Document:

Unassociated Document

    
      Execution
Copy

     

    ENER1,
INC.

    

    Warrant
To Purchase Common Stock

    

    Warrant
No.: FSS-08

    Number of
Shares of Common Stock: 75,000

    Date of
Issuance: October 18, 2010 ("Issuance Date")

    

    Ener1,
Inc., a Florida corporation (the "Company"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, JMP Securities LLC, the registered holder hereof or its
permitted assigns (the "Holder"), is entitled, subject
to the terms set forth below, to purchase from the Company, at the Exercise
Price (as defined below) then in effect, upon surrender of this Warrant to
Purchase Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the "Warrant"), at any time or
times on or after the date hereof, but not after 11:59 p.m., New York time, on
the Expiration Date (as defined below), SEVENTY-FIVE THOUSAND (75,000) fully
paid nonassessable shares of Common Stock (as defined below) (the "Warrant
Shares").  Except as otherwise defined herein, capitalized
terms in this Warrant shall have the meanings set forth in Section
16.  This Warrant is being issued in conjunction with the Warrants to
purchase Common Stock (the "SPA
Warrants") issued pursuant to Section 1 of that certain Securities
Purchase Agreement, dated as of September 2, 2010 (the "Subscription Date"), by and
among the Company and the investors (the "Buyers") referred to therein
(the "Securities Purchase
Agreement").

     

    1. EXERCISE OF
WARRANT.

     

    (a) Mechanics of
Exercise.  Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)), this
Warrant may be exercised by the Holder on any day on or after the date hereof,
in whole or in part, by (i) delivery to the Company of a written notice, in
the form attached hereto as Exhibit A (the "Exercise Notice"), of the
Holder's election to exercise this Warrant and (ii) either (A) payment to the
Company of an amount equal to the applicable Exercise Price multiplied by the
number of Warrant Shares as to which this Warrant is being exercised (the "Aggregate Exercise Price") in
cash or by wire transfer of immediately available funds or (B) by notifying the
Company at the same time that it delivers the Exercises Notice, that this
Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)) (such Exercise Notice and, if applicable, the Aggregate Exercise
Price are referred to herein as the "Exercise Delivery
Documents").  The Holder shall not be required to deliver the
original Warrant in order to effect an exercise hereunder.  Execution
and delivery of the Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original Warrant and
issuance of a new Warrant evidencing the right to purchase the remaining number
of Warrant Shares.  On or before the third (3rd)
Trading Day following the date on which the Company has received an Exercise
Notice (the "Delivery
Date") and so long as the Aggregate Exercise Price is paid to the Company
contemporaneously with or prior to the Delivery Date, (x) in the event that the
Company's transfer agent (the "Transfer Agent") participates
in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer program (“FAST”), the Company shall
credit such aggregate number of Warrant Shares to which the Holder is entitled
pursuant to such exercise to the Holder's or its designee's balance account with
DTC, as specified in such Exercise Notice, through its Deposit/Withdrawal at
Custodian system and (y) in the event that the Transfer Agent is not a
participant in FAST, or if the Warrant Shares are not otherwise eligible for
delivery through FAST, or if the Holder so specifies in an Exercise Notice or
otherwise in writing on or before the Exercise Date, the Company shall effect
delivery of Warrant Shares by delivering to the Holder or its designee physical
certificates representing such Warrant Shares, no later than the close of
business on such Delivery Date. Upon delivery of the Exercise Delivery
Documents, the Holder shall be deemed for all corporate purposes to have become
the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date such Warrant Shares are credited to
the Holder's DTC account.  If this Warrant is submitted in connection
with any exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company shall as soon
as practicable and in no event later than three (3) Business Days after any
exercise and at its own expense, issue a new Warrant (in accordance with Section
7(d)) representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant, less the
number of Warrant Shares with respect to which this Warrant is
exercised.  No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock to
be issued shall be rounded up to the nearest whole number.  The
Company shall pay any and all taxes which may be payable with respect to the
issuance and delivery of Warrant Shares upon exercise of this Warrant unless
such Warrant Shares are to be delivered to a person other than the Holder or an
affiliate thereof.  

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) Exercise
Price.  For purposes of this Warrant, "Exercise Price" means $3.82,
subject to adjustment as provided herein.

     

    (c) Company's Failure to Timely
Deliver Securities.  If within three (3) Trading Days after the
Company's receipt of the facsimile copy of a Exercise Notice the Company shall
fail to issue and deliver a certificate to the Holder and register such shares
of Common Stock on the Company's share register or credit the Holder's balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder's exercise hereunder, and if on or after such Trading
Day the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of shares of
Common Stock issuable upon such exercise that the Holder anticipated receiving
from the Company (a "Buy-In"), then the Company
shall, within three (3) 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
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) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such Warrant
Shares 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 Exercise Price.

     

    
      
        
        

      

      
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    (d) Cashless Exercise.
 Notwithstanding
anything contained herein to the contrary, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "Cashless
Exercise"):

     

    Net Number = (A x B) - (A x
C)

                                      
B

     

    For purposes of the foregoing
formula:

     

    
      	
               
      

            	
              A=
      the total number of shares with respect to which this Warrant is then
      being exercised.

            

    

     

    
      	
               
      

            	
              B=
      the average of the Closing Sale Prices of the shares of Common Stock (as
      reported by Bloomberg) for the five (5) consecutive Trading Days ending on
      the date immediately preceding the date of the Exercise
      Notice.

            

    

     

    
      	
               
      

            	
              C=
      the Exercise Price then in effect for the applicable Warrant Shares at the
      time of such exercise.

            

    

    

    (e) Disputes.  In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 12.

     

    (f) Limitations on Exercises;
Beneficial Ownership.  The Company shall not effect the
exercise of this Warrant, and the Holder shall not have the right to exercise
this Warrant, to the extent that after giving effect to such exercise, such
Person (together with such Person's affiliates) would beneficially own in excess
of 9.99% (the “Maximum
Percentage”) of the shares of Common Stock outstanding immediately after
giving effect to such exercise.  For purposes of the foregoing
sentence, the aggregate number of shares of Common Stock beneficially owned by
such Person and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of Common
Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by such Person and its
affiliates (including, without limitation, any convertible notes or convertible
preferred stock or warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein.  To the extent that the
limitation contained in this Section 1(f) applies,
the submission of an Exercise Notice by the Holder shall be deemed to be the
Holder’s representation that this Warrant is exercisable pursuant to the terms
hereof and the Company shall be entitled to rely on such representation without
making any further inquiry as to whether this Section 1(f) applies.
The Company shall have no liability to any person if the Holder's determination
of whether this Warrant is exercisable pursuant to the terms hereof is
incorrect.  Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended.  For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock
outstanding.  For any reason at any time, upon the written or oral
request of the Holder, the Company shall within one (1) Business Day confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding.  In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, including the SPA Warrants, by the Holder and its
affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.  By written notice to the Company, the
Holder may from time to time increase or decrease the Maximum Percentage to any
other percentage not in excess of 9.99% specified in such notice; provided that
(i) any such increase will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company, and (ii) any such increase or
decrease will apply only to this Warrant and not to any other SPA
Warrants.  The provisions of this paragraph shall be construed and
implemented in a manner other than in strict conformity with the terms of this
Section 1(f) 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.

     

    
      
        
        

      

      
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    (g) Insufficient Authorized
Shares.  If at any time while any of the Warrants remain
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of the Warrants at least a number of shares of Common
Stock equal to 100% (the "Required Reserve Amount") of
the number of shares of Common Stock as shall from time to time be necessary to
effect the exercise of all of the Warrants then outstanding (an "Authorized Share Failure"),
then the Company shall promptly take all action necessary to increase the
Company's authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for the Warrants then
outstanding.  Without limiting the generality of the foregoing
sentence, as soon as practicable after the date of the occurrence of an
Authorized Share Failure, but in no event later than sixty (60) days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of
its shareholders for the approval of an increase in the number of authorized
shares of Common Stock.  In connection with such meeting, the Company
shall provide each shareholder with a proxy statement and shall use its best
efforts to solicit its shareholders' approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
shareholders that they approve such proposal.

     

    
      
        
        

      

      
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    2. ADJUSTMENT OF EXERCISE PRICE
AND NUMBER OF WARRANT SHARES.  The Exercise Price and the
number of Warrant Shares shall be adjusted from time to time as
follows:

     

    (a)            [RESERVED]

     

    (b) Adjustment upon Subdivision
or Combination of Common Stock.  If the Company at any time on
or after the Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one (1) or more classes of its outstanding shares
of Common Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced and the
number of Warrant Shares will be proportionately increased.  If the
Company at any time on or after the Subscription Date  combines (by
combination, reverse stock split or otherwise) one (1) or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately
decreased.  Any adjustment under this Section 2(b) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.

     

    (c)            [RESERVED]

     

    3. RIGHTS UPON DISTRIBUTION OF
ASSETS.  If the Company shall declare or make any dividend or
other distribution of its assets (or rights to acquire its assets) to holders of
shares of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"), at any time
after the issuance of this Warrant, then, in each such case, the Exercise Price
in effect immediately prior to the close of business on the record date fixed
for the determination of holders of shares of Common Stock entitled to receive
the Distribution shall be reduced, effective as of the close of business on such
record date, to a price equal to such Exercise Price minus the value of the
Distribution (as determined in good faith jointly by the Company's Board of
Directors and the Required Holders) applicable to one (1) share of Common
Stock.

     

    4. FUNDAMENTAL
TRANSACTIONS.

     

    
      
        
        

      

      
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    (a) Fundamental
Transactions.  The Company shall not enter into or be party to
a Fundamental Transaction unless the Successor Entity assumes 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 (4) pursuant to
written agreements in form and substance reasonably satisfactory to the Required
Holders and approved by the Required Holders prior to such Fundamental
Transaction (which approval shall not be unreasonably withheld), including
agreements to deliver to each holder of Warrants in exchange for such Warrants a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Warrant, including, without limitation, an
adjusted exercise price equal to the value for the shares of Common Stock
reflected by the terms of such Fundamental Transaction, and exercisable for a
corresponding number of shares of capital stock 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 reasonably satisfactory to the Required
Holders.  Upon the occurrence of any 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
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 with the same effect as if such
Successor Entity had been named as the Company herein.  Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon exercise of this
Warrant at any time after the consummation of the Fundamental Transaction, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property) issuable upon the exercise of the Warrant prior to such
Fundamental Transaction, such shares of the publicly traded Common Stock (or its
equivalent) of the Successor Entity (including its Parent Entity) which the
Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had this Warrant been converted immediately prior to
such Fundamental Transaction, as adjusted in accordance with the provisions of
this Warrant.  In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a "Corporate
Event"), the Company shall make appropriate provision to insure that the
Holder will thereafter have the right to receive upon an exercise of this
Warrant at any time after the consummation of the Fundamental Transaction but
prior to the Expiration Date, in lieu of the shares of the Common Stock (or
other securities, cash, assets or other property) issuable upon the exercise of
the Warrant prior to such Fundamental Transaction, such shares of stock,
securities, cash, assets or any other property whatsoever (including warrants or
other purchase or subscription rights) which the Holder would have been entitled
to receive upon the happening of such Fundamental Transaction had the Warrant
been exercised immediately prior to such Fundamental
Transaction.  Provision made pursuant to the preceding sentence shall
be in a form and substance reasonably satisfactory to the Required
Holders.  The provisions of this Section shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be
applied without regard to any limitations on the exercise of this
Warrant.

     

    (b) Notwithstanding
the foregoing, in the event of a Fundamental Transaction other than one in which
a Successor Entity 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, at the request of the Holder delivered before the 90th day
after such Fundamental Transaction, the Company (or the Successor Entity) shall
purchase this Warrant from the Holder by paying to the Holder, within five
Business Days after such request (or, if later, on the effective date of the
Fundamental Transaction), cash in an amount equal to the Black Scholes Value of
the remaining unexercised portion of this Warrant on the date of such
Fundamental Transaction.

     

    
      
        
        

      

      
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    5. NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Articles of Incorporation, Bylaws or through any reorganization, transfer of
assets, consolidation, merger, scheme of arrangement, 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, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the
Holder.  Without limiting the generality of the foregoing, the Company
(i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any this Warrant is outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, 130% of the number of shares of Common Stock as shall from time to time
be necessary to effect the exercise of this Warrant (without regard to any
limitations on exercise).

     

    6. WARRANT HOLDER NOT DEEMED A
SHAREHOLDER.  Except as otherwise specifically provided herein,
the Holder, solely in such Person's capacity as a holder of this Warrant, shall
not be entitled to vote or receive dividends or be deemed the holder of share
capital of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the Holder, solely in such Person's capacity
as the Holder of this Warrant, any of the rights of a shareholder of the Company
or any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which such Person is then entitled to receive upon the due
exercise of this Warrant.  In addition, nothing contained in this
Warrant shall be construed as imposing any liabilities on the Holder to purchase
any securities (upon exercise of this Warrant or otherwise) or as a shareholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company.  Notwithstanding this Section 6, the Company
shall provide the Holder with copies of the same notices and other information
given to the shareholders of the Company generally, contemporaneously with the
giving thereof to the shareholders.

     

    
      
        
        

      

      
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    7. REISSUANCE OF
WARRANTS.

     

    (a) Transfer of
Warrant.  If this Warrant is to be transferred, the Holder
shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.

     

    (b) Lost, Stolen or Mutilated
Warrant.  Upon receipt by the Company of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Warrant, the
Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

     

    (c) Exchangeable for Multiple
Warrants.  This Warrant is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Warrant
or Warrants (in accordance with Section 7(d)) representing in the aggregate the
right to purchase the number of Warrant Shares then underlying this Warrant, and
each such new Warrant will represent the right to purchase such portion of such
Warrant Shares as is designated by the Holder at the time of such surrender;
provided, however, that no Warrants for fractional shares of Common Stock shall
be given.

     

    (d) Issuance of New
Warrants.  Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a)
or Section 7(c), the Warrant Shares designated by the Holder which, when added
to the number of shares of Common Stock underlying the other new Warrants issued
in connection with such issuance, does not exceed the number of Warrant Shares
then underlying this Warrant), (iii) shall have an issuance date, as indicated
on the face of such new Warrant which is the same as the Issuance Date, and (iv)
shall have the same rights and conditions as this Warrant.

     

    8. NOTICES.  Whenever
notice is required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with Exhibit B
hereto.  The Company will give written notice to the Holder (i)
promptly upon any adjustment of the Exercise Price, setting forth in reasonable
detail, and certifying, the calculation of such adjustment and (ii) at least
fifteen days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the shares of
Common Stock, (B) [RESERVED] or (C) for determining rights to vote with respect
to any Fundamental Transaction, dissolution or liquidation, provided in each
case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.

     

    
      
        
        

      

      
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    9. AMENDMENT AND
WAIVER.  Except as otherwise provided herein, the provisions of
this Warrant may be amended and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Required
Holders.

     

    10. GOVERNING
LAW.  This Warrant shall be governed by and construed and
enforced in accor­dance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant shall be governed by,
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause or permit the application of the laws
of any jurisdictions other than the State of New York.

     

    11. CONSTRUCTION;
HEADINGS.  This Warrant shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any person as
the drafter hereof.  The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant.

     

    12. DISPUTE
RESOLUTION.  Upon the request of the Holder, the Company shall
promptly deliver a notice providing reasonable support for any determination or
arithmetic calculation required to be made hereunder, but in no event later than
two Business Days thereafter.  In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations within two (2) Business Days of the receipt by either party of
notice from the other party that any such determination or calculation is being
disputed, to (a) an independent, reputable investment bank selected by the
Company and approved by the Holder or (b) to the Company’s independent, outside
accountant, as appropriate.  The Company shall use reasonable best
efforts to cause the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than five (5) Business Days from the time it receives
the disputed determinations or calculations.  If the determination or
calculation of such investment bank or accountant is the same as that of
Company’s calculations (with a permitted variance of 20.0%), then the fees of
such investment bank or accountant shall be borne by the Holder.  In
all other cases, such fees shall be borne by the Company.  Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.

     

    13. REMEDIES, OTHER OBLIGATIONS,
BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this
Warrant shall be cumulative and in addition to all other remedies available
under this Warrant and the other Transaction Documents, at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the right of the Holder right to pursue actual
damages for any failure by the Company to comply with the terms of this
Warrant.  The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate.  The Company
therefore agrees that, in the event of any such breach or threatened breach, the
holder of this Warrant 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.

     

    
      
        
        

      

      
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    14. TRANSFER.                                This
Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company.

     

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

     

    16. CERTAIN
DEFINITIONS.  For purposes of this Warrant, the following terms
shall have the following meanings:

     

    (a) "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 determined as of the day of the
closing of the applicable Fundamental Transaction for pricing purposes and
reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate
for a period equal to the remaining term of this Warrant as of such date of
request, (ii) an expected volatility equal to the 100 day volatility obtained
from the HVT function on Bloomberg as of the day immediately following the
public announcement of the applicable Fundamental Transaction, (iii) 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 the Fundamental Transaction and (iv) a
365 day annualization factor.

     

    (b) [RESERVED]

     

    (c) "Bloomberg" means Bloomberg
Financial Markets.

     

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

     

    (e) "Closing Bid Price" and "Closing Sale Price" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price, as the case may be, of such security on such date shall be
the fair market value as mutually determined by the Company and the
Holder.  If the Company and the Holder are unable to agree upon the
fair market value of such security, then such dispute shall be resolved pursuant
to Section 12.  All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.

     

    
      
        
        

      

      
        - 10
-

        
          

        

      

      
        
        

      

    

    (f) "Common Stock" means
(i) the Company's Common Stock, par value $0.01 per share, and
(ii) any share capital into which such Common Stock shall have been changed
or any share capital resulting from a reclassification of such Common
Stock.

     

    (g) [RESERVED]

     

    (h) "Eligible Market" means the
Principal Market, The New York Stock Exchange, Inc., the NYSE Amex, The NASDAQ
Global Select Market or The NASDAQ Capital Market.

     

    (i) [RESERVED]

     

    (j) "Expiration Date" means
September 7, 2015, or, if such date falls on a day other than a Business Day or
on which trading does not take place on the Principal Market (a "Holiday"), the next date that
is not a Holiday.

     

    (k) "Fundamental Transaction" means
that (i) the Company shall, directly or indirectly, in one or more related
transactions, (A) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person, or (B) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or
assets of the Company to another Person, or (C) allow another Person to make a
purchase, tender or exchange offer that is accepted by the holders of more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the Person or Persons making or party to, or associated or
affiliated with the Persons making or party to, such purchase, tender or
exchange offer), (D) consummate a stock 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 purchase agreement or other business combination), or (E) reorganize,
recapitalize or reclassify its Common Stock, or (ii) any "person" or "group" (as
these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act) (other than Boris Zingarevich and his Affiliates, so long as he and his
Affiliates collectively beneficially own less than 70% of the aggregate equity
securities of the Company) is or shall 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.

     

    
      
        
        

      

      
        - 11
-

        
          

        

      

      
        
        

      

    

    (l) [RESERVED]

     

    (m) "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 (1) 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.

     

    (n) "Person" means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity and a government or any
department or agency thereof.

     

    (o) "Principal Market" means The
NASDAQ Global Market.

     

    (p) "Required Holders" means the
holders of the SPA Warrants representing at least a majority of shares of Common
Stock underlying the SPA Warrants then outstanding.

     

    (q) "Successor Entity" means the
Person (or, if so elected by the Required Holders, the Parent Entity) formed by,
resulting from or surviving any Fundamental Transaction or the Person (or, if so
elected by the Required Holders, the Parent Entity) with which such Fundamental
Transaction shall have been entered into.

     

    (r) "Trading Day" means any day on
which the Common Stock is traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is
then traded; provided that "Trading Day" shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York
time).

     

    (s) [RESERVED]

     

    [Signature
Page Follows]

     

    
      
        
        

      

      
        - 12
-

        
          

        

      

      
        
        

      

    

     

    IN WITNESS WHEREOF, the
Company has caused this Warrant to Purchase Common Stock to be duly executed as
of the Issuance Date set out above.

    

    
      
        
          	 	 	 
	 	      
                  ENER1,
      INC.

                	 
	 	 	 	 
	
                   

                	
                  By:
      

                	 	 
	 	
                  Name:

                  Title:

                	 	 
	 	 	 	 
	 	 	 	 

        

      

    

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     EXHIBIT
A

    

    EXERCISE
NOTICE

    TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

    WARRANT
TO PURCHASE COMMON STOCK

    

    ENER1,
INC.

    The undersigned holder hereby exercises
the right to purchase _________________ of the shares of Common Stock ("Warrant Shares") of Ener1,
Inc., a Florida corporation (the "Company"), evidenced by the
attached Warrant to Purchase Common Stock (the "Warrant").  Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Warrant.

    

    1.  Form of Exercise
Price.  The Holder intends that payment of the Exercise Price shall be
made as:

    

    
      	
               
      

            	
              ____________

            	
              a
      "Cash
      Exercise" with respect to _________________ Warrant Shares;
      and/or

            

    

    

    
      	
               
      

            	
              ____________

            	
              a
      "Cashless
      Exercise" with respect to _______________ Warrant
      Shares.

            

    

    

    2.  Payment of Exercise
Price.  In the event that the holder has elected a Cash Exercise with
respect to some or all of the Warrant Shares to be issued pursuant hereto, the
holder shall pay the Aggregate Exercise Price in the sum of $___________________
to the Company in accordance with the terms of the Warrant.

    

    3.  Delivery of Warrant
Shares.  The Company shall deliver to the holder __________ Warrant
Shares in accordance with the terms of the Warrant.

    

    Date:
_______________ __, ______

    

    

    

       Name
of Registered Holder

    

    

    By:  ________________________         

    Name:

    Title:

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
B

    

    Notice
Addresses:

    

    Ener1,
Inc.

    1540
Broadway, Suite 25C

    New York,
New York  10036

    Fax:  (212)
920-3510

    Attn:  Chief
Executive Officer

    

    

    JMP
Securities LLC

    600
Montgomery Street

    Suite
1100

    San
Francisco, CA 94111

    Fax:  (415)
835-8910

    Attn:  David
FullertonExhibit  10.1

     

    Convertible
Note Deed Poll

     

    Mission
Biofuels Limited

    ACN 117
065 719

     

    The
Clayton Utz contact for this document is

    Leah
Chick and Kerry Matthews on +61 2 9353 4000

     

    Clayton
Utz

    Lawyers

    Levels
19-35 No. 1 O'Connell Street Sydney NSW 2000 Australia

    PO Box H3
Australia Square Sydney NSW 1215

    T +61 2
9353 4000 F +61 2 8220 6700

     

    www.claytonutz.com

     

    Our
reference 215/15477/00003333

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    Contents

      
        

      

    

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          	
                                  Clause

                                	 	 
      	 	 
      
	
                                  Number

                                	 	
                                  Heading

                                	 	
                                  Page

                                
	 
      	 	 
      	 	 
      
	
                                  1.

                                	 	
                                  Definitions
      and interpretation

                                	 	
                                  3

                                
	 	 	 	 	 
	
                                  2.

                                	 	
                                  Nature
      and status of Convertible Notes

                                	 	
                                  3

                                
	 	 	 	 	 
	
                                  3.

                                	 	
                                  Enforceability

                                	 	
                                  4

                                
	 	 	 	 	 
	
                                  4.

                                	 	
                                  General

                                	 	
                                  4

                                
	 	 	 	 	 
	 
      	 	
                                  Annexure
      - Convertible Note Conditions

                                	 	
                                  6

                                
	 	 	 	 	 
	 
      	 	
                                  Schedule
      1 - Conversion Notice

                                	 	
                                  19

                                
	 
      	 	
                                  Notice
      of conversion or redemption of CRP Note

                                	 	
                                  19

                                
	 	 	 	 	 
	 
      	 	
                                  Schedule
      2 - Company's Capital Structure and Options

                                	 	
                                  20

                                

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    Convertible
Note Deed Poll made 4 April 2007

     

    By
Mission Biofuels Limited ACN 117 065 719 ("Mission")

    In favour
of the Noteholders from time to time

     

    Background

     

    
      	
              A

            	
              Mission
      proposes to issue Convertible Notes on the terms and conditions contained
      in the Convertible Note Conditions.

            

    

     

    
      	
              B

            	
              It
      is intended that the Noteholders will have the benefit of this
      document.

            

    

     

    Operative
provisions

     

      
        

      

    

     

    
      	
              1.

            	
              Definitions
      and interpretation

            

    

     

    Definitions

     

    
      	
              1.1

            	
              In
      this document:

            

    

     

    
      	
               
      

            	
              (a)

            	
              "Convertible Note
      Conditions" means, generally, the terms and conditions contained in
      the annexure as amended, varied or replaced from time to time;
      and

            

    

     

    
      	
               
      

            	
              (b)

            	
              words
      and expressions defined, or incorporated by reference into the Convertible
      Note Conditions, have the same meanings when used in this
      document.

            

    

     

    Interpretation

     

    
      	
              1.2

            	
              Condition
      23(a) of the Convertible Note Conditions applies to the interpretation of
      this document as if every reference to "these Conditions" is replaced with
      "this document" and to a "Condition" is replaced with a
      "clause".

            

    

     

    
      

    

     

    
      	
              2.

            	
              Nature
      and status of Convertible Notes

            

    

     

    Constitution
of Convertible Notes

     

    
      	
              2.1

            	
              Each
      Convertible Note is a debt obligation of Mission constituted by, and owing
      under, this document.

            

    

     

    Terms
of Convertible Notes

     

    
      	
              2.2

            	
              Each
      Convertible Note is issued on, and subject to, the provisions of this
      document and the Convertible Note
Conditions.

            

    

     

    Form
of Convertible Notes

     

    
      	
              2.3

            	
              Each
      Convertible Note will be issued in registered form by entry in the
      Register.

            

    

     

    Creation
of Convertible Notes

     

    
      	
              2.4

            	
              Each
      Convertible Note will be created and issued immediately upon the entry in
      the Register of the subscriber for that Convertible Note as its initial
      Noteholder.

            

    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    Effect
of registration

     

    
      	
              2.5

            	
              Each
      entry in the Register in respect of a Convertible Note constitutes an
      unconditional and irrevocable covenant by Mission in favour of the person
      whose name is so registered that Mission
will:

            

    

     

    
      	
               
      

            	
              (a)

            	
              (Make all payments): make
      all payments of principal, distributions and other amounts in respect of
      the Convertible Note in accordance with this document and the Convertible
      Note Conditions; and

            

    

     

    
      	
               
      

            	
              (b)

            	
              (Perform other
      obligations): perform all of its other obligations in full, and by
      the due dates, referred to in this document and the Convertible Note
      Conditions.

            

    

     

    
      
  

    
      	
              3.

            	
              Enforceability

            

    

     

    Noteholder
may enforce

     

    
      	
              3.1

            	
              This
      document operates as a deed poll and is enforceable against Mission in
      accordance with its terms by each Noteholder in respect of the Convertible
      Notes held by it, even though the Noteholder is not a party to, or is not
      in existence at the time of execution and delivery of, this
      document.

            

    

     

    Noteholders
bound

     

    
      	
              3.2

            	
              Each
      Noteholder, and each person claiming through each Noteholder, is bound by,
      and is deemed to have notice of, the provisions of this document and the
      Convertible Note Conditions.

            

    

     

    Independent
enforcement

     

    
      	
              3.3

            	
              Each
      Noteholder may enforce its rights under this document and the Convertible
      Note Conditions independently from each other Noteholder, subject to any
      limitations imposed by this document and the Convertible Note
      Conditions.

            

    

     

    
      
  

    
      	
              4.

            	
              General

            

    

     

    Governing
Law

     

    
      	
              4.1

            	
              This
      document is governed by and must be construed according to the law
      applying in Western Australia.

            

    

     

    Jurisdiction

     

    
      	
              4.2

            	
              Mission
      and each Noteholder irrevocably:

            

    

     

    
      	
               
      

            	
              (a)

            	
              submits
      to the non-exclusive jurisdiction of the courts of Western Australia and
      the courts competent to determine appeals from those courts, with respect
      to any proceedings which may be brought at any time relating to this
      document, the Convertible Note Conditions and the Notes;
    and

            

    

     

    
      	
               
      

            	
              (b)

            	
              waives
      any objection it may now or in the future have to the venue of any
      proceedings, and any claim they may now or in the future have that any
      proceedings have been brought in an inconvenient forum, if that venue
      falls within clause 4.1.

            

    

    

    
      
        
           

        

        
          4

          
            

          

        

        
           

        

      

    

     

    Executed as a
deed.

     

    Executed by Mission Biofuels Limited
ACN

    117 065 719 in accordance with
section 127 of the

    Corporations Act by or in the
presence of:

     

    
      
        	
                /s/ Peter Williams

              	 
      	
                /s/ Nathan Mahalingam

              
	
                Signature
      of Secretary/other Director

              	 
      	
                Signature
      of Director or Sole Director and Secretary

              
	 
      	 
      	 
      
	
                Peter Williams

              	 
      	
                Nathan Mahalingam

              
	
                Name
      of Secretary/other Director in full

              	 
      	
                Name
      of Director or Sole Director and Secretary in
  full

              

      

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    Annexure
- Convertible Note Conditions 

      

    

     

    The
following are the terms and conditions of each Convertible Note

     

    
      	
              1

            	
              Interpretation
      and Definitions

            

    

     

    
      	
              1.1

            	
              Unless
      the context otherwise requires:

            

    

     

    "Allotment Date" means, in
respect of a Share issued on Conversion of a Convertible Note, the date on which
the Share is allotted and issued under Condition 6.

     

    "Application Form" means an
application for Convertible Notes or entitlement and acceptance form attached to
the offer for the issue of Convertible Notes.

     

    "ASTC Settlement Rules" means
the operating rules of the ASTC as amended or replaced from time to
time.

     

    "ASX" means Australian Stock
Exchange Limited.

     

    "AWST" means Australian Western
Standard Time.

     

    "Board" means the Board of
directors of the Company.

     

    "Business Day" means any day
that is not a Saturday, Sunday or any other day which is a public holiday or a
bank holiday in the place where an act is to be performed or a payment is to be
made.

     

    "Cleansing Notice" means a
notice given by the Company under section 708A(6) of the Corporations
Act.

     

    "Company" means Mission
Biofuels Limited ACN 117 065 719 of Level 8, 50 St Georges Terrace, Perth,
Western Australia.

     

    "Conditions" means these terms
and conditions of issue of the Convertible Notes.

     

    "Constitution" means the
constitution of the Company.

     

    "Conversion" means the
conversion of the Convertible Notes into Shares in accordance with these
Conditions, and "Convert" and "Converted" will be interpreted
accordingly.

     

    "Conversion Date" means, in
respect of a Convertible Note, the date on which it is Converted.

     

    "Conversion Notice" means a
notice in substantially the form set out in Schedule 1.

     

    "Conversion Number" is 1
subject to adjustment in accordance with Conditions 8 to 11.

     

    "Convertible Note" means a
Convertible Note having the Face Value and issued in accordance with and subject
to these Conditions.

     

    "Convertible Note Certificate"
means the document of that name to which these Conditions of issue are
attached.

     

    "Corporations Act" means the
Corporations Act 2001 (Cth).

     

    "Event of Default" means any of
the events of default set out in Condition 16.

     

    "Face Value" means the face
value of a Convertible Note as set out in Condition 2(b).

     

    "Government Agency" means any
foreign or Australian government or governmental, semi-governmental,
administrative, fiscal or judicial body, department, commission, authority,
tribunal, agency or entity, or any minister of the Crown in right of the
Commonwealth of Australia or any state.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    "Insolvency Event" means in
relation to a body corporate:

     

    
      	
               
      

            	
              (a)

            	
              the
      body corporate being unable to pay all of its debts, as and when they
      become due and payable;

            

    

     

    
      	
               
      

            	
              (b)

            	
              an
      administrator of the body corporate being appointed under the Corporations
      Act;

            

    

     

    
      	
               
      

            	
              (c)

            	
              the
      body corporate or a subsidiary executing a deed of company arrangement
      otherwise than for the purpose of an amalgamation or
      reconstruction;

            

    

     

    
      	
               
      

            	
              (d)

            	
              the
      entry by the body corporate into a scheme of arrangement or a composition
      with, or assignment for the benefit of, all or any class of its creditors,
      or a moratorium involving any of them, otherwise than for the purpose of
      an amalgamation or reconstruction;

            

    

     

    
      	
               
      

            	
              (e)

            	
              the
      body corporate being insolvent within the meaning of section 95A(2) of the
      Corporations
      Act;

            

    

     

    
      	
               
      

            	
              (f)

            	
              the
      body corporate being or stating that it is unable to pay its debts when
      they fall due;

            

    

     

    
      	
               
      

            	
              (g)

            	
              the
      appointment of a receiver or receiver and manager in respect of the body
      corporate or any part of its property;
or

            

    

     

    
      	
               
      

            	
              (h)

            	
              the
      making of a winding up or dissolution order, or the passing of a
      resolution for winding up or dissolution, in respect of the body corporate
      except for the purposes of reconstruction or
  amalgamation.

            

    

     

    "Issue Date" means, in respect
of a Convertible Note, the date on which the Convertible Note is issued
(expected to be 16 May 2007).

     

    "Listing Rules" means at any
time the listing rules of the ASX in force at that time.

     

    "Material Adverse Effect" means
a material adverse effect on the ability of the Company to perform its
obligations under these Conditions or on the financial condition or business of
the Company.

     

    "Maturity Date" means, in
respect of a Convertible Note, 16 May, 2012.

     

    "Note Deed Poll" means the note
deed poll under which the notes are constituted.

     

    "Noteholder" means, in relation
to any Convertible Notes, the person registered in the Register as the holder of
those Convertible Notes.

     

    "Placement Letter" means that
certain letter to the Noteholders by the Company dated as of 28 March 2007 in
connection with the offering of the Convertible Notes.

     

    "Register" means the register
of Noteholders maintained by the Company under Condition 19.

     

    "Regulatory Authority" means
any of ASIC, ASX, the Takeovers Panel or any Government Agency, whether having
jurisdiction in Australia or elsewhere.

     

    "Securities" means Shares or a
right or option to acquire Shares in the Company.

     

    "Share" means a fully paid
ordinary share in the capital of the Company.

     

    "Subsidiary" and "Related Body Corporate" have
the meaning given to those terms by the Corporations Act.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    "Takeovers Panel" means the
Panel as defined by the Corporations Act.

     

    "Tax" means any taxes, duties,
fees, rates, charges and imposts of all kinds assessed, levied or imposed by the
Commonwealth, a state or any other government, regional, municipal or local
authority (Australian or overseas) and includes capital gains tax, fringe
benefits tax, income tax, withholding tax, prescribed payments tax,
superannuation guarantee charge, training guarantee levy, undistributed profits
tax, payroll tax, goods and services tax, group tax, land tax, import duty,
excise, stamp duty, municipal and water rates, interest on tax payments and
additional tax by way of penalty.

     

    "VWAP" means the volume
weighted average sale price of Shares sold on ASX calculated :

     

    
      	
               
      

            	
              (a)

            	
              including
      all on-market trades without condition codes and any trades with condition
      codes XT (Crossed Trade) and SH (Short Trade) ;
  but

            

    

     

    
      	
               
      

            	
              (b)

            	
              excluding
      any off-market trades, any trades with condition codes other than those
      condition codes referred to in paragraph (a) above or any trades that are
      subsequently cancelled.

            

    

     

    
      	
              2

            	
              The
      Notes

            

    

     

    
      	
               
      

            	
              (a)

            	
              The
      Company acknowledges its indebtedness in respect of, and promises to pay
      all amounts due in relation to, each Convertible Note on the terms
      contained in the Note Deed Poll and these
  Conditions.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Each
      Convertible Note has a face value of
$1.30.

            

    

     

    ("Face Value") as advised by the
Company in the Placement Letter.

     

    
      	
               
      

            	
              (c)

            	
              The
      Face Value must be paid in full by the Noteholder to the Company in
      cleared funds by the date specified in the Placement
    letter.

            

    

     

    
      	
               
      

            	
              (d)

            	
              The
      Company may issue Convertible Notes up to a total face value of
      AU$65,000,000 or such values as advised by the Company to Noteholders in
      the Placement Letter.

            

    

     

    
      	
               
      

            	
              (e)

            	
              Every
      offer for issue, or invitation to apply for the issue, of the Convertible
      Notes within the Commonwealth of Australia must be one that does not need
      disclosure to investors under Part 6D.2 of the Corporations Act and is not
      made to a person who is a "retail client" within the meaning of section
      761G of the Corporations Act.

            

    

     

    
      	
              3

            	
              General
      Terms of Issue of Convertible Notes

            

    

     

    
      	
               
      

            	
              (a)

            	
              Each
      Convertible Note:

            

    

     

    
      	
               
      

            	
              (i)

            	
              is
      Convertible in accordance with Condition
5;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              is
      redeemable in accordance with Condition
13;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              is
      interest bearing in accordance with Condition
4;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              is
      an unsecured obligation of the Company ranking equally with any other
      Convertible Notes and other unsecured creditors of the Company;
      and

            

    

     

    
      	
               
      

            	
              (v)

            	
              is
      only transferable in accordance with Condition
  7.

            

    

     

    
      	
               
      

            	
              (b)

            	
              If
      a Convertible Note is redeemed by the Company or Converted then the
      Convertible Note is automatically cancelled and may not be
      re-issued.

            

    

     

    
      	
               
      

            	
              (c)

            	
              The
      Company will not apply for official quotation of the Convertible Notes on
      ASX or any other stock exchange.

            

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

    

     

    
      	
               
      

            	
              (d)

            	
              Except
      as otherwise provided for in these Conditions, a Convertible Note does not
      give its Noteholder the right to participate in issues of new securities
      or capital reconstructions affecting the holders of
  Shares.

            

    

     

    
      	
              4

            	
              Interest

            

    

     

    An
interest of 4.00% p.a. is payable semi-annually on each 6 month and 12 month
anniversary of the Issue Date in arrears in respect of the Convertible Notes
based on a year of 365 days.

     

    
      	
              5

            	
              Conversion
      of Convertible Notes

            

    

     

    
      	
               
      

            	
              (a)

            	
              The
      Noteholder may, at any time prior to 2.00pm AWST on the Maturity Date,
      elect to Convert some or all of its Convertible Notes by giving a
      Conversion Notice to the Company on receipt of which by the Company, those
      Convertible Notes will be deemed to Convert and such Conversion Notice
      once given is irrevocable.

            

    

     

    
      	
               
      

            	
              (b)

            	
              The
      Company may elect to Convert some or all of the Convertible Notes at any
      time when the daily VWAP for a period of 90 consecutive trading days is
      1.5 times the Face Value, provided that no Event of Default has occurred
      and is continuing.  The Company is required to give a Noteholder
      10 Business Days notice prior to converting all or any of the Convertible
      Notes under this Condition 5(b) and the Company must notify the Noteholder
      that the Conversion has occurred within 10 Business
  Days.

            

    

     

    
      	
               
      

            	
              (c)

            	
              On
      Conversion of all or any of the Convertible Notes pursuant to Conditions
      5(a) or 5(b), a Noteholder is entitled to be allotted the Conversion
      Number of Shares for each Convertible Note it holds that is
      Converted.  Where the total number of Shares that a Noteholder
      becomes entitled to on Conversion includes a fraction, that number will be
      rounded down to the next whole
number.

            

    

     

    
      	
               
      

            	
              (d)

            	
              A
      Convertible Note is not capable of Conversion in
  part.

            

    

     

    
      	
              6

            	
              Allotment
      and Ranking of Shares

            

    

     

    
      	
               
      

            	
              (a)

            	
              The
      Company must issue the Shares that a Noteholder becomes entitled to under
      Condition 5(c) no later than 3 Business Days after the Conversion
      Date.  For the avoidance of doubt, the Noteholder for the
      purpose of any record date shall be deemed to own such Shares as at the
      Conversion Date.

            

    

     

    
      	
               
      

            	
              (b)

            	
              The
      Company will procure that a holding statement for any Shares is sent to
      the relevant Noteholders in accordance with the ASTC Settlement
      Rules.

            

    

     

    
      	
               
      

            	
              (c)

            	
              The
      Company will apply for the Shares issued on Conversion of Convertible
      Notes to be quoted on ASX as soon as practicable, and in any event within
      2 Business Days of the Allotment
Date.

            

    

     

    
      	
               
      

            	
              (d)

            	
              Subject
      to the restrictions set out in Condition 7, Shares issued on Conversion
      will rank equally in all respects with the other Shares on issue at the
      Allotment Date.

            

    

     

    
      	
              7

            	
              Transferability

            

    

     

    Convertible
Notes and Shares issued under Condition 6 are transferable subject to the
following restrictions:

     

    
      	
               
      

            	
              (a)

            	
              Subject
      to Condition 7(c), Convertible Notes and Shares issued under Condition 6
      must not be sold, transferred or offered for sale (and the holder must not
      grant, issue or transfer any interest in, or options or warrants over)
      ("Dealing"):

            

    

     

    
      	
               
      

            	
              (i)

            	
              in
      respect of Convertible Notes, within 12 months after their Issue Date;
      and

            

    

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (ii)

            	
              in
      respect of Shares issued under Condition 6, within 12 months after their
      Allotment Date.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Condition
      7(a) does not apply in respect of any Dealing where the Dealing (and offer
      of the Dealing) does not need disclosure to investors under Part 6D.2 of
      the Corporations Act due to one of the exceptions under section 708 (other
      than section 708(1)) of the Corporations Act or due to section 708A of the
      Corporations Act (including a Dealing in relation to Shares for which the
      Company has provided a Cleansing
Notice).

            

    

     

    
      	
               
      

            	
              (c)

            	
              Notwithstanding
      Condition 7(a) and 7(b), no Convertible Notes or Shares may be transferred
      to a person whose voting power for the purposes of Chapter 6 of the
      Corporations Act would increase above 20% upon the occurrence of such
      transfer (or upon the subsequent Conversion of the Convertible Notes
      subject to such transfer) unless Company shareholder approval is given to
      the transfer pursuant to item 7 of section 611 of the Corporations
      Act.

            

    

     

    
      	
               
      

            	
              (d)

            	
              In
      the event that the Company elects to Convert the Noteholders as per 5(b),
      the Company will issue a Cleansing Notice, promptly but in no event later
      than 3 Business Days of such Conversion, so that Condition 7(a) does not
      apply.

            

    

     

    
      	
              8

            	
              Adjustments
      for Bonus Issues and Rights Issues

            

    

     

    
      	
               
      

            	
              (a)

            	
              Subject
      to Condition 8(b), if the Company makes a pro rata bonus issue or a rights
      issue of Securities to holders of Shares, the Conversion Number
      automatically adjusts in accordance with the following
      formula:

            

    

     

    

     

    where:

     

    New CN means the Conversion
Number that will apply after the application of this formula;

     

    Old CN means the Conversion
Number that applied immediately before the application of this
formula;

     

    P means the VWAP during the
period from the 1st Business Day after the announcement of the bonus or rights
issue to ASX up to and including the last Business Day of trading cum rights or
bonus issue;

     

    S means the number of Shares
on issue immediately before the issue of new Shares pursuant to the rights or
bonus issue of Securities;

     

    New S means the number of
Shares to be issued pursuant to the rights or bonus issue of Securities;
and

     

    SP means the subscription
price per Share for a rights issue and 0 for a bonus issue.

     

    
      	
               
      

            	
              (b)

            	
              No
      adjustment will be made if:

            

    

     

    
      	
               
      

            	
              (i)

            	
              the
      component "SP" exceeds the component "P";
or

            

    

     

    
      	
               
      

            	
              (ii)

            	
              the
      issue of Shares is made pursuant to a dividend reinvestment plan, bonus
      share plan, employee or executive share or option plan, or a share top up
      plan.

            

    

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    
      	
              9

            	
              Adjustments
      for Off-Market Buy-Backs

            

    

     

    
      	
               
      

            	
              (a)

            	
              Subject
      to Condition 9(b), if the Company undertakes an off-market buy-back of
      Shares, the Conversion Number automatically adjusts in accordance with the
      following formula:

            

    

     

    

     

    where:

     

    New CN means the Conversion
Number that will apply after the application of this formula;

     

    Old CN means the Conversion
Number that applied immediately before the application of this
formula;

     

    P means the VWAP during the 20
Business Days (including Business Days on which Shares are not traded on ASX)
before the announcement of the buy-back;

     

    S means the number of Shares
on issue immediately before the buy-back;

     

    BBS means the number of Shares
bought-back under the buy-back; and

     

    BBP means the buy-back price
per Share.

     

    
      	
               
      

            	
              (b)

            	
              No
      adjustment will be made if the component "BBP" is less than the component
      "P".

            

    

     

    
      	
              10

            	
              Adjustments
      for Returns Of Capital

            

    

     

    If the
Company makes a return of capital to the holders of Shares (other than by way of
a buy-back of Shares), the Conversion Number automatically adjusts in accordance
with the following formula:

     

    

     

    where:

     

    New CN means the Conversion
Number that will apply after the application of this formula;

     

    Old CN means the Conversion
Number that applied immediately before the application of this
formula;

     

    P means the VWAP during the
period from the first Business Day after the announcement of the return of
capital to ASX up to and including the last Business Day of trading cum the
return of capital;

     

    C means the amount of cash and
value of property distributed (as reasonably determined by the Board) to holders
of Shares per Share provided that C must not be less than 0.

     

    
      	
              11

            	
              Adjustments
      for Capital Reconstructions

            

    

     

    If Shares
are reconstructed, consolidated, divided or reclassified into a lesser or
greater number of securities:

     

    
      	
               
      

            	
              (a)

            	
              the
      Convertible Notes will be reconstructed, consolidated, divided or
      reclassified on the same basis in accordance with the Listing Rules as
      they apply to the Company; and

            

    

     

    
      	
               
      

            	
              (b)

            	
              the
      Conversion Number will be adjusted as reasonably determined appropriate by
      the Board.

            

    

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    
      	
              12

            	
              Discretion
      in Adjustments

            

    

     

    If the
Board determines in its reasonable opinion that the application of any of
Conditions 8 to 11 would affect the relative value of Convertible Notes and
Shares to the detriment to the Noteholders, the Board may:

     

    
      	
               
      

            	
              (a)

            	
              make
      any alterations to the Face Value of Convertible Notes or the Conversion
      Number; or

            

    

     

    
      	
               
      

            	
              (b)

            	
              offer
      Noteholders the ability to participate in any distribution that they would
      have been entitled to as holders of Shares had their Convertible Notes
      been converted immediately prior to the date that holders of Shares were
      entitled to participate in the
distribution,

            

    

     

    where the
Board reasonably considers it appropriate or necessary to do so in order to
maintain the relative value of Convertible Notes and Shares.

     

    
      	
              13

            	
              Redemption

            

    

     

    
      	
               
      

            	
              (a)

            	
              Unless
      otherwise Converted by the Noteholder or the Company in accordance with
      Condition 5, the Company must redeem each Convertible Note on its Maturity
      Date (such redemption by the Company may only occur after 2pm AWST on the
      Maturity Date).

            

    

     

    
      	
               
      

            	
              (b)

            	
              Other
      than pursuant to Condition 13(a) above, Condition 16 below, Condition 17
      (a) (ix) below or as otherwise agreed by the Company and the Noteholder in
      writing, the Company may not redeem the Convertible
  Notes.

            

    

     

    
      	
               
      

            	
              (c)

            	
              Unless
      otherwise agreed by the Noteholder and the Company in writing, a
      Convertible Note is redeemed by the Company paying the Noteholder the Face
      Value of that Convertible Note, plus any accrued but unpaid interest, in
      Australian dollars by deposit into an account with an Australian bank or
      other financial institution nominated by the Noteholder or by cheque drawn
      in favour of the Noteholder and sent by pre-paid post to the address of
      the Noteholder recorded in the
Register.

            

    

     

    
      	
              14

            	
              Notices
      of, and Voting at, General Meetings

            

    

     

    
      	
               
      

            	
              (a)

            	
              Noteholders
      have the same right as holders of Shares to receive accounts, reports and
      notices of general meetings of the Company's shareholders and to attend
      those meetings.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Noteholders
      are not entitled to speak or vote at general meetings of the Company's
      shareholders except as provided for in the Corporations Act or the Listing
      Rules.

            

    

     

    
      	
               
      

            	
              (c)

            	
              If
      a Noteholder holds Shares, nothing in this Condition 14 will prevent the
      Noteholder from speaking or voting at general meetings of the Company's
      shareholders in its capacity as
shareholder.

            

    

     

    
      	
              15

            	
              Representations
      and Warranties

            

    

     

    The
Company represents and warrants for the benefit of each Noteholder as at the
Issue Date that other than as disclosed in writing to the
Noteholders:

     

    
      	
               
      

            	
              (a)

            	
              the
      Company is a corporation validly existing under the laws of the place of
      its incorporation;

            

    

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (b)

            	
              the
      Company has full power and authority to issue Convertible Notes on these
      Conditions;

            

    

     

    
      	
               
      

            	
              (c)

            	
              no
      event has occurred and is continuing which constitutes an Event of Default
      or which with lapse of time or notice of other conditions would become an
      Event of Default;

            

    

     

    
      	
               
      

            	
              (d)

            	
              to
      the best of the Company's knowledge, information and belief no litigation,
      arbitration, Tax claim, dispute or administrative or other proceeding is
      current or pending or to its knowledge, threatened, which if adversely
      determined is likely to have a Material Adverse
  Effect;

            

    

     

    
      	
               
      

            	
              (e)

            	
              the
      Company has the corporate power to enter into and perform its obligations
      under the Note Deed Poll, these Conditions, the Convertible Notes, the
      Placement Letter and any related document (the "Transaction Documents")
      and to carry out the transactions contemplated by the Transaction
      Documents;

            

    

     

    
      	
               
      

            	
              (f)

            	
              the
      Company has taken all necessary corporate action to authorise the entry
      into and performance of the Transaction Documents and to carry out the
      transactions contemplated by the Transaction
  Documents;

            

    

     

    
      	
               
      

            	
              (g)

            	
              neither
      the entry into nor performance by the Company of its obligations under the
      Transaction Documents nor any transaction contemplated under the
      Transaction Documents violates in any material respect any provision of
      any judgment binding on it, its constituent documents, any law or any
      document, agreement or other arrangement binding on it or its
      assets;

            

    

     

    
      	
               
      

            	
              (h)

            	
              as
      of the date hereof, the Company has the capital structure set out in
      Schedule 2;

            

    

     

    
      	
               
      

            	
              (i)

            	
              other
      than as set out in the prospectus released by the Company on March 31,
      2006 for its initial public offering, there is no obligation of the
      Company whether arising under any option or otherwise to issue any equity
      securities, shares, convertible notes, debentures or securities of any
      kind or nature whatsoever in the Company, and there are not agreements or
      arrangements that could call for the issue of, or grant to any person the
      right to call for the issue of, any shares or loan capital of the
      Company;

            

    

     

    
      	
               
      

            	
              (j)

            	
              upon
      the execution of the Transaction Documents by the Company and delivery of
      the same, the Transaction Documents will constitute the legal, valid and
      binding obligations of the Company enforceable against them in accordance
      with their respective terms;

            

    

     

    
      	
               
      

            	
              (k)

            	
              the
      issued capital of the Company was duly and validly authorized and issued
      and is fully paid, and was issued in accordance with all applicable
      securities laws, rules and regulations, or pursuant to valid exemptions
      therefrom;

            

    

     

    
      	
               
      

            	
              (l)

            	
              the
      Company does not have any current or foreseeable obligation to issue
      further Shares or other such securities in the Company at this
      time;

            

    

     

    
      	
               
      

            	
              (m)

            	
              the
      Company is not in violation or default of any provision of (i) its
      organizational documents, (ii) any judgment, order, writ, decree or
      material contract to which it is a party or by which it is bound, or (iii)
      any provision of any local or foreign statute, rule or regulation
      applicable to the Company.  Neither the Company nor its
      Subsidiaries has received any written notice from any Regulatory Authority
      that they have committed any criminal, illegal or unlawful act or any
      violation of or default with respect to any ordinance, statute,
      regulation, order, decree or judgment of any court or government agency of
      relevant jurisdiction which, if committed by them may have an adverse
      effect on the Company or its Subsidiaries;
and

            

    

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (n)

            	
              each
      of the Company and its Subsidiaries has all franchises, permits, licenses,
      and any similar authority necessary for the conduct of its respective
      business as now being conducted by it and the Company believes in good
      faith that the Company and its Subsidiaries can obtain any similar
      authority for the conduct of the business of each of the Company and its
      Subsidiaries as contained in releases to
ASX.

            

    

     

    
      	
              16

            	
              Events
      of Default and Early Repayment

            

    

     

    Each of
the following is an Event of Default (unless the Noteholder confirms otherwise
in writing):

     

    
      	
               
      

            	
              (a)

            	
              the
      Company fails to pay the Face Value or other amount when due pursuant to
      the terms of the Convertible Note Dr
otherwise;

            

    

     

    
      	
               
      

            	
              (b)

            	
              the
      Company fails to carry out any provision of these Conditions and the
      Company does not remedy that failure within 10 Business Days after the
      Noteholder gives written notice to the Company requiring it to be
      remedied;

            

    

     

    
      	
               
      

            	
              (c)

            	
              any
      representations or warranties contained in these Conditions are found to
      have been false or misleading in any material respect when
      made;

            

    

     

    
      	
               
      

            	
              (d)

            	
              there
      is an Insolvency Event with respect to the
  Company;

            

    

     

    
      	
               
      

            	
              (e)

            	
              the
      main business undertaking of the Company is sold or the Company is merged
      or consolidated with any other
entity;

            

    

     

    
      	
               
      

            	
              (f)

            	
              a
      final judgment or judgments for the payment of money aggregating in excess
      of $1,000,000 are rendered against the Company or any of its Subsidiaries
      and which judgments are not, within sixty (60) days after the entry
      thereof, bonded, discharged or stayed pending appeal, or are not
      discharged within sixty (60) days after the expiration of such stay;
      or

            

    

     

    
      	
               
      

            	
              (g)

            	
              the
      Company is removed from the Official List of
  ASX.

            

    

     

    If an
Event of Default occurs and is continuing, then in any such event, and at any
time thereafter, the Noteholder may by written notice to the Company require the
Company to immediately redeem the Convertible Notes in accordance with Condition
13(c).

     

    No such
written notice is required from the Noteholder upon the occurrence of an Event
of Default specified in Condition 16(d).

     

    
      	
              17

            	
              Covenants
      by the Company

            

    

     

    
      	
               
      

            	
              (a)

            	
              For
      so long as the Convertible Notes are outstanding, the Company
      must:

            

    

     

    
      	
               
      

            	
              (i)

            	
              comply
      with these Conditions;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              maintain
      its corporate existence;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              not
      amend its Constitution or alter the voting or other rights attached to
      Shares in a manner that is prejudicial to the interests of
      Noteholders;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              not
      do or omit to do anything that would preclude the issue of a valid
      Cleansing Notice on the date such notice is required to be issued under
      these Conditions;

            

    

     

    
      	
               
      

            	
              (v)

            	
              make
      disclosure of material information to the public as required by the ASX
      Listing Rules and the Corporations
Act;

            

      
        
           

        

        
          14

          
            

          

        

        
           

        

      
 

    
      	
               
      

            	
              (vi)

            	
              not
      incur a total debt obligation (including any unconverted Convertible Notes
      outstanding at any given time) of higher than 2.5x its net worth (being
      paid up equity plus any retained earnings) without the prior consent of at
      least 75% of Noteholders (on the basis of one vote for every Convertible
      Note held unconverted).

            

    

     

    
      	
               
      

            	
              (vii)

            	
              not
      issue more than 25% of the Company's share capital in options or
      convertible notes, without the prior consent of at least 75% of
      Noteholders (on the basis of one vote for every Convertible Note held at
      such time unconverted).

            

    

     

    
      	
               
      

            	
              (viii)

            	
              maintain
      the capacity to issue sufficient Shares to enable the conversion of all of
      the outstanding Convertible Notes into Shares in accordance with the
      Conditions.

            

    

     

    
      	
               
      

            	
              (ix)

            	
              ensure
      that in the event of either material asset sales or consolidation or
      merger or other business combination transactions, that the Noteholders be
      given at least 5 Business Days notice prior to the event and that the
      obligation on the notes are assumed by the surviving entity or acquiring
      entity such that the value of the Notes are not diminished by the
      event.  In any case given such an event the Noteholders can
      require the surviving or acquiring company to redeemed the Outstanding
      Notes for their Face Value plus any accrued but unpaid
      interest.

            

    

     

    
      	
              18

            	
              Certificates

            

    

     

    
      	
               
      

            	
              (a)

            	
              Upon
      the Conversion of a Convertible Note or the redemption of a Convertible
      Note by the Company, the Noteholder must deliver to the Company the
      Convertible Note Certificate and the Company shall cancel the Convertible
      Note Certificate.  If the Conversion or redemption relates only
      to some of the Convertible Notes described in a Convertible Note
      Certificate, the Company will issue a further Convertible Note Certificate
      to the Noteholder in respect of the Convertible Notes not Converted or
      redeemed.

            

    

     

    
      	
               
      

            	
              (b)

            	
              If
      a Convertible Note Certificate becomes worn out or defaced, on production
      and delivery of that Convertible Note Certificate to the Company, the
      Company will cancel it and issue a replacement Convertible Nate
      Certificate.

            

    

     

    
      	
               
      

            	
              (c)

            	
              If
      a Convertible Note Certificate is lost or destroyed, then subject to the
      Noteholder providing proof of that toss or destruction and an indemnity
      satisfactory to the Company (at its expense), the Company will give a new
      Convertible Note Certificate to the person entitled to that lost or
      destroyed Convertible Note
Certificate.

            

    

     

    
      	
              19

            	
              Register

            

    

     

    
      	
               
      

            	
              (a)

            	
              The
      Company must establish and maintain (or cause to be established and
      maintained) a register of Noteholders that
  records:

            

    

     

    
      	
               
      

            	
              (i)

            	
              the
      names and addresses of all
Noteholders;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              the
      number of Convertible Notes held by the
  Noteholder;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              the
      Face Value for each Convertible
Note;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              the
      date of issue or transfer of the Convertible
  Notes;

            

    

     

    
      	
               
      

            	
              (v)

            	
              details
      of any redemption or Conversion of the Convertible Notes;
    and

            

      
        
           

        

        
          15

          
            

          

        

        
           

        

      
 

    
      	
               
      

            	
              (vi)

            	
              any
      other information the Company considers necessary or
      desirable.

            

    

     

    
      	
               
      

            	
              (b)

            	
              A
      Noteholder must give the Company notice in writing of any change of name
      or address or other details, provided that failure to give such notice
      shall not affect any of the Company's obligations under the Convertible
      Notes but provided further that in this event the Company shall be
      entitled to rely on the change of name or address or other details
      previously provided in accordance with this clause.  Notice of
      change of name or address must be accompanied by such evidence as the
      Company reasonably requires.  On receipt of the notice, the
      Company must alter the register of Noteholders
  accordingly.

            

    

     

    
      	
               
      

            	
              (c)

            	
              The
      register of Noteholders maintained under this Condition, in the absence of
      manifest error, is conclusive of the details set out in Condition
      19(a).

            

    

     

    
      	
               
      

            	
              (d)

            	
              No
      notice of any trust or other interest in any Convertible Note will be
      entered in the Register and the Company will not be obliged to take notice
      of any other interest or claim to a Convertible Note, other than as
      provided in the Register, except as ordered by a court of competent
      jurisdiction or as required by law.

            

    

     

    
      	
              20

            	
              Amendment

            

    

     

    Subject
to complying with the Corporations Act and the Listing Rules, the Company may
without the consent or approval of Noteholders amend or add to these Conditions
if such amendment or addition is, in the reasonable opinion of the
Board:

     

    
      	
               
      

            	
              (a)

            	
              of
      a formal, minor or technical
nature;

            

    

     

    
      	
               
      

            	
              (b)

            	
              made
      to correct a manifest error; or

            

    

     

    
      	
               
      

            	
              (c)

            	
              not
      likely (taken as a whole with all other amendments or additions) to be
      disadvantageous or prejudicial to any individual Noteholder (relative to
      each other Noteholder) or to the interest of Noteholders as a
      whole.

            

    

     

    
      	
              21

            	
              Notices

            

    

     

    
      	
               
      

            	
              (a)

            	
              Any
      notice, demand, consent or other communication to be made or given under
      these Conditions must be in writing and signed by a person duly authorised
      by the party giving it and shall be served either by delivery, by
      facsimile, by email or by pre-paid courier to the address of the party as
      specified in Condition 21 (c) or at such substituted address as may be
      advised by notice in writing from time to
time.

            

    

     

    
      	
               
      

            	
              (b)

            	
              All
      notices shall be deemed to be given when sent
  by:

            

    

     

    
      	
               
      

            	
              (i)

            	
              pre-paid
      courier or delivered in person, when
delivered;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              pre-paid
      post, 2 Business Days after the date of posting (if posted to an address
      in the same country) or 7 Business Days after the date of posting (if
      posted to an address in another country);
and

            

    

     

    
      	
               
      

            	
              (iii)

            	
              facsimile
      or email, on receipt by the
recipient,

            

    

     

    provided
that a notice deemed to be given on a day other than a Business Day or at a time
later than 4.00pm in the place at which the notice is given, will be deemed to
have been given at the commencement of business on the next Business Day in that
place.

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (c)

            	
              Notice
      under these Conditions must be given as
follows:

            

    

     

    
      	
               
      

            	
              (i)

            	
              Company

            

    

    Mission
Biofuels Limited

    Attention:
Mr Peter Williams Company Secretary

    Level 8,
50 St Georges Terrace

    PERTH WA
6000

    Fax: +61
(08) 9218 9100

    Email:
peterwilliams@missionbiofuels.com

     

    
      	
               
      

            	
              (ii)

            	
              Noteholder

            

    

     

    The
address, fax number or email address set out in the Register.

     

    
      	
              22

            	
              Obligations
      of Noteholders

            

    

     

    Each
Convertible Note is issued on the condition that each Noteholder is bound by and
complies with the terms and conditions of the Note Deed Poll and these
Conditions.

     

    
      	
              23

            	
              Miscellaneous

            

    

     

    
      	
               
      

            	
              (a)

            	
              In
      these Conditions:

            

    

     

    
      	
               
      

            	
              (i)

            	
              reference
      to money or $ is to Australian dollars, unless otherwise
      stated;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              the
      singular includes the plural and the plural includes the
      singular;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              the
      use of one gender shall include all other
  genders;

            

    

     

    
      	
               
      

            	
              (iv)

            	
              representations,
      agreements, covenants, obligations or warranties, by more than one person
      shall include those persons jointly and each of them
      severally;

            

    

     

    
      	
               
      

            	
              (v)

            	
              a
      party includes the party's executors, administrators, successors and
      permitted assigns

            

    

     

    
      	
               
      

            	
              (vi)

            	
              a
      person includes a body corporate;

            

    

     

    
      	
               
      

            	
              (vii)

            	
              a
      statute, regulation or provision of a statute or regulation (Statutory Provision)
      includes:

            

    

     

    
      	
               
      

            	
              (A)

            	
              that
      Statutory Provision as amended or re-enacted from time to time;
      and

            

    

     

    
      	
               
      

            	
              (B)

            	
              a
      statute, regulation or provision enacted in replacement of that Statutory
      Provision;

            

    

     

    
      	
               
      

            	
              (viii)

            	
              "including"
      and similar expressions are not words of
  limitation;

            

    

     

    
      	
               
      

            	
              (ix)

            	
              where
      a word or expression is given a particular meaning, other parts of speech
      and grammatical forms of that word or expression have a corresponding
      meaning; and

            

    

     

    
      	
               
      

            	
              (x)

            	
              headings
      are for convenience only and do not form part of these Conditions or
      affect their interpretation.

            

    

     

    
      	
               
      

            	
              (b)

            	
              The
      law of Western Australia governs these Conditions and the parties submit
      to the jurisdiction of the courts of Western Australia and the Federal
      Court of Australia.

            

    

     

    
      	
               
      

            	
              (c)

            	
              If
      anything in these Conditions is unenforceable, illegal or void then it is
      severed and the rest of these Conditions remains in
  force.

            

    

     

    
      	
               
      

            	
              (d)

            	
              If
      an act must be done on a specified day which is not a Business Day, it
      must be done instead on the next Business
Day.

            

    

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (e)

            	
              A
      provision of these Conditions must not be construed to the disadvantage of
      a party merely because that party was responsible for the preparation of
      these Conditions or the inclusion of the provision in these
      Conditions.

            

    

     

    
      	
               
      

            	
              (f)

            	
              These
      Conditions incorporate the entire understanding of the parties and
      supersede all previous arrangements and understandings, written and oral,
      between the parties in relation to these Conditions and the Convertible
      Notes.

            

    

     

    
      	
               
      

            	
              (g)

            	
              The
      Company shall bear the legal costs in connection with the preparation,
      registration and stamping of all documentation relating to the Convertible
      Notes.  However, the Company will not be responsible for, or
      bear, any Taxes that the Noteholder becomes liable for in respect of
      Convertible Notes or these Conditions or any legal costs incurred by the
      Noteholder with respect to obtaining advice on or negotiating and entering
      into the Transaction Documents.

            

    

     

    
      	
               
      

            	
              (h)

            	
              Notwithstanding
      Condition 23(g), the Company will not be responsible for any stamp duties
      or similar Taxes payable in any jurisdiction in connection with any
      transfer, assignment or other dealing by a Noteholder in respect of its
      Convertible Notes.

            

    

     

    
      	
               
      

            	
              (i)

            	
              The
      Company may deduct any amount in respect of Tax it is required to deduct
      from any payment due to a Noteholder under these
    Conditions.

            

    

     

    
      	
               
      

            	
              (j)

            	
              Where
      a calculation is required under these Conditions, the calculation will be
      performed to 4 decimal places and will be, in the absence of manifest
      error, final and binding on the Company and each
    Noteholder.

            

    

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    Schedule
1 - Conversion Notice

     

    Notice
of conversion or redemption of CRP Note 

      

    

     

    
      
        	
                To:

              	
                Mission
      Biofuels Limited ACN 117 065
719

              

      

    

    ("Company")

     

    [Insert name of
Noteholder] ("Noteholder"), gives notice in
accordance with Condition 5(a) of the Conditions of Issue of Convertible Notes
to convert [insert number of
Convertible Notes to be converted] Convertible Notes held by it into
Shares.

     

    The
Noteholder applies for such number of Shares in the capital of the Company as is
equal to the number of ordinary shares that the Noteholder is entitled to upon
conversion, as calculated in accordance with Condition 5(c) of the Conditions of
Issue of Convertible Notes.

     

    The
Noteholder agrees to accept the Shares issued to it subject to the Constitution
and the restrictions on transfer set out in Condition 7 of the Conditions of
Issue of Convertible Notes.

     

    Words
used in this notice have the same meaning as in the Conditions of Issue of
Convertible Notes.

     

    Execution
by individual:

     

    Signed by
[insert
name] in the

    presence
of:

     

    
      
        
          
            
              
                	 
      	 
      	 
      
	
                        Signature
      of witness

                      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                        Name
      of witness (BLOCK LETTERS)

                      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      
	
                        Address
      of witness

                      	 
      	 
      

              

            

          

        

      

    

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    Schedule
2 - Company's Capital Structure and Options 

      
  

    Mission Biofuels
Limited

    Capital
Structure

     

    
      
        
          
            
              
                
                  
                    	
                            Securities

                          	 	 	 
	
                            Ordinary
      Fully Paid

                          	 	 	46,940,000	 
	
                            Ordinary
      Fully Paid – Restricted

                          	 	 	44,060,000	 
	 
      	 	 	91,000,000	 
	 
      	 	 	 	 
	
                            Performance
      Fully Paid – Restricted

                          	 	 	14,000,000	 
	 
      	 	 	 	 
	
                            Options
      Expiring 31 January 2009

                          	 	 	5,250,000	 
	
                            Options
      Expiring 28 February 2009

                          	 	 	500,000	 
	 
      	 	 	5,750,000	 

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
        20

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