Document:

abat8k20090615ex10-a.htm

    
      

      

    

     

    SECURITIES
PURCHASE AGREEMENT

     

    This
Securities Purchase Agreement (this “Agreement”) is dated
as of June 12, 2009, between Advanced Battery Technologies, Inc., a
Delaware corporation (the “Company”), and each
purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and
collectively, the “Purchasers”).

     

    WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and
Rule 506 promulgated thereunder, the Company desires to issue and sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company, securities of the Company as more fully described in this
Agreement.

     

    NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser agree as
follows:

     

     

    ARTICLE
I.

    DEFINITIONS

     

    1.1           Definitions.  In
addition to the terms defined elsewhere in this Agreement: (a) capitalized terms
that are not otherwise defined herein have the meanings given to such terms in
the Certificate of Designation (as defined herein), and (b) the following terms
have the meanings set forth in this Section 1.1:

     

    “Acquiring Person”
shall have the meaning ascribed to such term in Section 4.7.

     

    “Action” shall have
the meaning ascribed to such term in Section 3.1(j).

     

    “Affiliate” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person, as such terms are
used in and construed under Rule 405 under the Securities Act.

     

    “Amendment” means an
amendment to the Company’s articles of incorporation that increases the number
of authorized shares of Common Stock from 60,000,000 to
150,000,000.

     

    “Authorized Share
Approval” means (i) the vote by the stockholders of the company to
approve the Amendment and (ii) the filing by the Company of the Amendment with
the Secretary of State of the State of Delaware and the acceptance of the
Amendment by the Secretary of State of the State of Delaware.

     

    “Bloomberg L.P.” means
Bloomberg L.P. or, if Bloomberg L.P. no longer reports the applicable pricing or
other information, such other data service as may in the future replace
Bloomberg L.P. as the primary industry source of stock market data.

     

     “Board of
Directors” means the board of directors of the Company.

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

     

     “Business Day” means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.

     

     “Certificate of
Designation” means the Certificate of Designation to be filed prior to
the Closing by the Company with the Secretary of State of Delaware, in the form
of Exhibit A
attached hereto.

     

    “Closing” means the
closing of the purchase and sale of the Securities pursuant to Section
2.1.

     

    “Closing Date” means
the Trading Day on which all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to (i)
the Purchasers’ obligations to pay the Subscription Amount and (ii) the
Company’s obligations to deliver the Securities, in each case, have been
satisfied or waived.

     

    “Closing Price” means
on any particular date (a) the last reported closing bid price per share of
Common Stock on such date on the Trading Market (as reported by Bloomberg L.P.
at 4:15 p.m. (New York City time)), (b) if there is no such price on such date,
then the closing bid price on the Trading Market on the date nearest preceding
such date (as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)),
(c)  if the Common Stock is not then listed or quoted on a Trading Market
and if prices for the Common Stock are then reported in the “pink sheets”
published by Pink OTC Markets, Inc. (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 (d) if the shares of Common Stock
are not then publicly traded the fair market value as of such date of a share of
Common Stock as determined by an independent appraiser selected in good faith by
the Purchasers of a majority in interest of the Shares then outstanding and
reasonably acceptable to the Company, the fees and expenses of which shall be
paid by the Company.

     

     “Commission” means the
United States Securities and Exchange Commission.

     

    “Common Stock” means
the common stock of the Company, par value $0.001 per share, and any other class
of securities into which such securities may hereafter be reclassified or
changed.

     

    “Common Stock
Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

     

    “Company Counsel”
means Robert Brantl, Esq., with offices located at 52 Mulligan Lane, Irvington,
NY 10533.

    

    
      
        
           

        

        
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    “Conversion Price”
shall have the meaning ascribed to such term in the Certificate of
Designation.

     

    “Disclosure Schedules”
shall have the meaning ascribed to such term in Section 3.1.

     

     “Effective Date” means
the earlier of the date that (a) all of the Registrable Securities (as defined
in the Registration Rights Agreement) have been registered for resale by the
holders thereof pursuant to a registration statement(s) declared effective by
the Commission and (b) all of the Registrable Securities have been sold pursuant
to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the
Company to be in compliance with the current public information required under
Rule 144 and without volume or manner-of-sale restrictions.

     

     “Evaluation Date”
shall have the meaning ascribed to such term in Section 3.1(r).

    

    “Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

    

    “Exempt Issuance”
means the issuance of (a) shares of Common Stock or options to employees,
officers or directors of the Company pursuant to any stock or option plan duly
adopted for such purpose, by a majority of the non-employee members of the Board
of Directors or a majority of the members of a committee of non-employee
directors established for such purpose, (b) securities upon the exercise or
exchange of or conversion of any Securities issued hereunder and/or other
securities exercisable or exchangeable for or convertible into shares of Common
Stock issued and outstanding on the date of this Agreement, provided that such
securities have not been amended since the date of this Agreement to increase
the number of such securities or to decrease the exercise price, exchange price
or conversion price of such securities, and (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be to a Person (or to the equityholders of a Person) which is, itself or
through its subsidiaries, an operating company or an asset in a business
synergistic with the business of the Company and shall provide to the Company
additional benefits in addition to the investment of funds, but shall not
include a transaction in which the Company is issuing securities primarily for
the purpose of raising capital or to an entity whose primary business is
investing in securities.

     

    “GAAP” shall have the
meaning ascribed to such term in Section 3.1(h).

    

    “Indebtedness” shall
have the meaning ascribed to such term in Section 3.1(aa).

    

    
      
        
           

        

        
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    “Intellectual Property
Rights” shall have the meaning ascribed to such term in Section
3.1(o).

    

    “Legend Removal Date”
shall have the meaning ascribed to such term in Section 4.1(c).

    

    “Liens” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.

    

     “Material Adverse
Effect” shall have the meaning assigned to such term in Section
3.1(b).

    

    “Material Permits”
shall have the meaning ascribed to such term in Section 3.1(m).

    

    “Maximum Rate” shall
have the meaning ascribed to such term in Section 5.17.

    

    “Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.

    

    “Placement Agent”
means Rodman & Renshaw, LLC.

    

     “Preferred Stock”
means the up to 7,000 shares of the Company’s 0% Series F Convertible
Preferred Stock issued hereunder having the rights, preferences and privileges
set forth in the Certificate of Designation, in the form of Exhibit A
hereto.

    

     “Proceeding” means an
action, claim, suit, investigation or proceeding (including, without limitation,
an informal investigation or partial proceeding, such as a deposition), whether
commenced or threatened.

    

    “Public Information
Failure” shall have the meaning ascribed to such term in Section
4.3(b).

     

    “Public Information Failure
Payments” shall have the meaning ascribed to such term in Section
4.3(b).

     

     “Purchaser Party”
shall have the meaning ascribed to such term in Section 4.10.

    

    “Registration Rights
Agreement” means the Registration Rights Agreement, dated the date
hereof, among the Company and the Purchasers, in the form of Exhibit B attached
hereto.

    

    
      
        
           

        

        
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    “Registration
Statement” means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Purchaser as provided for in the Registration Rights
Agreement.

    

    “Required Approvals”
shall have the meaning ascribed to such term in Section 3.1(e).

     

    “Required Minimum”
means, as of any date, the maximum aggregate number of shares of Common Stock
then issued or potentially issuable in the future pursuant to the Transaction
Documents, including any Underlying Shares issuable upon exercise in full of all
Warrants or conversion in full of all shares of Preferred Stock, ignoring any
conversion or exercise limits set forth therein, and assuming that any
previously unconverted shares of Preferred Stock are held until the third
anniversary of the Closing Date.

     

    “Rule 144” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.

    

    “Rule 424” means Rule
424 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.

    

    “SEC Reports” shall
have the meaning ascribed to such term in Section 3.1(h).

    

    “Securities” means the
Preferred Stock, the Warrants, the Warrant Shares and the Underlying
Shares.

    

    “Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.

    

     “Short Sales” means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange
Act (but shall not be deemed to include the location and/or reservation of
borrowable shares of Common Stock).

    

    “Stated Value” means
$1,000 per share of Preferred Stock.

    

    “Subscription Amount”
shall mean, as to each Purchaser, the aggregate amount to be paid for the
Preferred Stock purchased hereunder as specified below such Purchaser’s name on
the signature page of this Agreement and next to the heading “Subscription
Amount,” in United States dollars and in immediately available
funds.

    

     “Subsidiary” means any
subsidiary of the Company as set forth on Schedule 3.1(a) and
shall, where applicable, also include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.

    

    
      
        
           

        

        
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    “Trading Day” means a
day on which the principal Trading Market is open for trading.

    

     “Trading Market” means
any of the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the NYSE AMEX, the Nasdaq Capital
Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New
York Stock Exchange (or any successors to any of the foregoing).

    

    “Transaction
Documents” means this Agreement, the Certificate of Designation, the
Warrants, the Registration Rights Agreement, the Voting Agreement, all exhibits
and schedules thereto and hereto and any other documents or agreements executed
in connection with the transactions contemplated hereunder.

    

    “Transfer Agent” means
Continental Stock Transfer & Trust Co., the current transfer agent of the
Company, with a mailing address of 17 Battery Place, New York, NY 10004 and a
facsimile number of 212-509-5150, and any successor transfer agent of the
Company.

    

    “Underlying Shares”
means the shares of Common Stock issued and issuable upon conversion or
redemption of the Preferred Stock and upon exercise of the
Warrants.

    

    “Variable Rate
Transaction” shall have the
meaning ascribed to such term in Section 4.13(b).

     

     “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 Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time)), (b)  if the OTC
Bulletin Board is not a Trading Market, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board, (c) if the Common Stock is not then listed or quoted for trading on the
OTC Bulletin Board and if prices for the Common Stock are then reported in the
“Pink Sheets” published by Pink OTC Markets, Inc. (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 (d) in all other cases,
the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Purchasers of a majority in interest of
the Securities then outstanding and reasonably acceptable to the Company, the
fees and expenses of which shall be paid by the Company.

     

    “Warrants” means,
collectively, the Series A Common Stock purchase warrants, Series B Common Stock
purchase warrants and Series C Common Stock purchase warrants delivered to the
Purchasers at the Closing in accordance with Section 2.2(a) hereof, in the form
of Exhibit C
attached hereto.

     

    “Warrant Shares” means
the shares of Common Stock issuable upon exercise of the Warrants.

     

    "WS" means
Weinstein Smith LLP with offices located at 420 Lexington Avenue, Suite 2620,
New York, New York 10170-0002.

    
 

    
      
        
           

        

        
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    ARTICLE
II.

    PURCHASE
AND SALE

     

    2.1           Closing.  On
the Closing Date, upon the terms and subject to the conditions set forth herein,
substantially concurrent with the execution and delivery of this Agreement by
the parties hereto, the Company agrees to sell, and the Purchasers, severally
and not jointly, agree to purchase, up to an aggregate of $7,000,000 of shares
of Preferred Stock with an aggregate Stated Value for each Purchaser equal to
such Purchaser’s Subscription Amount as set forth on the signature page hereto
executed by such Purchaser, and Warrants as determined by pursuant to Section
2.2(a).  The aggregate number of shares of Preferred Stock sold
hereunder shall be up to 7,000. Each Purchaser shall deliver to the Company via
wire transfer or a certified check of immediately available funds equal to its
Subscription Amount and the Company shall deliver to each Purchaser its
respective shares of Preferred Stock and Warrants as determined pursuant to
Section 2.2(a), and the Company and each Purchaser shall deliver the other items
set forth in Section 2.2 deliverable at the Closing.  Upon
satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3,
the Closing shall occur at the offices of WS or such other location as the
parties shall mutually agree.

     

    
      	
               
      

            	
              2.2

            	
              Deliveries.

            

    

     

    (a)           On
or prior to the Closing Date, the Company shall deliver or cause to be delivered
to each Purchaser the following:

     

    
      	
               
      

            	
              (i)

            	
              this
      Agreement duly executed by the
Company;

            

    

     

    (ii)           a
legal opinion of Company Counsel, substantially in the form of Exhibit D attached
hereto;

     

    (iii)           a
certificate evidencing a number of shares of Preferred Stock equal to such
Purchaser’s Subscription Amount divided by the Stated Value, registered in the
name of such Purchaser;

     

    (iv)           evidence
of the filing and acceptance of the Certificate of Designation from the
Secretary of State of Delaware;

     

    (v)           Series
A Warrants registered in the name of such Purchaser to purchase up to a number
of shares of Common Stock equal to 45% of such Purchaser’s
Conversion Shares, with an exercise price equal to $4.92, subject to adjustment therein,
which Series A Warrants shall be exercisable after the six month anniversary of
the date hereof and have a term of exercise equal to five years from the initial
date of exercisability of such Warrants;

    

    
      
        
           

        

        
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    (vi)           Series
B Warrants registered in the name of such Purchaser to purchase such Purchaser’s
pro rata portion of up to 1,750,000 shares of Common
Stock, with an exercise price equal to $4.00, subject to adjustment
therein, which Series B Warrants shall be exercisable after the date hereof and
have a term of exercise equal to the later of (A) the 180 day anniversary of the
date of issuance of such Warrants and (B) the 30 day anniversary of the later of
(y) the Effective Date and (z) the date that the Company receives the Authorized
Share Approval;

     

    (vii)          Series
C Warrants registered in the name of such Purchaser to purchase such Purchaser’s
pro rata portion of up to a number of shares of Common Stock equal to 437,500, with an exercise
price equal to $5.68,
subject to adjustment therein, which Series C Warrants shall be exercisable
after the six month anniversary of the date hereof and have a term of exercise
equal to five years from the initial date of exercisability of such
Warrants;

     

    (viii)         the
Voting Agreement shall have been executed and delivered to such Purchaser by the
Company and each Stockholder; and

     

    (ix)           the
Registration Rights Agreement duly executed by the Company.

     

    (b)           On
or prior to the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:

     

    
      	
               
      

            	
              (i)

            	
              this
      Agreement duly executed by such
Purchaser;

            

    

     

    (ii)           such
Purchaser’s Subscription Amount by wire transfer to the account as specified in
writing by the Company; and

     

    (iii)           the
Registration Rights Agreement duly executed by such Purchaser.

     

    
      	
               
      

            	
              2.3

            	
              Closing
      Conditions.

            

    

     

    (a)           The
obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met:

     

    (i)           the
accuracy in all material respects on the Closing Date of the representations and
warranties of the Purchasers contained herein (unless as of a specific date
therein);

     

    (ii)           all
obligations, covenants and agreements of each Purchaser required to be performed
at or prior to the Closing Date shall have been performed; and

     

    (iii)           the
delivery by each Purchaser of the items set forth in Section 2.2(b) of this
Agreement.

    

    
      
        
           

        

        
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    (b)           The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:

     

    (i)    
       the accuracy in all material respects
when made and on the Closing Date of the representations and warranties of the
Company contained herein (unless as of a specific date therein);

     

    (ii)           all
obligations, covenants and agreements of the Company required to be performed at
or prior to the Closing Date shall have been performed;

     

    (iii)           the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement;

     

    (iv)           there
shall have been no Material Adverse Effect with respect to the Company since the
date hereof; and

     

    (v)           from
the date hereof to the Closing Date, trading in the Common Stock shall not have
been suspended by the Commission or the Company’s principal Trading Market
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing), and, at any
time prior to the Closing Date, trading in securities generally as reported by
Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable to
purchase the Securities at the Closing.

     

     

    ARTICLE
III.

    REPRESENTATIONS
AND WARRANTIES

     

    3.1           Representations and
Warranties of the Company.  Except as set forth in the
Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof
and shall qualify any representation or otherwise made herein to the extent of
the disclosure contained in the corresponding section of the Disclosure
Schedules, the Company hereby makes the following representations and warranties
to each Purchaser:

     

    (a)           Subsidiaries.  All
of the direct and indirect subsidiaries of the Company are set forth on Schedule
3.1(a).  The Company owns, directly or indirectly, all of the
capital stock or other equity interests of each Subsidiary free and clear of any
Liens, and all of the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase
securities.  If the Company has no subsidiaries, all other references
to the Subsidiaries or any of them in the Transaction Documents shall be
disregarded.

    

    
      
        
           

        

        
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    (b)           Organization and
Qualification.  The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any Subsidiary is in violation nor
default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter
documents.  Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in: (i) a material adverse effect on
the legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse
Effect”) and no Proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing or seeking to revoke, limit or curtail such
power and authority or qualification.

     

    (c)           Authorization;
Enforcement.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by
the Company, the Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals.  Each
Transaction Document to which it is a party has been (or upon delivery will have
been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms,
except: (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

     

    (d)           No
Conflicts.  The execution, delivery and performance by the
Company of the Transaction Documents, the issuance and sale of the Securities
and the consummation by it of the transactions contemplated hereby and thereby
to which it is a party do not and will not: (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary, or give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary debt or
otherwise) or other understanding to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment, injunction,
decree or other restriction of any court or governmental authority to which the
Company or a Subsidiary is subject (including federal and state securities laws
and regulations), or by which any property or asset of the Company or a
Subsidiary is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not have or reasonably be expected to result in a Material
Adverse Effect.

    

    
      
        
           

        

        
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    (e)           Filings, Consents and
Approvals.  The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the filings required pursuant to Section 4.6 of this Agreement, (ii)
the filing with the Commission pursuant to the Registration Rights Agreement,
(iii) the notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Securities and the listing of the Underlying Shares for
trading thereon in the time and manner required thereby and (iv) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the “Required
Approvals”).

     

    (f)           Issuance of the
Securities.  The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents.  The Underlying Shares, when issued
in accordance with the terms of the Transaction Documents, will be validly
issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in the Transaction
Documents.  The Company has reserved from its duly authorized capital
stock a number of shares of Common Stock for issuance of the Underlying Shares
at least equal to the Required Minimum on the date hereof.

     

    (g)           Capitalization.  The
capitalization of the Company is as set forth on Schedule 3.1(g),
which Schedule
3.1(g) shall also include the number of shares of Common Stock owned
beneficially, and of record, by Affiliates of the Company as of the date hereof.
The Company has not issued any capital stock since its most recently filed periodic report
under the Exchange Act, other than pursuant to the exercise of employee
stock options under the Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase
plans and pursuant to the conversion and/or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under the
Exchange Act.  No Person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents.  Except as a
result of the purchase and sale of the Securities, there are no outstanding
options, warrants, scrip rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents.  The issuance and sale of the Securities
will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under any of such securities. All of the outstanding
shares of capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, and none of such outstanding shares was issued in violation of
any preemptive rights or similar rights to subscribe for or purchase
securities.  No further approval or authorization of any stockholder,
the Board of Directors or others is required for the issuance and sale of the
Securities.  There are no stockholders agreements, voting agreements
or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among any
of the Company’s stockholders.

     

    
      
        
           

        

        
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    (h)           SEC Reports; Financial
Statements.  The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by the Company under
the Securities Act and the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the two years preceding the date hereof (or such shorter
period as the Company was required by law or regulation to file such material)
(the foregoing materials, including the exhibits thereto and documents
incorporated by reference therein, being collectively referred to herein as the
“SEC Reports”)
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such
extension.  As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.  The Company has never been an issuer subject to Rule
144(i) under the Securities Act. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing.  Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods
involved (“GAAP”), except as may
be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP.  Such statements fairly present in all material
respects the financial position of the Company and its consolidated Subsidiaries
as of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

    

    
      
        
           

        

        
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    (i)        
   Material Changes;
Undisclosed Events, Liabilities or Developments. Since the date of the
latest audited financial statements included within the SEC Reports, except as
specifically disclosed in a subsequent SEC Report filed prior to the date
hereof: (i) there has been no event, occurrence or development that has had or
that could reasonably be expected to result in a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise) other
than (A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or disclosed in
filings made with the Commission, (iii) the Company has not altered its method
of accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option
plans.  The Company does not have pending before the Commission any
request for confidential treatment of information.  Except for the
issuance of the Securities contemplated by this Agreement or as set forth on
Schedule
3.1(i), no event, liability, fact, circumstance, occurrence or
development has occurred or exists or is reasonably expected to occur or exist
with respect to the Company or its Subsidiaries or their respective business,
prospects, properties, operations, assets or financial condition, that would be
required to be disclosed by the Company under applicable securities laws at the
time this representation is made or deemed made that has not been publicly
disclosed at least 1 Trading Day prior to the date that this representation is
made.

     

    (j)        
   Litigation.  There
is no action, suit, inquiry, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect.  Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action involving
a claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty.  There has not been, and to the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director or officer of the Company.  The Commission has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.

    

    
      
        
           

        

        
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    (k)           Labor
Relations.  No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company, which could reasonably be expected to result in a Material Adverse
Effect.  None of the Company’s or its Subsidiaries’ employees is a
member of a union that relates to such employee’s relationship with the Company
or such Subsidiary, and neither the Company nor any of its Subsidiaries is a
party to a collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good.  No
executive officer, to the knowledge of the Company, is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters.  The Company
and its Subsidiaries are in compliance with all U.S. federal, state, local and
foreign laws and regulations relating to employment and employment practices,
terms and conditions of employment and wages and hours, except where the failure
to be in compliance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

     

    (l)           
Compliance.  Neither
the Company nor any Subsidiary: (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any judgment, decree or
order of any court, arbitrator or governmental body or (iii) is or has been in
violation of any statute, rule, ordinance or regulation of any governmental
authority, including without limitation all foreign, federal, state and local
laws applicable to its business and all such laws that affect the environment,
except in each case as could not reasonably be expected to result in a Material
Adverse Effect.

     

    (m)           Regulatory
Permits.  The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”),
and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material
Permit.

     

    (n)           Title to
Assets.  The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties.  Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the Subsidiaries
are in compliance.
 

    
      
        
           

        

        
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    (o)           Patents and
Trademarks.  The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights as necessary
or material for use in connection with their respective businesses as described
in the SEC Reports and which the failure to so have could have a Material
Adverse Effect (collectively, the “Intellectual Property
Rights”).  Neither the Company nor any Subsidiary has received
a notice (written or otherwise) that any of the Intellectual Property Rights
used by the Company or any Subsidiary violates or infringes upon the rights of
any Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights.  The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

     

    (p)           Insurance.  The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount.  Neither
the Company nor any Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.

     

    (q)           Transactions With Affiliates
and Employees.  Except as set forth in the SEC Reports, none of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner, in each case in excess
of $120,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including stock option agreements
under any stock option plan of the Company.

    

    
      
        
           

        

        
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    (r)          
 Sarbanes-Oxley;
Internal Accounting Controls.  The Company is in compliance
with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it
as of the Closing Date.  The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that: (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms.  The
Company’s certifying officers have evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by the
Company’s most recently filed periodic report under the Exchange Act (such date,
the “Evaluation
Date”).  The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date.  Since the Evaluation Date, there have been no
changes in the Company’s internal control over financial reporting (as such term
is defined in the Exchange Act) that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.

     

    (s)           Certain
Fees.  No brokerage or finder’s fees or commissions are or will
be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by the Transaction Documents.  The
Purchasers shall have no obligation with respect to any fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by the Transaction Documents.

     

    (t)         
  Private
Placement. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2, no registration under the Securities Act is
required for the offer and sale of the Securities by the Company to the
Purchasers as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading
Market.

     

    (u)           Investment Company.
The Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as
amended.  The Company shall conduct its business in a manner so that
it will not become an “investment company” subject to registration under the
Investment Company Act of 1940, as amended.

    

    
      
        
           

        

        
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    (v)           Registration
Rights.  Other than pursuant to the Registration Rights
Agreement, no Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the
Company.

     

    (w)           Listing and Maintenance
Requirements.  The Common Stock is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action
designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the Commission is contemplating
terminating such registration.  The Company has not, in the 12 months
preceding the date hereof, received notice from any Trading Market on which the
Common Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such Trading
Market. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.

     

    (x)           Application of Takeover
Protections.  The Company and the Board of Directors have taken
all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company’s
certificate of incorporation (or similar charter documents) or the laws of its
state of incorporation that is or could become applicable to the Purchasers as a
result of the Purchasers and the Company fulfilling their obligations or
exercising their rights under the Transaction Documents, including without
limitation as a result of the Company’s issuance of the Securities and the
Purchasers’ ownership of the Securities.

     

    (y)           Disclosure.  Except
with respect to the material terms and conditions of the transactions
contemplated by the Transaction Documents, the Company confirms that neither it
nor any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that it believes constitutes or
might constitute material, non-public information.  The Company
understands and confirms that the Purchasers will rely on the foregoing
representation in effecting transactions in securities of the
Company.  All of the disclosure furnished by or on behalf of the
Company to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.   The press releases disseminated by the
Company during the twelve months preceding the date of this Agreement taken as a
whole do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made and
when made, not misleading.  The Company acknowledges and agrees that
no Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.

    

    
      
        
           

        

        
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    (z)            No Integrated
Offering. Assuming the accuracy of the Purchasers’ representations and
warranties set forth in Section 3.2, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
(i) the Securities Act which would require the registration of any such
securities under the Securities Act, or (ii) any applicable shareholder approval
provisions of any Trading Market on which any of the securities of the Company
are listed or designated.

     

    (aa)          Solvency.  Based
on the consolidated financial condition of the Company as of the Closing Date,
after giving effect to the receipt by the Company of the proceeds from the sale
of the Securities hereunder: (i) the fair saleable value of the Company’s assets
exceeds the amount that will be required to be paid on or in respect of the
Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature, (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business as now conducted and as
proposed to be conducted including its capital needs taking into account the
particular capital requirements of the business conducted by the Company, and
projected capital requirements and capital availability thereof, and (iii) the
current cash flow of the Company, together with the proceeds the Company would
receive, were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be
paid.  The Company does not intend to incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt).  The Company has no
knowledge of any facts or circumstances which lead it to believe that it will
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within one year from the Closing Date.  Schedule 3.1(aa) sets
forth as of the date hereof all outstanding secured and unsecured Indebtedness
of the Company or any Subsidiary, or for which the Company or any Subsidiary has
commitments.  For the purposes of this Agreement, “Indebtedness” means
(x) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of business),
(y) all guaranties, endorsements and other contingent obligations in respect of
indebtedness of others, whether or not the same are or should be reflected in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (z) the present value of
any lease payments in excess of $50,000 due under leases required to be
capitalized in accordance with GAAP.  Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.

     

    (bb)         Tax
Status.  Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any
Subsidiary.

    

    
      
        
           

        

        
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    (cc)          No General
Solicitation.  Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising.  The Company has offered
the Securities for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.

     

    (dd)          Foreign Corrupt
Practices.  Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has: (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is  in violation of law or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.

     

    (ee)          Accountants.  The
Company’s accounting firm is set forth on Schedule 3.1(ee) of
the Disclosure Schedules.  To the knowledge and belief of the Company,
such accounting firm: (i) is a registered public accounting firm as required by
the Exchange Act and (ii) has expressed its opinion with respect to the
financial statements included in the Company’s Annual Report for the year ended
December 31, 2008.

     

    (ff)           Seniority.  As
of the Closing Date, no Indebtedness or other claim against the Company is
senior to the Preferred Stock in right of payment, whether with respect to
interest or upon liquidation or dissolution, or otherwise, other than
indebtedness secured by purchase money security interests (which is senior only
as to underlying assets covered thereby) and capital lease obligations (which is
senior only as to the property covered thereby).

     

    (gg)         No Disagreements with
Accountants and Lawyers.  There are no disagreements of any
kind presently existing, or reasonably anticipated by the Company to arise,
between the Company and the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees owed
to its accountants and lawyers which could affect the Company’s ability to
perform any of its obligations under any of the Transaction
Documents.

     

    (hh)          Acknowledgment Regarding
Purchasers’ Purchase of Securities.  The Company acknowledges
and agrees that each of the Purchasers is acting solely in the capacity of an
arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated thereby.  The Company further acknowledges
that no Purchaser is acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser or any
of their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to the
Purchasers’ purchase of the Securities.  The Company further
represents to each Purchaser that the Company’s decision to enter into this
Agreement and the other Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.

    

    
      
        
           

        

        
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    (ii)           Acknowledgment
Regarding Purchaser’s Trading
Activity.  Anything in this Agreement or elsewhere
herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.15
hereof), it is understood and acknowledged by the Company that: (i) none of the
Purchasers have
been asked by the
Company to agree, nor has any Purchaser agreed,
to desist from purchasing or selling, long and/or short, securities of the
Company, or “derivative” securities based on securities issued by the Company or
to hold the Securities for any specified term, (ii) past or future open market
or other transactions by any Purchaser, specifically including, without
limitation, Short Sales or “derivative” transactions, before or after the
closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities, (iii) any
Purchaser, and counter-parties in “derivative” transactions to which any such
Purchaser is a party, directly or indirectly, may presently have a “short”
position in the Common Stock and (iv) each Purchaser shall not be deemed to have
any affiliation with or control over any arm’s length counter-party in any
“derivative” transaction.  The Company further understands and
acknowledges that (y) one or more Purchasers may engage in hedging activities at
various times during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the Underlying Shares
deliverable with respect to Securities are being determined, and (z) such
hedging activities (if any) could reduce the value of the existing stockholders’
equity interests in the Company at and after the time that the hedging
activities are being conducted.  The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.

     

    (jj)           Regulation M
Compliance.  The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii),
compensation paid to the Company’s placement agent in connection with the
placement of the Securities.

     

    (kk)          Stock Option Plans.
Each stock option granted by the Company under the Company’s stock option plan
was granted (i) in accordance with the terms of the Company’s stock option plan
and (ii) with an exercise price at least equal to the fair market value of the
Common Stock on the date such stock option would be considered granted under
GAAP and applicable law. No stock option granted under the Company’s stock
option plan has been backdated.  The Company has not knowingly
granted, and there is no and has been no Company policy or practice to knowingly
grant, stock options prior to, or otherwise knowingly coordinate the grant of
stock options with, the release or other public announcement of material
information regarding the Company or its Subsidiaries or their financial results
or prospects.

     

    
      
        
           

        

        
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    3.2           Representations and
Warranties of the Purchasers.  Each Purchaser, for itself and
for no other Purchaser, hereby represents and warrants as of the date hereof and
as of the Closing Date to the Company as follows (unless as of a specific date
therein):

     

    (a)           Organization;
Authority.  Such Purchaser is either an individual or an entity
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with full right, corporate or partnership power
and authority to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations hereunder
and thereunder. The execution and delivery of the Transaction Documents and
performance by such Purchaser of the transactions contemplated by the
Transaction Documents have been duly authorized by all necessary corporate,
partnership, limited liability company or similar action, as applicable, on the
part of such Purchaser.  Each Transaction Document to which it is a
party has been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, except: (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.

     

    (b)           Own
Account.  Such Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting such Purchaser’s right to sell the
Securities pursuant to the Registration Statement or otherwise in compliance
with applicable federal and state securities laws).  Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its
business.

     

    (c)           Purchaser
Status.  At the time such Purchaser was offered the Securities,
it was, and as of the date hereof it is, and on each date on which it exercises
any Warrants or converts any shares of Preferred Stock, it will be either: (i)
an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as
defined in Rule 144A(a) under the Securities Act.

    

    
      
        
           

        

        
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    (d)           Experience of Such
Purchaser.  Such Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment.  Such Purchaser is able to bear the
economic risk of an investment in the Securities and, at the present time, is
able to afford a complete loss of such investment.

     

    (e)           General
Solicitation.  Such Purchaser is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or, to its
knowledge, any other general solicitation or general advertisement.

     

    (f)           Certain
Transactions and Confidentiality.  Other than consummating the
transactions contemplated hereunder, such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any purchases or sales, including
Short Sales, of the securities of the Company during the period commencing
as of the time that
such Purchaser first received a term sheet (written or oral) from the Company or
any other Person representing the Company setting forth the material terms of
the transactions contemplated hereunder and ending immediately prior to the
execution hereof.  Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser’s
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser’s assets, the representation set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this
Agreement.  Other than to other Persons party to this Agreement, such
Purchaser has maintained the confidentiality of all disclosures made to it in
connection with this transaction (including the existence and terms of this
transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing
contained herein shall constitute a representation or warranty, or preclude any
actions, with respect to the identification of the availability of, or securing
of, available shares to borrow in order to effect Short Sales or similar
transactions in the future.

     

    The
Company acknowledges and agrees that the representations contained in Section
3.2 shall not modify, amend or affect such Purchaser’s right to rely on the
Company’s representations and warranties contained in this Agreement or any
representations and warranties contained in any other Transaction Document or
any other document or instrument executed and/or delivered in connection with
this Agreement or the consummation of the transaction contemplated
hereby.

    

     

    ARTICLE
IV.

    OTHER
AGREEMENTS OF THE PARTIES

     

    4.1           Transfer
Restrictions.

    

    
      
        
           

        

        
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    (a)           The
Securities may only be disposed of in compliance with state and federal
securities laws.  In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.1(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act.  As a condition of transfer, any such transferee shall agree in
writing to be bound by the terms of this Agreement and the Registration Rights
Agreement and shall have the rights and obligations of a Purchaser under this
Agreement and the Registration Rights Agreement.

     

    (b)           The
Purchasers agree to the imprinting, so long as is required by this Section 4.1,
of a legend on any of the Securities in the following form:

     

     [NEITHER]
THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE]
[CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AND, UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE
TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE
TO THE COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE]
[CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE
SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

     

    The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties.  Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection
therewith.  Further, no notice shall be required of such
pledge.  At the appropriate Purchaser’s expense, the Company will
execute and deliver such reasonable documentation as a pledgee or secured party
of Securities may reasonably request in connection with a pledge or transfer of
the Securities, including, if the Securities are subject to registration
pursuant to the Registration Rights Agreement, the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) under the Securities Act or
other applicable provision of the Securities Act to appropriately amend the list
of Selling Stockholders (as defined in the Registration Rights Agreement)
thereunder.

    

    
      
        
           

        

        
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    (c)           Certificates
evidencing the Underlying Shares shall not contain any legend (including the
legend set forth in Section 4.1(b) hereof): (i) while a registration statement
(including the Registration Statement) covering the resale of such security is
effective under the Securities Act, (ii) following any sale of such Underlying
Shares pursuant to Rule 144, (iii) if such Underlying Shares are eligible for
sale under Rule 144, without the requirement for the Company to be in compliance
with the current public information required under Rule 144 as to such
Underlying Shares and without volume or manner-of-sale restrictions or (iv) if
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue a legal opinion to
the Transfer Agent promptly after the Effective Date if required by the Transfer
Agent to effect the removal of the legend hereunder. If all or any shares of
Preferred Stock are converted or any portion of a Warrant is exercised at a time
when there is an effective registration statement to cover the resale of the
Underlying Shares, or if such Underlying Shares may be sold under Rule 144 and
the Company is then in compliance with the current public information required
under Rule 144, or if the Underlying Shares may be sold under Rule 144 without
the requirement for the Company to be in compliance with the current public
information required under Rule 144 as to such Underlying Shares and without
volume or manner-of-sale restrictions or if such legend is not otherwise
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission) then
such Underlying Shares shall be issued free of all legends.  The
Company agrees that following the Effective Date or at such time as such legend
is no longer required under this Section 4.1(c), it will, no later than three
Trading Days following the delivery by a Purchaser to the Company or the
Transfer Agent of a certificate representing Underlying Shares, as applicable,
issued with a restrictive legend (such third Trading Day, the “Legend Removal
Date”), deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and other
legends.  The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer set
forth in this Section 4.  Certificates for Underlying Shares subject
to legend removal hereunder shall be transmitted by the Transfer Agent to the
Purchaser by crediting the account of the Purchaser’s prime broker with the
Depository Trust Company System as directed by such Purchaser.

     

    (d)           In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $1,000 of Underlying Shares (based on the VWAP of the Common Stock on the
date such Securities are submitted to the Transfer Agent) delivered for removal
of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day five (5) Trading Days after such damages have
begun to accrue) for each Trading Day after the Legend Removal Date until such
certificate is delivered without a legend.  Nothing herein shall limit
such Purchaser’s right to pursue actual damages for the Company’s failure to
deliver certificates representing any Securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

    

    
      
        
           

        

        
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    (e)           Each
Purchaser, severally and not jointly with the other Purchasers, agrees with the
Company that such Purchaser will sell any Securities pursuant to either the
registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom, and that if
Securities are sold pursuant to a Registration Statement, they will be sold in
compliance with the plan of distribution set forth therein, and acknowledges
that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 4.1 is predicated upon the Company’s
reliance upon this understanding.

     

    4.2           Acknowledgment of
Dilution.  The Company acknowledges that the issuance of the
Securities may result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market
conditions.  The Company further acknowledges that its obligations
under the Transaction Documents, including, without limitation, its obligation
to issue the Underlying Shares pursuant to the Transaction Documents, are
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim the Company may have against any Purchaser and regardless of the
dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.

     

    4.3           Furnishing of Information;
Public Information.

     

    (a)           If
the Common Stock is not registered under Section 12(b) or 12(g) of the Exchange
Act on the date hereof, the Company agrees to cause the Common Stock to be
registered under Section 12(g) of the Exchange Act on or before the 60th
calendar day following the date hereof. Until the earliest of the time that (i)
no Purchaser owns Securities or (ii) the Warrants have expired, the Company
covenants to maintain the registration of the Common Stock under Section 12(b)
or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect
thereof and file within the applicable grace period) all reports required to be
filed by the Company after the date hereof pursuant to the Exchange Act even if
the Company is not then subject to the reporting requirements of the Exchange
Act.    As long as any Purchaser owns Securities, if the
Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) such information as is required for the Purchasers to sell the
Securities, including without limitation, under Rule 144.  The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, to the extent required from time to time to
enable such Person to sell such Securities without registration under the
Securities Act, including without limitation, within the requirements of the
exemption provided by Rule 144.

    

    
      
        
           

        

        
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    (b)           At
any time during the period commencing from the six (6) month anniversary of the
date hereof and ending at such time that all of the Securities may be sold
without the requirement for the Company to be in compliance with Rule 144(c)(1)
and otherwise without restriction or limitation pursuant to Rule 144, including,
without limitation, Rule 144(i), if the Company shall fail for any reason to
satisfy the current public information requirement under Rule 144(c) (a “Public Information
Failure”) then, in addition to such Purchaser’s other available remedies,
the Company shall pay to a Purchaser, in cash, as partial liquidated damages and
not as a penalty, by reason of any such delay in or reduction of its ability to
sell the Securities, an amount in cash equal to two percent (2.0%) of the
aggregate Subscription Amount of such Purchaser’s Securities plus any amount
paid by such Purchaser upon exercise of any of the Warrants on the day of a
Public Information Failure and on every thirtieth (30th) day
(pro rated for periods totaling less than thirty days) thereafter until the
earlier of (a) the date such Public Information Failure is cured and (b) such
time that such public information is no longer required  for the Purchasers
to transfer the Underlying Shares pursuant to Rule 144.  The payments to
which a Purchaser shall be entitled pursuant to this Section 4.3(b) are referred
to herein as “Public
Information Failure Payments.”  Public Information Failure Payments shall be paid
on the earlier of (i) the last day of the calendar month during which such
Public Information Failure Payments are incurred
and (ii) the third (3rd)
Business Day after the event or failure giving rise to the Public Information
Failure Payments is
cured.  In the event the Company fails to make Public Information
Failure Payments in
a timely manner, such Public Information Failure Payments shall bear
interest at the rate of 1.5% per month (prorated for partial months) until paid
in full. Nothing herein shall limit such Purchaser’s right to pursue actual
damages for the Public Information Failure, and such Purchaser shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive
relief.

     

    4.4           Integration.  The
Company shall not sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the sale
of the Securities or that would be integrated with the offer or sale of the
Securities for purposes of the rules and regulations of any Trading Market such
that it would require shareholder approval prior to the closing of such other
transaction unless shareholder approval is obtained before the closing of such
subsequent transaction.

     

    4.5           Conversion and Exercise
Procedures.  Each of the form of Notice of Exercise included in
the Warrants and the form of Notice of Conversion included in the Certificate of
Designation set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Preferred Stock.  No
additional legal opinion, other information or instructions shall be required of
the Purchasers to exercise their Warrants or convert their Preferred
Stock.  The Company shall honor exercises of the Warrants and
conversions of the Preferred Stock and shall deliver Underlying Shares in
accordance with the terms, conditions and time periods set forth in the
Transaction Documents.

    

    
      
        
           

        

        
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    4.6           Securities Laws Disclosure;
Publicity.  The Company shall, by 8:30 a.m. (New York City
time) on the Trading Day immediately following the date hereof, issue a Current
Report on Form 8-K (the “8-K Filing”) and
press release disclosing the material terms of the transactions contemplated
hereby, and including the Transaction Documents as exhibits
thereto.  From and after the issuance of such press release, the
Company shall have publicly disclosed all material, non-public information
delivered to any of the Purchasers by the Company or any of its subsidiaries, or
any of their respective officers, directors, employees or agents in connection
with the transactions contemplated by the Transaction Documents. The Company and
each Purchaser shall consult with each other in issuing any other press releases
with respect to the transactions contemplated hereby, and neither the Company
nor any Purchaser shall issue any such press release nor otherwise make any such
public statement without the prior consent of the Company, with respect to any
press release of any Purchaser, or without the prior consent of each Purchaser,
with respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or
communication.  Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission or any regulatory agency or Trading
Market, without the prior written consent of such Purchaser, except: (a) as
required by federal securities law in connection with (i) any registration
statement contemplated by the Registration Rights Agreement and (ii) the filing
of final Transaction Documents (including signature pages thereto) with the
Commission and (b) to the extent such disclosure is required by law or Trading
Market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure permitted under this clause (b).

     

    4.7           Shareholder Rights
Plan.  No claim will be made or enforced by the Company or,
with the consent of the Company, any other Person, that any Purchaser is an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that any Purchaser could be deemed to trigger the provisions of any such plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the
Purchasers.

     

    4.8           Non-Public
Information.  Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it, nor any other Person acting on its
behalf, will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement with the
Company regarding the confidentiality and use of such
information.  The Company understands and confirms that each Purchaser
shall be relying on the foregoing covenant in effecting transactions in
securities of the Company.  If a Purchaser has, or believes it has,
received, from and after the time of the 8-K Filing, any such material,
nonpublic information regarding the Company or any of its Subsidiaries from the
Company, any of its Subsidiaries or any of their respective officers, directors,
affiliates or agents, it may provide the Company with written notice
thereof.  The Company shall, within two (2) Trading Days of receipt of
such notice, make public disclosure of such material, nonpublic
information.

    

    
      
        
           

        

        
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    4.9           Use of
Proceeds.  Except as set forth on Schedule 4.9 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and shall not use such proceeds for: (a)
the satisfaction of any portion of the Company’s debt (other than payment of
trade payables in the ordinary course of the Company’s business and prior
practices), (b) the redemption of any Common Stock or Common Stock Equivalents
or (c) the settlement of any outstanding litigation.

     

    4.10           Indemnification of
Purchasers.   Subject to the provisions of this Section
4.10, the Company will indemnify and hold each Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser
Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Purchaser
in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of such Purchaser’s representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by such Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance).  If any action shall be brought against any Purchaser
Party in respect of which indemnity may be sought pursuant to this Agreement,
such Purchaser Party shall promptly notify the Company in writing, and the
Company shall have the right to assume the defense thereof with counsel of its
own choosing reasonably acceptable to the Purchaser Party.  Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Purchaser Party except to the extent
that (i) the employment thereof has been specifically authorized by the Company
in writing, (ii) the Company has failed after a reasonable period of time to
assume such defense and to employ counsel or (iii) in such action there is, in
the reasonable opinion of counsel, a material conflict on any material issue
between the position of the Company and the position of such Purchaser Party, in
which case the Company shall be responsible for the reasonable fees and expenses
of no more than one such separate counsel.  The Company will not be
liable to any Purchaser Party under this Agreement (y) for any settlement by a
Purchaser Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (z) to the extent, but only to
the extent that a loss, claim, damage or liability is attributable to any
Purchaser Party’s breach of any of the representations, warranties, covenants or
agreements made by such Purchaser Party in this Agreement or in the other
Transaction Documents.

    

    
      
        
           

        

        
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    4.11          Reservation and Listing of
Securities.

     

    (a)           The
Company shall maintain a reserve from its duly authorized shares of Common Stock
for issuance pursuant to the Transaction Documents in such amount as may then be
required to fulfill its obligations in full under the Transaction
Documents.

     

    (b)           If,
on any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than 130% of (i) the Required Minimum on
such date, minus (ii) the number of shares of Common Stock previously issued
pursuant to the Transaction Documents, then the Board of Directors shall use
commercially reasonable efforts to amend the Company’s certificate or articles
of incorporation to increase the number of authorized but unissued shares of
Common Stock to at least the Required Minimum at such time (minus the number of
shares of Common Stock previously issued pursuant to the Transaction Documents),
as soon as possible and in any event not later than the 75th day
after such date; provided that the Company will not be required at any time to
authorize a number of shares of Common Stock greater than the maximum remaining
number of shares of Common Stock that could possibly be issued after such time
pursuant to the Transaction Documents.

    

    (c)           The
Company shall, if applicable: (i) in the time and manner required by the
principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing or quotation on such Trading Market as soon as possible
thereafter, (iii) provide to the Purchasers evidence of such listing or
quotation and (iv) maintain the listing or quotation of such Common Stock on any
date at least equal to the Required Minimum on such date on such Trading Market
or another Trading Market.

    

    (d)           The
Company shall hold a meeting of stockholders (which may also be at the annual
meeting of stockholders) no later than June 25, 2009, with a recommendation of
the Board of Directors that the Amendment is approved, and the Company shall
solicit proxies from its stockholders in connection therewith in the same manner
as all other management proposals in such proxy statement and all
management-appointed proxyholders shall vote their proxies in favor of such
proposal.  If the Company does not obtain Authorized Share Approval at
the first meeting, the Company shall call a meeting every 4 months thereafter or
shall solicit written consent every 1 month thereafter the date that Authorized
Share Approval is obtained.  Each Purchaser hereby agrees with the
Company that it shall vote its shares of Common Stock which are eligible to vote
at any such stockholder meeting or in connection with any consent solicitation
in favor of Authorized Share Approval. If the Company does not receive the
Authorized Share Approval by June 25, 2009, then, in addition to any other
rights the Purchasers may have hereunder or under applicable law, on June 25,
2009 and on each monthly anniversary of such date, the Company shall pay to each
Purchaser an amount in cash, as partial liquidated damages and not as a penalty,
equal to 4.0% of the aggregate Subscription Amount of such Purchaser, which
amount shall be inclusive of the other liquidated damages payable to the
Purchasers pursuant to Section 2(b) of the Registration Rights Agreement and
Section 4.3(b) of this Agreement. If the Company fails to pay any partial
liquidated damages pursuant to this Section in full within seven days after the
date payable, the Company will pay interest thereon at a rate of 18% per annum
(or such lesser maximum amount that is permitted to be paid by applicable law)
to the Purchaser, accruing daily from the date such partial liquidated
damages are due until such amounts, plus all such interest thereon, are paid in
full. The Company shall promptly hire a proxy solicitations firm that the
Purchasers shall designate in connection with such solicitation of
proxies.

    

    
      
        
           

        

        
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    4.12           Voting
Agreement.  The Company shall use its reasonable best efforts
to effectuate the transactions contemplated by the Voting Agreement,
substantially in the form attached hereto as Exhibit E (the "Voting Agreement"),
executed by the Company and the Stockholders set forth on Schedule 4.12 (the
"Stockholders").  The
Company shall not amend or waive any provision of the Voting Agreement and shall
enforce the provisions of the Voting Agreement in accordance with its terms. If
the Stockholders breach any provisions of the Voting Agreement, the Company
shall promptly use its best efforts to seek specific performance of the terms of
the Voting Agreement in accordance with Section 4.02 thereof.  In
addition, if the Company receives any notice from the Stockholders pursuant to
the Voting Agreement, the Company shall promptly, but in no event later than two
(2) Business Days, deliver a copy of such notice to each Purchaser.

     

    4.13           Subsequent Equity
Sales.

    

    (a)           From
the date hereof until 30 days after the later of (i) the Effective Date and (ii)
the date the Authorized Share Approval is obtained, neither the Company nor any
Subsidiary shall issue shares of Common Stock or Common Stock Equivalents; provided, however, that the 30
day period set forth in this Section 4.13 shall be extended for the number of
Trading Days during such period in which (i) trading in the Common Stock is
suspended by any Trading Market, or (ii) the Registration Statement is not
effective or the prospectus included in the Registration Statement may not be
used by the Purchasers for the resale of the Securities.

    

    (b)           From
the date hereof until the earlier of (i) such time as no Purchaser holds any of
the Securities and (ii) three years following the Closing Date, the Company
shall be prohibited from effecting or entering into an agreement to effect any
issuance by the Company or any of its Subsidiaries of Common Stock or Common
Stock Equivalents for cash consideration (or a combination of units thereof)
involving a Variable Rate Transaction. “Variable Rate
Transaction” means a transaction in which the Company (i) issues or sells
any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive, additional shares of Common
Stock either (A) at a conversion price, exercise price or exchange rate or other
price that is based upon, and/or varies with, the trading prices of or
quotations for the shares of Common Stock at any time after the initial issuance
of such debt or equity securities or (B) with a conversion, exercise or exchange
price that is subject to being reset at some future date after the initial
issuance of such debt or equity security or upon the occurrence of specified or
contingent events directly or indirectly related to the business of the Company
or the market for the Common Stock or (ii) enters into any agreement, including,
but not limited to, an equity line of credit, whereby the Company may sell
securities at a future determined price.  Any Purchaser shall be
entitled to obtain injunctive relief against the Company to preclude any such
issuance, which remedy shall be in addition to any right to collect
damages.

    

    
      
        
           

        

        
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    (c)           Notwithstanding
the foregoing, this Section 4.13 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt
Issuance.

    

    4.14          Equal Treatment of
Purchasers.  No consideration (including any modification of
any Transaction Document) shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration is also offered to all of the parties to
the Transaction Documents.  For clarification purposes, this provision
constitutes a separate right granted to each Purchaser by the Company and
negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.

     

    4.15          Certain Transactions and
Confidentiality. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that neither it, nor any Affiliate acting on its behalf or
pursuant to any understanding with it will execute any purchases or sales,
including Short Sales, of any of the Company’s securities during the period
commencing with the execution of this Agreement and ending at such time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in Section 4.6.  Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company pursuant to the initial press release as described in
Section 4.6, such Purchaser will maintain the confidentiality of the existence
and terms of this transaction and the information included in the Transaction
Documents and the Disclosure Schedules.  Notwithstanding the
foregoing, and notwithstanding anything contained in this Agreement to the
contrary, the Company expressly acknowledges and agrees that (i) no Purchaser
makes any representation, warranty or covenant hereby that it will not engage in
effecting transactions in any securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in Section 4.6, (ii) no
Purchaser shall be restricted or prohibited from effecting any transactions in
any securities of the Company in accordance with applicable securities laws from
and after the time that the transactions contemplated by this Agreement are
first publicly announced pursuant to the initial press release as described in
Section 4.6 and (iii) no Purchaser shall have any duty of confidentiality to the
Company or its Subsidiaries after the issuance of the initial press release as
described in Section 4.6.  Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser’s assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.

     

    
      
        
           

        

        
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    4.16          Form D; Blue Sky
Filings.  The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof, promptly upon request of any Purchaser. The Company shall take such
action as the Company shall reasonably determine is necessary in order to obtain
an exemption for, or to qualify the Securities for, sale to the Purchasers at
the Closing under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of any Purchaser.

     

    4.17          Capital
Changes.  Until the one year anniversary of the Effective Date,
the Company shall not undertake a reverse or forward stock split or
reclassification of the Common Stock without the prior written consent of all of
the Purchasers of the then outstanding shares of Preferred Stock.

     

    4.18          Liquidated Damages for
Failure to Comply.  If the Company shall fail to observe or
perform any other covenant or agreement contained in the Transaction Documents
(each, an “Event” and the date
on which such Event occurs, the “Event Date”), then,
in addition to any other rights the Purchasers may have hereunder or under
applicable law, on each such Event Date and on each monthly anniversary of each
such Event Date (if the applicable Event shall not have been cured by such date)
until the applicable Event is cured, the Company shall pay to each Purchaser, in
cash, as liquidated damages and not as a penalty, an amount equal to 1.5% of the
Subscription Amount of the Securities then held by such Purchaser, subject to a
maximum aggregate amount of 10% of the original Subscription Amount of such
Purchaser; provided, that if any
other provision of any Transaction Document separately provides for liquidated
damages for any particular breach of a covenant therein, then if the Company
actually pays such liquidated damages required under such other Transaction
Document, then no further liquidated damages shall be payable pursuant to this
provision. Nothing herein shall limit a Purchaser’s right to pursue any remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.  The exercise
of any such rights shall not prohibit a Purchaser from seeking to enforce
damages pursuant to any other Section hereof or under applicable law. If the
Company fails to pay any partial liquidated damages pursuant to this Section in
full within seven days after the date payable, the Company will pay interest
thereon at a rate of 18% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law) to the Purchaser, accruing daily from
the date such partial liquidated damages are due until such amounts, plus all
such interest thereon, are paid in full. The partial liquidated damages pursuant
to the terms hereof shall apply on a daily pro rata basis for any portion of a
month prior to the cure of an Event.

     

    4.19          Fees.  The
Company shall reimburse Hudson Bay Fund, LP or its designee(s) (in addition to
any other expense amounts paid to any Purchaser prior to the date of this
Agreement) for all reasonable costs and expenses incurred in connection with the
transactions contemplated by the Transaction Documents (including all reasonable
legal fees and disbursements in connection therewith, documentation and
implementation of the transactions contemplated by the Transaction Documents and
due diligence in connection therewith) in an amount not to exceed $25,000, which
amount may be withheld by such Purchaser from its Subscription Amount at the
Closing.  The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or broker's commissions (other
than for Persons engaged by any Purchaser) relating to or arising out of the
transactions contemplated hereby, including, without limitation, any fees or
commissions payable to the Placement Agent.  The Company shall pay,
and hold each Purchaser harmless against, any liability, loss or expense
(including, without limitation, reasonable attorney's fees and out-of-pocket
expenses) arising in connection with any claim relating to any such
payment.  Except as otherwise set forth in the Transaction Documents,
each party to this Agreement shall bear its own expenses in connection with the
sale of the Securities to the Purchasers.

    

    
      
        
           

        

        
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    4.20         Participation in Future
Financing.

     

    (a)           Subject
first to the rights of the purchasers to that certain Securities Purchase
Agreement dated May 27, 2009, from the date hereof until the date that is
the 16 month anniversary of the Effective Date, upon any issuance by the Company
or any of its Subsidiaries of Common Stock, Common Stock Equivalents,
Indebtedness (or a combination of units hereof) (a “Subsequent
Financing”), each Purchaser shall have the right to participate in up to
an amount of the Subsequent Financing equal to 100% of the Subsequent Financing
(the “Participation
Maximum”) on the same terms, conditions and price provided for in the
Subsequent Financing; provided, that the Participation Maximum shall be reduced
to the extent required, if any, by the principal Trading Market in order for the
Company to comply with the listing agreement for such Trading
Market. 

    

    (b)           At
least five (5) Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to each Purchaser a written notice of its intention to
effect a Subsequent Financing (“Pre-Notice”), which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “Subsequent Financing
Notice”).  Upon the request of a Purchaser, and only upon a request
by such Purchaser, for a Subsequent Financing Notice, the Company shall
promptly, but no later than 1 Trading Day after such request, deliver a
Subsequent Financing Notice to such Purchaser.  The Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder and the
Person or Persons through or with whom such Subsequent Financing is proposed to
be effected and shall include a term sheet or similar document relating thereto
as an attachment.   

    

    (c)           Any
Purchaser desiring to participate in such Subsequent Financing must provide
written notice to the Company by not later than 5:30 p.m. (New York City time)
on the fifth (5th)
Trading Day after all of the Purchasers have received the Pre-Notice that the
Purchaser is willing to participate in the Subsequent Financing, the amount of
the Purchaser’s participation, and that the Purchaser has such funds ready,
willing, and available for investment on the terms set forth in the Subsequent
Financing Notice.  If the Company receives no notice from a Purchaser
as of such fifth (5th)
Trading Day, such Purchaser shall be deemed to have notified the Company that it
does not elect to participate. 

    

    
      
        
           

        

        
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    (d)           If
by 5:30 p.m. (New York City time) on the fifth (5th)
Trading Day after all of the Purchasers have received the Pre-Notice,
notifications by the Purchasers of their willingness to participate in the
Subsequent Financing (or to cause their designees to participate) is, in the
aggregate, less than the total amount of the Subsequent Financing, then the
Company may effect the remaining portion of such Subsequent Financing on the
terms and with the Persons set forth in the Subsequent Financing
Notice. 

    

    (e)           If
by 5:30 p.m. (New York City time) on the fifth (5th)
Trading Day after all of the Purchasers have received the Pre-Notice, the
Company receives responses to a Subsequent Financing Notice from Purchasers
seeking to purchase more than the aggregate amount of the Participation Maximum,
each such Purchaser shall have the right to purchase its Pro Rata Portion (as
defined below) of the Participation Maximum.  “Pro Rata Portion”
means the ratio of (x) the Subscription Amount of Securities purchased on the
Closing Date by a Purchaser participating under this Section 4.20 and (y) the
sum of the aggregate Subscription Amounts of Securities purchased on the Closing
Date by all Purchasers participating under this Section 4.20 plus the aggregate
subscription amounts of investors party to securities purchase agreement(s)
contemplated by clause (d) in the definition of Exempt Issuance that are
participating in such Subsequent Financing pursuant to participation rights
granted to such investors under such agreements that are substantially similar
to this Section 4.20.

    
    (f)          
 Notwithstanding
anything to the contrary in this Section 4.20 and unless otherwise agreed to by
the Purchasers, the Company shall either confirm in writing to the Purchasers
that the transaction with respect to the Subsequent Financing has been abandoned
or shall publicly disclose its intention to issue the securities offered in such
Subsequent Financing (“Offered
Securities”), in either case in such a manner such that the Purchasers
will not be in possession of material non-public information, by the
twenty-fifth (25th) Business Day following delivery of the Subsequent Financing
Notice.  If by the twenty-fifth (25th) Business Day following delivery
of the Subsequent Financing Notice no public disclosure regarding a transaction
with respect to the Offered Securities has been made, and no notice regarding
the abandonment of such transaction has been received by the Purchasers, such
transaction shall be deemed to have been abandoned and the Purchasers shall not
be deemed to be in possession of any material, non-public information with
respect to the Company.  Should the Company decide to pursue such
transaction with respect to the Offered Securities, the Company shall provide
each Purchaser with another Subsequent Financing Notice and each Purchaser will
again have the right of participation set forth in this Section
4.20.  The Company shall not be permitted to deliver more than one
such Subsequent Financing Notice to the Purchasers in any 60 day
period.

    
       

                                     
(g)           Notwithstanding anything
herein to the contrary, in the event the Company shall propose to reduce the
size of the Subsequent Financing, then each Purchaser may, at its sole option
and in its sole discretion, reduce the number or amount of its elected
participation in the Subsequent Financing to an amount that shall be not less
than the number or amount of the amount of such Subsequent Financing that such
Purchaser elected to purchase pursuant to Section 4.20(c) above multiplied by a
fraction, (i) the numerator of which shall be the number or amount of the
Subsequent Financing that the Company actually proposes to issue, sell or
exchange (including securities to be issued or sold to Purchasers pursuant to
Section 4.20(a) above prior to such reduction) and (ii) the denominator of which
shall be the original amount of the Subsequent Financing.  In the
event that any Purchaser so elects to reduce the number or amount of its elected
participation in the Subsequent Financing, the Company may not issue, sell or
exchange more than the reduced number or amount of the Subsequent Financing
unless and until such securities have again been offered to the Purchasers in
accordance with Section 4.20(c) above.

       

                             
(h)           Notwithstanding
the foregoing, this Section 4.20 shall not apply in respect of (i) an Exempt
Issuance, or (ii) an underwritten public offering of Common Stock.

       

    

    ARTICLE
V.

    MISCELLANEOUS

     

    5.1           Termination. 
This Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the Closing has not been consummated on or before June 19, 2009;
provided, however, that such
termination will not affect the right of any party to sue for any breach by the
other party (or parties).

    

    
      
        
           

        

        
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    5.2           Fees and
Expenses.  Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement.  The Company shall pay all
Transfer Agent fees, stamp taxes and other taxes and duties levied in connection
with the delivery of any Securities to the Purchasers.

     

    5.3           Entire
Agreement.  The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and
schedules.

     

    5.4           Notices.  Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of: (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second
(2nd)  Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service or (d) upon actual receipt by the party to whom such
notice is required to be given.  The address for such notices and
communications shall be as set forth on the signature pages attached
hereto.

     

    5.5           Amendments;
Waivers.  No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and all of the Purchasers of the then
outstanding Securities or, in the case of a waiver, by the party against whom
enforcement of any such waived provision is sought.  No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such
right.

     

    5.6           Headings.  The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.

     

    5.7           Successors and
Assigns.  This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted
assigns.  The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of each Purchaser (other
than by merger).  Any Purchaser may assign any or all of its rights
under this Agreement to any Person to whom such Purchaser assigns or transfers
any Securities, provided that such transferee agrees in writing to be bound,
with respect to the transferred Securities, by the provisions of the Transaction
Documents that apply to the “Purchasers.”

    

    
      
        
           

        

        
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    5.8           No Third-Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.10.

     

    5.9           Governing
Law.  All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law
thereof.  Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York.  Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, borough of Manhattan for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or is an  inconvenient venue for such
proceeding.  Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by law.  If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then, in addition to the obligations of the Company
under Section 4.10, the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.

     

    5.10          Survival.  The
representations and warranties contained herein shall survive the Closing and
the delivery of the Securities.

     

    5.11          Execution.  This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart.  In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.

     

    5.12          Severability.  If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

    

    
      
        
           

        

        
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    5.13          Rescission and Withdrawal
Right.  Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) any of the other Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Purchaser may rescind
or withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights; provided, however, that in the
case of a rescission of a conversion of the Preferred Stock or exercise of a
Warrant, the applicable Purchaser shall be required to return any shares of
Common Stock subject to any such rescinded conversion or exercise notice
concurrently with the return to such Purchaser of the aggregate exercise price
paid to the Company for such shares and the restoration of such Purchaser’s
right to acquire such shares pursuant to such Purchaser’s Warrant (including,
issuance of a replacement warrant certificate evidencing such restored
right).

     

    5.14          Replacement of
Securities.  If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction.  The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.

     

    5.15          Remedies.  In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Purchasers and the Company will
be entitled to specific performance under the Transaction
Documents.  The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agree to waive and
not to assert in any action for specific performance of any such obligation the
defense that a remedy at law would be adequate.

     

    5.16          Payment Set Aside. To
the extent that the Company makes a payment or payments to any Purchaser
pursuant to any Transaction Document or a Purchaser enforces or exercises its
rights thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

     

    
      
        
           

        

        
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    5.17          Usury.  To
the extent it may lawfully do so, the Company hereby agrees not to insist upon
or plead or in any manner whatsoever claim, and will resist any and all efforts
to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim,
action or proceeding that may be brought by any Purchaser in order to enforce
any right or remedy under any Transaction Document.  Notwithstanding
any provision to the contrary contained in any Transaction Document, it is
expressly agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and,
without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate.  It is agreed that if
the maximum contract rate of interest allowed by law and applicable to the
Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate
of interest allowed by law will be the Maximum Rate applicable to the
Transaction Documents from the effective date thereof forward, unless such
application is precluded by applicable law.  If under any
circumstances whatsoever, interest in excess of the Maximum Rate is paid by the
Company to any Purchaser with respect to indebtedness evidenced by the
Transaction Documents, such excess shall be applied by such Purchaser to the
unpaid principal balance of any such indebtedness or be refunded to the Company,
the manner of handling such excess to be at such Purchaser’s
election.

     

    5.18          Independent Nature of
Purchasers’ Obligations and Rights.  The obligations of each
Purchaser under any Transaction Document are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document.  Nothing contained herein or
in any other Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents.  Each Purchaser shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose.  Each Purchaser
has been represented by its own separate legal counsel in their review and
negotiation of the Transaction Documents.  For reasons of
administrative convenience only, each Purchaser and its respective counsel have
chosen to communicate with the Company through WS.  WS does not
represent any of the Purchasers and only represents the Placement Agent. The
Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by any of the Purchasers.

    

    
      
        
           

        

        
          38

          
            

          

        

        
           

        

      

    

     

    5.19          Liquidated
Damages.  The Company’s obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been
canceled.

     

    5.20          Saturdays, Sundays,
Holidays, etc.  If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not
be a Business Day, then such action may be taken or such right may be exercised
on the next succeeding Business Day.

     

    5.21          Construction. The
parties agree that each of them and/or their respective counsel has reviewed and
had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto. In addition, each and
every reference to share prices and shares of Common Stock in any Transaction
Document shall be subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common
Stock that occur after the date of this Agreement.

     

    5.22          WAIVER OF
JURY TRIAL.  IN ANY ACTION, SUIT, OR
PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE
PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY
WAIVES FOREVER TRIAL BY JURY.

     

    

     

    (Signature
Pages Follow)

     

     

    

    
      
        
           

        

        
          39

          
            

          

        

        
           

        

      

    

    

    IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

     

    

    
      	
              ADVANCED
      BATTERY TECHNOLOGIES, INC.

               

            	
              Address for
      Notice:

              15 West
      39th
      St., Suite 14A

              New
      York, NY 10018

               

            
	
              By:
      /s/ Zhiguo Fu

                   Name:  Zhiguo
      Fu

                   Title:  Chief
      Executive Officer

              With
      a copy to (which shall not constitute notice):

               

            	
              Fax:  212-391-2751

            
	 
      	 
      

    

    

    

    

    

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK

    SIGNATURE
PAGE FOR PURCHASER FOLLOWS]

     

     

    

    
      
        
           

        

        
          40

          
            

          

        

        
           

        

      

    

    

      [PURCHASER
SIGNATURE PAGES TO ABAT SECURITIES PURCHASE AGREEMENT]

      

      IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.

      

      Name of
Purchaser: Iroquois Master Fund Ltd.

       

      Signature of Authorized Signatory of
Purchaser: /s/ Joshua Silverman

       

      Name of
Authorized Signatory: Joshua Silverman

       

      Title of
Authorized Signatory: Authorized signatory

       

      Email
Address of Authorized Signatory:

       

      Facsimile
Number of Authorized Signatory:

       

      

      
        
          	
                  Address
      for Notice of Purchaser:

                	
                  641
      Lexington Ave., 26th
      Floor

                
	 
      	
                  New
      York, NY 10022

                
	 
      	 
      

        

      

       

      Address
for Delivery of Securities for Purchaser (if not same as address for
notice):

      

      Subscription
Amount: 2,250,000

      Shares of
Preferred Stock: 562,500

      Series A
Warrant Shares: 253,125

      Series B
Warrant Shares: 562,500

      Series C
Warrant Shares: 140,625

      EIN
Number:  [PROVIDE
THIS UNDER SEPARATE COVER]

      

      

      

      [SIGNATURE
PAGES CONTINUE]

      
         

         

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      [PURCHASER
SIGNATURE PAGES TO ABAT SECURITIES PURCHASE AGREEMENT]

      

      IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.

      

      Name of
Purchaser: Cranshire Capital, L.P.

       

      Signature of Authorized Signatory of
Purchaser: /s/Mitchell P. Kopin

       

      Name of
Authorized Signatory: Mitchell P. Kopin

       

      Title of
Authorized Signatory: President – Downsview Capital, The General
Partner

       

      Email
Address of Authorized Signatory:

       

      Facsimile
Number of Authorized Signatory:

       

      

       

      
        
          	
                  Address
      for Notice of Purchaser:

                	
                  3100
      Dundee Road, Suite 703

                
	 
      	
                  Northbrook,
      IL 60062

                

        

      

       

      Address
for Delivery of Securities for Purchaser (if not same as address for
notice):

      

      Subscription
Amount: $2,375,000

      Shares of
Preferred Stock: 2,375

      Series A
Warrant Shares: 267,188

      Series B
Warrant Shares: 593,750

      Series C
Warrant Shares: 148,438

      EIN
Number:  [PROVIDE
THIS UNDER SEPARATE COVER]

      

      

      

      [SIGNATURE
PAGES CONTINUE]

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
 

      [PURCHASER
SIGNATURE PAGES TO ABAT SECURITIES PURCHASE AGREEMENT]

      

      IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.

      

      Name of
Purchaser: Hudson Bay Fund, LP

       

      Signature of Authorized Signatory of
Purchaser: /s/ Yoav Roth

       

      Name of
Authorized Signatory:  Hudson Bay Capital Management LP /
By:  Yoav Roth

       

      Title of
Authorized Signatory: Investment Manager / Authorized Signatory

       

      Email
Address of Authorized Signatory:

       

      Facsimile
Number of Authorized Signatory:

       

      

      
        
          	
                  Address
      for Notice of Purchaser:

                	
                  c/o
      Hudson Bay Capital Management LP

                
	 
      	
                  120
      Broadway, 40th
      Floor

                
	 
      	
                  New
      York, NY 10271

                

        

      

      

      [with a
copy (for informational purposes only) to:

      Schulte
Roth & Zabel LLP

      919 Third
Avenue

      New York,
New York  10022

      

      
        
          	
                  Telephone:

                	
                  (212)
      756-2000

                
	
                  Facsimile:

                	
                  (212)
      593-5955

                
	
                  Attention:

                	
                  Eleazer
      N. Klein, Esq.

                
	
                  Email:

                	
                  eleazer.klein@srz.com] 3

                   

                

        

      

      

      Address
for Delivery of Securities for Purchaser (if not same as address for
notice):

      

      Subscription
Amount: $855,000

      Shares of
Preferred Stock: 855

      Series A
Warrant Shares: 96,187

      Series B
Warrant Shares: 213,750

      Series C
Warrant Shares: 53,438

      EIN
Number:  [PROVIDE
THIS UNDER SEPARATE COVER]

      

      

      

      [SIGNATURE
PAGES CONTINUE]

       

       

      
        
          

        
 3 As to
Hudson Bay ONLY.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      [PURCHASER
SIGNATURE PAGES TO ABAT SECURITIES PURCHASE AGREEMENT]

      

      IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.

      

      Name of
Purchaser: Hudson Bay Overseas Fund, Ltd.

       

      Signature of Authorized Signatory of
Purchaser: /s/ Yoav Roth

       

      Name of
Authorized Signatory:  Hudson Bay Capital Management LP /
By:  Yoav Roth

       

      Title of
Authorized Signatory: Investment Manager / Authorized Signatory

       

      Email
Address of Authorized Signatory:

       

      Facsimile
Number of Authorized Signatory:

       

      

      
        	
                Address
      for Notice of Purchaser:

              	
                c/o
      Hudson Bay Capital Management LP

              
	 
      	
                120
      Broadway, 40th
      Floor

              
	 
      	
                New
      York, NY 10271

              

      

      

      [with a
copy (for informational purposes only) to:

      Schulte
Roth & Zabel LLP

      919 Third
Avenue

      New York,
New York  10022

      
        
          
            
              	
                      Telephone:

                    	
                      (212)
      756-2000

                    
	
                      Facsimile:

                    	
                      (212)
      593-5955

                    
	
                      Attention:

                    	
                      Eleazer
      N. Klein, Esq.

                    
	
                      Email:

                    	
                      eleazer.klein@srz.com]4

                    

            

          

        

      

       

      

      Address
for Delivery of Securities for Purchaser (if not same as address for
notice):

      

      Subscription
Amount: $1,520,000

      Shares of
Preferred Stock: 1,520

      Series A
Warrant Shares: 171,000

      Series B
Warrant Shares: 380,000

      Series C
Warrant Shares: 95,000

      EIN
Number:  [PROVIDE
THIS UNDER SEPARATE COVER]

      

      

      

      [SIGNATURE
PAGES CONTINUE]

      

      

        
          

        

      

       4 As to
Hudson Bay ONLY.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      ADVANCED
BATTERY TECHNOLOGIES, INC.

       

      

       

      Securities
Purchase Agreement

       

      dated
June 12, 2009

       

      DISCLOSURE
SCHEDULES

       

       

      Schedules

      3.1(a) 
   Subsidiaries

      3.1(f)   
  Issuance of the Securities

      3.1(g)  
  Capitalization

      3.1(h)  
  SEC Reports

      3.1(j)    
  Litigation

      3.1(n)  
  Title to Assets

      3.1(p)   
  Insurance

      3.1(s)  
   Certain Fees

      3.1(aa) 
  Indebtedness

      3.1(ee)  
 Accountants

      4.12    
    Voting Agreement

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ADVANCED
BATTERY TECHNOLOGIES, INC.

      

      Securities
Purchase Agreement dated June 12, 2009

      

      Disclosure
Schedules

      

      SCHEDULE 3.1(a):
Subsidiaries

      

      Subsidiaries

      

      The
direct and indirect subsidiaries of the Company are:

      

      Cashtech
Investment Limited, a British Virgin Islands corporation

      Harbin
Zhong Qiang Power-Tech Co., Ltd., a PRC corporation

      Wuxi
Zhongqiang Autocycle Co., Ltd., a PRC corporation

      Beyond
E-Tech, Inc., a Texas corporation (49% equity ownership)

      

      In
addition, the following entity is a variable interest entity with respect to the
Company, by reason of several agreements (Operating Agreement, Consulting
Services Agreement, Equity Pledge Agreement, Proxy Agreement, Option Agreement,
each dated September 8, 2004) between the registered owners of the entity and
Harbin Zhong Qiang Power-Tech Co., Ltd.:

      

      Heilongjiang
Zhong Qiang Power-Tech Co., Ltd., a PRC corporation

      

      

      *       *       *       *       *

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ADVANCED
BATTERY TECHNOLOGIES, INC.

      

      Securities
Purchase Agreement dated June 12, 2009

      

      Disclosure
Schedules

      

      SCHEDULE 3.1(f): Issuance of
the Securities

      

      The
Company has only 2,178,523 shares of common stock authorized but
unissued.

      

      *       *       *       *       *

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ADVANCED
BATTERY TECHNOLOGIES, INC.

      

      Securities
Purchase Agreement dated June 12, 2009

      

      Disclosure
Schedules

      

      SCHEDULE 3.1(g):
Capitalization - Page 1

      

      Authorized and Outstanding
Shares

      

      The
authorized capital stock of the Company consists of 60 million shares of common
stock, $.001 par value, and 5 million shares of preferred stock, $.001 par
value.  There are 57,821,477 shares of common stock outstanding, and
no shares of preferred stock outstanding.

      

      Ownership by
Affiliates

      
        
          	
                   

                  Name

                	
                   

                  Position

                	
                   

                  Shares

                
	
                   

                  Zhiguo
      Fu

                	
                   

                  CEO,
      Director

                	
                   

                  8,849,730

                
	
                   

                  Guohua
      Wan

                	
                   

                  CFO,
      Director

                	
                   

                  110,000

                
	
                   

                  Guopeng
      Gao

                	
                   

                  Director

                	
                   

                  70,000

                
	
                   

                  Hongjun
      Si

                	
                   

                  Director

                	
                   

                  60,000

                
	
                   

                  Liqui
      Bai

                	
                   

                  Director

                	
                   

                  30,000

                
	
                   

                  Shaoqui
      Xia

                	
                   

                  Director

                	
                   

                  0

                
	
                   

                  Ning
      Li

                	
                   

                  Director

                	
                   

                  0

                
	
                   

                  Shiyan
      Yang

                	
                   

                  Director

                	
                   

                  0

                
	
                   

                  Yulin
      Hao

                	
                   

                  Director

                	
                   

                  0

                
	
                   

                  John
      McFadden

                	
                   

                  Director

                	
                   

                  28,924

                
	
                   

                  Cosimo
      Patti

                	
                   

                  Director

                	
                  24,884

                
	
                   

                  Dan
      Chang

                	
                  Senior
      V.P.

                	
                   

                  0

                
	
                   

                  Luke
      Huang

                	
                  CTO

                	
                  40,000

                

        

      

      

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      ADVANCED
BATTERY TECHNOLOGIES, INC.

      

      Securities
Purchase Agreement dated June 12, 2009

      

      Disclosure
Schedules

      

      SCHEDULE 3.1(g):
Capitalization - Page 2

      

      Commitments to Issue
Securities

      

      The
Company has agreed that it will issue to Cosimo Patti, for each year of his
service on the Board of Directors, common shares with a market value of
$30,000. The shares
are issuable on February 1 of each year.  Market value is determines
as the average closing price for the ten trading days preceding the issuable
date.

      

      The
Company has agreed that it will issue to John J. McFadden, for each year of his
service on the Board of Directors, common shares with a market value of
$30,000. The shares
are issuable on March 1 of each year.  Market value is determines as
the average closing price for the ten trading days preceding the issuable
date.

      

      The
Company has agreed to issue to Dan Chang 20,000 shares of common stock for each
year of his employment by the Company.  The shares are issuable in
September of each year.

      

      The
Company has agreed to issue to Luke Huang 40,000 shares of common stock during
each of the next four years of his employment.

      

      Options

      In August
2008 the Company issued 5-year warrants to purchase 2,592,945 shares of common
stock at $5.51 per share.

      

      In July
2007 the Company issued to ROI Group, Inc. a 5-year warrant to purchase 200,000
shares of common stock at $6.00 per share.

      

      *       *       *       *       *

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ADVANCED
BATTERY TECHNOLOGIES, INC.

      

      Securities
Purchase Agreement dated June 12, 2009

      

      Disclosure
Schedules

      

      SCHEDULE 3.1(h): SEC
Reports

      

      Financial
Statements

      

      The
Company has not yet filed the financial statements of Wuxi Zhongqiang Autocycle
Co., ltd. that must be filed by amendment to the Company’s Current Report on
Form 8-K dated May 4, 2009.

      

      *       *       *       *       *

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ADVANCED
BATTERY TECHNOLOGIES, INC.

      

      Securities
Purchase Agreement dated June 12, 2009

      

      Disclosure
Schedules

      

      SCHEDULE 3.1(j):
Litigation

      

      Susquehanna Financial Group, LLLP v.
Advanced Battery Technologies, Inc.  In September Susquehanna
Financial Group, LLLP (“SFG”) commenced this action in the Court of Common Pleas
of Montgomery County, Pennsylvania (Civil Action No. 08-25505).  SFG
alleges that it was party to two contracts with the Company, pursuant to which
SFG alleges that it was entitled to serve as financial advisor with respect to
any offering of securities by the Company completed prior to March
2009.  SFG alleges that the Company failed to afford SFG the
opportunity to serve as financial advisor in connection with the private
placement by the Company in August 2008.  SFG alleges that it is
entitled to damages in the amount of $1,359,872.46 and a warrant to purchase
81,882 share of the Company’s common stock exercisable at $8.00 per
share.  The Company has answered the Complaint, and has denied that
SFG was entitled to serve as financial advisor in connection with the August
2008 private placement by reason of the fact that SFG had terminated its
agreements with the Company, had waived any continuing rights under the
contracts, and had acted in bad faith in connection with the services it
undertook to perform for the Company.

      

      

      *       *       *       *       *

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      ADVANCED
BATTERY TECHNOLOGIES, INC.

      

      Securities
Purchase Agreement dated June 12, 2009

      

      Disclosure
Schedules

      

      SCHEDULE 3.1(n): Title to
Assets

      

      There are no liens on the assets of the
Company, except that there is a lien of 50,000,000 RMB held by Huaxia Bank on
the land and buildings owned by Wuxi Zhongqiang.

      

      *       *       *       *       *

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ADVANCED
BATTERY TECHNOLOGIES, INC.

      

      Securities
Purchase Agreement dated June 12, 2009

      

      Disclosure
Schedules

      

      SCHEDULE 3.1(p):
Insurance

      

      The only
insurance policies that the Company maintains in the United States
are:

      

      -           Workers
Compensation Insurance, in amounts specified by the State of New
York.

      -           Directors
and Officers Liability Insurance, with an indemnification limitation of $1
million.

      

      The only
insurance policies that the Company=s
subsidiaries maintain in China are:

      

      -           Employee
Medical Insurance

      -           Labor
Protection Insurance

      -           Unemployment
Compensation Insurance

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ADVANCED
BATTERY TECHNOLOGIES, INC.

      

      Securities
Purchase Agreement dated June 12, 2009

      

      Disclosure
Schedules

      

      SCHEDULE 3.1(s): Certain
Fees

      

      The
Company has an investment banking agreement with Rodman & Renshaw pursuant
to which it will compensate Rodman and Renshaw for services in connection with
the present private offering.

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ADVANCED
BATTERY TECHNOLOGIES, INC.

      

      Securities
Purchase Agreement dated June 12, 2009

      

      Disclosure
Schedules

      

      SCHEDULE 3.1(aa):
Indebtedness

      

      The Company has no debt other than (a)
accounts payable and accrued expenses entered in the ordinary course of
business, (b) taxes payable, and (c) debts of Wuxi Zhongqiang that have not been
determined.

      

      

      *       *       *       *       *

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ADVANCED
BATTERY TECHNOLOGIES, INC.

      

      Securities
Purchase Agreement dated June 12, 2009

      

      Disclosure
Schedules

      

      SCHEDULE 3.1(ee):
Accountants

      

      Bagell, Josephs & Levine is the
independent registered public accountant for the Company.

      

      *       *       *       *       *

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ADVANCED
BATTERY TECHNOLOGIES, INC.

      

      Securities
Purchase Agreement dated June 12, 2009

      

      Disclosure
Schedules

      

      SCHEDULE 4.12: Voting
Agreement

      

      Zhiguo Fu is the record and beneficial
owner of 8,849,730 shares of the Company’s common stock.

      

      *       *       *       *       *

    

     

    

    
      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

    

     

    EXHIBIT
A

    

    ADVANCED
BATTERY TECHNOLOGIES, INC.

    

    CERTIFICATE
OF DESIGNATION OF PREFERENCES,

    RIGHTS
AND LIMITATIONS

    OF

    SERIES F 0% CONVERTIBLE
PREFERRED STOCK

    

    PURSUANT
TO SECTION 151 OF THE

    DELAWARE
GENERAL CORPORATION LAW

    

            The
undersigned, Zhiguo Fu and Yuhsia Lai, do hereby certify that:

    

         1. They
are the President and Secretary, respectively, of Advanced Battery Technologies,
Inc., a Delaware corporation (the “Corporation”).

    

         2. The
Corporation is authorized to issue 5,000,000 shares of preferred stock, no
shares are issued and outstanding.

    

         3. The
following resolutions were duly adopted by the board of directors of the
Corporation (the “Board of
Directors”):

    

            WHEREAS,
the certificate of incorporation of the Corporation provides for a class of its
authorized stock known as preferred stock, consisting of 5,000,000 shares,
$0.001 par value per share, issuable from time to time in one or more
series;

    

            WHEREAS,
the Board of Directors is authorized to fix the dividend rights, dividend rate,
voting rights, conversion rights, rights and terms of redemption and liquidation
preferences of any wholly unissued series of preferred stock and the number of
shares constituting any series and the designation thereof, of any of them;
and

    

            WHEREAS,
it is the desire of the Board of Directors, pursuant to its authority as
aforesaid, to fix the rights, preferences, restrictions and other matters
relating to a series of the preferred stock, which shall consist of, except as
otherwise set forth in the Purchase Agreement, up to 7,000 shares of the
preferred stock which the Corporation has the authority to issue, as
follows:

    

            NOW,
THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for
the issuance of a series of preferred stock for cash or exchange of other
securities, rights or property and does hereby fix and determine the rights,
preferences, restrictions and other matters relating to such series of preferred
stock as follows:

    

    
      
        
           

        

        
          1

          
            

          

        

        
           

        

      

    

     

    TERMS
OF PREFERRED STOCK

    

    Section
1.    Definitions. For the
purposes hereof, the following terms shall have the following
meanings:

    

    “Affiliate” means any
Person that, directly or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with a Person, as such terms are
used in and construed under Rule 405 of the Securities Act.

    

    “Alternate
Consideration” shall have the meaning set forth in Section
7(e).

    

    “Amendment” means an
amendment to the Corporation’s articles of incorporation that increases the
number of authorized shares of Common Stock from 60,000,000 to
150,000,000.

     

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

     

    “Authorized Share
Approval” means (i) the vote by the stockholders of the company to
approve the Amendment and (ii) the filing by the Corporation of the Amendment
with the Secretary of State of the State of Delaware and the acceptance of the
Amendment by the Secretary of State of the State of Delaware.

     

     “Bankruptcy Event”
means any of the following events: (a) the Corporation or any Significant
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof
commences a case or other proceeding under any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the Corporation or
any Significant Subsidiary thereof, (b) there is commenced against the
Corporation or any Significant Subsidiary thereof any such case or proceeding
that is not dismissed within 60 days after commencement, (c) the Corporation or
any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any
order of relief or other order approving any such case or proceeding is entered,
(d) the Corporation or any Significant Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its
property that is not discharged or stayed within 60 calendar days after such
appointment, (e) the Corporation or any Significant Subsidiary thereof makes a
general assignment for the benefit of creditors, (f) the Corporation or any
Significant Subsidiary thereof calls a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts, or (g) the
Corporation or any Significant Subsidiary thereof, by any act or failure to act,
expressly indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of effecting
any of the foregoing.

    

    “Beneficial Ownership
Limitation” shall have the meaning set forth in Section
6(d).

    

    
      
        
           

        

        
          2

          
            

          

        

        
           

        

      

    

     

    “Business Day” means
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.

    

    “Buy-In” shall have
the meaning set forth in Section 6(c)(iv).

    

    “Change of Control
Transaction” means the occurrence after the date hereof, in one or more
related transactions, of any of (a) an acquisition after the date hereof by an
individual or legal entity or “group” (as described in Rule 13d5(b)(1)
promulgated under the Exchange Act) of effective control (whether through legal
or beneficial ownership of capital stock of the Corporation, by contract or
otherwise) of in excess of 33% of the voting securities of the Corporation
(other than by means of conversion or exercise of Preferred Stock and the
Securities issued together with the Preferred Stock), (b) the Corporation or any
of its Subsidiaries merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Corporation or any of its
Subsidiaries and, after giving effect to such transaction, the stockholders of
the Corporation immediately prior to such transaction own less than 66% of the
aggregate voting power of the Corporation or the successor entity of such
transaction, (c) the Corporation sells or transfers all or substantially all of
its assets to another Person and the stockholders of the Corporation immediately
prior to such transaction own less than 66% of the aggregate voting power of the
acquiring entity immediately after the transaction, (d) a replacement at one
time or within a one year period of more than one-half of the members of the
Board of Directors which is not approved by a majority of those individuals who
are members of the Board of Directors on the Original Issue Date (or by those
individuals who are serving as members of the Board of Directors on any date
whose nomination to the Board of Directors was approved by a majority of the
members of the Board of Directors who are members on the Original Issue Date),
or (e) the execution by the Corporation of an agreement to which the
Corporation  is a party or by which it is bound, providing for any of
the events set forth in clauses (a) through (d) above.

    “Closing” means the
closing of the purchase and sale of the Securities pursuant to Section 2.1 of
the Purchase Agreement.

    

    “Closing Date” means
the Trading Day on which all of the Transaction Documents have been executed and
delivered by the applicable parties thereto and all conditions precedent to (i)
each Holder’s obligations to pay the Subscription Amount and (ii) the
Corporation’s obligations to deliver the Securities have been satisfied or
waived.

    

     “Closing Price” means
on any particular date (a) the last reported closing bid price per share of
Common Stock on such date on the Trading Market (as reported by Bloomberg L.P.
at 4:15 p.m. (New York City time)), (b) if there is no such price on such date,
then the closing bid price on the Trading Market on the date nearest preceding
such date (as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)),
(c)  if the Common Stock is not then listed or quoted on a Trading Market
and if prices for the Common Stock are then reported in the “pink sheets”
published by Pink OTC Markets, Inc. (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 (d) if the shares of Common Stock
are not then publicly traded the fair market value as of such date of a share of
Common Stock as determined by an independent appraiser selected in good faith by
the Purchasers of a majority in interest of the Securities then outstanding and
reasonably acceptable to the Corporation, the fees and expenses of which shall
be paid by the Corporation.

    

    
      
        
           

        

        
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     “Commission” means the
United States Securities and Exchange Commission.

    

    “Common Stock” means
the Corporation’s common stock, par value $0.001 per share, and stock of any
other class of securities into which such securities may hereafter be
reclassified or changed.

    

    “Common Stock
Equivalents” means any securities of the Corporation or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

    

    “Conversion Amount”
means the sum of the Stated Value at issue.

    

    “Conversion Date”
shall have the meaning set forth in Section 6(a).

    

    “Conversion Price”
shall have the meaning set forth in Section 6(b).

    

    “Conversion Shares”
means, collectively, the shares of Common Stock issuable upon conversion of the
shares of Preferred Stock in accordance with the terms hereof.

    

    “Conversion Shares
Registration Statement” means a registration statement that registers the
resale of all Conversion Shares of the Holders, who shall be named as “selling
stockholders” therein and meets the requirements of the Registration Rights
Agreement.

    

    “Effective Date” means
the date that the Conversion Shares Registration Statement filed by the
Corporation pursuant to the Registration Rights Agreement is first declared
effective by the Commission.

    

     “Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

    

    
      
        
           

        

        
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    “Fundamental
Transaction” shall have the meaning set forth in Section
7(e).

    

    “GAAP” means United
States generally accepted accounting principles.

    

    “Holder” shall have
the meaning given such term in Section 2.

    

    “Junior Securities”
means the Common Stock and all other Common Stock Equivalents of the Corporation
(other than those Common Stock Equivalents which are explicitly senior or pari
passu to the Preferred Stock in dividend rights or liquidation preference) and
any other securities of the Corporation which are junior to the Preferred Stock
in dividend rights or liquidation preference.

    

    “Liens” means a lien,
charge, security interest, encumbrance, right of first refusal, preemptive right
or other restriction.

     

    “Liquidation” shall
have the meaning set forth in Section 5.

    

    “New York Courts”
shall have the meaning set forth in Section 10(d).

    

    “Notice of Conversion”
shall have the meaning set forth in Section 6(a).

    

     “Original Issue Date”
means the date of the first issuance of any shares of the Preferred Stock
regardless of the number of transfers of any particular shares of Preferred
Stock and regardless of the number of certificates which may be issued to
evidence such Preferred Stock.

    

    “Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any
kind.

    

    “Preferred Stock”
shall have the meaning set forth in Section 2.

    

    “Purchase Agreement”
means the Securities Purchase Agreement, dated as of June 12, 2009, among the
Corporation and the original Holders, as amended, modified or supplemented from
time to time in accordance with its terms.

    

    “Registration Rights
Agreement” means the Registration Rights Agreement, dated as of the date
of the Purchase Agreement, among the Corporation and the original Holders, in
the form of Exhibit
B attached to the Purchase Agreement.

    

    “Registration
Statement” means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Holder as provided for in the Registration Rights
Agreement.

    

    
      
        
           

        

        
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    “Rule 144” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.

    

    “Rule 424” means Rule
424 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.

    

    “Securities” means the
Preferred Stock, the Warrants, the Warrant Shares and the Underlying
Shares.

    

    “Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.

    

    “Share Delivery Date”
shall have the meaning set forth in Section 6(c).

    

    “Stated Value” shall
have the meaning set forth in Section 2, as the same may be increased pursuant
to Section 3.

    

    “Subscription Amount”
shall mean, as to each Holder, the aggregate amount to be paid for the Preferred
Stock purchased pursuant to the Purchase Agreement as specified below such
Holder’s name on the signature page of the Purchase Agreement and next to the
heading “Subscription Amount,” in United States dollars and in immediately
available funds.

    

    “Subsidiary” means any
joint venture or any entity in which the Corporation, directly or indirectly,
owns 50% or more of the capital stock or an equity or similar interest, and
shall, where applicable, also include any subsidiary of the Corporation formed
or acquired after the date of the Purchase Agreement.

     

    “Successor Entity”
shall have the meaning set forth in Section 7(e).

    

     “Trading Day” means a
day on which the principal Trading Market is open for business.

    

    “Trading Market” means
any of the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the NYSE Amex, the Nasdaq Capital
Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New
York Stock Exchange (or any successors to any of the foregoing).

    

     “Transfer Agent” means
Continental Stock Transfer & Trust Co., the current transfer agent of the
Corporation, with a mailing address of 17 Battery Place, New York, NY 10004 and
a facsimile number of 212-509-5150, and any successor transfer agent of the
Corporation.

    

    
      
        
           

        

        
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    “Transaction
Documents” shall have the meaning as set forth in the Purchase
Agreement.

    

    “Underlying Shares”
means the shares of Common Stock issued and issuable upon conversion or
redemption of the Preferred Stock and upon exercise of the
Warrants.

    

    “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 Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time)), (b)  if the
OTC Bulletin Board is not a Trading Market, the volume weighted average price of
the Common Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading
on the OTC Bulletin Board and if prices for the Common Stock are then reported
in the “Pink Sheets” published by Pink OTC Markets, Inc. (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 (d) in all
other cases, the fair market value of a share of Common Stock as determined by
an independent appraiser selected in good faith by the Holders of a majority in
interest of the Securities then outstanding and reasonably acceptable to the
Corporation, the fees and expenses of which shall be paid by the
Corporation.

    

    “Warrants” means,
collectively, the Common Stock purchase warrants delivered to the Holder at the
Closing in accordance with Section 2.2(a) of the Purchase Agreement, which
Warrants shall be exercisable immediately and have a term of exercise equal to
five years, in the form of Exhibit C attached to the Purchase
Agreement.

    

    “Warrant Shares” means
the shares of Common Stock issuable upon exercise of the Warrants.

     

    Section
2.    Designation, Amount and Par
Value. The series of preferred stock shall be designated as its
Series F 0% Convertible Preferred Stock (the “Preferred Stock”) and
the number of shares so designated shall be up to 7,000 (which shall not be
subject to increase without the written consent of all of the holders of the
Preferred Stock (each, a “Holder” and
collectively, the “Holders”)). Each
share of Preferred Stock shall have a par value of $0.001 per share and a stated
value equal to $1,000, subject to adjustment herein (the “Stated
Value”).

    

    
      
        
           

        

        
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    Section
3.    Dividends.

    

    a)           The
Preferred Stock shall not bear any mandatory dividend. The Board of Directors
may declare and pay a dividend on the Preferred Stock from time to
time.

    

    b)           So
long as any Preferred Stock shall remain outstanding, neither the Corporation
nor any Subsidiary thereof shall redeem, purchase or otherwise acquire directly
or indirectly any Junior Securities, other than repurchases of Common Stock or
Common Stock Equivalents of departing officers and directors of the Corporation,
provided that such repurchases shall not exceed an aggregate of $100,000 for all
officers and directors for so long as the Preferred Stock is
outstanding.  So long as any Preferred Stock shall remain outstanding,
neither the Corporation nor any Subsidiary thereof shall directly or indirectly
pay or declare any dividend or make any distribution upon (other than a dividend
or distribution described in Section 6 or dividends due and paid in the ordinary
course on preferred stock of the Corporation at such times when the Corporation
is in compliance with its payment and other obligations hereunder and pursuant
to the other Transaction Documents), nor shall any distribution be made in
respect of, any Junior Securities, nor shall any monies be set aside for or
applied to the purchase or redemption (through a sinking fund or otherwise) of
any Junior Securities or shares pari passu with the Preferred
Stock.

    

    c)           The
Corporation acknowledges and agrees that the capital of the Corporation (as such
term is used in Section 154 of the Delaware General Corporation Law) in respect
of the Preferred Stock and any future issuances of the Corporation’s capital
stock shall be equal to the aggregate par value of such Preferred Stock or
capital stock, as the case may be, and that, on or after the date of the
Purchase Agreement, it shall not increase the capital of the Corporation with
respect to any shares of the Corporation’s capital stock issued and outstanding
on such date.  The Corporation also acknowledges and agrees that it
shall not create any special reserves under Section 171 of the Delaware General
Corporation Law without the prior written consent of each Holder.

    

    Section
4.     Voting Rights.
Subject to Section 6(d) and the Beneficial Ownership Limitation, each Holder
shall be entitled to the whole number of votes equal to the number of shares of
Common Stock into which such holder’s Preferred Stock would be convertible on
the record date for the vote or consent of stockholders, and shall otherwise
have voting rights and powers equal to the voting rights and powers of the
Common Stock.  Each Holder shall be entitled to receive the same prior
notice of any stockholders’ meeting as is provided to the holders of Common
Stock in accordance with the bylaws of the Corporation, as well as prior notice
of all stockholder actions to be taken by legally available means in lieu of a
meeting and shall vote as a class with the holders of Common Stock on all
matters except those matters required by law or by the terms hereof to be
submitted to a class vote of the Holders of Preferred Stock, in which case the
Holders of Preferred Stock only shall vote as a separate class.  As
long as any shares of Preferred Stock are outstanding, the Corporation shall
not, without the affirmative vote of all of the Holders of the then outstanding
shares of the Preferred Stock, (a) alter or change adversely the powers,
preferences or rights given to the Preferred Stock or alter or amend this
Certificate of Designation, (b) authorize or create any class of stock ranking
as to redemption or distribution of assets upon a Liquidation (as defined in
Section 5) senior to, or otherwise pari passu with, the
Preferred Stock, (c) amend its certificate of incorporation or other charter
documents in any manner that adversely affects any rights of the Holders, (d)
increase the number of authorized shares of Preferred Stock, or (e) enter into
any agreement with respect to any of the foregoing.

    

    
      
        
           

        

        
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    Section
5.    Liquidation. Upon any
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary (a “Liquidation”), the
Holders shall be entitled to receive out of the assets, whether capital or
surplus, of the Corporation an amount equal to the Stated Value, plus any other
costs, expenses, fees, liquidated damages or any other amounts then due and
owing thereon under this Certificate of Designation or any other Transaction
Documents, for each share of Preferred Stock before any distribution or payment
shall be made to the holders of any Junior Securities, and if the assets of the
Corporation shall be insufficient to pay in full such amounts, then the entire
assets to be distributed to the Holders shall be ratably distributed among the
Holders in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full.  A
Fundamental Transaction or Change of Control Transaction shall not be deemed a
Liquidation. The Corporation shall mail written notice of any such Liquidation,
not less than 45 days prior to the payment date stated therein, to each
Holder.

    

    Section
6.     Conversion.

    

    a)           Conversions
at the Option of the Holder

    

    i.           Holder’s
Conversion Right.  Subject to the provisions of Section 6(d), at any
time or times on or after the Corporation receives the Authorized Share
Approval, any Holder shall be entitled to convert any whole number of Preferred
Stock into fully paid and nonassessable shares of Common Stock in accordance
with Section 6(a)(iii) at the Conversion Rate (as defined below).
Notwithstanding anything herein to the contrary, shares of Preferred Stock shall
be convertible into shares of Common Stock immediately following the Original
Issue Date to the extent that a Holder then holds outstanding securities
convertible into Common Stock, which shares of Common Stock are reserved for
issuance by the Corporation, and such Holder elects, in its sole discretion, to
use such reserved shares for the issuance of shares of Common Stock under the
Preferred Stock rather than for issuance under such outstanding
securities.

    

    ii.           Conversion.  The
number of shares of Common Stock issuable upon conversion of each share of
Preferred Stock pursuant to Section 6(a)(ii) shall be determined according to
the following formula (the “Conversion Rate”):

    

    Conversion
Amount

    Conversion
Price

    

    
      
        
           

        

        
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    b)           Conversion
Price.  The conversion price for the Preferred Stock shall equal
$4.00, subject to adjustment herein (the “Conversion Price”)

    

    c)           Mechanics
of Conversion.  The conversion of Preferred Stock shall be conducted
in the following manner:

    

    i.           Holder’s
Delivery Requirements.  To convert Preferred Stock into shares of
Common Stock on any date, the Holder shall transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., New York City Time, on such
date, a copy of a properly completed notice of conversion executed by the
registered Holder of the Preferred Stock subject to such conversion in the form
attached hereto as Annex A (the “Notice of Conversion”) to the Corporation and
the Transfer Agent.  Each Notice of Conversion shall specify the
number of shares of Preferred Stock to be converted, the number of shares of
Preferred Stock owned prior to the conversion at issue, the number of shares of
Preferred Stock owned subsequent to the conversion at issue and the date on
which such conversion is to be effected, which date may not be prior to the date
the applicable Holder delivers by facsimile such Notice of Conversion to the
Corporation (such date, the “Conversion Date”). If no Conversion Date is
specified in a Notice of Conversion, the Conversion Date shall be the date that
such Notice of Conversion to the Corporation is deemed delivered hereunder. The
calculations and entries set forth in the Notice of Conversion shall control in
the absence of manifest or mathematical error.  To effect conversions
of shares of Preferred Stock, a Holder shall not be required to surrender the
certificate(s) representing the shares of Preferred Stock to the Corporation
unless all of the shares of Preferred Stock represented thereby are so
converted, in which case such Holder shall deliver the certificate representing
such shares of Preferred Stock promptly following the Conversion Date at
issue.  Shares of Preferred Stock converted into Common Stock or
redeemed in accordance with the terms hereof shall be canceled and shall not be
reissued.

    

    ii.           Corporation’s
Response.  Upon receipt by the Corporation of copy of a Notice of
Conversion, the Corporation shall as soon as practicable, but in any event
within two (2) Business Days, send, via facsimile, a confirmation of receipt of
such Notice of Conversion to such Holder and the Transfer Agent, which
confirmation shall constitute an instruction to the Transfer Agent to process
such Notice of Conversion in accordance with the terms herein.  On or
before the third (3rd) Business Day following the date of receipt by the
Corporation of such Notice of Conversion (the “Share Delivery Date”), the
Corporation shall (A) provided the Transfer Agent is participating in DTC Fast
Automated Securities Transfer Program, credit such aggregate number of shares of
Common Stock to which the Holder shall be entitled to the Holder’s or its
designee’s balance account with DTC through its Deposit Withdrawal Agent
Commission system, or (B) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and deliver to the address as
specified in the Notice of Conversion, a certificate, registered in the name of
the Holder or its designee, for the number of shares of Common Stock to which
the Holder shall be entitled.  If the number of Preferred Stock
represented by a certificate of Preferred Stock of a Holder (a “Preferred Stock
Certificate”) delivered to the Corporation in connection with a conversion is
greater than the number of Preferred Stock being converted, then the Corporation
shall, as soon as practicable and in no event later than fifth (5) Business Days
after receipt of the Preferred Stock Certificate(s) (the “Preferred Stock
Delivery Date”) and at its own expense, issue and deliver to the Holder a new
Preferred Stock Certificate representing the number of Preferred Stock not
converted.

    

    
      
        
           

        

        
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    iii.           Dispute
Resolution.  In the case of a dispute as to the determination of the
Closing Price or the arithmetic calculation of the Conversion Rate, the
Corporation shall instruct the Transfer Agent to issue to the Holder the number
of shares of Common Stock that is not disputed and shall transmit an explanation
of the disputed determinations or arithmetic calculations to the Holder via
facsimile within three (3) Business Day of receipt of such Holder’s Notice of
Conversion or other date of determination.  If such Holder and the
Corporation are unable to agree upon the determination of the Closing Price or
arithmetic calculation of the Conversion Rate within two (2) Business Days of
such disputed determination or arithmetic calculation being transmitted to the
Holder, then the Corporation shall within ten (10) Business Day submit via
facsimile (A) the disputed determination of the Closing Price to an independent,
reputable investment bank selected by the Corporation and approved by the
applicable Holder or (B) the disputed arithmetic calculation of the Conversion
Rate to the Corporation’s independent, outside accountant.  The
Corporation shall cause, at the Corporation’s expense, the investment bank or
the accountant, as the case may be, to perform the determinations or
calculations and notify the Corporation and the Holders of the results no later
than two (2) Business Days from the time it receives the disputed determinations
or calculations.  Such investment bank’s or accountant’s determination
or calculation, as the case may be, shall be binding upon all parties absent
error.

    

    iv.           Miscellaneous;
Record Holder.  The Person or Persons entitled to receive the Common
Stock issuable upon a conversion of Preferred Stock shall be treated for all
purposes as the record holder or holders of such Common Stock on the Conversion
Date.

    

    v.           Corporation’s
Failure to Timely Convert.  If (I) within three (3) Trading Days after
the Corporation’s receipt of the facsimile copy of a Notice of Conversion the
Corporation shall fail to credit a Holder’s balance account with DTC or issue
and deliver a certificate to such Holder for the number of shares of Common
Stock to which such Holder is entitled upon such Holder’s conversion of
Preferred Stock (a “Conversion Failure”) and if on or after such Business Day
the Holder purchases (in an open market transaction or in another bona fide
transaction) Common Stock to deliver in satisfaction of a sale by the Holder of
the Common Stock issuable upon such conversion that the Holder anticipated
receiving from the Corporation (a “Buy-In”), then the Corporation shall, within
three (3) Business Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s
total purchase price (including brokerage commissions, if any) for the Common
Stock so purchased (the “Buy-In Price”), at which point the Corporation’s
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing
Price on the Conversion Date.

    

    
      
        
           

        

        
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    vi.          Void
Notice of Conversion; Adjustment of Conversion Price.  If for any
reason a Holder has not received all of the Common Stock to which such Holder is
entitled prior to the fifth (5th) Business Day after the Share Delivery Date
with respect to a conversion of Preferred Stock, then the Holder, upon written
notice to the Corporation, with a copy to the Transfer Agent, may void its
Notice of Conversion with respect to, and retain or have returned, as the case
may be, any Preferred Stock that have not been converted pursuant to such
Holder’s Notice of Conversion; provided that the voiding of a Holder’s Notice of
Conversion shall not effect the Corporation’s obligations to make any payments
which have accrued prior to the date of such notice.  Thereafter, the
Conversion Price of any Preferred Stock returned or retained by the Holder for
failure to timely convert shall be adjusted to the lesser of (I) the Conversion
Price relating to the voided Notice of Conversion and (II) the lowest VWAP of
the Common Stock during the period beginning on the Conversion Date and ending
on the date such Holder voided the Notice of Conversion, subject to further
adjustment as provided in this Certificate of Designations.

    

    vii.         Pro
Rata Conversion; Disputes.  In the event the Corporation receives a
Notice of Conversion from more than one Holder for the same Conversion Date and
the Corporation can convert some, but not all, of such Preferred Stock, the
Corporation shall convert from each Holder electing to have Preferred Stock
converted at such time a pro rata amount of such Holder’s Preferred Stock
submitted for conversion based on the number of Preferred Stock submitted for
conversion on such date by such Holder relative to the number of Preferred Stock
submitted for conversion on such date.  In the event of a dispute as
to the number of shares of Common Stock issuable to a Holder in connection with
a conversion of Preferred Stock, the Corporation shall issue to such Holder the
number of shares of Common Stock not in dispute and resolve such dispute in
accordance with Section 6(c)(iii).

    

    
      
        
           

        

        
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    viii.        Obligation
Absolute; Partial Liquidated Damages.  The Corporation’s obligation to
issue and deliver the Conversion Shares upon conversion of Preferred Stock in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by a Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by such
Holder or any other Person of any obligation to the Corporation or any violation
or alleged violation of law by such Holder or any other person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Corporation to such Holder in connection with the issuance of such Conversion
Shares; provided, however, that such delivery shall not operate as a waiver by
the Corporation of any such action that the Corporation may have against such
Holder.  In the event a Holder shall elect to convert any or all of
the Stated Value of its Preferred Stock, the Corporation may not refuse
conversion based on any claim that such Holder or any one associated or
affiliated with such Holder has been engaged in any violation of law, agreement
or for any other reason, unless an injunction from a court, on notice to Holder,
restraining and/or enjoining conversion of all or part of the Preferred Stock of
such Holder shall have been sought and obtained, and the Corporation posts a
surety bond for the benefit of such Holder in the amount of 150% of the Stated
Value of Preferred Stock which is subject to the injunction, which bond shall
remain in effect until the completion of arbitration/litigation of the
underlying dispute and the proceeds of which shall be payable to such Holder to
the extent it obtains judgment.  In the absence of such injunction,
the Corporation shall issue Conversion Shares and, if applicable, cash, upon a
properly noticed conversion. If the Corporation fails to deliver to a Holder
such certificate or certificates pursuant to Section 6(c)(i) on the second
Trading Day after the Share Delivery Date applicable to such conversion, the
Corporation shall pay to such Holder, in cash, as liquidated damages and not as
a penalty, for each $5,000 of Stated Value of Preferred Stock being converted,
$50 per Trading Day (increasing to $100 per Trading Day on the third Trading Day
and increasing to $200 per Trading Day on the sixth Trading Day after such
damages begin to accrue) for each Trading Day after such second Trading Day
after the Share Delivery Date until such certificates are delivered or Holder
rescinds such conversion.  Nothing herein shall limit a Holder’s right
to pursue actual damages for the Corporation’s failure to deliver Conversion
Shares within the period specified herein and such Holder shall have the right
to pursue all remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive
relief.  The exercise of any such rights shall not prohibit a Holder
from seeking to enforce damages pursuant to any other Section hereof or under
applicable law.

    

    
      
        
           

        

        
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    ix.          Reservation
of Shares Issuable Upon Conversion. The Corporation covenants that it will at
all times reserve and keep available out of its authorized and unissued shares
of Common Stock for the sole purpose of issuance upon conversion of the
Preferred Stock, as herein provided, free from preemptive rights or any other
actual contingent purchase rights of Persons other than the Holder (and the
other holders of the Preferred Stock), not less than such aggregate number of
shares of the Common Stock as shall (subject to the terms and conditions set
forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 7) upon the conversion of the then
outstanding shares of Preferred Stock (the “Required Amount”).  The
Corporation covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly authorized, validly issued, fully paid and
nonassessable and, if the Conversion Shares Registration Statement is then
effective under the Securities Act, shall be registered for public resale in
accordance with such Conversion Shares Registration Statement (subject to such
Holder’s compliance with its obligations under the Registration Rights
Agreement).  If at any time while any of the Preferred Stock remains
outstanding the Corporation does not have a sufficient number of authorized and
unissued shares of Common Stock to satisfy its obligation to have available for
issuance upon conversion of the Preferred Stock at least a number of shares of
Common Stock equal to the Required Amount (an “Authorized Share Failure”), then
the Corporation shall as promptly as practicable take all action necessary to
increase the Corporation’s authorized Common Stock to an amount sufficient to
allow the Corporation to have available the Required Amount for the Preferred
Stock then outstanding.

    

    x.           Fractional
Shares. No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of the Preferred Stock.   As to any
fraction of a share which the Holder would otherwise be entitled to purchase
upon such conversion, the Corporation shall at its election, either (A) pay a
cash adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the greater of (x) the Closing Price as of the Conversion
Date and (y) the Conversion Price or (B) round up to the next whole
share.

    

    xi.           Transfer
Taxes.  The issuance of certificates for shares of the Common Stock on
conversion of this Preferred Stock shall be made without charge to any Holder
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificates, provided that the Corporation shall not
be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion in
a name other than that of the Holders of such shares of Preferred Stock and the
Corporation shall not be required to issue or deliver such certificates unless
or until the Person or Persons requesting the issuance thereof shall have paid
to the Corporation the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.

    

    
      
        
           

        

        
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    d)           Beneficial
Ownership Limitation.  The Corporation shall not effect any conversion
of the Preferred Stock, and a Holder shall not have the right to convert any
portion of the Preferred Stock, to the extent that, after giving effect to the
conversion set forth on the applicable Notice of Conversion, such Holder
(together with such Holder’s Affiliates, and any Persons acting as a group
together with such Holder or any of such Holder’s Affiliates) would beneficially
own in excess of the Beneficial Ownership Limitation (as defined below). 
Likewise, the Corporation shall not give effect to any voting rights of the
Preferred Stock, and any Holder shall not have the right to exercise voting
rights with respect to any Preferred Stock pursuant hereto, to the extent that
giving effect to such voting rights would cause such Holder (together with its
affiliates) to be deemed to beneficially own in excess of the Beneficial
Ownership Limitation of the number of shares of Common Stock outstanding
immediately after giving effect to such exercise of voting
rights.  For purposes of the foregoing, the number of shares of Common
Stock beneficially owned by such Holder and its Affiliates shall include the
number of shares of Common Stock issuable upon conversion of the Preferred Stock
with respect to which such determination is being made, but shall exclude the
number of shares of Common Stock which are issuable upon (i) conversion of the
remaining, unconverted Stated Value of Preferred Stock beneficially owned by
such Holder or any of its Affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the
Corporation  subject to a limitation on conversion or exercise
analogous to the limitation contained herein (including, without limitation, the
Preferred Stock or the Warrants) beneficially owned by such Holder or any of its
Affiliates.  Except as set forth in the preceding sentence, for purposes of
this Section 6(d), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder.  To the extent that the limitation contained in this
Section 6(d) applies, the determination of whether the Preferred Stock is
convertible (in relation to other securities owned by such Holder together with
any Affiliates) and of how many shares of Preferred Stock are convertible shall
be in the sole discretion of such Holder, and the submission of a Notice of
Conversion shall be deemed to be such Holder’s determination of whether the
shares of Preferred Stock may be converted (in relation to other securities
owned by such Holder together with any Affiliates) and how many shares of the
Preferred Stock are convertible, in each case subject to the Beneficial
Ownership Limitation. To ensure compliance with this restriction, each Holder
will be deemed to represent to the Corporation each time it delivers a Notice of
Conversion that such Notice of Conversion has not violated the restrictions set
forth in this paragraph and the Corporation shall have no obligation to verify
or confirm the accuracy of such determination.  In addition, a
determination as to any group status as contemplated above shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder.  For purposes of this Section
6(d), in determining the number of outstanding shares of Common Stock, a Holder
may rely on the number of outstanding shares of Common Stock as stated in the
most recent of the following: (i) the Corporation’s most recent periodic or
annual report filed with the Commission, as the case may be, (ii) a more recent
public announcement by the Corporation or (iii) a more recent written notice by
the Corporation or the Transfer Agent setting forth the number of shares of
Common Stock outstanding.  Upon the written or oral request of a Holder,
the Corporation shall within two Trading Days confirm orally and in writing to
such Holder the number of shares of Common Stock then outstanding.  In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Corporation,
including the Preferred Stock, by such Holder or its Affiliates since the date
as of which such number of outstanding shares of Common Stock was reported. The
“Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon conversion of Preferred Stock held by the
applicable Holder.  A Holder, upon not less than 61 days’ prior notice
to the Corporation, may increase or decrease the Beneficial Ownership Limitation
provisions of this Section 6(d) applicable to its Preferred Stock provided that
the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon conversion of this Preferred Stock held
by the Holder and the provisions of this Section 6(d) shall continue to
apply.  Any such increase or decrease will not be effective until the
61st day after such notice is delivered to the Corporation and shall only apply
to such Holder and no other Holder.  The provisions of this paragraph
shall be construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 6(d) to correct this paragraph (or any
portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation contained herein or to make changes or
supplements necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a successor holder of
Preferred Stock.

    

    
      
        
           

        

        
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    Section
7.       Certain
Adjustments.

    

    a)           Stock
Dividends and Stock Splits.  If the Corporation, at any time while
this Preferred Stock is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions payable in shares of Common Stock on
shares of Common Stock or any other Common Stock Equivalents (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
Corporation upon conversion of, or payment of a dividend on, this Preferred
Stock), (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, (iii) combines (including by way of a reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues, in the event of a reclassification of shares of the Common Stock, any
shares of capital stock of the Corporation, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding any treasury shares of the Corporation) outstanding
immediately before such event, and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such
event.  Any adjustment made pursuant to this Section 7(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.

    

    b)           Participation
Rights in Connection with Adjustments below Par
Value.  Notwithstanding anything herein to the contrary, to the extent
any adjustment related to any dividend, distribution of rights to purchase
securities or other distribution in accordance with this Section 7 would result
in the Conversion Price being reduced below $0.001, in lieu of such adjustment,
the Holders shall, as holders of Preferred Stock, be entitled to receive such
dividends paid and rights or other distributions made to the holders of Common
Stock to the same extent as if such Holders had converted the Preferred Stock
into Common Stock (without regard to any limitations on conversion herein or
elsewhere) and had held such Common Stock on the record date for such dividends
and distributions.  Payments under the preceding sentence shall be
made concurrently with the dividend or distribution to the holders of Common
Stock.

    

    
      
        
           

        

        
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    c)           Subsequent
Rights Offerings.  If the Corporation, at any time while this
Preferred Stock is outstanding, shall issue rights, options or warrants to all
holders of Common Stock (and not to the Holders) entitling them to subscribe for
or purchase shares of Common Stock at a price per share that is lower than the
VWAP on the record date referenced below, then the Conversion Price shall be
multiplied by a fraction of which the denominator shall be the number of shares
of the Common Stock outstanding on the date of issuance of such rights, options
or warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights,
options or warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered (assuming delivery to the Corporation
in full of all consideration payable upon exercise of such rights, options or
warrants) would purchase at such VWAP.  Such adjustment shall be made
whenever such rights, options or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants.

    

    d)           Pro
Rata Distributions. If the Corporation, at any time while this Preferred Stock
is outstanding, distributes to all holders of Common Stock (and not to the
Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security),
then in each such case the Conversion Price shall be adjusted by multiplying
such Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness or rights or warrants so distributed
applicable to one outstanding share of the Common Stock as determined by the
Board of Directors of the Corporation in good faith.  In either case
the adjustments shall be described in a statement delivered to the Holders
describing the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common
Stock.  Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date mentioned
above.

    

    
      
        
           

        

        
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    e)           Fundamental
Transaction.  If, at any time while this Preferred Stock is
outstanding, (i) the Corporation, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Corporation with or into
another Person, (ii) the Corporation, directly or indirectly, effects any sale,
lease, license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Corporation or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares
for other securities, cash or property and has been accepted by the holders of
50% or more of the outstanding Common Stock, (iv) the Corporation, directly or
indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property, (v) the Corporation, directly
or indirectly, in one or more related transactions consummates a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “Fundamental
Transaction”), then, upon any subsequent conversion of this Preferred Stock, the
Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion immediately prior to the occurrence of
such Fundamental Transaction (without regard to any limitation in Section 6(d)
on the conversion of this Preferred Stock), the number of shares of Common Stock
of the successor or acquiring corporation or of the Corporation, if it is the
surviving corporation, and any additional consideration (the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by a
holder of the number of shares of Common Stock for which this Preferred Stock is
convertible immediately prior to such Fundamental Transaction (without regard to
any limitation in Section 6(d) on the conversion of this Preferred
Stock).  For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the
Corporation shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration.  If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of this
Preferred Stock following such Fundamental Transaction.  To the extent
necessary to effectuate the foregoing provisions, any successor to the
Corporation or surviving entity in such Fundamental Transaction shall file a new
Certificate of Designation with the same terms and conditions and issue to the
Holders new preferred stock consistent with the foregoing provisions and
evidencing the Holders’ right to convert such preferred stock into Alternate
Consideration.  The Corporation shall cause any successor entity in a
Fundamental Transaction in which the Corporation is not the survivor (the
“Successor Entity”) to assume in writing all of the obligations of the
Corporation under this Certificate of Designation and the other Transaction
Documents (as defined in the Purchase Agreement) in accordance with the
provisions of this Section 7(e) pursuant to written agreements in form and
substance reasonably satisfactory to the Holder and approved by the Holder
(without unreasonable delay) prior to such Fundamental Transaction and shall, at
the option of the holder of this Preferred Stock, deliver to the Holder in
exchange for this Preferred Stock a security of the Successor Entity evidenced
by a written instrument substantially similar in form and substance to this
Preferred Stock which is convertible for a corresponding number of shares of
capital stock of such Successor Entity (or its parent entity) equivalent to the
shares of Common Stock acquirable and receivable upon conversion of this
Preferred Stock (without regard to any limitations on the conversion of this
Preferred Stock) prior to such Fundamental Transaction, and with a conversion
price which applies the conversion price hereunder to such shares of capital
stock (but taking into account the relative value of the shares of Common Stock
pursuant to such Fundamental Transaction and the value of such shares of capital
stock, such number of shares of capital stock and such conversion price being
for the purpose of protecting the economic value of this Preferred Stock
immediately prior to the consummation of such Fundamental Transaction), and
which is reasonably satisfactory in form and substance to the Holder. Upon the
occurrence of any such Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Certificate of Designation and
the other Transaction Documents referring to the “Corporation” shall refer
instead to the Successor Entity), and may exercise every right and power of the
Corporation and shall assume all of the obligations of the Corporation under
this Certificate of Designation and the other Transaction Documents with the
same effect as if such Successor Entity had been named as the Corporation
herein.

    

    
      
        
           

        

        
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    f)           Calculations.  All
calculations under this Section 7 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be.  For purposes of this
Section 7, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding any treasury shares of the Corporation) issued and
outstanding.

    

    g)          Notice
to the Holders.

    

    i.           Adjustment
to Conversion Price.  Whenever the Conversion Price is adjusted
pursuant to any provision of this Section 7, the Corporation shall promptly
deliver to each Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.

    

    ii.           Notice
to Allow Conversion by Holder.  If (A) the Corporation shall declare a
dividend (or any other distribution in whatever form) on the Common Stock, (B)
the Corporation shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Corporation shall authorize the granting
to all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the
approval of any stockholders of the Corporation shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to
which the Corporation is a party, any sale or transfer of all or substantially
all of the assets of the Corporation, or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property or (E) the
Corporation shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Corporation, then, in each case, the Corporation shall cause to be filed
at each office or agency maintained for the purpose of conversion of this
Preferred Stock, and shall cause to be delivered to each Holder at its last
address as it shall appear upon the stock books of the Corporation, at least
twenty (20) calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange, provided that the failure to deliver such notice or any defect
therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice.  The
Corporation will also give written notice to each Holder at least twenty (20)
calendar days prior to the date on which any Fundamental Transaction or
Liquidation will take place.  To the extent that any notice provided
hereunder constitutes, or contains, material, non-public information regarding
the Corporation or any of the Subsidiaries, the Corporation shall simultaneously
file such notice with the Commission pursuant to a Current Report on Form
8-K.  The Holder shall remain entitled to convert the Conversion
Amount of this Preferred Stock (or any part hereof) during the 20-day period
commencing on the date of such notice through the effective date of the event
triggering such notice except as may otherwise be expressly set forth
herein.

    

    
      
        
           

        

        
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    Section
8.          Redemption Upon Certain
Events.  Upon the occurrence of a Change of Control Transaction
or a Bankruptcy Event, each Holder shall (in addition to all other rights it may
have hereunder or under applicable law) have the right, exercisable at the sole
option of such Holder, to require the Corporation to redeem all of the Preferred
Stock then held by such Holder for a redemption price, in cash, equal to the
aggregate Stated Value of the then outstanding shares of Preferred
Stock.  If the Corporation fails to pay in full the amount hereunder
on the date such amount is due in accordance with this Section, the Corporation
will pay interest thereon at a rate equal to the lesser of 18% per annum or the
maximum rate permitted by applicable law, accruing daily from such date until
the amount, plus all such interest thereon, is paid in full.

     

    
      Section
9.          Negative
Covenants.  As long as any shares of Preferred Stock
are outstanding, unless the
holders of at least 100% in Stated Value of the then
outstanding shares of Preferred Stock shall have otherwise given prior written
consent, the Corporation shall not, and shall not permit any of the Subsidiaries to, directly or
indirectly:

      

      a)           amend
its charter documents, including, without limitation, its certificate of
incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder;

      

      b)           repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de
minimis number of shares of its Common Stock, Common Stock Equivalents or Junior
Securities, other than as to (i) the Conversion Shares or Warrant Shares as
permitted or required under the Transaction Documents and (ii) repurchases of
Common Stock or Common Stock Equivalents of departing officers and directors of
the Corporation, provided that such repurchases shall not exceed an aggregate of
$100,000 for all officers and directors for so long as the Preferred Stock is
outstanding;

      

      c)           pay
cash dividends or distributions on Junior Securities of the
Corporation;

    

    

    
      
        
           

        

        
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    d)           issue
any shares of Common Stock (other than with respect to Common Stock Equivalents
outstanding as of the date hereof or Common Stock Equivalents issued pursuant to
an Approved Stock Plan) at any time an Authorized Share Failure has occurred or
is continuing;

    

    e)           enter
into any transaction with any Affiliate of the Corporation which would be
required to be disclosed in any public filing with the Commission, unless such
transaction is made on an arm’s-length basis and expressly approved by a
majority of the disinterested directors of the Corporation (even if less than a
quorum otherwise required for board approval); or

    

    f)           enter
into any agreement with respect to any of the foregoing.

    

    Section
10.        Miscellaneous.

    

    a)           Notices.  Any
and all notices or other communications or deliveries to be provided by the
Holders hereunder including, without limitation, any Notice of Conversion, shall
be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Corporation, at 21 West
39th Street, Suite 2A, New York, NY 10018, Attention: Zhiguo Fu, facsimile
number 212-391-2751, or such other facsimile number or address as the
Corporation may specify for such purposes by notice to the Holders delivered in
accordance with this Section 10, with a copy sent by facsimile or overnight
courier service to:  Robert Brantl, Esq., 52 Mulligan Lane, Irvington,
NY 10533, facsimile:  914-693-1807.  Any and all notices or
other communications or deliveries to be provided by the Corporation hereunder
shall be in writing and delivered personally, by facsimile, or sent by a
nationally recognized overnight courier service addressed to each Holder at the
facsimile number or address of such Holder appearing on the books of the
Corporation, or if no such facsimile number or address appears on the books of
the Corporation, at the principal place of business of such Holder, as set forth
in the Purchase Agreement.  Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth in this Section prior to 5:30 p.m.
(New York City time) on any date, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth in this Section on a day that is not a Trading Day or
later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.

    

    
      
        
           

        

        
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    b)           Absolute
Obligation. Except as expressly provided herein, no provision of this
Certificate of Designation shall alter or impair the obligation of the
Corporation, which is absolute and unconditional, to pay liquidated damages, and
accrued interest, as applicable, on the shares of Preferred Stock at the time,
place, and rate, and in the coin or currency, herein prescribed.

    

    c)           Lost
or Mutilated Preferred Stock Certificate.  If a Holder’s Preferred
Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation
shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated certificate, or in lieu of or in substitution for a
lost, stolen or destroyed certificate, a new certificate for the shares of
Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt
of evidence of such loss, theft or destruction of such certificate, and of the
ownership hereof reasonably satisfactory to the Corporation.

    

    d)           Governing
Law.  All questions concerning the construction, validity, enforcement
and interpretation of this Certificate of Designation shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware, without regard to the principles of conflict of laws
thereof.  Each party agrees that all legal proceedings concerning the
interpretation, enforcement and defense of the transactions contemplated by any
of the Transaction Documents (whether brought against a party hereto or its
respective Affiliates, directors, officers, shareholders, employees or agents)
shall be commenced in the state and federal courts sitting in the City of New
York, Borough of Manhattan (the “New York Courts”).  Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such New York Courts,
or such New York Courts are improper or inconvenient venue for such
proceeding.  Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Certificate of Designation and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by applicable law. Each
party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Certificate of Designation or the
transactions contemplated hereby.  If any party shall commence an
action or proceeding to enforce any provisions of this Certificate of
Designation, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys’ fees and other costs and
expenses incurred in the investigation, preparation and prosecution of such
action or proceeding.

    

    
      
        
           

        

        
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    e)           Waiver.  Any
waiver by the Corporation or a Holder of a breach of any provision of this
Certificate of Designation shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Certificate of Designation or a waiver by any other Holders.  The
failure of the Corporation or a Holder to insist upon strict adherence to any
term of this Certificate of Designation on one or more occasions shall not be
considered a waiver or deprive that party (or any other Holder) of the right
thereafter to insist upon strict adherence to that term or any other term of
this Certificate of Designation on any other occasion.  Any waiver by
the Corporation or a Holder must be in writing.

    

    f)           Next
Business Day.  Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.

    

    g)           Status
of Converted or Redeemed Preferred Stock.  Shares of Preferred Stock
may only be issued pursuant to the Purchase Agreement.  If any shares
of Preferred Stock shall be converted, redeemed or reacquired by the
Corporation, such shares shall resume the status of authorized but unissued
shares of preferred stock and shall no longer be designated as Series F 0%
Convertible Preferred Stock.

    

    h)           
Remedies, Characterizations, Other Obligations, Breaches and Injunctive
Relief.  The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief).  No remedy contained
herein shall be deemed a waiver of compliance with the provisions giving rise to
such remedy.  Nothing herein shall limit a Holder’s right to pursue
actual damages for any failure by the Corporation to comply with the terms of
this Certificate of Designations.  The Corporation covenants to each
Holder that there shall be no characterization concerning this instrument other
than as expressly provided herein.  Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder thereof and shall
not, except as expressly provided herein, be subject to any other obligation of
the Corporation (or the performance thereof).  The Corporation
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holders and that the remedy at law for any such breach
may be inadequate.  The Corporation therefore agrees that, in the
event of any such breach or threatened breach, the Holders shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.

    

    
      
        
           

        

        
          23

          
            

          

        

        
           

        

      

    

     

    i)           Transfer
of Preferred Stock.  A Holder may assign some or all of the Preferred
Stock and the accompanying rights hereunder held by such Holder without the
consent of the Corporation; provided that such assignment is in compliance with
applicable securities laws.

    

    j)           Preferred
Stock Register.  The Corporation shall maintain at its principal
executive offices (or such other office or agency of the Corporation as it may
designate by notice to the Holders), a register for the Preferred Stock, in
which the Corporation shall record the name and address of the persons in whose
name the Preferred Stock have been issued, as well as the name and address of
each transferee.  The Corporation may treat the person in whose name
any Preferred Stock is registered on the register as the owner and holder
thereof for all purposes, notwithstanding any notice to the contrary, but in all
events recognizing any properly made transfers.

    

    k)           Disclosure.
Upon receipt or delivery by the Corporation of any notice in accordance with the
terms of this Certificate of Designations, unless the Corporation has in good
faith determined that the matters relating to such notice do not constitute
material, nonpublic information relating to the Corporation or its Subsidiaries,
the Corporation shall within one (1) Business Day after any such receipt or
delivery publicly disclose such material, nonpublic information on a Current
Report on Form 8-K or otherwise.  In the event that the Corporation
believes that a notice contains material, nonpublic information relating to the
Corporation or its Subsidiaries, the Corporation so shall indicate to the
Holders contemporaneously with delivery of such notice, and in the absence of
any such indication, the Holders shall be allowed to presume that all matters
relating to such notice do not constitute material, nonpublic information
relating to the Corporation or its Subsidiaries.

    

    

    *********************

     

    

    
      
        
           

        

        
          24

          
            

          

        

        
           

        

      

    

    

    RESOLVED,
FURTHER, that the Chairman, the president or any
vice-president,   and the secretary or any assistant secretary,
of the Corporation be and they hereby are authorized and directed to prepare and
file this Certificate of Designation of Preferences, Rights and Limitations in
accordance with the foregoing resolution and the provisions of Delaware
law.

    

            IN
WITNESS WHEREOF, the undersigned have executed this Certificate this ___ day of
May 2009.

    

    
      	
                   __________________________________________

                   Name:

                   Title:

               

            	
                   __________________________________________

                   Name:

                   Title:

               

            

    

     

     

    
 

    

    
      
        
           

        

        
          25

          
            

          

        

        
           

        

      

    

     

    ANNEX
A

    

    NOTICE OF
CONVERSION

    

    (TO BE
EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED
STOCK)

    

    The
undersigned hereby elects to convert the number of shares of Series F 0%
Convertible Preferred Stock indicated below into shares of common stock, par
value $0.001 per share (the “Common Stock”), of
Advanced Battery Technologies, Inc., a Delaware corporation (the “Corporation”),
according to the conditions hereof, as of the date written below. If shares of
Common Stock are to be issued in the name of a Person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as may be
required by the Corporation in accordance with the Purchase Agreement. No fee
will be charged to the Holders for any conversion, except for any such transfer
taxes.

    

    Conversion
calculations:

    

    
      
        	
                Date
      to Effect Conversion:
      _____________________________________________

                 

              
	
                Number
      of shares of Preferred Stock owned prior to Conversion:
      ________________

                 

              
	
                Number
      of shares of Preferred Stock to be Converted:
      ________________________

                 

              
	
                Stated
      Value of shares of Preferred Stock to be Converted:
      _____________________

                 

              
	
                Number
      of shares of Common Stock to be Issued:
      ___________________________

                 

              
	
                Applicable
      Conversion Price:___________________________________________

                 

              
	
                Number
      of shares of Preferred Stock subsequent to Conversion:
      ________________

                 

              

      

    

    

    

    
      
        	
                Address
      for Delivery: ______________________

                or

                DWAC
      Instructions:

                Broker
      no: _________

                Account
      no: ___________

              
	 
      	
                 

                [HOLDER]

                 

                By:___________________________________

                     Name:

                     Title:

              

      

    

     

     

    
      
        
           

        

        
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    EXHIBIT
B

    

    REGISTRATION
RIGHTS AGREEMENT

     

    

    This Registration Rights Agreement
(this “Agreement”) is made
and entered into as of June 12, 2009, between Advanced Battery Technologies,
Inc., a Delaware corporation (the “Company”), and each
of the several purchasers signatory hereto (each such purchaser, a “Purchaser” and,
collectively, the “Purchasers”).

    

                   This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of the
date hereof, between the Company and each Purchaser (the “Purchase
Agreement”).

    

                   The
Company and each Purchaser hereby agrees as follows:

    

            1.     Definitions.

    

                   Capitalized terms used and not
otherwise defined herein that are defined in the Purchase Agreement shall have
the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:

    

    “Advice” shall have
the meaning set forth in Section 6(d).

    

    “Effectiveness Date”
means, with respect to the Initial Registration Statement required to be filed
hereunder, the 90th
calendar day following the date hereof (or, in the event of a “full review” by
the Commission, the 120th
calendar day following the date hereof) and with respect to any additional
Registration Statements which may be required pursuant to Section 3(c), the
90th
calendar day following the date on which an additional Registration Statement is
required to be filed hereunder; provided, however, that in the
event the Company is notified by the Commission that one or more of the above
Registration Statements will not be reviewed or is no longer subject to further
review and comments, the Effectiveness Date as to such Registration Statement
shall be the later of (a) June 25, 2009 and (b) the fifth Trading Day following
the date on which the Company is so notified if such date precedes the dates
otherwise required above.

    

    “Effectiveness Period”
shall have the meaning set forth in Section 2(a).

    

    “Event” shall have the
meaning set forth in Section 2(b).

    

    “Event Date” shall
have the meaning set forth in Section 2(b).

    

    “Filing Date” means,
with respect to the Initial Registration Statement required hereunder, the
20th
calendar day following the date hereof and, with respect to any additional
Registration Statements which may be required pursuant to Section 3(c), (i) the
later of (a) the date sixty (60) days after the date substantially all of the
Registrable Securities registered under the immediately preceding Registration
Statement are sold and (b) the date six (6) months from the date the immediately
preceding Registration Statement is declared effective by the Commission or (ii)
any earlier date on which the Company is permitted by SEC Guidance to file such
additional Registration Statement related to the Registrable
Securities.

    

    “Holder” or “Holders” means the
holder or holders, as the case may be, from time to time of Registrable
Securities.

    

    “Indemnified Party”
shall have the meaning set forth in Section 5(c).

    

    “Indemnifying Party”
shall have the meaning set forth in Section 5(c).

    

    “Initial Registration
Statement” means the initial Registration Statement filed pursuant to
this Agreement.

    

    
      
        
           

        

        
          1

          
            

          

        

        
           

        

      

    

     

    “Initial Shares” means
a number of Registrable Securities equal to the lesser of (a) the total number
of Registrable Securities and (b) one-third of the number of issued and
outstanding shares of Common Stock that are held by non-Affiliates of the
Company on the day immediately prior to the filing date of the Initial
Registration Statement.

    

    “Losses” shall have
the meaning set forth in Section 5(a).

    

    “Plan of Distribution”
shall have the meaning set forth in Section 2(a).

    

    “Prospectus” means the
prospectus included in a Registration Statement (including, without limitation,
a prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated by the Commission pursuant to the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by a Registration
Statement, and all other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.

    

    “Registrable
Securities” means, as of any date of determination, (a) all of the shares
of Common Stock then issuable upon conversion in full of the Preferred Stock
(assuming on such date the shares of Preferred Stock are converted in full
without regard to any conversion limitations therein), (b) all Warrant Shares
then issuable upon exercise of the Warrants (assuming on such date the Warrants
are exercised in full without regard to any exercise limitations therein), (c)
any additional shares of Common Stock issuable in connection with any
anti-dilution provisions in the Preferred Stock or the Warrants (in each case,
without giving effect to any limitations on conversion set forth in the
Certificate of Designation or limitations on exercise set forth in the Warrants)
and (d) any securities issued or then issuable upon any stock split, dividend or
other distribution,  recapitalization or similar event with respect to
the foregoing; provided, however, that any
such Registrable Securities shall cease to be Registrable Securities (and the
Company shall not be required to maintain the effectiveness of any, or file
another, Registration Statement hereunder with respect thereto) for so long as
(a) a Registration Statement with respect to the sale of such Registrable
Securities is declared effective by the Commission under the Securities Act and
such Registrable Securities have been disposed of by the Holder in accordance
with such effective Registration Statement, (b) such Registrable Securities have
been previously sold in accordance with Rule 144, or (c) such securities become
eligible for resale without volume or manner-of-sale restrictions and without
current public information pursuant to Rule 144 as set forth in a written
opinion letter to such effect, addressed, delivered and acceptable to the
Transfer Agent and the affected Holders (assuming that such securities and any
securities issuable upon exercise, conversion or exchange of which, or as a
dividend upon which, such securities were issued or are issuable, were at no
time held by any Affiliate of the Company, and all Warrants are exercised by
“cashless exercise” as provided in Section 2(c) of each of the Warrants), as
reasonably determined by the Company, upon the advice of counsel to the
Company.

    

    “Registration
Statement” means any registration statement required to be filed
hereunder pursuant to Section 2(a) and any additional registration statements
contemplated by Section 3(c), including (in each case) the Prospectus,
amendments and supplements to any such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference or deemed to be incorporated by reference in
any such registration statement.

    

     “Rule 415” means Rule
415 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.

    

    “Rule 424” means Rule
424 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended or interpreted from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.

    

    “Selling Stockholder
Questionnaire” shall have the meaning set forth in Section
3(a).

    

    “SEC Guidance” means
(i) any publicly-available written or oral guidance of the Commission staff, or
any comments, requirements or requests of the Commission staff and (ii) the
Securities Act.

    

    
      
        
           

        

        
          2

          
            

          

        

        
           

        

      

    

     

            2.     Shelf
Registration.

    

    (a)           On
or prior to each Filing Date, the Company shall prepare and file with the
Commission a Registration Statement covering the resale of all or such maximum
portion of the Registrable Securities as permitted by SEC Guidance (provided
that, the Company shall use diligent efforts to advocate with the Commission for
the registration of all of the Registrable Securities in accordance with the SEC
Guidance, including without limitation, the Manual of Publicly Available
Telephone Interpretations D.29) that are not then registered on an effective
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415.  Each Registration Statement filed hereunder shall be on
Form S-3 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance herewith) and shall contain (unless
otherwise directed by at least an 85% majority in interest of the Holders)
substantially the “Plan of Distribution”
attached hereto as Annex
A.  Subject to the terms of this Agreement, the Company shall
use its best efforts to cause a Registration Statement filed hereunder to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event prior to the applicable Effectiveness Date, and
shall use its best efforts to keep such Registration Statement continuously
effective under the Securities Act until all Registrable Securities covered by
such Registration Statement (i) have been sold, thereunder or pursuant to Rule
144, or (ii) (A) may be sold without volume or manner-of-sale restrictions
pursuant to Rule 144 and (B) may be sold without the requirement for the Company
to be in compliance with the current public information requirement under Rule
144, as determined by the counsel to the Company pursuant to a written opinion
letter to such effect, addressed and acceptable to the Transfer Agent and the
affected Holders (the “Effectiveness
Period”).  The Company shall telephonically request
effectiveness of a Registration Statement as of 5:00 p.m. New York City time on
a Trading Day.   The Company shall immediately notify the Holders
via facsimile or by e-mail of the effectiveness of a Registration Statement on
the same Trading Day that the Company telephonically confirms effectiveness with
the Commission, which shall be the date requested for effectiveness of such
Registration Statement.  The Company shall, by 9:30 a.m. New York City
time on the Trading Day after the effective date of such Registration Statement,
file a final Prospectus with the Commission as required by Rule
424.  Failure to so notify the Holder within one (1) Trading Day of
such notification of effectiveness or failure to file a final Prospectus as
foresaid shall be deemed an Event under Section 2(b).  Notwithstanding
any other provision of this Agreement and subject to the payment of liquidated
damages pursuant to Section 2(b), if any SEC Guidance sets forth a limitation on
the number of Registrable Securities permitted to be registered on a particular
Registration Statement (and notwithstanding that the Company used diligent
efforts to advocate with the Commission for the registration of all or a greater
portion of Registrable Securities), unless otherwise directed in writing by a
Holder as to its Registrable Securities, the number of Registrable Securities to
be registered on such Registration Statement will first be reduced by
Registrable Securities represented by Warrant Shares (applied, in the case that
some Warrant Shares may be registered, to the Holders on a pro rata basis based
on the total number of unregistered Warrant Shares held by such Holders), and
second by Registrable Securities represented by Conversion Shares (applied, in
the case that some Conversion Shares may be registered, to the Holders on a pro
rata basis based on the total number of unregistered Conversion Shares held by
such Holders). In the event of a cutback hereunder, the Company shall give the
Holder at least five (5) Trading Days prior written notice along with the
calculations as to such Holder’s allotment.

    

    
      
        
           

        

        
          3

          
            

          

        

        
           

        

      

    

     

    (b)           If:
(i) the Initial Registration Statement is not filed on or prior to its Filing
Date (if the Company files the Initial Registration Statement without affording
the Holders the opportunity to review and comment on the same as required by
Section 3(a) herein, the Company shall be deemed to have not satisfied this
clause (i)), or (ii) the Company fails to file with the Commission a request for
acceleration of a Registration Statement in accordance with Rule 461 promulgated
by the Commission pursuant to the Securities Act, within the later of (A) June
25, 2009 and (B) five Trading Days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that such
Registration Statement will not be “reviewed” or will not be subject to further
review, or (iii) prior to the effective date of a Registration Statement, the
Company fails to file a pre-effective amendment and otherwise respond in writing
to comments made by the Commission in respect of such Registration Statement
within ten (10) calendar days after the receipt of comments by or notice from
the Commission that such amendment is required in order for such Registration
Statement to be declared effective, or (iv) as to, in the aggregate among all
Holders on a pro-rata basis based on their purchase of the Securities pursuant
to the Purchase Agreement, a Registration Statement registering for resale all
of the Initial Shares is not declared effective by the Commission by the
Effectiveness Date of the Initial Registration Statement, or (v) after the
effective date of a Registration Statement, such Registration Statement ceases
for any reason to remain continuously effective as to all Registrable Securities
included in such Registration Statement, or the Holders are otherwise not
permitted to utilize the Prospectus therein to resell such Registrable
Securities (including, without limitation, because of the suspension of trading
or any other limitation imposed by a Trading Market, a failure to keep such
Registration Statement effective, a failure to disclose such information as is
necessary for sales to be made pursuant to such Registration Statement, a
failure to register a sufficient number of shares of Common Stock or a failure
to maintain the listing of the Common Stock), for more than ten (10) consecutive
calendar days or more than an aggregate of fifteen (15) calendar days (which
need not be consecutive calendar days) during any 12-month period, or (vi) the
Company shall fail for any reason to satisfy the current public information
requirement under Rule 144 as to the applicable Registrable Securities (any such
failure or breach being referred to as an “Event”, and for
purposes of clauses (i), (iv), and (vi), the date on which such Event occurs,
and for purpose of clause (ii) the date on which such five (5) Trading Day
period is exceeded or June 25, 2009, as applicable, and for purpose of clause
(iii) the date which such ten (10) calendar day period is exceeded, and for
purpose of clause (v) the date on which such ten (10) or fifteen (15) calendar
day period, as applicable, is exceeded being referred to as “Event Date”), then,
in addition to any other rights the Holders may have hereunder or under
applicable law, on each such Event Date and on each monthly anniversary of each
such Event Date (if the applicable Event shall not have been cured by such date)
until the applicable Event is cured, the Company shall pay to each Holder an
amount in cash, as partial liquidated damages and not as a penalty, equal to
2.0% of the aggregate purchase price paid by such Holder pursuant to the
Purchase Agreement for any unregistered Registrable Securities then held by such
Holder.  The parties agree that the maximum aggregate liquidated
damages payable to a Holder under this Agreement shall be 6.0% of the aggregate
Subscription Amount paid by such Holder pursuant to the Purchase
Agreement.  If the Company fails to pay any partial liquidated damages
pursuant to this Section in full within seven days after the date payable, the
Company will pay interest thereon at a rate of 18% per annum (or such lesser
maximum amount that is permitted to be paid by applicable law) to the Holder,
accruing daily from the date such partial liquidated damages are due until such
amounts, plus all such interest thereon, are paid in full. The partial
liquidated damages pursuant to the terms hereof shall apply on a daily pro rata
basis for any portion of a month prior to the cure of an Event.

    

    3.      
      Registration
Procedures.

    

                   In
connection with the Company’s registration obligations hereunder, the Company
shall:

    

    (a)           Not
less than five (5) Trading Days prior to the filing of each Registration
Statement and not less than two (2) Trading Days prior to the filing of any
related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall (i) furnish to each Holder copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders, and (ii) cause its officers and directors, counsel and independent
registered public accountants to respond to such inquiries as shall be
necessary, in the reasonable opinion of respective counsel to each Holder, to
conduct a reasonable investigation within the meaning of the Securities Act. The
Company shall not file a Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities shall reasonably object in good faith, provided that, the
Company is notified of such objection in writing no later than five (5) Trading
Days after the Holders have been so furnished copies of a Registration Statement
or two (2) Trading Days after the Holders have been so furnished copies of any
related Prospectus or amendments or supplements thereto. Each Holder agrees to
furnish to the Company a completed questionnaire in the form attached to this
Agreement as Annex
B (a “Selling
Stockholder Questionnaire”) on a date that is not less than two (2)
Trading Days prior to the Filing Date or by the end of the fourth (4th)
Trading Day following the date on which such Holder receives draft materials in
accordance with this Section.

    

    
      
        
           

        

        
          4

          
            

          

        

        
           

        

      

    

     

    (b)           (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to a Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep a Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act all of the
Registrable Securities, (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement (subject to the terms of this
Agreement), and, as so supplemented or amended, to be filed pursuant to Rule
424, (iii) respond as promptly as reasonably possible to any comments received
from the Commission with respect to a Registration Statement or any amendment
thereto and provide as promptly as reasonably possible to the Holders true and
complete copies of all correspondence from and to the Commission relating to a
Registration Statement (provided that, the Company shall excise any information
contained therein which would constitute material non-public information as to
any Holder which has not executed a confidentiality agreement with respect
thereto with the Company), and (iv) comply in all material respects with the
applicable provisions of the Securities Act and the Exchange Act with respect to
the disposition of all Registrable Securities covered by a Registration
Statement during the applicable period in accordance (subject to the terms of
this Agreement) with the intended methods of disposition by the Holders thereof
set forth in such Registration Statement as so amended or in such Prospectus as
so supplemented.

    

    (c)           If
during the Effectiveness Period, the number of Registrable Securities at any
time exceeds 100% of the number of shares of Common Stock then registered in a
Registration Statement, then the Company shall file as soon as reasonably
practicable, but in any case prior to the applicable Filing Date, an additional
Registration Statement covering the resale by the Holders of not less than the
number of such Registrable Securities.

    

    (d)           Notify
the Holders of Registrable Securities to be sold (which notice shall, pursuant
to clauses (iii) through (vi) hereof, be accompanied by an instruction to
suspend the use of the Prospectus until the requisite changes have been made) as
promptly as reasonably possible (and, in the case of (i)(A) below, not less than
one (1) Trading Day prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one (1) Trading Day following the
day (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to a Registration Statement is proposed to be filed, (B) when the
Commission notifies the Company whether there will be a “review” of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement, and (C) with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the Commission or any other federal or state governmental authority
for amendments or supplements to a Registration Statement or Prospectus or for
additional information, (iii) of the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement covering any or all of the Registrable
Securities or the initiation of any Proceedings for that purpose; (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose, (v) of the occurrence of any event or passage of
time that makes the financial statements included in a Registration Statement
ineligible for inclusion therein or any statement made in a Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to a Registration Statement, Prospectus or other
documents so that, in the case of a Registration Statement or the Prospectus, as
the case may be, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading and (vi) of the occurrence or existence of any pending
corporate development with respect to the Company that the Company believes may
be material (provided that in each notice the Company will not disclose the
content of such material, non-public information to the Holders) and that, in
the determination of the Company, makes it not in the best interest of the
Company to allow continued availability of a Registration Statement or
Prospectus, provided that, any and all of such information shall remain
confidential to each Holder until such information otherwise becomes public,
unless disclosure by a Holder is required by law; provided, further, that
notwithstanding each Holder’s agreement to keep such information confidential,
each such Holder makes no acknowledgement that any such information is material,
non-public information.

    

    
      
        
           

        

        
          5

          
            

          

        

        
           

        

      

    

     

    (e)           Use
its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of (i) any order stopping or suspending the effectiveness of a Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.

    

    (f)           Furnish
to each Holder, without charge, at least one conformed copy of each such
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission; provided, that any such item which is available
on the EDGAR system (or successor thereto) need not be furnished in physical
form.

    

    (g)           Subject
to the terms of this Agreement, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto, except after
the giving of any notice pursuant to Section 3(d).

    

    (h)           
The Company shall cooperate with any broker-dealer through which a Holder
proposes to resell its Registrable Securities in effecting a filing with the
FINRA Corporate Financing Department pursuant to FINRA Rule 5110, as requested
by any such Holder, and the Company shall pay the filing fee required by such
filing within two (2) Business Days of request therefor.

    

    (i)           Prior
to any resale of Registrable Securities by a Holder, use its commercially
reasonable efforts to register or qualify or cooperate with the selling Holders
in connection with the registration or qualification (or exemption from the
Registration or qualification) of such Registrable Securities for the resale by
the Holder under the securities or Blue Sky laws of all applicable jurisdictions
in the United States, to keep each registration or qualification (or exemption
therefrom) effective during the Effectiveness Period and to do any and all other
acts or things reasonably necessary to enable the disposition in such
jurisdictions of the Registrable Securities covered by each Registration
Statement; provided, that, the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified,
subject the Company to any material tax in any such jurisdiction where it is not
then so subject or file a general consent to service of process in any such
jurisdiction.

    

    (j)           If
requested by a Holder, cooperate with such Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by the Purchase Agreement,
of all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any such Holder may
request.

    

    (k)           Upon
the occurrence of any event contemplated by Section 3(d), as promptly as
reasonably possible under the circumstances taking into account the Company’s
good faith assessment of any adverse consequences to the Company and its
stockholders of the premature disclosure of such event, prepare a supplement or
amendment, including a post-effective amendment, to a Registration Statement or
a supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither a Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If the
Company notifies the Holders in accordance with clauses (iii) through (vi) of
Section 3(d) above to suspend the use of any Prospectus until the requisite
changes to such Prospectus have been made, then the Holders shall suspend use of
such Prospectus.  The Company will use its best efforts to ensure that
the use of the Prospectus may be resumed as promptly as is
practicable.  The Company shall be entitled to exercise its right
under this Section 3(k) to suspend the availability of a Registration Statement
and Prospectus, subject to the payment of partial liquidated damages otherwise
required pursuant to Section 2(b), for a period not to exceed 60 calendar days
(which need not be consecutive days) in any 12-month period.

    

    
      
        
           

        

        
          6

          
            

          

        

        
           

        

      

    

     

    (l)           Comply
with all applicable rules and regulations of the Commission.

    

    (m)           The
Company may require each selling Holder to furnish to the Company a certified
statement as to the number of shares of Common Stock beneficially owned by such
Holder and, if required by the Commission, the natural persons thereof that have
voting and dispositive control over the shares. During any periods that the
Company is unable to meet its obligations hereunder with respect to the
registration of the Registrable Securities solely because any Holder fails to
furnish such information within three Trading Days of the Company’s request, any
liquidated damages that are accruing at such time as to such Holder only shall
be tolled and any Event that may otherwise occur solely because of such delay
shall be suspended as to such Holder only, until such information is delivered
to the Company.

    

    (n)           Neither
the Company nor any Subsidiary or affiliate thereof shall identify any Holder as
an underwriter in any public disclosure or filing with the Commission, or any
Trading Market and any Holder being deemed an underwriter by the Commission
shall not relieve the Company of any obligations it has under this Agreement or
any other Transaction Document; provided, however, that the
foregoing shall not prohibit the Company from including the disclosure found in
the "Plan of Distribution" section attached hereto as Annex A in the
Registration Statement.

    

            4.      Registration
Expenses. All fees and expenses incident to the performance of or
compliance with, this Agreement by the Company shall be borne by the Company
whether or not any Registrable Securities are sold pursuant to a Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses of the Company’s counsel and independent
registered public accountants) (A) with respect to filings made with the
Commission, (B) with respect to filings required to be made with any Trading
Market on which the Common Stock is then listed for trading, (C) in compliance
with applicable state securities or Blue Sky laws reasonably agreed to by the
Company in writing (including, without limitation, fees and disbursements of
counsel for the Company in connection with Blue Sky qualifications or exemptions
of the Registrable Securities) and (D) if not previously paid by the Company in
connection with an Issuer Filing, with respect to any filing that may be
required to be made by any broker through which a Holder intends to make sales
of Registrable Securities with FINRA pursuant to FINRA Rule 5110, so long as the
broker is receiving no more than a customary brokerage commission in connection
with such sale, (ii) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities), (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company,
(v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement.  In addition, the Company shall be responsible for all
of its internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.  In no event shall the
Company be responsible for any broker or similar commissions of any Holder or,
except to the extent provided for in the Transaction Documents, any legal fees
or other costs of the Holders.

    

    
      
        
           

        

        
          7

          
            

          

        

        
           

        

      

    

     

            5.      Indemnification.

    

    (a)           Indemnification by the
Company. The Company shall, notwithstanding any termination of this
Agreement, indemnify and hold harmless each Holder, the officers, directors,
members, partners, agents, brokers (including brokers who offer and sell
Registrable Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors and employees
(and any other Persons with a functionally equivalent role of a Person holding
such titles, notwithstanding a lack of such title or any other title) of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, members, stockholders, partners, agents and employees (and any other
Persons with a functionally equivalent role of a Person holding such titles,
notwithstanding a lack of such title or any other title) of each such
controlling Person, to the fullest extent permitted by applicable law, from and
against any and all losses, claims, damages, liabilities, costs (including,
without limitation, reasonable attorneys’ fees) and expenses (collectively,
“Losses”), as
incurred, arising out of or relating to (1) any untrue or alleged untrue
statement of a material fact contained in a Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading or (2) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act or any state securities law, or any rule or
regulation thereunder, in connection with the performance of its obligations
under this Agreement, except to the extent, but only to the extent, that (i)
such untrue statements or omissions are based solely upon information regarding
such Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder’s proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in a
Registration Statement, such Prospectus or in any amendment or supplement
thereto (it being understood that the Holder has approved Annex A hereto for
this purpose) or (ii) in the case of an occurrence of an event of the type
specified in Section 3(d)(iii)-(vi), the use by such Holder of an outdated,
defective or otherwise unavailable Prospectus after the Company has notified
such Holder in writing that the Prospectus is outdated, defective or otherwise
unavailable for use by such Holder and prior to the receipt by such Holder of
the Advice contemplated in Section 6(d).  The Company shall notify the
Holders promptly of the institution, threat or assertion of any Proceeding
arising from or in connection with the transactions contemplated by this
Agreement of which the Company is aware.

    

    (b)           Indemnification by
Holders. Each Holder shall, severally and not jointly, indemnify and hold
harmless the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent permitted by
applicable law, from and against all Losses, as incurred, to the extent arising
out of or based solely upon: (x) such Holder’s failure to comply with the
prospectus delivery requirements of the Securities Act or (y) any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, any Prospectus, or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading (i) to the extent, but only to the extent,
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for inclusion in
such Registration Statement or such Prospectus or (ii) to the extent that such
information relates to such Holder’s proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Holder expressly for use in a Registration Statement (it being understood
that the Holder has approved Annex A hereto for this purpose), such Prospectus
or in any amendment or supplement thereto or (ii) in the case of an occurrence
of an event of the type specified in Section 3(d)(iii)-(vi), the use by such
Holder of an outdated, defective or otherwise unavailable Prospectus after the
Company has notified such Holder in writing that the Prospectus is outdated,
defective or otherwise unavailable for use by such Holder and prior to the
receipt by such Holder of the Advice contemplated in Section 6(d).  In
no event shall the liability of any selling Holder under this Section 5(b) be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.

    

    
      
        
           

        

        
          8

          
            

          

        

        
           

        

      

    

     

    (c)           Conduct of Indemnification
Proceedings. If any Proceeding shall be brought or asserted against any
Person entitled to indemnity hereunder (an “Indemnified Party”),
such Indemnified Party shall promptly notify the Person from whom indemnity is
sought (the “Indemnifying Party”)
in writing, and the Indemnifying Party shall have the right to assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that, the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have materially prejudiced the Indemnifying Party.

    

                   An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses, (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding, or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and counsel to the
Indemnified Party shall reasonably believe that a material conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and the reasonable fees and expenses of no
more than one separate counsel shall be at the expense of the Indemnifying
Party).  The Indemnifying Party shall not be liable for any settlement
of any such Proceeding effected without its written consent, which consent shall
not be unreasonably withheld, conditioned or delayed.  No Indemnifying
Party shall, without the prior written consent of the Indemnified Party, effect
any settlement of any pending Proceeding in respect of which any Indemnified
Party is a party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability on claims that are the subject matter
of such Proceeding.

    

                   Subject
to the terms of this Agreement, all reasonable fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within ten Trading Days of written notice thereof to the
Indemnifying Party; provided, that, the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is judicially
determined not to be entitled to indemnification hereunder.

    

    (d)           Contribution. If the
indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless for any Losses, then
each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission.  The amount paid or payable by a party
as a result of any Losses shall be deemed to include, subject to the limitations
set forth in this Agreement, any reasonable attorneys’ or other fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

    

    
      
        
           

        

        
          9

          
            

          

        

        
           

        

      

    

     

                   The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding
paragraph.  Notwithstanding the provisions of this Section 5(d), no
Holder shall be required to contribute pursuant to this Section 5(d), in the
aggregate, any amount in excess of the amount by which the net proceeds actually
received by such Holder from the sale of the Registrable Securities subject to
the Proceeding exceeds the amount of any damages that such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.

    

    The
indemnity and contribution agreements contained in this Section are in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties.

    

            6.     Miscellaneous.

    

    (a)           Remedies.  In
the event of a breach by the Company or by a Holder of any of their respective
obligations under this Agreement, each Holder or the Company, as the case may
be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, shall be entitled to
specific performance of its rights under this Agreement.  Each of the
Company and each Holder agrees that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall not assert
or shall waive the defense that a remedy at law would be adequate.

    

    (b)           No Piggyback on
Registrations; Prohibition on Filing Other Registration Statements.
Neither the Company nor any of its security holders (other than the Holders in
such capacity pursuant hereto) may include securities of the Company in any
Registration Statements other than the Registrable Securities.  The
Company shall not file any other registration statements until all Registrable
Securities are registered pursuant to a Registration Statement that is declared
effective by the Commission, provided that this Section 6(b) shall not prohibit
the Company from filing amendments to registration statements filed prior to the
date of this Agreement, provided that no such amendment shall increase the
amount of securities registered thereunder.

    

    (c)           Compliance. Each
Holder covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to a Registration Statement.

    

    (d)           Discontinued
Disposition.  By its acquisition of Registrable Securities,
each Holder agrees that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Section 3(d)(iii) through (vi),
such Holder will forthwith discontinue disposition of such Registrable
Securities under a Registration Statement until it is advised in writing (the
“Advice”) by
the Company that the use of the applicable Prospectus (as it may have been
supplemented or amended) may be resumed.  The Company will use its
best efforts to ensure that the use of the Prospectus may be resumed and shall
deliver the Advice to the Holders as promptly as is practicable.  The
Company agrees and acknowledges that any periods during which the Holder is
required to discontinue the disposition of the Registrable Securities hereunder
shall be subject to the provisions of Section 2(b).

    

    (e)           Piggy-Back
Registrations. If, at any time during the Effectiveness Period, there is
not an effective Registration Statement covering all of the Registrable
Securities and the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the Company’s stock option or
other employee benefit plans, then the Company shall deliver to each Holder a
written notice of such determination and, if within fifteen days after the date
of the delivery of such notice, any such Holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such Holder requests to be registered; provided, however, that the
Company shall not be required to register any Registrable Securities pursuant to
this Section 6(e) that are eligible for resale pursuant without restriction
pursuant to Rule 144 promulgated by the Commission pursuant to the Securities
Act and without the requirement to be in compliance with Rule 144(c)(1) (or any
successor thereto) or that are the subject of a then effective Registration
Statement.

    

    
      
        
           

        

        
          10

          
            

          

        

        
           

        

      

    

     

    (f)           Amendments and
Waivers. The provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
same shall be in writing and signed by the Company and all the Holders of the
then outstanding Registrable Securities (including, for this purpose any
Registrable Securities issuable upon exercise or conversion of any Security). If
a Registration Statement does not register all of the Registrable Securities
pursuant to a waiver or amendment done in compliance with the previous sentence,
then the number of Registrable Securities to be registered for each Holder shall
be reduced pro rata among all Holders and each Holder shall have the right to
designate which of its Registrable Securities shall be omitted from such
Registration Statement. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of a Holder or some Holders and that does not directly
or indirectly affect the rights of other Holders may be given by such Holder or
Holders of all of the Registrable Securities to which such waiver or consent
relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the first  sentence of this
Section 6(f).

    

    (g)           Notices. Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder shall be delivered as set forth in the Purchase
Agreement.

    

    (h)           Successors and
Assigns. This Agreement shall inure to the benefit of and be binding upon
the successors and permitted assigns of each of the parties and shall inure to
the benefit of each Holder. The Company may not assign (except by merger) its
rights or obligations hereunder without the prior written consent of all of the
Holders of the then outstanding Registrable Securities.  Each Holder
may assign their respective rights hereunder in the manner and to the Persons as
permitted under Section 5.7 of the Purchase Agreement.

    

    (i)           No Inconsistent
Agreements. Neither the Company nor any of its Subsidiaries has entered,
as of the date hereof, nor shall the Company or any of its Subsidiaries, on or
after the date of this Agreement, enter into any agreement with respect to its
securities, that would have the effect of impairing the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions
hereof.  Neither the Company nor any of its Subsidiaries has
previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person that have not been satisfied in
full.

    

    (j)           Execution and
Counterparts. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.  In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original
thereof.

    

    (k)           Governing
Law.  All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be determined in
accordance with the provisions of the Purchase Agreement.

    

    (l)           Cumulative Remedies.
The remedies provided herein are cumulative and not exclusive of any other
remedies provided by law.

    

    (m)           Severability. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

    

    (n)           Headings. The
headings in this Agreement are for convenience only, do not constitute a part of
the Agreement and shall not be deemed to limit or affect any of the provisions
hereof.

    

    
      
        
           

        

        
          11

          
            

          

        

        
           

        

      

    

     

    (o)           Independent Nature of
Holders’ Obligations and Rights. The obligations of each Holder hereunder
are several and not joint with the obligations of any other Holder hereunder,
and no Holder shall be responsible in any way for the performance of the
obligations of any other Holder hereunder. Nothing contained herein or in any
other agreement or document delivered at any closing, and no action taken by any
Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as
a partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Holders are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Holder shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Holder to be joined as an additional party in any
proceeding for such purpose.

    

    ********************

    

     

    (Signature
Pages Follow)

     

     

     

    

    
      
        
           

        

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

    

    
      
        	
                ADVANCED
      BATTERY TECHNOLOGIES, INC.

                 

                 

              
	
                By:__________________________________________

                     Name:

                     Title:

                 

              

      

    

    

    

    [SIGNATURE
PAGE OF HOLDERS FOLLOWS]

     

    

    

    
      
        
           

        

        
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    [SIGNATURE
PAGE OF HOLDERS TO ABAT RRA]

    

    

    Name of
Holder: __________________________

    

    Signature of Authorized Signatory of
Holder: __________________________

    

    Name of
Authorized Signatory: _________________________

    

    Title of
Authorized Signatory: __________________________

    

    

    

    [SIGNATURE
PAGES CONTINUE]

     

    

    

    
      
        
           

        

        
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    Annex A

    

    Plan of
Distribution

    

    Each
Selling Stockholder (the “Selling
Stockholders”) of the common stock and any of their pledgees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock covered hereby on the [principal Trading Market] or any
other stock exchange, market or trading facility on which the shares are traded
or in private transactions.  These sales may be at fixed prices, at
prevailing market prices at the time of the sale, at varying prices determined
at the time of sale, or negotiated prices.  A Selling Stockholder may
use any one or more of the following methods when selling shares:

     

    
      	
               
      

            	
              ·

            	
              ordinary
      brokerage transactions and transactions in which the broker-dealer
      solicits purchasers;

            

    

     

    
      	
               
      

            	
              ·

            	
              block
      trades in which the broker-dealer will attempt to sell the shares as agent
      but may position and resell a portion of the block as principal to
      facilitate the transaction;

            

    

     

    
      	
               
      

            	
              ·

            	
              purchases
      by a broker-dealer as principal and resale by the broker-dealer for its
      account;

            

    

     

    
      	
               
      

            	
              ·

            	
              an
      exchange distribution in accordance with the rules of the applicable
      exchange;

            

    

     

    
      	
               
      

            	
              ·

            	
              privately
      negotiated transactions;

            

    

     

    
      	
               
      

            	
              ·

            	
              settlement
      of short sales entered into after the effective date of the registration
      statement of which this prospectus is a
part;

            

    

     

    
      	
               
      

            	
              ·

            	
              in
      transactions through broker-dealers that agree with the Selling
      Stockholders to sell a specified number of such shares at a stipulated
      price per share;

            

    

     

    
      	
               
      

            	
              ·

            	
              through
      the writing or settlement of options or other hedging transactions,
      whether through an options exchange or
  otherwise;

            

    

     

    
      	
               
      

            	
              ·

            	
              a
      combination of any such methods of sale;
or

            

    

     

    
      	
               
      

            	
              ·

            	
              any
      other method permitted pursuant to applicable
  law.

            

    

     

    The
Selling Stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended (the “Securities Act”), if
available, rather than under this prospectus.

     

    Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales.  Broker-dealers may receive commissions or
discounts from the Selling Stockholders (or, if any broker-dealer acts as agent
for the purchaser of shares, from the purchaser) in amounts to be negotiated,
but, except as set forth in a supplement to this Prospectus, in the case of an
agency transaction not in excess of a customary brokerage commission in
compliance with FINRA Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with FINRA IM-2440.

     

    

    
      
        
           

        

        
          15

          
            

          

        

        
           

        

      

    

    

    

     

    In
connection with the sale of the common stock or interests therein, the Selling
Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume.  The Selling
Stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions or to return borrowed shares in
connection with such short sales, or loan or pledge the common stock to
broker-dealers that in turn may sell these securities.  The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or create one or more derivative
securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).

     

    The
Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales.  In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.  Each Selling
Stockholder has informed the Company that it does not have any written or oral
agreement or understanding, directly or indirectly, with any person to
distribute the Common Stock. In no event shall any broker-dealer receive fees,
commissions and markups which, in the aggregate, would exceed eight percent
(8%).

     

    The
Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares.  The Company has agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.

     

    The
Selling Stockholders will be subject to the prospectus delivery requirements of
the Securities Act including Rule 172 thereunder unless an exemption therefrom
is available.

     

    The
Selling Stockholders have advised us that there is no underwriter or
coordinating broker acting in connection with the proposed sale of the resale
shares by the Selling Stockholders.

     

    We agreed
to keep this prospectus effective until the earlier of (i) the date on which the
shares may be resold by the Selling Stockholders without registration and
without regard to any volume or manner-of-sale limitations by reason of Rule 144
and without the requirement for the Company to be in compliance with the current
public information under Rule 144 under the Securities Act or any other rule of
similar effect or (ii) all of the shares have been sold pursuant to this
prospectus or Rule 144 under the Securities Act or any other rule of similar
effect.  The resale shares will be sold only through registered or
licensed brokers or dealers if required under applicable state securities laws.
In addition, in certain states, the resale shares of Common Stock covered hereby
may not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

     

    
      
        
           

        

        
          16

          
            

          

        

        
           

        

      

    

     

    Under
applicable rules and regulations under the Exchange Act, any person engaged in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution.  In addition, the Selling Stockholders will be subject
to applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of the common stock by the Selling Stockholders or any other
person.  We will make copies of this prospectus available to the
Selling Stockholders and have informed them of the need to deliver a copy of
this prospectus to each purchaser at or prior to the time of the sale (including
by compliance with Rule 172 under the Securities Act).

     

    There can
be no assurance that any selling stockholder will sell any or all of the shares
of common stock registered pursuant to the registration statement, of which this
prospectus forms a part.

     

    Once sold
under the registration statement, of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other
than our affiliates.

     

    

    
      
        
           

        

        
          17

          
            

          

        

        
           

        

      

    

    

    Annex
B

     

    ADVANCED
BATTERY TECHNOLOGIES, INC.

     

    Selling
Stockholder Notice and Questionnaire

     

    The
undersigned beneficial owner of common stock (the “Registrable
Securities”) of Advanced Battery Technologies, Inc., a Delaware
corporation (the “Company”),
understands that the Company has filed or intends to file with the Securities
and Exchange Commission (the “Commission”) a
registration statement (the “Registration
Statement”) for the registration and resale under Rule 415 of the
Securities Act of 1933, as amended (the “Securities Act”), of
the Registrable Securities, in accordance with the terms of the Registration
Rights Agreement (the “Registration Rights
Agreement”) to which this document is annexed.  A copy of the
Registration Rights Agreement is available from the Company upon request at the
address set forth below.  All capitalized terms not otherwise defined
herein shall have the meanings ascribed thereto in the Registration Rights
Agreement.

     

    Certain
legal consequences arise from being named as a selling stockholder in the
Registration Statement and the related prospectus.  Accordingly,
holders and beneficial owners of Registrable Securities are advised to consult
their own securities law counsel regarding the consequences of being named or
not being named as a selling stockholder in the Registration Statement and the
related prospectus.

     

    NOTICE

     

    The
undersigned beneficial owner (the “Selling Stockholder”)
of Registrable Securities hereby elects to include the Registrable Securities
owned by it in the Registration Statement.

     

    

    
      
        
           

        

        
          18

          
            

          

        

        
           

        

      

    

    

    The
undersigned hereby provides the following information to the Company and
represents and warrants that such information is accurate:

     

    QUESTIONNAIRE

     

    
      
        	
                1.

              	
                Name.

              

      

    

     

    
      
        	
                 
      

              	
                (a)

              	
                Full
      Legal Name of Selling Stockholder

              
	 	 	 
	 	 	 

      

    

     

    

    
      
        	
                 
      

              	
                (b)

              	
                Full
      Legal Name of Registered Holder (if not the same as (a) above) through
      which Registrable Securities are held:

              
	 	 	 
	 	 	 

      

    

     

     

    
      
        	
                 
      

              	
                (c)

              	
                Full
      Legal Name of Natural Control Person (which means a natural person who
      directly or indirectly alone or with others has power to vote or dispose
      of the securities covered by this Questionnaire):

              
	 	 	 
	 	 	 

      

    

     

     

    
      
        	
                2.

              	
                Address
      for Notices to Selling
Stockholder:

              

      

    

     

    
      	 
      
	
               
      

               

            
	
               
      

               

            

       

       

       

       

       

       

       

      
        
          
            
              	
                      Telephone: 
      

                    	 

            

          

        

      

       

      
        
          
            
              	
                      Fax:

                    	 

            

          

        

         

        
          
            
              	
                      Contact
      Person:

                    	 

            

          

        

      

       

    

    

    
      
        	
                3.

              	
                Broker-Dealer
      Status:

              

      

    

     

    
      	
               
      

            	
              (a)

            	
              Are
      you a broker-dealer?

            

    

     

    
      
        	
                Yes   o

              	 
      	
                No   o

              

      

    

    
      	
               
      

            	
              (b)

            	
              If
      “yes” to Section 3(a), did you receive your Registrable Securities as
      compensation for investment banking services to the
    Company?

            

    

     

    
      
        	
                Yes   o

              	 
      	
                No   o

              

      

    

    
      
        	 	 	 
	
              	
                Note:

              	
                If
      “no” to Section 3(b), the Commission’s staff has indicated that you should
      be identified as an underwriter in the Registration
    Statement.

              

      

    

     

    
      
        
           

        

        
          19

          
            

          

        

        
           

        

      

    

     

    
      	
               
      

            	
              (c)

            	
              Are
      you an affiliate of a
broker-dealer?

            

    

     

    
      
        	
                Yes   o

              	 
      	
                No   o

              

      

    

    
      
        	 	 	 
	
                 
      

              	
                (d)

              	
                If
      you are an affiliate of a broker-dealer, do you certify that you purchased
      the Registrable Securities in the ordinary course of business, and at the
      time of the purchase of the Registrable Securities to be resold, you had
      no agreements or understandings, directly or indirectly, with any person
      to distribute the Registrable
Securities?

              

      

    

     

    
      
        	
                Yes   o

              	 
      	
                No   o

              

      

       

    

    
      
        	
              	
                Note:

              	
                If
      “no” to Section 3(d), the Commission’s staff has indicated that you should
      be identified as an underwriter in the Registration
    Statement.

              

      

    

     

    
      
        	4.	
                Beneficial
      Ownership of Securities of the Company Owned by the Selling
      Stockholder.

              

      

    

     

    Except
as set forth below in this Item 4, the undersigned is not the beneficial or
registered owner of any securities of the Company other than the securities
issuable pursuant to the Purchase Agreement.

     

    
      
        	
                 
      

              	
                (a)

              	
                Type
      and Amount of other securities beneficially owned by the Selling
      Stockholder:

              
	 	 	 
	 	 	 
	 	 	 

      

    

     

    

    
      
        
           

        

        
          20

          
            

          

        

        
           

        

      

    

    

    
      	
               5. 

            	
              Relationships
      with the Company:

            

    

     

    Except
as set forth below, neither the undersigned nor any of its affiliates, officers,
directors or principal equity holders (owners of 5% of more of the equity
securities of the undersigned) has held any position or office or has had any
other material relationship with the Company (or its predecessors or affiliates)
during the past three years.

     

    
      
        	
                 
      

              	
                State
      any exceptions here:

              
	 	 
	 	 
	 	 

      

    

     

     

    The
undersigned agrees to promptly notify the Company of any inaccuracies or changes
in the information provided herein that may occur subsequent to the date hereof
at any time while the Registration Statement remains effective.

     

    By
signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items 1 through 5 and the inclusion of such
information in the Registration Statement and the related prospectus and any amendments or supplements
thereto.  The undersigned understands that such information
will be relied upon by the Company in connection with the preparation or
amendment of the Registration Statement and the related prospectus and any
amendments or supplements thereto.

     

    IN
WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice
and Questionnaire to be executed and delivered either in person or by its duly
authorized agent.

     

    
      
        
          
            
              	
                      Date:

                    	 
      	 
      	
                      Beneficial
      Owner:   

                    	 
      
	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                      By:

                    	 
      
	 
      	 
      	 
      	 
      	
                      Name:

                    	 
      
	 
      	 
      	 
      	 
      	
                      Title:

                    	 
      

            

          

        

      

    

    

    PLEASE
FAX A COPY (OR EMAIL A .PDF COPY) OF THE COMPLETED AND EXECUTED NOTICE AND
QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

    

    

    
      
        
           

        

        
          21

          
            

          

        

        
           

        

      

    

    

    EXHIBIT
C

     

    [FORM
OF SERIES [A] [B] [C] WARRANT]

     

    NEITHER
THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AND,
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT, AS EVIDENCED BY A
LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY
AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITIES.

     

    

    COMMON
STOCK PURCHASE WARRANT

    

    ADVANCED
BATTERY TECHNOLOGIES, INC.

     

    
      
        	
                Warrant
      Shares: _______2

              	
                Initial
      Exercise Date: [________]3
      __, 2009

              

      

    

    

     

    THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies
that, for value received, _____________ (the “Holder”) is entitled,
upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the [six month anniversary of
the]4 date hereof
(the “Initial Exercise
Date”) and on or prior to the close of business on the [_____]5  (the
“Termination
Date”) but not thereafter, to subscribe for and purchase from Advanced
Battery Technologies, Inc., a Delaware corporation (the “Company”), up to
______ shares1 (the “Warrant Shares”) of
Common Stock.  The purchase price of one share of Common Stock under
this Warrant shall be equal to the Exercise Price, as defined in Section
2(b).

     

    Section
1.       Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated June 12, 2009, among the Company and the purchasers signatory
thereto.

     

    Section
2.       Exercise.

     

    

      
        

      

    

    
      2 [INSERT IN
SERIES A WARRANT] [Insert number that is 45% of the Conversion Shares issuable
to the Holder on the Closing Date]

      [INSERT
IN SERIES B WARRANT] [the Holder’s pro rata share of 1,750,000]

      [INSERT
IN SERIES C WARRANT [the Holder’s pro rata share of
437,500] 

    

    
      3 As to
Series A Warrant and Series C, November; As to Series B
Warrant, June. 

    

    
      4 As to
Series A Warrant and Series C only. 

    

    
      5 As to
Series A Warrant and Series C, five year anniversary of the Initial Exercise
Date. As to Series B Warrant, the later of (A) the 180 day anniversary of the
Initial Exercise Date and (B) the 30 day
anniversary of the later of (y) the Effective Date and (z) the date the Company
receives the Authorized Share Approval.

      
 

    

    
      
        
           

        

        
          1

          
            

          

        

        
           

        

      

    

    

    a)           Exercise of
Warrant.  Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by delivery to the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of the Holder
appearing on the books of the Company) of a duly executed facsimile copy of the
Notice of Exercise Form annexed hereto; and, within three (3) Trading Days of
the date said Notice of Exercise is delivered to the Company, the Company shall
have received  payment of the aggregate Exercise Price of the shares
thereby purchased by wire transfer or cashier’s check drawn on a United States
bank or, if available, pursuant to the cashless exercise procedure specified in
Section 2(c) below.  Notwithstanding anything herein to the contrary,
the Holder shall not be required to physically surrender this Warrant to the
Company until the Holder has purchased all of the Warrant Shares available
hereunder and the Warrant has been exercised in full, in which case, the Holder
shall surrender this Warrant to the Company for cancellation within three (3)
Trading Days of the date the final Notice of Exercise is delivered to the
Company.  Partial exercises of this Warrant resulting in purchases of
a portion of the total number of Warrant Shares available hereunder shall have
the effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares
purchased.  The Holder and the Company shall maintain records showing
the number of Warrant Shares purchased and the date of such
purchases.  The Company shall deliver any objection to any Notice of
Exercise Form within 1 Business Day of receipt of such notice.  In the
event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of the
provisions of this paragraph, following the purchase of a portion of the Warrant
Shares hereunder, the number of Warrant Shares available for purchase hereunder
at any given time may be less than the amount stated on the face hereof. [INSERT
IN SERIES C WARRANT ONLY] [NOTWITHSTANDING ANY PROVISION OF THIS WARRANT TO THE
CONTRARY, NO MORE THAN THE MAXIMUM ELIGIBILITY NUMBER OF WARRANT SHARES SHALL BE
EXERCISABLE HEREUNDER. As used herein, "Maximum Eligibility Number"
means initially zero and shall be increased each time the Holder exercises its Series
B Warrant issued to the Holder by the Company pursuant to the Purchase Agreement
by an amount equal to twenty-five percent (25%) of the number of Warrant Shares
issued to the Holder under such Series B Warrant.]

     

    b)           Exercise
Price.  The exercise price per share of the Common Stock under
this Warrant shall be $_____6, subject to
adjustment hereunder (the “Exercise
Price”).

     

    c)           Cashless
Exercise.  If at any time after the six (6) month anniversary
of the date this Warrant was issued to the Holder, there is no effective
Registration Statement registering, or no current prospectus available for, the
resale of the Warrant Shares by the Holder, then this Warrant may also be
exercised, in whole or in part, at such time by means of a “cashless exercise”
in which the Holder shall be entitled to receive a certificate for the number of
Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A),
where:

    

    
      
        	 	
                (A)
      =

              	
                the
      VWAP on the Trading Day immediately preceding the date on which Holder
      elects to exercise this Warrant by means of a “cashless exercise,” as set
      forth in the applicable Notice of Exercise;

              
	 	 	 
	
              	
                (B)
      =

              	
                the
      Exercise Price of this Warrant, as adjusted hereunder;
  and

              
	 	 	 
	 	
                (X)
      =

              	
                the
      number of Warrant Shares that would be issuable upon exercise of this
      Warrant in accordance with the terms of this Warrant if such exercise were
      by means of a cash exercise rather than a cashless
    exercise.

              

      

    

     

    
      
        

      

    

    6 [INSERT IN
SERIES A WARRANT] $4.92

    [INSERT
IN SERIES B WARRANT] $4.00

    [INSERT
IN SERIES C WARRANT] $5.68

     

    
      
        
           

        

        
          2

          
            

          

        

        
           

        

      

    

    

    [Notwithstanding
anything herein to the contrary and subject to Section 2(e), on the Termination
Date, this Warrant shall be automatically exercised via cashless exercise
pursuant to this Section 2(c).]7

    

    
      d)      
   Mechanics of
Exercise.

    

     

    i.      Delivery of Certificates
Upon Exercise.  Certificates for shares purchased hereunder
shall be transmitted by the Transfer Agent to the Holder by crediting the
account of the Holder’s prime broker with the Depository Trust Company through
its Deposit Withdrawal Agent Commission (“DWAC”) system if the
Company is then a participant in such system and either (A) there is an
effective Registration Statement permitting the issuance of the Warrant Shares
to or resale of the Warrant Shares by the Holder or (B) the shares are eligible
for resale by the Holder without volume or manner-of-sale limitations pursuant
to Rule 144, and otherwise by physical delivery to the address specified by the
Holder in the Notice of Exercise by the date that is three (3) Trading Days
after the latest of (A) the delivery to the Company of the Notice of Exercise
Form, (B) surrender of this Warrant (if required), and (C) payment of the
aggregate Exercise Price as set forth above (including by cashless exercise, if
permitted) (such date, the “Warrant Share Delivery
Date”).  This Warrant shall be deemed to have been exercised on
the first date on which all of the foregoing have been delivered to the
Company.  The Warrant Shares shall be deemed to have been issued, and
Holder or any other person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the Warrant has been exercised, with payment to the Company of the Exercise
Price (or by cashless exercise, if permitted) and all taxes required to be paid
by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of
such shares, having been paid.  If the Company fails for any reason to
deliver to the Holder certificates evidencing the Warrant Shares subject to a
Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to
the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000
of Warrant Shares subject to such exercise (based on the VWAP of the Common
Stock on the date of the applicable Notice of Exercise), $10 per Trading Day
(increasing to $20 per Trading Day on the fifth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after such Warrant
Share Delivery Date until such certificates are delivered or Holder rescinds
such exercise.

     

    ii.          Delivery of New Warrants
Upon Exercise.  If this Warrant shall have been exercised in
part, the Company shall, at the request of a Holder and upon surrender of this
Warrant certificate, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant.

     

    iii.         Rescission
Rights.  If the Company fails to cause the Transfer Agent to
transmit to the Holder a certificate or the certificates representing the
Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date,
then, the Holder will have the right to rescind such exercise.

     

    iv.         Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Exercise.  In
addition to any other rights available to the Holder, if the Company fails to
cause the Transfer Agent to transmit to the Holder a certificate or the
certificates representing the Warrant Shares pursuant to an exercise on or
before the Warrant Share Delivery Date, and if after such date the Holder is
required by its broker to purchase (in an open market transaction or otherwise)
or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares which the
Holder anticipated receiving upon such exercise (a “Buy-In”), then the
Company shall , within three (3) Trading Days after the Holder's request and in
the Holder's discretion, either (i) pay cash to the Holder in an amount equal to
the Holder's total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased (the "Buy-In Price"), at
which point the Company's obligation to deliver such certificate (and to issue
such Warrant Shares or credit such Holder's balance account with The Depository
Trust Company ("DTC")) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Warrant Shares or credit such
Holder's balance account with DTC and pay cash to the Holder in an amount equal
to the excess (if any) of the Buy-In Price over the product of (A) such number
of shares of Common Stock, times (B) the VWAP on the date of
exercise.  The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In and, upon
request of the Company, evidence of the amount of such loss.  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 Company’s
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.

     

    
      

    

    7 As to
Series A and Series C only.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    v.         No Fractional Shares or
Scrip.  No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant.  As to any
fraction of a share which the Holder would otherwise be entitled to purchase
upon such exercise, the Company shall, at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole
share.

     

    vi.         Charges, Taxes and
Expenses.  Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or names as may be directed by
the Holder; provided, however, that in the
event certificates for Warrant Shares are to be issued in a name other than the
name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.

     

    vii.         Closing of
Books.  The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

    

    
      
        
           

        

        
          4

          
            

          

        

        
           

        

      

    

     

    e)           Holder’s Exercise
Limitations.  The Company shall not effect any exercise of this
Warrant, and a Holder shall not have the right to exercise any portion of this
Warrant, pursuant to Section 2 or otherwise, to the extent that after giving
effect to such issuance after exercise as set forth on the applicable Notice of
Exercise, the Holder (together with the Holder’s Affiliates, and any other
Persons acting as a group together with the Holder or any of the Holder’s
Affiliates), would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below).  For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which such determination is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (i) exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by the Holder or any of its Affiliates and (ii) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other  Common Stock
Equivalents) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
Affiliates.  Except as set forth in the preceding sentence, for purposes of
this Section 2(e), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and
the rules and regulations promulgated thereunder, it being acknowledged by the
Holder that the Company is not representing to the Holder that such calculation
is in compliance with Section 13(d) of the Exchange Act and the Holder is solely
responsible for any schedules required to be filed in accordance
therewith.   To the extent that the limitation contained in this
Section 2(e) applies, the determination of whether this Warrant is exercisable
(in relation to other securities owned by the Holder together with any
Affiliates) and of which portion of this Warrant is exercisable shall be in the
sole discretion of the Holder, and the submission of a Notice of Exercise shall
be deemed to be the Holder’s determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder together with
any Affiliates) and of which portion of this Warrant is exercisable, in each
case subject to the Beneficial Ownership Limitation, and the Company shall have
no obligation to verify or confirm the accuracy of such
determination.   In addition, a determination as to any group
status as contemplated above shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated
thereunder.  For purposes of this Section 2(e), in determining the
number of outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (A) the Company’s most recent
periodic or annual report filed with the Commission, as the case may be, (B) a
more recent public announcement by the Company or (C) a more recent written
notice by the Company or the Transfer Agent setting forth the number of shares
of Common Stock outstanding.  Upon the written or oral request of a Holder,
the Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding.  In any case,
the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder or its Affiliates since the date as of
which such number of outstanding shares of Common Stock was
reported.  The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon exercise of this Warrant.  The Holder upon written
notice to the Company, may increase or decrease the Beneficial Ownership
Limitation provisions of this Section 2(e), provided that the Beneficial
Ownership Limitation in no event exceeds 9.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock upon exercise of this Warrant held by the Holder and the
provisions of this Section 2(e) shall continue to apply.  Any such
increase will not be effective until the 61st day
after such notice is delivered to the Company.  The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 2(e) to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a successor holder of
this Warrant.

     

    
      
        
           

        

        
          5

          
            

          

        

        
           

        

      

    

     

    Section
3.    Certain
Adjustments.

     

    a)           Stock Dividends and
Splits. If the Company, at any time while this Warrant is outstanding:
(i) pays a stock dividend or otherwise makes a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares or (iv)
issues by reclassification of shares of the Common Stock any shares of capital
stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event, and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged.  Any
adjustment made pursuant to this Section 3(a) shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.

     

    b)           RESERVED.

     

    c)           Subsequent Rights
Offerings.  If the Company, at any time while the Warrant is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to the Holders) entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the VWAP on the record
date mentioned below, then, the Exercise Price shall be multiplied by a
fraction, of which the denominator shall be the number of shares of the Common
Stock outstanding on the date of issuance of such rights, options or warrants
plus the number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of the Common
Stock outstanding on the date of issuance of such rights, options or warrants
plus the number of shares which the aggregate offering price of the total number
of shares so offered (assuming receipt by the Company in full of all
consideration payable upon exercise of such rights, options or warrants) would
purchase at such VWAP.  Such adjustment shall be made whenever such
rights, options or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such rights, options or warrants.

     

    d)           Pro Rata
Distributions.  If the Company, at any time while this Warrant
is outstanding, shall distribute to all holders of Common Stock (and not to the
Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security other
than the Common Stock), then in each such case the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP determined
as of the record date mentioned above, and of which the numerator shall be such
VWAP on such record date less the then per share fair market value at such
record date of the portion of such assets or evidence of indebtedness or rights
or warrants so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith.  In
either case the adjustments shall be described in a statement provided to the
Holder of the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common
Stock.  Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date mentioned
above.

    

    
      
        
           

        

        
          6

          
            

          

        

        
           

        

      

    

     

    e)           Fundamental
Transaction. If, at any time while this Warrant is outstanding, in one or
more related transactions (i) the Company or any of its Subsidiaries, directly
or indirectly, in one or more related transactions effects any merger or
consolidation of the Company or any of its Subsidiaries with or into another
Person, (ii) the Company, directly or indirectly, effects any sale, lease,
license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares
for other securities, cash or property and has been accepted by the holders of
50% or more of the outstanding Common Stock, (iv) the Company, directly or
indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property, (v) the Company, directly or
indirectly, in one or more related transactions consummates a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination), or (vi) any "person" or
"group" (as these terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act), to become the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary
voting power represented by issued and outstanding Common Stock (each a “Fundamental
Transaction”), then, upon any subsequent exercise of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would have
been issuable upon such exercise immediately prior to the occurrence of such
Fundamental Transaction, at the option of the Holder (without regard to any
limitation in Section 2(e) on the exercise of this Warrant), the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by
a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such Fundamental Transaction (without regard to
any limitation in Section 2(e) on the exercise of this Warrant).  For
purposes of any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration.  If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction.  [Notwithstanding anything to the contrary, in the event
of a Fundamental Transaction or a Change of Control Transaction (as defined in
the Certificate of Designation) other than one in which a Successor Entity (as
defined below) that is a publicly traded corporation whose stock is quoted or
listed for trading on an Eligible Market assumes this Warrant such that the
Warrant shall be exercisable for the publicly traded Common Stock of such
Successor Entity, the Company or any Successor Entity  shall, at the
Holder’s option, exercisable at any time concurrently with, or within 30 days
after, the consummation of the Fundamental Transaction or the Change of Control
Transaction, as applicable, purchase this Warrant from the Holder by
paying to the Holder an amount of cash equal to the Black Scholes Value
of the remaining unexercised portion of this Warrant on the date of the
consummation of such Fundamental Transaction or such Change of Control
Transaction, as applicable.  As used herein (w) “Black Scholes Value”
means the value of this Warrant based on the Black and Scholes Option Pricing
Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”)
determined as of the day of consummation of the applicable Fundamental
Transaction for pricing purposes and reflecting (A) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the time between
the date of the public announcement of the applicable Fundamental Transaction
and the Termination Date, (B) an expected volatility equal to the greater of
100% and the 100 day volatility obtained from the HVT function on Bloomberg as
of the Trading Day immediately following the public announcement of the
applicable Fundamental Transaction, (C) the underlying price per share used in
such calculation shall be the sum of the price per share being offered in cash,
if any, plus the value of any non-cash consideration, if any, being offered in
such Fundamental Transaction and (D) a remaining option time equal to the time
between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date, (x) “Successor Entity" means the Person
(as defined in the Purchase Agreement) (or, if so elected by the Holder, the
Parent Entity (as defined below)) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Holder, the
Parent Entity) with which such Fundamental Transaction shall have been entered
into, (y) "Eligible Market" means the NYSE Amex, The NASDAQ Capital Market, The
NASDAQ Global Market, The NASDAQ Global Select Market or the New York Stock
Exchange (or any successors to any of the foregoing) and (z) "Parent Entity" of
a Person means an entity that, directly or indirectly, controls the applicable
Person and whose common stock or equivalent equity security is quoted or listed
on an Eligible Market, or, if there is more than one such Person or Parent
Entity, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental
Transaction.]8  The
Company shall cause any Successor Entity to assume in writing all of the
obligations of the Company under this Warrant and the other Transaction
Documents in accordance with the provisions of this Section 3(e) pursuant to
written agreements in form and substance reasonably satisfactory to the Holder
and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the holder of this Warrant,
deliver to the Holder in exchange for this Warrant a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to this Warrant which is exercisable for a corresponding number of
shares of capital stock of such Successor Entity (or its parent entity)
equivalent to the shares of Common Stock acquirable and receivable upon exercise
of this Warrant (without regard to any limitations on the exercise of this
Warrant) prior to such Fundamental Transaction, and with an exercise price which
applies the exercise price hereunder to such shares of capital stock (but taking
into account the relative value of the shares of Common Stock pursuant to such
Fundamental Transaction and the value of such shares of capital stock, such
number of shares of capital stock and such exercise price being for the purpose
of protecting the economic value of this Warrant immediately prior to the
consummation of such Fundamental Transaction), and which is reasonably
satisfactory in form and substance to the Holder. Upon the occurrence of any
such Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant and the other Transaction Documents
referring to the “Company” shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant and the other Transaction
Documents with the same effect as if such Successor Entity had been named as the
Company herein.

    

      
        

      

    

    
      8 As to
Series A and Series C only.

    

    

    
      
        
           

        

        
          7

          
            

          

        

        
           

        

      

    

     

    f)           Calculations. All
calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.  Upon each such
adjustment of the Exercise Price hereunder, the number of Warrant Shares shall
be adjusted to the number of shares of Common Stock determined by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of Warrant Shares acquirable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment. No adjustment pursuant to this Section 3 will increase the
Exercise Price or decrease the number of Warrant Shares.

     

    g)           Notice to
Holder.

     

    i.      Adjustment to Exercise
Price. Whenever the Exercise Price is adjusted pursuant to any provision
of this Section 3, the Company shall promptly mail to the Holder a notice
setting forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the Company enters into a
Variable Rate Transaction, despite the prohibition thereon in the Purchase
Agreement, the Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion or exercise price at which
such securities may be converted or exercised.

     

    ii.      Notice to Allow Exercise by
Holder. If (A) the Company shall declare a dividend (or any other
distribution in whatever form) on the Common Stock, (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property, or (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be mailed to the Holder
at its last address as it shall appear upon the Warrant Register of the Company,
at least 20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice.  To the extent that
any notice provided hereunder constitutes, or contains, material, non-public
information regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report
on Form 8-K.  The Holder shall remain entitled to exercise this
Warrant during the period commencing on the date of such notice to the effective
date of the event triggering such notice  except as may otherwise be
expressly set forth herein.

    

    
      
        
           

        

        
          8

          
            

          

        

        
           

        

      

    

     

    h)           [INSERT
IN SERIES B WARRANT ONLY]  [Optional
Exercise.

     

    i.      If,
at any time after the thirty (30) day anniversary of the date one or more
Registration Statements (as defined in the Registration Rights Agreement), which
have been declared effective by the Commission (such date, the "Effective Date"),
registers all Registrable Securities (as defined in the Registration Rights
Agreement), (i) the Closing Bid Price is greater than $5.00 per share (as adjusted
for any stock splits, stock dividends, recapitalizations, combinations, reverse
stock splits or other similar events during such period) on each Trading Day
during the ten (10) consecutive Trading Days immediately preceding the Optional
Exercise Notice Date (as defined below) and continuing through the Optional
Exercise Date (an "Optional Exercise Measuring
Period"), (ii) on each Trading Day during the Optional Exercise Measuring
Period, the trading volume exceeds 400,000 shares of Common Stock (as adjusted
for any stock splits, stock dividends, recapitalizations, combinations, reverse
stock splits or other similar events during such period) and (iii) there has
been no Equity Conditions Failure (unless the Holder has waived such Equity
Conditions Failure), the Company shall have the right to require the Holder to
exercise as of the Optional Exercise Date all or any portion of this Warrant not
exceeding the amount of the then unexercised number of Warrant Shares (an "Optional Exercise")
at an exercise price equal to the then applicable Exercise Price.  The
Company may exercise its right to require exercise of this Warrant under this
Section 3(h) by delivering a written notice thereof by facsimile and overnight
courier to all, but not less than all, of the holders of the outstanding Series
B Warrants and the Company's transfer agent (the "Optional Exercise
Notice" and the date all of the holders received such notice is referred
to as the "Optional
Exercise Notice Date") no later than two (2) Trading Days after the
applicable Optional Exercise Measuring Period.  The Optional Exercise
Notice delivered shall be irrevocable and shall state (A) the date on which the
Optional Exercise shall occur (the "Optional Exercise
Date") which date shall be at least ten (10) Trading Days after the
Optional Exercise Notice Date, and (B) the aggregate number of Warrant Shares
which the Company has elected to be subject to Optional Exercise by all of the
holders of the outstanding Series B Warrants pursuant to this Section 3(h) (and
analogous provisions under the other outstanding Series B Warrants) on the
Optional Exercise Date.  The Company may not effect more than one (1)
Optional Exercise.  Notwithstanding the foregoing, nothing in this
subsection shall prevent the Holder from exercising this Warrant, in whole or
part, prior to such Optional Exercise Date.

     

    ii.      Pro Rata Exercise
Requirement.  If the Company elects to cause an Optional
Exercise pursuant to this Section 3(h), then it must simultaneously take the
same action with respect to the other outstanding Series B
Warrants.  If the Company elects to cause an Optional Exercise
pursuant to Section 3(h) (or similar provisions under the outstanding Series B
Warrants) with respect to less than all of the Warrant Shares underlying the
Series B Warrants then outstanding, then the Company shall require exercise of
the Warrant Shares from each of the holders of the outstanding Series B Warrants
equal to the product of (i) the aggregate number of Warrant Shares which the
Company has elected to cause to be exercised pursuant to Section 3(h),
multiplied by (ii) a fraction, the numerator of which is the sum of the
aggregate number of Warrant Shares underlying the Series B Warrants issued to
such holder pursuant to the Securities Purchase Agreement and the denominator of
which is the sum of the aggregate number of Warrant Shares underlying the Series
B Warrants issued to all holders pursuant to the Securities Purchase Agreement
(such fraction with respect to each holder is referred to as its "Exercise Allocation
Percentage", and such amount with respect to each holder is referred to
as its "Pro Rata
Exercise Amount").  Notwithstanding the foregoing, in the event
the Company sends an Optional Exercise Notice and the Holder already exercised
any portion of its Warrant prior to the Optional Exercise Date (such exercised
portion with respect to each Holder is referred to as its “Exercised Portion”),
such Exercise Portion shall be applied against such Holder’s Pro Rata Exercise
Amount and the Holder will only be required to exercise the difference, if any,
between such Holder’s Pro Rata Exercise Amount and such Holder’s Exercised
Portion. In the event that the initial holder of any Series B Warrants shall
sell or otherwise transfer any of such holder's outstanding Series B Warrants,
the transferee shall be allocated a pro rata portion of such holder's Exercise
Allocation Percentage and Pro Rata Exercise Amount.

    

    
      
        
           

        

        
          9

          
            

          

        

        
           

        

      

    

     

    iii.           As
used herein, (x) "Equity Conditions"
means:  (i) on each day during the period beginning on the later of
(i) the Effective Date, and (ii) three (3) months prior to the Optional Exercise
Notice Date and ending on and including the Optional Exercise Notice Date (the
"Equity Conditions
Measuring Period"), either
(x) the Registration Statement filed pursuant to the Registration Rights
Agreement shall be effective and shall have been continuously available since
its effectiveness for the resale of all of the Registrable Securities, in
accordance with the terms of the Registration Rights Agreement or
(y) all shares of Common Stock issuable upon exercise of the Warrants, and all
Conversion Shares (as defined in the Securities Purchase Agreement) shall be
eligible for sale without any restriction or limitation under Rule 144 and
without the requirement to be in compliance with Rule 144(c)(1) (or any
successor thereto) and without the need for registration under any applicable
federal or state securities laws; (ii) on each day during the Equity
Conditions Measuring Period, the Common Stock is designated for quotation on an
Eligible Market and shall not have been suspended from trading on such Eligible
Market (other than suspensions of not more than three (3) days and occurring
prior to the applicable date of determination due to business announcements by
the Company) nor shall proceedings for such delisting or suspension by such
Eligible Market have been commenced, threatened or pending either (A) in writing
by such Eligible Market or (B) by falling below the minimum listing maintenance
requirements of such Eligible Market; (iii) on each day during the Equity
Conditions Measuring Period, the Company shall have delivered Common Stock upon
exercise of the Warrants to the Holders on a timely basis as set forth in
Section 2(d) hereof; (iv) any applicable shares of Common Stock to be issued in
connection with the event requiring determination may be issued in full without
violating Section 2(e) hereof or the rules or regulations of the applicable
Eligible Market; (v) during the Equity Conditions Measuring Period, the Company
shall not have failed to timely make any payments within five (5) Business Days
of when such payment is due pursuant to any Transaction Document (as defined in
the Securities Purchase Agreement); (vi) during the Equity Conditions Measuring
Period, there shall not have occurred either the public announcement of a
pending, proposed or intended Fundamental Transaction which has not been
abandoned, terminated or consummated; and (vii) the Company shall have no
knowledge of any fact that would cause (x) the Registration Statements required
pursuant to the Registration Rights Agreement not to be effective and available
for the resale of at least all of the Registrable Securities, in accordance with
the terms of the Registration Rights Agreement or (y) any shares of Common Stock
issuable upon exercise of the Warrants, not to be eligible for sale without any
restriction or limitation under Rule 144 and without the requirement to be in
compliance with Rule 144(c)(1) (or any successor thereto) and any applicable
state securities laws; (viii) the Company otherwise shall have been in
compliance with each provision, covenant, representation or warranty of any
Transaction Document (as defined in the Securities Purchase Agreement), (y) "Equity
Conditions Failure" means
that during the period commencing on the first Trading Day of the Equity
Conditions Measuring Period through the Optional Exercise Date, the Equity Conditions have not been
satisfied (or waived in writing by the Holder).]

    

    
      
        
           

        

        
          10

          
            

          

        

        
           

        

      

    

     

    Section
4.    Transfer of
Warrant.

     

    a)           Transferability.  Subject
to compliance with any applicable securities laws and the conditions set forth
in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase
Agreement, this Warrant and all rights hereunder (including, without limitation,
any registration rights) are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer.  Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees, as applicable, and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled.  The Warrant, if properly
assigned in accordance herewith, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.

     

    b)           New Warrants. This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney.  Subject to compliance
with Section 4(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. All Warrants issued on transfers or exchanges shall be dated
the Initial Exercise Date and shall be identical with this Warrant except as to
the number of Warrant Shares issuable pursuant thereto.

     

    c)           Warrant Register. The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time.  The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the
contrary.

     

    d)           Transfer
Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant shall
not be either (i) registered pursuant to an effective registration statement
under the Securities Act and under applicable state securities or blue sky laws
or (ii) eligible for resale without volume or manner-of-sale restrictions or
current public information requirements pursuant to Rule 144, the Company may
require, as a condition of allowing such transfer, that the Holder or transferee
of this Warrant, as the case may be, comply with the provisions of Section 5.7
of the Purchase Agreement.

     

    e)           Representation by the
Holder.  The Holder, by the acceptance hereof, represents and
warrants that it is acquiring this Warrant and, upon any exercise hereof, will
acquire the Warrant Shares issuable upon such exercise, for its own account and
not with a view to or for distributing or reselling such Warrant Shares or any
part thereof in violation of the Securities Act or any applicable state
securities law, except pursuant to sales registered or exempted under the
Securities Act.

     

    f)           Residual
Obligation.  In the event of any transfer of this Warrant, the
initial Holder hereby guarantees payment of any liability of the Holder that
arises pursuant to Section 3(h) hereof.

     

    Section
5.     Miscellaneous.

     

    a)           No Rights as Stockholder
Until Exercise.  This Warrant does not entitle the Holder to
any voting rights, dividends or other rights as a stockholder of the Company
prior to the exercise hereof as set forth in Section 2(d)(i).

    

    
      
        
           

        

        
          11

          
            

          

        

        
           

        

      

    

     

    b)           Loss, Theft, Destruction or
Mutilation of Warrant. The Company covenants that upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.

     

    c)           Saturdays, Sundays,
Holidays, etc.  If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not
be a Business Day, then, such action may be taken or such right may be exercised
on the next succeeding Business Day.

     

    d)           Authorized
Shares.

     

    The
Company covenants that, during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant.  The Company further covenants
that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant.  The Company will
take all such reasonable action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed.  The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this
Warrant and payment for such Warrant Shares in accordance herewith, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges created by the Company in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).

     

    Except
and to the extent as waived or consented to by the Holder, the Company shall not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, 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 Holder as set forth in this Warrant against
impairment.  Without limiting the generality of the foregoing, the
Company will (i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may be,
necessary to enable the Company to perform its obligations under this
Warrant.

     

    Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

     

    e)           Jurisdiction. All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be determined in accordance with the provisions of the
Purchase Agreement.

     

    f)           Restrictions.  The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered and the Holder does not utilize cashless exercise,
will have restrictions upon resale imposed by state and federal securities
laws.

    

    
      
        
           

        

        
          12

          
            

          

        

        
           

        

      

    

     

    g)           Nonwaiver and
Expenses.  No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date.  If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.

     

    h)           Notices.  Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.

     

    i)           Limitation of
Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

     

    j)           Remedies.  The
Holder, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive and not to
assert the defense in any action for specific performance that a remedy at law
would be adequate.

     

    k)           Successors and
Assigns.  Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors and permitted assigns of the Company and the
successors and permitted assigns of Holder.  The provisions of this
Warrant are intended to be for the benefit of any Holder from time to time of
this Warrant and shall be enforceable by the Holder or holder of Warrant
Shares.

     

    l)           Amendment.  This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and Holders holding Warrants at least equal to
100% of the Warrant Shares issuable upon exercise of all then outstanding
Warrants.

     

    m)           Severability.  Wherever
possible, each provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.

     

    n)           Headings.  The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

     

    

    ********************

    

    

    (Signature
Pages Follow)

     

     

    

    
      
        
           

        

        
          13

          
            

          

        

        
           

        

      

    

     

    IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above
indicated.

     

    

    
 

    
      
        	
                ADVANCED
      BATTERY TECHNOLOGIES, INC.

                 

                 

              
	
                By:__________________________________________

                     Name:

                     Title:

                 

              

      

    

    

    

     

    
 

    
      
        
           

        

        
          14

          
            

          

        

        
           

        

      

    

     

    NOTICE
OF EXERCISE

    

    TO:           ADVANCED
BATTERY TECHNOLOGIES, INC.

    

    (1)           The
undersigned hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.

     

    (2)           Payment
shall take the form of (check applicable box):

     

    [  ]
in lawful money of the United States; or

     

    [ ] [if
permitted] the cancellation of such number of Warrant Shares as is necessary, in
accordance with the formula set forth in subsection 2(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection
2(c).

     

    (3)           Please
issue a certificate or certificates representing said Warrant Shares in the name
of the undersigned or in such other name as is specified below:

     

    _______________________________

    

    

    The
Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:

    

    _______________________________

    

    _______________________________

    

    _______________________________

    

    (4)  Accredited
Investor.  If the Warrant is not being exercised pursuant to
Subsection 2(c), the undersigned hereby represents it is an “accredited
investor” as defined in Regulation D promulgated under the Securities Act of
1933, as amended.

    

    [SIGNATURE
OF HOLDER]

    

    Name of
Investing Entity:
_______________________________________________________________________

    Signature of Authorized Signatory of
Investing Entity:
_________________________________________________

    Name of
Authorized Signatory:
___________________________________________________________________

    Title of
Authorized Signatory:
____________________________________________________________________

    Date:
_______________________________________________________________________________________

    

    

    

    

    
      
        
           

        

        
          1

          
            

          

        

        
           

        

      

    

     

    ASSIGNMENT
FORM

    

    (To
assign the foregoing warrant, execute

    this form
and supply required information.

    Do not
use this form to exercise the warrant.)

    

    

    

    FOR VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to

     

    

    _______________________________________________
whose address is

    

    _______________________________________________________________.

    

    

    

    _______________________________________________________________

    

    Dated:  ______________,
_______

    

    

    Holder’s
Signature:              ____________________________

     

    Holder’s
Address:                ____________________________

    

     ____________________________

    

    

    

    Signature
Guaranteed:  ___________________________________________

    

    

    NOTE:  The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company.  Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
D

    

    FORM
OF LEGAL OPINION

     

    [List of
Purchasers]

    Rodman
& Renshaw

    

     

    Ladies
and Gentlemen:

    

    I have acted as counsel to Advanced
Battery Technologies, Inc., a Delaware corporation (the “Company”), in
connection with the execution and delivery by the Company of the Securities
Purchase Agreement, dated as of June 12, 2009 (the “Agreement”), by and
among the Company and the purchasers identified on the signature pages thereto
(the “Purchasers”).  This
opinion is given to you pursuant to Section 2.2(a) of the
Agreement.  (Capitalized terms not otherwise
defined herein are defined as set forth in the Agreement.)

    

    I have participated in the preparation
and negotiation of the Agreement and the Exhibits and Schedules thereto, and the
other documents referred to therein.  I also have examined such
certificates of public officials, corporate documents and records and other
certificates, opinions, agreements and instruments and have made such other
investigations as I have deemed necessary in connection with the opinions
hereinafter set forth.

    

    As used herein, the limiting phrase “to
my knowledge” means that the modified statement represents my conclusion based
on (a) the facts known to me, without any independent investigation other than
review of documents in my possession and inquiry of my clients, and (b) my
understanding of the laws of the State of New York and State of Delaware, as
applicable.

    

    Based on the foregoing and upon such
investigation as we have deemed necessary, I give you my opinion as
follows:

    

    1. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of Delaware. The Company has all requisite power and authority,
and all material governmental licenses, authorizations, consents and approvals,
that are required to own and operate its properties and assets and to carry on
its business as now conducted and as proposed to be conducted (all as described
in the Company’s Annual Report on Form 10-K for its fiscal year ended December
31, 2008). The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to qualify could have a
Material Adverse Effect on the Company.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    2. To my
knowledge, each of the following subsidiaries of the Company (the “Subsidiaries”) is a
corporation, duly organized and in good standing under the laws of its state of
organization, as noted: Cashtech Investment Limited, a British Virgin Islands
company, Harbin ZhongQiang Power Tech Ltd.,  a People’s Republic of
China corporation, and Wuxi Angell Autocycle Co., Ltd., a People’s Republic of
China corporation.

     

    3. The
Company has all requisite power and authority (i) to execute, deliver and
perform the Transaction Documents, (ii) to issue, sell and deliver the Preferred Stock, the Warrants and the
Underlying Shares pursuant to the Transaction Documents and (iii) to
carry out and perform its obligations under, and to consummate the transactions
contemplated by, the Transaction Documents.

     

    4. All
action on the part of the Company, its directors and its stockholders necessary
for the authorization, execution and delivery by the Company of the Transaction
Documents, the authorization, issuance, sale and delivery of the Preferred Stock and the Warrants
pursuant to the Agreement, the issuance and delivery of the Underlying Shares and the
consummation by the Company of the transactions contemplated by the Transaction
Documents has been duly taken.  The Transaction Documents have been
duly and validly executed and delivered by the Company and constitute the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with their terms, except that (a) such enforceability may be limited
by bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors’ rights in general and (b) the remedies of specific performance and
injunctive and other forms of injunctive relief may be subject to equitable
defenses.  The Certificate of Designations has been properly filed
with the Secretary of State of the State of Delaware and has become effective
under the Delaware General Corporation Law.

     

    5. After
giving effect to the transactions contemplated by the Agreement, and immediately
after the Closing, the authorized capital stock of the Company will consist of:
an aggregate of _________ shares of Common Stock, of which  shares will be
issued and outstanding and _________ shares will be reserved for issuance upon
conversion of issued and outstanding options, warrants and other derivative
securities, __________ shares will be reserved for issuance to employees,
officers and directors under the Company’s [ _ Stock
Incentive Plan], of which __________ shares are subject to currently outstanding
incentive stock option grants and __________ shares are subject to currently
outstanding non-qualified stock option grants, and __________ shares will be
reserved for issuance upon exercise of Warrants, and _____ shares will be
reserved for issuance upon conversion of the shares of Preferred
Stock.  All presently issued and outstanding shares of Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable and, to my knowledge, free of any liens or charges or any
preemptive or similar rights, and have, to my knowledge, been issued in
compliance with applicable securities laws and regulations.  The Preferred Stock and Warrants
which are being issued on the date hereof pursuant to the Agreement have been
duly authorized and validly issued and are fully paid and nonassessable and, to
my knowledge, free of any liens or charges or any preemptive or similar rights,
and have, to my knowledge, been issued in compliance with applicable securities
laws, rules and regulations.  The Underlying Shares have been duly
and validly authorized and reserved for issuance, and when issued upon the
conversion of the Preferred
Stock or the exercise of the Warrants in accordance with the terms
therein, will be validly issued, fully paid and nonassessable, and, to my
knowledge,  free of any liens or charges or any preemptive or similar
rights.  Except for rights described in Schedule 3.1(g) of the
Agreement, there are no other options, warrants, conversion privileges or other
rights presently outstanding to purchase or otherwise acquire from the Company
any capital stock or other securities of the Company, or any other agreements to
issue any such securities or rights contained in the Company’s Certificate of
Incorporation or Bylaws or any agreement, note, lease, mortgage, deed or other
instrument to which the Company is a party or by which the Company is bound or
affected that has been publicly filed (the “Publicly Filed
Documents”).  The rights, privileges and preferences of the
Common Stock are as stated in the Company’s Certificate of Incorporation1.  The rights, preferences and
privileges of the Series E 0% Convertible Preferred Stock are stated in the
Certificate of Designations.  There are no securities or instruments
of the Company containing anti-dilution or similar provisions that will be
triggered by the issuance of the shares of Preferred Sock, the Warrants and the
Underlying Shares issued and issuable pursuant to the Securities Purchase
Agreement.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    6. The
Company meets the eligibility requirements for the use of Form S-3 for the
registration of the Underlying
Shares.

     

    7. To my
knowledge, the Company has filed all reports (the “SEC Reports”)
required to be filed by it under Sections 13(a) and 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”).  As of their respective filing dates, the SEC Reports
complied in all material respects as to form with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder.

     

    8. Based in
part upon the representations of the Purchasers contained in the Agreement, the
Preferred Stock, the Warrants and
the Underlying Shares may be issued to the Purchasers without
registration under the Securities Act of 1933, as amended.

     

    9. The
execution, delivery and performance by the Company of, and the compliance by the
Company with the terms of, the Transaction Documents and the issuance, sale and
delivery of the Preferred Stock,
the Warrants and the Underlying Shares pursuant to the Agreement do not
(a) conflict with or result in a violation of any provision of law, rule or
regulation applicable to the Company or its Subsidiaries or of the certificate
of incorporation or by-laws or other similar organizational documents of the
Company or its Subsidiaries, (b) conflict with, result in a breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or result in or permit the termination or
modification of, any agreement, instrument, order, writ, judgment or decree
known to me to which the Company of its Subsidiaries is a party or is subject or
(c) result in the creation or imposition of any lien, claim or encumbrance on
any of the assets or properties of the Company or its Subsidiaries.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    10. To my
knowledge, except as set forth in the Disclosure Schedules to the Agreement,
there is no claim, action, suit, proceeding, arbitration, investigation or
inquiry, pending or threatened, before any court or governmental or
administrative body or agency, or any private arbitration tribunal, against the
Company or its Subsidiaries, or any of the officers, directors or employees (in
connection with the discharge of their duties as officers, directors and
employees) of the Company or its Subsidiaries, or affecting any of its
properties or assets.

     

    11. In
connection with the valid execution, delivery and performance by the Company of
the Transaction Documents, or the offer, sale, issuance or delivery of the Preferred Stock, the Warrants and the
Underlying Shares or the consummation of the transactions contemplated
thereby, no consent, license, permit, waiver, approval or authorization of, or
designation, declaration, registration or filing with, any court, governmental
or regulatory authority, or self-regulatory organization, is
required.

     

    12. The
Company is not, and after the consummation of the transactions contemplated by
the Transaction Documents shall not be and shall not be controlled by, an
Investment Company within the meaning of the Investment Company Act of 1940, as
amended.

     

    

    

    Very truly yours,

    
 

     

      4Exhibit 10.65

 

SUPPLEMENTAL SECURITY AGREEMENT

 

THIS SUPPLEMENTAL
SECURITY AGREEMENT (the “Security Agreement”), dated as of May 1, 2004, is
made by ML MACADAMIA ORCHARDS, L.P., a Delaware limited partnership, and ML
RESOURCES, INC., a Hawaii corporation (“Grantor”), in favor of AMERICAN
AGCREDIT, PCA as successor in interest to PACIFIC COAST FARM CREDIT SERVICES,
PCA, (“Lender”).

 

RECITALS

 

A.            Pursuant to that certain Amended and
Restated Credit Agreement dated as of May 1, 2004 by and among Grantor, as
borrower, and Lender, Lender is agreeing to extend financial accommodations to
Borrower on the terms set forth therein. 
Lender is willing to do so, but only upon the condition, among others,
that Grantor shall execute this  Security
Agreement.

 

B.            Pursuant to that certain Credit Agreement
dated as of May 1, 2000, by and among Grantor, as borrower, and Pacific
Coast Farm Credit Services, PCA, Lender extended certain financial
accommodations to Borrower on the terms set forth therein.  Said financial conditions were conditioned,
among other things, on the execution of a Security Agreement dated as of May 1,
2000 (the “Original Security Agreement”).  
It is the intent of the parties hereto that this Security Agreement
supplement the Original Security Agreement which remains in full force and
effect.

 

NOW THEREFORE, for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and in order to induce Lender to renew the Revolving Loan  pursuant to the Amended and Restated Credit
Agreement, Grantor agrees, for the benefit of Lender, as follows:

 

AGREEMENT

 

1.             Defined
Terms.  Unless otherwise defined
herein, (i) terms defined in the Amended and Restated Credit Agreement are
used herein as therein defined except that the defined terms that refer to the “Borrower”
shall refer herein to Grantor, and (ii) the following terms shall have the
following meanings (such meanings being equally applicable to both the singular
and plural forms of the terms defined):

 

“Account Debtor”
means any “account debtor,” as such term is defined in the UCC.

 

“Accounts”
has the meaning assigned to it in Exhibit A hereto.

 

“Amended and
Restated Credit Agreement has the meaning assigned to it in Recital A.

 

“Chattel Paper”
has the meaning assigned to it in Exhibit A hereto.

 

“Collateral”
has the meaning assigned to it in Section 2 of this Security Agreement.

 

1

 

“Contracts”
has the meaning assigned to it in Exhibit A hereto.

 

“Credit
Agreement” has the meaning assigned to it in Recital B.

 

“Documents”
has the meaning assigned to it in Exhibit A hereto.

 

“Equipment”
has the meaning assigned to it in Exhibit A hereto.

 

“Farm Products”
has the meaning assigned to it in Exhibit A hereto.

 

“Fixtures”
has the meaning assigned to it in Exhibit A hereto.

 

“General
Intangibles” has the meaning assigned to it in Exhibit A hereto.

 

“Grantor”
means ML Macadamia Orchards, L.P., a Delaware limited partnership, and ML
Resources, Inc., a Hawaii corporation.

 

“hereby,” “herein,”
“hereof,” and “hereunder” and words of similar import refer to this
Security Agreement as a whole (including any amendments, attachments, and
schedules hereto) and not merely to the specific section, paragraph or clause
in which the respective word appears.

 

“Instruments”
has the meaning assigned to it in Exhibit A hereto.

 

“Inventory”
has the meaning assigned to it in Exhibit A hereto.

 

“Investment
Property” has the meaning assigned to it in Exhibit A hereto.

 

“Lender”
has the meaning assigned to them in the preamble hereto.

 

“License”
means any Patent License, Trademark License or other license of rights or
interests now held or hereafter acquired by Grantor.

 

“Loan” has
the meaning assigned to it in Recital A.

 

“Patent License”
means rights under any written agreement now owned or hereafter acquired by
Grantor granting any right with respect to any invention on which a Patent is
in existence.

 

“Patents”
means all of the following in which Grantor now holds or hereafter acquires any
interest: (i) all letters patent of the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the United States or any other country, including
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State or Territory thereof, or any other country, and (ii) all reissues,
continuations, continuations-in-part or extensions thereof.

 

“Proceeds”
has the meaning assigned to it in Exhibit A hereto.

 

“Secured
Obligations” means all obligations of Grantor to Lender under the Amended
and Restated  Credit Agreement or any
other Loan Document.

 

“Security
Agreement” means this Security Agreement, as the same may from time to time
be amended, modified or supplemented.

 

2

 

“Trademark
License” means rights under any written agreement now owned or hereafter
acquired by Grantor granting any right to use any Trademark or Trademark
registration.

 

“Trademarks”
means all of the following now owned or hereafter acquired by Grantor:  (i) all trademarks, trade names,
corporate names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, including registrations,
recordings and applications in the United States Patent and Trademark Office or
in any similar office or agency of the United States, any State or Territory
thereof, or any other country or any political subdivision thereof, and (ii) all
reissues, extensions or renewals thereof.

 

“UCC” means
the Uniform Commercial Code as the same may, from time to time, be in effect in
the State of California; provided, however, in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of Lender’s security interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than the State of
California, the term “UCC” shall mean the Uniform Commercial Code as in effect
in such other jurisdiction for purposes of the provisions hereof relating to
such attachment, perfection or priority and for purposes of definitions related
to such provisions.

 

2.             Grant of Security Interest.

 

a.             To
secure the prompt and complete payment and performance when due (whether at
stated maturity, by acceleration or otherwise) of all the Secured Obligations,
and to induce Lender to enter into the Amended and Restated Credit Agreement
and to make the Loan in accordance with the terms thereof, Grantor hereby grants
to Lender, a lien on and security interest in all of the property described on Exhibit A hereto, whether now owned by
or owing to, or hereafter acquired by or arising in favor of Grantor (including
under any trade names, styles or divisions thereof), and whether owned or
consigned by, or leased to Grantor, and regardless of where located, together
with any and all replacements, remedies, or accessions thereto and all proceeds
and products thereof (all of which being hereinafter collectively referred to as
the “Collateral”); provided, however, that notwithstanding any
provision to the contrary contained in this Security Agreement, Grantor does
not grant, and Lender has not taken, a lien against or security interest in (i) any
Hazardous Materials in which Grantor may now or hereafter acquire any interest,
or which Grantor may now or hereafter possess, manage or control, any (ii) any
of Grantor’s governmental licenses and permits that if included in the
Collateral would violate any mandatory requirements of such licenses and
permits or applicable law prohibiting the creation of security interests
therein.

 

b.             In
addition, to secure the prompt and complete payment when due of the Secured
Obligations and in order to induce Lender to enter into the Amended and Restated
Credit Agreement and to make the Loan in accordance with the terms thereof,
Grantor hereby grants to Lenders a security interest in all other personal
property of Grantor, including all property of every description now or
hereafter in the possession or custody of, or in transit to, Lender for any
purpose, including safekeeping, collection or pledge, for the account of
Grantor, or as to which Grantor may have any right or power.

 

3

 

3.             Lender’s Rights; Limitations on Lender’s
Obligations.

 

a.             Grantor
Remains Liable Under Contracts and Licenses.  Grantor agrees that, anything herein to the
contrary notwithstanding, Grantor shall remain liable under each of its
Contracts and each of its Licenses to observe and perform all the conditions
and obligations to be observed and performed by it thereunder and Grantor shall
perform all of its duties and obligations thereunder, all in accordance with
and pursuant to the terms and provisions of each such Contract or License.  Lender shall not have any obligation or
liability under any Contract or License by reason of or arising out of this
Security Agreement or the granting herein of a security interest therein or the
receipt by Lender of any payment relating to any Contract or License pursuant
hereto, nor shall Lender be required or obligated in any manner to perform or
fulfill any of the obligations of Grantor under or pursuant to any Contract or
License, or to make any payment, or to make any inquiry as to the nature or the
sufficiency of any payment received by it or the sufficiency of any performance
by any party under any Contract or License, or to present or file any claim, or
to take any action to collect or enforce any performance or the payment of any
amounts which may have been assigned to it or to which it may be entitled at
any time or times.

 

b.             Notice
of Assignment of Collateral to Lender. 
Lender may at any time after the occurrence and during the continuance
of an Event of Default notify Account Debtors of Grantor, parties to the
Contracts of Grantor, and obligors in respect of Instruments and Investment
Property of Grantor that the Accounts and the right, title and interest of
Grantor in and under such Contracts, Instruments, and Investment Property have been
assigned to Lender and that payments shall be made directly to Lender.  Upon the request of Lender, Grantor shall so
notify such Account Debtors, parties to such Contracts, and obligors in respect
of such Instruments and Investment Property. 
Lender may at any time after the occurrence and during the continuance
of an Event of Default notify obligors in respect of Chattel Paper of Grantor
that the right, title and interest of Grantor in and under such Chattel Paper
has been assigned to Lender and that payments shall be made directly to Lender.

 

c.             Verification
of Collateral.  Upon reasonable prior
notice to Grantor (unless an Event of Default has occurred and is continuing,
in which case no notice is necessary), Lender shall have the right to make test
verifications of the Accounts and physical verifications and appraisals of the
Inventory and other Collateral in any manner and through any medium that it
considers advisable, and Grantor agrees to furnish all such assistance and
information as Lender may require in connection therewith.

 

4.             Representations and Warranties. 
Grantor hereby represents and warrants that:

 

a.             Authority;
Execution.  Grantor has the right and
power and is duly authorized and empowered to enter into, execute, deliver and
perform this Security Agreement, and any other agreements, documents or
instruments executed in connection herewith or therewith.  Grantor’s execution and performance of this
Security Agreement will not constitute, cause or result in any breach or
violation of any provision of the partnership agreement, articles of
incorporation or by-laws of Grantor, any law or any contractual obligation of
Grantor and does not conflict with, constitute a default or require any consent
under (other than consents that if not obtained would not have a Material
Adverse Effect) or result in the creation of any Lien that would not be a
Permitted Encumbrance upon any property or assets of Grantor pursuant to any
contractual obligation of Grantor.  Upon
execution, this Security Agreement will constitute a valid, binding obligation
of Grantor to Lender that is enforceable according to its terms, except as the
enforceability of this Security Agreement may be subject to or limited by
bankruptcy, insolvency, reorganization, arrangement, moratorium or other
similar laws relating to or affecting the rights of creditors generally and
except as the availability of equitable remedies are subject to the application
of equitable principles.  No further
consent, ratification or approval is required for this Security Agreement to be
effective.

 

4

 

b.             Title
to Collateral.  Except for the
security interest granted to Lender under this Security Agreement and the other
Permitted Encumbrances, Grantor is the sole owner of each item of the
Collateral in which it purports to grant a security interest hereunder, having
good and marketable title thereto free and clear of any and all liens, security
interests or other encumbrances.

 

c.             No
Other Liens.  No effective security
agreement, financing statement, equivalent security or lien instrument or
continuation statement covering all or any part of the Collateral is on file or
of record in any public office, except such as may have been filed by Grantor
in favor of Lender pursuant to this Security Agreement or such as relate to
other Permitted Encumbrances or protective filings with respect to equipment
leases.

 

d.             Perfection
and Priority of Security Interest in the Collateral.  The security interest granted to Lender in
the Collateral under this Security Agreement is a duly perfected security
interest in favor of Lender to secure the Secured Obligations, and is senior in
priority to all other Liens against and security interests in all or any part
of the Collateral, except for the Permitted Encumbrances.

 

e.             Accounts.  Subject to reasonable reserves therefor on
the books of Grantor, each Account of Grantor is, or when it comes into
existence will be, a statement of an indebtedness incurred by the obligor
thereunder to Grantor in the amount shown thereon.  All Accounts are, or will be when they come
into existence, bona fide transactions completed in accordance with the terms
and provisions contained in any documents related thereto.

 

f.              Change
of Name.  Grantor did not and has not
done within the last five years business under any trade name or style other
than as disclosed on Exhibit C
hereto.

 

g.             Locations
of Offices and Collateral; Federal Taxpayer Identification.  Grantor’s chief executive office, principal
place of business, corporate offices, all warehouses and premises within which
Collateral is stored or located, and the locations of all of its records
concerning the Collateral are set forth on Exhibit C
hereto, and Grantor shall not change such chief executive office, principal
place of business, corporate offices, or warehouses or Collateral premises, or
remove such records unless it has taken such action as is necessary to cause
the Lien of Lender in the Collateral to continue to be perfected.  Grantor shall not change its chief executive
office, principal place of business, corporate offices, or warehouses or
Collateral premises, or the location of its records concerning the Collateral,
or its federal taxpayer identification number, without giving thirty (30) days’
prior written notice thereof to Lender. 
Grantor’s federal taxpayer identification number is  as set forth on Exhibit C hereto.

 

h.             Registered
Patents, Trademarks, and Copyrights. 
Grantor does not own or have any interest in any Patents, Trademarks, or
Copyrights that have been registered or otherwise recorded with any
governmental office, except as set forth on Exhibit C
hereto.

 

i.              Farming
Operations.  Grantor does not own or
have any interest in any real property other than the real property described
in Exhibit B hereto.

 

5.             Covenants.  Grantor
covenants and agrees with Lender that from and after the date of this Security
Agreement and until the Secured Obligations are fully satisfied:

 

a.             Further
Assurances; Pledge of Instruments. 
At any time and from time to time, upon the written request of Lender,
and at the sole expense of Grantor, Grantor shall promptly and duly execute and
deliver any and all such further instruments and documents and take such
further action as Lender may reasonably deem desirable to obtain the full
benefits of this Security Agreement and of the rights and powers herein
granted, including (i) filing any financing or continuation statements
under the UCC with respect to the liens and security interests granted
hereunder or under any other Loan Document and (ii) transferring
Collateral to Lender’s possession (if such Collateral consists of Chattel

 

5

 

Paper or if a security
interest in such Collateral can be perfected only by possession, or, if
requested by Lender).  Grantor also
hereby authorizes Lender to file any such financing or continuation statement
without the signature of Grantor to the extent permitted by applicable law.  If any amount payable under or in connection
with any of the Collateral is or shall become evidenced by any Instrument, such
Instrument, other than checks and notes received in the ordinary course of
business, shall be duly endorsed in a manner satisfactory to Lender and
delivered to Lender immediately upon Grantor’s receipt thereof.

 

b.             Maintenance
of Records.  Grantor shall keep and
maintain, at its own cost and expense, satisfactory and complete records of the
Collateral, including a record of any and all payments received and any and all
credits granted with respect to the Collateral and all other dealings with the
Collateral.  Upon the request of Lender,
Grantor shall mark its books and records pertaining to the Collateral to
evidence this Security Agreement and the security interests granted
hereby.  All Chattel Paper shall be
marked with the following legend:  “This
writing and the obligations evidenced or secured hereby are subject to the
security interest of American AgCredit, PCA.” 
For Lender’s further security, Grantor agrees that Lender shall have a
special property interest in all of Grantor’s books and records pertaining to
the Collateral and, upon the occurrence and during the continuation of any
Event of Default, Grantor shall deliver and turn over any such books and
records to Lender or to its representatives at any time on demand of
Lender.  Prior to the occurrence of an
Event of Default and upon reasonable notice from Lender, Grantor shall permit
any representative of Lender to inspect such books and records and shall
provide photocopies thereof to Lender as more specifically set forth in Section 5(i) below.

 

c.             Delivery
of Notes, Documents and Chattel Paper. 
Grantor shall deliver to Lender or its designee all now existing or
hereafter created or arising (i) original promissory notes payable to Grantor,
assigned to Grantor, pledged to Grantor or otherwise held by Grantor, together
with all corresponding documents including deeds of trust, security agreements
and title insurance policies, with such endorsements thereto as Lender may
reasonably require, (ii) Instruments (except for checks which are
deposited in the ordinary course of Grantor’s business), (iii) negotiable
warehouse receipts, and (iv) Chattel Paper, promptly upon the execution of
this Security Agreement or Grantor’s receipt of any such item, as the case may
be.

 

d.             Further
Identification of Collateral. 
Grantor shall, if so requested by Lender, furnish to Lender, as often as
Lender reasonably requests, statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as Lender may reasonably request, all in reasonable detail.

 

e.             Limitation
on Liens on Collateral.  Grantor
shall not create, permit or suffer to exist, and shall defend the Collateral
against and take such other action as is necessary to remove, any Lien on the
Collateral except Permitted Encumbrances. 
Grantor shall further defend the right, title and interest of Lender in
and to any of Grantor’s rights under the Collateral, including, the Accounts,
Chattel Paper, Contracts, Documents, Equipment, Farm Products, Fixtures,
General Intangibles, Instruments, Investment Property, and Inventory and in and
to the Proceeds thereof against the claims and demands of all Persons
whomsoever except the holders of Permitted Encumbrances.

 

f.              Notices.  Grantor shall advise Lender, in reasonable
detail, promptly, within five (5) Business Days of after it becomes aware
of: (i) any material Lien, other than Permitted Encumbrances, attaching to
or asserted against any of the Collateral, (ii) any material change in the
composition of the Collateral (iii) any destruction of or substantial
damage to any of the Collateral in excess of $100,000 and (iv) the
occurrence of any other event which would have a Material Adverse Effect upon
the Collateral and/or Lender’s Lien.

 

6

 

g.             Limitations
on Modifications of Accounts. 
Subject to the terms of the Amended and Restated  Credit Agreement, upon the occurrence and
during the continuation of any Event of Default, Grantor shall not, without
Lender’s prior written consent, (i) grant any extension of the time of
payment of any of the Accounts, Chattel Paper, Instruments or amounts due under
any Contract; (ii) compromise or settle the same for less than the full
amount thereof; (iii) release, in whole or in part, any Person liable for
the payment thereof; or (iv) allow any credit or discount whatsoever
thereon other than trade discounts granted in the ordinary course of business
of Grantor.

 

h.             Continuous
Perfection.  Grantor shall not change
its name, identity or corporate structure in any manner which might make any
financing or continuation statement filed in connection herewith seriously
misleading within the meaning of section 9-402(7) of the UCC or any other
then applicable provision of the UCC unless Grantor shall have given Lender at
least thirty (30) days’ prior written notice thereof and shall have taken all
action (or made arrangements to take such action substantially simultaneously
with such change if it is impossible to take such action in advance) necessary
or reasonably requested by Lender to amend such financing statement or
continuation statement so that it is not seriously misleading.

 

i.              Right
of Inspection.  Upon reasonable
notice to Grantor (unless an Event of Default has occurred and is continuing,
in which case no notice is necessary), Lender shall at all times have full and
free access during normal business hours to all the books and records and
correspondence of Grantor, and Lender or its representatives may examine the
same, take extracts therefrom and make photocopies thereof, and Grantor agrees
to render to Lender, at Grantor’s cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto.  Upon reasonable notice to Grantor (unless an
Event of Default has occurred and is continuing, in which case no notice is
necessary), Lender and its representatives shall also have the right to enter
into and upon any premises where any of the Inventory is located for the
purpose of inspecting the same, observing its use or otherwise protectings
Lender’s interests in the Collateral.

 

j.              Indemnification.  In any suit, proceeding or action brought by
Lender relating to any Account, Chattel Paper, Contract, General Intangible,
Instrument or Document for any sum owing thereunder, or to enforce any
provision of any Account, Chattel Paper, Contract, General Intangible,
Instrument, or Document, Grantor shall save, indemnify and keep Lender harmless
from and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction of liability whatsoever of the
obligor thereunder arising out of a breach by Grantor of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing to, or in favor of, such obligor or its successors from Grantor,
and all such obligations of Grantor shall be and remain enforceable against,
and only against, Grantor and shall not be enforceable against Lender.

 

k.             Compliance
with Terms of Accounts, etc.  In all
material respects, Grantor shall perform and comply with all obligations in
respect of (i) Accounts, (ii) material Chattel Paper, Contracts,
Licenses, Instruments and Documents, and (iii) all other material
agreements to which it is a party or by which it is bound.

 

l.              Notification
Prior to Registration of Patents, Trademarks, and Copyrights.  Grantor shall not register any interest in
any Patents, Trademarks, or Copyrights nor shall Grantor permit any in any
Patents, Trademarks, or Copyrights in which Grantor has an interest to become
registered with any governmental office, unless Grantor has provided Lender
with fifteen (15) days prior notice of Grantor’s intent to do so and Grantor
shall provide Lender prior to effecting or permitting any such registration
with such additional security documents as Lender shall request.

 

m.            Farming
Operations.  Grantor shall not
undertake any farming operations on any real property other than the property
listed on Exhibit B hereto
unless Grantor shall have provided Lender with thirty (30) days prior notice of
Grantor’s intent to do so, which notice shall be accompanied by a detailed
description of the real property on which the crops are grown, and Grantor shall
have provided Lender with a supplement to this Security Agreement and such
financing statement amendments and other documents as Lender shall request.

 

7

 

6.  Lender’s
Appointment as Attorney-in-Fact.

 

a.             Grantor hereby irrevocably constitutes
and appoints Lender and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Grantor and in the name of
Grantor or in its own name, and hereby grants to Lender, in Lender’s
discretion, the power and right, on behalf of Grantor, without notice to or
assent by Grantor, and at any time prior to or after the occurrence of an Event
of Default, to do the following:

 

(i) 
to take any and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary or desirable to continue any
insurance existing pursuant to the terms of the Amended and Restated Credit
Agreement, and pay all or any part of the premiums therefor and the costs
thereof; and

 

(ii) 
to file any financing or continuation statements under the UCC with respect to
the Liens and security interests granted hereunder or under any other Loan
Document.

 

b.             Grantor hereby irrevocably constitutes
and appoints Lender and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Grantor and in the name of Grantor
or in its own name, from time to time in Lender’s discretion, for the purpose
of carrying out the terms of this Security Agreement, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Security Agreement and, without limiting the generality of the foregoing,
hereby grants to Lender the power and right, on behalf of Grantor, without
notice to or assent by Grantor, upon the occurrence and during the continuation
of an Event of Default, to do the following:

 

(i) 
ask, demand, collect, receive and give acquittances and receipts for any and
all money due or to become due under any Collateral, and take ownership and
control of any and all lock boxes and other depository accounts by written
notice to any bank or other institution maintaining such lock boxes or other
depository accounts;

 

(ii) 
in the name of Grantor, in its own name or otherwise, endorse and receive
payment of any checks, drafts, notes, acceptances, or other Instruments for the
payment of monies due under any Collateral;

 

(iii) 
receive payment of any and all monies, claims, and other amounts due or to
become due at any time arising out of or in respect of any Collateral;

 

(iv) 
pay or discharge taxes, liens, security interest, or other encumbrances levied
or placed on or threatened against the Collateral;

 

(v) 
effect any repairs or obtain any insurance called for by the terms of this
Security Agreement and pay all or any part of the premiums therefor and costs
thereof;

 

(vi)          direct
any party liable for any payment under or in respect of any of the Collateral
to make payment of any and all monies due or to become due thereunder, directly
to Lender or as Lender shall direct;

 

8

 

(vii) 
sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, and notices in connection with accounts and other documents
constituting or related to the Collateral;

 

(viii) 
settle, compromise or adjust any suit, action, or proceeding described above
and, in connection therewith, give such discharges or releases as Lender may
deem appropriate;

 

(ix) 
file any claim or take or commence any other action or proceeding in any court
of law or equity or otherwise deemed appropriate by Lender for the purpose of
collecting any and all such monies due under any Collateral whenever payable;

 

(x) 
commence and prosecute any suits, actions or proceedings of law or equity in
any court of competent jurisdiction to collect the Collateral or any part
thereof and to enforce any other right in respect of any Collateral;

 

(xi)  defend any suit, action or proceeding brought
against Grantor with respect to any Collateral if Grantor does not defend such
suit, action or proceeding or if Lender believes that Grantor is not pursuing
such defense in a manner that will maximize the recovery with respect to such
Collateral;

 

(xii)  license or, to the extent permitted by an
applicable license, sublicense whether general, specific or otherwise, and
whether on an exclusive or non-exclusive basis, any Patent or Trademark
throughout the world for such term or terms on such conditions and in such
manner as Lender shall, in its sole discretion, determine;

 

(xiii)  sell, transfer, pledge, make any agreement
with respect to, or otherwise deal with any of the Collateral as fully and
completely as though Lender were the absolute owner thereof for all purposes,
and to do, at Lender’s option and Grantor’s expense, at any time, or from time
to time, all acts and things which Lender reasonably deems necessary to
perfect, preserve, or realize upon the Collateral and Lender’s Lien therein in
order to effect the intent of this Security Agreement, all as fully and
effectively as Grantor might do; and

 

(xiv)
contact, make any agreement with, or otherwise deal with any governmental or
regulatory agency in connection with the operation of Grantor’s business or the
possession or liquidation of any or all of the Collateral.

 

c.             Grantor hereby ratifies, to the extent
permitted by law, all that said attorneys shall lawfully do or cause to be done
by virtue hereof.  The power of attorney
granted pursuant to this Section 6 is a power coupled with an interest and
shall be irrevocable until the Secured Obligations are paid or otherwise
satisfied in full.

 

d.             The powers conferred on Lender hereunder
are solely to protect Lender’s interests in the Collateral and shall not impose
any duty upon Lender to exercise any such powers.  Lender shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and
neither it nor any of its officers, directors, employees, agents or
representatives shall be responsible to Grantor for any act or failure to act,
except for their own gross negligence or willful misconduct.

 

e.             Grantor also authorizes Lender to
execute, in connection with the sale provided for in Section 8 hereof, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.

 

9

 

7.             Performance by Lender of Grantor’s
Obligation.  If Grantor fails to perform or comply with
any of its agreements contained herein or in any other Loan Document, and
Lender, as provided for by the terms of this Security Agreement, or in any
other Loan Document, shall itself perform or comply, or otherwise cause
performance of or compliance with such agreement, the reasonable expenses,
including attorneys’ fees, of Lender incurred in connection with such
performance or compliance, together with interest thereon at the Base Rate then
in effect in respect of the Revolving Loan, shall be payable by Grantor to
Lender on demand and shall constitute Secured Obligations secured hereby.

 

8.             Remedies, Rights Upon Default.

 

a.             If
any Event of Default shall occur and be continuing, Lender may exercise in
addition to all other rights and remedies granted to it under this Security Agreement,
the Amended and Restated Credit Agreement, the other Loan Documents and under
any other instrument or agreement securing, evidencing or relating to the
Secured Obligations, all rights and remedies of a secured party under the UCC.  Without limiting the generality of the
foregoing, Grantor expressly agrees that in any such event Lender, without
demand of performance or other demand, advertisement or notice of any kind
(except the notice specified below of time and place of public or private sale)
to or upon Grantor or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived to the maximum extent
permitted by the UCC and other applicable law), may forthwith enter upon the
premises of Grantor where any Collateral is located through self-help, without
judicial process, without first obtaining a final judgment or giving Grantor
notice and opportunity for a hearing on Lender’s claim or action, and without
paying rent to Grantor, and collect, receive, assemble, process, appropriate
and realize upon the Collateral, or any part thereof, and may forthwith sell,
lease, assign, give an option or options to purchase, or sell or otherwise
dispose of and deliver said Collateral (or contract to do so), or any part thereof,
in one or more parcels at public or private sale or sales, at any exchange or
broker’s board or at any of Lender’s offices or elsewhere at such prices as it
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk.  Lender shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase for the benefit of Lender
the whole or any part of said Collateral so sold, free of any right or equity
of redemption, which equity of redemption Grantor hereby releases.  Such sales may be adjourned and continued
from time to time with or without notice. 
Lender shall have the right to conduct such sales on Grantor’s premises
or elsewhere and shall have the right to use Grantor’s premises without charge
for such sales for such time or times as Lender deems necessary or advisable.

 

b.             Grantor
further agrees, at Lender’s request, to assemble the Collateral and make it
available to Lender at places which Lender shall reasonably select, whether at
Grantor’s premises or elsewhere.  Until
Lender is able to affect a sale, lease, or other disposition of Collateral,
Lender shall have the right to use or operate Collateral on behalf of Lender,
or any part thereof, to the extent that it deems appropriate for the purpose of
preserving Collateral or its value or for any other purpose deemed appropriate
by Lender.  Lender shall have no
obligation to Grantor to maintain or preserve the rights of Grantor as against
third parties with respect to Collateral while Collateral is in the possession
of Lender.  Lender may, if it so elects,
seek the appointment of a receiver or keeper to take possession of Collateral
and to enforce any of Lender’s remedies with respect to such appointment
without prior notice or hearing.  Lender
shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, as provided in Section 8(e) hereof,
such Grantor remaining liable for any deficiency remaining unpaid after such
application, and only after so paying over such net proceeds and after the
payment by Lender of any other amount required by any provision of law,
including section 9-504(1)(c) of the UCC (but only after Lender has
received what Lender considers reasonable proof of a subordinate party’s
security interest), need Lender account for the surplus, if any, to
Grantor.  To the maximum extent permitted
by applicable law, Grantor waives all claims, damages, and demands against
Lender arising out

 

10

 

of the repossession,
retention or sale of the Collateral except such as arise out of the gross
negligence or wilful misconduct of such party. 
Grantor agrees that five (5) days’ prior notice by Lender of the time
and place of any public sale or of the time after which a private sale may take
place is reasonable notification of such matters.  Grantor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lender is entitled, Grantor also being
liable for any attorneys’ fees incurred by Lender to collect such deficiency.

 

c.             Grantor
agrees to pay any and all costs of Lender, including, reasonable attorneys’
fees, incurred in connection with the enforcement of any of its rights and
remedies hereunder.

 

d.             Except
as otherwise specifically provided herein, Grantor hereby waives presentment,
demand, protest or any notice (to the maximum extent permitted by applicable
law) of any kind in connection with this Security Agreement or any Collateral.

 

e.             The
proceeds of any sale, disposition or other realization upon all or any part of
the Collateral shall be distributed by Lender, upon receipt, in accordance with
the provisions of the Amended and Restated Credit Agreement.

 

f.              From
and after the occurrence and during the continuation of an Event of Default,
Lender may, at its sole discretion, contact any and all Federal, state, or
other governmental or regulatory agencies with any jurisdiction over Grantor,
with respect to the possibility that Lender may take over the operation of any
Grantor’s business, or the possibility that Lender may take possession of or
liquidate any or all of the Collateral.

 

g.             Grantor
acknowledges that Lender shall be entitled to independently, but without
dupilication, exercise the rights and remedies of Lender exercisable for their
benefit under this Security Agreement.

 

9.             Indemnity and Expenses.

 

a.             Grantor
agrees to indemnify Lender from and against any and all claims, losses and
liabilities growing out of or resulting from this Security Agreement
(including, enforcement of this Security Agreement), except claims, losses or
liabilities resulting from such indemnified party’s gross negligence or willful
misconduct.

 

b.             Grantor
will upon demand pay to Lender the amount of any and all reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel and of any experts and agents, which Lender may incur in connection
with (i) the administration of this Security Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Lender 
hereunder, or (iv) the failure by Grantor to perform or observe any
of the provisions hereof.

 

10.           Grant of License to Use Patent and
Trademark Collateral.  For the purpose of enabling Lender to
exercise rights and remedies under Section 8 hereof (including, without
limiting the terms of Section 8 hereof, in order to take possession of,
hold, preserve, process, assemble, prepare for sale, market for sale, sell or
otherwise dispose of Collateral) at such time as Lender shall be lawfully
entitled to exercise such rights and remedies, Grantor hereby grants to Lender
an irrevocable, non-exclusive license (exercisable without payment of royalty
or other compensation to Grantor) to use, transfer, license or sublicense any
Patent, Trademark, trade secret, or copyright now owned or hereafter acquired
by Grantor, and wherever the same may be located, and including in such license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof.

 

11

 

11.           Limitation
on Lender’s Duty in Respect of Collateral. 
Lender shall use reasonable care with respect to the Collateral in its
possession or under its control.  Lender
shall have no other duty as to any Collateral in its possession or control or
in the possession or control of any agent or nominee of such party, or any
income thereon or as to the preservation of rights against prior parties or any
other rights pertaining thereto.

 

12.           Reinstatement.  This Security Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by
or against Grantor for liquidation or reorganization, should Grantor become
insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of Grantor’s
assets, and shall continue to be effective or be reinstated, as the case may
be, if at any time payment and performance of the Secured Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount,
or must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or
otherwise, all as though such payment or performance had not been made.  In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Secured Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.

 

13.           Notices.  Except as otherwise provided herein, whenever
it is provided herein that any notice, demand, request, consent, approval,
declaration, or other communication shall or may be given or delivered to or
served upon any of the parties by another, or whenever any of the parties desires
to give or deliver or serve upon another any communication with respect to this
Security Agreement, each such notice, demand, request, consent, approval,
declaration, or other communication shall be in writing, shall be addressed to
the addresses set forth below, or such other or additional address as the
parties may notify each other of in writing, and shall be deemed to have been
sent, delivered, or given and received upon the earlier of:  (a) if by facsimile, upon transmission
if transmission occurs between 8:00 a.m. and 5:00 p.m. on any
Business Day; (b) if by Federal Express or other overnight or one-day mail
or delivery service, on the next Business Day following deposit with such
delivery service; (c) if by personal delivery, upon completion of delivery;
or (d) if by mail, three (3) Business Days after deposit in the U.S.
Mail, first class, postage prepaid:

 

(a)  If to American
AgCredit, at:

 

 American AgCredit, PCA

 5560 South Broadway

 Eureka, California  95503

 Attention: 
Account Officer — ML Macadamia Orchards

 Facsimile: 
(707) 442-1268

 

 American
AgCredit, PCA

 200 Concourse Blvd.

 P.O. Box 1120

 Santa Rosa, CA 95402-1120

 Attn: Account Officer —ML Macadamia Orchards

 Facsimile: (707) 521-6105

 

12

 

(b)  If to Grantor, at:

 

 ML Macadamia
Orchards, L.P.

 ML Resources, Inc.

 26-238 Hawaii
Belt Road

 Hilo,
Hawaii  96720

 Attention: Mr. 
Dennis J. Simonis

 Facsimile:
(808) 969-8152

 

or at such other address as may be substituted by notice given as
herein provided.  The giving of any
notice required hereunder may be waived in writing by the party entitled to
receive such notice.  Failure or delay in
delivering copies of any notice, demand, request, consent, approval,
declaration, or other communication to the persons designated above to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration, or other communication.

 

14.           Severability.  Any provision of this Security Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.

 

15.           No
Waiver; Cumulative Remedies.  Lender
shall not by any act, delay, omission or otherwise be deemed to have waived any
of its rights or remedies hereunder, and no waiver shall be valid unless in
writing, signed by Lender, and then only to the extent therein set forth.  A waiver by Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which Lender would otherwise have had on any future occasion.  No failure to exercise nor any delay in
exercising on the part of Lender, any right, power or privilege hereunder,
shall operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or future exercise
thereof or the exercise of any other right, power or privilege.  The rights and remedies hereunder provided
are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights and remedies provided by law.  None of the terms or provisions of this
Security Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by Lender and Grantor affected by such
waiver.

 

16.           Limitation
by Law.  All rights, remedies and
powers provided in this Security Agreement may be exercised only to the extent
that the exercise thereof does not violate any applicable provision of law, and
all the provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be
limited to the extent necessary so that they shall not render this Security
Agreement invalid, unenforceable, in whole or in part, or not entitled to be
recorded, registered, or filed under the provisions of any applicable law.

 

17.           Termination
of this Security Agreement.  Subject
to Section 12 hereof, this Security Agreement shall terminate upon full
and final payment and performance of all of the Secured Obligations.

 

18.           Successor
and Assigns.  This Security Agreement
and all obligations of Grantor hereunder shall be binding upon the successors
and assigns of Grantor, and shall, together with the rights and remedies of
Lender  hereunder, inure to the benefit
of Lender and its successors and assigns, as permitted pursuant to the terms of
the Amended and Restated Credit Agreement. 
No sales of participations, other sales, assignments, transfers or other
dispositions of any agreement governing or

 

13

 

instrument evidencing the
Secured Obligations or any portion thereof or interest therein, as permitted
pursuant to the terms of the Amended and Restated Credit Agreement, shall in
any manner affect the security interest granted to Lender hereunder.  Grantor may not assign, sell or otherwise
transfer an interest in this Security Agreement except as provided by the
Amended and Restated Credit Agreement.

 

19.           Further
Indemnification.  Grantor agrees to
pay, and to hold Lender harmless from, any and all liabilities with respect to,
or resulting from any delay in paying, any and all excise, sales, or other
similar taxes which may be payable or determined to be payable with respect to
any of the Collateral or in connection with any of the transactions
contemplated by this Security Agreement.

 

20.           Entire
Agreement.  The execution of this
Security Agreement supersedes all the negotiations or stipulations concerning
matters thereof which preceded or accompanied the execution and delivery of
this Security Agreement.  This Security
Agreement is intended by the parties hereto to be a complete and exclusive
statement of the terms and conditions hereof.

 

21.  GOVERNING
LAW.  EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS
OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF
REGARDING CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA.  GRANTOR HEREBY CONSENTS AND
AGREES THAT THE SUPERIOR COURTS OF SAN FRANCISCO COUNTY, CALIFORNIA, OR, AT
LENDERS OPTION, THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
CALIFORNIA, SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN GRANTOR AND LENDER PERTAINING TO THIS SECURITY
AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS SECURITY
AGREEMENT.  GRANTOR EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND GRANTOR HEREBY WAIVES ANY OBJECTION WHICH GRANTOR MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM  NON
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING FOR SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.  GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT, AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GRANTOR AT THE ADDRESS SET
FORTH IN SECTION 13 OF THIS SECURITY AGREEMENT AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF GRANTOR’S ACTUAL RECEIPT THEREOF
OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.  NOTHING IN THIS SECURITY
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER OR GRANTOR FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION.

 

22.  MUTUAL
WAIVER OF JURY TRIAL.  BECAUSE
DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST
QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE
PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN
ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. 
THEREFORE, TO ACHIEVE THE

 

14

 

BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
SECURITY AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.

 

23.           Amendments;
etc.  No amendment to or waiver of
any provision of this Security Agreement nor consent to any departure by
Grantor from any provision of the Security Agreement, shall in any event be
effective unless the same shall be in writing and signed by Lender, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.

 

24.           Interpretation.  No provision of this Security Agreement shall
be construed against or interpreted to the disadvantage of any party hereto by
any court or other governmental or judicial authority by reason of such party’s
having or being deemed to have structured, drafted or dictated such provision.

 

25.           Section Titles.  The section titles contained in this Security
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.

 

26.           Counterparts.  This Security Agreement may be executed in
any number of identical counterparts, each of which shall be an original, but
all of which shall constitute one and the same agreement.  This Security Agreement shall become
effective when Lender shall have received all original executed counterparts

 

27.           Further
Assurances.  Grantor agrees, upon the
written request of Lender, to execute and deliver to Lender, from time to time,
any additional instruments or documents reasonably considered necessary by
Lender to cause this Security Agreement and the Secured Obligations to be,
become, or remain valid and effective, and to cause Lender’s security interest
in the pledged Collateral to be, become, or remain duly perfected.

 

15

 

IN WITNESS
WHEREOF, each of the parties hereto has caused this Security Agreement to be
executed and delivered by its duly authorized officer on the date first set
forth above.

 

	
   

  	
   

  	
  ML MACADAMIA ORCHARDS,
  L.P., a Delaware limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  ML RESOURCES, INC., a
  Hawaii corporation, its managing general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Dennis J.
  Simonis

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Dennis J.
  Simonis

  
	
   

  	
   

  	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ML RESOURCES, INC., a
  Hawaii corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Dennis J. Simonis

  
	
   

  	
   

  	
  Name:

  	
  Dennis J. Simonis

  
	
   

  	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ACCEPTED:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  AMERICAN AGCREDIT, PCA

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Sean O’Day

  	
   

  	
   

  
	
  Name:

  	
  Sean O’Day

  	
   

  	
   

  
	
  Title:

  	
  Senior Vice
  President

  	
   

  	
   

  
								

 

16

 

EXHIBIT A

 

DESCRIPTION OF COLLATERAL

 

TO

 

UNIFORM COMMERCIAL CODE FINANCING STATEMENTS

 

AND

 

SECURITY AGREEMENT

 

Debtor and Grantor:                                      ML Macadamia Orchards, L.P., a Delaware
limited partnership

 ML Resources, Inc., a Hawaii corporation

 

Secured Party:                   American AgCredit, PCA, successor in interest to
Pacific Coast Farm Credit Services, PCA

 

All of the Debtor’s
and the Grantor’s now existing and hereafter arising interest in the following
collateral:

 

A.            “Accounts” — all accounts as such
term is defined in the Uniform Commercial Code including, accounts receivable,
other receivables, book debts and other forms of obligations (other than forms
of obligations evidenced by chattel paper, documents or instruments) now owned
or hereafter received or acquired by or belonging or owing to Grantor, whether arising
out of goods sold or services rendered by Grantor or from any other
transaction, including,

 

(1)           All
rights in, to and under all purchase orders or receipts now owned or hereafter
acquired by Grantor for goods or services;

 

(2)           All
rights to any goods represented by any of the foregoing (including, without
limitation, an unpaid seller’s rights of rescission, replevin, reclamation and
stoppage in transit and rights to returned, reclaimed or repossessed
goods);

 

(3)           All
monies due or to become due under all purchase orders and contracts for the
sale of goods or the performance of services or both by Grantor or in
connection with any other transaction (whether or not yet earned by performance
on the part of Grantor) now or hereafter in existence, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts; and

 

(4)           All
collateral security and guaranties of any kind, now or hereafter in existence,
given by any person or entity with respect to any of the foregoing;

 

B.            “Chattel Paper” — all chattel
paper as defined in the Uniform Commercial Code;

 

C.            “Contracts” — all contracts,
undertakings, or agreements (other than rights evidenced by chattel paper,
documents or instruments) in or under which Grantor may now or hereafter have
any right, title or interest, including, any agreement relating to the terms of
payment or the terms of performance of any account of Grantor;

 

D.            “Documents” — all documents as
defined in the Uniform Commercial Code, including, without limitation, all
bills of lading, dock warrants, dock receipts, warehouse receipts, or other
documents of title;

 

17

 

E.             “Equipment” — all equipment as
defined in the Uniform Commercial Code, including, without limitation, all
machinery, equipment, furnishings, vehicles and computers and other electronic
data-processing and other office equipment, and any and all additions,
substitutions and replacements of any of the foregoing, together with all
attachments, components, parts, equipment, and accessories installed on or
affixed to any of the foregoing;

 

F.             “Farm Products” — all farm
products as defined in the Uniform Commercial Code, wherever located,
including, without limitation, all crops growing or to be grown on the real
property described in Exhibit B hereto and all other crops, including
macadamia nuts and products thereof.

 

G.            “Fixtures” — all fixtures as
defined in the Uniform Commercial Code, including, without limitation, all of
the fixtures, systems, machinery, apparatus, equipment and fittings of every
kind and nature whatsoever and all appurtenances and additions thereto and
substitutions therefor or replacements thereof, now or hereafter attached or
affixed to or constituting a part of, or located in or upon, real property
wherever located (including, without limitation, all heating, electrical,
mechanical, lighting, lifting, plumbing, ventilating, air-conditioning and air
cooling, refrigerating, incinerating and power, loading and unloading, signs,
escalators, elevators, boilers, communication, switchboards, sprinkler and
other fire prevention and extinguishing fixtures, systems, machinery, apparatus
and equipment, and all engines, motors, dynamos, machinery, pipes, pumps,
tanks, conduits and ducts constituting a part of any of the foregoing, together
with all extensions, improvements, betterments, renewals, substitutes, and
replacements of, and all additions and appurtenances to any of the foregoing
property);

 

H.            “General Intangibles” — all
general intangibles as defined in the Uniform Commercial Code, including,
without limitation, all right, title and interest which Grantor may now or
hereafter have in or under any contracts, customer lists, trademarks, patents,
service marks, trade names, business names, corporate names, trade styles,
logos and other source or business identifiers, and all applications therefor
and reissues, extensions or renewals thereof, rights in intellectual property,
interests in and rights to distributions from partnerships, joint ventures and
other business associations, licenses, permits, copyrights, trade secrets,
proprietary or confidential information, inventions (whether or not patented or
patentable), technical information, procedures, designs, knowledge, know-how,
software, data bases, data, skill, expertise, experience, processes, models,
drawings, materials and records, goodwill (including, without limitation, the
goodwill associated with any trademark, trademark registration or trademark
licensed under any trademark license), all rights and claims in or under
insurance policies (including, without limitation, insurance for fire, damage,
loss, and casualty, whether covering personal property, real property, tangible
rights or intangible rights, all liability, life, key person, and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit accounts and other bank accounts, rights to receive
tax refunds, and other payments and rights of indemnification;

 

I.              “Instruments” — all instruments as
defined in the Uniform Commercial Code, including, without limitation, all
certificated and uncertificated securities, all certificates of deposit, and
all notes and other evidences of indebtedness, other than instruments that
constitute, or are a part of a group of writings that constitute, chattel
paper;

 

J.             “Inventory” — all inventory as
defined in the Uniform Commercial Code, wherever located, including, without
limitation, inventory, macadamia nuts, merchandise, goods and other personal
property which are held by or on behalf of Grantor for sale or lease or are
furnished or are to be furnished under a contract of service or which
constitute raw materials, work in process or materials used or consumed or to
be used or consumed in Grantor’s business or in the processing, production,
packaging, promotion, delivery or shipping of the same, including, without
limitation, all finished goods, and goods held by Grantor on a consignment
basis;

 

18

 

K.            “Money” — all money, cash or cash
equivalents of Grantor;

 

L.             “Books and Records” — all books
and records (including, without limitation, customer lists, credit files,
computer programs, printouts, and other computer materials and records) of
Grantor pertaining to any of the foregoing;

 

M.           “Governmental Program Payments” — all
right to receive any payment under any government program, including, set
aside, price support, deficiency, or disaster relief payments.

 

N.            “Investment Property” — all
investment property as defined in the Uniform Commercial Code, including,
without limitation, all securities, whether certificated or uncertificated, all
security entitlements, all security accounts, all commodity contracts and all
commodity accounts;

 

O.            “Other Personal Property” — all
other goods and personal property of Grantor, whether tangible or intangible
and whether now or hereafter owned or existing, leased, consigned by or to, or
acquired by Grantor, and wherever located; and

 

P.             “Proceeds” — to the extent not
otherwise included, all proceeds of the foregoing, in any form (including,
without limitation, any insurance proceeds, and all claims by Grantor against
third parties for loss or damage to, or destruction of, or otherwise relating
to any or all of the foregoing) and all accessions to, substitutions and
replacements for, and rents, profits and products of, each of the foregoing.

 

19

 

EXHIBIT B

 

TO

 

SECURITY AGREEMENT

 

Debtor and Grantor:             ML Macadamia Orchards, L.P., a Delaware
limited partnership

ML Resources, Inc.,
a Hawaii corporation

 

Secured Party:                   American AgCredit, PCA, successor in interest to
Pacific Coast Farm Credit Services, PCA

 

See attached for property description.

 

EXHIBIT C

 

TO

 

SECURITY AGREEMENT

 

Debtor and Grantor:             ML Macadamia Orchards, L.P., a Delaware
limited partnership

ML Resources, Inc.,
a Hawaii corporation

 

Secured Party:                   American AgCredit, PCA, successor in interest to
Pacific Coast Farm Credit Services, PCA

 

(1)           List of Any Names Under Which Grantor Has Done
Business During Last Five Years.

 

Mauna Loa
Macadamia Partners, L.P.

 

(2)           Locations.

 

(a)                                  Chief executive office:

 

26-238 Hawaii Belt
Road

Hilo, Hawaii   96720

 

(b)                                 Principal place of business:

 

Kau, HA

 

(c)                                  Other locations where Collateral located:

 

Keaau and Mauna
Kea, HA

 

(3)           Grantor’s federal taxpayer identification
number.

 

99-0248088

 

(4)           List of Registered Patents, Trademarks,
and Copyrights.

 

None.

 

20

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