Document:

Unassociated Document

    NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS DEBENTURE NOR THE
SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (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.

     

    
      	
              Debenture
      No. 2010-[  ]

            	
              Issuance
      Date: [           ],
      2010

            
	
              $[            
      ]

            	 
      

    

    

    ZBB
Energy Corporation

    10%
Redeemable Subordinated Debenture

    Due
[__________], 2060

     

    Registered
Debentureholder:

    Socius CG
II, Ltd., a Bermuda exempted company

    

    ZBB
Energy Corporation, a Wisconsin corporation (the “Company”), for value
received, hereby promises to pay to the registered holder hereof (the “Debentureholder”),
the principal sum stated above plus accrued interest thereon, on the 50th
anniversary of the issuance date set forth above (the “Maturity Date”), upon
presentation and surrender of this Debenture at the principal corporate office
of the Company, or at such other place as the Debentureholder may designate, in
such coin or currency of the United States of America as at the time of payment
shall be legal tender for the payment of public and private
debts.  This debenture is being issued pursuant to the Securities
Purchase Agreement between the Company and the Debentureholder dated June 16,
2010 (the “SPA”).

     

    Interest
will accrue on a daily basis on the outstanding principal amount of this
Debenture from and including the date hereof at the rate equal to 10.0% per
annum, for the actual number of days elapsed, and shall be payable on the
Maturity Date or at such earlier time that payment of the entire principal sum
has been made or duly provided for.

     

    1.           General.

     

    a.           No
Registration.  The Debentureholder understands that: (i) this
Debenture has not been registered under the Securities Act of 1933, as amended
(the “Act”), or
any other federal or state law governing the issuance or transfer of securities
(herein collectively called the “securities laws”), (ii) the securities laws
impose substantial restrictions upon the transfer of any interest in this
Debenture, and (iii) the Company is not obligated to register this Debenture or
the securities acquired upon conversion of this Debenture under the securities
laws or otherwise take any action to facilitate or make possible any transfer of
any interest in this Debenture.

     

    
      
         

      

      
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    b.           Mutilated, Destroyed, Lost
and Stolen Debentures.  If (i) any mutilated Debenture is
surrendered to the Company or the Company receives evidence to its satisfaction
of the destruction, loss or theft of any Debenture, and (ii) there is delivered
to the Company such security or indemnity as may be required by the Company to
save the Company harmless, then the Company shall execute and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Debenture, a new Debenture of like tenor and principal amount, bearing a number
not contemporaneously outstanding.  Every new Debenture issued
pursuant to this Section 1(b) in lieu
of any destroyed, lost or stolen Debenture shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Debenture shall be at any time enforceable by anyone, and shall
be entitled to all the benefits hereof equally and proportionately with any and
all other Debentures duly issued.  The provisions of this Section 1(b) are
exclusive and shall preclude (to the extent lawful) all other rights and
remedies with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Debentures.

     

    c.           Payment of Interest;
Interest Rights Preserved.  Interest on this Debenture which is
payable, and is punctually paid or duly provided for, on any interest payment
date shall be paid to the person in whose name this Debenture (or one or more
predecessor Debentures) is registered at the close of business on the business
day immediately prior to such payment date.  Each Debenture delivered
for transfer or in exchange for or in lieu of any other Debenture shall carry
the rights to interest accrued and unpaid, and to accrue, which were carried by
such other Debenture.

     

    d.           Persons Deemed
Owners.  The Company, and any agent of the Company, may treat
the person in whose name this Debenture is registered as the owner of this
Debenture for the purpose of receiving payment of principal and, subject to
Section 1(c),
interest on this Debenture and for all other purposes whatsoever, whether or not
this Debenture be overdue, and neither the Company nor any agent of the Company
shall be affected by notice to the contrary.

     

    e.           Cancellation.  This
Debenture when surrendered for payment, redemption, transfer, exchange or
conversion shall be delivered to the Debenture registrar for cancellation. The
Company may at any time deliver to the Debenture registrar for cancellation any
Debentures previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Debentures so delivered
shall be promptly cancelled by the Debenture registrar. No Debentures shall be
issued in lieu of or in exchange for any Debentures cancelled as provided in
this Section
1(e), except as expressly permitted. All cancelled Debentures held by the
Debenture registrar shall be disposed of as directed by the
Company.

     

    2.           Conversion.

     

    a.           Automatic Conversion to
Preferred Stock.

     

    (i)           Automatic
Conversion.  Immediately upon the authorization of shares of
Series A Preferred Stock of the Company, $0.01 par value per share (“Preferred Stock”), in
accordance with a Certificate of Designations in a form mutually agreed between
the Company and the Debentureholder prior to the issuance of this Debenture, the
entire face amount of this Debenture shall automatically convert into fully paid
and nonassessable shares of Preferred Stock.  The number of shares of
Preferred Stock issuable upon any conversion of this Debenture at any given time
shall be determined by dividing the principal amount of this Debenture, together
with any accrued but unpaid interest thereon, by $10,000.00.

     

    
      
         

      

      
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    (ii)           No
Registration.  The Debentureholder, by purchasing this
Debenture, understands that the Preferred Stock to be issued pursuant to the
conversion rights granted hereunder shall not have been registered under the
Act, nor is it the intent of the Company to so register said Preferred Stock and
that, to the extent required by applicable law, the certificates evidencing said
Preferred Stock shall bear a legend indicating that said shares are “restricted
securities” within the meaning of Rule 144 under the Act.

     

    (iii)          Restrictions on
Transfer.  The Debentureholder further understands that until
and unless said Preferred Stock is registered under the Act, the Act may be
construed to prohibit any public sale or transfer of any of the Preferred Stock
unless such public sale or transfer is effected in compliance with all
applicable laws.

     

    b.           Fundamental
Change.

     

    (i)           Conditional Conversion
Election.  For purposes of this Debenture, a “Fundamental Change”
shall be deemed to have occurred if there shall be: (A) any consolidation to
which the Company shall be a party, (B) any merger in which the Company shall
not survive, (C) any merger in which the Common Stock outstanding immediately
prior to such merger shall be exchanged for or converted into any cash,
securities or other property, (D) any complete liquidation of the Company or (E)
any partial liquidation of the Company for which the approval of the holders of
Common Stock is required or which is involuntary.  In connection with
any Fundamental Change, other than a merger of the Company for the purpose of
reincorporation in another jurisdiction without a material change in stock
ownership, the Debentureholder shall have the right at any time before the
consummation of the Fundamental Change to make a conditional election to convert
all or such portion of this Debenture as the Debentureholder shall desire into
Preferred Stock if the Fundamental Change is consummated and to participate
therein as if the Debentureholder had held such Preferred Stock on the date as
of which the holders of Preferred Stock entitled to participate therein shall be
selected, but not to convert this Debenture if the Fundamental Change is not
consummated. This Debenture converted pursuant to any conditional election made
pursuant to rights granted in this Section 2(b)(i) shall
be deemed to have been converted on the record date (or if there be no record
date, the point in time) used to determine the holders of Common Stock entitled
to participate in the Fundamental Change or other event giving rise to such
conditional election.

     

    (ii)           Fundamental Change
Adjustment.  As a condition to the consummation of any
Fundamental Change, lawful and adequate provision shall be made whereby the
Debentureholder, if such Debentureholder shall not make a conditional conversion
election pursuant to Section 2(b)(i) ,
will immediately after the consummation of such Fundamental Change have the
right to convert this Debenture into such shares of stock, securities or assets
which such Debentureholder could have received in such Fundamental Change if
such Debentureholder had made a conditional conversion of this Debenture
pursuant to Section
2(b)(i) . In each such case appropriate provision will be made with
respect to such Debentureholder’s rights and interests to the end that the
provisions of Section
2 shall thereafter be applicable in relation to any shares of stock,
securities or assets thereafter deliverable upon the conversion of this
Debenture to provide such Debentureholder with protections after such
Fundamental Change substantially equivalent to the protections provided by Section 2 prior to
such Fundamental Change.

     

    
      
         

      

      
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    3.           Subordination.

     

    a.           Extent of
Subordination.  The indebtedness evidenced by this Debenture
shall be subordinate in right of payment to any given Senior Obligation (as
defined below) in the manner and to the extent provided (i) in this Section 3 and (ii) in
any written commitment which the Company may at any time make in good faith with
respect to the given Senior Obligation.  Without limiting by
implication the generality of the preceding sentence, the Company shall have the
right to enter into commitments with respect to any given Senior Obligation
(either at the time such Senior Obligation shall be incurred or at any time
thereafter) which may preclude the Company from making payments on this
Debenture until all amounts on the Senior Obligation are satisfied or impose
other restrictions on the payment of this Debenture and all other persons
interested in this Debenture to the extent provided in such commitment, provided
that such commitment shall be made in good faith.

     

    b.           Senior
Obligations.  Any obligation of any kind that the Company may
at any time have (including, but not limited to, any obligation for borrowed
money, any contractual obligation, any guarantee of any kind, and any other
contingent obligation) shall be deemed to be a “Senior Obligation”
unless the terms governing such obligation expressly provide that such
obligation should not be deemed a “Senior Obligation” for purposes of this
Debenture.

     

    c.           Reorganization
Distribution.  If any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, is
made to creditors upon any total liquidation of the Company, whether voluntary
or involuntary, or upon any liquidation or reorganization of the Company in
bankruptcy, insolvency, receivership or other proceedings, then all amounts due
upon all Senior Obligations owed by the Company shall first be paid in full or
payment thereof duly provided for before the Debentureholder is entitled to
receive or retain any assets so paid or distributed in respect hereof; and upon
such liquidation or reorganization any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the Debentureholder would be entitled except for these provisions shall be
paid by the Company, or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other person making such payment or distribution, directly to
the holders of Senior Obligations (pro rata on the basis of the respective
amounts of the Senior Obligations held by such holders or their
representatives), until all such Senior Obligations are paid in full, in money
or money’s worth, after giving effect to any concurrent payment or distribution
to or for the holders of Senior Obligations, before any payment or distribution
is made to the Debentureholder. If any holder of any Senior Obligation receives
any payment or distribution which, except for the provisions of this Section 3(c), would
have been payable or deliverable with respect to this Debenture, the
Debentureholder shall be subrogated to the rights of the holder of such Senior
Obligation against the Company to the extent of the amount so paid.

     

    
      
         

      

      
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    d.           Rights
Reserved.  The provisions of this Section 3 are for the
purpose of defining the relative rights of the holders of Senior Obligations on
the one hand and the holder of this Debenture on the other
hand.  Nothing herein shall impair the Company’s obligation to the
holder of this Debenture to pay to such Debentureholder principal and interest
in accordance with the terms of this Debenture.  An amount shall be
deemed “past due” for the purpose of this Debenture if it shall not be paid when
its payment would have been due if this Section 3 had not
been applicable.  No provision of this Section 3 shall be
construed to prevent the holder of this Debenture from exercising all remedies
otherwise available under the terms of this Debenture or under applicable law
upon the occurrence of Default (including, but not limited to, acceleration of
the maturity of principal owed on this Debenture), no portion of the amounts
owed on this Debenture shall be paid by the Company until and unless such
payment shall be permitted under this Section 3 and any
commitment made in accordance with clause (a) of this Section
3.  Nothing in this Section 3 shall
prevent conversion at any time of all or any part of the principal balance of
this Debenture into Common Stock.

     

    4.           Remedies.

     

    a.           Events of
Default.  A “Default” shall be
deemed to exist for purposes of this Debenture so long as:

     

    (i)           any
interest owed shall be past due and shall have been past due for 30 days;
or

     

    (ii)           the
principal owed on this Debenture shall be past due; or

     

    (iii)         the
Company shall be in breach of any other covenant, agreement or warranty of the
Company in this Debenture, and such breach shall have continued for at least 30
days after there has been given to the Chief Financial Officer or Treasurer of
the Company, by the Debentureholder, a written notice specifying such breach and
requiring it to be remedied and stating that such notice is a “notice of
default” hereunder; or

     

    (iv)         a
decree or order by a court having jurisdiction in the premises shall have been
entered adjudicating the Company a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization of the Company under the
Federal Bankruptcy Code or any other similar applicable Federal or state law,
and such decree or order shall have been in effect for a period of 60 days; or a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver or liquidator or trustee or assignee in bankruptcy or
insolvency of the Company or of any property of the Company or for the winding
up or liquidation of its affairs shall be in effect and shall have been in
effect for a period of 60 days; or

     

    (v)          the
Company or any subsidiary shall have instituted proceedings to be adjudicated a
voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding
against it, or shall have filed a petition or answer or consent seeking
reorganization under the Federal Bankruptcy Code or any other applicable Federal
or state law, or shall have consented to the filing of any such petition, or
shall consent to the appointment of a receiver or liquidator or trustee or
assignee in bankruptcy or insolvency of it or of its property, or shall have
made an assignment for the benefit of creditors, or shall have admitted in
writing its inability to pay its debts generally as they become due, or
corporate action shall be taken by the Company or any subsidiary in furtherance
of any of the aforesaid purposes.

    
      
         

      

      
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    A default
shall be deemed to exist whenever prescribed by the terms of this Section 4(a)
regardless of whether such Default shall be voluntary or involuntary or shall
result from compliance with any legal requirement or any other circumstance of
any kind.

     

    b.           Acceleration of
Maturity.  Whenever a Default exists, the Debentureholder may
declare the principal of this Debenture to be due and payable immediately, by a
notice in writing to the Chief Financial Officer or Treasurer of the Company,
and upon any such declaration such principal (subject to the provisions of Section 3) shall
become immediately due and payable.

     

    c.           Collection of Indebtedness
and Suits for Enforcement.  The Company covenants that if the
principal or interest shall become past due, the Company shall pay interest upon
the overdue principal and, to the extent that payment of such interest shall be
legally enforceable, upon overdue installments of interest, at the rate borne by
this Debenture and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Debentureholder. If the Company fails to pay
such amount forthwith upon such demand, the Debentureholder may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Debenture and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Debenture, wherever
situated.

     

    d.           Unconditional Right of
Debentureholder to Received Principal and
Interest.  Notwithstanding any other provision in this
Debenture (with the exception of the subordination provisions contained in Section 3), the
Debentureholder shall have the right (except as otherwise provided in Section 3) which is
absolute and unconditional to receive payment of the principal of and, subject
to Section
1(c), interest on the stated maturity (or, in the case of redemption, on
the redemption date) and to institute suit for the enforcement of any such
payment, and such right shall not be impaired without the consent of the
Debentureholder.

     

    e.           Rights and Remedies
Cumulative.   No right or remedy herein conferred upon or
reserved to the Debentureholder is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise.  The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment or any other appropriate
right or remedy.

     

    f.     
      Governing Law; Dispute
Resolution.  This Debenture shall be governed by and construed
and enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Debenture 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.

     

    
      
         

      

      
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    g.           Delay or Omission Not
Waiver.  No delay or omission of any Debentureholder to
exercise any right or remedy accruing upon any Default shall impair any such
right or remedy or constitute a waiver of any such Default or an acquiescence
therein.  Every right and remedy given by this Debenture or by law to
the Debentureholder may be exercised from time to time, and as often as may be
deemed expedient, by the Debentureholder.

     

    h.           Undertaking for
Costs. The parties to this Debenture agree that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Debenture, an undertaking of any party litigant to pay the costs of such
suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys’ fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant.

     

    i.       
    Waiver of Stay or Extension
Laws.  The Company covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Debenture, and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted, but will suffer and permit the
execution of every such power as though no such law had been
enacted.

     

    5.           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 Debentures, at a price per share (the
“Debenture Redemption
Price”) equal to 100% of the Debenture Liquidation Value, plus accrued
interest thereon.

     

    b.           Early
Redemption.  Prior to redemption pursuant to Section 5(a) hereof,
the Corporation shall have the right, at the Corporation’s option, to redeem all
or a portion of the Debentures, at a price per share equal to: (i) 127% of the
Debenture 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
Debenture 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 Debenture 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 Debentures at the Debenture Redemption
Price (plus the premium for early redemption pursuant to Section 5(b) hereof
if applicable).

     

    d.           Mechanics of
Redemption.  If the Corporation elects to redeem any of the
Debenture 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 Debenture that the
Corporation is electing to redeem and (B) the Corporation Redemption Price (plus
the premium for early redemption pursuant to Section 5(b) if
applicable).

     

    
      
         

      

      
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    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 Debentures.  Upon receipt of such Holder’s Debentures, the
Corporation shall pay the Debenture Redemption Price (plus the premium for early
redemption pursuant to Section 5(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 the
additional purchase right under the SPA or warrants issued in connection
therewith by such Holder.

     

    f.           Payment
Date.  For purposes of this Debenture, the “Payment Date” shall
be the later of the Redemption Date or the time this Debenture shall be
surrendered to the Company.  If this Debenture shall not be paid upon
the Payment Date, the principal shall, until paid, bear interest from the
Redemption Date at the rate borne by this Debenture.  In the event of
redemption by the Company, the Company hereby retains a right to offset against
the amount to be paid by the Company to the Debentureholder upon such redemption
any amounts owed to the Company by the Debentureholder as of the Payment Date
notwithstanding the manner in which such debt of the Debentureholder to the
Company may have been incurred.

     

    g.           Cancellation of Redeemed
Debenture.  When and if this Debenture is redeemed and paid
under the provisions of this Section 5, this
Debenture shall forthwith be cancelled by the Company.

     

    
      
         

      

      
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    IN
WITNESS WHEREOF, ZBB Energy Corporation has caused this Debenture to be signed
in its name by the signature of its President and attested by the signature of
its Secretary.

     

    ZBB
ENERGY CORPORATION

    

    
      
        
          
            
              	
                      By:

                    	 
        
	 
      	 
      
	
                      ATTEST:

                    
	 
      	 
      
	
                      By:Unassociated Document

     

    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.

     

    ZBB
Energy Corporation

     

    Warrant
To Purchase Common Stock

     

    Warrant
No.:
2010-1                                                                                                          Issuance
Date:   June 16, 2010

    

    Initial
Number of Warrant Shares:  10,000,000

    

    Initial
Exercise Price:  $0.35 per share

    

    ZBB
Energy Corporation, a Wisconsin 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 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 second anniversary of the Issuance Date, 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 with an Aggregate Exercise Price equal to up to 35% of the
cumulative amount of Tranche Purchase Prices under Tranche Notices delivered
prior to or on the date of exercise.

     

    This
Warrant is issued pursuant to the Securities Purchase Agreement dated
June 16,
2010, by and among the Company and the investor referred to therein (the “Purchase
Agreement”).  Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in ARTICLE 13
hereof.

    
      
         

      

      
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    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 two-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 35% 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.  Notwithstanding anything to the contrary in this Warrant, no
portion of this Warrant shall vest or be exercisable except under the Warrant
Tranches (the “Tranche Limitation”).

     

    In no
event shall the Company be permitted to deliver a Tranche Notice if the number
of registered shares underlying this Warrant is insufficient to cover the
portion of the Warrant that will vest and become exercisable in connection with
such Tranche Notice.  If the number of registered shares underlying
this Warrant is or becomes insufficient to permit the Company to issue
registered shares upon exercise of this Warrant, the Company shall promptly
amend the Registration Statement to include more shares thereunder, with such
amendment to be filed sufficiently in advance of the date the Company intends to
deliver a Tranche Notice so as to ensure that registered shares are available to
Holder on the Tranche Notice Date.

     

    ARTICLE 1

    EXERCISE
OF WARRANT.

     

    1.1         Mechanics
of Exercise.

     

    1.1.1                Subject
to the terms and conditions hereof (including without limitation the Tranche
Limitation), 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.

    
      
         

      

      
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    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 5:00
p.m. Eastern Time on the Trading Day following the Exercise Delivery Date, time
being of the essence; provided, however, that if any
Warrant Shares issuable in connection with an Exercise Notice delivered
following the Company’s delivery of a Tranche Notice and prior to or on the
related Tranche Closing Date are not credited as DWAC Shares by 5:00 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.  Notwithstanding the foregoing, if the Company is not DWAC
eligible on the Exercise Delivery Date, then the Warrant Shares shall be issued
in certificated form, free of restrictive legend, and delivered to Investor or
its designee no later than 5:00 p.m. Eastern Time on the Trading Day following
the Exercise Delivery Date, time being of the essence, and the Tranche Closing
Date shall be extended by one Trading Day for each Trading Day required for
Investor to receive the certificated shares and convert such certificated shares
into electronic form.

     

    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.

     

    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 other than
taxes due on account of the income of the Holder.

    
      
         

      

      
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    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 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.

     

    1.2.2                Number of
Shares.  Subject to the Tranche Limitation, 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 number of shares underlying this Warrant as 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 shall be that number of shares of Common Stock equal to
the Maximum Placement multiplied by 35%, 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 number of shares underlying this
Warrant that become exercisable 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 35%, 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 35% = $350,000 divided by
$0.50 = 700,000 shares of Common Stock.  (In the foregoing example,
following issuance of 700,000 Warrant Shares, the number of shares underlying
this Warrant would be decreased by such 700,000 shares.)  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.  Cashless exercise shall not be available with
respect to the Warrant.

    
      
         

      

      
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    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 (or, if the Company is not DWAC eligible, if the Company shall fail for
any reason or for no reason to have delivered to Investor in certificated form,
free of restrictive legend), by 5:00 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.  Notwithstanding the foregoing, if the Company is not DWAC
eligible on the Exercise Delivery Date, and the Warrant Shares are issued in
certificated form, the Tranche Closing Date shall be extended by one Trading Day
for each Trading Day required for Investor to receive the certificated shares
and convert such certificated shares into electronic form.

     

    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 35.0% 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 or
other voting securities of the Company then owned or deemed beneficially owned
by the Holder and its affiliates, would result in the Holder and its affiliates
owning or being deemed to beneficially own more than 9.99% of the Common Stock
or other voting securities of the Company as would be outstanding on the date of
exercise, with such ownership percentage determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder
(the “Holder Ownership
Limit”).  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 or other voting securities of the
Company then owned or deemed beneficially owned by Holder and its affiliates,
shall not exceed the Holder Ownership Limit.

    
      
         

      

      
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    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 owning or beneficially owning or controlling more than 9.99% of the
total outstanding Common Stock or other voting securities of the Company, with
such ownership percentage determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder, (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.

    
      
         

      

      
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    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.

     

    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.

     

    3.2         [Reserved].

    
      
         

      

      
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    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.

    
      
         

      

      
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    3.4         Purchase
of Warrant.  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.

     

    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.

    
      
         

      

      
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    ARTICLE 6

    REISSUANCE OF
WARRANTS

     

    6.1         Transfer
of Warrant.  If this Warrant is to be transferred in whole or
in part, 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.

     

    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.

    
      
         

      

      
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    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.

     

    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.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    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.

     

    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 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.

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    13.2           “Closing Bid Price”
means, for any security as of any date, the last closing bid price 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, then the last bid price 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 of such security on the principal securities exchange or
trading market where such security is listed, quoted or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price 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 is reported
for such security by Bloomberg, the average of the bid prices 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 cannot be calculated for a security on a particular date on any of the
foregoing bases, the Closing Bid Price 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.

     

    13.3           “Common Stock” means
(i) the Company’s shares of Common Stock, par value $0.01 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           
“Convertible
Securities” means any stock or securities (other than Options) directly
or indirectly convertible into or exercisable or exchangeable for shares of
Common Stock.

     

    13.5           “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.

     

    13.6           “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.

     

    13.7           
“Fundamental
Transaction” has the meaning set forth in the Purchase
Agreement.

     

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

     

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

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    13.10         “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.

     

    13.11         “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.

     

    13.12         “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.

     

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

     

    13.14         “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.

     

    13.15         “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.

     

    13.16         “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.

     

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

     

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

     

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

     

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

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    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.

     

    
      
        
          
            
              
                
                  	
                          ZBB
      ENERGY CORPORATION

                        
	 
      	 
      
	
                          By:

                        	 
      
	
                          Name:

                        
	
                          Title:

                        

                

              

            

          

        

      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Warrant Exercise
Schedule

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  	
                                          Exercise
      Date

                                        	 	
                                          Number of 

                                          Warrant Shares

                                        	 	
                                          Exercise Price

                                          Per Share

                                        	 	
                                          Aggregate Exercise 

                                          Price

                                        	 	
                                          Dollar Amount 

                                          Remaining

                                        
	 
      	 	 
      	 	 
      	 	 
      	 	 
      

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    APPENDIX
1

     

    EXERCISE
NOTICE

     

    ZBB
ENERGY CORPORATION

     

    The
undersigned hereby exercises the right to purchase ________________ shares of
Common Stock (“Warrant
Shares”) of ZBB Energy Corporation, a Wisconsin 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

    

    ___           Recourse
Note Exercise with respect to ____________ Warrant Shares

    

    Please issue

    

    
      	
            	
              ___ 

            	
              A
      certificate or certificates representing said shares of Common Stock in
      the namespecified below and send certificate by overnight courier to the
      following address.

            

    

    

    Name/Address:

    

    
      	
               
      

            	
              ___

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

            

    

     

    
      	
               
      

            	
              Account
      Information:

            

    

     

    
      
        
          
            
              
                
                  
                    
                      
                        	  
      	 
	
                                Holder
      Name

                              
	 
      	 
	
                                By:

                              	 
	
                                Name:

                              	 
	
                                Title:

                              	 

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ACKNOWLEDGMENT

     

    The
Company hereby acknowledges the foregoing Exercise Notice and hereby directs
Computershare  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.

     

    
      
        
          
            
              
                	
                        ZBB
      ENERGY 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 ZBB Energy Corporation (“Lender”), at N93
W14475 Whittaker Way, Menomonee Falls, Wisconsin 53051, 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 the Securities Purchase Agreement dated June 16, 2010 with
Borrower or any Warrant issued pursuant thereto, or any loan agreement or
other material agreement entered into between the Company Borrower, or (b) there
are any shares of Series A Preferred Stock or Debentures 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.  Lender shall be entitled to apply the accrued interest and
outstanding principal of this Note toward the redemption of any Debentures or
shares of Series A Preferred Stock held by Borrower.  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.

     

    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.

    
      
         

      

      
        - 3
-

        
          

        

      

      
         

      

    

     

    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.

    
      
         

      

      
        - 4
-

        
          

        

      

      
         

      

    

     

    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 such 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.

     

    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.

    
      
         

      

      
        - 5
-

        
          

        

      

      
         

      

    

     

    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:

                        	 
      

                

              

            

          

        

      

    

    

      
        
           

        

        
          - 6
-

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