Document:

Amendment
No. 4 to Letter Agreement

    

    THIS AMENDMENT is made as of
April 30, 2009, by and between Trinad Capital Master Fund, Ltd. (“Trinad”) and
Lateral Media, Inc. (the “Company”).

    

    WHEREAS, the Company entered
into that certain letter agreement with Trinad, dated as of July 11, 2007 (the
“Loan Agreement”), in connection with a loan from Trinad to the Company of up to
a principal amount of $100,000 (the “Loan”); and

    

    WHEREAS, the Company amended
the Loan Agreement on November 15, 2007 to (i) increase the principal amount of
the Loan to up to $250,000 and (ii) provide that the entire outstanding
principal amount of the Loan and any accrued interest thereon, which shall be
due and payable by the Company upon, and not prior to, a Next Financing (as
defined in the Loan Agreement), to an amount of not less than $500,000;
and

    

    WHEREAS, the Company further
amended the Loan Agreement on April 18, 2008 to (i) increase the principal
amount of the Loan to up to $500,000 and (ii) increase the entire outstanding
principal amount of the Loan and any accrued interest thereon, which shall be
due and payable by the Company upon, and not prior to, a Next Financing, to an
amount of not less than $750,000; and

    

    WHEREAS, the Company further
amended the Loan Agreement on August 1, 2008 to (i) increase the principal
amount of the Loan to up to $750,000; (ii) increase the entire outstanding
principal amount of the Loan and any accrued interest thereon, which shall be
due and payable by the Company upon, and not prior to, a Next Financing, to an
amount of not less than $1,000,000 and (iii) provide that Trinad may, at is
option, receive any payment of principal and interest due on the Loan in the
form of the Company’s common stock or other securities that may be issued by the
Company in the event the Company consummates a financing in connection with a
change of control or similar transaction involving the Company, calculated based
on the value of the shares of the Company’s common stock or other securities
sold or issued by the Company in such financing transaction; and

    

    WHEREAS, reference is made to
that certain letter agreement, dated as of December 18, 2008, entered into by
and between the Company and Trinad, pursuant to which the aggregate amount of
the principal plus accrued and unpaid interest outstanding under the Loan was
converted into 1,063,836 shares of the Company’s common stock, and pursuant to
which the parties agreed that notwithstanding such conversion, Trinad may
continue to make loans to the Company at any time and from time to time in
accordance with the Loan Agreement, as amended; and

    

    WHEREAS, each of the Company
and Trinad has agreed to increase the principal amount of the Loan and to amend
certain provisions of the Loan Agreement.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    NOW THEREFORE, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby amend the Loan Agreement as
follows:

    

    1.           Amendments. The Loan
Agreement is hereby amended to (i) increase the principal amount of the Loan to
up to $1,000,000 and (ii) provide that the entire outstanding principal amount
of the Loan and any accrued interest thereon shall be due and payable by the
Company upon, and not prior to, the consummation of a sale of securities (other
than a sale of shares of the Company’s common stock to officers, directors or
employees of, or consultants to, the Company in connection with their services
to the Company), to a third party or parties with proceeds to the Company of not
less than $1,250,000. 

    

    2.           This
Amendment constitutes the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior oral
or written agreements, representations or understandings between the parties
relating to the subject matter hereof.  The statements and agreements
in this Amendment shall be binding on the parties hereto and their respective
successors and assigns and shall inure to the benefit of the parties hereto and
their respective successors and assigns.  This Amendment may be
executed in any number of counterparts, and by different parties hereto on
separate counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

    

    [Signature
page follows]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

     

    Acknowledged
and agreed to:

    

    LATERAL
MEDIA, INC.

    

    
      
        
          	
                  By:

                	
                  /s/
      Jeffrey Schwartz

                	 
      
	 	      
                  Name:
      Jeffrey Schwartz

                	 
	 
      	
                  Title:
      Chief Executive Officer

                	 
      

        

      

    

    

    

    

    TRINAD
CAPITAL MASTER FUND, LTD.

    

    
      
        
          	
                  By:

                	
                  /s/
      Jay Wolf

                	 
      
	 	      
                  Name:
      Jay Wolf

                	 
	 
      	
                  Title:
      Managing DirectorTHIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER
THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED.

     

    WARRANT
TO PURCHASE

     

    SHARES OF
COMMON STOCK

     

    OF

     

    CHINA NEW
ENERGY GROUP COMPANY

     

    Expires
May 1, 2014

     

    
      	
              No.:
      W-A-09- ___

            	
              Number
      of Shares: Up to _______________

            

    

    Date of
Issuance: May 1, 2009

     

    FOR VALUE
RECEIVED, the undersigned, China New Energy Group Company, a Delaware
corporation (together with its successors and assigns, the “Issuer”), hereby
certifies that ______________ or its registered assigns (the  “Holder”) is entitled
to subscribe for and purchase, during the Term (as hereinafter defined), up to
___________________ (_________) shares (subject to
adjustment as hereinafter provided) of the duly authorized, validly issued,
fully paid and non-assessable Common Stock of the Issuer, at an exercise price
per share equal to the Warrant Price then in effect, subject, however, to the
provisions and upon the terms and conditions hereinafter set
forth.  Capitalized terms used in this Warrant and not otherwise
defined herein shall have the respective meanings specified in Section 9
hereof.

     

    1.     
       Term.  The
term of this Warrant shall commence on May 1, 2009 and shall expire at 6:00
p.m., Eastern Time, on May 1, 2014 (such period being the “Term” and such date,
the “Termination
Date”).

     

    2.    
        Method of Exercise; Payment;
Issuance of New Warrant; Transfer and Exchange.

     

    (a)           Time of
Exercise.  The purchase rights represented by this Warrant may
be exercised in whole or in part during the Term for such number of shares of
Common Stock set forth above.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (b)       
   Method of
Exercise.  The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at such Holder’s election (i) by certified or official bank
check or by wire transfer to an account designated by the Issuer, (ii) by
“cashless exercise” in accordance with Section 2(c), but only when a
registration statement under the Securities Act providing for the resale of the
Warrant Stock is not then in effect, or (iii) by a combination of the foregoing
methods of payment selected by the Holder of this Warrant.

     

    (c)       
   Cashless
Exercise.  Notwithstanding any provisions herein to the
contrary and commencing one (1) year following the Original Issue Date, if (i)
the VWAP of one share of Common Stock is greater than the Warrant Price (at the
date of calculation as set forth below) and (ii) a registration statement under
the Securities Act providing for the resale of the Warrant Stock is not then in
effect by the date such registration statement is required to be effective
pursuant to the Amended and Restated Registration Rights Agreement (as defined
in the Purchase Agreement) or not effective at any time during the Effectiveness
Period (as defined in the Registration Rights Agreement) in accordance with the
terms of the Amended and Restated Registration Rights Agreement, in lieu of
exercising this Warrant by payment of cash, the Holder may exercise this Warrant
by a cashless exercise and shall receive the number of shares of Common Stock
equal to an amount (as determined below) by surrender of this Warrant at the
principal office of the Issuer together with the properly endorsed Notice of
Exercise in which event the Issuer shall issue to the Holder a number of shares
of Common Stock computed using the following formula:

    

    
      
        
          	 
      	 
      
	 
      	
                  X
      =    Y
      (B-A)

                
	 
      	
                  B

                
	 
      	 
      	 
      
	
                  Where

                	
                  X
      =

                	
                  the
      number of shares of Common Stock to be issued to the
    Holder.

                
	 
      	 
      	 
      
	 
      	
                  Y
      =

                	
                  the
      number of shares of Common Stock purchasable upon exercise of all of the
      Warrant or, if only a portion of the Warrant is being exercised, the
      portion of the Warrant being exercised.

                
	 
      	 
      	 
      
	 
      	
                  A
      =

                	
                  the
      Warrant Price.

                
	 
      	 
      	 
      
	 
      	
                  B
      =

                	
                  the
      VWAP of one share of Common Stock as of the exercise
  date.

                

        

      

    

    
      
         

      

      
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    (d)           Issuance of Stock
Certificates.  In the event of any exercise of this Warrant in
accordance with and subject to the terms and conditions hereof, certificates for
the shares of Warrant Stock so purchased shall be dated the date of such
exercise and delivered to the Holder hereof within a reasonable time, not
exceeding three (3) Trading Days after such exercise (the “Delivery Date”) or,
at the request of the Holder (provided that a registration statement under the
Securities Act providing for the resale of the Warrant Stock is then in effect
or that the shares of Warrant Stock are otherwise exempt from registration),
issued and delivered to the Depository Trust Company (“DTC”) account on the
Holder’s behalf via the Deposit Withdrawal Agent Commission System (“DWAC”) within a
reasonable time, not exceeding three (3) Trading Days after such exercise, and
the Holder hereof shall be deemed for all purposes to be the holder of the
shares of Warrant Stock so purchased as of the date of such
exercise.  Notwithstanding the foregoing to the contrary, the Issuer
or its transfer agent shall only be obligated to issue and deliver the shares to
the DTC on a holder’s behalf via DWAC if such exercise is in connection with a
sale or other exemption from registration by which the shares may be issued
without a restrictive legend and the Issuer and its transfer agent are
participating in DTC through the DWAC system.  The Holder shall
deliver this original Warrant, or an indemnification undertaking with respect to
such Warrant in the case of its loss, theft or destruction, at such time that
this Warrant is fully exercised.  With respect to partial exercises of
this Warrant, the Issuer shall keep written records for the Holder of the number
of shares of Warrant Stock exercised as of each date of exercise.

     

    (e)           Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Exercise.  In
addition to any other rights available to the Holder, if the Issuer fails to
cause its transfer agent to transmit to the Holder a certificate or certificates
representing the Warrant Stock pursuant to an exercise on or before the Delivery
Date, and if after such date the Holder is required by its broker to purchase
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Holder of the Warrant Stock which the Holder
anticipated receiving upon such exercise (a “Buy-In”), then the
Issuer shall (1) pay in cash to the Holder the amount by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of shares of Warrant Stock that the Issuer was required to deliver to the
Holder in connection with the exercise at issue and (B) the price at
which the sell order giving rise to such purchase obligation was executed, and
(2) at the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of shares of Warrant Stock for which such exercise was not
honored or deliver to the Holder the number of shares of Common Stock that would
have been issued had the Issuer timely complied with its exercise and delivery
obligations hereunder.  For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Issuer shall be required to pay the Holder
$1,000.  The Holder shall provide the Issuer written notice indicating
the amounts payable to the Holder in respect of the Buy-In, together with
applicable confirmations and other evidence reasonably requested by the
Issuer.  Nothing herein shall limit a Holder’s right to pursue any
other remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Issuer’s failure to timely deliver certificates representing
shares of Common Stock upon exercise of this Warrant as required pursuant to the
terms hereof.

     

    (f)           Transferability of
Warrant.  Subject to Section 2(h) hereof, this Warrant may be
transferred by a Holder, in whole or in part, without the consent of the
Issuer.  If transferred pursuant to this paragraph, this Warrant may
be transferred on the books of the Issuer by the Holder hereof in person or by
duly authorized attorney, upon surrender of this Warrant at the principal office
of the Issuer, properly endorsed (by the Holder executing an assignment in the
form attached hereto) and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer.  This Warrant is
exchangeable at the principal office of the Issuer for Warrants to purchase the
same aggregate number of shares of Warrant Stock, each new Warrant to represent
the right to purchase such number of shares of Warrant Stock as the Holder
hereof shall designate at the time of such exchange.  All Warrants
issued on transfers or exchanges shall be dated the Original Issue Date and
shall be identical with this Warrant except as to the number of shares of
Warrant Stock issuable pursuant thereto.

    
      
         

      

      
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    (g)           Continuing Rights of
Holder.  The Issuer will, at the time of or at any time after
each exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing the extent, if any, of its continuing obligation to
afford to such Holder all rights to which such Holder shall continue to be
entitled after such exercise in accordance with the terms of this Warrant,
provided that if any such Holder shall fail to make any such request, the
failure shall not affect the continuing obligation of the Issuer to afford such
rights to such Holder.

     

    (h)           Compliance with Securities
Laws.

     

    (i)           The
Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and
the shares of Warrant Stock to be issued upon exercise hereof are being acquired
solely for the Holder’s own account and not as a nominee for any other party,
and for investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any shares of Warrant Stock to be issued upon
exercise hereof except pursuant to an effective registration statement, or an
exemption from registration, under the Securities Act and any applicable state
securities laws.

     

    (ii)           Except
as provided in paragraph (iii) below, this Warrant and all certificates
representing shares of Warrant Stock issued upon exercise hereof shall be
stamped or imprinted with a legend in substantially the following
form:

     

    THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER
THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED.

    
      
         

      

      
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    (iii)           The
Issuer agrees to reissue this Warrant or certificates representing any of the
Warrant Stock, without the legend set forth above if at such time, prior to
making any transfer of any such securities, the Holder shall give written notice
to the Issuer describing the manner and terms of such transfer.  Such
proposed transfer will not be effected until: (a) either (i) the Issuer has
received an opinion of counsel reasonably satisfactory to the Issuer, to the
effect that the registration of such securities under the Securities Act is not
required in connection with such proposed transfer, (ii) a registration
statement under the Securities Act covering such proposed disposition has been
filed by the Issuer with the Securities and Exchange Commission and has become
effective under the Securities Act, (iii) the Issuer has received other evidence
reasonably satisfactory to the Issuer that such registration and qualification
under the Securities Act and state securities laws are not required, or (iv) the
Holder provides the Issuer with reasonable assurances that such security can be
sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the
Issuer has received an opinion of counsel reasonably satisfactory to the Issuer,
to the effect that registration or qualification under the securities or “blue
sky” laws of any state is not required in connection with such proposed
disposition, or (ii) compliance with applicable state securities or “blue sky”
laws has been effected or a valid exemption exists with respect
thereto.  The Issuer will respond to any such notice from a holder
within three (3) Trading Days.  In the case of any proposed transfer
under this Section 2(h), the Issuer will use reasonable efforts to comply with
any such applicable state securities or “blue sky” laws, but shall in no event
be required, (x) to qualify to do business in any state where it is not then
qualified, (y) to take any action that would subject it to tax or to the general
service of process in any state where it is not then subject, or (z) to comply
with state securities or “blue sky” laws of any state for which registration by
coordination is unavailable to the Issuer.  The restrictions on
transfer contained in this Section 2(h) shall be in addition to, and not by way
of limitation of, any other restrictions on transfer contained in any other
section of this Warrant.  Whenever a certificate representing the
Warrant Stock is required to be issued to the Holder without a legend, in lieu
of delivering physical certificates representing the Warrant Stock, the Issuer
shall cause its transfer agent to electronically transmit the Warrant Stock to
the Holder by crediting the account of the Holder or Holder’s Prime Broker with
DTC through its DWAC system (to the extent not inconsistent with any provisions
of this Warrant or the Purchase Agreement).

     

    3.        
    Stock Fully Paid;
Reservation and Listing of Shares; Covenants.

     

    (a)           Stock Fully
Paid.  The Issuer represents, warrants, covenants and agrees
that all shares of Warrant Stock which may be issued upon the exercise of this
Warrant or otherwise hereunder will, when issued in accordance with the terms of
this Warrant, be duly authorized, validly issued, fully paid and non-assessable
and free from all taxes, liens and charges created by or through the
Issuer.  The Issuer further covenants and agrees that during the
period within which this Warrant may be exercised, the Issuer will at all times
have authorized and reserved for the purpose of the issuance upon exercise of
this Warrant a number of authorized but unissued shares of Common Stock equal to
at least one hundred percent (100%) of the number of shares of Common Stock
issuable upon exercise of this Warrant without regard to any limitations on
exercise.

     

    (b)           Reservation.  If
any shares of Common Stock required to be reserved for issuance upon exercise of
this Warrant or as otherwise provided hereunder require registration or
qualification with any Governmental Authority under any federal or state law
before such shares may be so issued, the Issuer will in good faith use its best
efforts as expeditiously as possible at its expense to cause such shares to be
duly registered or qualified.  If the Issuer shall list any shares of
Common Stock on any securities exchange or market it will, at its expense, list
thereon, and maintain and increase when necessary such listing, of, all shares
of Warrant Stock from time to time issued upon exercise of this Warrant or as
otherwise provided hereunder (provided that such Warrant Stock has been
registered pursuant to a registration statement under the Securities Act then in
effect), and, to the extent permissible under the applicable securities exchange
rules, all unissued shares of Warrant Stock which are at any time issuable
hereunder, so long as any shares of Common Stock shall be so
listed.  The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder
of this Warrant shall be entitled to receive upon the exercise of this Warrant
if at the time any securities of the same class shall be listed on such
securities exchange or market by the Issuer.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    (c)           Covenants.  The
Issuer shall not by any action including, without limitation, amending the
Certificate of Incorporation or the by-laws of the Issuer, or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of the Holder
hereof against dilution (to the extent specifically provided herein) or
impairment.  Without limiting the generality of the foregoing, the
Issuer will (i) not permit the par value, if any, of its Common Stock to exceed
the then effective Warrant Price, (ii) not amend or modify any provision of the
Certificate of Incorporation or by-laws of the Issuer in any manner that would
adversely affect the rights of the Holders of the Warrants, (iii) take all such
action as may be reasonably necessary in order that the Issuer may validly and
legally issue fully paid and nonassessable shares of Common Stock, free and
clear of any liens, claims, encumbrances and restrictions (other than as
provided herein) upon the exercise of this Warrant, and (iv) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be reasonably
necessary to enable the Issuer to perform its obligations under this
Warrant.

     

    (d)           Loss, Theft, Destruction of
Warrants.  Upon receipt of evidence satisfactory to the Issuer
of the ownership of and the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction, upon receipt of
indemnity or security satisfactory to the Issuer or, in the case of any such
mutilation, upon surrender and cancellation of such Warrant, the Issuer will
make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant,
a new Warrant of like tenor and representing the right to purchase the same
number of shares of Common Stock.

     

    (e)           Payment of Taxes. The
Issuer will pay any documentary stamp taxes attributable to the initial issuance
of the Warrant Stock issuable upon exercise of this Warrant; provided, however, that the
Issuer shall not be required to pay any tax or taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificates
representing Warrant Stock in a name other than that of the Holder in respect to
which such shares are issued.

     

    4. 
          Adjustment of Warrant
Price.  The price at which such shares of Warrant Stock may be
purchased upon exercise of this Warrant shall be subject to adjustment from time
to time as set forth in this Section 4.  The Issuer shall give the
Holder notice of any event described below which requires an adjustment pursuant
to this Section 4 in accordance with the notice provisions set forth in Section
5.

     

    (a)           Recapitalization,
Reorganization, Reclassification, Consolidation, Merger or
Sale.

    
      
         

      

      
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    (i)  
         In case the Issuer after
the Original Issue Date shall do any of the following (each, a “Triggering Event”):
(a) consolidate or merge with or into any other Person and the Issuer shall not
be the continuing or surviving corporation of such consolidation or merger, or
(b) permit any other Person to consolidate with or merge into the Issuer and the
Issuer shall be the continuing or surviving Person but, in connection with such
consolidation or merger, any Capital Stock of the Issuer shall be changed into
or exchanged for Securities of any other Person or cash or any other property,
or (c) transfer all or substantially all of its properties or assets to any
other Person, or (d) effect a capital reorganization or reclassification of its
Capital Stock, then, and in the case of each such Triggering Event, proper
provision shall be made to the Warrant Price and the number of shares of Warrant
Stock that may be purchased upon exercise of this Warrant so that, upon the
basis and the terms and in the manner provided in this Warrant, the Holder of
this Warrant shall be entitled upon the exercise hereof at any time after the
consummation of such Triggering Event, to the extent this Warrant is not
exercised prior to such Triggering Event, to receive at the Warrant Price in
effect at the time immediately prior to the consummation of such Triggering
Event, in lieu of the Common Stock issuable upon such exercise of this Warrant
prior to such Triggering Event, the Securities, cash and property to which such
Holder would have been entitled upon the consummation of such Triggering Event
if such Holder had exercised the rights represented by this Warrant immediately
prior thereto (including the right of a shareholder to elect the type of
consideration it will receive upon a Triggering Event), subject to adjustments
(subsequent to such corporate action) as nearly equivalent as possible to the
adjustments provided for elsewhere in this Section 4.  Immediately
upon the occurrence of a Triggering Event, the Issuer shall notify the Holder in
writing of such Triggering Event and provide the calculations in determining the
number of shares of Warrant Stock issuable upon exercise of the new warrant and
the adjusted Warrant Price.  Upon the Holder’s request, the continuing
or surviving corporation as a result of such Triggering Event shall issue to the
Holder a new warrant of like tenor evidencing the right to purchase the adjusted
number of shares of Warrant Stock and the adjusted Warrant Price pursuant to the
terms and provisions of this Section 4(a)(i).  Notwithstanding the
foregoing to the contrary, this Section 4(a)(i) shall only apply if the
surviving entity pursuant to any such Triggering Event is a company that has a
class of equity securities registered pursuant to the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and
its common stock is listed or quoted on a national securities exchange, national
automated quotation system or the OTC Bulletin Board.  In the event
that the surviving entity pursuant to any such Triggering Event is not a public
company that is registered pursuant to the Exchange Act or its common stock is
not listed or quoted on a national securities exchange, national automated
quotation system or the OTC Bulletin Board, then the Holder shall have the right
to demand that the Issuer pay to the Holder an amount in cash equal to the value
of this Warrant calculated in accordance with the Black-Scholes
formula.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    (ii)           In
the event that the Holder has elected not to exercise this Warrant prior to the
consummation of a Triggering Event and has also elected not to receive an amount
in cash equal to the value of this Warrant calculated in accordance with the
Black-Scholes formula pursuant to the provisions of Section 4(a)(i) above, so
long as the surviving entity pursuant to any Triggering Event is a company that
has a class of equity securities registered pursuant to the Exchange Act and its
common stock is listed or quoted on a national securities exchange, national
automated quotation system or the OTC Bulletin Board, the surviving entity
and/or each Person (other than the Issuer) which may be required to deliver any
Securities, cash or property upon the exercise of this Warrant as provided
herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer
under this Warrant (and if the Issuer shall survive the consummation of such
Triggering Event, such assumption shall be in addition to, and shall not release
the Issuer from, any continuing obligations of the Issuer under this Warrant)
and (B) the obligation to deliver to such Holder such Securities, cash or
property as, in accordance with the foregoing provisions of this subsection (a),
such Holder shall be entitled to receive, and the surviving entity and/or each
such Person shall have similarly delivered to such Holder an opinion of counsel
for the surviving entity and/or each such Person, which counsel shall be
reasonably satisfactory to such Holder, or in the alternative, a written
acknowledgement executed by the Chief Executive Officer or Chief Financial
Officer of the Issuer, stating that this Warrant shall thereafter continue in
full force and effect and the terms hereof (including, without limitation, all
of the provisions of this subsection (a)) shall be applicable to the Securities,
cash or property which the surviving entity and/or each such Person may be
required to deliver upon any exercise of this Warrant or the exercise of any
rights pursuant hereto.

     

    (b)           Stock Dividends,
Subdivisions and Combinations.  If at any time the Issuer
shall:

     

    (i)           make
or issue or set a record date for the holders of the Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, shares of Common Stock,

     

    (ii)          subdivide
its outstanding shares of Common Stock into a larger number of shares of Common
Stock, or

     

    (iii)         combine
its outstanding shares of Common Stock into a smaller number of shares of Common
Stock,

     

    then (1)
the number of shares of Common Stock for which this Warrant is exercisable
immediately after the occurrence of any such event shall be adjusted to equal
the number of shares of Common Stock which a record holder of the same number of
shares of Common Stock for which this Warrant is exercisable immediately prior
to the occurrence of such event would own or be entitled to receive after the
happening of such event, and (2) the Warrant Price then in effect shall be
adjusted to equal (A) the Warrant Price then in effect multiplied by the number
of shares of Common Stock for which this Warrant is exercisable immediately
prior to the adjustment divided by (B) the number of shares of Common Stock for
which this Warrant is exercisable immediately after such
adjustment.

     

    (c)           Certain Other
Distributions.  If at any time the Issuer shall make or issue
or set a record date for the holders of the Common Stock for the purpose of
entitling them to receive any dividend or other distribution
of:

    
      
         

      

      
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    (i)           cash
(other than a cash dividend payable out of earnings or earned surplus legally
available for the payment of dividends under the laws of the jurisdiction of
incorporation of the Issuer),

     

    (ii)          any
evidences of its indebtedness, any shares of stock of any class or any other
securities or property of any nature whatsoever (other than cash, Common Stock
Equivalents or Additional Shares of Common Stock), or

     

    (iii)         any
warrants or other rights to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property of any nature whatsoever (other than cash, Common Stock Equivalents or
Additional Shares of Common Stock),

     

    then (1)
the number of shares of Common Stock for which this Warrant is exercisable shall
be adjusted to equal the product of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such adjustment
multiplied by a fraction (A) the numerator of which shall be the VWAP of one
share of Common Stock at the date of taking such record and (B) the denominator
of which shall be such VWAP of one share of Common Stock minus the amount
allocable to one share of Common Stock of any such cash so distributable and of
the fair value (as determined in good faith by the Board of Directors of the
Issuer and supported by an opinion from an investment banking firm mutually
agreed upon by the Issuer and the Holder) of any and all such evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights so distributable, and (2) the Warrant Price then
in effect shall be adjusted to equal (A) the Warrant Price then in effect
multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately after
such adjustment.  A reclassification of the Common Stock (other than a
change in par value, or from par value to no par value or from no par value to
par value) into shares of Common Stock and shares of any other class of stock
shall be deemed a distribution by the Issuer to the holders of its Common Stock
of such shares of such other class of stock within the meaning of this Section
4(c) and, if the outstanding shares of Common Stock shall be changed into a
larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4(b).

     

    (d)           Dilutive Issuance of
Additional Shares of Common Stock.  In the event the Issuer
shall issue any Additional Shares of Common Stock (otherwise than as provided in
the foregoing subsections (a) through (c) of this Section 4), at a price per
share less than the Warrant Price then in effect or without consideration, then
the Warrant Price upon each such issuance shall be adjusted to the price equal
to the consideration per share paid for such Additional Shares of Common
Stock.

    
      
         

      

      
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    (e)           Issuance of Common Stock
Equivalents.  In the event the Issuer shall take a record of
the holders of its Common Stock for the purpose of entitling them to receive a
distribution of, or shall in any manner (whether directly or by assumption in a
merger in which the Issuer is the surviving corporation) issue or sell, any
Common Stock Equivalents, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange shall be less than the
Warrant Price in effect immediately prior to the time of such issue or sale, or
if, after any such issuance of Common Stock Equivalents, the price per share for
which Additional Shares of Common Stock may be issuable thereafter is amended or
adjusted, and such price as so amended shall be less than the Warrant Price in
effect at the time of such amendment or adjustment, then the Warrant Price then
in effect shall be adjusted as provided in Section 4(d).  No further
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Warrant Price then in effect shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such Common Stock
Equivalents.

     

    (f)       
    Superseding
Adjustment.  If, at any time after any adjustment of the
Warrant Price then in effect shall have been made pursuant to Section 4(e) as
the result of any issuance of Common Stock Equivalents, and such Common Stock
Equivalents, or the right of conversion or exchange in such Common Stock
Equivalents, shall expire, and all of such or the right of conversion or
exchange with respect to all of such Common Stock Equivalents shall not have
been converted or exercised, then such previous adjustment shall be rescinded
and annulled and the Warrant Price then in effect shall be adjusted to the
Warrant Price in effect immediately prior to the issuance of such Common Stock
Equivalents, subject to any further adjustments pursuant to this Section
4.

     

    (g)           Other Provisions Applicable
to Adjustments under this Section.  The following provisions
shall be applicable to the making of adjustments of the number of shares of
Common Stock for which this Warrant is exercisable and the Warrant Price then in
effect provided for in this Section 4:

    
      
         

      

      
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    (i) 
          Computation of
Consideration.  To the extent that any Additional Shares of
Common Stock or any Common Stock Equivalents (or any warrants or other rights
therefor) shall be issued for cash consideration, the consideration received by
the Issuer therefor shall be the amount of the cash received by the Issuer
therefor, or, if such Additional Shares of Common Stock or Common Stock
Equivalents are offered by the Issuer for subscription, the subscription price,
or, if such Additional Shares of Common Stock or Common Stock Equivalents are
sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price (in any such case subtracting any
amounts paid or receivable for accrued interest or accrued dividends and without
taking into account any compensation, discounts or expenses paid or incurred by
the Issuer for and in the underwriting of, or otherwise in connection with, the
issuance thereof).  In connection with any merger or consolidation in
which the Issuer is the surviving corporation (other than any consolidation or
merger in which the previously outstanding shares of Common Stock of the Issuer
shall be changed to or exchanged for the stock or other securities of another
corporation), the amount of consideration therefore shall be, deemed to be the
fair value, as determined reasonably and in good faith by the Board, and
acceptable  to the  Holder, of such portion of the assets
and business of the nonsurviving corporation as the Board may determine to be
attributable to such shares of Common Stock or Common Stock Equivalents, as the
case may be.  The consideration for any Additional Shares of Common
Stock issuable pursuant to any warrants or other rights to subscribe for or
purchase the same shall be the consideration received by the Issuer for issuing
such warrants or other rights plus the additional consideration payable to the
Issuer upon exercise of such warrants or other rights.  The
consideration for any Additional Shares of Common Stock issuable pursuant to the
terms of any Common Stock Equivalents shall be the consideration received by the
Issuer for issuing warrants or other rights to subscribe for or purchase such
Common Stock Equivalents, plus the consideration paid or payable to the Issuer
in respect of the subscription for or purchase of such Common Stock Equivalents,
plus the additional consideration, if any, payable to the Issuer upon the
exercise of the right of conversion or exchange in such Common Stock
Equivalents.  In the event of any consolidation or merger of the
Issuer in which the Issuer is not the surviving corporation or in which the
previously outstanding shares of Common Stock of the Issuer shall be changed
into or exchanged for the stock or other securities of another corporation, or
in the event of any sale of all or substantially all of the assets of the Issuer
for stock or other securities of any corporation, the Issuer shall be deemed to
have issued a number of shares of its Common Stock for stock or securities or
other property of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated, and for a consideration
equal to the fair market value on the date of such transaction of all such stock
or securities or other property of the other corporation.  In the
event any consideration received by the Issuer for any securities consists of
property other than cash, the fair market value thereof at the time of issuance
or as otherwise applicable shall be as determined in good faith by the
Board.  In the event Common Stock is issued with other shares or
securities or other assets of the Issuer for consideration which covers both,
the consideration computed as provided in this Section 4(g)(i) shall be
allocated among such securities and assets as determined in good faith by the
Board.

     

    (ii)           When Adjustments to Be
Made.  The adjustments required by this Section 4 shall be made
whenever and as often as any specified event requiring an adjustment shall
occur, except that any adjustment of the number of shares of Common Stock for
which this Warrant is exercisable that would otherwise be required may be
postponed (except in the case of a subdivision or combination of shares of the
Common Stock, as provided for in Section 4(b)) up to, but not beyond the date of
exercise if such adjustment either by itself or with other adjustments not
previously made adds or subtracts less than one percent (1%) of the shares of
Common Stock for which this Warrant is exercisable immediately prior to the
making of such adjustment.  Any adjustment representing a change of
less than such minimum amount (except as aforesaid) which is postponed shall be
carried forward and made as soon as such adjustment, together with other
adjustments required by this Section 4 and not previously made, would result in
a minimum adjustment or on the date of exercise.  For the purpose of
any adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.

     

    (iii)          Fractional
Interests.  In computing adjustments under this Section 4,
fractional interests in Common Stock shall be taken into account to the nearest
one one-hundredth (1/100th) of a share.

    
      
         

      

      
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    (iv)         When Adjustment Not
Required.  If the Issuer shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a dividend or
distribution or subscription or purchase rights and shall, thereafter and before
the distribution to stockholders thereof, legally abandon its plan to pay or
deliver such dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.

     

    (h)           Form of Warrant after
Adjustments.  The form of this Warrant need not be changed
because of any adjustments in the Warrant Price or the number and kind of
Securities purchasable upon the exercise of this Warrant.

     

    5.     
       Notice of
Adjustments.  Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an “adjustment”), the
Issuer shall cause its Chief Financial Officer to prepare and execute a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board made any
determination hereunder), and the Warrant Price and Warrant Share Number after
giving effect to such adjustment, and shall cause copies of such certificate to
be delivered to the Holder of this Warrant promptly after each adjustment. Any
dispute between the Issuer and the Holder of this Warrant with respect to the
matters set forth in such certificate may at the option of the Holder of this
Warrant be submitted to a national or regional accounting firm reasonably
acceptable to the Issuer and the Holder (the “Independent
Appraiser”), provided that the
Issuer shall have ten (10) days after receipt of notice from such Holder of its
selection of such firm to object thereto, in which case such Holder shall select
another such firm and the Issuer shall have no such right of objection. The
Independent Appraiser selected by the Holder of this Warrant as provided in the
preceding sentence shall be instructed to deliver a written opinion as to such
matters to the Issuer and such Holder within thirty (30) days after submission
to it of such dispute. Such opinion shall be final and binding on the parties
hereto. The reasonable expenses of the Independent Appraiser in making such
determination shall be paid by the Issuer, in the event the Holder's calculation
was correct, or by the Holder, in the event the Issuer’s calculation was
correct, or equally by the Issuer and the Holder in the event that neither the
Issuer's or the Holder's calculation was correct.

     

    6.      
      Fractional
Shares.  No fractional shares of Warrant Stock will be issued
in connection with any exercise hereof, but in lieu of such fractional shares,
the Issuer shall round the number of shares to be issued upon exercise up to the
nearest whole number of shares.

     

    7.      
      Ownership Cap and Exercise
Restriction.  Notwithstanding anything to the contrary set
forth in this Warrant, at no time may a Holder of this Warrant exercise this
Warrant if the number of shares of Common Stock to be issued pursuant to such
exercise would exceed, when aggregated with all other shares of Common Stock
owned by such Holder at such time, the number of shares of Common Stock which
would result in such Holder beneficially owning (as determined in accordance
with Section 13(d) of the Exchange Act and the rules thereunder) in excess of
4.9% of the then issued and outstanding shares of Common Stock; provided, however, that upon a
holder of this Warrant providing the Issuer with sixty-one (61) days notice
(pursuant to Section 13 hereof) (the “Waiver Notice”) that
such Holder would like to waive this Section 7 with regard to any or all shares
of Common Stock issuable upon exercise of this Warrant, this Section 7 will be
of no force or effect with regard to all or a portion of the Warrant referenced
in the Waiver Notice; provided, further, that this
provision shall be of no further force or effect during the sixty-one (61) days
immediately preceding the expiration of the term of this
Warrant.

    
      
         

      

      
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    8.      
      Registration
Rights.  The Holder of this Warrant is entitled to the benefit
of certain registration rights with respect to the shares of Warrant Stock
issuable upon the exercise of this Warrant pursuant to the Amended and Restated
Registration Rights Agreement (as defined in the Purchase Agreement) and the
registration rights with respect to the shares of Warrant Stock issuable upon
the exercise of this Warrant by any subsequent Holder may only be assigned in
accordance with the terms and provisions of the Registrations Rights
Agreement.

     

    9.    
        Definitions.  For
the purposes of this Warrant, the following terms have the following
meanings:

     

    “Additional Shares of Common
Stock” means all shares of Common Stock issued by the Issuer after the
Original Issue Date, and all shares of Other Common, if any, issued by the
Issuer after the Original Issue Date, except for Exempt Issuances.

     

    “Board” shall mean the
Board of Directors of the Issuer.

     

    “Capital Stock” means
and includes (i) any and all shares, interests, participations or other
equivalents of or interests in (however designated) corporate stock, including,
without limitation, shares of preferred or preference stock, (ii) all
partnership interests (whether general or limited) in any Person which is a
partnership, (iii) all membership interests or limited liability company
interests in any limited liability company, and (iv) all equity or ownership
interests in any Person of any other type.

     

    “Certificate of
Incorporation” means the Certificate of Incorporation of the Issuer as in
effect on the Original Issue Date, and as hereafter from time to time amended,
modified, supplemented or restated in accordance with the terms hereof and
thereof and pursuant to applicable law.

     

    “Common Stock” means
the Common Stock, $0.001 par value per share, of the Issuer and any other
Capital Stock into which such stock may hereafter be changed.

     

    “Common Stock
Equivalent” means any Convertible Security or warrant, option or other
right to subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Security.

     

    “Convertible
Securities” means evidences of Indebtedness, shares of Capital Stock or
other Securities which are or may be at any time convertible into or
exchangeable for Additional Shares of Common Stock.  The term
“Convertible Security” means one of the Convertible Securities.

    
      
         

      

      
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    “Exempt Issuances”
means issuances by the Company of (i) securities issued pursuant to a bona fide
firm underwritten public offering of the Company’s securities; provided such underwritten public
offering shall provide gross proceeds to the Company of not less than
$10,000,000 and shall have been approved in advance by the Majority
Holder, (ii) securities issued (other than for cash) in connection with a
strategic merger, acquisition, or consolidation provided that the issuance of
such securities in connection with such strategic merger, acquisition or
consolidation has been approved in advance by the Majority Holders, (iii)
securities issued pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding on or prior to the Closing Date or
issued pursuant to the Purchase Agreements (so long as the conversion or
exercise price in such securities are not amended to lower such price and/or
adversely affect the Holders), (iv) securities issued in connection with bona
fide strategic license agreements or other partnering arrangements so long as
such issuances are not for the purpose of raising capital and provided that the
issuance of such securities in connection with such bona fide strategic license,
agreements or other partnering arrangements has been approved in advance by the
Majority Holders, (v) Common Stock issued or the issuance or grants of options
to purchase Common Stock pursuant to the Company’s equity incentive plans
outstanding as they exist on the Closing Date (as defined in the First Purchase
Agreement), (vi) the issuance or grants of options to purchase Common Stock to
employees, officers or directors of the Company pursuant to any equity incentive
plan duly adopted by the Board of Directors or a committee thereof established
for such purpose so long as such issuances in the aggregate do not exceed ten
percent (10)% of the issued and outstanding shares of Common Stock as of the
Final Closing Date (as defined in the First Purchase Agreement) and the
specified price at which the options may be exercised is equal to or greater
than the VWAP as of the date of such grant, and (vii) any warrants, shares of
Common Stock or other securities issued to a placement agent and its designees
for the transactions contemplated by the Purchase Agreements.

     

    “Governmental
Authority” means any governmental, regulatory or self-regulatory entity,
department, body, official, authority, commission, board, agency or
instrumentality, whether federal, state or local, and whether domestic or
foreign.

     

    “Holders” mean the
Persons who shall from time to time own any Warrant.  The term
“Holder” means one of the Holders.

     

    “Independent
Appraiser” means a nationally recognized or major regional investment
banking firm or firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial statements
of the Issuer) that is regularly engaged in the business of appraising the
Capital Stock or assets of corporations or other entities as going concerns, and
which is not affiliated with either the Issuer or the Holder of any
Warrant.

     

    “Issuer” means China
New Energy Group Company, a Delaware corporation, and its
successors.

     

    “Majority Holders”
means at any time the Holders of Warrants exercisable for a majority of the
shares of Warrant Stock issuable under the Warrants at the time
outstanding.

     

    “Original Issue Date”
means May 1, 2009.

     

    “OTC Bulletin Board”
means the over-the-counter electronic bulletin board.

    
      
         

      

      
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    “Other Common” means
any other Capital Stock of the Issuer of any class which shall be authorized at
any time after the date of this Warrant (other than Common Stock) and which
shall have the right to participate in the distribution of earnings and assets
of the Issuer without limitation as to amount.

     

    “Outstanding Common
Stock” means, at any given time, the aggregate amount of outstanding
shares of Common Stock, assuming full exercise, conversion or exchange (as
applicable) of all options, warrants and other Securities which are convertible
into or exercisable or exchangeable for, and any right to subscribe for, shares
of Common Stock that are outstanding at such time.

     

    “Person” means an
individual, corporation, limited liability company, partnership, joint stock
company, trust, unincorporated organization, joint venture, Governmental
Authority or other entity of whatever nature.

     

    “Purchase Agreement”
means the Series B Convertible Preferred Stock Purchase Agreement dated as of
May 1, 2009, among the Issuer and the Purchaser, as amended and supplemented
from time to time.

     

    “Purchaser” means the
purchaser of the Series B Convertible Preferred Stock and the Warrants issued by
the Issuer pursuant to the Purchase Agreement.

     

    “Securities” means any
debt or equity securities of the Issuer, whether now or hereafter authorized,
any instrument convertible into or exchangeable for Securities or a Security,
and any option, warrant or other right to purchase or acquire any
Security.  “Security” means one of the Securities.

     

    “Securities Act” means
the Securities Act of 1933, as amended, or any similar federal statute then in
effect.

     

    “Subsidiary” means any
corporation at least 50% of whose outstanding Voting Stock shall at the time be
owned directly or indirectly by the Issuer or by one or more of its
Subsidiaries, or by the Issuer and one or more of its Subsidiaries.

     

    “Term” has the meaning
specified in Section 1 hereof.

     

    “Trading Day” means
(a) a day on which the Common Stock is traded on the OTC Bulletin Board, or (b)
if the Common Stock is not traded on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a) or (b)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.

     

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

    
      
         

      

      
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    “Voting Stock” means,
as applied to the Capital Stock of any corporation, Capital Stock of any class
or classes (however designated) having ordinary voting power for the election of
a majority of the members of the Board of Directors (or other governing body) of
such corporation, other than Capital Stock having such power only by reason of
the happening of a contingency.

     

    “VWAP” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the primary Trading Market on which the Common Stock is then
listed or quoted as reported by Bloomberg Financial L.P. (based on a Trading Day
from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP function;
(b) if the Common Stock is not then listed or quoted on the Trading Market
and if prices for the Common Stock are then reported in the “Pink Sheets”
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (c) in
all other cases, the fair market value of a share of Common Stock as determined
by a nationally recognized-independent appraiser selected in good faith by the
Majority Holders.

     

    “Warrants” means the
warrants issued and sold pursuant to the Purchase Agreement, including, without
limitation, this Warrant, and any other warrants of like tenor issued in
substitution or exchange for any thereof pursuant to the terms of this
Warrant.

     

    “Warrant Price”
initially means $0.187, as such price may be adjusted from time to time as shall
result from the adjustments specified in this Warrant, including Section 4
hereto.

     

    “Warrant Share Number”
means at any time the aggregate number of shares of Warrant Stock which may at
such time be purchased upon exercise of this Warrant, after giving effect to all
prior adjustments and increases to such number made or required to be made under
the terms hereof.

     

    “Warrant Stock” means
Common Stock issuable upon exercise of any Warrant or Warrants or otherwise
issuable pursuant to any Warrant or Warrants.

     

    10.           Other
Notices.  In case at any time:

     

    (a)           the
Issuer shall make any distributions to the holders of Common Stock;
or

     

    (b)           the
Issuer shall authorize the granting to all holders of its Common Stock of rights
to subscribe for or purchase any shares of Capital Stock of any class or other
rights; or

     

    (c)           there
shall be any reclassification of the Capital Stock of the Issuer;
or

    
      
         

      

      
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    (d)           there
shall be any capital reorganization by the Issuer; or

     

    (e)           there
shall be any (i) consolidation or merger involving the Issuer or (ii) sale,
transfer or other disposition of all or substantially all of the Issuer’s
property, assets or business (except a merger or other reorganization in which
the Issuer shall be the surviving corporation and its shares of Capital Stock
shall continue to be outstanding and unchanged and except a consolidation,
merger, sale, transfer or other disposition involving a wholly-owned
Subsidiary); or

     

    (f)           there
shall be a voluntary or involuntary dissolution, liquidation or winding-up of
the Issuer or any partial liquidation of the Issuer or distribution to holders
of Common Stock;

     

    then, in
each of such cases, the Issuer shall give written notice to the Holder of the
date on which (i) the books of the Issuer shall close or a record shall be taken
for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take
place.  Such notice also shall specify the date as of which the
holders of Common Stock of record shall participate in such dividend,
distribution or subscription rights, or shall be entitled to exchange their
certificates for Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be.  Such
notice shall be given at least twenty (20) days prior to the action in question
and not less than ten (10) days prior to the record date or the date on which
the Issuer’s transfer books are closed in respect thereto.  This
Warrant entitles the Holder to receive copies of all financial and other
information distributed or required to be distributed to the holders of the
Common Stock.

     

    11.           Amendment and
Waiver.  Any term, covenant, agreement or condition in this
Warrant may be amended, or compliance therewith may be waived (either generally
or in a particular instance and either retroactively or prospectively), by a
written instrument or written instruments executed by the Issuer and the
Majority Holders; provided, however, that no such
amendment or waiver shall reduce the Warrant Share Number, increase the Warrant
Price, shorten the period during which this Warrant may be exercised or modify
any provision of this Section 11 without the consent of the Holder of this
Warrant.  No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of this Warrant
unless the same consideration is also offered to all holders of the
Warrants.

     

    12.           Governing Law;
Jurisdiction.  This Warrant shall be governed by and construed
in accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction.  This
Warrant shall not be interpreted or construed with any presumption against the
party causing this Warrant to be drafted.  The Issuer and the Holder
agree that venue for any dispute arising under this Warrant will lie exclusively
in the state or federal courts located in New York County, New York, and the
parties irrevocably waive any right to raise forum non conveniens or any other
argument that New York is not the proper venue.  The Issuer and the
Holder irrevocably consent to personal jurisdiction in the state and federal
courts of the state of New York.  The Issuer and the Holder consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Warrant and agree that such service shall constitute good and sufficient service
of process and notice thereof.  Nothing in this Section 12 shall
affect or limit any right to serve process in any other manner permitted by
law.  The Issuer and the Holder hereby agree that the prevailing party
in any suit, action or proceeding arising out of or relating to this Warrant or
the Purchase Agreement, shall be entitled to reimbursement for reasonable legal
fees from the non-prevailing party.  The parties hereby waive all
rights to a trial by jury.

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    13.           Notices.  Any
notice, demand, request, waiver or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) immediately
upon hand delivery, telecopy or facsimile at the address or number designated
below (if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first
occur.  The addresses for such communications shall be:

    

    
      
        	
                If
      to the Issuer:

                 

                 

              	
                China
      New Energy Group Company

                c/o
      Tianjin Sing Ocean Public Utility 

                Development
      Co., Ltd.

                No.
      1703 and 1704, A Building, No. 1

                Hongji
      Apartment

                HeBei
      District, Tianjin, China

                People’s
      Republic of China

                Attention:
      Jiaji Shang

                Tel:      (86
      22) 5829 9778

                Fax:     [______]

                Email:  jameswang@etlg.net

              
	 
      	 
      
	
                with
      copies (which copies

                shall
      not constitute notice)

                to:

              	
                Pillsbury
      Winthrop Shaw Pittman LLP

                2300
      N Street , NW

                Washington
      DC 20037-1122

                Attn.:  Louis
      A. Bevilacqua

                Tel.
      No.:   (202) 663-8158

                Fax
      No.::  (202) 663-8007

                Email:
      louis.bevilacqua@pillsburylaw.com

              
	 
      	 
      
	
                If
      to any Holder:

              	
                At
      the address of such Holder set forth on Exhibit A to this Agreement, with
      copies to Holder’s counsel as set forth on Exhibit A or as specified in
      writing by such Holder with copies to:

              
	 
      	 
      
	
                with
      copies (which copies

                shall
      not constitute notice)

                to:

              	
                Guzov
      Ofsink, LLC

                600
      Madison Avenue, 14th Floor

                New
      York, New York 10022

                Attention:  Darren
      Ofsink

                Tel.
      No.:  (212) 371-8008

                Fax
      No.:  (212)
688-7273

              

      

    

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    Any party
hereto may from time to time change its address for notices by giving at least
ten (10) days  written notice of such changed address to the other
party hereto.

     

    14.           Warrant
Agent.  The Issuer may, by written notice to the Holder of this
Warrant, appoint an agent having an office in New York, New York for the purpose
of issuing shares of Warrant Stock on the exercise of this Warrant pursuant to
subsection (b) of Section 2 hereof, exchanging this Warrant pursuant to
subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.

     

    15.           Remedies.  The
Issuer stipulates that the remedies at law of the Holder of this Warrant in the
event of any default or threatened default by the Issuer in the performance of
or compliance with any of the terms of this Warrant are not and will not be
adequate and that, to the fullest extent permitted by law, such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.

     

    16.           Successors and
Assigns.  This Warrant and the rights evidenced hereby shall
inure to the benefit of and be binding upon the successors and assigns of the
Issuer, the Holder hereof and (to the extent provided herein) the Holders of
Warrant Stock issued pursuant hereto, and shall be enforceable by any such
Holder or Holder of Warrant Stock.

     

    17.           Modification and
Severability.  If, in any action before any court or agency
legally empowered to enforce any provision contained herein, any provision
hereof is found to be unenforceable, then such provision shall be deemed
modified to the extent necessary to make it enforceable by such court or
agency.  If any such provision is not enforceable as set forth in the
preceding sentence, the unenforceability of such provision shall not affect the
other provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.

     

    18.           Headings.  The
headings of the Sections of this Warrant are for convenience of reference only
and shall not, for any purpose, be deemed a part of this Warrant.

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

    IN
WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and year
first above written.

     

    
      
        
          
            	
                    CHINA
      NEW ENERGY GROUP COMPANY

                  
	 	 
	
                    By: 

                  	 
      
	
                    Name:
      Jiaji Shang

                  
	
                    Title:  
      Chief Executive
Officer

                  

          

        

      

    

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

    EXERCISE
FORM

    WARRANT

     

    CHINA NEW
ENERGY GROUP COMPANY

     

    The
undersigned _______________, pursuant to the provisions of the within Warrant,
hereby elects to purchase _____ shares of Common Stock of
________________________________ covered by the within Warrant.

    

    
      
        
          
            
              
                
                  
                    
                      
                        	
                                Dated:
      _________________

                              	
                                Signature

                              	 
      	 
	 
      	 
      	 
      	 
	 
      	
                                Address

                              	 
      	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 

                      

                    

                  

                

              

            

          

        

      

    

     

    Number of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the date of Exercise: _________________________

     

    The
undersigned intends that payment of the Warrant Price shall be made as (check
one):

     

    Cash
Exercise_______                                                Cashless
Exercise_______

     

    If the
Holder has elected a Cash Exercise, the Holder shall pay the sum of $________ by
certified or official bank check (or via wire transfer) to the Issuer in
accordance with the terms of the Warrant.

     

    If the
Holder has elected a Cashless Exercise, a certificate shall be issued to the
Holder for the number of shares equal to the whole number portion of the product
of the calculation set forth below, which is ___________.  The Company
shall pay a cash adjustment in respect of the fractional portion of the product
of the calculation set forth below in an amount equal to the product of the
fractional portion of such product and the VWAP of one share of Common Stock on
the date of exercise, which product is ____________.

    

    
      
        
          
            	
                    X
      = 

                  	
                    Y (B- A)

                  
	 
      	
                      
      B

                  

          

        

      

    

     

    Where:

     

    The
number of shares of Common Stock to be issued to the Holder
__________________(“X”).

     

    The
number of shares of Common Stock purchasable upon exercise of all of the Warrant
or, if only a portion of the Warrant is being exercised, the portion of the
Warrant being exercised ___________________________ (“Y”).

     

    The
Warrant Price ______________ (“A”).

     

    The VWAP
of one share of Common Stock _______________________ (“B”).

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

     

    ASSIGNMENT

     

    FOR VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.

    

    
      
        
          
            
              
                
                  	
                          Dated:
      _________________

                        	
                          Signature

                        	 
      	 
	 
      	 
      	 
      	 
	 
      	
                          Address

                        	 
      	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 

                

              

            

          

        

      

    

     

    PARTIAL
ASSIGNMENT

     

    FOR VALUE
RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named
corporation.

    

    
      
        
          
            
              
                
                  	
                          Dated: _________________

                        	
                          Signature

                        	 
      	 
	 
      	 
      	 
      	 
	 
      	
                          Address

                        	 
      	 
	 
      	 
      	 
      	 
	 
      	 
      	 
      	 

                

              

            

          

        

      

    

     

    FOR USE
BY THE ISSUER ONLY:

     

    This
Warrant No.  W-___ canceled (or transferred or exchanged) this _____
day of ___________, _____, shares of Common Stock issued therefor in the name of
_______________, Warrant No.  W-_____ issued for ____ shares of Common
Stock in the name of _______________.

    
      
         

      

      
        22

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