Document:

EXECUTION
                VERSION

            

    

    ESCROW
      WARRANT

     

    NEITHER
      THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS WARRANT NOR THE
      SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), 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, OR (B)
      AN
      OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
      REQUIRED UNDER SAID ACT (II) UNLESS SOLD OR TRANSFERRED TO A “QUALIFIED
      INSTITUTIONAL BUYER” WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT OR
      TO AN “ACCREDITED INVESTOR” AS THAT TERM IS DEFINED IN RULE 501(A) OF REGULATION
      D OR
      (III) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
      NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION WITH
      A
      BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
      THIS
      WARRANT. ANY TRANSFEREE OF THIS WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF
      THIS WARRANT. 

    CHINA
      AUTOMOTIVE SYSTEMS, INC.

     

    Warrant
      To Purchase Common Stock

     

    
      	 Warrant No.: YA-2008-B-2	
               Number
                of Shares:
                94,133

            

    

     

    Date
      of
      Issuance: February 15, 2008

     

    CHINA
      AUTOMOTIVE SYSTEMS, INC.,
      a
      Delaware corporation (the “Company”),
      hereby certifies that, for good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, YA
      Global Investments, L.P.
      (the
“Holder”),
      the
      registered Holder hereof or its permitted assigns, is entitled, subject to
      the
      terms set forth below, to purchase from the Company upon surrender of this
      Warrant, on or after the date hereof, but not after 11:59 P.M. Eastern Time
      on
      the Expiration Date (as defined herein) Ninety Four Thousand One Hundred Thirty
      Three (94,133) fully paid and nonassessable shares of Common Stock (as defined
      herein) of the Company (the “Warrant
      Shares”)
      at the
      exercise price per share provided in Section
      1(b)
      below or
      as subsequently adjusted; provided,
      however,
      that in
      no event shall the Holder be entitled to exercise this Warrant for a number
      of
      Warrant Shares in excess of that number of Warrant Shares which, upon giving
      effect to such exercise, would cause the aggregate number of shares of Common
      Stock beneficially owned by the Holder and its affiliates to exceed 4.99% of
      the
      outstanding shares of the Common Stock following such exercise, except within
      sixty (60) days of the Expiration Date (however, such restriction may be waived
      by Holder (but only as to itself and not to any other Holder) upon not less
      than
      sixty five (65) days prior notice to the Company). For purposes of the foregoing
      proviso, the aggregate number of shares of Common Stock beneficially owned
      by
      the Holder and its affiliates shall include the number of shares of Common
      Stock
      issuable upon exercise of this Warrant with respect to which the determination
      of such proviso is being made, but shall exclude shares of Common Stock which
      would be issuable upon (i) exercise of the remaining, unexercised Warrants
      beneficially owned by the Holder and its affiliates and (ii) exercise or
      conversion of the unexercised or unconverted portion of any other securities
      of
      the Company beneficially owned by the Holder and its affiliates (including,
      without limitation, any convertible notes or preferred stock) subject to a
      limitation on conversion or exercise analogous to the limitation contained
      herein. Except as set forth in the preceding sentence, for purposes of this
      paragraph, beneficial ownership shall be calculated in accordance with Section
      13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this
      Warrant, in determining the number of outstanding shares of Common Stock a
      Holder may rely on the number of outstanding shares of Common Stock as reflected
      in (1) the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (2)
      a more recent public announcement by the Company or (3) any other notice by
      the
      Company or its transfer agent setting forth the number of shares of Common
      Stock
      outstanding. Upon the written request of any Holder, the Company shall promptly,
      but in no event later than one (1) Business Day following the receipt of such
      notice, confirm in writing to any such Holder the number of shares of Common
      Stock then outstanding. In any case, the number of outstanding shares of Common
      Stock shall be determined after giving effect to the conversion or exercise
      of
      securities of the Company, including this Warrant (as defined below) by such
      Holder and its affiliates since the date as of which such number of outstanding
      shares of Common Stock was reported.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      1.  

     

    (a)  General.
      This
      Warrant is a common stock purchase warrant (the “Warrant”)
      issued
      pursuant to the Securities Purchase Agreement (“Securities
      Purchase Agreement”)
      dated
      as of February 1, 2008 among the Company and the Holder and the other parties
      to
      the Securities Purchase Agreement.

     

    (b)  Definitions.
      The
      following words and terms as used in this Warrant shall have the following
      meanings:

     

    (i)  “Approved
      Stock Plan”
means
      any employee benefit plan which has been or is hereafter approved by the Board
      of Directors of the Company, pursuant to which the Company’s securities may be
      issued to any employee, consultant, officer or director for services provided
      to
      the Company.

     

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

     

    (iii)  “Closing
      Trade Price”
means,
      for any security as of any date, the last closing trade price for such security
      on the Principal Market, as reported by Bloomberg Financial Markets
      (“Bloomberg”),
      or,
      if the Principal Market begins to operate on an extended hours basis and does
      not designate the closing trade price then the last trade price of such security
      prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the
      Principal Market is not the principal securities exchange or trading market
      for
      such security, the last closing trade price of such security on the principal
      securities exchange or trading market where such security is listed or traded
      as
      reported by Bloomberg, or if the foregoing do not apply, the last closing trade
      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 last closing trade
      price is reported for such security by Bloomberg, the average of the ask 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 Trade
      Price cannot be calculated for a security on a particular date on any of the
      foregoing bases, the Closing Trade Price of such security on such date shall
      be
      the fair market value as mutually determined by the Company and the Holder.
      All
      such determinations to be appropriately adjusted for any stock dividend, stock
      split, stock combination, reclassification or similar transaction during the
      applicable calculation period.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (iv)  “Common
      Stock”
means
      (i) the Company’s common stock, par value $0.0001 per share, and (ii) any
      capital stock into which such Common Stock shall have been changed or any
      capital stock resulting from a reclassification of such Common
      Stock.

     

    (v)  “Common
      Stock Deemed Outstanding”
means,
      at any given time, the number of shares of Common Stock outstanding at such
      time, plus the number of shares of Common Stock deemed to be outstanding
      pursuant to Sections
      8(a)(i)
      and
8(a)(ii)
      hereof
      regardless of whether the Options or Convertible Securities are actually
      exercisable or convertible at such time, but excluding any Common Stock owned
      or
      held by or for the account of the Company or issuable upon conversion of the
      Notes and exercise of the Warrants.

     

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

     

    (vii)  “Escrow
      Amount”
means
      that portion of the purchase price for the Note and the Warrants deposited
      in
      Escrow on the date hereof pursuant to Section
      1(c)(ii)
      of the
      Securities Purchase Agreement.

     

    (viii)  “Escrow
      Release Date”
means
      the date, if ever, the Escrow Amount is released to the Company.

     

    (ix)  “Event
      of Default”
means
      an event of default under the Notes, the Securities Purchase Agreement or the
      Registration Rights Agreement dated the date hereof.

     

    (x)  “Excluded
      Securities”
      means,
      Common Stock issued or issuable: (i) as a stock dividend to holders of Common
      Stock or upon any subdivision or combination of shares of Common Stock; (ii)
      in
      connection with any Approved Stock Plan; (iii) any securities issued to the
      seller as consideration for the acquisition of another entity by the Company
      by
      merger or share exchange (whereby the Company owns no less than 51% of the
      voting power of the surviving entity) or purchase of substantially all of such
      entity’s stock or assets that otherwise is permitted under the Notes if still
      outstanding; (iv) any securities issued in connection with a license, strategic
      partnership, joint venture or other similar agreement, provided
      that the
      purpose of such arrangement is not primarily the raising of capital; (v) upon
      exercise of warrants issued as a part of the issuance of straight debt
      securities (with no equity or equity-linked feature) issued to a financial
      institution or lender in connection with a bank loan, credit, lease, or other
      debt transaction with such financial institution or lender (where warrant
      coverage is not greater than 5% of the loan amount); or (vi) upon conversion
      of
      any Options or Convertible Securities which are outstanding on the day
      immediately preceding the Closing Date, provided
      that the
      terms of such Options or Convertible Securities are not amended, modified or
      changed on or after the Closing Date.

     

    
      
        
        

      

      
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    (xi)  “Expiration
      Date”
means
      the earlier of (x) the redemption of the Escrow Note (as defined in the
      Securities Purchase Agreement and (Y) the date one (1) year from the Issuance
      Date of this Warrant or, if such date falls on a Saturday, Sunday or other
      day
      on which banks are required or authorized to be closed in the City of New York
      or the State of New York or on which trading does not take place on the
      Principal Market or automated quotation system on which the Common Stock is
      traded (a “Holiday”),
      the
      next date that is not a Holiday.

     

    (xii)  “Issuance
      Date”
means
      the date hereof.

     

    (xiii)  “Notes”
means
      the Senior Convertible Notes of the Company issued on the date
      hereof.

     

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

     

    (xv)  “Other
      Securities”
means
      (i) those Convertible Securities, Options and warrants of the Company issued
      prior to, and outstanding on, the Issuance Date of this Warrant, (ii) the shares
      of Common Stock issuable on exercise of such convertible securities, options
      and
      warrants, provided such convertible securities, options and warrants are not
      amended after the Issuance Date of this Warrant, and (iii) the shares of Common
      Stock issuable upon exercise of this Warrant or exercise or conversion of the
      other securities issued pursuant to the Securities Purchase
      Agreement.

     

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

     

    (xvii)  “Principal
      Market”
means
      the NASDAQ Capital Market.

     

    (xviii)  “Registration
      Rights Agreement”
shall
      mean that certain Registration Rights Agreement by and among the Company and
      the
      parties thereto, dated the date hereof, and relating to the holders of the
      Warrant Shares.

     

    (xix)  “Registration
      Statement”
means
      a
      resale registration statement or registration statements of the Company filed
      under the 1933 Act covering the Warrant Shares.

     

    (xx)  “Required
      Holders”
means
      (i) the Lead Buyer as identified in the Securities Purchase Agreement or such
      other Person as it may designate (the “Lead
      Holder”)
      and
      (ii) other Holders of Warrants representing in the aggregate with the Lead
      Holder’s Warrant at least a majority of the Warrant Shares underlying such
      Warrants.

     

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

     

    (xxii)  “Trading
      Day”
means
      a
      day on which the Common Stock is trading on a Trading Market. 

     

    (xxiii)  “Trading
      Market”
means
      the following markets or exchanges on which the Common Stock is listed or quoted
      for trading on the date in question: the Nasdaq Capital Market, the American
      Stock Exchange, the New York Stock Exchange, the Nasdaq Global Market or the
      OTC
      Bulletin Board.

     

    
      
        
        

      

      
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    (xxiv)  “Warrant”
means
      this Warrant and all Warrants issued in exchange, transfer or replacement
      thereof. 

     

    (xxv)  “Warrant
      Exercise Price”
shall
      be $8.8527 per Warrant Share or as subsequently adjusted as provided in
Section
      8
      hereof.

     

    (xxvi)  “Warrant
      Shares”
means
      the shares of Common Stock issuable at any time upon exercise of this
      Warrant.

     

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

     

    (c)  Other
      Definitional Provisions.

     

    (i)  Except
      as
      otherwise specified herein, all references herein (A) to the Company shall
      be
      deemed to include the Company’s successors and (B) to any applicable law defined
      or referred to herein shall be deemed references to such applicable law as
      the
      same may have been or may be amended or supplemented from time to
      time.

     

    (ii)  When
      used
      in this Warrant, the words “herein”,
      “hereof”,
      and
“hereunder”
and
      words of similar import, shall refer to this Warrant as a whole and not to
      any
      provision of this Warrant, and the words “Section”,
      “Schedule”,
      and
“Exhibit”
shall
      refer to Sections of, and Schedules and Exhibits to, this Warrant unless
      otherwise specified.

     

    (iii)  Whenever
      the context so requires, the neuter gender includes the masculine or feminine,
      and the singular number includes the plural, and vice versa.

     

    
      
        
        

      

      
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    Section
      2.  Exercise
      of Warrant; Warrant Shares; Limitations on Exercise.

     

    (a)  This
      Warrant may be exercised, in whole or in any part, at anytime between the Escrow
      Release Date and the Expiration Date (both dates inclusive) (the “Exercise
      Period”)
      by (i)
      delivery to the Company of a notice of election to exercise this Warrant (or
      part thereof) in the form of Exhibit A
      attached
      hereto (“Exercise
      Notice”)
      (or at
      such other agency or office of the Company in the United States of America
      as it
      may designate by notice in writing to the Holder at the address of the Holder),
      and (ii) payment to the Company of the aggregate Warrant Exercise Price within
      three (3) Trading Days of the date said Exercise Notice is delivered to the
      Company (A) by cash, wire transfer funds or check or (B) if applicable, in
      accordance with the procedures set forth in Section
      2(b)
      below.
      On or before the first (1st)
      Trading
      Day following the Exercise Date (as defined below), the Company shall transmit
      by facsimile a confirmation of receipt of such Exercise Notice to the Holder
      and
      the Company’s transfer agent (the “Transfer
      Agent”).
      On or
      before the third (3rd) Trading Day following the Exercise Date (the
“Share
      Delivery Date”),
      the
      Company shall (x) provided
      that
      there is an effective Registration Statement and that the Transfer Agent is
      participating in the Depository Trust Company’s (“DTC”)
      Fast
      Automated Securities Transfer Program, credit such aggregate number of Warrant
      Shares to which the Holder shall be entitled to the Holder’s or its designee’s
      balance account with DTC through its Deposit Withdrawal Agent Commission system
      or (y) if there is no effective Registration Statement or if the Transfer Agent
      is not participating in the DTC Fast Automated Securities Transfer Program,
      issue and deliver to the address as specified in the Exercise Notice, a
      certificate, registered in the name of the Holder or its designee, for the
      number of Warrant Shares to which the Holder shall be entitled. Notwithstanding
      anything herein to the contrary, the Holder shall not be required to physically
      surrender this Warrant to the Company until the Holder has purchased all of
      the
      Warrant Shares available hereunder and the Warrant has been exercised in full,
      in which case, the Holder shall surrender this Warrant to the Company for
      cancellation within three (3) Trading Days of the date the final Exercise Notice
      is delivered to the Company. Partial exercises of this Warrant resulting in
      purchases of a portion of the total number of Warrant Shares available hereunder
      shall have the effect of lowering the outstanding number of Warrant Shares
      purchasable hereunder in an amount equal to the applicable number of Warrant
      Shares purchased.  The Holder and the Company shall maintain records
      showing the number of Warrant Shares purchased and the date of such
      purchases.  The Company shall deliver any objection to any notice of
      exercise form within two (2) Business Days of receipt of such notice.  The
      Holder and any assignee, by acceptance of this Warrant, acknowledge and agree
      that, by reason of the provisions of this paragraph, following the purchase
      of a
      portion of the Warrant Shares hereunder, the number of Warrant Shares available
      for purchase hereunder at any given time may be less than the amount stated
      on
      the face hereof. 

     

    (b)  In
      the
      event there is no effective Registration Statement or the effectiveness of
      the
      Registration Statement has been suspended for ten (10) consecutive Trading
      Days
      on the exercise date and suspension is ongoing on the exercise date, the Holder
      may, in lieu of exercising this Warrant for cash, wire transfer funds or check,
      elect to receive, without payment by the Holder of any additional consideration,
      a number of shares of Common Stock equal to “X”, computed using the formula set
      forth below, by surrender of this Warrant in accordance with Section
      2(a)
      hereof
      together with notice of such election, in which event the Company shall issue
      to
      the Holder such number of shares of Common Stock:

     

    
      
        
        

      

      
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    X = Y(A-B)

              
      A

     

    
      	Where:	X	=	
              The
                number of shares of Common Stock to be issued to the Holder pursuant
                to
                such election;

            

      	 	 	 	 

      	 	
              Y

            	
              =

            	
              The
                number of Warrant Shares in respect of which such election is
                made;

            

    

     

    
      	 	
              A

            	
              =

            	
              The
                Fair Market Value (the “Fair
                Market Value”)
                of one share of Common Stock; and

            

    

     

    
      	 	
              B

            	
              =

            	
              The
                Warrant Exercise Price (as adjusted to the date of the
                issuance).

            

    

     

    For
      purposes of this Section
      2(b),
      the
      Fair Market Value as of a particular date shall be determined as follows: (i)
      if
      shares of Common Stock are traded on a securities exchange (including the New
      York Stock Exchange, American Stock Exchange and the NASDAQ Stock Exchange)
      or
      through the NASDAQ Global Market or Capital Market or other over-the-counter
      market, the Fair Market Value shall be deemed to be the average of the closing
      sales prices of such shares on such exchange over the thirty (30) day period
      ending three (3) days prior to the exercise of this election; or (ii) if no
      public market exists for the shares of Common Stock, the Fair Market Value
      shall
      (subject to the Holder’s right to dispute such valuation as described below) be
      determined in good faith by the Board of Directors of the Company. If the Holder
      disagrees with the Board of Directors’ determination of the Fair Market Value
      pursuant to clause (ii) above, the Holder may submit a notice of disagreement
      to
      the Company. During the three (3) Business Days immediately following the
      Company’s receipt of such notice, the Holder and the Company shall negotiate in
      good faith to determine a mutually agreeable Fair Market Value. If the parties
      remain unable to reach agreement after such period, they shall engage one of
      the
“Big 4” accounting firms reasonably acceptable to each such party to resolve
      such dispute (the “Valuation
      Firm”).
      Each
      of the Holder and the Company shall provide (at each party’s own expense) the
      Valuation Firm with copies of any documents, analyses or other information
      within its possession or control that the Valuation Firm reasonably requests
      in
      order to resolve such dispute. The Valuation Firm shall determine the Fair
      Market Value as soon as practicable after its engagement to resolve the dispute
      using customary valuation techniques for other companies or businesses in the
      same or similar industries as the Company (and shall not apply any discount
      due
      to the fact that the Common Stock may constitute “restricted securities”, may be
      illiquid or represent a minority interest in the Company). The Valuation’s
      Firm’s determination of the Fair Market Value shall be binding on the Holder and
      the Company, and not subject to challenge or collateral attack for any reason.
      The Company shall pay all fees, costs and expenses of the Valuation Firm in
      connection with its engagement to resolve such dispute (the “Valuation
      Cost”);
      provided,
      however,
      that if
      the Valuation’s Firm’s determination of the Fair Market Value is in excess of
      50% lower
      than the Holder’s proposed Fair Market Value, then the fees and expenses of the
      Valuation Firm shall be shared in the same proportion that the Company’s
      position, on the one hand, and the Holder’s position, on the other hand,
      initially presented to the Valuation Firm (based on the aggregate of all
      differences taken as a whole) bear to the final resolution as determined by
      the
      Valuation Firm. If this Warrant is exercised as provided in this Section
      2(b),
      the
      parties hereto shall treat such exercise as a recapitalization pursuant to
      Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended, for
      all
      tax purposes.

     

    
      
        
        

      

      
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    (c)  Upon
      the
      exercise of this Warrant, the Company (unless otherwise requested by the Holder)
      will issue fractional shares of its Common Stock, and shall not distribute
      cash
      in lieu of such fractional shares. If requested by the Holder, in lieu of any
      fractional shares of Common Stock which would otherwise be issuable upon the
      exercise of this Warrant, the Company shall pay a cash adjustment in respect
      of
      such fractional interest in an amount equal to the then Fair Market Value of
      a
      share of Common Stock multiplied by such fractional interest.

     

    (d)  Notwithstanding
      the terms of this Section
      2,
      if (i)
      the Holder has not elected to exercise this Warrant prior to the end of the
      Exercise Period pursuant to the terms hereof (the “Termination”),
      (ii)
      the Exercise Price for one Warrant Share is less than the Fair Market Value
      of
      one share of Common Stock upon such Termination and (iii) the other conditions
      (including no effective Registration Statement) set forth in Section
      2(b)
      exist,
      then (unless notice to the contrary is provided by the Holder), this Warrant
      shall be deemed automatically exercised pursuant to Section
      2(b)
      as to
      the maximum number of Warrant Shares for which this Warrant is then exercisable,
      immediately prior to such Termination, without any action by the Holder with
      such exercise to be effected pursuant to Section
      2(b).
      In the
      event that no public market exists for the shares of Common Stock, the Company
      shall notify the Holder of the Board of Directors’ determination of the Fair
      Market Value on third day prior to the Termination, such notification to be
      given on or before the Expiration Date and without prejudice to the Holder’s
      rights to dispute the valuation in accordance with Section
      2(b)
      which
      shall survive the termination of this Agreement.

     

    (e)  Each
      date
      on which this Warrant is exercised and on which payment of the Warrant Exercise
      Price (i.e., the later of those two dates) is made is referred to herein as
      an
“Exercise
      Date”.
      As
      soon as reasonably possible but in no event later than two (2) Business Days
      after the Exercise Date, the Company shall issue and deliver a certificate
      or
      certificates for the Warrant Shares being purchased pursuant to such exercise,
      registered in the name of the Holder or the Holder’s designee, to such Holder or
      designee, as the case may be. If such exercise shall not have been for the
      full
      number of the Warrant Shares, then the Company shall if the Holder has
      surrendered this Warrant for the purpose of such exercise issue promptly and
      deliver to the Holder a new Warrant, registered in the name of the Holder,
      of
      like tenor to this Warrant, for the balance of the Warrant Shares that remain
      after exercise of the Warrant.

     

    (f)  The
      person or entity in whose name any certificate for shares of Common Stock is
      issued upon any exercise shall for all purposes be deemed to have become the
      holder of record of such shares as of the Exercise Date, except that if the
      Exercise Date is a date on which the stock transfer books of the Company are
      closed, such person or entity shall be deemed to have become the holder of
      record of such shares at the close of business on the next succeeding date
      on
      which the stock transfer books are open. The Company shall pay all documentary,
      stamp or other transactional taxes attributable to the issuance or delivery
      of
      shares of Common Stock upon exercise of all or any part of this
      Warrant.

    
       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

    

     

    (g)  If
      the
      Company shall fail to issue a certificate to the Holder or credit the Holder’s
      balance account with DTC (as defined below), as applicable, for the number
      of
      shares of Common Stock to which the Holder is entitled upon exercise of any
      portion of this Warrant on or prior to the date which is three (3) Trading
      Days
      after the Exercise Date (a “Exercise
      Failure”),
      then
      (A) the Company shall at the Holder’s request pay damages to the Holder for each
      Trading Day of such Exercise Failure in an amount equal to one and one-half
      percent (1.5%) of the product of (1) the sum of the number of shares of Common
      Stock not issued to the Holder on or prior to the Share Delivery Date and to
      which the Holder is entitled, and (2) the Weighted Average Price of the Common
      Stock on the Share Delivery Date and (B) the Holder, upon written notice to
      the
      Company within five (5) Trading Days after the Exercise Failure, may void its
      Exercise Notice with respect to, and retain or have returned, as the case may
      be, any portion of this Warrant that has not been exercised pursuant to such
      Exercise Notice. In addition to the foregoing, if
      within
      three (3) Trading Days after the Exercise Date the Company shall fail to issue
      and deliver a certificate to the Holder or credit the Holder’s balance account
      with DTC for the number of shares of Common Stock to which the Holder is
      entitled upon such holder’s exercise of any portion of this Warrant or on any
      date of the Company’s obligation to deliver shares of Common Stock as
      contemplated pursuant to clause (y) below, and if on or after such Trading
      Day
      the Holder purchases (in an open market transaction or otherwise) Common Stock
      to deliver in satisfaction of a sale by the Holder of Common Stock issuable
      upon
      such exercise that the Holder anticipated receiving from the Company (a
“Buy-In”),
      then
      the Company shall, within three (3) Trading Days after the Holder’s request and
      in the Holder’s discretion, either (x) pay cash to the Holder in an amount equal
      to the Holder’s total purchase price (including brokerage commissions and other
      out of pocket expenses, if any) for the shares of Common Stock so purchased
      (the
“Buy-In
      Price”),
      at
      which point the Company’s obligation to deliver such certificate (and to issue
      such Common Stock) shall terminate, or (y) promptly honor its obligation to
      deliver to the Holder a certificate or certificates representing such Common
      Stock and pay cash to the Holder in an amount equal to the excess (if any)
      of
      the Buy-In Price over the product of (I) such number of shares of Common Stock,
      times (II) the Weighted Average Price on the Exercise Date.

     

    (h)  Notwithstanding
      any other provision in this Warrant to the contrary:

     

    (i)  Beneficial
      Ownership.
      The
      Company shall not effect any exercise of this Warrant, and the Holder of this
      Warrant shall not have the right to exercise any portion of this Warrant
      pursuant to Section
      2(a),
      to the
      extent that after giving effect to such exercise, the Holder (together with
      the
      Holder’s affiliates) would beneficially own in excess of 4.99% (the
      “Maximum
      Percentage”)
      of the
      number of shares of Common Stock outstanding immediately after giving effect
      to
      such exercise. For purposes of the foregoing sentence, the number of shares
      of
      Common Stock beneficially owned by the Holder and its affiliates shall include
      the number of shares of Common Stock issuable upon conversion of this Warrant
      with respect to which the determination of such sentence is being made, but
      shall exclude the number of shares of Common Stock which would be issuable
      upon
      (A) conversion of the remaining, non-exercised portion of this Warrant
      beneficially owned by the Holder or any of its affiliates and (B) exercise
      or
      conversion of the unexercised or nonconverted portion of any other securities
      of
      the Company (including, without limitation, the Notes and any other Warrants)
      subject to a limitation on conversion or exercise analogous to the limitation
      contained herein beneficially owned by the Holder or any of its affiliates.
      Except as set forth in the preceding sentence, for purposes of this Section
      2(h)(i),
      beneficial ownership shall be calculated in accordance with Section 13(d) of
      the
      Securities Exchange Act of 1934, as amended (the “Exchange
      Act”).
      For
      purposes of this Section
      2(h)(i),
      in
      determining the number of outstanding shares of Common Stock, the Holder may
      rely on the number of outstanding shares of Common Stock as reflected in (1)
      the
      Company’s most recent Form 10-K, Form 10-Q, Form 8-K or other public filing with
      the SEC, as the case may be, (2) a more recent public announcement by the
      Company or (3) any other notice by the Company or the Transfer Agent setting
      forth the number of shares of Common Stock outstanding. For any reason at any
      time, upon the written or oral request of the Holder, the Company shall within
      one (1) Business Day confirm orally and in writing to the Holder the number
      of
      shares of Common Stock then outstanding. In any case, the number of outstanding
      shares of Common Stock shall be determined after giving effect to the conversion
      or exercise of securities of the Company, including this Warrant, by the Holder
      or its affiliates since the date as of which such number of outstanding shares
      of Common Stock was reported. By written notice to the Company, the Holder
      may
      increase or decrease the Maximum Percentage to any other percentage not in
      excess of 4.99% specified in such notice; provided
      that (x)
      any such increase will not be effective before the sixty-fifth (65th)
      day
      after such notice is delivered to the Company, and (y) any such increase or
      decrease will apply only to the Holder and not to any other holder of the
      Warrants.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (ii)  Market
      Regulation.
      The
      Company shall not be obligated to issue any shares of Common Stock upon
      conversion of this Warrant if the issuance of such shares of Common Stock would
      exceed the aggregate number of shares of Common Stock which the Company may
      issue upon exercise of the Warrants without breaching the Company’s obligations
      under the rules or regulations of the Principal Market (the “Exchange
      Cap”),
      except that such limitation shall not apply in the event that the Company (A)
      obtains the approval of its stockholders as required by the applicable rules
      of
      such Principal Market for issuances of Common Stock in excess of such amount
      or
      (B) obtains a written opinion from outside counsel to the Company that such
      approval is not required, which opinion shall be reasonably satisfactory to
      the
      Required Holders. Until such approval or written opinion is obtained, no
      purchaser of the Warrants pursuant to the Securities Purchase Agreement (the
      “Purchasers”)
      shall
      be issued in the aggregate, upon exercise of the Warrants, shares of Common
      Stock in an amount greater than the product of the Exchange Cap multiplied
      by a
      fraction, the numerator of which is the amount of the Warrant Shares underlying
      the Warrants issued to a Purchaser pursuant to the Securities Purchase Agreement
      on the Closing Date and the denominator of which is the aggregate amount of
      all
      Warrant Shares underlying the Warrants issued to the Purchasers pursuant to
      the
      Securities Purchase Agreement on the Closing Date (with respect to each
      Purchaser, the “Exchange
      Cap Allocation”).
      In
      the event that any Purchaser shall sell or otherwise transfer any of such
      Purchaser’s Warrants, the transferee shall be allocated a pro rata portion of
      such Purchaser’s Exchange Cap Allocation, and the restrictions of the prior
      sentence shall apply to such transferee with respect to the portion of the
      Exchange Cap Allocation allocated to such transferee. In the event that any
      holder of the Warrants shall convert all of such holder’s Warrants into a number
      of shares of Common Stock which, in the aggregate, is less than such holder’s
      Exchange Cap Allocation, then the difference between such holder’s Exchange Cap
      Allocation and the number of shares of Common Stock actually issued to such
      holder shall be allocated to the respective Exchange Cap Allocations of the
      remaining holders of Warrants on a pro rata basis in proportion to the aggregate
      Warrant Shares then held by each such holder.

     

    Section
      3.  Covenants
      as to Common Stock.
      The
      Company hereby covenants and agrees as follows:

     

    
      (a)  This
        Warrant is, and any Warrants issued in substitution for or replacement of
        this
        Warrant will upon issuance be, duly authorized and validly
        issued.

    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

     

    (b)  All
      Warrant Shares which may be issued upon the exercise of the rights represented
      by this Warrant will, upon issuance, be validly issued, fully paid and
      nonassessable and free from all taxes, liens and charges with respect to the
      issue thereof.

     

    (c)  During
      the period within which the rights represented by this Warrant may be exercised,
      the Company will take all actions necessary to, to have reserved from its duly
      authorized capital stock not less than 120% of the maximum number of shares
      of
      Common Stock issuable upon exercise of this Warrant.

     

    (d)  The
      Warrant Shares issuable to the Holder, pursuant to the terms of this Warrant
      shall have registration rights as provided for in the Registration Rights
      Agreement. The Company shall list the Warrant Shares on the Principal Market
      and
      shall maintain such listing if and so long as any shares of the same class
      shall
      be listed on such Principal Market.

     

    (e)  If,
      at
      any time while this Warrant is outstanding, (A) the Company effects any merger
      or consolidation of the Company with or into another Person, (B) the Company
      effects any sale of all or substantially all of its assets in one or a series
      of
      related transactions, (C) any tender offer or exchange offer (whether by the
      Company or another Person) is completed pursuant to which holders of a majority
      of the then outstanding Common Stock are permitted to tender or exchange their
      shares for other securities, cash or property, or (D) the Company effects any
      reclassification of the Common Stock or any compulsory share exchange pursuant
      to which the Common Stock is effectively converted into or exchanged for other
      securities, cash or property (in any such case, a “Fundamental
      Transaction”),
      then,
      upon any subsequent exercise of this Warrant, the Holder shall have the right
      to
      receive, for each Warrant Share that would have been issuable upon such exercise
      immediately prior to the occurrence of such Fundamental Transaction, (a) if
      the
      Company is the acquiring and surviving corporation, the number of shares of
      Common Stock of the Company and any additional consideration receivable upon
      or
      as a result of such reorganization, reclassification, merger, consolidation
      or
      disposition of assets (the “Alternate
      Consideration”)
      by a
      Holder of the number of shares of Common Stock for which this Warrant is
      exercisable immediately prior to such event, (b) if the Company is not the
      acquiring and surviving entity and the transaction consideration is not all
      cash, then the number of securities and any Alternate Consideration receivable
      by a holder of the number of shares of Common Stock for which this Warrant
      is
      exercisable immediately prior to such event or (c) if the Company is acquired
      in
      an all cash transaction, cash equal to the value of this Warrant as determined
      by the Company in good faith in accordance with the Black-Scholes option pricing
      formula. For purposes of any such exercise, the determination of the Warrant
      Exercise Price shall be appropriately adjusted to apply to such Alternate
      Consideration based on the amount of Alternate Consideration issuable in respect
      of one share of Common Stock in such Fundamental Transaction, and the Company
      shall apportion the Warrant Exercise Price among the Alternate Consideration
      in
      a reasonable manner reflecting the relative value of any different components
      of
      the Alternate Consideration. If holders of Common Stock are given any choice
      as
      to the securities, cash or property to be received in a Fundamental Transaction,
      then the Holder shall be given the same choice as to the Alternate Consideration
      it receives upon any exercise of this Warrant following such Fundamental
      Transaction. To the extent necessary to effectuate the foregoing provisions,
      any
      successor to the Company or surviving entity in such Fundamental Transaction
      shall issue to the Holder a new warrant consistent with the foregoing provisions
      and evidencing the Holder’s right to exercise such warrant into Alternate
      Consideration. The terms of any agreement pursuant to which a Fundamental
      Transaction is effected shall include terms requiring any such successor or
      surviving entity to comply with the provisions of this Section 3(e)
      and
      insuring that this Warrant (or any such replacement security) will be similarly
      adjusted upon any subsequent transaction analogous to a Fundamental
      Transaction.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (f)  Unless
      otherwise provided for in Section
      3(e)
      above,
      this Warrant will be binding upon any entity succeeding to the Company by
      merger, consolidation or acquisition of all or substantially all of the
      Company’s assets.

     

    Section
      4.  Taxes.
      The
      Company shall pay any and all taxes, except any applicable withholding, which
      may be payable with respect to the issuance and delivery of Warrant Shares
      upon
      exercise of this Warrant.

     

    Section
      5.  Warrant
      Holder Not Deemed a Stockholder.
      Except
      as otherwise specifically provided herein, no Holder, as such, of this Warrant
      shall be entitled to vote or receive dividends or be deemed the holder of shares
      of capital stock of the Company for any purpose, nor shall anything contained
      in
      this Warrant be construed to confer upon the Holder hereof, as such, 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 this Warrant of the Warrant
      Shares which he or she 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 such 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 Section
      5,
      the
      Company will provide the Holder of this Warrant 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.

     

    Section
      6.  Representations
      of Holder.
      The
      Holder of this Warrant, by the acceptance hereof, represents that it is
      acquiring this Warrant and the Warrant Shares for its own account for investment
      only and not with a view towards, or for resale in connection with, the public
      sale or distribution of this Warrant or the Warrant Shares, except pursuant
      to
      sales registered or exempted under the Securities Act (and, in the case of
      registered resales, with proper delivery of a prospectus); provided,
      however,
      that by
      making the representations herein, the Holder does not agree to hold this
      Warrant or any of the Warrant Shares for any minimum or other specific term
      and
      reserves the right to dispose of this Warrant and the Warrant Shares at any
      time
      in accordance with or pursuant to a registration statement or an exemption
      under
      the Securities Act (and, in the case of registered resales, with proper delivery
      of a prospectus). The Holder of this Warrant further represents, by acceptance
      hereof, that, as of this date, such Holder is an “accredited investor” as such
      term is defined in Rule 501(a)(1) of Regulation D promulgated by the Securities
      and Exchange Commission under the Securities Act (an “Accredited
      Investor”).
      Upon
      exercise of this Warrant, the Holder shall, if requested by the Company, confirm
      in writing, in a form satisfactory to the Company, that the Warrant Shares
      so
      purchased are being acquired solely for the Holder’s own account and not as a
      nominee for any other party, for investment, and not with a view toward
      distribution or resale and that such Holder is an Accredited Investor. If such
      Holder cannot make such representations because they would be factually
      incorrect, it shall be a condition to such Holder’s exercise of this Warrant
      that the Company receive such other representations as the Company considers
      reasonably necessary to assure the Company that the issuance of its securities
      upon exercise of this Warrant shall not violate any United States or state
      securities laws.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Section
      7.  Ownership
      and Transfer.
      This
      Warrant and or shares of Common Stock issued upon exercise of this Warrant
      may
      be offered, sold, assigned or transferred by the Holder without the consent
      of
      the Company, subject only to the provisions of Sections 2(f) and 2(g) of the
      Securities Purchase Agreement and Section 4(d) of the Registration Rights
      Agreement. The Company shall maintain at its principal executive offices (or
      such other office or agency of the Company as it may designate by notice to
      the
      Holder hereof), a register for this Warrant, in which the Company shall record
      the name and address of the person in whose name this Warrant has been issued,
      as well as the name and address of each transferee. The Company may treat the
      person in whose name any Warrant is registered on the register as the owner
      and
      Holder thereof for all purposes, notwithstanding any notice to the contrary,
      but
      in all events recognizing any transfers made in accordance with the terms of
      this Warrant.

     

    Section
      8.  Adjustment
      of Warrant Exercise Price and Number of Shares.
      

     

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

     

    
      NWEP  =       
        AP 
x    
        [
        (OWEP x OS) + (C) ] 

                                 [   (AP
        x NS) ]

       

      where:
        

       

      
        	
              	NWEP	
                
                  =               
                    new Warrant Exercise Price (immediately after such Dilutive
                    Issuance)

                

              

      

       

      
        	
              	OWEP	
                =             
                   old
                  Warrant Exercise Price (immediately prior to such Dilutive
                  Issuance)

              

      

       

      
        	
              	AP	
                =  
the
                  Applicable Price

              

      

       

      
        	
              	NS	
                = 
new
                  shares of Common Stock Deemed Outstanding (immediately after such
                  Dilutive
                  Issuance)

              

      

       

      
        	
              	OS	
                = 
old
                  shares of Common Stock Deemed Outstanding (immediately prior to
                  such
                  Dilutive Issuance)

              

      

       

      
        	
              	C	
                =            
                   the
                  consideration, if any, received by the Company upon such Dilutive
                  Issuance.

              

      

       

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    For
      purposes of determining the adjusted Warrant Exercise Price under this
Section
      8(a),
      the
      following shall be applicable:

     

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

     

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

     

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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (iv)  Calculation
      of Consideration Received.
      In case
      any Option is issued in connection with the issue or sale of other securities
      of
      the Company, together comprising one integrated transaction in which no specific
      consideration is allocated to such Options by the parties thereto, (x) the
      Options will be deemed to have been issued for a value determined by use of
      the
      Black Scholes Option Pricing Model (the “Option
      Value”)
      and
      (y) the other securities issued or sold in such integrated transaction shall
      be
      deemed to have been issued for the difference of (I) the aggregate consideration
      received by the Company, less (II) the Option Value. If any Common Stock,
      Options or Convertible Securities are issued or sold or deemed to have been
      issued or sold for cash, the consideration received therefor will be deemed
      to
      be the net amount received by the Company therefor. If any Common Stock, Options
      or Convertible Securities are issued or sold for a consideration other than
      cash, the amount of the consideration other than cash received by the Company
      will be the fair value of such consideration, except where such consideration
      consists of securities, in which case the amount of consideration received
      by
      the Company will be the Closing Trade Price of such securities on the date
      of
      receipt. If any Common Stock, Options or Convertible Securities are issued
      to
      the owners of the non-surviving entity in connection with any merger in which
      the Company is the surviving entity, the amount of consideration therefor will
      be deemed to be the fair value of such portion of the net assets and business
      of
      the non-surviving entity as is attributable to such Common Stock, Options or
      Convertible Securities, as the case may be. The fair value of any consideration
      other than cash or securities will be determined jointly by the Company and
      the
      Required Holders. If such parties are unable to reach agreement within ten
      (10)
      days after the occurrence of an event requiring valuation (the “Valuation
      Event”),
      the
      fair value of such consideration will be determined within five (5) Business
      Days after the tenth (10th)
      day
      following the Valuation Event by an independent, reputable appraiser jointly
      selected by the Company and the Required Holders. The determination of such
      appraiser shall be deemed binding upon all parties absent manifest error and
      the
      fees and expenses of such appraiser shall be borne by the Company.

     

    (v)  Treasury
      Shares.
      The
      number of shares of Common Stock outstanding at any given time does not include
      shares owned or held by or for the account of the Company, and the disposition
      of any shares so owned or held will be considered an issue or sale of Common
      Stock.

     

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

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (b)  Adjustment
      of Warrant Exercise Price upon Subdivision or Combination of Common
      Stock.
      If the
      Company at any time on or after the Issuance Date subdivides (by any stock
      dividend, stock split, recapitalization or otherwise) one or more classes of
      its
      outstanding shares of Common Stock into a greater number of shares, the Warrant
      Exercise Price in effect immediately prior to such subdivision will be
      proportionately reduced and upon exercise, 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 Warrant Exercise Price in effect immediately prior to such
      combination will be proportionately increased and upon exercise, the number
      of
      Warrant Shares will be proportionately reduced.

     

    (c)  Certain
      Events.
      If any
      event occurs of the type contemplated by the provisions of this Section
      8
      but not
      expressly provided for by such provisions (including, without limitation,
      non-stock dividends or distributions of assets or the granting of stock
      appreciation rights, phantom stock rights or other rights with equity features),
      then the Company’s Board of Directors will make an appropriate adjustment in the
      Warrant Exercise Price so as to protect the rights of the Holder under this
      Warrant; provided
      that no
      such adjustment will increase the Warrant Exercise Price as otherwise determined
      pursuant to this Section
      8.
      The
      Company may at any time during the term of this Warrant reduce the then current
      Warrant Exercise Price to any amount and for any period of time deemed
      appropriate by the Board of Directors. The issuance of any Excluded Securities
      or Other Securities shall not result in an adjustment to the Warrant Exercise
      Price.

     

    (d)  Notices.
      Immediately upon any adjustment of the Warrant Exercise Price, the Company
      will
      give written notice thereof to the Holder of this Warrant, setting forth in
      reasonable detail, and certifying, the calculation of such
      adjustment.

     

    
      	Section
              9.  	
              Purchase
                Rights; Reorganization, Reclassification, Consolidation, Merger or
                Sale.

            

    

     

    (a)  In
      addition to any adjustments pursuant to Section
      8
      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 Common Stock (the “Purchase
      Rights”),
      then
      the Holder of this Warrant will be entitled to acquire, upon the terms
      applicable to such Purchase Rights, the aggregate Purchase Rights which such
      Holder could have acquired if such Holder had held the number of shares of
      Common Stock acquirable upon complete exercise of this Warrant immediately
      before the date on which a record is taken for the grant, issuance or sale
      of
      such Purchase Rights, or, if no such record is taken, the date as of which
      the
      record holders of Common Stock are to be determined for the grant, issue or
      sale
      of such Purchase Rights.

     

    (b)  Any
      recapitalization, reorganization, reclassification, consolidation, merger,
      sale
      of all or substantially all of the Company’s assets to another Person or other
      transaction in each case which is effected in such a way that holders of Common
      Stock are entitled to receive (either directly or upon subsequent liquidation)
      stock, securities or assets with respect to or in exchange for Common Stock
      is
      referred to herein as an “Organic
      Change.”
Prior
      to the consummation of any (i) sale of all or substantially all of the Company’s
      assets to an acquiring Person or (ii) other Organic Change following which
      the
      Company is not a surviving entity, the Company will secure from the Person
      purchasing such assets or the acquirer in or successor resulting from such
      Organic Change (in each case, the “Acquiring
      Entity”)
      a
      written agreement (in form and substance reasonably satisfactory to the Holders
      of Warrants representing at least two-thirds of the Warrant Shares issuable upon
      exercise of the Warrants then outstanding) to deliver to each Holder of Warrants
      in exchange for such Warrants, a security of the Acquiring Entity evidenced
      by a
      written instrument substantially similar in form and substance to this Warrant
      as adjusted pursuant to Section
      3(e)
      above
      and reasonably satisfactory to the Holders of the Warrants (including an
      adjusted warrant exercise price if so required by Section
      3(e),
      without
      regard to any limitations on exercise, if the value so reflected is less than
      any Applicable Warrant Exercise Price immediately prior to such consolidation,
      merger or sale). 

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    Section
      10.  Lost,
      Stolen, Mutilated or Destroyed Warrant.
      If this
      Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly,
      on
      receipt of an indemnification undertaking (or, in the case of a mutilated
      Warrant, the Warrant), issue a new Warrant of like denomination and tenor as
      this Warrant so lost, stolen, mutilated or destroyed.

     

    Section
      11.  Notice.
      Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Warrant must be in writing and will be deemed
      to
      have been delivered: (i) upon receipt, when delivered personally; (ii) upon
      receipt, when sent by facsimile (provided confirmation of receipt is received
      by
      the sending party or confirmation of transmission is mechanically or
      electronically generated and kept on file by the sending party); or (iii) one
      (1) Business Day after deposit with a internationally recognized courier
      service, in each case properly addressed to the party to receive the same.
      The
      addresses and facsimile numbers for such communications shall be:

     

    
      
        	
                If
                  to Holder, to:

              	
                YA
                  Global Investments, L.P.

              
	 	
                c/o
                  Yorkville Advisors, LLC

              
	 	
                101
                  Hudson Street

              
	 	
                Suite
                  3700

              
	 	
                Jersey
                  City, NJ 07302

              
	 	
                Attention:
                  David Gonzalez

              
	 	
                Facsimile:
                  (201) 985-8266

              
	 	 
	
                If
                  to the Company, to:

              	
                China
                  Automotive Systems, Inc.

              
	 	
                No.
                  1 Henglong Road

              
	 	
                Yu
                  Qiao Development Zone 

              
	 	
                Sashi
                  District, Jing Zhou City

              
	 	
                Hubei
                  Province, People’s Republic of China 

              
	 	
                Attention:
                  Hanlin Chen

              
	 	
                Facsimile:
                  (86) 27-5980-8808

              
	 	 
	
                With
                  a copy to:

              	
                Heller
                  Ehrman LLP

              
	 	
                4350
                  La Jolla Village Drive -7th
                  Floor
                  

              
	 	
                San
                  Diego, CA 92122 

              
	 	
                Attention:
                  Hayden Trubitt, Esq. 

              
	 	
                Facsimile:
                  (858) 587-5903

              

      

    

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    Each
      party shall provide five days’ prior written notice to the other party of any
      change in address or facsimile number. Written confirmation of receipt (A)
      given
      by the recipient of such notice, consent, facsimile, waiver or other
      communication, or (B) provided by an internationally recognized courier shall
      be
      rebuttable evidence of personal service, receipt by facsimile or receipt from
      an
      internationally recognized courier in accordance with clause (i), (ii) or (iii)
      above, respectively.

     

    Section
      12.  Date.
      The
      date of this Warrant is set forth on page 1 hereof. Except as otherwise provided
      in Section
      2(e),
      this
      Warrant, in all events, shall be wholly void and of no effect after the close
      of
      business on the Expiration Date.

     

    Section
      13.  Amendment
      and Waiver.
      Except
      as otherwise provided herein, the provisions of the Warrants 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 Company and of the Holders of Warrants representing
      at
      least two-thirds of the Warrant Shares issuable upon exercise of the Warrants
      then outstanding; provided
      that,
      except for Section
      8(d),
      no such
      action may increase the Warrant Exercise Price or decrease the number of shares
      or class of stock obtainable upon exercise of any Warrant without the written
      consent of the Holder of such Warrant.

     

    Section
      14.  Descriptive
      Headings; Governing Law.
      The
      descriptive headings of the several sections and paragraphs of this Warrant
      are
      inserted for convenience only and do not constitute a part of this Warrant.
      The
      corporate laws of the State of Delaware shall govern all issues concerning
      the
      relative rights of the Company and its stockholders. All other questions
      concerning the construction, validity, enforcement and interpretation of this
      Agreement shall be governed by the internal laws of the State of New York,
      without giving effect to any choice of law or conflict of law provision or
      rule
      (whether of the State of New York or any other jurisdictions) that would cause
      the application of the laws of any jurisdictions other than the State of New
      York. Each party hereby irrevocably submits to the exclusive jurisdiction of
      the
      state and federal courts sitting in The City of New York, Borough of Manhattan,
      for the adjudication of any dispute hereunder or in connection herewith or
      with
      any transaction contemplated hereby or discussed herein, and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is brought in an inconvenient forum or that
      the
      venue of such suit, action or proceeding is improper. Each party hereby
      irrevocably waives personal service of process and consents to process being
      served in any such suit, action or proceeding by mailing a copy thereof to
      such
      party at the address for such notices to it under this Agreement and agrees
      that
      such service shall constitute good and sufficient service of process and notice
      thereof. Nothing contained herein shall be deemed to limit in any way any right
      to serve process in any manner permitted by law.

     

    Section
      15.  Waiver
      of Jury Trial. AS
      A MATERIAL
      INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE PARTIES HERETO
      HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN
      ANY
      WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH
      THIS TRANSACTION.

     

    [SIGNATURE
      PAGE FOLLOWS]

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the
      Company has caused this Warrant to be signed as of the date first set forth
      above.

    
      	 	 	 
	 	CHINA
              AUTOMOTIVE SYSTEMS, INC.
	 
 	 
 	 
 
	 	By:  	/s/ Hanlin
              Chan
	 	
              
Name:
 Hanlin
              Chan
	 	Title:
              Chairman

    

     

    
      	
              [Escrow
                Warrant Signature Page]

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A TO WARRANT

     

    EXERCISE
      NOTICE

    

    TO
      BE EXECUTED

    BY
      THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

    

    CHINA
      AUTOMOTIVE SYSTEMS, INC.

    

    The
      undersigned Holder hereby exercises the right to purchase ______________ of
      the
      shares of Common Stock (“Warrant
      Shares”)
      of
      China Automotive Systems, Inc. (the “Company”),
      evidenced by the attached Warrant (the “Warrant”).
      Capitalized terms used herein and not otherwise defined shall have the
      respective meanings set forth in the Warrant.

    

    Specify
      Method of exercise by check mark: 

     

    1.
      ___
      Cash
      Exercise

    

    
      	 	
              (a)

            	
               Payment
                of Warrant Exercise Price.
                The Holder shall pay the Aggregate Exercise Price of $___________
                to the
                Company in accordance with the terms of the
                Warrant.

            

    

     

    
      	 	
              (b)

            	
               Delivery
                of Warrant Shares.
                The Company shall deliver to the Holder ________ Warrant Shares in
                accordance with the terms of the
                Warrant.

            

    

    

    2.
      ___
      Cashless
      Exercise

    

    
      	 	
              (a)

            	
               Payment
                of Warrant Exercise Price.
                In
                lieu of making payment of the Aggregate Exercise Price and as a result
                of
                the conditions in Section
                2(b)
                of
                the Warrant having been met, the Holder elects to receive upon such
                exercise the Net Number of shares of Common Stock determined in accordance
                with the terms of the Warrant.

            

    

     

    
      	 	
              (b)

            	
              Delivery
                of Warrant Shares.
                The Company shall deliver to the Holder ____________ Warrant Shares
                in
                accordance with the terms of the
                Warrant.

            

    

     

    
      
        	
                 Date:
                  __________________, ____

              	
                 

              	
                 

              	 
	
                 

              	
                 

              	
                 

              	
                 

              
	
                Name
                  of Registered Holder 

              	
                 

              	
                 

              	 
	
                 

              	
                 

              	
                 

              	
                 

              
	
                 

              	
                 

              	
                 

              	
                 

              
	
                By:

              	
                 

              	
                 

              	
                 

              
	
                
                  

                

                Name: 

              	
                 

              	
                 

              	
                 

              
	
                
                  

                

                Title:

              	
                 

              	
                 

              	 
	
                
                  

                

              	
                 

              	
                 

              	
                 

              

      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B TO WARRANT

     

    FORM
      OF WARRANT POWER

     

    FOR
      VALUE RECEIVED, the
      undersigned does hereby assign and transfer to __________________________,
      Federal Identification No. ___________________, a warrant to purchase
      _______________ shares of the common stock of China Automotive Systems, Inc.
      represented by warrant certificate no. ______________, standing in the name
      of
      the undersigned on the books of said corporation. The undersigned does hereby
      irrevocably constitute and appoint ________________________, attorney to
      transfer the warrants on the books of said corporation, with full power of
      substitution in the premises.

     

    
      
        	
                 Dated:
                  __________________

              	 
	
                 

              	
                

              
	
                 

              	
                By:

              
	
                 

              	
                
                  

                

              
	
                 

              	
                Name:
                  

              
	
                 

              	
                
                  

                

              
	
                 

              	
                Title:Unassociated Document

    

      AMENDMENT
        AND EXCHANGE AGREEMENT

       

      AMENDMENT
        AND EXCHANGE AGREEMENT
        (this
        "Agreement"),
        dated
        as of March 24, 2008, by and among DigitalFX International, Inc., a Florida
        corporation, with headquarters located at 3035 East Patrick Lane, Suite 9,
        Las
        Vegas, NV 89120 (the "Company"),
        and
        [Portside Growth and Opportunity Fund] [Highbridge International LLC] [Iroquois
        Master Fund, Ltd.] (the "Investor").

       

      WHEREAS:

       

      A.
         The
        Company, the Investor and certain other investors (the "Other
        Investors",
        and
        collectively with the Investor, the "Investors")
        are
        parties to that certain Securities Purchase Agreement, dated as of November
        29,
        2007 (the "Existing
        Securities Purchase Agreement"),
        pursuant to which, among other things, the Investors purchased from the Company
        (i) senior secured convertible notes (the "Existing
        Notes"),
        which
        are convertible into shares of the Company's common stock, par value $0.001
        per
        share (the "Common
        Stock")
        (the
        Existing Notes as converted, the "Existing
        Conversion Shares"),
        in
        accordance with the terms thereof and (ii) warrants (the "Existing
        Warrants"),
        which
        are exercisable into shares of Common Stock (the "Existing
        Warrant Shares").

       

      B.
         In
        connection with the execution and delivery of the Existing Securities Purchase
        Agreement, the Company obtained certain irrevocable transferable letters
        of
        credit (each a "Letter
        of Credit")
        from
        Wells Fargo Bank, N.A. in the aggregate amount of $2,000,000 (the "Initial
        LC Amount")
        for
        the benefit of the Investors.

       

      C.
         
        In
        connection with the execution and delivery of the Existing Securities Purchase
        Agreement, the Company and the Investors entered into that certain Registration
        Rights Agreement, dated November 30, 2007 (the "Registration
        Rights Agreement"),
        by
        and among the Company and the Investors, pursuant to which the Company agreed
        to
        provide certain registration rights with respect to the Registrable Securities
        (as defined in the Registration Rights Agreement) under the Securities Act
        of
        1933, as amended (the "1933
        Act"),
        and
        the rules and regulations promulgated thereunder, and applicable state
        securities laws.

       

      D.
         The
        Company and the Investor desire to enter into this Agreement, pursuant to
        which,
        among other things, (i) at the Company's direction, the Investor shall
        irrevocably instruct Wells Fargo Bank, N.A. to redeem in cash from such Investor
        an amount equal to such Investor's pro rata portion of the Initial LC Amount
        (such Investor's "LC
        Reduction Amount"),
        as
        set forth opposite such Investor's name in column (3) on the Securities Schedule
        attached hereto, (ii) the Company shall redeem in cash from each Investor
        an
        amount equal to such Investor's pro rata portion of $2,000,000 (such Investor's
        "Redemption
        Payment Amount"),
        as
        set forth opposite such Investor's name in column (4) on the Securities Schedule
        attached hereto, (iii) the Company shall amend and restate all of such
        Investor's Existing Notes for (A) notes in the form attached hereto as
Exhibit
        A
        (the
        "Notes")
        with a
        principal amount set forth opposite the Investor's name in column (5) on
        the
        Securities Schedule attached hereto, which shall be convertible into Common
        Stock (the "Conversion
        Shares")
        and
        (B) that aggregate number of shares of Common Stock, set forth opposite such
        Investor's name in column (6) on the Securities Schedule attached hereto
        (collectively, the "Common
        Shares")
        (which
        aggregate amount for all Investors shall be 1,000,000 Common Shares); (iv)
        the
        Company shall amend and restate all of such Investor's Existing Warrants
        for
        warrants in the form attached hereto as Exhibit
        B
        (the
        "Warrants")
        which
        shall be exercisable to acquire that number of shares of Common Stock set
        forth
        opposite the Investor's name in column (7) on the Securities Schedule attached
        hereto (the "Warrant
        Shares");
        and
        (v) the Company shall pay to the Investor, in cash, the interest payable
        under
        such Investor's Existing Notes through the Closing Date (the "2008
        Interest Payment")
        in the
        amount set forth opposite the Investor's name in column (8) of the Securities
        Schedule.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      E.
         The
        amendment and restatement of the Existing Notes for the Notes and the Common
        Shares and the amendment and restatement of the Existing Warrants for the
        Warrants is being made in reliance upon the exemption from registration provided
        by Section 3(a)(9) of the 1933 Act.

       

      F.
         Capitalized
        terms used herein and not otherwise defined herein shall have the respective
        meanings ascribed to them in the Existing Securities Purchase
        Agreement.

       

      NOW,
        THEREFORE,
        in
        consideration of the foregoing recitals and the mutual promises hereinafter
        set
        forth, the Company and the Investor hereby agree as follows:

       

      
        	 	
                1.
                  

              	
                AMENDMENT
                  AND RESTATEMENT OF EXISTING NOTES; ISSUANCE OF COMMON SHARES; AMENDMENT
                  AND RESTATEMENT OF EXISTING WARRANTS; LETTER OF CREDIT; INTEREST
                  PAYMENT.

              

      

       

      (a)
         Letter
        of Credit; Interest Payment.
        Subject
        to satisfaction (or waiver) of the conditions set forth in Sections 5 and
        6
        below, at the closing contemplated by this Agreement (the "Closing"),
        at
        the direction of the Company, the Investor shall irrevocably instruct Wells
        Fargo Bank, N.A. to redeem in cash from such Investor an amount equal to
        the
        Investor's LC Reduction Amount, as set forth opposite such Investor's name
        in
        column (3) on the Securities Schedule attached hereto; the
        Company shall redeem in cash from each Investor an amount equal to the
        Investor's Redemption Payment Amount, as set forth opposite such Investor's
        name
        in column (4) on the Securities Schedule attached hereto; and the Company
        shall
        pay to each Investor an amount in cash equal to the Investor's 2008 Interest
        Payment, as set forth opposite such Investor's name in column (8) on the
        Securities Schedule attached hereto.

       

      (b)
         Amendment
        and Restatement of Existing Note and Existing Warrants.
        Subject
        to satisfaction (or waiver) of the conditions set forth in Sections 5 and
        6
        below, at the Closing, the Investor shall surrender to the Company its Existing
        Note and its Existing Warrants and the Company shall issue and deliver to
        the
        Investor (I) a Note in the principal amount set forth opposite the Investor's
        name in column (5) of the Securities Schedule attached hereto with a principal
        amount reflecting the Investor's LC Reduction Amount and (II) the number
        of
        Common Shares as is set forth opposite the Investor's name in column (6)
        on the
        Securities Schedule; and the Warrants to acquire that number of Warrant Shares
        as is set forth opposite the Investor's name in column (7) on the Securities
        Schedule attached hereto; and

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      (c)
         Closing
        Date.
        The
        date and time of the Closing (the "Closing
        Date")
        shall
        be 10:00 a.m., New York Time, on the Business Day immediately following the
        date
        hereof, subject to notification of satisfaction (or waiver) of the conditions
        to
        the Closing set forth in Sections 5 and 6 below (or such other time and date
        as
        is mutually agreed to by the Company and the Investor). The Closing shall
        occur
        on the Closing Date at the offices of Schulte Roth & Zabel LLP, 919 Third
        Avenue, New York, New York 10022.

       

      (d)
         Release
        of Letter of Credit Funds.
        At the
        direction of the Company, the Investor shall irrevocably instruct Wells Fargo
        Bank, N.A. to redeem in cash from such Investor an amount equal to the
        Investor's LC Reduction Amount, as set forth opposite such Investor's name
        in
        column (3) on the Securities Schedule attached hereto, which the Company
        and the
        Investor agree shall be considered a Holder Optional Redemption payment for
        purposes of the Investor's Letter of Credit. On the date hereof, at the
        direction of the Company, the Investor shall deliver to Wells Fargo Bank,
        N.A. a
        demand letter, in the form attached to the Investor's Letter of Credit,
        requesting release of such LC Reduction Amount by wire transfer of immediately
        available funds to the Investor. 

       

      
        	 	
                2.
                  

              	
                AMENDMENTS
                  TO TRANSACTION DOCUMENTS.

              

      

       

      (a)
         Reaffirmation.
        The
        Company hereby confirms and agrees that, except as otherwise expressly provided
        herein:

       

      (i) 
        the
        Existing Securities Purchase Agreement and each other Transaction Document
        is,
        and shall continue to be, in full force and effect and is hereby ratified
        and
        confirmed in all respects, except that on and after the Closing Date (i)
        all
        references in the Existing Securities Purchase Agreement to "this Agreement",
        "hereto", "hereof", "hereunder" or words of like import referring to the
        Securities Purchase Agreement shall mean the Existing Securities Purchase
        Agreement as amended by this Agreement, (ii) all references in the other
        Transaction Documents to the "Securities Purchase Agreement", "thereto",
        "thereof", "thereunder" or words of like import referring to the Securities
        Purchase Agreement shall mean the Existing Securities Purchase Agreement
        as
        amended by this Agreement, and (iii) all references in the other Transaction
        Documents to the "Registration Rights Agreement", "thereto", "thereof",
        "thereunder" or words of like import referring to the Registration Rights
        Agreement shall mean the Registration Rights Agreement as amended by this
        Agreement. REFERENCES TO NOTES AND WARRANTS IN ALL TRANSACTION DOCUMENTS
        MEANS
        NOTES AND WARRANTS UNDER THIS AGREEMENT;

       

      (ii) to
        the
        extent that the Securities Purchase Agreement or any other Transaction Document
        purports to assign or pledge to the Collateral Agent for the Buyers and the
        holders of the Securities, or to grant to the Collateral Agent a security
        interest in or lien on, any collateral as security for the obligations of
        the
        Company from time to time existing in respect of the Existing Notes and any
        other existing Transaction Document, such pledge, assignment and/or grant
        of the
        security interest or lien is hereby ratified and confirmed in all respects,
        and
        shall apply with respect to the obligations under the Notes and no additional
        filing is required to be made in order to maintain the perfection of the
        security interest in, or lien, on such collateral; and

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      (iii) the
        execution, delivery and effectiveness of this Agreement shall not operate
        as an
        amendment of any right, power or remedy of the Collateral Agent or the Investors
        under any Transaction Document, nor constitute an amendment of any provision
        of
        any Transaction Document.

       

      (b)
         Amendment
        to Transaction Documents. Each
        of
        the Transaction Documents is hereby amended as follows:

       

      (i) All
        references to "Notes" shall be amended to mean the Notes as defined in this
        Agreement.

       

      (ii) All
        references to "Conversion Shares" shall be amended to mean the Conversion
        Shares
        as defined in this Agreement.

       

      (iii) All
        references to "Warrants" shall be amended to mean the Warrants as defined
        in
        this Agreement.

       

      (iv) All
        references to "Warrant Shares" shall be amended to mean the Warrant Shares
        as
        defined in this Agreement.

       

      (v) The
        defined term "Transaction Documents" is hereby amended to include this
        Agreement.

       

      (vi) The
        defined term "Securities" is hereby amended to include the Common
        Shares.

       

      (vii) All
        references to "Lock-Up Agreement" shall be amended to mean the Lock-Up Agreement
        as defined in this Agreement.

       

      (viii) All
        references to "Eligible Market" shall be amended to include the OTC Bulletin
        Board.

       

      (c)
         Amendment
        to Registration Rights Agreement. 

       

      (i) The
        defined term "Required Registration Amount" shall be amended and restated
        in its
        entirety as follows:

       

      ""Required
        Registration Amount"
        for the
        Registration Statement means (i) the sum of (x) the aggregate of the maximum
        number of Conversion Shares issued and issuable pursuant to the Notes at
        the
        then applicable Conversion Price as of the Trading Day (as defined in the
        Notes)
        immediately preceding the applicable date of determination; (y) the number
        of
        Warrant Shares issued and issuable pursuant to the Warrants as of the Trading
        Day immediately preceding the applicable date of determination, all subject
        to
        adjustment as provided in Section 2(e) (without regard to any limitations
        on
        conversion of the Notes or exercise of the Warrants); and (z) the aggregate
        number of Common Shares issued pursuant to each of the Amendment and Exchange
        Agreements, dated as of March 24, 2008, by and between the Company and each
        of
        the Buyers or (ii) such other amount as may be required by the staff of the
        SEC
        pursuant to Rule 415 with any cutback applied among the Investors pro rata:
        (A)
        first, to any Common Shares and Conversion Shares being registered under
        such
        Registration Statement on a 3:2 basis (meaning for every three (3) Common
        Shares
        cutback, two (2) Conversion Shares will be cutback) until all such Common
        Shares
        and Conversion Shares are cutback; (B) second, to any Conversion Shares being
        registered under such Registration Statement until all such Conversion Shares
        are cutback; (C) third, to any Warrant Shares being registered under such
        Registration Statement until all such Warrant Shares are cutback; and (D)
        thereafter, to all other Registrable Securities." 

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      (ii) The
        defined term "Effectiveness Deadline" shall be amended and restated in its
        entirety as follows:

       

      ""Effectiveness
        Deadline"
        means
        (A) if the Registration Statement is the Company's registration statement
        on
        Form S-3 (File No. 333-148033) filed with the SEC on December 12, 2007 (the
        "Existing
        Registration Statement"),
        the
        date which is sixty (60) calendar days after the earlier of (i) the date
        the
        Company files its Annual Report on Form 10-KSB for the year ended December
        31,
        2007 (the "2007
        10-K")
        and
        (ii) the last date the Company could have timely filed its 2007 10-K; or
        (B) if
        the Company withdraws the Existing Registration Statement, the earlier of
        the
        date which is (i) in the event that the Registration Statement is not subject
        to
        a full review by the SEC, one-hundred and twenty (120) calendar days after
        March
        26, 2008 (the "Amendment
        Closing Date")
        or
        (ii) in the event that the Registration Statement is subject to a full review
        by
        the SEC, one-hundred and fifty (150) calendar days after the Amendment Closing
        Date."

       

      (iii) Section
        2(f) is hereby deleted in its entirety.

       

      (iv) The
        defined term "Cutback Note Amount" is hereby deleted in its entirety.

       

      (d)
         Amendment
        to Securities Purchase Agreement.

       

      (i) The
        Securities Purchase Agreement is hereby amended by adding the following to
        the
        end of Section 4(k):

       

      "For
        so
        long as any Notes or Warrants remain outstanding, the Company shall not,
        in any
        manner, enter into or effect any Dilutive Issuances (as defined in the Notes)
        if
        the effect of such Dilutive Issuance is to cause the Company to be required
        to,
        but for the Share Cap, issue upon conversion of any Note or exercise of any
        Warrant any shares of Common Stock in excess of that number of shares of
        Common
        Stock which the Company may issue upon conversion of the Notes and exercise
        of
        the Warrants without exceeding the Share Cap (as defined in the
        Notes)."

       

      
        	 	
                3.
                  

              	
                REPRESENTATIONS
                  AND WARRANTIES

              

      

       

      (a)
         Investor
        Bring Down.
        The
        Investor hereby represents and warrants to the Company with respect to itself
        only as set forth in Section 2 of the Existing Securities Purchase Agreement
        as
        if such representations and warranties were made as of the date hereof and
        set
        forth in their entirety in this Agreement. Such representations and warranties
        to the transactions thereunder and the securities issued thereby are hereby
        deemed for purposes of this Agreement to be references to the transactions
        hereunder and the issuance of the securities hereby.

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      (b)
         Company
        Bring Down.
        The
        Company represents and warrants to the Investor as set forth in Section 3
        of the
        Existing Securities Purchase Agreement, as if such representations and
        warranties were made as of the date hereof and set forth in their entirety
        in
        this Agreement. Such representations and warranties to the transactions
        thereunder and the securities issued thereby are hereby deemed for purposes
        of
        this Agreement to be references to the transactions hereunder and the issuance
        of the securities hereby, references therein to "Closing Date" being deemed
        references to the Closing Date as defined in Section 1(b) above, and references
        to "the date hereof" being deemed references to the date of this
        Agreement.

       

      (c)
         No
        Event of Default.
        The
        Company represents and warrants to the Investor that after giving effect
        to the
        terms of this Agreement and the Other Agreements (as defined below), no Event
        of
        Default (as defined in the Notes) shall have occurred and be continuing as
        of
        the date hereof.

       

      (d)
         Holding
        Period.
        For
        the
        purposes of Rule 144, the Company acknowledges that the holding period of
        (i)
        the Notes (including the corresponding Conversion Shares) may be tacked onto
        the
        holding period of the Existing Notes; (ii) the Common Shares may be tacked
        onto
        the holding period of the Existing Notes; and (iii) the Warrants (including
        the
        corresponding Warrant Shares) may be tacked onto the holding period of the
        Existing Warrants (in the case of Cashless Exercise (as defined in the
        Warrants)), and the Company agrees not to take a position contrary to this
        Section 3(d). The Company agrees to take all actions, including, without
        limitation, the issuance by its legal counsel of any necessary legal opinions,
        necessary to issue to the Investor Conversion Shares, the Common Shares and
        Warrant Shares (so long as such Warrants are exercised by way of a Cashless
        Exercise) that are freely tradable on an Eligible Market without restriction
        and
        not containing any restrictive legend without the need for any action by
        the
        Investor; provided,
        however,
        that to
        the extent the representation and warranty of the Investor in Section 3(e)
        of
        this Agreement does not continue to be accurate on the date of such issuance
        and
        during the preceding three-month period (except for purposes of this proviso,
        references in Section 3(e) to "the date hereof" shall be deemed to be references
        to "the date of such issuance"), the trading of such shares shall be subject
        to
        compliance with Rule 144.

       

      (e)
         Investor
        Status.
        As of
        the date hereof and during the preceding three-month period, such Investor,
        together with any other person with whom such Investor must aggregate sales
        under Rule 144, does not, and has not, (i) beneficially owned in excess of
        10%
        of the Common Stock, (ii) appointed any member to the board of directors
        of the
        Company or (iii) participated in the management or daily operations of the
        Company.

       

      (f)
         Shell
        Company Status.
        The
        Company has complied with all of the requirements set forth in Rule
        144(i)(2).

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      
        	 	
                4.
                  

              	
                CERTAIN
                  COVENANTS AND AGREEMENTS;
                  WAIVER

              

      

       

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

       

      (b)
         Disclosure
        of Transactions and Other Material Information.
        On or
        before 8:30 a.m., New York City time, on the first Business Day following
        the
        date of this Agreement, the Company shall issue a press release and file a
        Current Report on Form 8-K, which the Collateral Agent shall have approved
        prior
        to its release and filing, describing the terms of the transactions contemplated
        by this Agreement in the form required by the 1934 Act and attaching the
        material Transaction Documents not previously filed (including, without
        limitation, this Agreement, the form of the Notes (and the schedules thereto);
        the form of the Warrants; the Lock-Up Agreement and the New Lock-Up Agreements
        (as defined below)) (including all attachments, the "8-K
        Filing").
        From
        and after the filing of the 8-K Filing with the SEC, the Investor shall not
        be
        in possession of any material, nonpublic information received from the Company,
        any of its Subsidiaries or any of its respective officers, directors, employees
        or agents, that is not disclosed in the 8-K Filing. The Company shall not,
        and
        shall cause each of its Subsidiaries and its and each of their respective
        officers, directors, employees and agents, not to, provide the Investor with
        any
        material, nonpublic information regarding the Company or any of its Subsidiaries
        from and after the filing of the 8-K Filing with the SEC without the express
        written consent of the Investor. If the Investor has, or believes it has,
        received any such material, nonpublic information regarding the Company or
        any
        of its Subsidiaries, it shall provide the Company with written notice thereof.
        The Company shall, within five (5) Trading Days (as defined in the Notes)
        of
        receipt of such notice, make public disclosure of such material, nonpublic
        information. In the event of a breach of the foregoing covenant by the Company,
        any of its Subsidiaries, or any of its or their respective officers, directors,
        employees and agents, in addition to any other remedy provided herein or
        in the
        Transaction Documents, the Investor shall have the right to make a public
        disclosure, in the form of a press release, public advertisement or otherwise,
        of such material, nonpublic information without the prior approval by the
        Company, its Subsidiaries, or any of its or their respective officers,
        directors, employees or agents. The Investor shall not have any liability
        to the
        Company, its Subsidiaries, or any of its or their respective officers,
        directors, employees, stockholders or agents for any such disclosure. Subject
        to
        the foregoing, neither the Company, its Subsidiaries nor the Investor shall
        issue any press releases or any other public statements with respect to the
        transactions contemplated hereby; provided, however, that the Company shall
        be
        entitled, without the prior approval of the Investor, to make any press release
        or other public disclosure with respect to such transactions (i) in substantial
        conformity with the 8-K Filing and contemporaneously therewith and (ii) as
        is
        required by applicable law and regulations (provided that in the case of
        clause
        (i) the Investor shall be consulted by the Company in connection with any
        such
        press release or other public disclosure prior to its release). Without the
        prior written consent of the Investor, neither the Company nor any of its
        Subsidiaries or affiliates shall disclose the name of the Investor in any
        filing
        (other than as is required by applicable law or regulations), announcement,
        release or otherwise.
        

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      (c)
         Fees
        and Expenses.
        [INSERT
        IN PORTSIDE AGREEMENT ONLY:
        The
        Company shall reimburse the Investor, in the maximum aggregate amount of
        $20,000
        for its legal and due diligence fees and expenses in connection with the
        preparation and negotiation of this Agreement and transactions contemplated
        thereby by paying any such amount to Schulte Roth & Zabel LLP (the
        "Investor
        Counsel Expense").
        The
        Investor Counsel Expense shall be paid by the Company whether or not the
        transactions contemplated by this Agreement are consummated.] Except as
        otherwise set forth in this Agreement, each party shall pay the fees and
        expenses of its advisers, counsel, accountants and other experts, if any,
        and
        all other expenses incurred by such party incident to the negotiation,
        preparation, execution, delivery and performance of this Agreement.

       

      (d)
         Certain
        Trading Limitations.
        During
        the thirty (30) Trading Day period ending on the one (1) year anniversary
        of the
        Closing Date (the "Lock-Up
        Period"),
        the
        Investor covenants that neither it nor any of its Trading Affiliates (as
        defined
        in the Existing Securities Purchase Agreement) shall directly or indirectly,
        nor
        shall any Person acting on behalf of or pursuant to any understanding with
        such
        Investor or Trading Affiliate, effect or agree to effect any transactions
        in the
        securities of the Company. Notwithstanding the foregoing, for avoidance of
        doubt, nothing contained herein shall preclude any actions, with respect
        to the
        identification of the availability of, or securing of, available shares to
        borrow in order to effect short sales or similar transactions in the
        future.

       

      (e)
         Company
        Lock-Up.
        During
        the Lock-Up Period, the Company shall not directly or indirectly, nor shall
        any
        Person acting on behalf of or pursuant to any understanding with the Company,
        effect or agree to effect any transactions in the securities of the Company
        nor
        shall the Company announce any agreement to effect any transaction in the
        securities of the Company.

       

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

       

      (g)
         Common
        Shares.
        The
        Company and the Investor agree that the provisions of the Existing Securities
        Purchase Agreement concerning the Conversion Shares and the Warrant Shares
        shall
        apply to the Common Shares issued hereunder including, without limitation,
        that
        the certificates or other instruments representing the Common Shares shall
        be
        subject to Section 2(g) of the Existing Securities Purchase Agreement. If
        the
        Company shall fail for any reason or for no reason to issue to the Investor
        unlegended certificates or issue Common Shares to such Investor by electronic
        delivery at the applicable balance account at DTC within three (3) Trading
        Days
        after the receipt of documents necessary for the removal of the legend set
        forth
        in Section 2(g) of the Existing Securities Purchase Agreement (the "Removal
        Date"),
        then
        in addition to all other remedies available to the Investor, if on or after
        the
        Trading Day immediately following such three (3) Trading Day period, the
        Investor purchases (in an open market transaction or otherwise) shares of
        Common
        Stock to deliver in satisfaction of a sale by the Investor of such Common
        Shares
        that the Investor anticipated receiving without legend from the Company (a
        "Buy-In"),
        then
        the Company shall, within three (3) Business Days after the Investor's request
        and in the Investor's discretion, either (i) pay cash to the Investor in
        an
        amount equal to the Investor's total purchase price (including brokerage
        commissions, if any) for the shares of Common Stock so purchased (the
        "Buy-In
        Price"),
        at
        which point the Company's obligation to deliver such unlegended Common Shares
        shall terminate, or (ii) promptly honor its obligation to deliver to the
        Investor such unlegended shares of Common Stock as provided above and pay
        cash
        to the Investor 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, times (B)
        the
        Closing Bid Price (as defined in the Warrants) on the Removal Date.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      (h)
         Sale
        of Common Shares.
        So long
        as the Notes are outstanding, the Investor shall not sell a number of Common
        Shares exceeding more than two-thirds (2/3) of the number of Conversion Shares
        previously issued, or required to have been issued, to the Investor upon
        conversion of the Investor's Notes. 

       

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

       

      (j)
         Withdrawal
        of Existing Registration Statement.
        On or
        before 9:30 a.m., New York City time, on the third Business Day following
        the
        date of this Agreement, the Company shall withdraw the Existing Registration
        Statement or file an amendment to the Existing Registration Statement to
        update
        the disclosure to reflect this Agreement, the Notes and the Warrants.

       

      (k)
         Waiver
        of Registration Delay Payments.
        For
        purposes of clarity, Investor hereby agrees and acknowledges that by its
        execution of this Agreement Investor does hereby irrevocably waive any and
        all
        Registration Delay Payments that may be due and payable in connection with
        the
        Existing Registration Statement.

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      
        	 	
                5.
                  

              	
                CONDITIONS
                  TO COMPANY'S OBLIGATIONS
                  HEREUNDER.

              

      

       

      The
        obligations of the Company to the Investor hereunder are subject to the
        satisfaction of each of the following conditions, provided that these conditions
        are for the Company's sole benefit and may be waived by the Company at any
        time
        in its sole discretion by providing the Investor with prior written notice
        thereof:

      

      (a)
         The
        Investor shall have executed this Agreement and delivered the same to the
        Company.

       

      (b)
         The
        Investor shall have delivered to the Company the Investor's Existing Note
        and
        Existing Warrants for cancellation.

       

      (c)
         The
        representations and warranties of the Investor shall be true and correct
        in all
        material respects (except for those representations and warranties that are
        qualified by materiality or Material Adverse Effect, which shall be true
        and
        correct in all respects) as of the date when made and as of the Closing Date
        as
        though made at that time (except for representations and warranties that
        speak
        as of a specific date, which shall be true and correct as of such specified
        date) and the Investor shall have performed, satisfied and complied in all
        material respects with the covenants, agreements and conditions required
        by this
        Agreement to be performed, satisfied or complied with by the Investor at
        or
        prior to the Closing Date.

       

      
        	 	
                6.
                  

              	
                CONDITIONS
                  TO INVESTOR'S OBLIGATIONS
                  HEREUNDER.

              

      

       

      The
        obligations of the Investor hereunder are subject to the satisfaction of
        each of
        the following conditions, provided that these conditions are for the Investor's
        sole benefit and may be waived by the Investor at any time in its sole
        discretion by providing the Company with prior written notice
        thereof:

      

      (a)
         The
        Company shall have delivered to the Investor its Redemption Payment Amount
        and
        2008 Interest Payment (plus, in the case of Portside Growth and Opportunity
        Fund, the amounts due pursuant to Section 4(c) hereof) and Wells Fargo Bank,
        N.A. shall have delivered to the Investor its LC Reduction Amount.

       

      (b)
         The
        Company shall have executed this Agreement and delivered the same to the
        Investor.

       

      (c)
         The
        Company shall have executed and delivered to the Investor the Notes, the
        Common
        Shares and the Warrants being issued to such Investor at the
        Closing.

       

      (d)
         Each
        of
        the Other Investors shall have (i) executed agreements identical to this
        Agreement (the "Other
        Agreements")
        (other
        than proportional changes (the "Proportionate
        Changes")
        in the
        numbers reflecting the different dollar amount of such Investor's Notes,
        the
        number of Common Shares being issued to such Investor and the number of Warrant
        Shares underlying such Investor's Warrants and Section 4(c)), (ii) satisfied
        or
        waived all conditions to the closings contemplated by such agreements and
        (iii)
        surrendered their Existing Notes and Existing Warrants for the new Notes,
        the
        Common Shares and the Warrants (other than the Proportionate
        Changes).

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      (e)
         The
        Company shall have delivered to the Company's transfer agent, with a copy
        to the
        Investors, Irrevocable
        Transfer Agent Instructions in the form of Exhibit
        C
        attached
        hereto.

       

      (f)
         The
        Investor shall have received the opinion of Stubbs Alderton & Markiles, LLP,
        the Company's outside counsel, dated as of the Closing Date, in substantially
        the form of Exhibit Dattached
        hereto.

       

      (g)
         The
        Company shall have delivered to such Investor a certificate (or a fax or
        pdf
        copy of such certificate) evidencing the formation and good standing of the
        Company and each of its Subsidiaries in such entity's jurisdiction of formation
        issued by the Secretary of State (or comparable office) of such jurisdiction,
        as
        of a date within 10 days of the Closing Date.

       

      (h)
         The
        Company shall have delivered to such Investor a certificate (or a fax or
        pdf
        copy of such certificate) evidencing the Company's qualification as a foreign
        corporation and good standing issued by the Secretary of State (or comparable
        office or a bring-down certificate from Corporation Service Company) of each
        jurisdiction in which the Company conducts business and is required to so
        qualify, as of a date within 10 days of the Closing Date.

       

      (i)
         The
        Company shall have delivered to the Investor a certified copy of the Articles
        of
        Incorporation of the Company as certified by the Secretary of State of the
        State
        of Florida (or a fax or pdf copy of such certificate) within ten (10) days
        of
        the Closing Date.

       

      (j)
         The
        Company shall have delivered to the Investor a certificate, executed by the
        Secretary of the Company and dated as of the Closing Date, as to (i) the
        resolutions approving the transactions contemplated hereby as adopted by
        the
        Board in a form reasonably acceptable to the Investor, (ii) the Articles
        of
        Incorporation and (iii) the Bylaws, each as in effect as of the Closing,
        in the
        form attached hereto as Exhibit E.

       

      (k)
         The
        representations and warranties of the Company hereunder shall be true and
        correct in all material respects (except for those representations and
        warranties that are qualified by materiality or Material Adverse Effect,
        which
        shall be true and correct in all respects) as of the date when made and as
        of
        the Closing Date as though made at that time (except for representations
        and
        warranties that speak as of a specific date, which shall be true and correct
        as
        of such specified date) and the Company shall have performed, satisfied and
        complied in all respects with the covenants, agreements and conditions required
        by this Agreement and the other Transaction Documents to be performed, satisfied
        or complied with by the Company at or prior to the Closing Date and after
        giving
        effect to the terms of this Agreement and the Other Agreements, no default
        or
        Event of Default shall have occurred and be continuing as of the Closing
        Date.
        The Investor shall have received a certificate, executed by the Chief Executive
        Officer of the Company, dated as of the Closing Date, to the foregoing effect
        and as to such other matters as may be reasonably requested by the Investor
        in
        the form attached hereto as Exhibit
        F.

       

      (l)
         The
        Company and VM Investors LLC shall have entered into an amended and restated
        Lock-Up Agreement in the form attached hereto as Exhibit
        G
        (the
        "Lock-Up
        Agreement").

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      (m)
         Each
        of
        the Company's and VM Investors LLC's directors, executive officers and
        affiliates shall have entered into a lock-up agreement in the form attached
        hereto as Exhibit
        H
        (the
        "New
        Lock-Up Agreements").

       

      (n)
         Each
        Subsidiary of the Company that has entered into a Guaranty on or prior to
        the
        date hereof in accordance with the terms of the Security Documents shall
        have
        executed and delivered to the Investor an acknowledgement and ratification
        agreement in the form attached hereto as Exhibit
        I.

       

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

       

      (p)
         The
        Company shall have obtained all governmental, regulatory or third party consents
        and approvals, if any, necessary for the sale of the Securities.

       

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

       

      
        	 	
                7.
                  

              	
                TERMINATION.

              

      

       

      In
        the
        event that the Closing does not occur on or before five (5) Business Days
        from
        the date hereof, due to the Company's or the Investor's failure to satisfy
        the
        conditions set forth in Sections 5 and 6 hereof (and the nonbreaching party's
        failure to waive such unsatisfied conditions(s)), the nonbreaching party
        shall
        have the option to terminate this Agreement with respect to such breaching
        party
        at the close of business on such date without liability of any party to any
        other party [INSERT IN PORTSIDE AGREEMENT ONLY:; provided,
        however,
        if this
        Agreement is terminated pursuant to this Section 7, the Company shall remain
        obligated to reimburse the Investor for the expenses described in Section
        4(c)
        above]. Upon such termination, the terms hereof shall be null and void and
        the
        parties shall continue to comply with all terms and conditions of the
        Transaction Documents, as in effect prior to the execution of this
        Agreement.

      

      
        	 	
                8.
                  

              	
                MISCELLANEOUS.

              

      

       

      (a)
         Counterparts.
        This
        Agreement may be executed in two or more identical counterparts, all of which
        shall be considered one and the same agreement and shall become effective
        when
        counterparts have been signed by each party and delivered to the other party;
        provided that a facsimile signature shall be considered due execution and
        shall
        be binding upon the signatory thereto with the same force and effect as if
        the
        signature were an original, not a facsimile signature.

       

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

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

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

       

      (d)
         Governing
        Law; Jurisdiction; Jury Trial.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of this Agreement shall be governed by the internal laws of the State of
        New
        York, without giving effect to any choice of law or conflict of law provision
        or
        rule (whether of the State of New York or any other jurisdictions) that would
        cause the application of the laws of any jurisdictions other than the State
        of
        New York. Each party hereby irrevocably submits to the exclusive jurisdiction
        of
        the state and federal courts sitting in The City of New York, Borough of
        Manhattan, for the adjudication of any dispute hereunder or in connection
        herewith or with any transaction contemplated hereby or discussed herein,
        and
        hereby irrevocably waives, and agrees not to assert in any suit, action or
        proceeding, any claim that it is not personally subject to the jurisdiction
        of
        any such court, that such suit, action or proceeding is brought in an
        inconvenient forum or that the venue of such suit, action or proceeding is
        improper. Each party hereby irrevocably waives personal service of process
        and
        consents to process being served in any such suit, action or proceeding by
        mailing a copy thereof to such party at the address for such notices to it
        under
        this Agreement and agrees that such service shall constitute good and sufficient
        service of process and notice thereof. Nothing contained herein shall be
        deemed
        to limit in any way any right to serve process in any manner permitted by
        law.
EACH
        PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
        REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
        CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
        HEREBY.

       

      (e)
         No
        Third Party Beneficiaries.
        This
        Agreement is intended for the benefit of the parties hereto and their respective
        permitted successors and assigns, and is not for the benefit of, nor may
        any
        provision hereof be enforced by, any other Person.

       

      (f)
         Further
        Assurances.
        Each
        party shall do and perform, or cause to be done and performed, all such further
        acts and things, and shall execute and deliver all such other agreements,
        certificates, instruments and documents, as the other party may reasonably
        request in order to carry out the intent and accomplish the purposes of this
        Agreement and the consummation of the transactions contemplated
        hereby.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      (g)
         No
        Strict Construction.
        The
        language used in this Agreement will be deemed to be the language chosen
        by the
        parties to express their mutual intent, and no rules of strict construction
        will
        be applied against any party.

       

      (h)
         Entire
        Agreement; Effect on Prior Agreements; Amendments.
        Except
        for the Transaction Documents in effect prior to this Agreement (to the extent
        any such Transaction Document is not amended by this Agreement), this Agreement
        supersedes all other prior oral or written agreements between the Investor,
        the
        Company, their affiliates and Persons acting on their behalf with respect
        to the
        matters discussed herein, and this Agreement and the instruments referenced
        herein contain the entire understanding of the parties with respect to the
        matters covered herein and therein and, except as specifically set forth
        herein
        or therein, neither the Company nor the Investor makes any representation,
        warranty, covenant or undertaking with respect to such matters. No provision
        of
        this Agreement may be amended other than by an instrument in writing signed
        by
        the Company and the Investor. No provision hereof may be waived other than
        by an
        instrument in writing signed by the party against whom enforcement is sought.
        No
        consideration shall be offered or paid to any Person to amend or consent
        to a
        waiver or modification of any provision of any of the Transaction Documents
        unless the same consideration also is offered to all of the parties to the
        Transaction Documents, holders of Notes or holders of the Warrants, as the
        case
        may be. The Company has not, directly or indirectly, made any agreements
        with
        any of the Investors relating to the terms or conditions of the transactions
        contemplated by the Transaction Documents, including through any agreement
        that
        is not identical to this Agreement, except as set forth in the Transaction
        Documents. In the event that the Company enters into any such agreement with
        more favorable terms than those set forth in this Agreement and the documents
        contemplated hereby, the Investor shall be granted the benefit of such more
        beneficial terms.

       

      (i)
         Notices.
        Any
        notices, consents, waivers or other communications required or permitted
        to be
        given under the terms of this Agreement must be in writing and will be deemed
        to
        have been delivered: (i) upon receipt, when delivered personally; (ii) upon
        receipt, when sent by facsimile (provided confirmation of transmission is
        mechanically or electronically generated and kept on file by the sending
        party);
        or (iii) one Business Day after deposit with an overnight courier service,
        in
        each case properly addressed to the party to receive the same. The addresses
        and
        facsimile numbers for such communications shall be:

       

      If
        to the
        Company:

       

       

      DigitalFX
        International, Inc.

      3035
        East
        Patrick Lane, Suite 9

      Las
        Vegas, Nevada 89120

      
        	Telephone: 	 (702) 938-9300
	Facsimile: 	 (702) 939-1115
	Attention: 	 Mickey
                Elfenbein

      

       

       

       

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      Copy
        to:

       

      Stubbs
        Alderton & Markiles, LLP

      15260
        Ventura Boulevard

      20th
        Floor

      Sherman
        Oaks, California 91403

      
        
          	
                  Telephone: 

                	 (818) 444-4500
	Facsimile: 	 (818) 444-6303
	Attention: 	 Gregory
                  Akselrud

        

      

       

       

      

      If
        to the
        Investor, to its address and facsimile number set forth in the Securities
        Schedule attached hereto, 

       

      with
        a
        copy (for informational purposes only) to:

       

      Schulte
        Roth & Zabel LLP 

      919
        Third
        Avenue

      New
        York,
        New York 10022

      
        
          	Telephone: 	 (212)
                  756-2000
	Facsimile: 	 (212) 593-5955
	Attention: 	 Eleazer N. Klein,
                  Esq.

        

      

       

       

      or
        to
        such other address and/or facsimile number and/or to the attention of such
        other
        Person as the recipient party has specified by written notice given to each
        other party five (5) days prior to the effectiveness of such change. Written
        confirmation of receipt (A) given by the recipient of such notice, consent,
        waiver or other communication, (B) mechanically or electronically generated
        by
        the sender's facsimile machine containing the time, date, recipient facsimile
        number and an image of the first page of such transmission or (C) provided
        by an
        overnight courier service shall be rebuttable evidence of personal service,
        receipt by facsimile or receipt from an overnight courier service in accordance
        with clause (i), (ii) or (iii) above, respectively.

       

      (j)
         Successors
        and Assigns.
        This
        Agreement shall be binding upon and inure to the benefit of the parties and
        their respective successors and assigns, including any purchasers of the
        Notes
        or the Warrants. The Company shall not assign this Agreement or any rights
        or
        obligations hereunder without the prior written consent of the Investor,
        including by way of a Fundamental Transaction (unless the Company is in
        compliance with the applicable provisions governing Fundamental Transactions
        set
        forth in the Notes and the Warrants). The Investor may assign some or all
        of its
        rights hereunder without the consent of the Company, in which event such
        assignee shall be deemed to be an Investor hereunder with respect to such
        assigned rights.

       

      (k)
         Survival.
        Unless
        this Agreement is terminated under Section 7, the representations and warranties
        of the Company and the Investor contained herein and the agreements and
        covenants set forth herein shall survive the Closing.

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      (l)
         Remedies.
        The
        Investor and each holder of the Securities shall have all rights and remedies
        set forth in the Transaction Documents and all rights and remedies which
        such
        holders have been granted at any time under any other agreement or contract
        and
        all of the rights which such holders have under any law. Any Person having
        any
        rights under any provision of this Agreement shall be entitled to enforce
        such
        rights specifically (without posting a bond or other security), to recover
        damages by reason of any breach of any provision of this Agreement and to
        exercise all other rights granted by law. Furthermore, the Company recognizes
        that in the event that it fails to perform, observe, or discharge any or
        all of
        its obligations under this Agreement, any remedy at law may prove to be
        inadequate relief to the Investor. The Company therefore agrees that the
        Investor shall be entitled to seek temporary and permanent injunctive relief
        in
        any such case without the necessity of proving actual damages and without
        posting a bond or other security.

       

      (m)
         Indemnification.
        In
        consideration of the Investor's execution and delivery of the Transaction
        Documents, acquiring the Securities thereunder and entering into this Agreement
        and in addition to all of the Company's other obligations under the Transaction
        Documents, the Company shall defend, protect, indemnify and hold harmless
        the
        Investor and each other holder of the Securities and all of their stockholders,
        partners, members, officers, directors, employees and direct or indirect
        investors and any of the foregoing Persons' agents or other representatives
        (including, without limitation, those retained in connection with the
        transactions contemplated by this Agreement) (collectively, the "Indemnitees")
        from
        and against any and all actions, causes of action, suits, claims, losses,
        costs,
        penalties, fees, liabilities and damages, and expenses in connection therewith
        (irrespective of whether any such Indemnitee is a party to the action for
        which
        indemnification hereunder is sought), and including reasonable attorneys'
        fees
        and disbursements (the "Indemnified
        Liabilities"),
        incurred by any Indemnitee as a result of, or arising out of, or relating
        to (a)
        any misrepresentation or breach of any representation or warranty made by
        the
        Company in the Transaction Documents or any other certificate, instrument
        or
        document contemplated hereby or thereby, (b) any breach of any covenant,
        agreement or obligation of the Company contained in the Transaction Documents
        or
        any other certificate, instrument or document contemplated hereby or thereby
        or
        (c) any cause of action, suit or claim brought or made against such Indemnitee
        by a third party (including for these purposes a derivative action brought
        on
        behalf of the Company) and arising out of or resulting from (i) the execution,
        delivery, performance or enforcement of the Transaction Documents or any
        other
        certificate, instrument or document contemplated hereby or thereby, (ii)
        any
        transaction financed or to be financed in whole or in part, directly or
        indirectly, with the proceeds of the issuance of the Securities, (iii) any
        disclosure made by the Investor pursuant to Section 4(c), or (iv) the status
        of
        the Investor or holder of the Securities as an investor in the Company pursuant
        to the transactions contemplated by the Transaction Documents. To the extent
        that the foregoing undertaking by the Company may be unenforceable for any
        reason, the Company shall make the maximum contribution to the payment and
        satisfaction of each of the Indemnified Liabilities which is permissible
        under
        applicable law. Except as otherwise set forth herein, the mechanics and
        procedures with respect to the rights and obligations under this Section
        8(m)
        shall be the same as those set forth in Section 6 of the Registration Rights
        Agreement.

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      (n)
         Independent
        Nature of Investor's Obligations and Rights.
        The
        obligations of the Investor under any Transaction Document (including this
        Agreement) are several and not joint with the obligations of any Other Investor,
        and the Investor shall not be responsible in any way for the performance
        of the
        obligations of any Other Investor under any Transaction Document. Nothing
        contained herein or in any other Transaction Document, and no action taken
        by
        the Investor pursuant hereto, shall be deemed to constitute the Investor
        and
        Other Investors as a partnership, an association, a joint venture or any
        other
        kind of entity, or create a presumption that the Investor and Other Investors
        are in any way acting in concert or as a group, and the Company will not
        assert
        any such claim with respect to the obligations or the transactions contemplated
        by the Transaction Documents and the Company acknowledges that the Investor
        and
        Other Investors are not acting in concert or as a group with respect to such
        obligations or the transactions contemplated by the Transaction Documents.
        The
        Company acknowledges and the Investor confirms that the Investor has
        independently participated in the negotiation of the transactions contemplated
        hereby with the advice of its own counsel and advisors. The Investor shall
        be
        entitled to independently protect and enforce its rights, including, without
        limitation, the rights arising out of this Agreement or out of any other
        Transaction Documents, and it shall not be necessary for any Other Investor
        to
        be joined as an additional party in any proceeding for such
        purpose.

       

      

       

      [Signature
        Page Follows]

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

      

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

       

      
        	 	 	 
	 	COMPANY:
	 	 
	 	DIGITALFX
                INTERNATIONAL, INC.
	 	 
	 
 	 
 	 
 
	 	By:  	 
	 	
                
Name:
                Craig Ellins
	 	Title:
                Chief Executive Officer

      

       

      

        [Signature
          Page to Amendment and Exchange Agreement]

      

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

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

      
         

        
          	 	 	 
	 	
                  INVESTOR:

                
	 	 
	 	
                  [
                    ________________]

                
	 	 
	 
 	 
 	 
 
	 	By:  	 
	 	
                  
Name:

	 	Title:
                  

        

      

      
 

        [Signature
          Page to Amendment and Exchange Agreement]

      

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

      

        
          	
                  (1)

                	 	
                  (2)

                	 	
                  (3)

                	 	
                  (4)

                	 	
                  (5)

                	 	
                  (6)

                	 	
                  (7)

                	 	
                  (8)

                	 	
                  (9)

                	 
	
                  Investor

                	 	
                  Address
                    and

                  Facsimile
                    Number

                	 	
                  LC
                    Reduction Amount

                	 	
                  Redemption
                    Payment Amount

                	 	
                  Aggregate

                  Principal

                  Amount
                    of Amended and Restated

                  Notes

                	 	
                  Number
                    of Common Shares

                	 	
                  Number
                    of 

                  Amended
                    and Restated Warrant Shares

                	 	
                  2008
                    Interest Payment

                	 	
                  Legal
                    Representative's 

                  Address
                    and Facsimile Number

                	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
                  Portside
                    Growth & Opportunity Fund

                	 	 	
                  
                  

                  c/o
                    Ramius Capital Group, L.L.C.

                  599
                    Lexington Avenue,

                  20th
                    Floor

                  New
                    York, NY 10022

                  Attention:
                    Jeffrey Smith

                    
                    Owen Littman 

                  Facsimile:
                    (212) 201-4802

                    
                    (212) 845-7995

                  Telephone:
                    (212) 845-7955

                   (212)
                    201-4841

                  Residence:
                    Cayman Islands

                	 	
                  
                  

                  $

                	
                  
                  

                  1,428,571.43

                	 	
                  
                  

                  $

                	
                  
                  

                  1,428,571.43

                	 	
                  
                  

                  $

                	
                  
                  

                  2,142,857

                	 	 	
                  
                  

                  714,286

                	 	 	
                  
                  

                  535,715

                	 	
                  
                  

                  $

                	
                  
                  

                  89,583.33

                	 	 	
                  Schulte
                    Roth & Zabel LLP

                  919
                    Third Avenue

                  New
                    York, New York 10022

                  Attention:
                    Eleazer Klein, Esq.

                  Facsimile:
                    (212) 593-5955

                  Telephone:
                    (212) 756-2376

                	 
	
                  Highbridge
                    International LLC

                	 	 	
                  
                  

                  c/o
                    Highbridge Capital Management, LLC

                  9
                    West 57th St, 27th Floor

                  New
                    York, NY 10019

                  Attn:
                    Ari J. Storch / 

                  Adam
                    J. Chill

                  Tel:
                    212-287-4720

                  Fax:
                    212-751-0755

                  Residence:
                    Cayman Islands

                	 	
                  
                  

                  $

                	
                  
                  

                  428,571.43

                	 	
                  
                  

                  $

                	
                  
                  

                  428,571.43

                	 	
                  
                  

                  $

                	
                  
                  

                  642,857

                	 	 	
                  
                  

                  214,286

                	 	 	
                  
                  

                  160,715

                	 	
                  
                  

                  $

                	
                  
                  

                  26,875.00

                	 	 	 	 
	
                  Iroquois
                    Master Fund, Ltd.

                	 	 	
                  641
                    Lexington Avenue

                  26th
                    Floor 

                  New
                    York, New York 10022

                  Attention:
                    Joshua Silverman

                  Facsimile:
                    (212) 207-3452

                  Telephone:
                    (212) 974-3070

                  Residence:
                    Cayman Islands

                	 	
                  
                  

                  $

                	
                  
                  

                  142,857.14

                	 	
                  
                  

                  $

                	
                  
                  

                  142,857.14

                	 	
                  
                  

                  $

                	
                  
                  

                  214,286

                	 	 	
                  
                  

                  71,428

                	 	 	
                  
                  

                  53,572

                	 	
                  
                  

                  $

                	
                  
                  

                  8,958.33

                	 	 	 	 

        

      

      
 

      
        
          
          

        

        
          20

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