Document:

efc7-2578_ex102.htm

     

    Exhibit
      10.2

     

    
      

       

      THE
        MERRILL LYNCH FuturesAccessSM
        PROGRAM

      

      

      

      

      

      

      

      

      

      

       

      

       

       

      SELLING
        AGREEMENT

      

      

       

      Private
        Placement of Limited Liability Company Units

      

      

      

      

      

      

      

      

      Effective
        as of October 31, 2004

      

       

      MERRILL
        LYNCH ALTERNATIVE INVESTMENTS LLC

      Manager

       

       

      MERRILL
        LYNCH, PIERCE, FENNER & SMITH INCORPORATED

      Selling
        Agent

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      THE
        MERRILL LYNCH FuturesAccessSM
        PROGRAM

      

       

       

      SELLING
        AGREEMENT

       

      TABLE
        OF
        CONTENTS

       

                                                                                                                                   

       

      
        	Section   	 	Page 
	 	 	 
	
                SECTION 1.

              	
                REPRESENTATIONS
                  AND WARRANTIES OF THE MANAGER

              	
                1

              
	
                SECTION 2.

              	
                OFFERING
                  AND SALE OF UNITS

              	
                3

              
	
                SECTION 3.

              	
                COVENANTS
                  OF THE MANAGER

              	
                5

              
	
                SECTION
                  4.

              	
                OFFERING
                  MATERIALS

              	
                6

              
	
                SECTION
                  5.

              	
                CONDITIONS
                  OF CLOSING

              	
                6

              
	
                SECTION 6.

              	
                INDEMNIFICATION
                  AND EXCULPATION

              	
                7

              
	
                SECTION 7.

              	
                STATUS
                  OF PARTIES

              	
                8

              
	
                SECTION 8.

              	
                REPRESENTATIONS,
                  WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY

              	
                9

              
	
                SECTION 9.

              	
                TERMINATION

              	
                9

              
	
                SECTION
                  10.

              	
                NOTICES
                  AND AUTHORITY TO ACT

              	
                9

              
	
                SECTION 11.

              	
                PARTIES

              	
                9

              
	
                SECTION 12.

              	
                GOVERNING
                  LAW

              	
                9

              
	
                SECTION 13.

              	
                REQUIREMENTS
                  OF LAW

              	
                9

              

      

       

      ____________________

       

      APPENDIX:    SCHEDULE
        OF
        COMPANIES dated as of October 31, 2004

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      THE
        MERRILL LYNCH FuturesAccessSM
        PROGRAM

       

       

      Private
        Placement of Limited Liability Company Units

       

       

      SELLING
        AGREEMENT

       

      as
        of
        October 31, 2004

      

      

      MERRILL
        LYNCH, PIERCE, FENNER & SMITH INCORPORATED

      Merrill
        Lynch World Headquarters

      North
        Tower

      World
        Financial Center

      New
        York,
        New York  10080-6106

       

      Dear
        Sirs:

       

      Your
        affiliate, Merrill Lynch Alternative Investments LLC, a
        Delaware limited liability company (referred to herein in its individual
        capacity and as manager as the “Manager” or
“MLAI”), has caused the formation of a group
        of managed futures
        funds comprising the Merrill Lynch FuturesAccessSM Program
        (the
“Program”) which, at the effective date hereof, consist of the
        four limited liability companies formed pursuant to the Limited Liability
        Company Act of the State of Delaware (the “DLLCA”) and listed
        in the Schedule of Companies (the “Schedule”) attached hereto
        as the Appendix.  Each company within the Program is hereinafter
        referred to as a “FuturesAccess Fund.”  It is
        intended that the terms and conditions of this Selling Agreement (the
“Agreement”) shall apply to and be binding upon any company
        which subsequently becomes a FuturesAccess Fund (each a “New
        FuturesAccess Fund”) and, likewise, shall cease to apply to any company
        which ceases, for whatever reason, to be a FuturesAccess Fund (each an
“Old Futures Access Fund”).  It is hereby agreed
        therefore that, in the event of any New FuturesAccess Fund or Old FuturesAccess
        Fund joining or leaving the Program as the case may be, the Schedule shall
        be
        amended accordingly with the intent and effect that (from the effective date
        on
        which such Schedule is acknowledged and accepted on behalf of the FuturesAccess
        Funds specified therein, the Manager and Merrill Lynch, Pierce, Fenner &
Smith Incorporated) any such New FuturesAccess Fund shall become, and any
        such
        Old FuturesAccess Fund shall cease to be, a party to this
        Agreement.  Upon becoming a party hereto, a New FuturesAccess Fund
        shall agree to observe, perform and be bound by all the terms of this Agreement
        which are capable of applying to it and which have not been performed as
        at that
        time.

       

      The
        FuturesAccess Funds (hereinafter referred to, individually, as a “Company,” and,
        collectively, as the “Companies”) will operate as single-advisor managed futures
        funds to which professional trading advisors (“Trading
        Advisors”) unaffiliated with MLAI will provide trading advice on an
        independent contractor basis.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      APPENDIX
        A

       

      Capitalized
        terms used herein, unless otherwise indicated, shall have the meanings
        attributed to them in the Companies’ Part One (A) Confidential Program
        Disclosure Document:  FuturesAccessSM Program
        General
        Information, Part One (B) Confidential Program Disclosure
        Document:  Trading Advisor Information and the Part Two Confidential
        Program Disclosure Document: Statement of Additional Information, as amended
        or
        supplemented from time to time (collectively,
        the“Memorandum”).  Defined terms used herein shall
        have the meaning of both the singular and the plural unless otherwise
        specified.

       

      Section 1.  Representations
        and Warranties of the Manager.  The Manager represents and
        warrants to the Selling Agent as follows:

       

      (a)  Each
        Company has been formed pursuant to a Certificate of Formation (each
        a“Certificate of Formation”) and a Limited Liability Company
        Operating Agreement  (each an“Operating Agreement”)
        which provide for the subscription for and sale of each Company’s units of
        limited liability company interest (“Units”) in classes; all
        action required to be taken by the Manager and each Company as a condition
        to
        the sale of the Units to subscribers who qualify as “Accredited Investors”
within the meaning of the  Securities Act of 1933, as amended
        (the“1933 Act”) has been, or prior to the
        Initial and each Additional Closing Time (as defined in Section 2 hereof)
        will have been taken, and, upon payment of the consideration therefor specified
        in all accepted FuturesAccess Program Subscription and Exchange Agreements
        and
        Signature Pages thereto (collectively, the “Subscription
        Agreements”), the Units will constitute valid limited liability company
        interests in a Company.

       

      (b)  Each
        Company is a limited liability company duly organized pursuant to a Certificate
        of Formation and the DLLCA and validly existing under the laws of the State
        of
        Delaware with full power and authority to conduct its business and operations,
        as described in its Memorandum; each Company has received (or will receive
        prior
        to the Initial Closing Time) a certificate of authority to do business in
        the
        State of New Jersey.

       

      (c)  The
        Manager is duly organized and validly existing and in good standing as a
        limited
        liability company under the laws of the State of Delaware and in good standing
        as a foreign limited liability company under the laws of the State of New
        Jersey
        and in each other jurisdiction in which the nature or conduct of its business
        requires such qualification and the failure to so qualify would materially
        adversely affect the Companies’ or the Manager’s ability to perform its
        obligations hereunder.

       

      (d)  Each
        Company and the Manager have full limited liability company power and authority
        under applicable law to perform their respective obligations under an Operating
        Agreement, an Escrow Agreement relating to the offering of the Units (each
        an“Escrow Agreement”), the Customer Agreement
        (“Customer Agreement”) and the Advisory Agreement
        (“Advisory Agreement”) relating to the trading of
        commodity  interests and this Agreement, as described in the
        Memorandum.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      APPENDIX
        A

       

      (e)  The
        Memorandum as of its date of issue, the Initial Closing Time and at each
        Additional Closing Time will not contain an untrue statement of a material
        fact
        or omit to state a material fact necessary to make the statements therein,
        in
        light of the circumstances under which such statements were made, not
        misleading.  This representation and warranty shall not, however,
        apply to any statement or omission in the Memorandum made in reliance upon
        and
        in conformity with information relating to the Trading Advisors and furnished
        or
        approved in writing by the Trading Advisors; it being acknowledged that each
        of
        the Trading Advisors  have approved the information relating to such
        party or its principals, as set forth in the Memorandum.

       

      (f)  Since
        the respective dates as of which information is given in the Memorandum.,
        there
        has not been any material adverse change in the condition (financial or
        otherwise), business or prospects of the Manager or the Companies, whether
        or
        not arising in the ordinary course of business.

       

      (g)  An
        Operating Agreement, an Escrow Agreement, a Customer Agreement, an Advisory
        Agreement and this Agreement have each been duly and validly authorized,
        executed and delivered by the Manager on behalf of each Company, and each
        constitutes a valid, binding and enforceable agreement of each Company, in
        accordance with its terms.

       

      (h)  The
        execution and delivery of the Operating Agreements, the Escrow Agreement,
        the
        Customer Agreement, the Advisory Agreement  and this Agreement, the
        incurrence of the obligations set forth in each of such agreements and the
        consummation of the transactions contemplated therein and in the Memorandum
        will
        not constitute a breach of, or default under, any instrument by which either
        the
        Manager or a Company is bound or any order, rule or regulation applicable
        to the
        Manager or a Company of any court or any governmental body or administrative
        agency having jurisdiction over the Manager or a Company.

       

      (i)  There
        is not pending, or, to the best of the Manager’s knowledge, threatened, any
        action, suit or proceeding before or by any court or other governmental body
        to
        which the Manager or a Company is a party, or to which any of the assets
        of the
        Manager or a Company is subject, which is not referred to in the Memorandum
        and
        which might reasonably be expected to result in any material adverse change
        in
        the condition (financial or otherwise), business or prospects of the Manager
        or
        the Company.

       

      (j)  The
        Manager has all federal and state governmental and regulatory approvals and
        licenses, and has effected all filings and registrations with federal and
        state
        governmental agencies required to conduct its business and to act as described
        in the Memorandum or required to perform its obligations as described under
        the
        Operating Agreements and this Agreement, and the performance of such obligations
        will not contravene or result in a breach of any provision of its certificate
        of
        incorporation, by-laws or any agreement, order, law or regulation binding
        upon
        it.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      APPENDIX
        A

       

      (k)  The
        Companies do not require any federal or state governmental or regulatory
        approvals or licenses, or need to effect any filings or registrations with
        any
        federal or state governmental agencies in order to conduct their business,
        to
        act as contemplated by the Memorandum and to issue and sell Units (other
        than
        filings relating solely to the offering of the Units).

       

      (l)  Deloitte &
        Touche LLP are, with respect to the Manager and the Companies, independent
        public accountants within the meaning of the 1933 Act and the regulations
        of the
        Securities and Exchange Commission (“SEC”).

       

      (m)  The
        offer and sale of the Units in the manner contemplated by this Agreement
        will be
        exempt from the registration requirements of the 1933 Act by reason of
        Regulation D promulgated thereunder.

       

      Section 2.  Offering
        and Sale of Units.

       

      (a)  The
        Selling Agent is hereby granted the exclusive right to distribute
        Units.  Subject to the performance by the Manager of all its
        obligations to be performed hereunder, and to the completeness and accuracy
        in
        all material respects of all the representations and warranties of the Manager
        contained herein, the Selling Agent hereby accepts such agency and agrees
        on the
        terms and conditions herein set forth to use its best efforts to find acceptable
        subscribers for the Units as of the beginning of each calendar
        month.

       

      It
        is
        understood that the Selling Agent’s agreement to use its best efforts to find
        acceptable subscribers for the Units shall not prevent it from acting as
        a
        selling agent or underwriter for the securities of other issuers which may
        be
        offered or sold during the term of this Agreement.  The agency of the
        Selling Agent hereunder shall continue until this Agreement is terminated
        in
        accordance with the provisions of this Section or Section 9.

       

      (b)  In
        the event insufficient subscriptions (as described in the Memorandum) are
        received prior to the intended close of the initial offering period, all
        funds
        received from subscribers shall be returned in full, with any interest payable
        thereon (irrespective of amount) and without deduction for any escrow or
        other
        fee or expense; and thereupon the Selling Agent’s duties as agent and this
        Agreement shall terminate without further obligation hereunder on the part
        of
        the Selling Agent, the Manager or the Company.

       

      (c)  The
        Manager shall notify the Selling Agent of the aggregate number of Units in
        each
        Company for which the Manager has received acceptable subscriptions, and
        payment
        of the purchase price for the Units of such Company may, if the Manager so
        elects, be made at the office of the Manager, Princeton Corporate Campus,
        800
        Scudders Mill Road, Section 2G, Plainsboro, New Jersey 08536 or at such other
        place as shall be agreed upon between the Selling Agent and the Manager,
        at
        10:00 A.M., New York time, on the fifth full business day after the day on
        which the Manager notifies the Selling Agent of the Units for 

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      APPENDIX
        A

       

      which
        subscriptions have been accepted or such other day and time as shall be agreed
        upon between the Selling Agent and the
        Manager (the“Initial Closing
        Time”).

       

      At
        the
        Initial Closing Time, all interest earned on subscriptions while held in
        escrow
        will be credited to the relevant FuturesAccess Fund.

       

      (d)  After
        the Initial Closing Time, the Manager shall notify the Selling Agent of the
        aggregate value of Units in each Company for which the Manager has accepted
        subscriptions for purchase as of the beginning of each month for which
        sufficient subscriptions (as described in the Memorandum) are received (each
        additional sale of Units hereinafter referred to as an “Additional
        Closing Time”).

       

      (e)
        Initial sales commissions of 1.0% – 2.5% of the amount of each Company’s Class A
        Unit subscription, and up to 0.50% of each Company’s Class I and Class D Unit
        subscription, shall be deducted from the subscription amount.  No
        initial sales commissions will be paid on a Company’s Class C
        Units.

       

      MLAI
        will
        pay to the Selling Agent, at no additional cost to the Companies or their
        Members, ongoing compensation on the Units for as long as such Units remain
        outstanding.  Such ongoing compensation will equal 1.0%, 0.80%, 2.00%
        and 0.30% per annum of the average month-end Net Asset Value per Unit of
        each
        Company’s Class A, Class I, Class C and Class D Units,
        respectively.

       

      Ongoing
        compensation in respect of each Company’s Class A Units will begin in the
        thirteenth month, and in the case of all other Units, immediately after their
        issuance.  Units are issued for such purposes when they begin to
        participate in the profits and losses of a Company (i.e., when a
        Company begins to participate in the profits and losses of the applicable
        Company), not when the related Subscription Agreements are
        accepted.

       

      (f)  The
        Selling Agent will use its best efforts to find eligible persons to purchase
        the
        Units as of the intended close of the initial offering period (as described
        in
        the Memorandum) and thereafter on the terms stated herein and in the
        Memorandum.  It is understood that the Selling Agent has no commitment
        with regard to the sale of the Units other than to use its commercially
        reasonable efforts.  In connection with the offer and sale of the
        Units, the Selling Agent represents that it will not knowingly violate
        applicable laws, and the rules of the National Association of Securities
        Dealers, Commodity Futures Trading Commission (“CFTC”), the
        National Futures Association (“NFA”), the SEC, state securities
        administrators and any other regulatory body.  The Selling Agent
        further represents that it has not and will not offer and sell, or arrange
        any
        commitments to purchase, any Units by any form of general solicitation or
        general advertising (as those terms are used in Regulation D promulgated
        under
        the 1933 Act) or in any manner involving a public offering (within the meaning
        of 

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      APPENDIX
        A

       

      Section
        4(2) of the Securities Act), or offer and sell or otherwise negotiate in
        respect
        of any security the offering which is or could be integrated with the sale
        of
        Units in a manner that would require registration of the Units under 1933
        Act.  The Selling Agent shall not execute any sales of Units from a
        discretionary account over which it has control without prior written approval
        of the customer in whose name such discretionary account is
        maintained.

       

      The
        Selling Agent agrees not to recommend the purchase of Units to any subscriber
        unless the Selling Agent shall have reasonable grounds to believe, on the
        basis
        of information obtained from the subscriber concerning, among other things,
        the
        subscriber’s investment objectives, other investments, financial situation and
        needs, that the subscriber is or will be in a financial position appropriate
        to
        enable the subscriber to realize to a significant extent the benefits of
        a
        Company, including tax benefits described in the Memorandum; the subscriber
        has
        a fair-market net worth sufficient to sustain the risks inherent in
        participating in the Companies, including loss of investment and lack of
        liquidity; the Units are otherwise a suitable investment for the subscriber;
        and
        the subscriber is qualified to purchase Units as described in the
        Memorandum.

       

      (g)  None
        of the Selling Agent, the Companies or the Manager shall, directly or
        indirectly, pay or award any finder’s fees, commissions or other compensation to
        any person engaged by a potential investor for investment advice as an
        inducement to such advisor to advise the purchase of Units; provided, however,
        the normal sales commissions payable to a registered broker-dealer or other
        properly licensed person for selling Units shall not be prohibited
        hereby.

       

      (h)  All
        payments for subscriptions shall be made by debiting subscribers’ customer
        securities accounts maintained with the Selling Agent as described in the
        Memorandum.

       

      (i)  In
        connection with the offer and sale of the Units, the Manager will not knowingly
        violate applicable laws and the rules of the SEC, the CFTC, the NFA, state
        securities administrators and any other regulatory body.

       

      Section 3.  Covenants
        of the Manager.

       

      (a)  The
        Manager will notify the Selling Agent immediately and confirm such notification
        in writing of the issuance by the SEC or any other federal or state regulatory
        body of any order or decree enjoining the offering or the use of the then
        current Memorandum or of the institution, or notice of the intended institution,
        of any action or proceeding for that purpose.

       

      (b)  Until
        termination of this Agreement, the Manager will take all necessary regulatory
        steps, make all necessary ongoing regulatory filings and obtain all necessary
        regulatory approvals to maintain the ongoing offering of the Units.

       

      
        
          
          

        

        
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      APPENDIX
        A

       

      (c)  If
        any event relating to or affecting the Manager or a Company shall occur as
        a
        result of which it is necessary to amend or supplement a Company’s Memorandum in
        order to make the Memorandum not materially misleading in light of the
        circumstances existing at the time it is delivered to a subscriber, MLAI
        and the
        Company will forthwith prepare and furnish to the Selling Agent, at the expense
        of MLAI, a reasonable number of copies of an amendment or amendments of,
        or a
        supplement or supplements to, the Memorandum which will amend or supplement
        the
        Memorandum so that as amended or supplemented it will not contain an untrue
        statement of a material fact or omit to state a material fact necessary in
        order
        to make the statements therein, in light of the circumstances existing at
        the
        time the Memorandum is delivered to a subscriber, not misleading.

       

      Section 4.  Offering
        Materials.  The Manager will ensure the printing and delivery to
        the Selling Agent of copies of a reasonable number of copies of the Memoranda
        and any supplements or amendments thereto, and of any supplemental sales
        materials, as necessary from time to time.

       

      Section
        5.  Conditions of Closing.  The obligations of each
        of the parties hereunder are subject to the accuracy of the representations
        and
        warranties of the other parties hereto, to the performance by such other
        parties
        of their respective obligations hereunder and to the following further
        conditions:

       

      (a)           If
        requested by the Selling Agent, MLAI shall deliver a certificate to the effect
        that:  (i) the representations and warranties of MLAI contained
        herein are true and correct with the same effect as though expressly made
        at the
        Initial Closing Time and in respect of the Memorandum as in effect at the
        Initial Closing Time; and (ii) MLAI has performed all covenants and
        agreements herein contained to be performed on its part as of or prior to
        the
        Initial Closing Time.

       

      (b)           As
        of the Initial Closing Time, Sidley Austin Brown & Wood LLP, counsel to the
        Manager, shall deliver to all the parties hereto its opinion, in form and
        substance satisfactory to each of the parties hereto.

       

      (c)           The
        parties hereto shall have been furnished with such additional information,
        opinions, certificates and documents, including supporting documents relating
        to
        parties described in the Memorandum and letters of representation signed
        by such
        parties with regard to information relating to them and included in the
        Memorandum as they may reasonably require for the purpose of enabling them
        to
        pass upon the sale of the Units as herein contemplated and related proceedings,
        in order to evidence the accuracy or completeness of any of the representations
        or warranties or the fulfillment of any of the conditions herein contained;
        and
        all actions taken by the parties hereto in connection with the sale of the
        Units
        as herein contemplated shall be reasonably satisfactory in form and substance
        to
        Sidley Austin Brown & Wood LLP.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      APPENDIX
        A

       

      (d)           As
        of each Additional Closing Time, the parties hereto shall have been furnished
        with such information, opinions and certified documents as the Manager and
        the
        Selling Agent may deem to be necessary or appropriate.

       

      If
        any of
        the conditions specified in this Section 5 shall not have been fulfilled
        when and as required by this Agreement to be fulfilled, this Agreement and
        all
        obligations hereunder may be canceled by any party hereto by notifying the
        other
        parties hereto of such cancellation in writing or by telegram at any time
        at or
        prior to the Initial Closing Time, and any such cancellation or termination
        shall be without liability of any party to any other party except as otherwise
        provided in Section 6.

       

      Section 6.  Indemnification
        and Exculpation.

       

      (a)  Indemnification
        by the Manager.  The Manager agrees to indemnify and hold harmless
        the Selling Agent and each person, if any, who controls the Selling Agent
        within
        the meaning of Section 15 of the 1933 Act, as follows:

       

      (i)           against
        any and all loss, liability, claim, damage and expense whatsoever arising
        out of
        (A) any breach by the Manager of its representations and warranties or failure
        of the Manager to comply with any of its agreements contained herein or any
        act,
        omission, activity or conduct undertaken in connection with this Agreement
        by or
        on behalf of the Manager, except to the extent such loss results from the
        negligence or willful misconduct of the Selling Agent or (B) any untrue
        statement or alleged untrue statement of a material fact contained in the
        Memorandum (or any amendment thereto) or any omission or alleged omission
        therefrom of a material fact required to be stated therein or necessary in
        order
        to make the statements therein not misleading or arising out of any untrue
        statement or alleged untrue statement of a material fact contained in the
        Memorandum (or any amendment or supplement thereto) or the omission or alleged
        omission therefrom of a material fact necessary in order to make the statements
        therein, in light of the circumstances under which they were made, not
        misleading, unless such untrue statement or omission or alleged untrue statement
        or omission was made in reliance upon and in conformity with information
        relating to the Selling Agent or a Trading Advisor or furnished or approved
        by
        the Selling Agent or Trading Advisor as the case may be;

       

      (ii)  against
        any and all loss, liability, claim, damage and expense whatsoever with respect
        to each Company to the extent of the aggregate amount paid in settlement
        of any
        litigation, or any investigation or proceeding by any governmental agency
        or
        body, commenced or threatened, or of any claim whatsoever based upon any
        such
        untrue statement or omission or any such alleged untrue statement or omission
        (any settlement to be subject to indemnity hereunder only if effected with
        the
        written consent of the Manager); and

       

      
        
          
          

        

        
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      APPENDIX
        A

       

      (iii)  against
        any and all expense whatsoever with respect to each Company (including the
        fees
        and disbursements of counsel) reasonably incurred in investigating, preparing
        or
        defending against litigation, or any investigation or proceeding by any
        governmental agency or body, commenced or threatened, or any claim whatsoever
        based upon any such untrue statement or omission, or any such alleged untrue
        statement or omission, to the extent that any such expense is not paid under
        clauses (i) or (ii) above.

       

      In
        no
        case shall the Manager be liable under this indemnity agreement with respect
        to
        any claim made against any indemnified party unless the Manager shall be
        notified in writing of the nature of the claim within a reasonable time after
        the assertion thereof, but failure to so notify the Manager shall not relieve
        the Manager from any liability which it may have otherwise than on account
        of
        this indemnity agreement.  The Manager shall be entitled to
        participate at its own expense in the defense or, if it so elects within
        a
        reasonable time after receipt of such notice, to assume the defense of that
        portion of any suit so brought relating to the Manager’s indemnification
        obligations hereunder, which defense shall be conducted by counsel chosen
        by it
        and satisfactory to the indemnified party or parties, defendant or defendants
        therein.  In the event that the Manager elects to assume the defense
        of any such suit and retain such counsel, the indemnified party or parties,
        defendant or defendants in the suit, shall bear the fees and expenses of
        any
        additional counsel thereafter retained by it or them; provided, however,
        that
        the Manager may, upon the mutual agreement of the Manager and the indemnified
        party or parties, bear the fees and expenses of additional counsel retained
        by
        an indemnified party if the named parties in such suit include both the Manager
        and the indemnified party and representation of both the Manager and the
        indemnified party would be inappropriate due to actual or potential differing
        interests between them or there are defenses available to the indemnified
        party
        that are or would not be available to the Manager.  In the event the
        Manager assumes the defense of the portion of a suit relating to the Manager’s
        indemnification obligations hereunder, the Manager will not, without the
        prior
        written consent of the indemnified party, effect any settlement of such suit,
        unless such settlement includes a release of the indemnified party from all
        liability or claims that are the subject of such suit.

       

      The
        Manager agrees to notify the Selling Agent within a reasonable time of the
        assertion of any claim in connection with the sale of the Units against it
        or
        any of its officers or directors or any person who controls the Manager within
        the meaning of Section 15 of the 1933 Act.

       

      Section 7.  Status
        of Parties.  In selling the Units for the Companies, the Selling
        Agent is acting solely as an agent for the Companies and not as a
        principal.  The Selling Agent will use its best efforts to assist the
        Companies in obtaining performance by each purchaser whose offer to purchase
        Units from a Company has been accepted on behalf of a Company, but the Selling
        Agent shall not have any liability to a Company in the event that any such
        purchase is not consummated for any reason.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      APPENDIX
        A

       

      Section 8.  Representations,
        Warranties and Agreements to Survive Delivery.  All
        representations, warranties and agreements contained in this Agreement or
        contained in certificates of any party hereto submitted pursuant hereto shall
        remain operative and in full force and effect, regardless of any investigation
        made by, or on behalf of, the Selling Agent, the Manager or any person who
        controls any of the foregoing and shall survive the Initial and each Additional
        Closing Time in the form restated and reaffirmed as of each such closing
        time.

       

      Section 9.  Termination.  The
        Manager shall have the right to terminate this Agreement at any time by giving
        notice to the Selling Agent, and the Selling Agent to do so upon 30 calendar
        days’ notice to the Manager.

       

      Section
        10.  Notices and Authority to Act.  All
        communications hereunder shall be in writing and, if sent to the Selling
        Agent,
        shall be mailed, delivered or telegraphed and confirmed to it
        at:  Merrill Lynch World Headquarters, North Tower, World Financial
        Center, New York, New York, 10080-6106; if sent to the Manager or a Company
        shall be mailed, delivered or telegraphed and confirmed to it at Princeton
        Corporate Campus, 800 Scudders Mill Road, Section 2G, Plainsboro, New Jersey
        08536, Attention:  Mr. Steven B. Olgin.

       

      Section 11.  Parties.  This
        Agreement shall inure to the benefit of and be binding upon the Selling Agent,
        the Companies, the Manager and such parties’ respective successors to the extent
        provided herein.  This Agreement and the conditions and provisions
        hereof are intended to be and are for the sole and exclusive benefit of the
        parties hereto and their respective successors, assigns and controlling persons
        and parties indemnified hereunder, and for the benefit of no other person,
        firm
        or corporation.  No purchaser of a Unit shall be considered to be a
        successor or assign solely on the basis of such purchase.

       

      SECTION 12.  GOVERNING
        LAW.  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
        CREATED HEREBY SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT
        REGARD TO CONFLICTS OF LAW PRINCIPLES.

       

      Section 13.  Requirements
        of Law.  Whenever in this Agreement it is stated that a party will
        take or refrain from taking a particular action, such party may nevertheless
        refrain from taking or take such action if advised by counsel that doing
        so is
        required by law or advisable to ensure compliance with law, and shall not
        be
        subject to any liability hereunder for doing so, although such action shall
        permit termination of this Agreement by the other parties hereto.

       

      If
        the
        foregoing is in accordance with each party’s understanding of its agreement,
        each party is requested to sign and return to the Manager a counterpart hereof,
        whereupon this instrument along with all counterparts will become a binding
        agreement among them in accordance with its terms effective as of the date
        first
        above written.

       

       

      
        	 	
                 Very
                  truly yours,

              	 
	 	 	 
	 	
                 Signed
                  for and on behalf of:

              	 
	 	
                 The
                  FuturesAccess Funds

              	 

      

       

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      APPENDIX
        A

       

      
        	 	
                 

              
	 	 	 
	 	
                By:

              	
                Merrill
                  Lynch Alternative Investments LLC

              
	 	 	
                   Manager

              
	 	 	 
	 	
                By:

              	
                /s/
                  Stephen M. M. Miller

              
	 	 	
                Name:  Stephen
                  M. M. Miller

              
	 	 	
                Title:    Vice
                  President

              
	 	 	 
	 	 	 
	 	
                MERRILL
                  LYNCH ALTERNATIVE INVESTMENTS LLC

              
	 	 	 
	 	
                By:

              	
                /s/
                  Stephen M. M. Miller

              
	 	 	
                Name:  Stephen
                  M. M. Miller

              
	 	 	
                Title:    Vice
                  President

              

      

      

      Confirmed
        and accepted as of

      the
        date first above written:

       

      
        	
                MERRILL
                  LYNCH, PIERCE, FENNER & 

                SMITH
                  INCORPORATED

              	 
	
                 Selling
                  Agent

              	 
	 	 	 
	 	 	 
	
                By:

              	
                /s/
                  Steven B.
                  Olgin                     

              	 
	 	
                Name:  Steven
                  B. Olgin

                Title:
                  Authorized Signatory

              	 

      

      
 

       

      10EXHIBIT A
                                       TO
                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

                                 FORM OF WARRANT

NEITHER THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "SECURITIES
ACT"). THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
REGISTRATION UNDER THE SECURITIES ACT OR UNLESS SUCH OFFER, SALE OR TRANSFER IS
EXEMPT FROM SUCH REGISTRATION.

                           CHINA POWER EQUIPMENT, INC.

                              COMMON STOCK WARRANT

NO. __________                                                      ______, 2007

      CHINA POWER EQUIPMENT, INC., a Maryland corporation (the "Company"),
hereby certifies that ______________________________________, its permissible
transferees, designees, successors and assigns (collectively, the "Holder"), for
value received, is entitled to purchase from the Company at any time and
terminating on the third anniversary of the date hereof (the "Termination Date")
up to such number of shares (each, a "Share" and collectively the "Shares") of
the Company's common stock, $.001 par value per Share (the "Common Stock") as
shall be equal to the number of shares of Common Stock that the Holder has
converted the Company's Series A Convertible Preferred Stock, $.001 par value
per share (the "Preferred Stock") into Common Stock r, at an exercise price of
$1.00 per share. In the aggregate, the number of Shares of Common Stock for
which the warrant can be exercisable should be no more that 5 million shares.

      1. Exercise of Warrant.

            (a) The purchase right represented by this Common Stock Warrant
      (this "Warrant") is exercisable, in whole or in part, at any time and from
      time to time from and after the Effective Date through and including the
      Termination Date.

            (b) Upon presentation and surrender of this Warrant, accompanied by
      a completed Election to Purchase in the form attached hereto as EXHIBIT A
      (the "Election to Purchase") duly executed, at the principal office of the
      Company currently located at _________________________________, (or such
      other office or agency of the Company within the United States as the
      Company may designate to the Holder) together with a check payable to, or
      wire transfer to, the Company in the amount of the Exercise Price
      multiplied by the number of Shares being purchased, the Company or the
      Company's transfer agent, as the case may be, shall within three (3)
      business days deliver to the Holder hereof certificates of fully paid and

                                       2
<PAGE>

      non-assessable Common Stock which in the aggregate represent the number of
      Shares being purchased. The certificates so delivered shall be in such
      denominations as may be requested by the Holder and shall be registered in
      the name of the Holder or such other name as shall be designated by the
      Holder. All or less than all of the purchase rights represented by this
      Warrant may be exercised and, in case of the exercise of less than all,
      the Company, upon surrender hereof, will at the Company's expense deliver
      to the Holder a new warrant entitling said holder to purchase the number
      of Shares represented by this Warrant which have not been exercised. This
      Warrant may only be exercised to the extent the Company has a sufficient
      number of Shares of Common Stock available for issuance at the time of any
      exercise.

      2. Warrant.

            (a) Exchange, Transfer and Replacement. At any time prior to the
      exercise hereof, this Warrant may be exchanged upon presentation and
      surrender to the Company, alone or with other warrants of like tenor of
      different denominations registered in the name of the same Holder, for
      another warrant or warrants of like tenor in the name of such Holder
      exercisable for the aggregate number of Shares as the warrant or warrants
      surrendered.

            (b) Replacement of Warrant. Upon receipt of evidence reasonably
      satisfactory to the Company of the loss, theft, destruction, or mutilation
      of this Warrant and, in the case of any such loss, theft, or destruction,
      upon delivery of an indemnity agreement reasonably satisfactory in form
      and amount to the Company, or, in the case of any such mutilation, upon
      surrender and cancellation of this Warrant, the Company, at its expense,
      will execute and deliver in lieu thereof, a new Warrant of like tenor.

            (c) Cancellation; Payment of Expenses. Upon the surrender of this
      Warrant in connection with any transfer, exchange or replacement as
      provided in this Section 2, this Warrant shall be promptly canceled by the
      Company. The Holder shall pay all taxes and all other expenses (including
      legal expenses, if any, incurred by the Holder or transferees) and charges
      payable in connection with the preparation, execution and delivery of
      Warrants pursuant to this Section 2.

            (d) Warrant Register. The Company shall maintain, at its principal
      executive offices (or at the offices of the transfer agent for the Warrant
      or such other office or agency of the Company as it may designate by
      notice to the holder hereof), a register for this Warrant (the "Warrant
      Register"), 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 and each prior owner of this Warrant.

      3. Rights and Obligations of Holders of this Warrant. The Holder of this
      Warrant shall not, by virtue hereof, be entitled to any rights of a
      stockholder in the Company, either at law or in equity; provided, however,
      that in the event any certificate representing shares of Common Stock or
      other securities is issued to the holder hereof upon exercise of this
      Warrant, such holder shall, for all purposes, be deemed to have become the
      holder of record of such Common Stock on the date on which this Warrant,
      together with a duly executed Election to Purchase, was surrendered and
      payment of the aggregate Exercise Price was made, irrespective of the date
      of delivery of such Common Stock certificate.

4. Registration Rights.

      (a) The Company, for a period of two years after the Conversion Date (as
defined in Section 3(d)), will give written notice to each Holder of this
Warrant or shares of Common Stock issued upon exercise of this Warrant ("Warrant
Shares") not less than 20 days in advance of the initial filing of any
registration statement under the Securities Act of 1933, as amended (other than
a registration statement pertaining to securities issuable pursuant to employee
stock option, stock purchase, or similar plans or a registration statement
pertaining to securities issuable in connection with the acquisition of a
business, whether through a merger, consolidation, acquisition of assets, or
exchange of securities), covering any Common Stock or other securities of the
Company, and will afford the Holder the opportunity to have included in such
registration statement all or such part of the Warrant Shares issued or issuable
upon exercise of this Warrant, as may be designated by written notice to the
Company not later than ten days following receipt of such notice from the
Company. The Company shall be entitled to exclude the Warrant Shares held by or

                                       3
<PAGE>

issuable to the Holder from any one, but not more than one, such registration if
either the Company or the underwriter in connection with offering to be made
pursuant to such registration statement in its sole discretion decides that the
inclusion of such shares will materially interfere with the orderly sale and
distribution of the securities being offered under such registration statement
by the Company. Notwithstanding the foregoing, the Company shall not be entitled
to exclude the Warrant Shares held by or issuable to the Holder if shares of
other shareholders are being included in any such registration statement and, in
such circumstances, the Holder shall be entitled to include the Warrant Shares
held by or issuable to the Holder on a pro-rata basis in the proportion that the
number of Warrant Shares of Common Stock held by or issuable to the Holder bears
to the shares of Common Stock held by all other shareholders, including shares
in such registration statement. The Holder shall not be entitled to include
shares in more than two registration statements pursuant to the provisions of
this Section (3)(e), and all rights of any holder under this Section (3)(e)
shall terminate after the holder has included shares of Common Stock in two
registration statements pursuant to this Section (3)(e).

      (b) The Company will pay all out-of-pocket costs and expenses of any
registration effected pursuant to the provisions of Section 5(a), including
registration fees, legal fees, accounting fees, printing expenses (including
such number of any preliminary and the final prospectus as may be reasonably
requested), blue sky qualification fees and expenses, and all other expenses,
except for underwriting commissions or discounts applicable to the shares of
Common Stock being sold by the holder and the fees of counsel for the Holder,
all of which shall be paid by the Holder.

5. Fractional Shares. In lieu of issuance of a fractional share upon any
exercise hereunder, the Company will pay the cash value of that fractional
share, calculated on the basis of the Exercise Price.

6. Legends. Prior to issuance of the shares of Common Stock underlying this
Warrant, all such certificates representing such shares shall bear a restrictive
legend to the effect that the Shares represented by such certificate have not
been registered under the 1933 Act, and that the Shares may not be sold or
transferred in the absence of such registration or an exemption therefrom, such
legend to be substantially in the form of the bold-face language appearing at
the top of Page 1 of this Warrant.

7. Disposition of Warrants or Shares; Lockup.

      (a) The Holder of this Warrant, each transferee hereof and any holder and
transferee of any Shares, by his or its acceptance thereof, agrees that no
public distribution of Warrants or Shares will be made in violation of the
provisions of the Securities Act of 1933, as amended. Furthermore, it shall be a
condition to the transfer of this Warrant that any transferee thereof deliver to
the Company his or its written agreement to accept and be bound by all of the
terms and conditions contained in this Warrant.

      (b) The Holder may not, without obtaining the prior written consent of the
Company, directly or indirectly sell, offer to sell, grant an option for the
sale of, transfer, assign, hypothecate, pledge, distribute or otherwise dispose
of or encumber any Warrant Shares or any beneficial interest therein until at
least 150 days following the exercise of Warrant; provided, however, immediately
upon the exercise of Warrant a Holder may sell up to 10% of the Warrant Shares
issued to such Holder upon exercise of this Warrant, after the expiration of 90
days after the exercise of Warrant a Holder may sell up to 30% of the Warrant
Shares issued to such Holder upon exercise of this Warrant, and after the
expiration of 120 days following the Effective Date a holder may sell up to an
additional 30% of the Warrant Shares issued to such Holder.

                                       4
<PAGE>

8. Merger or Consolidation. The Company will not merge or consolidate with or
into any other corporation, or sell or otherwise transfer its property, assets
and business substantially as an entirety to another corporation, unless the
corporation resulting from such merger or consolidation (if not the Company), or
such transferee corporation, as the case may be, shall expressly assume, by
supplemental agreement reasonably satisfactory in form and substance to the
Holder, the due and punctual performance and observance of each and every
covenant and condition of this Warrant to be performed and observed by the
Company.

9. Notices. Except as otherwise specified herein to the contrary, all notices,
requests, demands and other communications required or desired to be given
hereunder shall only be effective if given in writing by certified or registered
U.S. mail with return receipt requested and postage prepaid; by private
overnight delivery service (e.g. Federal Express); by facsimile transmission (if
no original documents or instruments must accompany the notice); or by personal
delivery. Any such notice shall be deemed to have been given (a) on the business
day immediately following the mailing thereof, if mailed by certified or
registered U.S. mail as specified above; (b) on the business day immediately
following deposit with a private overnight delivery service if sent by said
service; (c) upon receipt of confirmation of transmission if sent by facsimile
transmission; or (d) upon personal delivery of the notice. All such notices
shall be sent to the following addresses (or to such other address or addresses
as a party may have advised the other in the manner provided in this Section
10):

      IF TO THE COMPANY:

      China Power Equipment, Inc.

      [Address]
      Attention:
      Facsimile:

      IF TO THE HOLDER:

      _______________________
      _______________________
      _______________________
      _______________________

      Notwithstanding the time of effectiveness of notices set forth in this
Section, an Election to Purchase shall not be deemed effectively given until it
has been duly completed and submitted to the Company together with this original
Warrant and payment of the Exercise Price in a manner set forth in this Section.

10. Governing Law. This Warrant shall be governed by and construed in accordance
with the laws of the State of Maryland applicable to contracts made and to be
performed in the State of Maryland.

                                       5
<PAGE>

11. Successors and Assigns. This Warrant shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns.

12. Headings. The headings of various sections of this Warrant have been
inserted for reference only and shall not affect the meaning or construction of
any of the provisions hereof.

13. Severability. If any provision of this Warrant is held to be unenforceable
under applicable law, such provision shall be excluded from this Warrant, and
the balance hereof shall be interpreted as if such provision were so excluded.

14. Modification and Waiver. This Warrant and any provision hereof may be
amended, waived, discharged or terminated only by an instrument in writing
signed by the Company and the Holder.

15. Specific Enforcement. The Company and the Holder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Warrant and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.

16. Assignment. Subject to prior written approval by the Company, this Warrant
may be transferred or assigned, in whole or in part, at any time and from time
to time by the then Holder by submitting this Warrant to the Company together
with a duly executed Assignment in substantially the form and substance of the
Form of Assignment which accompanies this Warrant, as Exhibit B hereto, and,
upon the Company's receipt hereof, and in any event, within three (3) business
days thereafter, the Company shall issue a warrant to the Holder to evidence
that portion of this Warrant, if any as shall not have been so transferred or
assigned.

                      (SIGNATURE PAGE IMMEDIATELY FOLLOWS)

                                       6
<PAGE>

      IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed, manually or by facsimile, by one of its officers thereunto duly
authorized.

                                        CHINA POWER EQUIPMENT, INC.

Date: __________, 2007                  By:____________________________________
                                        Name:
                                        Title:   President

                                       7
<PAGE>

                                    EXHIBIT A
                                       TO
                               WARRANT CERTIFICATE

                              ELECTION TO PURCHASE

To Be Executed by the Holder
in Order to Exercise the Warrant

      The undersigned Holder hereby elects to purchase _______ Shares pursuant
to the attached Warrant, and requests that certificates for securities be issued
in the name of:

           __________________________________________________________
                     (Please type or print name and address)

           __________________________________________________________
           __________________________________________________________
           __________________________________________________________
                 (Social Security or Tax Identification Number)

and delivered
to:_______________________________________________________
__________________________________________________________.

         (Please type or print name and address if different from above)

      If such number of Shares being purchased hereby shall not be all the
Shares that may be purchased pursuant to the attached Warrant, a new Warrant for
the balance of such Shares shall be registered in the name of, and delivered to,
the Holder at the address set forth below.

      In full payment of the purchase price with respect to the Shares purchased
and transfer taxes, if any, the undersigned hereby tenders payment of
$__________ by check, money order or wire transfer payable in United States
currency to the order of CHINA POWER EQUIPMENT, INC.

                                        HOLDER:

                                        By:_____________________________________
                                                 Name:
                                                 Title:
                                                 Address:

Dated:_______________________

                                       8
<PAGE>

                                    EXHIBIT B
                                       TO
                                     WARRANT

                               FORM OF ASSIGNMENT
                   (To be signed only on transfer of Warrant)

For value received, the undersigned hereby sells, assigns, and transfers unto
_____________ the right represented by the within Warrant to purchase ______
shares of Common Stock of China Power Equipment, Inc., a Maryland corporation,
to which the within Warrant relates, and appoints ____________________ Attorney
to transfer such right on the books of China Power Equipment, Inc., a Maryland
corporation, with full power of substitution of premises.

Dated:                           By:_______________________________
                                       Name:
                                       Title:
                                    (signature must conform to name
                                    of holder as specified on the fact
                                    of the Warrant)

                                 Address:

Signed in the presence of:

Dated:

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