SERIES B CONVERTIBLE PREFERRED STOCK SECURITIES PURCHASE AGREEMENT

Table of Contents

Exhibits

List of Schedules

THIS SERIES B CONVERTIBLE PREFERRED STOCK SECURITIES PURCHASE AGREEMENT (this “ Agreement ”), dated as of April 30, 2009, is entered into by and between China New Energy Group Company, a Delaware corporation (the “ Company ”), China Hand Fund I, LLC, a limited liability company organized and existing under the laws of the State of Delaware (“ China Hand ”, together with its successors and assigns, the “ Purchaser ”, together with the Company, each a “ Party ” and collectively the “Parties ”). Certain capitalized terms used in this Agreement are defined in Exhibit A attached hereto.

WHEREAS, the Company consummated a private financing transaction pursuant to a  Series A Convertible Preferred Stock Securities Purchase Agreement, dated as of August 8, 2008, by and between the Company and China Hand (the “ Series A Securities Purchase Agreement ”), pursuant to which the Company issued and sold to the purchaser thereunder, for an aggregate purchase price of $9,000,000, 1,857,373 shares of Series A Convertible Preferred Stock of the Company, par value $0.001 per share having the rights, preferences and designations as set forth in the Certificate of Designations of Preferences, Rights and Limitations of Series A Convertible Preferred Stock dated as of August 20, 2008 (the “ Series A Certificate ”) and warrants to purchase 13,001,608 shares of its common stock, par value $0.001 per share, at an initial exercise price of $0.187 per share (subject to adjustments) for a period of five (5) years following the date of their issuance (the Series A Securities Purchase Agreement, together with the other transaction documents contemplated under the Series A Securities Purchase Agreement that the Company entered into with China Hand and such other parties signatories thereto in connection with the consummation of the transactions contemplated under the Series A Securities Purchase Agreement are collectively referred to as “ Series A Financing Transaction Documents ”; and the transactions contemplated under the Series A Transaction Documents, the “ Series A Financing ”.)

WHEREAS, Series A Financing contemplated an additional investment in the Company by Purchaser in the amount of $5,400,000; and

WHEREAS, the Company desires to issue and sell to Purchaser, and Purchaser desires to acquire, the securities specified herein, all on the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows:

1.1            Authorization .  The Company, on or prior to the Closing, shall have authorized the issuance and sale of, in one or a series of transactions and closings, pursuant to the terms and conditions provided herein, (i) an aggregate of up to 1,479,213 shares of its Series B Convertible Preferred Stock, par value $.001 per share (“ Series B Preferred Stock ”), having the rights, restrictions, privileges and preferences set forth in the Certificate of Designations of Preferences, Rights and Limitations of Series B Convertible Preferred Stock attached hereto as Exhibit B (the “ Series B Certificate ”), and (ii) warrants to purchase 11,722,077 shares of its common stock, par value $.001 per share (“ Common Stock ”) at an initial exercise price of $0.187 per share (subject to adjustments) for a period of five (5) years following the date of their issuance, substantially in the form attached hereto as Exhibit C including warrants issued hereunder and warrants to be issued to the placement agent in connection with the transactions contemplated hereunder substantially in the form attached hereto as Exhibit C .  The Series B Certificate has been, or prior to the Closing shall have been, adopted by the Company’s Board of Directors (the “ Board of Directors ”) and filed with the Delaware Secretary of State.

1.2                  Issuance and Sale of Shares and Warrants .  On the terms and subject to the conditions contained in this Agreement, and in reliance on the representations and warranties set forth in Article IV of this Agreement, at the Closing, the Company will issue and sell to Purchaser, and Purchaser will purchase from the Company, 1,116,388 shares of Series B Preferred Stock (together with Make Good Escrow Shares (as defined below) and Listing Shares (as defined below), collectively, “ Series B Shares ”) and warrants to purchase 7,814,719 shares of its Common Stock at an initial exercise price of $0.187 per share (subject to adjustments) for a period of five (5) years following the date of their issuance, substantially in the form attached hereto as Exhibit C (the “ Warrants ”; shares of common stock issuable upon exercise of the Warrants, the “ Warrant Shares ”) for an aggregate purchase price of Five Million Four Hundred Thousand U.S. Dollars ($5,400,000) (the “ Purchase Price ”).

1.3                  Payment of the Purchase Price   At the Closing, Purchaser shall pay the Purchase Price in immediately available funds by wire transfer to the Company Account.

1.4                  Stockholder Rights .  The Series B Purchaser shall have the rights specified in the (i) Series B Certificate, (ii) the Amended and Restated Registration Rights Agreement, dated as of the date hereof, by and between the Company and Purchaser, substantially in the form attached as Exhibit D hereto (the “ Amended and Restated Registration Rights Agreement ”), (iii) the Series B Securities Escrow Agreement, dated as of the date hereof, by and between the Company and China Hand, substantially in the form attached as Exhibit E hereto (the “ Series B Securities Escrow Agreement ”), and (iv) the Closing Escrow Agreement by and among the Company and Purchaser, substantially in the form attached hereto as Exhibit F hereto (the “ Closing Escrow Agreement ”, and together with this Agreement, the Series B Certificate, the Amended and Restated Registration Rights Agreement, the Series B Preferred Escrow Agreement and the certificates, documents and instrument related to or contemplated by each of the foregoing agreements, each a “ Transaction Document ” and collectively, the “ Transaction Documents ”), each of which shall be executed and delivered by the parties hereto and thereto as of the Closing.

2.1                  The Closing .  The Closing shall take place at such time, date and place as are mutually agreeable to by the Company and Purchaser.  The date of the Closing is hereinafter referred to as the “ Closing Date ”.

2.2                  Deliveries at the Closing .  At or prior to the Closing:

(a)           the Company will deliver to Purchaser:

(i)           An executed Agreement with all exhibits and schedules attached hereto;

(ii)           The certificates (in such denominations as Purchaser shall request) for the Series B Preferred Stock and the Warrants (in such denominations as Purchaser shall request);

(iii)           A copy of the Series B Certificate, filed with the Delaware Secretary of State, as amended and in effect as of the Closing Date;

(iv)           Consent of the holders of Series A Preferred Stock representing all of the shares of Series A Preferred Stock outstanding as of the date of the Series B Certificate;

(v)           Certificates, as of the most recent practicable dates, (A) as to the corporate good standing of the Company issued by the relevant office of the Company’s jurisdiction of incorporation, and (B) as to the due qualification of the Company as a foreign corporation issued by the relevant office of each jurisdiction in which the Company is required to obtain such qualification;

(vi)           A certificate of the Company’s Secretary, dated as of the Closing Date, attesting to and attaching copies of (A) the Certificate of Incorporation of the Company, as amended (B) Series A and Series B Certificates, (C) the By-laws of the Company, as amended, each in effect as of the date of the Closing Date; and (D) the resolutions of the Board of Directors of the Company, authorizing and approving all matters in connection with this Agreement, each of the other Transaction Documents and the transactions contemplated hereby and thereby, including without limitation the filing of the Certificates with the Delaware Secretary of State;

(vii)           A certificate of an executive officer of the Company, dated as of the Closing Date, attesting to the fact that the conditions set forth in Section 3.1(d) have been satisfied;

(viii)          Each of the other Transaction Documents to which the Company is a party duly executed by the Company;

(ix)           An opinion from the Company’s legal counsel, Pillsbury Winthrop Shaw Pittman LLP, concerning this Agreement and other Transaction Documents and the transactions contemplated hereby and thereby that is reasonably satisfactory to Purchaser;

(x)           An opinion from the Company’s legal counsel, Binda Law Firm concerning the Company’s Subsidiaries in the People’s Republic of China (the “ PRC ”) and the compliance status of the Company and certain of its shareholders under the Laws of the PRC upon consummation of the transactions contemplated hereunder and under the other Transaction Documents that is reasonably satisfactory to Purchaser;

(xi)           Executed disbursement instructions pursuant to the Closing Escrow Agreement;

(xii)           Copies of (i) all executive employment agreements which have not been disclosed in the Company’s Form 10-K for the fiscal year ended  December 31, 2008  (the “ 10-K ”), (ii) all past and present financing documents or other documents where stock could potentially be issued or issued as payment, (iii) all past and present material litigation documents which have not been disclosed in the 10-K;  such other supporting documents and certificates as Purchaser may reasonably request or as may be required pursuant to this Agreement or any Transaction Documents.

(b)           Purchaser will deliver to the Company the Purchase Price, by wire transfer to the Company Account, an executed copy of this Agreement and each of the other Transaction Documents to which the Purchaser is a party.

3.1                  Conditions to Obligation of Purchaser .  The obligation of Purchaser to purchase the Series B Shares and the Warrants is subject to the fulfillment, on or prior to the Closing Date, of the following conditions, any of which may be waived by Purchaser in its sole discretion:

(a)            Deliveries at the Closing .  Each of the documents and other items set forth in Section 2.2(a) shall have been delivered to Purchaser.

(b)            Series B Certificate . The Series B Certificate in the form of Exhibit B attached hereto shall have been filed with the Secretary of State of Delaware.

(c)            Escrow Shares.   The Company shall have caused the transfer agent of the Company to issue and deliver the Make Good Escrow Shares and the Listing Shares to the escrow agent under the Series B Securities Escrow Agreement to be held in escrow pursuant to Sections 6.16 and 6.18 hereof and the terms and conditions of the Series B Securities Escrow Agreement.

(d)            Representations and Warranties .  The representations and warranties made by the Company on behalf of itself and its Subsidiaries in Article IV hereof shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date, with the same effect as though made as of the Closing Date, except that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date.

(e)            Performance of Obligations .  The Company shall have performed in all material respects all obligations, covenants and agreements herein required to be performed by it on or prior to the Closing.

(f)            No Material Adverse Change/Material Adverse Effect .   There shall not have been any Material Adverse Effect, as determined by Purchaser in its sole discretion, and no event shall have occurred that could reasonably be expected to have a Material Adverse Effect.  The Company and its Subsidiaries shall have conducted their business and operations in the ordinary course of business consistent with past practice since December 31, 2008.

(g)            Consents and Waivers .  The Company shall have made all filings with and notifications of Governmental Authorities required to be made in connection with the execution and delivery of this Agreement and each other Transaction Documents and the performance of the transactions contemplated hereby and thereby.  The Company and Purchaser shall have received all authorizations, waivers, consents and permits, in form and substance reasonably satisfactory to Purchaser, including without limitation any necessary waivers with regard to the change of control triggers or grant of options for Preferred Stock set out in the Company’s employment agreements and any other notices, consents and waivers required from all third parties (whether or not set forth on Section 4.4(a) of the Disclosure Schedules), including without limitation applicable Governmental Authorities, lessors, lenders, employees and contract parties, required to permit the consummation of the transactions contemplated by this Agreement and each of the other Transaction Documents, and to avoid a breach, default, termination, acceleration or modification of any indenture, loan or credit agreement or any other material agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award, as a result of, or in connection with, the execution and performance of this Agreement and each of the other Transaction Documents.

(h)            Proceedings Satisfactory .  All corporate and other proceedings taken prior to or at the Closing in connection with the transactions contemplated by this Agreement and each of the other Transaction Documents, and all documents and instruments related thereto, shall be in form and substance reasonably satisfactory to Purchaser and its counsel, and the issuance and sale of the Securities hereunder shall be made in compliance with all applicable federal and state laws.

(i)            No Violation or Injunction .  No action or proceeding by or before any court or other Governmental Authority shall have been instituted or threatened by any Person or Governmental Authority whatsoever which shall seek to restrain, prohibit or invalidate the transactions contemplated by this Agreement and each of the other Transaction Documents, or which might affect the right of the Company to issue and sell the Securities to Purchaser.

(j)            Payment of Fees and Expenses .   The Company shall have paid all of Purchaser’s reasonable legal fees and related expenses with respect to the transactions contemplated by this Agreement and each of the other Transaction Documents, up to US$100,000.

(k)            No Suspension, Etc.   Quotation of the Common Stock shall not have been suspended by the Commission or the OTC Bulletin Board (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing), and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg Financial Markets (“ Bloomberg ”) shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by Bloomberg, or on the New York Stock Exchange, nor shall a banking moratorium have been declared either by the United States or New York State authorities, nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity or crisis of such magnitude in its effect on, or any material adverse change in any financial market which, in each case, in the judgment of Purchaser, makes it impracticable or inadvisable to purchase the Series B Shares.

(l)           The Company shall have filed all forms, reports and documents set forth on Section 4.24 of the Disclosure Schedules so that the Company is current in its reporting obligations under the Securities Act and the Exchange Act, and the rules and regulations of the Commission thereunder.

3.2                  Conditions to Obligations of the Company   The Company's obligation to issue and sell the Series B Shares and the Warrants to Purchaser at the Closing is subject to the fulfillment on or prior to the Closing Date of the following conditions, any of which may be waived by the Company in its sole discretion:

(a)            Payment of Purchase Price .  Purchaser shall have delivered to the Company the Purchase Price as set forth in Section 2.2(b).

(b)            Representations and Warranties .  The representations and warranties made by Purchaser in Article V hereof shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date, with the same effect as though made as of the Closing Date, except that the accuracy of representations and warranties that by their terms speak as of a specified date will be determined as of such date.

(c)            Transaction Documents .  Purchaser shall have executed and delivered each of the other Transaction Documents to which it is a party, in each case in form and substance satisfactory to the Company.

(d)            Proceedings Satisfactory .  All corporate and other proceedings taken prior to or at the Closing in connection with the transactions contemplated by this Agreement and each of the other Transaction Documents, and all documents and instruments related thereto, shall be in form and substance reasonably satisfactory to the Company and its counsel, and the issuance and sale of the Series B Shares and the Warrants hereunder shall be made in compliance with all applicable federal and state laws.

(e)            No Violation or Injunction .  No action or proceeding by or before any court or other Governmental Authority shall have been instituted or threatened by any Person or Governmental Authority whatsoever which shall seek to restrain, prohibit or invalidate the transactions contemplated by this Agreement and each of the other Transaction Documents, or which might affect the right of the Company to issue and sell the Securities to Purchaser.

In order to induce Purchaser to enter into this Agreement and consummate the transactions contemplated hereby, the Company hereby makes to Purchaser the representations and warranties contained in this Article IV on behalf of itself and, where applicable, its Subsidiaries.  Such representations and warranties are subject to the qualifications and exceptions set forth in the corresponding Section of the Disclosure Schedules, attached hereto as Exhibit G and delivered to Purchaser pursuant to this Agreement.  The Disclosure Schedules make explicit reference to the particular representation or warranty (or Section of a representation or warranty) as to which exception is taken.

4.1                  Organization and Good Standing .  The Company (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and (b) is duly qualified or registered to do business as a foreign corporation in each jurisdiction (i) listed on Section 4.1 of the Disclosure Schedules and (ii) except where the failure to be so qualified or licensed would not reasonably be expected to result in a Material Adverse Effect.  The Company has provided to Purchaser complete and accurate copies of the Certificate of Incorporation, as amended, and By-laws, as amended, of the Company.

4.2                  Capital Structure; Outstanding Capital Stock .  As of the Closing and after giving effect to the transactions contemplated hereby, the authorized capital stock of the Company will consist of the following shares and other rights and securities:

(i)            Preferred Stock .  A total of 10,000,000 authorized shares of Preferred Stock (“ Preferred Stock ”), (i) of which 5,500,000 shares are designated as Series A Preferred Stock, par value $0.001 per share, 2,461,018 of which Series A Preferred Stock are issued and outstanding and (ii) of which 2,000,000 shares will be designated as Series B Preferred Stock, of which 1,479,213 shares (including 2009 Make Good Escrow Shares and Listing Shares) will be issued and outstanding, immediately following the consummation of the transactions contemplated hereby.

(ii)            Common Stock .  A total of 500,000,000 authorized shares of Common Stock, par value $0.001 per share, of which 100,000,041 shares will be issued and outstanding and 63,494,532 shares will be reserved for issuance of Warrant Shares and Conversion Shares following the consummation of the transactions contemplated hereby.

(b)            Options, Warrants, Reserved Shares, Treasury Stock .  Except as set forth on Section 4.2(b) of the Disclosure Schedules, there are no outstanding subscriptions, options, warrants, agreements, arrangements, commitments or rights of any kind (including conversion rights) for or relating to the issuance by, or purchase or acquisition from, the Company of any shares of the Company's capital stock or any securities convertible into or ultimately exchangeable or exercisable for any shares of the Company's capital stock, or other similar rights, including stock appreciation and phantom stock rights, nor is the Company obligated in any manner to issue any shares of its capital stock or other securities.  Except pursuant to this Agreement, a Transaction Document, or a Series A Financing Transaction Document, the Company has no obligation to purchase, redeem or otherwise acquire any of its capital stock or any securities convertible into or ultimately exchangeable or exercisable for any shares of the Company’s capital stock, or other similar rights.  As of the Closing, except as set forth on Section 4.2(b) of the Disclosure Schedules or as permitted by a Series A Financing Transaction Document, there are (A) no preemptive rights, rights of first refusal, put or call rights or obligations or antidilution rights with respect to the issuance, sale or redemption of the Company’s capital stock, (B) no rights to have the Company’s capital stock registered for sale to the public in connection with the laws of any jurisdiction, (C) no documents, instruments or agreements relating to the voting of the Company’s voting securities or restrictions on the transfer of the Company’s capital stock, or (D) no agreements, documents or commitments (written or oral) of the Company providing for the acceleration of vesting (or lapse of a repurchase right) upon the occurrence of any event with respect to any outstanding securities, options, warrants or other purchase rights.  The Company holds no shares of its capital stock in its treasury.

(c)            Security Holders .   Section 4.2(c) of the Disclosure Schedules contains a complete and accurate list of the names of all current stockholders of the Company and all current holders of outstanding warrants, options, or other rights ultimately exchangeable, exercisable or convertible for or into capital stock, segregated by the type of security held by each such holder, the amount of such security held by such holder, the exercise price, if any, for such security, and in the case of securities exchangeable, exercisable or convertible into Common Stock, the amount of Common Stock into which such securities are exchangeable, exercisable or convertible.

(d)            Compliance with Securities Laws .  As of the Closing and after giving effect to the transactions contemplated hereby, all of the issued and outstanding securities of the Company will have been duly and validly authorized and issued, and will be fully paid and non-assessable, free and clear of all Liens (other than restrictions under any Transaction Documents, any Series A Financing Transaction Document, or applicable federal and state securities laws), and will have been offered, issued, sold and delivered in compliance with applicable federal, state and foreign securities laws and not subject to any preemptive rights which have not been waived.

4.3                  Power, Authorization and Validity .  The Company has the corporate power, legal capacity and corporate authority to carry on its business as presently conducted, to enter into and perform its obligations under this Agreement and each of the other Transaction Documents to which it is a party, and to carry out the transactions contemplated hereby and thereby, and to issue, sell and deliver the Securities.

(a)           The execution, delivery and performance by the Company of this Agreement and each of the other Transaction Documents to which it is a party, the sale, issuance and delivery of the Securities, have been duly and validly approved and authorized by all necessary corporate action on the part of the Company and its shareholders, if necessary.

(b)           This Agreement and each of the other Transaction Documents to which it is a party have been duly executed and delivered by the Company and, assuming due execution and delivery by the other parties thereto, constitute or will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or similar laws affecting creditors’ rights generally and general principles of equity.

4.4                  Noncontravention .  The execution and delivery by the Company of this Agreement and each of the other Transaction Documents to which it is a party, the consummation by the Company of the transactions contemplated hereby and thereby, the performance by the Company of its obligations hereunder and thereunder, and the sale, issuance and delivery of the Securities, do not and will not conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time or both) under, or give rise to a right of, or result in, termination, cancellation or acceleration of any obligation or to a loss of a material benefit under, or result in the creation of any Lien in or upon any of the properties or assets of the Company or its Subsidiaries under, or give rise to any increased, additional, accelerated or guaranteed rights or entitlements under, any provision of (i) the Company’s Certificate of Incorporation, as amended, and as in effect on the date hereof, or the Bylaws, as amended, and as in effect on the date hereof, of the Company, (ii) except as set forth in Section 4.4 of the Disclosure Schedules, any agreement to which the Company or any Subsidiary is a party or otherwise bound or otherwise under which the Company or any Subsidiary has rights or benefits, or (iii) any Law or Order; in each case applicable to the Company, its Subsidiaries or any of their properties or assets; except, in the case of clauses (ii) and (iii) above where any such conflict, violation, breach, default, right of termination, cancellation or acceleration, creation of Lien, or increased, additional, accelerated or guaranteed rights or entitlements, would not result in a Material Adverse Effect.

(a)           No consent, approval, order or authorization of, registration, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to the Company in connection with the execution and delivery by the Company of this Agreement and each of the other Transaction Documents, the consummation by the Company of the transactions contemplated hereby and thereby, or the performance by the Company of its obligations hereunder and thereunder, or the sale, issuance and delivery of the Securities, except for such consents, approvals, orders, authorizations, registrations, declarations, filings and notices set forth in Section 4.4(a) of the Disclosure Schedules.

4.5                  Title to Personal Property and Assets. The Company or one of its Subsidiaries is the true and lawful owner and has good and valid title to all assets (tangible or intangible) reflected on the audited consolidated balance sheet of the Company included in the Annual Report on Form 10-K for fiscal year ended December 31, 2008 (the “ Balance Sheet ”, and the date of the Balance Sheet, the “ Balance Sheet Date ”) or thereafter acquired, except those sold or otherwise disposed of for fair value in the ordinary course of business consistent with past practice since the Balance Sheet Date, in each case free and clear of all Liens other than Permitted Liens; and except where the failure to have good and valid title would not result in a Material Adverse Effect.

(b)           The Company and its Subsidiaries collectively own or lease all tangible assets sufficient for the conduct of its businesses as presently conducted.  Each tangible asset of the Company or any of its Subsidiaries is located at one of the Owned Real Properties or Leased Properties.  The tangible assets of the Company and its Subsidiaries are free from material defects, have been maintained in accordance with the past practice of the Company and generally accepted industry practice, are in satisfactory working order and are suitable for the purposes for which they are presently used.  All material leased personal property of the Company and its Subsidiaries is in good working order, ordinary wear and tear excepted, and is in all material respects in the condition required of such property by the terms of the lease applicable thereto.

4.6                  Subsidiaries.    (a) Section 4.6(a) of the Disclosure Schedules sets forth, with respect to each Subsidiary of the Company: (i) the name of such Subsidiary, (ii) the number and type of outstanding capital stock or other voting or equity interests of such Subsidiary, (iii) the jurisdiction of organization of such Subsidiary, and (iv) the jurisdiction in which such Subsidiary is qualified or holds licenses to do business as a foreign corporation or other entity.

(b)           Each Subsidiary of the Company (i) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) has all requisite power and authority to carry on its business as now being conducted and as proposed to be conducted, and (iii) except where failure to be so qualified or licensed would not reasonably be expected to result in a Material Adverse Effect, is duly qualified or licensed to do business, and (iv) is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, which jurisdictions are listed in Section 4.6(a) of the Disclosure Schedules.  The Company has provided to Purchaser complete and accurate copies of the certificate of incorporation, as amended, and Bylaws, as amended (or other similar organizational documents) of each Subsidiary.

(c)           Except as set forth in Section 4.6(c) of the Disclosure Schedules, neither the Company nor any of its Subsidiaries has any written agreement in respect of any strategic partnership, joint venture, cooperation arrangement or other similar relationship providing for joint development efforts, nor does the Company or a Subsidiary have any direct or indirect interest in or control over any corporation, partnership, joint venture or other entity of any kind.  The term “ control ” for purposes of this Section 4.6 shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

4.7                  Financial Statements;  GAAP Treatment of Financial Statements .

(a) The financial statements of the Company included in the SEC Documents (as defined below) (the “ Financial Statements ”) comply as to form and substance in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles (“ GAAP ”) consistently applied during the periods covered thereby, and fairly present in all material respects the financial position of the Company and its Subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments.

4.8                  No Other Liabilities; Reserves.   To the Knowledge of the Company, the Company and its Subsidiaries have no debts, liabilities, or obligations in a material amount, either individually or in the aggregate, of any nature, whether accrued, absolute, contingent, or otherwise, and whether due or to become due, that are not reflected or reserved against in the Financial Statements, which are required to be disclosed or which would cause a Material Adverse Change.  To the Knowledge of the Company, the reserves, if any, reflected on the Financial Statements, are adequate in light of the contingencies with respect to which they are made.  There has been no material change in the Company's accounting policies except as described in the notes to the Financial Statements.

4.9                  Absence of Certain Changes and Events .  Since the Balance Sheet Date, except as contemplated herein, in the other Transaction Documents, in any Series A Financing Transaction Document, or as set forth on Section 4.9 of the Disclosure Schedules, the Company and its Subsidiaries have not:

(a)           to the Knowledge of the Company, suffered any Material Adverse Change;

(b)           suffered any damage, destruction or loss, whether or not covered by insurance, in an amount in excess of $100,000;

(c)           granted or agreed to make any increase in the compensation payable or to become payable by the Company or a Subsidiary to any officer or employee, except for normal raises for nonexecutive personnel made in the ordinary course of business that are usual and normal in amount;

(d)           declared, set aside or paid any dividend or made any other distribution on or in respect of the shares of capital stock of the Company or a Subsidiary, or declared or agreed to any direct or indirect redemption, retirement, purchase or other acquisition by the Company or a Subsidiary of such shares;

(e)           issued any shares of capital stock of the Company or a Subsidiary, or any warrants, rights or options thereof, or entered into any commitment relating to the shares of capital stock of the Company or a Subsidiary;

(f)           adopted or proposed the adoption of any change in the Company’s Certificate of Incorporation or Bylaws;

(g)           made any change in the accounting methods or practices they follow, whether for general financial or Tax purposes, or any change in depreciation or amortization policies or rates adopted therein, or any Tax election;

(h)           sold, leased, abandoned or otherwise disposed of any real property or any machinery, equipment or other operating property other than in the ordinary course of their business;

(i)            sold, assigned, transferred, licensed or otherwise disposed of any Company Intellectual Property or interest thereunder or other intangible asset except in the ordinary course of their business;

(j)            been involved in any dispute involving any employee which would reasonably be expected to result in a Material Adverse Change;

(k)           entered into, terminated or modified any employment, severance, termination or similar agreement or arrangement with, or granted any bonuses (or bonus opportunity) to, or otherwise increased the compensation of any executive officer or Key Employee;

(l)            entered into any material commitment or transaction (including without limitation any borrowing or capital expenditure);

(m)          amended or modified, or waived any default under, any Material Contract;

(n)           to the Knowledge of the Company, incurred any material liabilities, contingent or otherwise, either matured or unmatured (whether or not required to be reflected in financial statements in accordance with GAAP, and whether due or to become due), except for accounts payable or accrued salaries that have been incurred by the Company since the Balance Sheet Date, in the ordinary course of its business and consistent with the Company’s past practices;

(o)           permitted or allowed any of their material property or assets to be subjected to any Lien, except for Permitted Liens;

(p)           settled any claim, litigation or action, whether now pending or hereafter made or brought;

(q)           made any capital expenditure or commitment for additions to property, plant or equipment individually in excess of $100,000, or in the aggregate, in excess of $250,000;

(r)            paid, loaned or advanced any amount to, or sold, transferred or leased any properties or assets to, or entered into any agreement or arrangement with any of their Affiliates, officers, directors or stockholders or, to the Company's Knowledge, any Affiliate or associate of any of the foregoing;

(s)           made any amendment to, or terminated any agreement that, if not so amended or terminated, would be material to the business, assets, liabilities, operations or financial performance of the Company or a Subsidiary;

(t)           compromised or settled any claims relating to Taxes, any Tax audit or other Tax proceeding, or filed any amended Tax Returns;

(u)           merged or consolidated with any other Person, or acquired a material amount of assets of any other Person;

(v)           entered into any agreement in contemplation of the transactions specified herein other than this Agreement and the other Transaction Documents; or

(w)           agreed to take any action described in this Section 4.9 or which would reasonably be expected to otherwise constitute a breach of any of the representations or warranties contained in this Agreement or any other Transaction Documents.

4.10                  Compliance with Laws .  The Company and its Subsidiaries are, and since their respective formations have been, in compliance in all material respects with all applicable Laws of any Governmental Authority applicable to their business or operations. The Company and each of its Subsidiaries have all franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals necessary for the conduct of its business in all material respects as now being conducted by it except where the failure to so comply would not have a Material Adverse Effect.  Neither the Company nor any of its Subsidiaries has received a notice or other written communication alleging a possible violation by the Company or a Subsidiary of any applicable Law of any Governmental Authority applicable to their business or operations.

4.11                  Permits .  The Company and its Subsidiaries validly hold and have in full force and effect all material Permits necessary for them to own, lease or operate their properties and assets and to carry on their business as now conducted, and there has occurred no violation of, or default (with or without notice or lapse of time or both) under, or event giving to any other Person any right of termination, amendment or cancellation of, any such Permit.  The Company and its Subsidiaries have complied in all material respects with the terms and conditions of all Permits issued to or held by them, and such Permits will not be subject to suspension, modification, revocation or nonrenewal as a result of the consummation of the transactions set forth in this Agreement or any other Transaction Documents, or the execution and delivery hereof or thereof.  No proceeding is pending or, to the Knowledge of the Company, threatened, seeking the revocation or limitation of any Permit.

4.12                  Real Property.

(a)            Owned Real Property .  Section 4.11(a) of the Disclosure Schedules lists all real property owned by the Company or its Subsidiaries (each, an “ Owned Real Property ” and together, the “ Owned Real Properties ”), including the address of such properties.  The Company or a Subsidiary of the Company has good and marketable title to each parcel of Owned Real Property (including all buildings, structures, fixtures and improvements thereon and all rights thereto), free and clear of all Liens, except Permitted Liens, none of which materially interfere with the use of, or materially detracts from the value of, or the marketability of, such Owned Real Property.

(b)            Leased Real Property .    Section 4.12(b) of the Disclosure Schedules lists all real property leased by the Company or its Subsidiaries (each, a “ Leased Property ” and together, the “ Leased Properties ”).  The Company has delivered to Purchaser complete and accurate copies of all such leases, and any operating agreements relating thereto.  With respect to each Leased Property, (i) the Company or a Subsidiary of the Company has good and valid title to the leasehold estate relating thereto, free and clear of all Liens, assignments, subleases, easements, covenants, rights of way and other similar restrictions of any nature whatsoever, other than Permitted Liens, (ii) the lease relating to such Leased Property is in writing and is valid and binding, in full force and effect and enforceable against the Company or the leasing Subsidiary and, to the Knowledge of the Company, the other parties thereto, in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or similar laws affecting creditors’ rights generally and general principles of equity, and (iii) the Company is not and, to the Knowledge of the Company, no other party to the lease relating to such Leased Property is, in breach or violation of, or in default under, such lease.

(c)           There are no rights of first refusal, options to purchase, purchase agreements, contracts for deed or installment sale agreements in effect with respect to all or any part of the Real Property.

(d)           The Real Property comprises all of the real property used by the Company in connection with the operation of the Company Business.

(e)           The buildings and improvements on the Real Property are in good operating condition and in a state of good and working maintenance and repair, ordinary wear and tear excepted, and are adequate and suitable for their current uses and purposes.

(f)           There are no physical conditions or defects on any part of the Real Property which would impair or would reasonably be expected to impair the continued operation of the Company Business.

4.13                  Intellectual Property

(a)            All Necessary Rights; Absence of Actions and Judgments .    Section  4.13(a) of the Disclosure Schedules sets forth all of the Company Intellectual Property.  The Company owns and has good and exclusive title, or has a valid, subsisting and enforceable license (sufficient for the conduct of its business) to all Company Intellectual Property; except where the failure to have good and/or exclusive title or a valid, subsisting and enforceable license would not have a Material Adverse Effect.  Except as set forth in Section 4.13(a) of the Disclosure Schedules, to the Knowledge of the Company, there are no proceedings or actions currently before any Governmental Authority anywhere in the world relating to Company Intellectual Property, and no Company Intellectual Property is subject to any outstanding Order or Contract (including any settlement agreement) restricting in any manner the Use, transfer, or licensing thereof by the Company, or which may affect the validity, Use or enforceability thereof.  To the Knowledge of the Company, the Company has the right to bring actions for infringement of all Company Intellectual Property owned by or exclusively licensed to it.

(b)            No Violation .  The execution, delivery and performance of this Agreement and each of the other Transaction Documents, and the consummation of the transactions contemplated hereby or thereby, will not (i) breach, violate or conflict with, or result in the modification, cancellation, or suspension of any instrument or other Contract relating to any Company Intellectual Property, (ii) cause the forfeiture or termination or give rise to a right of forfeiture or termination of any Company Intellectual Property or any of the Company’s rights therein or thereto, (iii) in any way impair any existing right of the Company to Use, or to bring any action for the infringement of, any Company Intellectual Property, or any portion thereof, or (iv) give rise to any right or acceleration of any royalties, fees or other payments to any third party. Immediately following the Closing Date, the Company will be permitted to exercise all of the Company’s rights under all Contracts relating to Company Intellectual Property to the same extent the Company was able to in the absence of the transactions contemplated hereby.

(c)            No Infringement .  To the Knowledge of the Company, no Use of the Company Intellectual Property by the Company or any of its Subsidiaries breaches, has violated or conflicted with, or violates or conflicts with any license (or sublicense) or other Contract of the Company with any third party.  To the Knowledge of the Company, the Use of the Company Intellectual Property and the conduct of the Company Business have not, and do not, infringe or misappropriate, any common law or statutory rights of any third party, including, without limitation, rights relating to defamation, contractual rights, Intellectual Property or other proprietary rights, rights of privacy or publicity.  To the Knowledge of the Company, no third party has breached or violated or is breaching or violating any Contract with the Company or any of its Subsidiaries relating to any Company Intellectual Property, or has infringed or misappropriated or is infringing or misappropriating any Company Intellectual Property except as set forth in Section 4.13(c) of the Disclosure Schedules.  Neither the Company nor any of its Subsidiaries has received any notice (whether in the form of invitation to license or otherwise) from any third party that any Company Intellectual Property or the conduct of the Company Business, has infringed or misappropriated or does or will infringe or misappropriate any common law or statutory rights of any other third party, including, without limitation, rights relating to defamation, contractual rights, Intellectual Property or other proprietary rights, rights of privacy or publicity, nor, to the Knowledge of the Company, is there any basis for any such assertion. There is no pending or, to the Knowledge of the Company, threatened claim, litigation or proceeding contesting or challenging the ownership of or the validity or enforceability of, or the Company’s right to Use, any Company Intellectual Property, nor, to the Knowledge of the Company, is there any basis for any such claim, litigation or proceeding.

4.14                  Contracts   Except as disclosed in Section 4.14(a) of the Disclosure Schedules, or as permitted under the Series A Financing Transaction Documents, neither the Company nor any Subsidiary is party or subject to, or bound by:

(i)           any agreements, contracts or commitments that call for prospective fixed and/or contingent payments or expenditures by or to the Company or a Subsidiary of more than $100,000, or which is otherwise material and not entered into in the ordinary course of business;

(ii)          any contract, lease or agreement involving payments in excess of $100,000, which is not cancelable by the Company or the Subsidiary, as applicable, without penalty on not less than 60 days notice;

(iii)         any contract, including any distribution agreements, containing covenants directly or explicitly limiting the freedom of the Company or a Subsidiary to compete in any line of business or with any Person or to offer any of its products or services;

(iv)         any indenture, mortgage, promissory note, loan agreement, guaranty or other agreement or commitment for the borrowing of money or pledging or granting a security interest in any assets;

(v)          any employment contracts, non-competition agreements, invention assignments, severance or other agreements with officers, directors, employees, stockholders or consultants of the Company or a Subsidiary or Persons related to or affiliated with such Persons;

(vi)         any stock redemption or purchase agreements or other agreements affecting or relating to the capital stock of the Company or a Subsidiary, including, without limitation, any agreement with any stockholder of the Company or a Subsidiary which includes, without limitation, antidilution rights, voting arrangements or operating covenants;

(vii)        any pension, profit sharing, retirement, stock option or stock ownership plans;

(viii)       any royalty, dividend or similar arrangement based on the revenues or profits of the Company or a Subsidiary or based on the revenues or profits derived from any material contract;

(ix)         any acquisition, merger, asset purchase or other similar agreement;

(x)          any sales agreement which entitles any customer to a right of set-off, or right to a refund after acceptance thereof;

(xi)         any agreement with any supplier or licensor containing any provision permitting such supplier or licensor to change the price or other terms upon a breach or failure by the Company or its Subsidiary, as applicable, to meet its obligations under such agreement; or

(xii)        any agreement under which the Company or a Subsidiary has granted any Person registration rights for securities.

(b)           The Company has delivered to Purchaser accurate and complete copies of all written contracts identified in Section 4.14(b) of the Disclosure Schedules (collectively, the “ Material Contracts ”), including all amendments thereto.  Neither the Company nor any Subsidiary has entered into any oral contracts which, if written, would be required to be disclosed in Section 4.14(b) of the Disclosure Schedules.  Each of the Material Contracts is valid and in full force and effect, is enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or similar laws affecting creditors’ rights generally and general principles of equity, and will continue to be so immediately following the Closing Date.

(c)           Actions with Respect to Material Contracts.

(i)           Neither the Company nor any Subsidiary has violated or breached, or committed any default under, any Material Contract in any material respect, and, to the Company's Knowledge, no other Person has violated or breached, or committed any default under any Material Contract in any material respect; and

(ii)          To the Company's Knowledge, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or would reasonably be expected to, (A) result in a material violation or breach of any of the provisions of any Material Contract, (B) give any Person the right to declare a default or exercise any remedy under any Material Contract, (C) give any Person the right to accelerate the maturity or performance of any Material Contract or (D) give any Person the right to cancel, terminate or modify any Material Contract.

(d)            No Consents .  Except as set forth in Section 4.14(d) of the Disclosure Schedules, none of the Material Contracts contains any provision which would require the consent of third parties to the sale, issuance and/or delivery of the Shares, or any of the other transactions as contemplated hereunder or under any of the other Transaction Documents, or which would be altered as a result of such transactions.

4.15                  Taxes.   The Company and its Subsidiaries have timely and properly filed all Tax Returns required to be filed by them for all years and periods (and portions thereof) for which any such Tax Returns were due.  All such filed Tax Returns are accurate in all material respects.  The Company has timely paid all Taxes due and payable (whether or not shown on filed Tax Returns).  There are no pending assessments, asserted deficiencies or claims for additional Taxes that have not been paid.  The reserves for Taxes, if any, reflected on the Financial Statements are adequate, and there are no Liens for Taxes on any property or assets of the Company and any of its Subsidiaries (other than Liens for Taxes not yet due and payable).  There have been no audits or examinations of any Tax Returns by any Governmental Authority, and the Company or its Subsidiaries have not received any notice that such audit or examination is pending or contemplated.  No claim has been made by a Governmental Authority in a jurisdiction where the Company or any of its Subsidiaries does not file Tax Returns that it is or may be subject to taxation by that jurisdiction.  To the Knowledge of the Company, no state of facts exists or has existed which would constitute grounds for the assessment of any penalty or any further Tax liability beyond that shown on the respective Tax Returns.  There are no outstanding agreements or waivers extending the statutory period of limitation for the assessment or collection of any Tax.

(b)           All Taxes that the Company or its Subsidiaries has been required to collect or withhold have been duly withheld or collected and, to the extent required, have been paid to the proper Taxing authority.

(c)           Neither the Company nor any of its Subsidiaries is a party to any Tax-sharing agreement or similar arrangement with any other Person.

(d)           Neither the Company nor any of its Subsidiaries is currently under any contractual obligation to pay to any Governmental Authority any Tax obligations of, or with respect to any transaction relating to, any other Person, or to indemnify any other Person with respect to any Tax, other than pursuant to this Agreement.

(e)           The Company has made all necessary disclosures required by Treasury Regulation Section 1.6011-4.  The Company has not been a participant in a “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4(b).

(f)           No payment or benefit paid or provided, or to be paid or provided, to current or former employees, directors or other service providers of the Company (including pursuant to this Agreement or the Rights Agreements) will fail to be deductible for federal income tax purposes under Section 280G of the Code.

4.16                  Employees.

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