fundamental Transaction;
provided, however, that in the event the Fundamental Transaction involves the
issuance of cash or freely tradable securities by an issuer listed on the New
York Stock Exchange or the Nasdaq Stock Market, then the ability to exercise
this Warrant shall expire on the consummation of that Fundamental
Transaction.  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 3.3  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.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    3.4           Notwithstanding
the foregoing Section 3.3, in the event of a Fundamental Transaction other than
one in which the Successor Entity is a Public Successor Entity that assumes this
Warrant such that this Warrant shall be exercisable for the publicly traded
common stock of such Public Successor Entity, at the request of the Holder
delivered before the 90th day after the effective date 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) Trading Days after such
request (or, if later, on the effective date of the Fundamental Transaction),
cash in an amount equal to the value of the remaining unexercised portion of
this Warrant on the date of such consummation, which value shall be determined
by use of the Black Scholes Option Pricing Model using a volatility equal to the
100 day average historical price volatility prior to the date of the public
announcement of such Fundamental Transaction.

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    

    ARTICLE 4

    NONCIRCUMVENTION

     

    The
Company hereby covenants and agrees that the Company will not, by amendment of
its certificate or articles of incorporation, articles of association, bylaws,
or any other organization documents, 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 shares of Common Stock 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 shares of
Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any
portion of this Warrant remains outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued shares of Common
Stock, solely for the purpose of effecting the exercise of this Warrant, 110% of
the number of shares of Common Stock as shall from time to time be necessary to
effect the exercise of this Warrant then outstanding (without regard to any
limitations on exercise).

     

    ARTICLE 5

    WARRANT HOLDER NOT DEEMED A
STOCKHOLDER

     

    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 stockholder 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 stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company.  Notwithstanding this ARTICLE 5, the Company shall provide
the Holder with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.

     

    ARTICLE 6

    REISSUANCE OF
WARRANTS

     

    6.1           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 6.4), registered as the Holder may request, representing
the right to purchase the number of Warrant Shares being transferred by the
Holder and, if less then the total number of Warrant Shares then underlying this
Warrant is being transferred, a new Warrant (in accordance with Section 6.4) to
the Holder representing the right to purchase the number of Warrant Shares not
being transferred.

     

    6.2           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 6.4) representing the right to purchase the Warrant
Shares then underlying this Warrant.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    6.3           Exchangeable
for Multiple Warrant.  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 6.4) 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 Warrant for fractional shares of
Common Stock shall be given.

     

    6.4           Issuance
of New Warrant.  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
6.1 or Section 6.3, the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrant
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.

     

    ARTICLE 7

    NOTICES

     

    Whenever
notice is required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with Section 6.2 of the
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
therefore.  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 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 shares of Common Stock,
(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 shares of Common Stock as such 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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    ARTICLE 8

    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 written
consent of the Required Holders; provided that except as set forth in this
Warrant no such action may increase the exercise price of any Warrant or
decrease the number of shares or class of stock obtainable upon exercise of any
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 this Warrant.

     

    ARTICLE 9

    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.

     

    ARTICLE 10

    CONSTRUCTION;
HEADINGS

     

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

     

    ARTICLE 11

    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 2
Trading 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 Trading Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within 2 Trading Days submit via facsimile (a) the disputed determination of the
Exercise Price or arithmetic calculation to an independent, reputable investment
bank or independent registered public accounting firm selected by Holder subject
to Company’s approval, which may not be unreasonably withheld or delayed, or (b)
the disputed arithmetic calculation of the Warrant Shares to the Company’s
independent registered public accounting firm.  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 3 Trading 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.

     

    
      
        
        

      

      
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    ARTICLE 12

    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, 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 right to pursue actual 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.

     

    ARTICLE 13

    DEFINITIONS

     

    For
purposes of this Warrant, in addition to the terms defined elsewhere herein, the
following terms shall have the following meanings:

     

    13.1         “Bloomberg” means
Bloomberg Financial Markets.

     

    13.2         “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 Trading Market, as reported by Bloomberg, or, if the Trading 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 p.m.,
Eastern time, as reported by Bloomberg, or, if the Trading 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 Holder.  If the Company and Holder are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved pursuant to ARTICLE
11.  All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during the applicable calculation period.

     

    
      
        
        

      

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

     

    13.4         “Common Stock Deemed
Outstanding” means, at any given time, the number of shares of Common
Stock actually outstanding at such time, plus the number of shares of Common
Stock deemed to be outstanding pursuant to Section 3.1 hereof regardless of
whether the Options or Convertible Securities are actually exercisable at such
time, but excluding any shares of Common Stock owned or held by or for the
account of the Company or issuable upon exercise of this Warrant.

     

    13.5         “Common Stock
Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

     

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

     

    13.7         “DWAC Shares” means
all Warrant Shares issued or issuable to Holder or any Affiliate, successor or
assign of Holder pursuant to this Warrant, all of which shall be (a) issued in
electronic form, (b) freely tradable and without restriction on resale, and (c)
timely credited by Company to the specified Deposit/Withdrawal at Custodian
(DWAC) account with DTC under its Fast Automated Securities Transfer (FAST)
Program or any similar program hereafter adopted by DTC performing substantially
the same function, in accordance with instructions issued to and countersigned
by the Transfer Agent of the Company. 

     

    13.8         “Eligible Market”
means the Trading Market, The New York Stock Exchange, Inc., The NASDAQ Global
Select Market, The NASDAQ Global Market, The NASDAQ Capital Market, the NYSE
Amex or the OTC Bulletin Board, but does not include the Pink
Sheets.

     

    13.9         “Exempt Issuance”
means the issuance of (a) shares of Common Stock or options to employees,
officers, directors or consultants of the Company pursuant to any stock or
option plan duly adopted for such purpose, by a majority of the non-employee
members of the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise or exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise price,
exchange price or conversion price of such securities (except as a result of
anti-dilution provisions therein), and (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be to a Person (or to the equity holders of a Person) which is, itself or
through its subsidiaries, an operating company or an asset in a business
synergistic with the business of the Company and shall provide to the Company
additional benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is
investing in securities.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    13.10      “Fundamental
Transaction” has the meaning set forth in the Purchase
Agreement.

     

    13.11      “Maximum Placement”
has the meaning set forth in the Purchase Agreement.

     

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

     

    13.13      “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.

     

    13.14      “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.

     

    13.15      “Public Successor
Entity” means a Successor Entity that is a publicly traded corporation
whose stock is quoted or listed for trading on an Eligible Market.

     

    13.16      “Required Holders”
means the Holders of this Warrant representing at least a majority of shares of
Common Stock underlying this Warrant as then outstanding.

     

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

     

    13.18      “Trading Day” means
any day on which the Common Stock is traded on an Eligible Market; provided that
it shall not include any day on which the Common Stock (a) is suspended from
trading, or (b) is scheduled to trade on such exchange or market for less than 5
hours.

     

    13.19      “Trading Market” means
the OTC Bulletin Board, the NASDAQ Capital Market, the NASDAQ Global Market, the
NASDAQ Global Select Market, the NYSE Amex, or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the Common
Stock, but does not include the Pink Sheets inter-dealer electronic quotation
and trading system.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    13.20      “Tranche Closing Date”
has the meaning set forth in the Purchase Agreement.

     

    13.21      “Tranche Notice” has
the meaning set forth in the Purchase Agreement.

     

    13.22      “Tranche Notice Date”
has the meaning set forth in the Purchase Agreement.

     

    13.23      “Tranche Purchase
Price” has the meaning set forth in the Purchase Agreement.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

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

     

    
      
        
          
            
              	
                      YASHENG
      ECO-TRADE CORPORATION

                    	 
	 
      	 
	
                      By:

                    	 
      	 
       
	
                      Name:Yossi
      Attia

                    	 
	
                      Title:  CEO

                    	 

            

          

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Warrant Exercise
Schedule

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            	
                                    Exercise Date

                                  	 	
                                    Number of

                                    Warrant Shares

                                  	 	
                                    Exercise Price

                                    Per Share

                                  	 	
                                    Aggregate Exercise

                                    Price

                                  	 	
                                    Dollar Amount

                                    Remaining

                                  	 
	 
      	 	 
      	 	 
      	 	 
      	 	 
      	 

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    APPENDIX
1

     

    EXERCISE
NOTICE

     

    YASHENG
ECO-TRADE CORPORATION

     

    The
undersigned hereby exercises the right to purchase ________________ shares of
Common Stock (“Warrant
Shares”) of Yasheng Eco-Trade Corporation, a Delaware corporation (“Company”), evidenced
by the attached Warrant to Purchase Common Stock (“Warrant”).  Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant.  The Holder intends that payment of the
Exercise Price shall be made as:

     

    ___          Cash
Exercise with respect to ____________ Warrant Shares

    

    ___          Cashless
Exercise with respect to ____________ Warrant Shares

    

    ___          Recourse
Note Exercise with respect to ____________ Warrant Shares

    

    Please
issue

    

    ___         A
certificate or certificates representing said shares of Common Stock in the name
specified below

    

    
      
        	  	
                ___

              	
                Said
      shares in electronic form to the Deposit/Withdrawal at Custodian (DWAC)
      account with Depository Trust Company (DTC) specified
    below.

              

      

    

     

    
      
        
          
            
              
                	 
      
	 
      
	
                        By:

                      	 
      
	
                        Name:

                      	 
      
	
                        Title:

                      	 
      

              

            

          

        

      

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    ACKNOWLEDGMENT

     

    The
Company hereby acknowledges the foregoing Exercise Notice and hereby directs
American Stock Transfer & Trust Company, LLC  to issue the above
indicated number of shares of Common Stock as specified above, in accordance
with the Transfer Agent Instructions dated [_________] from the Company, and
acknowledged and agreed to by the transfer agent.

     

    
      
        
          
            
              
                
                  
                    
                      	
                              YASHENG
      ECO-TRADE CORPORATION

                            	 
	 
      	 
	
                              By:

                            	 
      	 
      
	
                              Name:

                            	 
      	 
      
	
                              Title:

                            	 
      	  

                    

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    APPENDIX
2

     

    FORM OF
NOTE

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    SECURED
PROMISSORY NOTE

    

    
      
        	
                $[_____________]

              	
                Date:    [________],
      20[__]

              

      

    

    

    

    FOR VALUE
RECEIVED, [_____________] (“Borrower”) promises
to pay to the order of Yasheng Eco-Trade Corporation (“Lender”), at
[________], or at such other place as Lender may from time to time designate in
writing, the principal sum of $[________], with interest, as
follows:

    

    1.           Interest.  The
principal balance outstanding from time to time under this Secured Promissory
Note (this “Note”), shall bear
interest from and after the date hereof at the rate of 2.0% per
year.  Interest shall be calculated on a simple interest basis and the
number of days elapsed during the period for which interest is being
calculated.  Payments of interest will be due on each annual
anniversary of the date of this Note; provided that
Borrower will not be in default hereunder for failure to make any annual
interest payment when due (other than on the Maturity Date) and the amount of
interest not paid when due shall be added to the principal balance of this Note
and such amount will thereafter accrue interest at the rate set forth
above.

     

    2.           Payments.  If
not sooner paid, the entire unpaid principal balance, interest thereon and any
other charges due and payable under this Note shall be due and payable on the
fourth anniversary of the date of this Note (“Maturity
Date”); provided, however, that no
payments on this Note will be due or payable so long as either (a) Lender is in
default under any preferred stock purchase agreement for Series C Preferred
Stock with Borrower or any Warrant issued pursuant thereto, any loan
agreement or other material agreement entered into with Borrower, or (b)
there are any shares of Series C Preferred Stock of Lender issued or
outstanding (each, a “Non-Payment
Event”).  Upon the termination or cure of any Non-Payment
Event, Borrower’s obligation to pay amounts outstanding on this Note will
immediately be reinstated.  Borrower shall have the right to prepay
all or any part of the principal balance of this Note at any time without
penalty or premium.  In the event that Lender redeems all or a portion
of any shares of Series C Preferred Stock then held by Borrower, the proceeds of
any such redemption will be applied by Borrower to pay down the accrued interest
and outstanding principal of this Note and Lender will be permitted to offset
the full amount of such proceeds against amounts outstanding under this
Note.  All payments on this Note shall be first applied to interest,
then to reduce the outstanding principal balance hereof.

     

    3.           Full Recourse
Note.  THIS IS A FULL RECOURSE PROMISSORY
NOTE.  Accordingly, notwithstanding that Borrower’s obligations under
this Note are secured by the Collateral, in the event of a material default
hereunder, Lender shall have full recourse to all the other assets of
Borrower.  Moreover, Lender shall not be required to proceed against
or exhaust any Collateral, or to pursue any Collateral in any particular order,
before Lender pursues any other remedies against Borrower or against any of
Borrower’s assets.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    4.           Security

     

    a.           Pledge.  As
security for the due and prompt payment and performance of all payment
obligations under this Note and any modifications, replacements and extensions
hereof (collectively, “Secured
Obligations”), Borrower hereby pledges and grants a security interest to
Lender in all of Borrower’s right, title, and interest in and to all of the
following, now owned or hereafter acquired or arising (together the “Collateral”):

     

    i.           Freely
tradable shares of common stock, preferred stock, bonds, notes and/or debentures
(collectively, “Pledged Securities”)
with a fair market value on the date hereof at least equal to the principal
amount of this Note, based upon the trading price of such securities on the OTC
Bulletin Board, NASDAQ Capital Market, NASDAQ Global Market, NASDAQ Global
Select Market, NYSE Amex, or New York Stock Exchange;

     

    ii.          all
rights of Borrower with respect to or arising out of the Pledged Securities,
including voting rights, and all equity and debt securities and other property
distributed or distributable with respect thereto as a result of merger,
consolidation, dissolution, reorganization, recapitalization, stock split, stock
dividend, reclassification, exchange, redemption, or other change in capital
structure; and

     

    iii.         all
proceeds, replacements, substitutions, accessions and increases in any of the
Collateral.

     

    b.           Replacement
Securities.  So long as any Secured Obligations remain
outstanding, in the event that Borrower sells or disposes of any Pledged
Securities, Borrower shall promptly provide replacement securities of equal or
greater value than such Pledged Securities.

     

    c.           Rights With Respect to
Distributions.  So long as no default shall have occurred and
be continuing under this Note, Borrower shall be entitled to receive any and all
dividends and distributions made with respect to the Pledged Securities and any
other Collateral.  However, upon the occurrence and during the
continuance of any default, Lender shall have the sole right (unless otherwise
agreed by Lender) to receive and retain dividends and distributions and apply
them to the outstanding balance of this Note or hold them as Collateral, at
Lender’s election.  

     

    d.           Voting
Rights.  So long as no default shall have occurred and be
continuing under this Note, Borrower shall be entitled to exercise all voting
rights pertaining to the Pledged Securities and any other Collateral. However,
upon the occurrence and during the continuance of any default, all rights of
Borrower to exercise the voting rights that Borrower would otherwise be entitled
to exercise with respect to the Collateral shall cease and (unless otherwise
agreed by Lender) all such rights shall thereupon become vested in Lender, which
shall thereupon have the sole right to exercise such rights.

     

    e.           Financing Statement; Further
Assurances.  Borrower agrees, concurrently with executing this
Note, that Lender may file a UCC-1 financing statement relating to the
Collateral in favor of Lender, and any similar financing statements in any
jurisdiction in which Lender reasonably determines such filing to be
necessary.  Borrower further agrees that at any time and from time to
time Borrower shall promptly execute and deliver all further instruments and
documents that Lender may request in order to perfect and protect the security
interest granted hereby, or to enable Lender to exercise and enforce its rights
and remedies with respect to any Collateral following an event of
default.  In addition, following an event of default, Borrower shall
deliver the Collateral, including original certificates or other instruments
representing the Pledged Securities, to Lender to hold as secured party, and
Borrower shall, if requested by Lender, execute a securities account control
agreement.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    f.           Powers of
Lender.  Borrower hereby appoints Lender as Borrower’s true and
lawful attorney-in-fact to perform any and all of the following acts, which
power is coupled with an interest, is irrevocable until the Secured Obligations
are paid and performed in full, and may be exercised from time to time by Lender
in its discretion:  To take any action and to execute any instrument
which Lender may deem reasonably necessary or desirable to accomplish the
purposes of this Section 4(f) and,
more broadly, this Note including, without limitation:  (i) to
exercise voting and consent rights with respect to Collateral in accordance with
this Note, (ii) during the continuance of any default hereunder, to receive,
endorse and collect all instruments or other forms of payment made payable to
Borrower representing any dividend, interest payment or other distribution in
respect of the Collateral or any part thereof and to give full discharge for the
same, when and to the extent permitted by this Note, (iii) to perform or cause
the performance of any obligation of Borrower hereunder in Borrower’s name or
otherwise, (iv) during the continuance of any default hereunder, to liquidate
any Collateral pledged to Lender hereunder and to apply proceeds thereof to the
payment of the Secured Obligations or to place such proceeds into a cash
collateral account or to transfer the Collateral into the name of Lender, all at
Lender’s sole discretion, (v)  to enter into any extension,
reorganization or other agreement relating to or affecting the Collateral, and,
in connection therewith, to deposit or surrender control of the Collateral, (vi)
to accept other property in exchange for the Collateral, (vii) to make any
compromise or settlement Lender deems desirable or proper, and (viii) to execute
on Borrower’s behalf and in Borrower’s name any documents required in order to
give Lender a continuing first lien upon the Collateral or any part
thereof.

     

    5.           Additional
Terms

     

    a.           No
Waiver.  The acceptance by Lender of payment of a portion of
any installment when due or an entire installment but after it is due shall
neither cure nor excuse the default caused by the failure of Borrower timely to
pay the whole of such installment and shall not constitute a waiver of Lender’s
right to require full payment when due of any future or succeeding
installments.

     

    b.           Default.  Any
one or more of the following shall constitute a “default” under this
Note:  (i) a default in the payment when due of any amount hereunder,
(ii) Borrower’s refusal to perform any material term, provision or covenant
under this Note, (iii) the commencement of any liquidation, receivership,
bankruptcy, assignment for the benefit of creditors or other debtor-relief
proceeding by or against Borrower, (iv) the transfer by Borrower of any Pledged
Securities without being replaced by Pledged Securities in accordance with Section 4(b), and
(iv) the levying of any attachment, execution or other process against Borrower,
the Collateral or any material portion thereof.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    c.           Default
Rights

     

    i.           Upon
the occurrence of any payment default Lender may, at its election, declare the
entire balance of principal and interest under this Note immediately due and
payable.  A delay by Lender in exercising any right of acceleration
after a default shall not constitute a waiver of the default or the right of
acceleration or any other right or remedy for such default.  The
failure by Lender to exercise any right of acceleration as a result of a default
shall not constitute a waiver of the right of acceleration or any other right or
remedy with respect to any other default, whenever
occurring.  

     

    ii.           Further,
upon the occurrence of any material non-monetary default, following 30 days
notice from Lender to Borrower specifying the default and demanded manner of
cure for any non-monetary default, Lender shall thereupon and thereafter have
any and all of the rights and remedies to which a secured party is entitled
after a default under the applicable Uniform Commercial Code, as then in
effect.  In addition to Lender’s other rights and remedies, Borrower
agrees that, upon the occurrence of default, Lender may in its sole discretion
do or cause to be done any one or more of the following:

     

    (a)           Proceed
to realize upon the Collateral or any portion thereof as provided by law, and
without liability for any diminution in price which may have occurred, sell the
Collateral or any part thereof, in such manner, whether at any public or private
sale, and whether in one lot as an entirety, or in separate portions, and for
such price and other terms and conditions as is commercially reasonable given
the nature of the Collateral.

     

    (b)           If
notice to Borrower is required, give written notice to Borrower at least ten
days before the date of sale of the Collateral or any portion
thereof.

     

    (c)           Transfer
all or any part of the Collateral into Lender’s name or in the name of its
nominee or nominees.

     

    (d)           Vote
all or any part of the Collateral (whether or not transferred into the name of
Lender ) and give all consents, waivers and ratifications in respect of the
Collateral and otherwise act with respect thereto, as though Lender were the
outright owner thereof.

     

    iii.           Borrower
acknowledges that all or part of foreclosure of the Collateral may be restricted
by state or federal securities laws, Lender may be unable to effect a public
sale of all or part of the Collateral, that a public sale is or may be
impractical and inappropriate and that, in the event of such restrictions,
Lender thus may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire the Collateral for their own account, for investment and not with a
view to its distribution or resale.  Borrower agrees that if
reasonably necessary Lender may resort to one or more sales to a single
purchaser or a restricted or limited group of purchasers.  Lender
shall not be obligated to make any sale or other disposition, unless the terms
thereof shall be satisfactory to it.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    iv.           If,
in the opinion of Lender based upon written advice of counsel, any consent,
approval or authorization of any federal, state or other governmental agency or
authority should be necessary to effectuate any sale or other disposition of any
Collateral, Borrower shall execute all such applications and other instruments
as may reasonably be required in connection with securing any such consent,
approval or authorization, and will otherwise use its commercially reasonable
best efforts to secure the same.

     

    v.           The
rights, privileges, powers and remedies of Lender shall be cumulative, and no
single or partial exercise of any of them shall preclude the further or other
exercise of any of them.  Any waiver, permit, consent or approval of
any kind by Lender of any default hereunder, or any such waiver of any
provisions or conditions hereof, must be in writing and shall be effective only
to the extent set forth in writing.  Any proceeds of any disposition
of the Collateral, or any part thereof, may be applied by Lender to the payment
of expenses incurred by Lender in connection with the foregoing, and the balance
of such proceeds shall be applied by Lender toward the payment of the Secured
Obligations.

     

    d.           No Oral Waivers or
Modifications.  No provision of this Note may be waived or
modified orally, but only in a writing signed by Lender and
Borrower.

     

    e.           Attorney
Fees.  The prevailing party in any action by Lender to collect
any amounts due under this Note shall be entitled to recover its reasonable
attorneys fees and costs.

     

    f.           Governing
Law.  This Note has been executed and delivered in, and is to
be construed, enforced, and governed according to the internal laws of, the
State of New York without regard to its principles of conflict of laws that
would require or permit the application of the laws of any other
jurisdiction.

     

    g.           Severability.  Whenever
possible, each provision of this Note shall be interpreted in such manner as to
be effective and valid under applicable law.  However, if any
provision of this Note shall be held to be prohibited by or invalid under
applicable law, it shall be ineffective only to the extent of such prohibition
or invalidity without invalidating the remainder of that provision or the other
provisions of this Note.

     

    h.           Entire
Agreement.  This Note contains the entire understanding of the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral or written, with respect to such
matters.

     

    
      
        
          
            
              
                	 
      
	 
      
	
                        By:

                      	 
      
	
                        Name:

                      	 
      
	
                        Title:

                      	 
      

              

            

          

        

      

    

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    Exhibit
B

     

    Certificate
of Designations

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    YASHENG
ECO-TRADE CORPORATION

     

    CERTIFICATE
OF DESIGNATIONS

    OF
PREFERENCES, RIGHTS AND LIMITATIONS

    OF

    SERIES D
PREFERRED STOCK

     

    The
undersigned, Yossi Attia and Robin Ann Gorelick, hereby certify
that:

     

    1.           They
are the CEO and Secretary, respectively, of Yasheng Eco-Trade Corporation, a
Delaware corporation (the “Corporation”).

     

    2.           The
Corporation is authorized to issue 5,000,000 shares of preferred stock, of which
210,087 shares are issued or outstanding.

     

    3.           The
following resolutions were duly adopted by the Board of Directors:

     

    WHEREAS,
the Certificate of Incorporation of the Corporation provides for a class of its
authorized stock known as preferred stock, comprised of 5,000,000 shares, $0.001
par value per share (the Preferred Stock”),
issuable from time to time in one or more series;

     

    WHEREAS,
the Board of Directors of the Corporation is authorized to fix the dividend
rights, dividend rate, voting rights, conversion rights, rights and terms of
redemption and liquidation preferences of any wholly unissued series of
Preferred Stock and the number of shares constituting any series and the
designation thereof, of any of them; and

     

    WHEREAS,
it is the desire of the Board of Directors of the Corporation, pursuant to its
authority as aforesaid, to fix the rights, preferences, restrictions and other
matters relating to a series of Preferred Stock, which shall consist of up to
1,000 shares of the Preferred Stock which the Corporation has the authority to
issue, with face value of $10,000.00 per share, as follows:

     

    NOW,
THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for
the issuance of a series of Preferred Stock for cash or exchange of other
securities, rights or property and does hereby fix and determine the rights,
preferences, restrictions and other matters relating to such series of Preferred
Stock as follows:

     

    TERMS OF
PREFERRED STOCK

     

    1.           Designation, Amount and Par
Value.  The series of Preferred Stock shall be designated as
the Corporation’s Series D Preferred Stock (the “Series D Preferred Stock”) and
the number of shares so designated shall be 1,000 (which shall not be subject to
increase without any consent of the holders of the Series D  Preferred
Stock (each a “Holder” and
collectively, the “Holders”) that may be
required by applicable law.  Each share of Series D Preferred Stock
shall have a par value of $0.001 per share. 

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    2.           Ranking and
Voting.

     

    a.           Ranking.  The
Series D Preferred Stock shall, with respect to dividend rights and rights upon
liquidation, winding-up or dissolution, rank: (i) senior to the Corporation’s
common stock, par value $0.001 per share (“Common Stock”), and
any other class or series of Preferred Stock of the Corporation (collectively,
together with any warrants, rights, calls or options exercisable for or
convertible into such Preferred Stock, the “Junior Securities”);
and (ii)
junior to the Corporation’s Series C Preferred Stock, future issuances of
Preferred Stock issued under Regulation S as promulgated under the Securities
Act of 1933, as amended, and to all existing and future indebtedness of the
Corporation.

     

    b.           Voting.  Except
as required by applicable law or as set forth herein, the holders of shares of
Series D Preferred Stock will have no right to vote on any matters, questions or
proceedings of this Corporation including, without limitation, the election of
directors.

     

    3.           Dividends and Other
Distributions.  Commencing on the date of the issuance of any
such shares of Series D Preferred Stock (each respectively an “Issuance Date”),
Holders of Series D Preferred Stock shall be entitled to receive annual
dividends on each outstanding share of Series D Preferred Stock (“Dividends”), which
shall accrue in shares of Series D Preferred Stock at a rate equal to 10.0% per annum from
the Issuance Date.  Accrued Dividends shall be payable upon redemption
of the Series D Preferred Stock in accordance with Section 6.

     

    a.           Any
calculation of the amount of such Dividends payable pursuant to the provisions
of this Section 3 shall be made
based on a 365-day year and on the number of days actually elapsed during the
applicable period, compounded annually.

     

    b.           So
long as any shares of Series D Preferred Stock are outstanding, no dividends or
other distributions will be paid, declared or set apart with respect to any
Junior Securities.  The Common Stock shall not be redeemed while the
Series D Preferred Stock is outstanding.

     

    
      4.           Protective
Provision.  So long as any shares of Series D Preferred Stock
are outstanding, the Corporation shall not, without the affirmative approval of
the Holders of a majority of the shares of the Series D Preferred Stock then
outstanding (voting as a class), (a) alter
or change adversely the powers, preferences or rights given to the Series D
Preferred Stock or alter or amend this Certificate of Designations, (b)
authorize or create any class of stock ranking as to distribution of assets upon
a liquidation senior to or otherwise pari passu with the Series D Preferred
Stock, (c) amend its certificate or articles of incorporation, articles of
association, or other charter documents in breach of any of the provisions
hereof, (d) increase the authorized number of shares of Series D Preferred
Stock, (e) liquidate, dissolve or wind-up the business and affairs of the
Corporation, or effect any Deemed Liquidation Event (as defined below), or (f)
enter into any agreement with respect to the foregoing.

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    a.           A
“Deemed Liquidation
Event” shall mean:  (i) a merger or consolidation in which the
Corporation is a constituent party or a subsidiary of the Corporation is a
constituent party and the Corporation issues shares of its capital stock
pursuant to such merger or consolidation, except any such merger or
consolidation involving the Corporation or a subsidiary in which the shares of
capital stock of the Corporation outstanding immediately prior to such merger or
consolidation continue to represent, or are converted into or exchanged for
shares of capital stock that represent, immediately following such merger or
consolidation, at least a majority, by voting power, of the capital stock of the
surviving or resulting corporation or if the surviving or resulting corporation
is a wholly owned subsidiary of another corporation immediately following such
merger or consolidation, the parent corporation of such surviving or resulting
corporation; or (ii) the sale, lease, transfer, exclusive license or other
disposition, in a single transaction or series of related transactions, by the
Corporation or any subsidiary of the Corporation of all or substantially all the
assets of the Corporation and its subsidiaries taken as a whole,  or
the sale or disposition (whether by merger or otherwise) of one or more
subsidiaries of the Corporation if substantially all of the assets of the
Corporation and its subsidiaries taken as a whole are held by such subsidiary or
subsidiaries, except where such sale, lease, transfer, exclusive license or
other disposition is to a wholly owned subsidiary of the
Corporation.  To remove any doubt, the consummation of any acquisition
or similar transaction pending, as described in the Company’s quarterly report
filed with the SEC on Form 10-Q for the nine months ended September 30, 2009,
shall not be considered a Deemed Liquidation Event.

     

    b.           The
Corporation shall not have the power to effect a Deemed Liquidation Event
referred to in Section 4(a) unless the agreement or plan of merger or
consolidation for such transaction provides that the consideration payable to
the stockholders of the Corporation shall be allocated among the holders of
capital stock of the Corporation in accordance with Section
5.

     

    5.           Liquidation.

     

    a.           Upon
any liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, after payment or provision for payment of debts and other
liabilities of the Corporation, before any distribution or payment shall be made
to the holders of any Junior Securities by reason of their ownership thereof,
the Holders of Series D Preferred Stock shall first be entitled to be paid out
of the assets of the Corporation available for distribution to its stockholders
an amount with respect to each outstanding share of Series D Preferred Stock
equal to $10,000.00 (the
“Original Series D
Issue Price”), plus any accrued but unpaid Dividends thereon
(collectively, the “Series D Liquidation
Value”).  If, upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the amounts payable with
respect to the shares of Series D Preferred Stock are not paid in full, the
holders of shares of Series D Preferred Stock shall share equally and ratably in
any distribution of assets of the Corporation in proportion to the liquidation
preference and an amount equal to all accumulated and unpaid Dividends, if any,
to which each such holder is entitled

     

    b.           After
payment has been made to the Holders of the Series D Preferred Stock of the full
amount of the Series D Liquidation Value, any remaining assets of the
Corporation shall be distributed among the holders of the Corporation’s Junior
Securities in accordance with the Corporation’s Certificates of Designation and
Certificate of Incorporation.

     

    c.           If,
upon any liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation shall be insufficient to make payment in full to all Holders,
then such assets shall be distributed among the Holders at the time outstanding,
ratably in proportion to the full amounts to which they would otherwise be
respectively entitled.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    6.           Redemption.

     

    a.           Corporation’s Redemption
Option.  Upon or after the fourth anniversary of the initial
Issuance Date, the Corporation shall have the right, at the Corporation’s
option, to redeem all or a portion of the shares of Series D Preferred Stock, at
a price per share (the “Corporation Redemption
Price”) equal to 100% of the Series D Liquidation Value.

     

    b.           Early
Redemption.  Prior to redemption pursuant to Section 6(a)
hereof, the Corporation shall have the right, at the Corporation’s option, to
redeem all or a portion of the shares of Series D Preferred Stock, at a price
per share equal to: (i) 127% of the Series D Liquidation Value if redeemed on or
after the first anniversary but prior to the second anniversary of the initial
Issuance Date, (ii) 118% of the Series D Liquidation Value if redeemed on or
after the second anniversary but prior to the third anniversary of the initial
Issuance Date, and (iii) 109% of the Series D Liquidation Value if redeemed on
or after the third anniversary but prior to the fourth anniversary of the
initial Issuance Date.

     

    c.           Mandatory
Redemption.  If the Corporation determines to liquidate,
dissolve or wind-up its business and affairs, or effect any Deemed Liquidation
Event, the Corporation shall redeem the Series D Preferred Stock at the prices
set forth in Section 6(b) including the premium for early redemption set forth
therein.

     

    d.           Mechanics of
Redemption.  If the Corporation elects to redeem any of the
Holders’ Series D Preferred Stock then outstanding, it shall do so by delivering
written notice thereof via facsimile and overnight courier (“Notice of Redemption at
Option of Corporation”) to each Holder, which Notice of Redemption at
Option of Corporation shall indicate (A) the number of shares of Series C
Preferred Stock that the Corporation is electing to redeem and (B) the
Corporation Redemption Price (plus the premium for early redemption pursuant to
Section 6(b) if
applicable).

     

    e.           Payment of Redemption
Price.  Upon receipt by any Holder of a Notice of Redemption at
Option of Corporation, such Holder shall promptly submit to the Corporation such
Holder’s Series D Preferred Stock certificates.  Upon receipt of such
Holder’s Series D Preferred Stock certificates, the Corporation shall pay the
Corporation Redemption Price (plus the premium for early redemption pursuant to
Section 6(b) if
applicable), to such Holder, at the Corporation’s option either (i) in cash, or
(ii) by offset against any outstanding note payable from Holder to the
Corporation that was issued by Holder in connection with the exercise of
warrants by such Holder.

     

    7.           Transferability. The
Series D Preferred Stock may only be sold, transferred, assigned, pledged or
otherwise disposed of (“Transfer”) in
accordance with state and federal securities laws.  The Corporation
shall keep at its principal office, or at the offices of the transfer agent, a
register of the Series D Preferred Stock.  Upon the surrender of any
certificate representing Series C Preferred Stock at such place, the
Corporation, at the request of the record Holder of such certificate, shall
execute and deliver (at the Corporation’s expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares represented by the surrendered certificate.  Each such new
certificate shall be registered in such name and shall represent such number of
shares as is requested by the Holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    8.           Miscellaneous.

     

    a.           Notices.  Any
and all notices to the Corporation shall be addressed to the Corporation’s
President or Chief Executive Officer at the Corporation’s principal place of
business on file with the Secretary of State of the State of
Delaware.  Any and all notices or other communications or deliveries
to be provided by the Corporation to any Holder hereunder shall be in writing
and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service addressed to each Holder at the facsimile telephone
number or address of such Holder appearing on the books of the Corporation, or
if no such facsimile telephone number or address appears, at the principal place
of business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section 8 prior to
5:30 p.m. Eastern time, (ii) the date after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this section later than 5:30 p.m. but prior to 11:59 p.m.
Eastern time on such date, (iii) the second business day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be
given.

     

    b.           Lost or Mutilated Preferred
Stock Certificate.  Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing shares of Series D Preferred Stock, and in the case
of any such loss, theft or destruction upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the Holder is a financial
institution or other institutional investor its own agreement shall be
satisfactory) or in the case of any such mutilation upon surrender of such
certificate, the Corporation shall, at its expense, execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.

     

    c.           Headings.  The
headings contained herein are for convenience only, do not constitute a part of
this Certificate of Designations and shall not be deemed to limit or affect any
of the provisions hereof.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    RESOLVED,
FURTHER, that the chairman, chief executive officer, president or any
vice-president, and the secretary or any assistant secretary, of the Corporation
be and they hereby are authorized and directed to prepare and file a Designation
of Preferences, Rights and Limitations of Series C Preferred Stock in accordance
with the foregoing resolution and the provisions of Delaware law.

     

    IN
WITNESS WHEREOF, the undersigned have executed this Amendment this 17th day of
December 2009.

     

    
      
        
          
            	
                    By:

                  	
                     

                  
	
                    Name:

                  	
                     Yossi
      Attia

                  
	
                    Title:

                  	
                     CEO

                  
	 
      	 
      
	
                    By:

                  	
                     

                  
	
                    Name:

                  	
                     Robin
      Ann Gorelick

                  
	
                    Title:

                  	
                     Secretary

                  

          

        

      

    

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    Exhibit
C

     

    Transfer
Agent Instructions

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    [Date]

     

    Sharon
Best Jhagroo – Account Executive

    American
Stock Transfer & Trust Company, LLC

    59 Maiden
Lane

    New York,
New York 10038

    

    Re:  Yasheng
Eco-Trade Corporation

     

    Ladies
and Gentlemen:

     

    In
accordance with the Preferred Stock Purchase Agreement (“Purchase Agreement”),
dated December 30, 2009, by and between Yasheng Eco-Trade Corporation, a
Delaware corporation (“Company”), and Socius
Special Situations Capital Group, LLC, a Delaware limited liability company
(“Buyer”),
pursuant to which Company may issue and deliver shares of the common stock of
the Company, par value $0.001 per share (“Common Stock”), in
payment of the Commitment Fee payable thereunder (the “Commitment Fee
Shares”), and a warrant (the “Warrant”) to purchase
additional shares of Common Stock (the “Warrant Shares”) (the
Commitment Fee Shares and Warrant Shares, collectively, the “Common Shares”), this
shall serve as our irrevocable authorization and direction to you (provided that
you are the transfer agent of the Company at such time) to issue the Fee Shares
and, in the event the holder of the Warrant elects or has elected to exercise
all or any portion of the Warrant, from time to time, upon surrender to you of a
notice of exercise of the Warrant, the Warrant Shares. Capitalized terms used
herein without definition shall have the respective meanings ascribed to them in
the Purchase Agreement.

     

    Specifically,
this shall constitute an irrevocable instruction to you to process any notice of
exercise of the Warrant in accordance with the terms of these instructions as
soon as practicable. Upon your receipt of a copy of the executed notice of
exercise of the Warrant, you shall use your best efforts to, within one (1)
Trading Day following the date of receipt of the notice of exercise, (A) issue
and surrender to a common carrier for overnight delivery to the address as
specified in the notice of exercise a certificate, registered in the name of the
Buyer or its designee, for the number of shares of Common Stock to which the
Buyer is entitled upon exercise of the Warrant as set forth in the notice of
exercise, or (B) provided you are participating in The Depository Trust Company
(DTC) Fast Automated Securities Transfer (FAST) Program, upon the request of the
Buyer, credit such aggregate number of shares of Common Stock to which the Buyer
is entitled to the Buyer’s or its designee’s balance account with DTC through
its Deposit Withdrawal At Custodian (DWAC) system provided the Buyer causes its
bank or broker to initiate the DWAC transaction.

     

    The
Company hereby confirms that the Common Shares should not be subject to any
stop-transfer restrictions and shall otherwise be freely transferable on the
books and records of the Company.  If the Common Shares are
certificated, the certificates shall not bear any legend restricting transfer of
the shares represented thereby.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    The
Company hereby confirms and you acknowledge that, in the event counsel to the
Company does not issue any opinion of counsel required to issue any Common
Shares free of legend, the Company authorizes you to accept an opinion of
counsel from Luce Forward Hamilton & Scripps LLP.

     

    The
Company hereby confirms that no instructions other than as contemplated herein
will be given to you by the Company with respect to the Common Shares. The
Company hereby agrees that it shall not replace you as the Company’s transfer
agent, until such time as the Company provides written notice to you and Buyer
that a suitable replacement has agreed to serve as transfer agent and to be
bound by the terms and conditions of this letter agreement regarding Irrevocable
Transfer Agent Instructions (this “Agreement”).

     

    The
Company and you hereby acknowledge and confirm that complying with the terms of
this Agreement does not and shall not prohibit you from satisfying any and all
fiduciary responsibilities and duties you may owe to the Company.

     

    The
Company and you acknowledge that the Buyer is relying on the representations and
covenants made by the Company and you hereunder and that such representations
and covenants are a material inducement to the Buyer to enter into the Purchase
Agreement. The Company and you further acknowledge that without such
representations and covenants made hereunder, the Buyer would not enter into the
Purchase Agreement and purchase Securities pursuant thereto.

     

    Each
party hereto specifically acknowledges and agrees that a breach or threatened
breach of any provision hereof will cause irreparable damage and that damages at
law would be an inadequate remedy if this Agreement were not specifically
enforced.  Therefore, in the event of a breach or threatened breach by
a party hereto, including, without limitation, the attempted termination of the
agency relationship created by this instrument, in addition to all other rights
or remedies, an injunction restraining such breach and granting specific
performance of the provisions of this Agreement should issue without any
requirement to show any actual damage or to post any bond or other
security.

     

    You may
at any time resign as transfer agent hereunder by giving fifteen (15) days prior
written notice of resignation to the Company and the Buyer. Prior to the
effective date of the resignation as specified in such notice, the Company will
issue to you instructions authorizing delivery of Common Shares to a
substitute transfer agent selected by, and in the sole discretion of, the
Company. If no successor transfer agent is named by the Company, you may apply
to a court of competent jurisdiction in the State of Delaware for appointment of
a successor transfer agent and for an order to deposit Common Shares with the
clerk of any such court.

     

    The
Company must keep its bill current with you – if the Company is not current and
is on suspension, the Buyer will have the right to pay the Company’s outstanding
bill, in order for you to act upon this Agreement. If the outstanding bill is
not paid by the Company or the Buyer, you have no further obligation under this
Agreement.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, the parties have caused this letter agreement regarding
Irrevocable Transfer Agent Instructions to be duly executed and delivered as of
the date first written above.

     

    
      
        
          
            
              	
                      YASHENG
      ECO-TRADE CORPORATION

                    
	 
      
	
                      By:

                    	  
      
	
                      Name:Yossi
      Attia

                    
	
                      Title:
      CEO

                    

            

          

        

      

    

     

    THE
FOREGOING INSTRUCTIONS ARE ACKNOWLEDGED AND AGREED TO:

     

    American
Stock Transfer & Trust Company, LLC

     

    
      
        
          
            
              	
                      By:

                    	  
      
	
                      Name:

                    	  
      
	
                      Title:

                    	  
      

            

          

        

      

    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    Exhibit
D

     

    Lock-Up
Agreement

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      [Date]

    

     

    Socius
Special Situations Capital Group, LLC

    11150
Santa Monica Boulevard, Suite 1500

    Los
Angeles, CA 90025

     

    Ladies
and Gentlemen:

     

    This
Lock-Up Agreement is being delivered to you in connection with the Preferred
Stock Purchase Agreement dated as of December 30, 2009 (“Purchase Agreement”)
and entered into by and among Yasheng Eco-Trade Corporation, a Delaware
corporation (“Company”) and Socius
Special Situations Capital Group, LLC, a Delaware limited liability company
(“Investor”),
with respect to the purchase without registration under the Securities Act of
1933, as amended (the “Act”), in reliance on
Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder, of
shares of the Company’s Series A Preferred Stock and related
Securities.  Capitalized terms used herein without definition shall
have the respective meanings ascribed to them in the Purchase
Agreement.

     

    In order
to induce Investor to enter into the Purchase Agreement, the undersigned agrees
that, for a period of ten Trading Days beginning on each date the Company
delivers a Tranche Notice to Investor (the “Tranche Notice Date”)
and ending on the Tranche Closing Date pursuant to the terms of the Purchase
Agreement (the “Lock-up Period”), the
undersigned will not, without the prior written consent of Investor, (a) sell,
offer to sell, contract or agree to sell, hypothecate, pledge, grant any option
to purchase or otherwise dispose of or agree to dispose of, directly or
indirectly, in respect of, 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 Exchange Act of 1934, as amended, and the rules and
regulations of the SEC promulgated thereunder (the “Exchange Act”) with
respect to, any Common Stock of the Company or any securities convertible into
or exercisable or exchangeable for Common Stock, or warrants or other rights to
purchase Common Stock or any such securities, or any securities substantially
similar to the Common Stock, (b) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or any such securities, or warrants or other
rights to purchase Common Stock, whether any such transaction is to be settled
by delivery of Common Stock or such other securities, in cash or otherwise, or
(c)
publicly announce an intention to effect any transaction specified in clause (a)
or (b).

     

    The
foregoing sentence shall not apply to (a) bona fide gifts, provided the
recipient thereof agrees in writing to be bound by the terms of this Lock-Up
Agreement, (b) dispositions to any trust for the direct or indirect benefit of
the undersigned and/or the immediate family of the undersigned, provided that
such trust agrees in writing to be bound by the terms of this Lock-Up Agreement,
(c) sales made pursuant to any written sales plans established prior to the date
of this Lock-Up Agreement in conformity with the requirements of Rule 10b5-1(c)
promulgated under the Exchange Act or (d) exercise of options for Common Stock
and the disposition (whether by sale, gift or otherwise) of Common Stock
underlying such options.  Notwithstanding clause (a) above, the
undersigned may make a bona fide gift of up to 10,000 shares of Common Stock to
a charity or other non-profit entity and such charity or entity shall not be
required to be bound by the terms of this Lock-Up Agreement; provided, however, that in the
event the undersigned exercises options during the Lock-Up Period, the
undersigned may not, during the Lock-Up Period, dispose of the number of shares
of Common Stock underlying such exercised options equal to the number of shares
of Common Stock gifted by the undersigned pursuant to this sentence during the
Lock-Up Period.  For purposes of this paragraph, “immediate family”
shall mean the undersigned and the spouse, any lineal descendent, father,
mother, brother or sister of the undersigned.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    The
Company agrees to provide the undersigned with notice that the Company has
delivered a Tranche Notice to Investor prior to, or simultaneous with, its
delivery of the Tranche Notice to Investor.  Such notice shall provide
the undersigned with the Tranche Notice Date and clearly indicate the beginning
of the Lock-up Period.

     

    Upon the
termination of the Purchase Agreement, this Lock-Up Agreement shall be
terminated and the undersigned shall be released from its obligations
hereunder.

     

    
      
        
          	
                  Sincerely,

                
	 
      
	
                   

                
	
                  Stockholder

                
	
                  Print
      Name: Capitol Properties,
LLC

                

        

      

    

    

    Acknowledged
and Agreed:

     

    Yasheng
Eco-Trade Corporation

     

    
      
        
          	
                  By:

                	  
      
	
                  Name:
      Yossi Attia

                
	
                  Title:
      CEO

                

        

      

    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    Exhibit
E

     

    Opinion

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    [letterhead
to be inserted]

     

    December
30, 2009

     

    Socius
Special Situations Capital Group, LLC

    11150
Santa Monica Boulevard, Suite 1500

    Los
Angeles, CA 90025

     

    Re::
Yasheng Eco-Trade
Corporation

    

    Ladies
and Gentlemen:

     

    We are
counsel to Yasheng Eco-Trade Corporation, a Delaware corporation (“Company”), in
connection with the sale and issuance of (a) up to 1,000 shares of its Series D
Preferred Stock, par value $0.001 per share (“Preferred Shares”), along with (b)
shares (“Commitment
Fee Shares”) of the Company’s common stock, par value $0.001 per share
(“Common
Stock”), (c) warrants (the “Warrant”) to purchase
shares of Common Stock, and (d) shares of Common Stock issuable upon exercise of
the Warrant (the “Warrant Shares,” and
together with the Preferred Shares and the Warrant, the “Securities”), to
Socius Special Situations Capital Group, LLC, a Delaware limited liability
company (“Investor”), pursuant to the terms of the Preferred Stock Purchase
Agreement dated as of December 30, 2009 (“Agreement”), by and between Company
and Investor.  Capitalized terms not otherwise defined herein have the
meanings set forth in the Agreement.

     

    In
reaching the opinion stated in this letter, we have reviewed originals or copies
of the Agreement, the Company’s Certificate of Incorporation and Bylaws, the
resolutions of the Board of Directors authorizing the Purchase Agreement and the
issuance of the Securities, the Certificate of Designations for the Preferred
Shares, and such other documents, corporate records, certificates and matters of
law as we have considered relevant.

     

    In
rendering the opinions set forth in this opinion letter, we assume the
following:

    

    
      	
               
      

            	
              a.

            	
              the
      legal capacity of each natural person and the legal existence of all
      parties other than the Company to the transactions referred to in the
      Agreement;

            

    

    

    
      	
               
      

            	
              b.

            	
              the
      power and authority of each person other than the Company or person(s)
      acting on behalf of the Company to execute, deliver and perform each
      document executed and delivered and to do each other act done or to be
      done by such person;

            

    

    

    
      	
               
      

            	
              c.

            	
              the
      legality, validity, binding effect and enforceability as to each person
      other than the Company or person(s) acting on behalf of the Company of
      each document executed and delivered or to be executed or delivered and of
      each other act done or to be done by such
  person;

            

    

    

    
      	
               
      

            	
              d.

            	
              the
      transactions referred to in the Agreement have been
      consummated;

            

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              e.

            	
              the
      genuineness of all signatures and the completeness of each document
      submitted to us;

            

    

    

    
      	
               
      

            	
              f.

            	
              that
      the addressees have acted in good faith, without notice of adverse claims,
      and have complied with all laws applicable to them that affect the
      transactions referred to in the
Agreement;

            

    

    

    
      	
               
      

            	
              g.

            	
              that
      no action, discretionary or otherwise, will be taken by or on behalf of
      the Company in the future that might result in a violation of law;
      and

            

    

    

    
      	
               
      

            	
              h.

            	
              that
      with respect to the Agreement and to the transactions referred to therein,
      there has been no mutual mistake of fact and there exists no fraud or
      duress.

            

    

    

    As to certain questions of fact
material to this opinion, we have relied upon statements or certificates of
public officials and officers of the Company.

    

    Based
upon the foregoing and subject to the assumptions, limitations, qualifications
and exceptions stated herein, we are of the opinion that as of the date
hereof:

     

    1.           Company
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware.

    

    2.           The
Securities are duly authorized, the Preferred Shares, Commitment Fee Shares and
Warrant are, and when issued in accordance with the terms and conditions of the
Agreement the Warrant Shares will be, validly issued, fully paid and
non-assessable.  To the best of our knowledge, the issuance of the
Securities will not be subject to any statutory or contractual preemptive rights
of any stockholder of the Company.

    

    3.           Company
has the corporate power and authority to (a) execute, deliver and perform all of
its obligations under the Agreement and the Transaction Documents, and (b)
issue, sell and deliver each of the Securities.

    

    4.           The
execution, delivery and performance of the Agreement and the Transaction
Documents have been duly authorized by all necessary corporate action on the
part of Company, and have been duly executed and delivered by
Company.

    

    5.           The
execution and delivery of the Transaction Documents by Company does not, and
Company’s performance of its obligations thereunder will not (a) violate the
certificate or articles of incorporation, articles of association, bylaws, or
other organizational or governing documents of Company, as in effect on the date
hereof, (b) violate in any material respect any federal or state law, rule or
regulation, or judgment, order or decree of any state or federal court or
governmental or administrative authority, in each case that, to our knowledge,
is applicable to Company or its properties or assets and which could have a
material adverse effect on Company’s business, properties, assets, financial
condition or results of operations or prevent the performance by Company of any
material obligation under the Agreement, or (c) require the authorization,
consent, approval of or other action of, notice to or filing or qualification
with, any state or federal governmental authority, except as have been, or will
be, made or obtained.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    These
opinions are limited to the matters expressly stated herein and are rendered
solely for your benefit and may not be quoted or relied upon for any other
purpose or by an other person.

     

    The
opinions expressed herein are subject to the following assumptions, limitations,
qualifications and exceptions:

     

    A.           We
have assumed the genuineness of all signatures, the authenticity of the
Agreement submitted to us as originals, the conformity with originals
of  the Agreement submitted to us as copies, the authenticity of
certificates of public officials and the due authorization, execution and
delivery of the Agreement (except the due authorization, execution and delivery
by the Company of the Agreement).

     

    B.           We
have assumed that each of the parties to the Agreement other than the Company
(the “Other Parties”) has the legal right, capacity and power to enter into,
enforce and perform all of its obligations under the
Agreement.  Furthermore, we have assumed the due authorization by each
of the Other Parties of all requisite action and the due execution and delivery
of the Agreement by each of the Other Parties, and that the Agreement are valid
and binding upon each of the Other Parties and are enforceable against each
Other Party in accordance with their terms.

     

    C.           Whenever
a statement herein is qualified by "to our knowledge" or similar phrase, it
means that, during the course of our representation of the Company for the
purposes of this opinion letter, (1) no information that would give those
lawyers who participated in the preparation of the letter or who performed work
for the Company in connection with the Agreement (collectively, the "Opinion Letter Participants")
current actual knowledge of the inaccuracy of such statement has come to their
attention; (2) we have not undertaken any independent investigation or
inquiry to determine the accuracy of such statement; (3) any limited
investigation or inquiry otherwise undertaken by the Opinion Letter Participants
during the preparation of this opinion letter should not be regarded as such an
investigation or inquiry; and (4) no inference as to our knowledge of any
matters bearing on the accuracy of any such statement should be drawn from the
fact of our representation of the Company.

    D.           This
opinion letter is governed by, and shall be interpreted in accordance with, the
Legal Opinion Accord (the "Accord") of the ABA Section of Business Law (1991).
As a consequence, it is subject to a number of qualifications, exceptions,
definitions, limitations on coverage and other limitations, all as more
particularly described in the Accord, including the General Qualifications and
the Equitable Principles Limitation, and this opinion letter should be read in
conjunction therewith.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    We are
counsel admitted to practice in the State of New York and we do not express any
opinion with respect to the effect or applicability of the laws of any
jurisdiction, other than the laws of the State of New York and the federal laws
of the United States of America.  In furnishing the opinion regarding
the valid existence and good standing of the Company, we have relied solely upon
a good standing certificate issued by the Secretary of State of Delaware on
December __, 2009.

     

    This
opinion is given as of the date hereof and we assume no obligation, to update or
supplement this opinion to reflect any facts or circumstances which may
hereafter come to our attention or any changes in laws which may hereafter
occur.

     

    
      
        
          	
                  Sincerely,

                
	 
      
	
                  Very
      truly yours,

                
	 
      	 
      	 
      
	 
      	
                  [___________________________]

                
	 
      	 
      	 
      
	 
      	
                  By:

                	
                   

                

        

      

    

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    Exhibit
F

     

    Use
of Proceeds Certificate

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    YASHENG
ECO-TRADE CORPORATION

     

    USE OF
PROCEEDS CERTIFICATE

     

    The
undersigned, Yossi Attia and Robin Ann Gorelick, hereby certify
that:

     

    1.           They
are the CEO and Secretary, respectively, of Yasheng Eco-Trade Corporation, a
Delaware corporation (the “Company”).

     

    2.           This
Use of Proceeds Certificate (this “Certificate”) is being delivered to
Socius
Capital Group, LLC doing business as Socius Special Situations Capital Group,
LLC (“Investor”), by the
Company, to fulfill the requirement under Section 2.3(d)(iii) of the Preferred
Stock Purchase Agreement, dated as of December 30, 2009, between Investor and
the Company (the “Purchase
Agreement”).  Terms used and not defined in this Certificate
have the meanings set forth in the Purchase Agreement.

     

    3.           On
or prior to the date hereof, the Company has delivered to Investor a Tranche
Notice for the purchase by Investor of Tranche Shares upon payment by the
Company to Investor of the Tranche Purchase Price.

     

    The undersigned do hereby certify that
the Tranche Purchase Price will be used for the following purpose or
purposes:

    

    [                                                                                          
].

     

    IN
WITNESS WHEREOF, the undersigned have executed this Certificate this[__] day of
_________, 2009.

     

    
      
        
          
            	
                    By:

                  	
                     

                  
	
                    Name:

                  	 
      
	
                    Title:

                  	 
      
	 
      	 
      
	
                    By:

                  	
                     

                  
	
                    Name:

                  	 
      
	
                    Title:

                  	 
      

          

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Exhibit
G

     

    Tranche
Notice

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Dated:
[________], 20[__]

     

    Socius
Special Situations Capital Group, LLC

    11150
Santa Monica Boulevard, Suite 1500

    Los
Angeles, CA 90025

     

    Re:           Tranche
Notice

     

    Ladies
& Gentlemen:

     

    Pursuant
to the December 30, 2009 Preferred Stock Purchase Agreement (“Agreement”) between
Yasheng Eco-Trade Corporation, a Delaware corporation (“Company”), and Socius
Special Situations Capital Group, LLC (“Investor”), Company
hereby elects to exercise a Tranche.  Capitalized terms not otherwise
defined herein shall have the meanings defined in the Agreement.

     

    At the
Tranche Closing, Company will sell to Investor [___________] Preferred Shares at
$10,000.00 per
share for a Tranche Amount of $[___________].

     

    On behalf
of Company, the undersigned hereby certifies to Investor as
follows:

     

    1.           The
undersigned is a duly authorized officer of Company;

     

    2.           The
above Tranche Amount does not exceed the Maximum Tranche Amount;
and

     

    3.           All
of the conditions precedent to the right of the Company to deliver a Tranche
Notice set forth in Section 2.3(d) of the
Agreement have been satisfied.

     

    IN
WITNESS WHEREOF, the Company has executed and delivered this Tranche Notice as
of the date first written above.

     

    
      
        
          	
                  YASHENG ECO-TRADE CORPORATION

                
	 
      	 
      
	
                  By:

                	  
      
	
                  Name: Yossi Attia

                
	
                  Title:  
      CEONEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

     

    Yasheng
Eco-Trade Corporation

     

    Warrant
To Purchase Common Stock

     

    
      	
              Warrant
      No.: 2009-1

            	
              Issuance
      Date: December 30, 2009

            

    

    

    Number of
Warrant Shares:  306,818,182

    

    Initial
Exercise Price:  $0.022 per share

    

    Yasheng
Eco-Trade Corporation, a Delaware corporation (“Company”), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Socius CG II, Ltd., a Bermuda exempted
company, the holder hereof or its designees or assigns (“Holder”), is
entitled, subject to the terms set forth herein, to purchase from the Company,
at the Exercise Price then in effect, upon exercise of this Warrant to Purchase
Common Stock (including any Warrant to Purchase Common Stock issued in exchange,
transfer or replacement hereof, the “Warrant”), at any
time or times after issuance of the Warrant and until 11:59 p.m. Eastern time on
the fifth anniversary of the Tranche Notice Date for each applicable Warrant
Tranche, subject to acceleration pursuant to Section 3.3 hereof,
that number of duly authorized, validly issued, fully paid and non-assessable
shares of Common Stock set forth above and as adjusted herein (the “Warrant Shares”);
provided, however, that this
Warrant may only be exercised, from time to time, for that number of shares of
Common Stock equal to 135% of the cumulative amount of Tranche Purchase Prices
under Tranche Notices delivered prior to or on the date of
exercise.  Except as otherwise defined herein, capitalized terms in
this Warrant shall have the meanings set forth in ARTICLE 13
hereof.

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    This
Warrant is issued pursuant to the Preferred Stock Purchase Agreement dated
December 30, 2009, by and among the Company and the investor referred to therein
(the “Purchase Agreement”).

     

    This
Warrant shall consist of and be exercisable in tranches (each, a “Warrant
Tranche”), with a separate tranche being created upon each delivery of a Tranche
Notice under the Purchase Agreement.  Each Warrant Tranche will grant
to the Holder the right, for a five-year period commencing on the applicable
Tranche Notice Date, to exercise the Warrant and purchase up to a number of
shares of Common Stock with an Aggregate Exercise Price equal to 135% of the
Tranche Purchase Price for the applicable Tranche Notice.  Attached to
this Warrant is a schedule (the “Warrant Tranche Schedule”) that sets forth the
issuance date, the number of Warrant Shares, and the Exercise Price for each
Warrant Tranche.  The Warrant Tranche Schedule shall be updated by the
Company, with an updated copy provided to the Holder, promptly following each
exercise of this Warrant.  No portion of this Warrant shall vest or be
exercisable except under the Warrant Tranches.

     

    ARTICLE 1

    EXERCISE
OF WARRANT.

     

    1.1          Mechanics
of Exercise.

     

    1.1.1        Subject
to the terms and conditions hereof, this Warrant may be exercised by the Holder
on any day on or after the Issuance Date, in whole or in part, by (i) delivery
of a written notice to the Company, in the form attached hereto as Appendix 1
(the “Exercise Notice”), of the Holder’s election to exercise this Warrant, and
(ii) 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”), with such payment made, at
Investor’s option, (x) in cash or by wire transfer of immediately available
funds, (y) by the issuance and delivery of a recourse promissory note
substantially in the form attached hereto as Appendix 2 (each, a “Recourse
Note”), or (z) if applicable, by cashless exercise pursuant to Section
1.3.

     

    1.1.2        The
Holder shall not be required to deliver the original Warrant in order to effect
an exercise hereunder.  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.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    1.1.3        On
the Trading Day on which the Company has received each of the Exercise Notice
and the Aggregate Exercise Price (the “Exercise Delivery Documents”) from the
Holder by 6:30 p.m. Eastern time, or on the next Trading Day if the Exercise
Delivery Documents are received after 6:30 p.m. Eastern time or on a non-Trading
Day (in each case, the “Exercise Delivery Date”), the Company shall transmit (i)
a facsimile acknowledgment of confirmation of receipt of the Exercise Delivery
Documents to the Holder, and (ii) an electronic copy of its share issuance
instructions to the Holder and to the Company’s transfer agent (the “Transfer
Agent”), with such transmissions to comply with the notice provisions contained
in Section 6.2 of the Purchase Agreement, and shall instruct and authorize the
Transfer Agent to credit such aggregate number of freely-tradable Warrant Shares
to which the Holder is entitled to receive upon such exercise to the Holder’s or
its designee’s balance account with The Depository Trust Company (DTC) through
the Fast Automated Securities Transfer (FAST) Program through its Deposit
Withdrawal Agent Commission (DWAC) system, with such credit to occur no later
than 12:00 p.m. Eastern Time on the Trading Day following the Exercise Delivery
Date, time being of the essence; provided, however, that if the Warrant Shares
are not credited as DWAC Shares by 12:00 p.m. Eastern Time on the Trading Day
following the Exercise Delivery Date, then the Tranche Closing Date applicable
to the Exercise Notice shall be extended by one Trading Day for each Trading Day
that timely credit of DWAC Shares is not made.

     

    1.1.4        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.  Any
Warrant delivered in connection with a Tranche Notice and exercised by Holder
shall be deemed exercised (i) on the Tranche Notice Date, if exercised by 6:30
p.m. Eastern time on the Tranche Notice Date, or (ii) on the next Trading Day,
if exercised by Investor after 6:30 p.m. Eastern Time on the Tranche Notice Date
or on any other date, in each case with Holder deemed to be a holder of record
as of such date.

     

    1.1.5        If
this Warrant is exercised and the number of Warrant Shares represented by this
Warrant is greater than the number of Warrant Shares being acquired upon such
exercise, then the Company shall, as soon as practicable and in no event later
than one Trading Day after such exercise, update the Tranche Exercise Schedule
to reflect the revised number of Warrant Shares for which this Warrant is then
exercisable and deliver a copy of the updated Tranche Exercise Schedule to the
Holder.  No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock to
be issued shall be rounded up to the nearest whole number.  The
Company shall pay any and all taxes which may be payable with respect to the
issuance and delivery of Warrant Shares upon exercise of this
Warrant.

     

    1.2          Adjustments
to Exercise Price and Number of Shares.  In addition to other
adjustments specified herein, the Exercise Price of this Warrant and the number
of shares of Common Stock issuable upon exercise shall be adjusted as
follows:

     

    1.2.1        Exercise
Price.  The “Exercise Price” per share of Common Stock
underlying this Warrant, subject to further adjustment as provided herein, shall
be as follows: (i) with
respect to the portion of this Warrant issued on the Effective Date and until
the first Tranche Notice Date, the amount per Warrant Share set forth on the
face of this Warrant, which is equal to Closing Bid Price for the Common Stock
on the Trading Day prior to the Effective Date, and (ii) with respect to the
portion of this Warrant that becomes exercisable on any Tranche Notice Date
(including the first Tranche Notice Date), an amount per Warrant Share equal to
the Closing Bid Price of a share of Common Stock on such Tranche Notice
Date.

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    1.2.2        Number of
Shares.  The number of Warrant Shares underlying this Warrant
and each Warrant Tranche, subject to further adjustment as provided herein,
shall be as follows: (i) with respect to the portion of this Warrant issued on
the Effective Date and until the first Tranche Notice Date, the number of shares
set forth on the face of this Warrant, which is a number of shares of Common
Stock equal to the Maximum Placement multiplied by 135%, with the resulting sum
divided by the Closing Bid Price of a share of Common Stock on the Trading Day
prior to the Effective Date, and (ii) with respect to the portion of this
Warrant issued on any Tranche Notice Date including the first Tranche Notice
Date, a number of shares equal to the Tranche Purchase Price set forth in the
applicable Tranche Notice multiplied by 135%, with the resulting sum divided by
the Closing Bid Price of a share of Common Stock on the Tranche Notice
Date.  For example, if the Tranche Purchase Price is $1,000,000 and
the Closing Bid Price is $0.50, then the number of Warrant Shares underlying
that Warrant Tranche shall be $1,000,000 x 135% = $1,350,000 divided by $0.50 =
2,700,000 shares of Common Stock.  On each Tranche Notice Date, the
number of Warrant Shares underlying the related Warrant Tranche shall vest and
become exercisable, and the aggregate number of Warrant Shares underlying this
Warrant that are currently exercisable shall automatically adjust up or down to
account for the change in the number of Warrant Shares covered by the new
Warrant Tranche and for any Warrant Shares issued upon any prior or simultaneous
exercise of this Warrant.  If at any time the Holder reasonably
believes that the number of Warrant Shares included in the Registration
Statement is not sufficient to cover all exercises under this Warrant, then the
Company shall amend such Registration Statement to include the additional number
of Warrant Shares that may be required to provide such coverage.

     

    1.3          Cashless
Exercise.  Notwithstanding anything contained herein to the
contrary, if at any time there is not a current, valid and effective
registration statement covering the Warrant Shares that are the subject of the
Exercise Notice (the “Unavailable Warrant Shares”), 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 shares of Common Stock determined according to the
following formula (a “Cashless Exercise”):

     

    Net
Number = (B-C) x
A

                                    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
average of the Closing Sale Prices of the shares of Common Stock (as reported by
Bloomberg) for the five (5) consecutive Trading Days ending on the date
immediately preceding the date of the Exercise Notice.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

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

    

    1.4           Company’s
Failure to Timely Deliver Securities.  If the Company shall
fail for any reason or for no reason to credit to the Holder’s balance account
with DTC, by 12:00 p.m. Eastern time on the Trading Day following the Exercise
Delivery Date, the number of shares of Common Stock to which the Holder is
entitled upon the Holder’s exercise of this Warrant, then, in addition to all
other remedies available to the Holder, the Company shall pay in cash to the
Holder on each day after such Trading Day that the issuance of such shares of
Common Stock is not timely effected an amount equal to 1.5% of the product of
(A) the sum of the number of shares of Common Stock not issued to the Holder on
a timely basis and to which the Holder is entitled and (B) the Closing Bid Price
of the shares of Common Stock on the Trading Day immediately preceding the last
possible date which the Company could have issued such shares of Common Stock to
the Holder without violating Section 1.1.  In addition to the
foregoing, if after the Company’s receipt of an Exercise Notice the Company
shall fail to timely (pursuant to Section 1.1.3 hereof) credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder’s exercise hereunder, and the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the
Company, then the Company shall, within one Trading Day 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, if any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to credit such Holder’s balance
account with DTC for the number of Warrant Shares to which the Holder is
entitled upon the Holder’s exercise hereunder and to issue such Warrant Shares
shall terminate, or (ii) promptly honor its obligation to credit such Holder’s
balance account with DTC for the number of Warrant Shares to which the Holder is
entitled upon the Holder’s exercise hereunder and pay cash to the Holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock sold by Holder in satisfaction of its
obligations, times (B) the Closing Bid Price on the date of
exercise.

     

    1.5           Exercise
Limitation.  Notwithstanding any other provision, at no time
may the Holder (a) exercise this Warrant such that the number of Warrant Shares
to be received pursuant to such exercise exceeds 135.0% of the aggregate of all
Tranche Purchase Prices under and in connection with all Tranche Notices
delivered pursuant to the Purchase Agreement prior to the date of exercise; or
(b) exercise this Warrant such that the number of Warrant Shares to be received
pursuant to such exercise, aggregated with all other shares of Common Stock then
owned by the Holder beneficially or deemed beneficially owned by the Holder,
would result in the Holder owning more than 4.99% of all of such Common Stock as
would be outstanding on the date of exercise, as determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder.  In addition, as of any date, the aggregate number of shares of
Common Stock into which this Warrant is exercisable within 61 days, together
with all other shares of Common Stock then beneficially owned (as such term is
defined in Rule 13(d) under the Exchange Act) by Holder and its affiliates,
shall not exceed 9.99% of the total outstanding shares of Common Stock as of
such date.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    1.6           Activity
Restrictions.  For so long as Holder or any of its affiliates
holds this Warrant or any Warrant Shares, neither Holder nor any affiliate
will:  (i) vote any shares of Common Stock owned or controlled by it,
solicit any proxies, or seek to advise or influence any Person with respect to
any voting securities of the Company; (ii) engage or participate in any actions,
plans or proposals which relate to or would result in (a) acquiring additional
securities of the Company, alone or together with any other Person, which would
result in beneficially owning or controlling more than 9.99% of the total
outstanding Common Stock or other voting securities of the Company, (b) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving Company or any of its subsidiaries, (c) a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries, (d) any change in the present board of directors or management of
the Company, including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the board, (e) any material
change in the present capitalization or dividend policy of the Company, (f) any
other material change in the Company’s business or corporate structure,
including but not limited to, if the Company is a registered closed-end
investment company, any plans or proposals to make any changes in its investment
policy for which a vote is required by Section 13 of the Investment Company Act
of 1940, (g) changes in the Company’s charter, bylaws or instruments
corresponding thereto or other actions which may impede the acquisition of
control of the Company by any Person, (h) causing a class of securities of the
Company to be delisted from a national securities exchange or to cease to be
authorized to be quoted in an inter-dealer quotation system of a registered
national securities association, (i) a class of equity securities of the Company
becoming eligible for termination of registration pursuant  to Section
12(g)(4) of the Act, or (j) any action, intention, plan or arrangement similar
to any of those enumerated above; or (iii) request the Company or its directors,
officers, employees, agents or representatives to amend or waive any provision
of this Section
1.6.

     

    1.7           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 12.

     

    1.8           Insufficient
Authorized Shares.  If at any time while any portion of this
Warrant remains outstanding the Company does not have a sufficient number of
authorized and unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon exercise of this Warrant at least a number of shares
of Common Stock equal to 110% of the number of shares of Common Stock as shall
from time to time be necessary to effect the exercise of the portion of the
Warrant then outstanding (the “Required Reserve Amount”) (an “Authorized Share
Failure”), then the Company shall immediately take all action necessary to
increase the Company’s authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for the portion of
the 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 90 days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of
its stockholders for the approval of an increase in the number of authorized
shares of Common Stock.  In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its best
efforts to solicit its stockholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    ARTICLE 2

    ADJUSTMENT UPON SUBDIVISION
OR COMBINATION OF COMMON STOCK

     

    If the
Company at any time on or after the Issuance Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the 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 Issuance Date
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
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 ARTICLE 2 shall
become effective at the close of business on the date the subdivision or
combination becomes effective.

     

    ARTICLE 3

    PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS

     

    3.1           Purchase
Rights.  In addition to any adjustments pursuant to ARTICLE 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete 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 shares of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    3.2           Subsequent
Equity Sales. In addition to any adjustments made pursuant to ARTICLE 2
above, if the Company or any Subsidiary thereof, as applicable, at any time
while this Warrant is outstanding, shall sell or grant any option to purchase,
or sell or grant any right to reprice, or otherwise dispose of or issue (or
announce any offer, sale, grant or any option to purchase or other disposition)
any Common Stock or Common Stock Equivalents entitling any Person to acquire
shares of Common Stock, at an effective price per share less than the then
Exercise Price (such lower price, the “Base Share Price” and such issuances,
collectively, a “Dilutive Issuance”), then the Exercise Price shall be reduced
and only reduced to equal the Base Share Price and the number of Warrant Shares
issuable hereunder shall be increased such that the aggregate Exercise Price
payable hereunder, after taking into account the decrease in the Exercise Price,
shall be equal to the aggregate Exercise Price prior to such
adjustment.  Such adjustment shall be made whenever such Common Stock
or Common Stock Equivalents are issued.  If the holder of the Common
Stock or Common Stock Equivalents so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
per share which are issued in connection with such issuance, be entitled to
receive shares of Common Stock at an effective price per share which is less
than the Exercise Price, such issuance shall be deemed to have occurred for less
than the Exercise Price on such date of the Dilutive
Issuance.  Notwithstanding the foregoing, no adjustments shall be
made, paid or issued under this Section 3.2 in respect of an Exempt Issuance,
subject to adjustment for reverse and forward stock splits, stock dividends,
stock combinations and other similar transactions of the Common Stock that occur
after the date of the Purchase Agreement. The Company shall notify the Holder in
writing, no later than the Trading Day following the issuance of any Common
Stock or Common Stock Equivalents subject to this Section 3.2, indicating
therein the applicable issuance price, or applicable reset price, exchange
price, conversion price and other pricing terms (such notice the “Dilutive
Issuance Notice”).  For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to this Section 3.2, upon
the occurrence of any Dilutive Issuance, after the date of such Dilutive
Issuance the Holder is entitled to receive a number of Warrant Shares based upon
the Base Share Price regardless of whether the Holder accurately refers to the
Base Share Price in the Notice of Exercise.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    3.3           Fundamental
Transactions.  The Company shall not enter into or be party to
a Fundamental Transaction unless the Successor Entity assumes in writing all of
the obligations of the Company under this Warrant in accordance with the
provisions of this Section 3.3 pursuant to written agreements in form and
substance satisfactory to the Required Holders and approved by the Required
Holders prior to such Fundamental Transaction, including agreements to deliver
to each Holder of this Warrant in exchange for such Warrant a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to this Warrant, including, without limitation, an adjusted
exercise price equal to the value for the shares of Common Stock reflected by
the terms of such Fundamental Transaction, and exercisable for a corresponding
number of shares of capital stock equivalent to the shares of Common Stock
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.  Upon the
occurrence of any Fundamental Transaction, the Successor Entity shall succeed
to, and be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this 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 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 shares of the Common Stock (or other
securities, cash, assets or other property) purchasable upon the exercise of
this Warrant prior to such Fundamental Transaction, 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 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 shares of Common Stock
are entitled to receive securities or other assets with respect to or in
exchange for shares of Common Stock (a “Corporate Event”), the Company shall
make appropriate provision to insure that the Holder will thereafter have the
right to receive upon an exercise of this Warrant at any time after the
consummation of the Fundamental Transaction, in lieu of the shares of the Common
Stock (or other securities, cash, assets or other property) purchasable upon the
exercise of this Warrant prior to such Fundamental Transaction, 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 Fundamental Transaction had
this Warrant been exercised immediately prior to such Fundamental Transaction;
provided, however, that in the event the Fundamental Transaction involves the
issuance of cash or freely tradable securities by an issuer listed on the New
York Stock Exchange or the Nasdaq Stock Market, then the ability to exercise
this Warrant shall expire on the consummation of that Fundamental
Transaction.  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 3.3  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.

     

    3.4           Notwithstanding
the foregoing Section 3.3, in the event of a Fundamental Transaction other than
one in which the Successor Entity is a Public Successor Entity that assumes this
Warrant such that this Warrant shall be exercisable for the publicly traded
common stock of such Public Successor Entity, at the request of the Holder
delivered before the 90th day after the effective date 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) Trading Days after such
request (or, if later, on the effective date of the Fundamental Transaction),
cash in an amount equal to the value of the remaining unexercised portion of
this Warrant on the date of such consummation, which value shall be determined
by use of the Black Scholes Option Pricing Model using a volatility equal to the
100 day average historical price volatility prior to the date of the public
announcement of such Fundamental Transaction.

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    ARTICLE 4

    NONCIRCUMVENTION

     

    The
Company hereby covenants and agrees that the Company will not, by amendment of
its certificate or articles of incorporation, articles of association, bylaws,
or any other organization documents, 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 shares of Common Stock 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 shares of
Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any
portion of this Warrant remains outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued shares of Common
Stock, solely for the purpose of effecting the exercise of this Warrant, 110% of
the number of shares of Common Stock as shall from time to time be necessary to
effect the exercise of this Warrant then outstanding (without regard to any
limitations on exercise).

     

    ARTICLE 5

    WARRANT HOLDER NOT DEEMED A
STOCKHOLDER

     

    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 stockholder 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 stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company.  Notwithstanding this ARTICLE 5, the Company shall provide
the Holder with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.

     

    ARTICLE 6

    REISSUANCE OF
WARRANTS

     

    6.1           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 6.4), registered as the Holder may request, representing
the right to purchase the number of Warrant Shares being transferred by the
Holder and, if less then the total number of Warrant Shares then underlying this
Warrant is being transferred, a new Warrant (in accordance with Section 6.4) to
the Holder representing the right to purchase the number of Warrant Shares not
being transferred.

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    6.2           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 6.4) representing the right to purchase the Warrant
Shares then underlying this Warrant.

     

    6.3           Exchangeable
for Multiple Warrant.  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 6.4) 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 Warrant for fractional shares of
Common Stock shall be given.

     

    6.4           Issuance
of New Warrant.  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
6.1 or Section 6.3, the Warrant Shares designated by the Holder which, when
added to the number of shares of Common Stock underlying the other new Warrant
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.

     

    ARTICLE 7

    NOTICES

     

    Whenever
notice is required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with Section 6.2 of the
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
therefore.  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 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 shares of Common Stock,
(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 shares of Common Stock as such 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.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    ARTICLE 8

    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 written
consent of the Required Holders; provided that except as set forth in this
Warrant no such action may increase the exercise price of any Warrant or
decrease the number of shares or class of stock obtainable upon exercise of any
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 this Warrant.

     

    ARTICLE 9

    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.

     

    ARTICLE 10

    CONSTRUCTION;
HEADINGS

     

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

     

    ARTICLE 11

    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 2
Trading 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 Trading Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within 2 Trading Days submit via facsimile (a) the disputed determination of the
Exercise Price or arithmetic calculation to an independent, reputable investment
bank or independent registered public accounting firm selected by Holder subject
to Company’s approval, which may not be unreasonably withheld or delayed, or (b)
the disputed arithmetic calculation of the Warrant Shares to the Company’s
independent registered public accounting firm.  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 3 Trading 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.

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    ARTICLE 12

    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, 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 right to pursue actual 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.

     

    ARTICLE 13

    DEFINITIONS

     

    For
purposes of this Warrant, in addition to the terms defined elsewhere herein, the
following terms shall have the following meanings:

     

    13.1           “Bloomberg” means
Bloomberg Financial Markets.

     

    13.2           “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 Trading Market, as reported by Bloomberg, or, if the Trading 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 p.m.,
Eastern time, as reported by Bloomberg, or, if the Trading 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 Holder.  If the Company and Holder are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved pursuant to ARTICLE
11.  All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during the applicable calculation period.

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

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

     

    13.4           “Common Stock Deemed
Outstanding” means, at any given time, the number of shares of Common
Stock actually outstanding at such time, plus the number of shares of Common
Stock deemed to be outstanding pursuant to Section 3.1 hereof regardless of
whether the Options or Convertible Securities are actually exercisable at such
time, but excluding any shares of Common Stock owned or held by or for the
account of the Company or issuable upon exercise of this Warrant.

     

    13.5           “Common Stock
Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

     

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

     

    13.7           “DWAC Shares” means
all Warrant Shares issued or issuable to Holder or any Affiliate, successor or
assign of Holder pursuant to this Warrant, all of which shall be (a) issued in
electronic form, (b) freely tradable and without restriction on resale, and (c)
timely credited by Company to the specified Deposit/Withdrawal at Custodian
(DWAC) account with DTC under its Fast Automated Securities Transfer (FAST)
Program or any similar program hereafter adopted by DTC performing substantially
the same function, in accordance with instructions issued to and countersigned
by the Transfer Agent of the Company.

     

    13.8           “Eligible Market”
means the Trading Market, The New York Stock Exchange, Inc., The NASDAQ Global
Select Market, The NASDAQ Global Market, The NASDAQ Capital Market, the NYSE
Amex or the OTC Bulletin Board, but does not include the Pink
Sheets.

     

    13.9           “Exempt Issuance”
means the issuance of (a) shares of Common Stock or options to employees,
officers, directors or consultants of the Company pursuant to any stock or
option plan duly adopted for such purpose, by a majority of the non-employee
members of the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities upon the
exercise or exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement to
increase the number of such securities or to decrease the exercise price,
exchange price or conversion price of such securities (except as a result of
anti-dilution provisions therein), and (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be to a Person (or to the equity holders of a Person) which is, itself or
through its subsidiaries, an operating company or an asset in a business
synergistic with the business of the Company and shall provide to the Company
additional benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is
investing in securities.

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    13.10         “Fundamental
Transaction” has the meaning set forth in the Purchase
Agreement.

     

    13.11         “Maximum Placement”
has the meaning set forth in the Purchase Agreement.

     

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

     

    13.13         “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.

     

    13.14         “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.

     

    13.15         “Public Successor
Entity” means a Successor Entity that is a publicly traded corporation
whose stock is quoted or listed for trading on an Eligible Market.

     

    13.16         “Required Holders”
means the Holders of this Warrant representing at least a majority of shares of
Common Stock underlying this Warrant as then outstanding.

     

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

     

    13.18         “Trading Day” means
any day on which the Common Stock is traded on an Eligible Market; provided that
it shall not include any day on which the Common Stock (a) is suspended from
trading, or (b) is scheduled to trade on such exchange or market for less than 5
hours.

     

    13.19         “Trading Market” means
the OTC Bulletin Board, the NASDAQ Capital Market, the NASDAQ Global Market, the
NASDAQ Global Select Market, the NYSE Amex, or the New York Stock Exchange,
whichever is at the time the principal trading exchange or market for the Common
Stock, but does not include the Pink Sheets inter-dealer electronic quotation
and trading system.

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    13.20         “Tranche Closing Date”
has the meaning set forth in the Purchase Agreement.

     

    13.21         “Tranche Notice” has
the meaning set forth in the Purchase Agreement.

     

    13.22         “Tranche Notice Date”
has the meaning set forth in the Purchase Agreement.

     

    13.23         “Tranche Purchase
Price” has the meaning set forth in the Purchase Agreement.

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

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

     

    
      
        
          
            
              
                	
                        YASHENG
      ECO-TRADE CORPORATION

                      
	 
      
	
                        By:

                      	      
                        /s/Yossi
      Attia

                      	
                         

                      
	
                        Name:
      Yossi Attia

                      
	
                        Title:  CEO

                      

              

            

          

        

      

    

    
      
         

      

      
        17

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