Document:

Exhibit 4.6

 

 

ESCROW AGREEMENT

            This Escrow
Agreement, dated as of November 18, 2005 (the "Agreement"), is made
among Home Solutions of America, Inc., a Delaware corporation (the "Company"),
Sterling Bank (the "Escrow Agent"), and Sanders Morris Harris Inc., a Texas corporation (the "Placement Agent").

Recitals:

            A.        The Company, through the Placement Agent,
intends to offer to investors certain units (the "Units"), each Unit
consisting of (i) one share of common stock of the Company, $0.001 par
value per share (the "Common Stock") and (ii) one Common Stock
purchase warrant (the "Warrants"), each entitling the holder thereof to
purchase 0.20 shares of Common Stock at $5.50 per share.  Subscriptions
for a minimum of $26,675,000 principal amount (the "Minimum Amount") must
be received in order to close the offering.

            B.         The Placement Agent has agreed to use its
best efforts to solicit subscriptions for the purchase of the Units from
investors ("Investors") who are acceptable to the Company during the
period commencing on November 18, 2005, and terminating November 30, 2005; provided,
however, that such termination date (the "Termination Date") may be
extended by mutual agreement of the Company and the Placement Agent by notice
to the Escrow Agent.

            C.         If at the Termination Date, or such earlier
time as may be determined by the Company and the Placement Agent, the Company
shall have received acceptable subscriptions in the Minimum Amount, the Company
may: (i) close the sale of such Units (such closing being hereinafter referred
to as the "Closing"), and (ii) issue the Units.

            D.        The Company and the Placement Agent desire
to provide for the safekeeping of funds accompanying subscriptions ("Subscription
Funds") until such time as Subscription Funds are released for Company uses,
or until such time as the Escrow Agent is required to return Subscription Funds
to Investors as hereinafter set forth.

            NOW, THEREFORE, the Company, the Escrow Agent and the
Placement Agent do hereby agree as follows:

Agreement:

           1.         Receipt and Collection of
Subscription Funds.  The Company will solicit subscriptions for Units through
the Placement Agent.  Funds shall be remitted to the Escrow Agent in the form
of a check payable to the order of "Home Solutions of America, Inc. - Escrow
Account" or via wire transfer (pursuant to wiring instructions provided by the
Escrow Agent).  Any payment received by the Placement Agent that does not
conform to this requirement will be returned to an Investor by the end of the
next business day following receipt.  The Placement Agent shall forward each
check received to the Escrow Agent by noon of the first Business Day (as
hereinafter defined) following receipt. The Company shall notify the Escrow
Agent in writing of the Closing Date (as hereinafter defined).

 

            2.         Accounting/Investor
Records.  The Escrow Agent shall provide the Placement Agent and the
Company with a daily accounting of all transactions hereunder so long as any
amounts are held by the Escrow Agent pursuant to this Agreement.  The Escrow
Agent will not be required to account for deposits and/or investments on an Investor
basis.  The Company will be responsible for individual account and tax
reporting.  The Company, the Placement Agent and their respective
representatives, subject to the laws, rules and regulations of governmental
authorities governing the Escrow Agent, shall have access to all relevant books
and records of the Escrow Agent at all reasonable times.  Receipt, investment and
reinvestment of the Subscription Funds shall be confirmed by the Escrow Agent
as soon as practicable by account statement, and any discrepancies in any such
account statement that are reasonably discoverable shall be noted by the
Company and the Placement Agent to the Escrow Agent within 30 calendar days
after receipt thereof.  For purposes of this paragraph, each account statement
shall be deemed to have been received by the party to whom directed on the
earlier to occur of (a) actual receipt thereof and (b) three Business Days
after the deposit thereof in the United States Mail, postage prepaid. For
purposes of this Agreement, the term "Business Day" shall mean any day
of the year, excluding Saturday, Sunday and any other day on which national
banks are required or authorized to close in Houston, Texas.

            3.         Duties of the Escrow Agent Regarding
Release of Subscription Funds.  The Escrow Agent shall hold, invest or
release the Subscription Funds received by it in accordance with the following
terms and conditions:

                        (a)        Release of Subscription
Funds upon Closing.  In the event that:

                                    (1)        At
any time not later than ten Business Days after the Termination Date, the
Escrow Agent shall have received a written notice from the Company stating that
subscriptions of the Minimum Amount have been received by the Company and setting
a date for Closing (the "Closing Date") that shall be the first full
Business Day after the date of such notice or such other date (not later than
ten Business Days thereafter) as shall be stated in such notice;  

                                    (2)        The
Escrow Agent shall have received, contemporaneously with or within one Business
Day after receipt of the notice required by Section 3(a)(1) (but in no event
later than one Business Day prior to the Closing Date), a written notice from
the Placement Agent that the offering has not been terminated by the Placement
Agent, and that the Company has satisfied all conditions to Closing to the Placement
Agent's satisfaction; and

	
  2

  

                                   (3)        The
Escrow Agent shall have received from the Company and the Placement Agent,
contemporaneously with or within one Business Day after receipt of the notice
from the Placement Agent pursuant to Section 3(a)(2) (but in no event later
than one Business Day prior to the Closing Date), a written notice (the "Notice
of Acceptance") (i) stating that subscriptions for the Units to be sold
have been accepted, (ii) specifying the amount of Units to be sold, (iii)
listing the Investors whose subscriptions were not accepted by the Company, if
any, (iv) specifying the amount due the Placement Agent for commissions and
expenses (in the aggregate, the "Commissions and Expenses"), and (v)
specifying the time place and method of delivery of all funds to be delivered
to the Company, the Placement Agent and to each Investor whose subscription was
rejected, if any, as set forth below,

then the Escrow
Agent shall promptly: (i) deliver to the Company, at the time and place and by
the method specified in the Notice of Acceptance, the Subscription Funds held
by the Escrow Agent with respect to the amount of Units to be sold as
designated by the Company and the Placement Agent in such notice, less the
amount of the Commissions and Expenses; (ii) deliver to the Placement Agent, at
the time and place and by the method specified in the Notice of Acceptance, an
amount equal to the Commissions and Expenses; and (iii) pursuant to written
instruction detailing the time and place and by the method specified in the
Notice of Acceptance, deliver to each Investor, if any, whose subscription was
not accepted by the Company (in whole or in part) the amount of such Investor's
collected Subscription Funds received by the Escrow Agent and not accepted by
the Company.  In connection with the Closing, the Escrow Agent shall furnish to
the Company, upon request, written verification of collected Subscription Funds
by the Escrow Agent.

(b)        Return of
Subscription Funds.  In the event that: (i) the Escrow Agent shall have
received a written notice from the Company that the Company has terminated the
offering, or (ii) the Escrow Agent shall have received a written notice from
the Company designating the Termination Date, and the Escrow Agent shall have
failed to receive collected Subscription Funds in the Minimum Amount prior to
5:00 p.m. Central Standard time on the Termination Date, then the Escrow Agent
shall, pursuant to written instruction from the Placement Agent, deliver to
each Investor the amount of such Investor's collected Subscription Funds
received by the Escrow Agent.  The Placement Agent will provide Escrow Agent
with disbursement details for each Investor whose Subscription Funds were
rejected.

(c)        Failure to
Collect Subscription Funds.  In the event that the Escrow Agent releases
any Subscription Funds pursuant to paragraph 3(a), and an instrument originally
deposited with the Escrow Agent representing part of such Subscription Funds is
returned to the Escrow Agent unpaid or is dishonored or the Escrow Agent
otherwise fails to receive a settlement on such instrument, the Placement Agent
shall promptly repay to the Escrow Agent the amount of such instrument and the
Escrow Agent shall retain a lien upon any Subscription Funds in its possession
to secure such repayment.

            In the event the Placement Agent shall transfer any
funds to the Escrow Agent by reason of clerical, mechanical, or other error or
that any instrument given the Placement Agent for deposit to an Investor's
account as payment for Units has been dishonored and the Placement Agent shall
provide the Escrow Agent with proof, reasonably satisfactory to the Escrow
Agent, that such funds were transferred to the Escrow Agent by reason of such
error or that such instrument was dishonored, the Escrow Agent shall promptly
return such funds or instrument, as the case may be, to the Placement Agent; provided,
however, that the Company has provided the Escrow Agent with a written
notice that it concurs that the transfer of funds was in error.

	
  3

  

            In the event the Company rejects the subscription of
any Investor before the Closing Date specified in Section 3(a)(1), then upon
receipt by the Escrow Agent from the Company of written notice of such
rejection, the Escrow Agent shall promptly deliver to such Investor, pursuant
to written instructions from the Placement Agent, such Investor's collected
Subscription Funds received by the Escrow Agent.

            4.         Investment of
Funds.  The Escrow Agent shall invest and reinvest the Subscription Funds
in the AIM Liquid Assets Portfolio Fund, unless otherwise instructed in writing
by the Company.  Such written instructions, if any, referred to in the
foregoing sentence shall specify the type and identity of the investments to be
purchased and/or sold and shall also include the name of the broker-dealer, if
any, that the Company directs the Escrow Agent to use in respect of such
investment, any particular settlement procedures required, if any (which
settlement procedures shall be consistent with industry standards and
practices), and such other information as the Escrow Agent may require.  The
Escrow Agent shall not be liable for failure to invest or reinvest funds absent
sufficient written direction.  Unless the Escrow Agent is otherwise directed in
such written instructions, the Escrow Agent may use a broker-dealer of its own
selection, including a broker-dealer owned by or affiliated with the Escrow
Agent or any of its affiliates.  The Escrow Agent or any of its affiliates may
receive compensation with respect to any investment directed hereunder; provided,
however, that such compensation is paid to the Placement Agent and the
Company prior to making any such investment direction.  It is expressly agreed
and understood by the parties hereto that the Escrow Agent shall not in any way
whatsoever be liable for losses on any investments, including, but not limited
to, losses from market risks due to premature liquidation or resulting from
other actions taken pursuant to this Agreement.  All interest, if any, on the
Subscription Funds shall be delivered to the Escrow Agent at Closing and such
amount will be disclosed to the Placement Agent on the Closing Date.  No
Investor shall be paid any interest on Subscription Funds.

            5.         Escrow Information.  The Escrow
Agent shall provide the Company with all necessary investment information with
respect to the Subscription Funds, including the date each Investor's
Subscription Funds were received by the Escrow Agent.

            6.         Compensation of the Escrow Agent. 
The Company agrees to pay the Escrow Agent the fees set forth on Schedule A
to this Agreement for all services rendered hereunder, together with
reimbursement for all expenses reasonably incurred while serving as Escrow
Agent. 

            7.         Notices.  Any notice, authorization,
request or demand required or permitted to be given under this Agreement shall
be in writing, and shall be deemed to have been duly given on the date actually
delivered, or on the date mailed by registered or certified mail, postage
prepaid, sent by telefax machine and addressed as follows:

(i) To the Escrow Agent:

Sterling
Bank

Private
Client Services

2550
N. Loop West

Suite 800

Houston, TX 77092

	
  4

  

Attention: 
Kay King

Fax: 
(713) 507-7829

(ii) To the Company:

Home Solutions of America, Inc

1500 Dragon, Suite B

Dallas, TX 75207

Attention:
Rick J. O'Brien, Chief Financial Officer

Facsimile: 
(214) 333-9435

With a copy to:

Hallett
& Perrin, P.C.

2001 Bryan Street, Suite 3900

Dallas, Texas  75201

Attention: Melissa H. Youngblood, Esq.

Facsimile: 
(214) 922-4142

(iii) To the Placement Agent:

Sanders Morris Harris Inc.

320 Park Avenue,
17th Floor

New York, NY  10022

Attention:  Michael Fitzgerald, Managing Director

Facsimile:  (212) 317-2710 

                        With
a copy to:

                        Day,
  Berry & Howard LLP

                        One East Putnam Avenue

                        Greenwich, CT 06830

                        Attention:
R. Scott Beach, Esq.

                         Fax: (203) 862-7801

            Each party may change the address to which notices are
to be delivered by giving to the other parties not less than ten days prior
written notice thereof.

            8.         Liability and Protection of the Escrow
Agent.  The Company and the Placement Agent agree that the following
provisions shall control with respect to the rights, duties, liabilities,
privileges and immunities of the Escrow Agent:

            (a)        Other than this
Agreement and as set forth herein, the Escrow Agent is not a party to, and is
not bound by, or charged with, notice of any agreement out of which this escrow
may arise.

	
  5

  

            (b)        The Escrow Agent
acts hereunder as a depository only, and is not responsible or liable in any
manner whatsoever for the sufficiency, correctness, genuineness or validity of
the subject matter of the escrow, or any part thereof or for the form or
execution thereof, or for the identity or authority of any person executing or
depositing it.

            (c)        The Company and the
Placement Agent jointly and severally agree to indemnify and hold the Escrow
Agent harmless from all loss, cost, damages, expenses and attorneys' fees
suffered or incurred by the Escrow Agent in good faith in connection with or
arising from the performance or satisfaction of its duties under this
Agreement, except such acts or omissions as may result from the willful
misconduct or gross negligence of the Escrow Agent, or as a result of any
claim, demand, lawsuit or other action or proceeding asserted against the
Escrow Agent in connection with this escrow.  The obligations of the Company
and the Placement Agent under this paragraph shall be performable at the
principal office of the Escrow Agent in Houston, Texas.

            (d)        The Escrow Agent
shall be protected in acting upon any written notice, request, waiver, consent,
certificate, receipt, authorizations, power of attorney or other paper or
document that the Escrow Agent in good faith believes to be genuine and what it
purports to be.

            (e)        The Escrow Agent
shall not be liable for anything that it may do or refrain from doing in good
faith in connection herewith, except its own gross negligence or willful
misconduct.

            (f)        The Escrow Agent
may consult with legal counsel in the event of any dispute or question as to
the construction of any of the provision hereof or its duties hereunder, and,
subject to Section 8(c), it will incur no liability and shall be fully
protected in acting in good faith in accordance with the opinion and
instructions of such counsel.

            (g)        In the event of any
disagreement between any of the parties to this Agreement, or between them or
either or any of them and any other person, resulting in adverse claims or
demands being made in connection with the subject matter of the escrow, or in
the event that the Escrow Agent, in good faith, is in doubt as to what action
it should take hereunder, the Escrow Agent may, at its option, refuse to comply
with any claims or demands on it, or refuse to take any action hereunder, so
long as such disagreements continue or such doubts exist, and in any such
event, the Escrow Agent shall be entitled to continue so to refrain from acting
until (i) the rights of all parties shall have been fully and finally
adjudicated by a court of competent jurisdiction or resolved by binding
arbitration or (ii) all differences shall have been adjudicated and all doubt
resolved by agreement among all of the interested persons, and the Escrow Agent
shall have been notified thereof in writing signed by all such persons.  The
rights of the Escrow Agent under this paragraph are cumulative of all other
rights that it may have by law or otherwise.

	
  6

  

            (h)        The Escrow Agent
may resign from its duties under this Agreement because of a conflicting
interest upon giving 15 days prior written notice to the Company and the Placement
Agent; provided, however, that no resignation of the Escrow Agent shall
become effective until the acceptance of appointment by a successor escrow
agent.  The Escrow Agent shall deliver all Subscription Funds in its possession
to the successor escrow agent upon joint instruction of the Company and the Placement
Agent.  If the Escrow Agent resigns, the Company and the Placement Agent shall
promptly appoint a successor escrow agent.  If an instrument of acceptance by a
successor escrow agent shall not have been delivered to the Escrow Agent within
15 days after giving of such notice of resignation, the resigning Escrow Agent
may petition a court of competent jurisdiction for the appointment of a
successor escrow agent.  The Escrow Agent shall continue to accept Subscription
Funds and perform its duties under this Agreement until the acceptance of
appointment by a successor escrow agent.

            (i)         The Escrow Agent
shall have no duties or responsibilities other than the duties and
responsibilities expressly set forth in this Agreement.

            9.         Binding Law.  This Agreement shall
be construed, enforced and administered in accordance with the laws of the
State of Texas.

            10.        Benefit.  This Agreement shall be
binding upon the parties hereto and their respective successors and permitted assigns. 
No party may assign its rights or obligations under this Agreement without the
prior written consent of the other parties hereto.

            11.        Execution in Counterparts.  This
Agreement may be executed simultaneously in multiple counterparts, each of
which shall be deemed an original, but which together shall constitute one and
the same instrument.

            12.        Scope of Undertaking.  The Escrow Agent's duties and
responsibilities in connection with this Agreement shall be limited to those
expressly set forth in this Agreement.  The Escrow Agent is not a principal,
participant or beneficiary in any transaction underlying this Agreement and
shall have no duty to inquire beyond the terms and provisions hereof.  The Escrow
Agent shall have no responsibility or obligation of any kind in connection with
this Agreement or the Subscription Funds and shall not be required to deliver
the Subscription Funds or any part thereof or take any action with respect to
any matters that might arise in connection therewith, other than to receive,
hold, invest, reinvest and deliver the Subscription Funds as herein provided. 
Without limiting the generality of the foregoing, it is hereby expressly agreed
and stipulated by the parties hereto that the Escrow Agent shall not be
required to exercise any discretion hereunder and shall have no investment or
management responsibility and, accordingly, shall have no duty to, or liability
for its failure to, provide investment recommendations or investment advice to
the Company or the Placement Agent.  The Escrow Agent shall not be liable for
any error in judgment, any act or omission, any mistake of law or fact, or for
anything it may do or refrain from doing in good faith in connection herewith,
except for, subject to Section 8(c), its own willful misconduct or gross
negligence.  It is the intention of the parties hereto that the Escrow Agent
shall never be required to use, advance or risk its own funds or otherwise
incur financial liability in the performance of any of its duties or the
exercise of any of its rights and powers hereunder.

	
  7

  

            13.        Funds
Transfer.   In the event funds transfer instructions are given (other than
in writing at the time of execution of the Agreement), whether in writing, by
telefax, or otherwise, the Escrow Agent is authorized to seek confirmation of
such instructions by telephone call-back to the person or person designated on Schedule
B hereto, and the Escrow Agent may rely upon the confirmations of anyone
purporting to be the person or persons so designated.  The persons and
telephone numbers for call-backs may be changed only in writing actually
received and acknowledged by the Escrow Agent.  The parties to this Agreement
acknowledge that such security procedure is commercially reasonable.

            It is
understood that the Escrow Agent and the beneficiary's bank in any funds
transfer may rely solely upon any account numbers or similar identifying number
provided by the Company or the Placement Agent, as applicable, to identify (i)
the beneficiary, (ii) the beneficiary's bank, or (iii) an intermediary bank. 
The Escrow Agent may apply any of the escrowed funds for any payment order it
executes using any such identifying number, even where its use may result in a
person other than the beneficiary being paid, or the transfer of funds to a
bank other than the beneficiary's bank or an intermediary bank, designated.

            14.        Termination. 
This Agreement shall terminate upon the disbursement, in accordance with
Sections 3 or 8(h), of the Subscription Funds in full; provided, however,
that in the event all fees, expenses, costs and other amounts required to be
paid to Escrow Agent hereunder are not fully and finally paid prior to
termination, the provisions of Section 6 and 8(c) shall survive the termination
hereof.

[Signatures on following page]

 

 

 

 

	
  8

  

            IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the date first above written.

	
  HOME
  SOLUTIONS OF AMERICA, INC.

  	
  SANDERS MORRIS HARRIS INC.

  
	
  By: _________________	
  By: _______________
	
  Name: ______________	
  Name: ____________
  
	
  Title:     ______________	
  Title: ______________

 

 

 

 

 

 

 

 

                                                                                                              

	
  [Counterpart Signature Page Attached] 9

  

 

9

Counterpart
Signature Page to Escrow Agreement

 

 

 

STERLING BANK 

By: ______________________________ 

Name: ___________________________ 

Title: ____________________________ 

 

 

 

 

 

 

	
  10

  

Schedule A

 

Escrow Agent Fees  

 

Investment Management &
Trust

 

SHORT-TERM

ESCROW SERVICES

FEE SCHEDULE

 

 

ACCOUNT SET-UP FEE                                                                 

Accounts
will be charged an initial set-up fee.                             $400.00

            

SERVICE FEE

Accounts
are subject to a minimum monthly service fee.             $250.00

  
OR an Annual Rate of 0.10% whichever is greater

            

ADDITIONAL SERVICES

A reasonable charge may be made for additional
services that may be necessary or desirable.  Such services may include
accounting and legal fees, asset valuations or appraisals, management and
valuation of closely held business interests, additional statements and fund disbursements.

Fees are subject to change and will be accrued and
charged monthly.  Out of pocket expense may be charged to the account as
incurred.

*Wire charges                      $25.00

*Check Requests                  $25.00

*Appraisals                           pass
through from appraiser

 

Schedule B

 

Telephone Number(s) for
Call-backs and Person(s)

Designated to Confirm Funds
Transfer Instructions

 

 

If to Company:                                                                                                                                      

Name                                                                         
       Telephone Number

1.  Rick J. O'Brien                                                                (214)
623-8446

If to the Placement Agent:

Name                                                                         
       Telephone Number

1.   Michael Fitzgerald                                                           (212)
317-2702

Telephone call-backs shall be
made to either the Company or the Placement Agent if joint instructions are
required pursuant to the Agreement.<PAGE>

                                                                     EXHIBIT 4.1

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY BE RESOLD OR
OTHERWISE TRANSFERRED ONLY PURSUANT TO AN EXEMPTION FROM REGISTRATION (IF
AVAILABLE) UNDER THE SECURITIES ACT, OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.

No. W-____                               Warrant to Purchase ________ Shares of
                                         Common Stock (subject to adjustment)

                        WARRANT TO PURCHASE COMMON STOCK

                                       OF

                     AMERICAN ORIENTAL BIOENGINEERING, INC.

     This Warrant (the "WARRANT") is issued to ________ or his, her or its
permitted assigns ("HOLDER") by AMERICAN ORIENTAL BIOENGINEERING, INC., a Nevada
corporation (the "COMPANY"), on November __, 2005 (the "WARRANT ISSUE DATE") for
agreed upon consideration, receipt of which is hereby acknowledged.

     1. Number of Shares. Subject to the terms and conditions hereinafter set
forth, the Holder is entitled, upon surrender of this Warrant at the principal
office of the Company (or at such other place as the Company shall notify the
Holder in writing), to purchase from the Company up to _____ shares of common
stock, par value $0.001 per share ("COMMON STOCK"), of the Company at the
Exercise Price (defined below), subject to adjustment as provided in Section 8
hereof.

     2. Exercise Price. The exercise price for the shares of Common Stock
purchasable hereunder shall be $6.50 per Warrant Share, as adjusted from time to
time pursuant to Section 8 hereof (the "EXERCISE PRICE").

     3. Exercise Period. This Warrant may be exercised at any time after the
date hereof until 5:00 p.m., New York City time, on November __, 2008.

     4. Redemption. At any time after the later of eighteen months from the date
hereof and the date when there is a currently effective registration statement
registering the resale of the shares of Common Stock for which this Warrant is
exercisable as contemplated by the Registration Rights Agreement dated as of the
date hereof executed by the Company and the Holder (the "REGISTRATION RIGHTS
AGREEMENT" and such registration statement, the "REGISTRATION STATEMENT") and
prior to the exercise of this Warrant:

<PAGE>

          (a) This Warrant may be redeemed, at the option of the Company, on a
     date fixed by the Company for redemption (the "REDEMPTION DATE"), which
     Redemption Date shall not be less than twenty (20) days after the mailing
     of the notice of redemption referred to below, at a redemption price of
     $0.01 per Warrant, provided the Market Price (as defined below) of the
     Common Stock issuable upon exercise of this Warrant shall exceed 150% of
     the Exercise Price for a period of thirty (30) consecutive trading days
     ending no more than fifteen (15) days prior to the date of the notice of
     redemption. Notwithstanding the foregoing, the Company's right to redeem
     this Warrant shall be ineffective if at any time during the period between
     the time the Company provides notice of redemption and prior to the
     Redemption Date, the Registration Statement ceases to remain effective or
     any Blackout Period (as defined in the Registration Rights Agreement).

          (b) If the conditions set forth in Section 4(a) are met, and the
     Company elects to exercise its right to redeem this Warrant, it shall mail
     a notice of redemption to the registered Holder of this Warrant, via
     facsimile, nationally recognized courier or first class mail, postage
     prepaid, not later than the twentieth (20th) day before the Redemption
     Date, at such last address as shall appear on the records maintained by the
     Company.

          (c) The notice of redemption shall specify (i) the redemption price,
     (ii) the Redemption Date and (iii) that the right to exercise this Warrant
     shall terminate at 5:00 P.M. (New York time) on the business day
     immediately preceding the Redemption Date. No failure to mail such notice
     nor any defect therein or in the mailing thereof shall affect the validity
     of the proceedings for such redemption except as to a registered Holder (A)
     to whom notice was not mailed or (B) whose notice was defective. An
     affidavit of the Secretary of the Company that notice of redemption has
     been mailed shall, in the absence of fraud, be prima facie evidence of the
     facts stated therein.

          (d) Any right to exercise this Warrant shall terminate at 5:00 P.M.
     (New York City time) on the business day immediately preceding the
     Redemption Date. On and after the Redemption Date, Holder of this Warrant
     shall have no further rights except to receive, upon surrender of this
     Warrant, the redemption price.

          (e) The term "MARKET PRICE" means the closing sale price of one share
     of the Company's Common Stock on the American Stock Exchange or other
     national securities exchange on which the shares are then listed or, if the
     Company's Common Stock is not then traded on the American Stock Exchange or
     other national securities exchange, the closing bid price on any automated
     quotation system on which shares of the Company's Common Stock are then
     quoted.

     5. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 3, the Holder may exercise, in whole or
in part, the purchase rights evidenced hereby. Such exercise shall be effected
by:

          (a) the surrender of the Warrant, together with a duly executed copy
     of the form of Notice of Exercise attached hereto, to the Secretary of the
     Company at its principal offices set forth on the signature page hereof or
     such other address as provided for in Section 17); and

                                      -2-
<PAGE>

          (b) the payment in the form of a certified or bank cashier's check
     payable to the order of the Company in an amount equal to the Exercise
     Price multiplied by the number of shares of Common Stock for which this
     Warrant is being exercised; provided, however, if the Registration
     Statement has not been declared effective by the SEC by the first
     anniversary hereof, until such time as the Registration Statement has been
     declared effective by the SEC (or following such time as the Registration
     Statement has become effective, during any period in which the Registration
     Statement ceases to be effective or during the term of any Blackout
     Period), the Holder of the Warrants shall have the right at any such time
     to exercise the Warrants in full or in part by surrendering the Warrants in
     exchange for the number of shares of Common Stock issuable upon exercise of
     the Warrants equal to the product of (x) the number of shares of Common
     Stock issuable upon exercise of the Warrants as to which the Warrants are
     being exercised multiplied by (y) a fraction, the numerator of which is the
     Market Price on the date of exercise of the shares of Common Stock issuable
     upon exercise of the Warrants less the Exercise Price and the denominator
     of which is such Market Price (a "CASHLESS EXERCISE").

     6. Certificates for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of shares of
Common Stock so purchased shall be issued as soon as practicable thereafter
(with appropriate restrictive legends, if applicable), and in any event within
ten (10) business days of the delivery of the Notice of Exercise.

     7. Issuance of Shares. The Company covenants that the shares of Common
Stock, when issued pursuant to the exercise of this Warrant, will be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens, and
charges with respect to the issuance thereof.

     8. Adjustment of Exercise Price and Kind and Number of Shares. The number
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:

          (a) Subdivisions, Combinations and Other Issuances. If the Company
     shall at any time prior to the expiration of this Warrant (i) subdivide its
     Common Stock, by split-up or otherwise, or combine its Common Stock, or
     (ii) issue additional shares of its Common Stock or other equity securities
     as a dividend with respect to any shares of its Common Stock, then the
     number of shares of Common Stock issuable on the exercise of this Warrant
     shall forthwith be proportionately increased in the case of a subdivision
     (by stock split, stock dividend or otherwise), or proportionately decreased
     in the case of a combination. Appropriate adjustments shall also be made to
     the Exercise Price, but the aggregate Exercise Price payable for the total
     number of shares of Common Stock purchasable under this Warrant (as
     adjusted) shall remain the same. Any adjustment under this Section 8(a)
     shall become effective at the close of business on the date the subdivision
     or combination becomes effective, or as of the record date of such
     dividend, or in the event that no record date is fixed, upon the making of
     such dividend.

          (b) Reclassification, Reorganization and Consolidation. In case of any
     reclassification, capital reorganization, or change in the Common Stock of
     the Company (other than as a result of a subdivision, combination, or stock
     dividend provided for in Section 8(a) above), then, as a condition of such
     reclassification, reorganization, or change, lawful provision shall be
     made, and duly executed documents evidencing the same from the Company or
     its successor shall be delivered to the Holder, so that the Holder shall
     have the right at any time prior to the expiration of this Warrant to
     purchase, at a total price equal to the Exercise Price, the kind and amount
     of shares of stock and other securities and property receivable in
     connection with such reclassification, reorganization, or change by a
     holder of the same number of shares of Common Stock as were purchasable by
     the Holder immediately prior to such reclassification, reorganization, or

                                      -3-
<PAGE>

     change. In any such case appropriate provisions shall be made with respect
     to the rights and interest of the Holder so that the provisions hereof
     shall thereafter be applicable with respect to any shares of stock or other
     securities and property deliverable upon exercise hereof, and appropriate
     adjustments shall be made to the purchase price per share payable
     hereunder, provided the aggregate Exercise Price shall remain the same.

          (c) Adjustment of Exercise Price and Number of Shares upon Issuance of
     Common Stock. Except as otherwise provided in Sections 8(a), 8(b), 8(e) and
     8(i), if and whenever on or after the date of issuance of this Warrant, the
     Company issues or sells, or is deemed to have issued or sold, any shares of
     Common Stock for no consideration or for consideration per share less than
     a price equal to the Exercise Price in effect immediately prior to such
     issuance or sale, then immediately after such issuance or sale, the
     Exercise Price then in effect shall be reduced to an amount equal to the
     product of (x) the Exercise Price in effect immediately prior to such
     issuance or sale and (y) quotient obtained by dividing (I) the sum of (a)
     the number of shares of Common Stock Deemed Outstanding immediately prior
     to such issuance or sale and (b) the quotient determined by dividing (i)
     the consideration, if any, received by the Company upon such issuance or
     sale by (ii) the Exercise Price by (II) the number of shares of Common
     Stock Deemed Outstanding immediately after such issuance or sale. Upon each
     such adjustment of the Exercise Price hereunder, the number of shares of
     Common Stock acquirable upon exercise of this Warrant shall be adjusted to
     the number of shares determined by multiplying the Exercise Price in effect
     immediately prior to such adjustment by the number of shares of Common
     Stock acquirable upon exercise of this Warrant immediately prior to such
     adjustment and dividing the product thereof by the Exercise Price resulting
     from such adjustment. "COMMON STOCK DEEMED OUTSTANDING" means the number of
     shares of Common Stock actually outstanding (not including shares of Common
     Stock held in the treasury of the Company), plus (A) in case of any
     adjustment required by Section 8(d) resulting from the issuance of any
     Options (as defined below), the maximum total number of shares of Common
     Stock issuable upon the exercise of the Options for which the adjustment is
     required (including any Common Stock issuable upon the conversion of
     Convertible Securities (as defined below) issuable upon the exercise of
     such Options), and (B) in the case of any adjustment required by Section
     8(d)(ii) resulting from the issuance of any Convertible Securities, the
     maximum total number of shares of Common Stock issuable upon the exercise,
     conversion or exchange of the Convertible Securities for which the
     adjustment is required, as of the date of issuance of such Convertible
     Securities, if any. To the extent that shares of Common Stock are issued
     for cash, the per share price at which such shares were issued shall be
     equal to the quotient determined by dividing the cash proceeds received by
     the Company net of any underwriting discounts or commissions by the total
     number of shares issued in such issuance. To the extent that shares of
     Common Stock are issued for consideration other than cash, the per share
     price at which such shares were issued shall be equal to the quotient
     determined by dividing the fair value of the consideration received by the
     Company in exchange for such shares (as determined in good faith by the
     Company's board of directors) by the total number of shares issued in such
     issuance.

          (d) Effect on Exercise Price of Certain Events. For purposes of
     determining the adjusted Exercise Price pursuant to Section 8 hereof, the
     following shall be applicable:

               (i) Issuance of Options. If the Company in any manner grants any
          rights, warrants or options to subscribe for or purchase Common Stock
          or Convertible Securities (excluding options granted in connection
          with one or more employee benefit plans approved by the Company's
          board of directors, pursuant to which the Company's securities may be

                                      -4-
<PAGE>

          issued to any employee, officer, director, consultant or other service
          provider of the Company or any subsidiary (the "APPROVED STOCK
          PLANS")) ("OPTIONS") and the lowest price per share for which one
          share of Common Stock is issuable upon the exercise of such Options is
          less than the Exercise 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(d)(i), the "lowest
          price per share for which one share of Common Stock is issuable upon
          exercise of any such Option" shall be equal to the sum of the lowest
          amounts of consideration (if any) received by the Company with respect
          to any one share of Common Stock upon the granting or sale of the
          Option, upon exercise of the Option and upon conversion or exchange of
          any Convertible Security issuable upon exercise of such Option. No
          further adjustment of the Exercise Price shall be made upon the actual
          issuance of such 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 of such Convertible
          Securities. Upon the expiration or termination of any unexercised
          Option, such Exercise Price shall be readjusted to such amount as
          would have been obtained had the adjustment made upon the granting or
          issuance of such Option been made based upon the issuance of only the
          number of shares of Common Stock actually issued on exercise of such
          Option. Notwithstanding the foregoing, no adjustment shall be made
          pursuant to this Section 8(d)(i) to the extent that such adjustment is
          based solely on the fact that the Convertible Securities issuable upon
          exercise of such Option are convertible into or exchangeable for
          Common Stock at a price which varies with the market price of the
          Common Stock.

               (ii) Issuance of Convertible Securities. If the Company in any
          manner issues or sells any stock or securities (other than Options)
          directly or indirectly convertible into or exchangeable for Common
          Stock ("CONVERTIBLE SECURITIES") and the lowest price per share for
          which one share of Common Stock is issuable upon the conversion or
          exchange thereof is less than the Exercise 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
          Convertible Securities for such price per share. For purposes of this
          Section 8(d)(ii), the "lowest price per share for which one share of
          Common Stock is issuable upon conversion or exchange" shall be equal
          to the sum of the lowest amounts of consideration (if any) received by
          the Company with respect to any one share of Common Stock upon the
          conversion or exchange of such Convertible Securities, and if any such
          issuance or sale of such Convertible Securities is made upon exercise
          of any Options for which adjustment of the Exercise Price has been or
          are to be made pursuant to other provisions of this Section 8, no
          further adjustment of the Exercise Price shall be made by reason of
          such issuance or sale. Upon the expiration of any rights of conversion
          or exchange under such Convertible Securities, such Exercise Price
          shall be readjusted to such amount as would have obtained had the
          adjustment made upon the granting or issuance of such Convertible
          Securities been made based upon the issuance of only the number of
          shares of Common Stock actually issued on conversion of such
          Convertible Securities. Notwithstanding the foregoing, no adjustment
          shall be made pursuant to this Section 8(d)(ii) to the extent that
          such adjustment is based solely on the fact that such Convertible
          Securities are convertible into or exchangeable for Common Stock at a
          price which varies with the market price of the Common Stock.

                                      -5-
<PAGE>

               (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 issuance, conversion or
          exchange of any Convertible Securities, or the rate at which any
          Convertible Securities are convertible into or exchangeable for Common
          Stock changes at any time, the Exercise Price in effect at the time of
          such change shall be adjusted to the 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 and the number of shares of Common Stock
          acquirable hereunder shall be correspondingly readjusted. For purposes
          of this Section 8(d)(iii), if the terms of any Option or Convertible
          Security that was outstanding as of the date of issuance of this
          Warrant 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.

          (e) Fundamental Transactions. If, at any time while this Warrant is
     outstanding, (1) the Company effects any merger or consolidation of the
     Company with or into another person or entity, (2) the Company effects any
     sale of all or substantially all of its assets in one or a series of
     related transactions, (3) any tender offer or exchange offer (whether by
     the Company or another person or entity) is completed pursuant to which
     holders of Common Stock are permitted to tender or exchange their shares
     for other securities, cash or property, or (4) 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 the Holder shall have the right to
     purchase and receive upon the basis and upon the terms and conditions
     herein specified and in lieu of the shares of Common Stock purchasable
     hereunder immediately theretofore issuable upon exercise of the Warrant,
     such shares of stock, securities or assets (including cash) as would have
     been issuable or payable with respect to or in exchange for a number of
     shares of Common Stock issuable hereunder equal to the number of shares of
     Common Stock immediately theretofore issuable upon exercise of the Warrant,
     had such Fundamental Transaction not taken place. The provisions of this
     paragraph 8(e) shall apply to successive consolidations, mergers, sales,
     conveyances or share exchanges.

          (f) Minimum Adjustment. No adjustment in the number of shares of
     Common Stock purchasable hereunder shall be required unless such adjustment
     would require an increase or decrease of at least one percent (1%) in the
     number of shares of Common Stock purchasable upon the exercise of each
     Warrant; provided, however, that any adjustments which by reason of this
     Section 8(f) are not required to be made shall be carried forward and taken
     into account in any subsequent adjustment but not later than three (3)
     years after the happening of the specified event or events. All
     calculations shall be made to the nearest one thousandth of a share.

          (g) "Common Stock". For the purposes of this Section 8, the term
     "COMMON STOCK" shall mean (i) the class of stock designated as the Common
     Stock of the Company at the date of this Agreement or (ii) any other class
     of stock resulting from successive changes or reclassifications of such
     shares consisting solely of changes in par value, or from no par value to
     par value, or from par value to no par value.

                                      -6-
<PAGE>

          (h) Notice of Adjustment. When any adjustment is required to be made
     in the number or kind of shares purchasable upon exercise of the Warrant,
     or in the Exercise Price, the Company shall promptly notify the holder of
     such event and of the number of shares of Common Stock or other securities
     or property thereafter purchasable upon exercise of this Warrant.

          (i) Issuance of New Warrant. Upon the occurrence of any of the events
     listed in this Section 8 that results in an adjustment of the type, number
     or exercise price of the securities underlying this Warrant, the Holder
     shall have the right to receive a new warrant reflecting such adjustment
     upon the Holder tendering this Warrant in exchange. The new warrant shall
     otherwise have terms identical to this Warrant.

          (j) No Adjustment. Notwithstanding the foregoing, no adjustment under
     Sections 8(c) or (d) shall be effected due to, or as a result of any
     Permitted Issuance. The term "PERMITTED ISSUANCE" shall include (i) the
     issuance of Common Stock as Liquidated Damages Shares (as defined in the
     Registration Rights Agreement of even date herewith), (ii) the issuance of
     the Placement Agent Warrants, (iii) the issuance of Common Stock upon
     exercise of the Placement Agent Warrants, (iv) the issuance of options or
     Common Stock by the Company in connection with the Approved Stock Plans, or
     (v) the issuance of Common Stock upon the exercise or conversion of rights,
     options, warrants, convertible securities and convertible debentures
     outstanding as of the Closing Date and in accordance with the terms in
     effect on the Closing Date.

     9. Reservation of Shares; No Impairment. The Company shall at all times
keep reserved an appropriate number of shares of Company's Common Stock to
facilitate the issuance of shares to Holder pursuant to this Warrant. The
Company shall not take any action that would impair Company's ability to comply
with the terms of the Warrant. The Company shall provide Holder with at least
ten (10) days prior written notice of the record date for any proposed dividend
or distribution by the Company.

     10. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Market Price then in effect, unless such
cash payment is less than one dollar ($1.00).

     11. No Stockholder Rights. Prior to exercise of this Warrant, the Holder
shall not be entitled to any rights of a stockholder with respect to the shares
of Common Stock issuable on the exercise hereof, including (without limitation)
the right to vote such shares of Common Stock, receive dividends or other
distributions thereon, exercise preemptive rights or be notified of stockholder
meetings, and such holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company. However,
nothing in this Section 11 shall limit the right of the Holder to be provided
the notices required under this Warrant.

     12. Registration Rights Under the Securities Act of 1933. The holder of
this Warrant shall be entitled to the benefits of the Registration Rights
Agreement dated as of the date hereof, executed by the Company and the original
holder of this Warrant with respect to the shares of Common Stock underlying
this Warrant.

     13. Successors and Assigns. The terms and provisions of this Warrant shall
inure to the benefit of, and be binding upon, the Company and the Holder and
their respective successors and assigns.

                                      -7-
<PAGE>

     14. Payment of Taxes. The Company will pay all documentary stamp taxes, if
any, attributable to the issuance of shares of Common Stock to be issued upon
the exercise of this Warrant; provided, however, that the Company shall not be
required to pay any taxes payable in respect of any transfer involved in the
issue or delivery of any certificates for Warrant Shares in a name other than
that of the Holder of this Warrant in respect of which such shares of Common
Stock are issued, which taxes shall be paid by the Holder.

     15. Mutilated or Missing Warrant. In case this Warrant shall be mutilated,
lost, stolen or destroyed, the Company shall issue and deliver in exchange and
substitution for and upon cancellation of such mutilated Warrant, or in lieu of
and substitution for such Warrant lost, stolen or destroyed, a new Warrant of
like tenor and representing an equivalent right or interest, but only upon
receipt of evidence reasonably satisfactory to the Company of ownership of such
Warrant and of such mutilation, loss, theft or destruction of such Warrant and
indemnity and affidavit of loss, if requested, reasonably satisfactory to the
Company. An applicant for such substitute Warrant shall also comply with such
other reasonable regulations and pay such other reasonable charges and expenses
as the Company or its transfer agent may prescribe.

     16. Amendments and Waivers. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Holders representing not less than fifty percent (50%) of the
Warrants then outstanding. Any waiver or amendment effected in accordance with
this Section shall be binding upon all Holders of the Warrants and each holder
of any shares of Common Stock purchased under this Warrant at the time
outstanding (including securities into which such shares have been converted),
each future holder of all such Shares, and the Company. Notwithstanding the
foregoing, the Company may at any time during the term of this Warrant, without
the consent of the Holder, reduce the Exercise Price to any amount and for any
period of time deemed appropriate, or make any other change favorable (and not
in any respect unfavorable) to the interests of the Holder, as determined in
good faith by the Company's board of directors, provided that any such favorable
change shall be made for the benefit of all Holders of the Warrants.

     17. Notices. All notices and other communications required or permitted
hereunder must be in writing and, except as otherwise noted herein, must be
addressed as follows:

     if to the Company, to:

     American Oriental Bioengineering, Inc.

     90 Park Avenue
     17th Floor
     New York, New York 10016
     Attn:  Yanchun (Lily) Li
     Facsimile: (212) 786-7569

     and

     American Oriental Bioengineering, Inc.
     No. 12 Jiance Road
     Nangang District
     Harbin, China
     C1
     15008
     Attn:  Yanchun (Lily) Li

                                      -8-
<PAGE>

     with a copy to:

     Loeb & Loeb LLP
     345 Park Avenue
     New York, New York 10154
     Attn: Mitchell Nussbaum
     Facsimile: (212) 407-4990

     if to the Holder, to such address as provided in writing to the Company, or
     to such other address as the party to whom notice is to be given may have
     furnished to the other parties in writing in accordance with the provisions
     of this Section 17. Any such notice or communication will be deemed to have
     been received: (A) in the case of facsimile or personal delivery, on the
     date of such delivery; and (B) in the case of nationally-recognized
     overnight courier, on the next business day after the date sent.

     18. Attorneys' Fees. If any action of law or equity is necessary to enforce
or interpret the terms of this Warrant, the prevailing party shall be entitled
to its reasonable attorneys' fees, costs and disbursements in addition to any
other relief to which it may be entitled.

     19. Captions. The section and subsection headings of this Warrant are
inserted for convenience only and shall not constitute a part of this Warrant in
construing or interpreting any provision hereof.

     20. Governing Law. This Warrant shall be governed by the laws of the State
of New York, without regard to the provisions thereof relating to conflict of
laws.

     21. Transfer to Comply with the Securities Act. This Warrant and the Shares
of Common Stock issuable hereunder, or any other security issued or issuable
upon exercise of this Warrant may not be sold or otherwise disposed of, except:

          (a) to a person who, in the opinion of counsel for the Company, or
     counsel for the Holder who is reasonably acceptable to the Company, is a
     person to whom this Warrant or the Shares of Common Stock issuable
     hereunder may legally be transferred without registration and without the
     delivery of a current prospectus under the Securities Act with respect
     thereto and then only against receipt of an agreement of such person to
     comply with the provisions of this Section 21 with respect to any resale or
     other disposition of such securities which agreement shall be satisfactory
     in form and substance to the Company and its counsel; or

          (b) to any person upon delivery of a prospectus then meeting the
     requirements of the Securities Act relating to such securities and the
     offering thereof for such sale or disposition.

                                      -9-
<PAGE>

     IN WITNESS WHEREOF, American Oriental Bioengineering, Inc. caused this
Warrant to be executed by an officer thereunto duly authorized.

                                    AMERICAN ORIENTAL BIOENGINEERING, INC.

                                    By:_________________________________________
                                       Name:
                                       Title:

Attest:

______________________________

              c/s

                                      -10-
<PAGE>

                               NOTICE OF EXERCISE

To:    American Oriental Bioengineering, Inc. (the "COMPANY")
Date:
Attn:  Corporate Secretary

     The undersigned hereby elects to:

     Purchase __________ shares of Common Stock of the Comapny pursuant to the
terms of the attached Warrant and payment of the Exercise Price of $_______ per
share as required under such Warrant accompanying this notice, for a total
purchase price of $________.

     Receive __________ shares of Common Stock of the Company, pursuant to the
terms of the cashless exercise feature described in Section 5(b) of the attached
Warrant (if available), based on a Market Price of $_____ per share.

     The undersigned hereby represents and warrants that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
for resale or with a view to distribution of such shares or any part thereof.

     The undersigned hereby requests that certificates for the shares of Common
Stock purchased hereby be issued in the following name to the following address:

-----------------------------

-----------------------------

-----------------------------
(please print or type name and address and include taxpayer identification
number)

If such number of shares of Common Stock shall not be all the shares evidenced
by the attached Warrant, a new Warrant for the balance of such shares shall be
registered in the name of, and delivered to, the Holder.

                                       HOLDER:

                                       -----------------------------------------

                                       By:

Address:

Date:

Name in which shares should be registered:

                                      -11-

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