FIRST CHINA PHARMACEUTICAL GROUP, INC.

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (“Agreement”) is made as of ________, 2011,
by and between First China Pharmaceutical Group, Inc., a Nevada corporation (the
“Company”), and each of the purchasers who execute the Purchaser Signature Page
hereto (the “Purchaser”) as listed on Schedule A hereto (to be completed at the
time(s) of acceptance of subscriptions).

RECITALS

A.           The Company desires to obtain funds from each Purchaser in order to
provide working capital, marketing acquisition and expansion and to further the
operations of the Company.

B.           The Company is offering Units (the “Units”), each Unit comprised of
(i) 27,778 shares of its common stock, $0.001 par value per share (the “Common
Stock” and, the shares of Common Stock offered herein, being sometimes referred
to herein as the “Shares”), (ii) warrants in the form as annexed hereto as
Exhibit A-1 (the “Series A-1 Warrants ”), to purchase 27,778 shares of Common
Stock at an exercise price of $1.25 per share (the “Series A-1 Warrant Shares”),
and (iii) warrants in the form as annexed hereto as Exhibit A-2 (the “Series A-2
Warrants”), to purchase 27,778 shares of Common Stock at an exercise price of
$2.00 per share (the “Series A-2 Warrant Shares”), at a purchase price of
$25,000 per Unit.  The Series A-1 Warrants and the Series A-2 Warrants are
sometimes collectively referred to herein as the “Warrants,” the Series A-1
Warrant Shares and the Series A-2 Warrant Shares are sometimes collectively
referred to herein as the “Warrant Shares,” and the Shares, Warrants and Warrant
Shares are sometimes collectively referred to herein as the “Securities”.  The
Shares and Warrants are provided, among other rights, weighted-average anti
dilution rights for lower priced issuances of common stock, as more specifically
described herein.

C.           Purchasers understand that there is a great deal of risk,
illiquidity and uncertainty in the Purchase of the Units herein and that no
assurance can be made that the Company will complete its business plans or, if
completed, that it will be successful in doing so.  Purchasers have received and
examined all of the Company’s SEC Reports (as defined in Section 3.7.1),
including, without limitation, any risk factors therein, and a Private Placement
Memorandum dated as of March 11, 2011 (the “PPM”) containing such information
as, among other things, a description of this offering and understand that an
investment herein entails a high degree of risk and illiquidity, including loss
of Purchaser’s entire investment.

D.           The offering of Units is being made directly by the Company through
the Placement Agent (as hereinafter defined), to accredited investors only,
under Rule 506 of Regulation D of the Securities Act, as amended, on a “best
efforts, $2,000,000 minimum, $7,000,000 maximum” basis, wherein a minimum of 80
Units or 2,222,240 Shares, 2,222,240 Series A-1 Warrants and 2,222,240 Series
A-2 Warrants, and maximum of 280 Units, or 7,777,840 Shares, 7,777,840 Series
A-1 Warrants and 7,777,840 Series A-2 Warrants may be sold.
 
 
 

--------------------------------------------------------------------------------

 

E.           Placement Agent and the Company have consented to the appointment
of Manufacturers and Traders Trust Company as independent Escrow Agent (the
“Escrow Agent”), pursuant to the terms of the Escrow Deposit Agreement (the
“Escrow Agreement”) annexed hereto as Exhibit B.  All funds will be held in a
non-interest bearing money market or other account with Escrow Agent.  The
Purchasers acknowledge and agree that their subscriptions are irrevocable and
binding commitments on the part of the Purchaser and that once their funds have
been tendered to escrow with the appropriate subscription documents and the
minimum offering amount of $2,000,000 (80 Units) has been raised in accepted
funds and subscriptions, the Escrow Agent may, at the request of the Placement
Agent and Company together, disburse funds from escrow and conduct a Closing
without any consent of or notice to Purchasers.  The Placement Agent or Company
may reject any subscriptions in whole or in part or elect not to close, for any
reason or for no reason and shall cause the Escrow Agent to return funds to the
Purchaser to the extent of funds tendered for subscriptions which have not been
accepted, or, retain the right to hold the same in escrow for acceptance at a
future Closing, until termination of the offering, at which time, any unused
subscription funds shall be returned to Purchaser.  The offering will remain
open through the earliest to occur of (i) a closing on the aggregate maximum
offering amount of $7,000,000, (ii) termination of the offering by the Company
or Placement Agent, or (iii) April 1, 2011, unless extended for 30 days at the
sole discretion of the Placement Agent and Company (which extension may be made
without consent of Purchasers whose moneys may be in escrow).

AGREEMENT

It is agreed as follows:

1.           PURCHASE AND SALE OF UNITS.

1.1         Purchase and Sale.  In reliance upon the representations and
warranties of the Company and each Purchaser contained herein and subject to the
terms and conditions set forth herein, at Closing, each Purchaser shall
purchase, and the Company shall sell and issue to each Purchaser, Units
comprised of the number of Shares and Warrants set forth on the signature page
annexed to the end of this Agreement as executed by such Purchaser (the
“Purchaser Signature Page”), issued in such Purchaser’s name, at a purchase
price of $25,000 per Unit (the “Purchase Price”).

2.           CLOSING.

2.1         Date and Time.  The sale of Units will take place in one or more
closings (“Closing”), subject to the satisfaction of all the parties hereto of
their obligations herein.  The Purchasers shall submit an executed copy of this
Agreement to the Company and Placement Agent along with the Purchase Price by
bank wire (or, with the consent of Placement Agent, by check) directly to the
Escrow Agent.  The Closing of the sale of Units contemplated by this Agreement
shall take place from time to time as subscriptions are received, without any
consent of, or notice to, Purchasers.  Subscriptions that are not accepted will
be returned with any funds (less wire fees). The Closing shall take place at the
offices of the Company or at such other place as the Company and the Placement
Agent shall agree in writing (each, a “Closing Date”) on or before April 1,
2011, unless otherwise extended by the Company and Placement Agent up to a
maximum of 30 days (the “Termination Date”).

2.2         Escrow Agent.  Placement Agent and the Company have consented to the
appointment of Manufacturers and Traders Trust Company as independent Escrow
Agent and have all accepted the terms of the non-interest bearing Escrow
Agreement, in the form as annexed hereto as Exhibit B (the “Escrow
Agreement”).  All amounts to be paid by Purchasers shall be deposited prior to
the Closing into the escrow account (the “Escrow”) maintained by “Escrow Agent”
pursuant to the terms of an Escrow Agreement and may be immediately drawn upon
at each Closing; provided, however, that the minimum amount of $2,000,000 has
been raised.  Purchasers will not have an opportunity to approve of a Closing or
request refund of any moneys held in escrow after a Closing has occurred during
the offering period.  Purchasers acknowledge and agree that their subscriptions
are irrevocable and binding commitments on the part of the Purchaser and that
once their funds have been tendered to escrow with the appropriate subscription
documents and their subscription received, the Escrow Agent may, at the request
of the Placement Agent and Company together, disburse funds from escrow and
conduct a Closing without any consent or notice to Purchasers.  The Placement
Agent or Company may reject any subscriptions in whole or in part for any reason
or for no reason and shall cause the Escrow Agent to return funds to the
Purchaser to the extent of such non accepted funds, or, retains the right to
hold the same in escrow for acceptance or rejection at a future closing, until
termination of the offering, at which time, any unused subscription funds shall
be returned to Purchaser.

 
2

--------------------------------------------------------------------------------

 
 
3.           REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

As a material inducement to each Purchaser to enter into this Agreement and to
purchase the Units and for Placement Agent to assist in placing the offering,
the Company represents and warrants that the following statements are true and
correct in all material respects as of the date hereof and will be true and
correct in all material respects at Closing, except as expressly qualified or
modified herein. All references in this Section 3 to the Shares, Warrants or
Warrant Shares or Securities shall be deemed to include the Placement Agent
Shares, Placement Agent Warrants (each as defined in Section 8 below) and shares
issuable upon exercise of the Placement Agent Warrants, unless the context
requires otherwise.

3.1         Organization and Good Standing.  The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Nevada and has full corporate power and authority to enter into and perform its
obligations under this Agreement, and to own its properties and to carry on its
business in all jurisdictions as presently conducted and as proposed to be
conducted.  The Company and its subsidiaries have all government and other
licenses and permits and authorizations to do business in all jurisdictions
where their activities require such license, permits and authorizations, except
where failure to obtain any such license, permit or authorization will not have
a Material Adverse Effect, as defined herein. The Company wholly owns and
controls, free and clear of any and all liens or encumbrances, all of the issued
and outstanding common equity of First China Pharmaceutical Group Limited, a
Hong Kong company (“First China HK”) which in turn, wholly  owns and controls
its operating subsidiary,  Kun Ming Xin Yuan Tang Pharmacies Co. Ltd., a company
organized under the laws of the People’s Republic of China (“Kun Ming” and,
together with First China HK, the “Subsidiaries” and each, a
“Subsidiary”).  Neither Subsidiary is a party to any voting agreement, share
pledges, purchase or sale agreement or asset transfer agreement or other
agreement that would result in the issuance of any securities of such Subsidiary
or the change of ownership or control of such Subsidiary.

3.2         Capitalization. As of February 22, 2011, the Company is authorized
to issue 200,000,000 shares of Common Stock, of which, 55,000,000 shares were
issued and outstanding, and no shares of preferred stock issued, authorized or
outstanding and none of which has been designated as a series or class with any
specific rights or privileges.  All outstanding shares of the Company’s capital
stock have been duly authorized and validly issued, and are fully paid,
nonassessable, and free of any preemptive rights.  As of such date, and at
closing, First China HK has 10,000 shares outstanding, all of which are owned by
the Company and Kun Ming has registered capital of RMB 2,000,000, all of which
are owned by First China HK and, there are no other rights, options, convertible
notes or other derivative securities or agreements to issue any securities of
either of the Subsidiaries.  There is only one class and series of common stock
of the Company and of each Subsidiary, without any special series, rights,
preferences or designations assigned to any particular shares of Common
Stock.  Neither Subsidiary has any outstanding notes, convertible debt,
derivative securities or notes other than as set forth on Schedule 3.2 hereto.

3.3         Authorization.  The Company and each Subsidiary has full power and
authority and has taken all requisite action on the part of the Company, its
officers, directors and stockholders necessary for (i) the authorization,
execution and delivery of this Agreement, the Warrants and the Escrow Agreement
and any other transaction documents relating to this Agreement (collectively the
“Transaction Documents”), (ii) the authorization of the performance of all
obligations of the Company hereunder or thereunder, and (iii) the authorization,
issuance (or reservation for issuance) and delivery of the Shares hereby or the
Warrant Shares upon exercise of the Warrants.  The Transaction Documents
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability, relating to or affecting creditors’ rights generally.
 
 
3

--------------------------------------------------------------------------------

 

3.4         Valid Issuance of Securities.  The Shares have been duly and validly
authorized and, upon issuance, will be validly issued, fully paid and
non-assessable.  The Warrants have been duly and validly authorized, and, the
Warrant Shares, when and if issued in accordance with the terms of the Warrants,
shall be validly issued, fully paid and non-assessable.  The Shares, upon
issuance are, and the Warrant Shares, upon issuance in accordance with the
Warrants will be, free and clear of any security interests, liens, claims or
other encumbrances, other than restrictions upon transfer under federal and
state securities laws. The Shares of First China HK are duly authorized, validly
issued, fully paid and non assessable and held by the Company as sole
owner.  The shares of Kun Ming are duly authorized, validly issued, fully paid
and non assessable and held by First China HK as sole owner.

3.5         No Conflict, Breach, Violation or Default; Third Party
Consents.  The execution, delivery and performance of the Transaction Documents
by the Company and the issuance and sale of the Securities will not conflict
with or result in a breach or violation of any of the terms and provisions of,
or constitute a default under (i) the Company’s or any Subsidiary’s Articles of
Incorporation or the Company’s Bylaws, both as in effect on the date hereof
(collectively, the “Company Documents”), or (ii) any statute, rule, regulation
or order of any governmental agency, self regulatory agency, securities
regulatory or insurance regulatory agency or body or any court, domestic or
foreign, having jurisdiction over the Company, any subsidiary or any of their
respective assets or properties, or (iii) any material agreement or instrument
to which the Company or any subsidiary is a party or by which the Company or a
subsidiary is bound or to which any of their respective assets or properties is
subject; except in the case of each of clauses (ii) and (iii), such as could
not, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect.  No approval of or filing with any governmental
authority is required for the Company to enter into, execute or perform this
Agreement or any Transaction Document.

3.6         No Material Adverse Change.  Since December 31, 2010, except as
identified and described in the SEC Reports (as defined below) or as described
on Schedule 3.6, there has not been:

(i)           any change in the consolidated assets, liabilities, financial
condition or operating results of the Company or any Subsidiary from that
reflected in the financial statements included in the Company’s Annual Report on
Form 10-K for the fiscal year ended March 31, 2010 and Quarterly Reports on Form
10-Q for the quarters ended June 30, 2010, September 30, 2010 and December 31,
2010 except for changes in the ordinary course of business which have not had
and could not reasonably be expected to have a material adverse effect on the
Company’s assets, properties, financial condition, operating results or business
of the Company and its subsidiaries taken as a whole other than an effect
primarily or proximately resulting from (A) changes in general economic or
market conditions affecting the industry generally in which the Company and its
Subsidiaries operate, which changes do not disproportionately affect the Company
taken as a whole with its Subsidiaries as compared to other similarly situated
participants in the industry in which the Company and its Subsidiaries operate;
(B) changes in applicable law or GAAP; and (C) acts of terrorism, war or natural
disasters which do not disproportionately affect the Company and its
Subsidiaries taken as a whole (as such business is presently conducted) (a
“Material Adverse Effect”), individually or in the aggregate;

 
4

--------------------------------------------------------------------------------

 
 
(ii)          any declaration or payment of any dividend, or any authorization
or payment of any distribution, on any of the capital stock of the Company, or
any redemption or repurchase of any securities of the Company;

(iii)         any material damage, destruction or loss, whether or not covered
by insurance, to any assets, licenses, government permits, self regulatory
agency permit or license, or properties of the Company or its subsidiaries;

(iv)         any waiver, not in the ordinary course of business, by the Company
or any subsidiary of a material right or of a material debt owed to it;

(v)          any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company or a subsidiary, except in the ordinary
course of business and which has not had a Material Adverse Effect;

(vi)         any change or amendment to the Company Documents, or material
change to any material contract or arrangement by which the Company or any
subsidiary is bound or to which any of their respective assets or properties is
subject;

(vii)        any material labor difficulties, labor disputes, non-compete or
similar disputes, or labor union organizing activities with respect to employees
of the Company or any subsidiary;

(viii)       any material transaction entered into by the Company or a
subsidiary other than in the ordinary course of business;

(ix)         the loss of the services of any key employee, salesperson, or
material change in the composition or duties of the senior management of the
Company or any subsidiary;

(x)           the loss or threatened loss of any customer which has had or could
reasonably be expected to have a Material Adverse Effect;

(xi)         any default of any indebtedness or, to the knowledge of the
Company, breach of contract agreement, in each case with aggregate liabilities
of greater than $50,000.

(xi)         any other event or condition of any character that has had or could
reasonably be expected to have a Material Adverse Effect.

3.7         SEC Reports and Financial Statements.

3.7.1      The Company has delivered or made available to each Purchaser
accurate and complete copies (excluding copies of exhibits) of each report,
registration statement, and definitive proxy statement filed by the Company with
the United States Securities and Exchange Commission (“SEC”) since March 31,
2010 (collectively, the “SEC Reports”).  All statements, reports, schedules,
forms and other documents required to have been filed by the Company with the
SEC have been so filed.  As of the time it was filed with the SEC (or, if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing): (i) each of the SEC Reports complied in all material
respects with the applicable requirements of the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934 (the “1934 Act”), as amended;
and (ii) none of the SEC Reports contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
 
 
5

--------------------------------------------------------------------------------

 

3.7.2       Except for the pro forma financial statements, if any, the
consolidated financial statements contained in the SEC Reports: (i) complied as
to form in all material respects with the published rules and regulations of the
SEC applicable thereto at the time of filing and as of the date of each Closing;
(ii) were prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered (except as may be indicated in the notes to such
financial statements and, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC, and except that unaudited financial statements may not
contain footnotes and are subject to normal and recurring year-end audit
adjustments which will not, individually or in the aggregate, be material in
amount); and (iii) fairly present, in all material respects, the consolidated
financial position of the Company and its consolidated subsidiaries as of the
respective dates thereof and the consolidated results of operations of the
Company and its consolidated subsidiaries for the periods covered thereby,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.  All adjustments considered necessary for a fair presentation
of the financial statements have been included.

3.8         Securities Law Compliance.  Without consideration of the actions of
the Placement Agent (as defined in Section 8 herein), and assuming the accuracy
of the representations and warranties of each Purchaser set forth in Section 4
of this Agreement, the offer and sale of the Securities comprising the Units
will constitute an exempted transaction under the Securities Act of 1933, as
amended and now in effect (the “Securities Act”), and registration of the
Shares, Warrants or Warrant Shares under the Securities Act for issuance herein
is not required.  The Company shall make such filings as may be necessary to
comply with the Federal securities laws and the “blue sky” laws of any state in
connection with the offer and sale of the Securities, which filings will be made
in a timely manner.

3.9         Tax Matters.  The Company and each Subsidiary has timely prepared
and filed all tax returns required to have been filed by the Company with all
appropriate governmental agencies and timely paid all taxes shown thereon or
otherwise owed by it.  The charges, accruals and reserves on the books of the
Company in respect of taxes for all fiscal periods are adequate in all material
respects, and there are no material unpaid assessments against the Company nor,
to the Company’s Knowledge, any basis for the assessment of any additional
taxes, penalties or interest for any fiscal period or audits by any federal,
state or local taxing authority except for any assessment which is not material
to the Company, taken as a whole.  All taxes and other assessments and levies
that the Company is required to withhold or to collect for payment have been
duly withheld and collected and paid to the proper governmental entity or third
party when due.  There are no tax liens or claims pending or, to the Company’s
Knowledge, threatened against the Company or any Subsidiary or any of their
respective assets or property.  There are no outstanding tax sharing agreements
or other such arrangements between the Company or other corporation or
entity.  For the purposes of this agreement, “Company’s Knowledge” means the
actual knowledge of the executive officers (as defined in Rule 405 under the
Securities Act) of the Company.

3.10       Title to Properties.  Except as disclosed in the SEC Reports, the
Company and each of the respective subsidiaries has good and marketable title to
all real properties and all other properties and assets owned by it, in each
case free from liens, encumbrances and defects that would materially affect the
value thereof or materially interfere with the use made or currently planned to
be made thereof by them; and except as disclosed in the SEC Reports, the Company
and each Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
 
 
6

--------------------------------------------------------------------------------

 

3.11       Intellectual Property.

Except as set forth in Schedule 3.11 (for purposes of this section 3.11 and
3.12, the term Company shall be utilized to include First China HK and Kun
Ming):

(i)           All Intellectual Property of the Company  is currently in
compliance with all legal requirements (including timely filings, proofs and
payments of fees) and is valid and enforceable.  No Intellectual Property of the
Company which is necessary for the conduct of Company’s and each of its
subsidiaries’ respective businesses as currently conducted has been or is now
involved in any cancellation, dispute or litigation, and, to the Company’s
Knowledge, no such action is threatened.

(ii)          All of the licenses and sublicenses and consent, royalty or other
agreements concerning Intellectual Property which are necessary for the conduct
of the Company’s business as currently conducted to which the Company or any
subsidiary is a party or by which any of their assets are bound (other
than  generally commercially available, non-custom, off-the-shelf software
application programs having a retail acquisition price of less than $10,000 per
license) (collectively, “License Agreements”) are valid and binding obligations
of the Company and, to the Company’s Knowledge, the other parties thereto,
enforceable in accordance with their terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws affecting the
enforcement of creditors’ rights generally, and there exists no event or
condition which will result in a material violation or breach of or constitute
(with or without due notice or lapse of time or both) a default by the Company
under any such License Agreement.

(iii)         The Company owns or has the valid right to use all of the
Intellectual Property that is necessary for the conduct of the Company’s and
each of its subsidiaries’ respective businesses as currently conducted and for
the ownership, maintenance and operation of the Company’s and its subsidiaries’
properties and assets, free and clear of all liens, encumbrances, adverse claims
or obligations to license all such owned Intellectual Property and Confidential
Information, other than licenses entered into in the ordinary course of the
Company’s and its subsidiaries’ businesses.  The Company has a valid and
enforceable right to use all third party Intellectual Property and Confidential
Information used or held for use in the respective businesses of the Company and
its subsidiaries.

(iv)         To the Company’s Knowledge, the conduct of the Company’s business
as currently conducted does not infringe or otherwise impair or conflict with
(collectively, “Infringe”) any Intellectual Property rights of any third party
or any confidentiality obligation owed to a third party, and, to the Company’s
Knowledge, the Intellectual Property and Confidential Information of the Company
and its Subsidiaries which are necessary for the conduct of the Company’s
business as currently conducted are not being Infringed by any third
party.  There is no litigation or order pending or outstanding or, to the
Company’s Knowledge, threatened or imminent, that seeks to limit or challenge or
that concerns the ownership, use, validity or enforceability of any Intellectual
Property or Confidential Information of the Company and its subsidiaries and the
Company’s use of any Intellectual Property or Confidential Information owned by
a third party, and, to the Company’s Knowledge, there is no valid basis for the
same.

(v)          The consummation of the transactions contemplated hereby and by the
other Transaction Documents will not result in the alteration, loss, impairment
of or restriction on the Company’s or any of its subsidiaries’ ownership or
right to use any of the Intellectual Property or Confidential Information which
is necessary for the conduct of the Company’s and each of its subsidiaries’
respective businesses as currently conducted.
 
7

--------------------------------------------------------------------------------

 
 
(vi)         The Company has taken reasonable steps to protect the Company’s
rights in its Intellectual Property and Confidential Information.  Each
employee, consultant and contractor who has had access to Confidential
Information which is necessary for the conduct of Company’s and each of its
subsidiaries’ respective businesses as currently conducted has executed an
agreement to maintain the confidentiality of such Confidential Information and
has executed appropriate agreements that are substantially consistent with the
Company’s standard forms thereof, except where the failure to do so has not had
and could not reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate.  Except under confidentiality obligations,
there has been no material disclosure of any Confidential Information to any
third party.

3.12       Environmental Matters.  To the Company’s Knowledge, neither the
Company nor any Subsidiary (i) is in violation of any statute, rule, regulation,
decision or order of any governmental agency or body or any court, domestic or
foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, “Environmental
Laws”), (ii) owns or operates any real property contaminated with any substance
that is subject to any Environmental Laws, (iii) is liable for any off-site
disposal or contamination pursuant to any Environmental Laws, or (iv) is subject
to any claim relating to any Environmental Laws, which violation, contamination,
liability or claim has had or could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate; and there is no pending or, to
the Company’s Knowledge, threatened investigation that might lead to such a
claim.

3.13       Litigation.  Except as described in the SEC Reports, there are no
pending material actions, suits or proceedings against or affecting the Company,
its subsidiaries or any of its or their properties; and to the Company’s
Knowledge, no such actions, suits or proceedings are threatened or contemplated
against the Company or either Subsidiary.

3.14       No Directed Selling Efforts or General Solicitation.  Neither the
Company nor any Person, as defined below, acting on its behalf has conducted any
general solicitation or general advertising (as those terms are used in
Regulation D) in connection with the offer or sale of any of the
Securities.  “Person” means any individual, corporation, company, limited
liability company, partnership, limited liability partnership, trust, estate,
proprietorship, joint venture, association, organization or entity.

3.15       No Integrated Offering.  Neither the Company nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any Company security or solicited any
offers to buy any security, under circumstances that would adversely affect
reliance by the Company on Section 4(2) for the exemption from registration for
the transactions contemplated hereby or would require registration of the
Securities under the Securities Act.  For purposes of this Agreement,
“Affiliate” means, with respect to any Person, any other Person which directly
or indirectly through one or more intermediaries Controls, is controlled by, or
is under common control with, such Person.
 
3.16      Questionable Payments. Neither the Company nor any of its Subsidiaries
nor, to the Company’s Knowledge, any of their respective current or former
stockholders, directors, officers, employees, agents or other Persons acting on
behalf of the Company or any subsidiary, has on behalf of the Company or any
subsidiary or in connection with their respective businesses: (i) used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payments to any governmental officials or employees from
corporate funds; (iii) established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; (iv) made any false or fictitious entries
on the books and records of the Company or any subsidiary; or (v) made any
unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful
payment of any nature.
 
3.17       Transactions with Affiliates.  Except as disclosed in the SEC
Reports, none of the officers or directors of the Company or Subsidiaries and,
to the Company’s Knowledge, none of the employees of the Company or its
Subsidiaries is presently a party to any transaction with the Company or any
Subsidiary (other than as holders of stock options and/or warrants, and for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
Company’s Knowledge, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.

 
8

--------------------------------------------------------------------------------

 
 
3.18       Internal Controls.  Except as set forth in the SEC Reports, the
Company is in material compliance with the provisions of the Sarbanes-Oxley Act
of 2002 currently applicable to the Company except where such noncompliance
could not have or reasonably be expected to result in a Material Adverse
Effect.  Except as set forth in the SEC Reports, the Company and the
subsidiaries maintain, and will use commercially reasonable best efforts to
maintain, a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements and to maintain asset
accountability both in conformity with GAAP and the applicable provisions of the
1934 Act, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in the
1934 Act Rules 13a-14 and 15d-14) and designed such disclosure controls and
procedures to ensure that material information relating to the Company,
including the subsidiaries, is made known to the certifying officers by others
within those entities, particularly during the period in which the Company’s
most recently filed period report under the 1934 Act, as the case may be, is
being prepared.  The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of the end of the
period covered by the most recently filed periodic report under the 1934 Act
(such date, the "Evaluation Date").  The Company presented in its most recently
filed periodic report under the 1934 Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date.  Since the Evaluation Date,
there have been no significant changes in the Company's internal controls (as
such term is defined in Item 308 of Regulation S-K for smaller reporting
companies) or, to the Company's Knowledge, in other factors that could
significantly affect the Company's internal controls.

3.19      Disclosures.  Neither the Company, any Subsidiary, the Placement
Agent, nor any Person acting on any of their behalf has provided the Purchasers
or their agents or counsel with any information that constitutes or might
constitute material, non-public information.  The written materials delivered to
the Purchasers in connection with the transactions contemplated by the
Transaction Documents do not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading.

3.20      Third Party Beneficiaries. The Company acknowledges that Placement
Agent, its representatives, and other selling agents (if any),  are direct
intended beneficiaries of the representations and warranties made hereby in
respect of all of the Placement Agent Shares or Warrants issued to them or their
affiliates, and, are also deemed third party beneficiaries to the
representations and warranties made hereby to the Purchasers.

4.           REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER.

Each Purchaser individually and not jointly hereby represents warrants and
covenants with the Company as follows. For avoidance of doubt, these warranties
and representations are made to the Company as well as both Placement Agent and
other members of the selling group (if any) and their representatives and
affiliates, as third party beneficiaries hereto:
 
 
9

--------------------------------------------------------------------------------

 

4.1         Legal Power.  Each Purchaser has the requisite individual,
corporate, partnership, limited liability company, trust, or fiduciary power, as
appropriate, and is authorized, if such Purchaser is a corporation, partnership,
limited liability company, or trust, to enter into this Agreement, to purchase
the Shares hereunder, and to carry out and perform its obligations under the
terms of this Agreement or any other Transaction Documents to which it is a
party.

4.2         Due Execution.  The execution and performance of the terms under
this Agreement and the Accredited Investor Questionnaire commencing Page SP-2
appended at the end of this Agreement (the “Questionnaire”) and Purchaser
Signature Page hereto, have been duly authorized, if such Purchaser is a
corporation, partnership, limited liability company, trust or fiduciary,
executed and delivered by such Purchaser, and, upon due execution and delivery
by the Company, this Agreement will be a valid and binding agreement of such
Purchaser.

4.3         Access to Information.  Each Purchaser understands that an
investment in the Securities involves a high degree of risk and illiquidity,
including, risk of loss of their entire investment.  Each Purchaser represents
that such Purchaser has been given full and complete access to the Company for
the purpose of obtaining such information as such Purchaser or its qualified
representative has reasonably requested in connection with the decision to
purchase the Shares.  Each Purchaser represents that such Purchaser has received
and reviewed copies of the SEC Reports and PPM.  Each Purchaser represents that
such Purchaser has been afforded the opportunity to ask questions of the
officers of the Company regarding its business prospects and the Shares, all as
such Purchaser or such Purchaser’s qualified representative have found necessary
to make an informed investment decision to purchase the Shares.

4.4         Restricted Securities.

4.4.1       Each Purchaser has been advised that none of the Securities have
been registered under the Securities Act or any other applicable securities laws
and that Shares are being offered and sold pursuant to Section 4(2) of the
Securities Act and/or Rule 506 of Regulation D and/or Regulation S thereunder,
and that the Company’s reliance upon Section 4(2) and/or Rule 506 of Regulation
D and/or Regulation S is predicated in part on such Purchaser representations as
contained herein (including, for avoidance of doubt, the Questionnaire).  Each
Purchaser acknowledges that the Securities will be issued as “restricted
securities” as defined by Rule 144 promulgated pursuant to the Securities
Act.  None of the Securities may be resold in the absence of an effective
registration thereof under the Securities Act and applicable state securities
laws unless, in the opinion of counsel reasonably satisfactory to the Company,
an applicable exemption from registration is available.

4.4.2       Each Purchaser represents that such Purchaser is acquiring the
Shares for such Purchaser’s own account, and not as nominee or agent, for
investment purposes only and not with a view to, or for sale in connection with,
a distribution, as that term is used in Section 2(11) of the Securities Act, in
a manner which would require registration under the Securities Act or any state
securities laws.

4.4.3       Each Purchaser understands and acknowledges that the certificates
representing the Shares, Warrants and, if issued, the Warrant Shares, will bear
substantially the following legend:
 
 
10

--------------------------------------------------------------------------------

 

“THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE LAW, AND NO
INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR
OTHERWISE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION
INVOLVING SAID SECURITIES, (ii) THE COMPANY RECEIVES AN OPINION OF LEGAL COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION, OR (iii) THE COMPANY OTHERWISE SATISFIES ITSELF THAT SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION.”

4.4.4      Each Purchaser acknowledges that an investment in the Shares is not
liquid and is transferable only under limited conditions.  Each Purchaser
acknowledges that such securities must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available.  Each Purchaser is aware of the provisions of Rule
144 promulgated under the Securities Act, which permits limited resale of
restricted securities subject to the satisfaction of certain conditions and that
such Rule is not now available and, in the future, may not become available for
resale of any of the Securities.  Each Purchaser is an “accredited investor” as
defined under Rule 501 under the Securities Act.

4.4.5       The representations made by each Purchaser on the Questionnaire
(commencing page SP-2 appended at the end hereof) and Purchaser Signature Page
are true and correct.

4.5         Purchaser Sophistication and Ability to Bear Risk of Loss.  Each
Purchaser acknowledges that it is able to protect its interests in connection
with the acquisition of the Shares and can bear the economic risk of investment
in such securities without producing a material adverse change in such
Purchaser’s financial condition.  Each Purchaser, either alone or with such
Purchaser’s representative(s), otherwise has such knowledge and experience in
financial or business matters that such Purchaser is capable of evaluating the
merits and risks of the investment in the Securities.

4.6         Purchases by Groups.  Each Purchaser represents, warrants and
covenants that it is not acquiring the Shares as part of a group within the
meaning of Section 13(d)(3) of the 1934 Act.

4.7         Independent Investigation.  Each Purchaser in making his decision to
purchase the Units herein, has relied solely upon an independent investigation
made by him and his legal, tax and/or financial advisors and, is not relying
upon any oral representations of the Company or the Placement Agent.

4.8         No Advertising.  Each Purchaser has not received any general
solicitation or advertising regarding the offer of the Units.

4.9         Certain Trading Activities.  Each Purchaser has not directly or
indirectly, nor has any person acting on behalf of or pursuant to any
understanding with such Purchaser, engaged in any transactions in the securities
of the Company (including, without limitation, any short sales involving the
Company’s securities) since the time that such Purchaser was first contacted by
the Company or the Placement Agent regarding the investment in the Company
contemplated by this Agreement.  Each Purchaser covenants that neither it nor
any person acting on its behalf or pursuant to any understanding with it will
engage in any transactions in the securities of the Company (including short
sales) prior to the time that the transactions contemplated by this Agreement
are publicly disclosed.
 
 
11

--------------------------------------------------------------------------------

 

4.10       Placement Agent Review.  Each Purchaser acknowledges that neither
Sandgrain Securities, Inc., as “Placement Agent” nor any of its representatives
or their affiliates, has made a purchase recommendation, research report or
provided a rating, opinion, buy or sell recommendation, or, independently
verified the accuracy, completeness, materiality or otherwise, of any
information, representation or warranty contained in this Purchase Agreement,
the SEC Reports, or any offering materials provided, that such placement agent
related entities and their principals shall have no liability for any
representation (express or implied) contained in, or for any omissions from, the
Purchase Agreement or any offering documents provided or any other written or
oral communications transmitted to the recipient in the course of his or her
evaluation of the investment, and that it is understood that each prospective
investor will make an independent investigation and analysis of a potential
investment in the Company with its legal, tax or financial advisors, and will be
relying upon same in making any such investment.

4.11       Regulation S; Non-U.S. Person Status.  For purposes of compliance
with the Regulation S exemption for the offer and sale of the Securities to
non-U.S. Persons, if the Purchaser is not a “U.S. Person,” as such term is
defined in Rule 902(k) of Regulation S,1 the Purchaser represents and warrants
they are a person or entity that is outside the United Sates, and further
represents and warrants as follows:

--------------------------------------------------------------------------------

1      Regulation S provides in part as follows:
 
1.
“U.S. person” means:  (i) any natural person resident in the United States; (ii)
any partnership or corporation organized or incorporated under the laws of the
United States; (iii) any estate of which any executor or administrator is a U.S.
person; (iv) any trust of which any trustee is a U.S. person; (v) any agency or
branch of a foreign entity located in the United States; (vi) any
non-discretionary account or similar account (other than an estate or trust)
held by a dealer or other fiduciary for the benefit or account of a U.S. person;
(vii) any discretionary account or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated, or (if an
individual) resident in the United States; and (viii) any partnership or
corporation if: (A) organized or incorporated under the laws of any foreign
jurisdiction; and (B) formed by a U.S. person principally for the purpose of
investing in securities not registered under the Securities Act of 1933, as
amended, unless it is organized or incorporated, and owned, by accredited
investors (as defined in Rule 501(a)) who are not natural persons, estates or
trusts.

 
2.
The following are not “U.S. persons”: (i) any discretionary account or similar
account (other than an estate or trust) held for the benefit or account of a
non-U.S. person by a dealer or other professional fiduciary organized,
incorporated, or (if an individual) resident in the United States; (ii) any
estate of which any professional fiduciary acting as executor or administrator
is a U.S. person if: (A) an executor or administrator of the estate who is not a
U.S. person has sole or shared investment discretion with respect to the assets
of the estate; and (B) the estate is governed by foreign law; (iii) any trust of
which any professional fiduciary acting as trustee is a U.S. person, if a
trustee who is not a U.S. person has sole or shared investment discretion with
respect to the trust assets, and no beneficiary of the trust (and no settlor if
the trust is revocable) is a U.S. person; (iv) an employee benefit plan
established and administered in accordance with the law of a country other than
the United States and customary practices and documentation of such country; (v)
any agency or branch of a U.S. person located outside the United States if: (A)
the agency or branch operates for valid business reasons; and (B) the agency or
branch is engaged in the business of insurance or banking and is subject to
substantive insurance or banking regulation, respectively, in the jurisdiction
where located; and (vi) the International Monetary Fund, the International Bank
for Reconstruction and Development, the Inter-American Development Bank, the
Asian Development Bank, the African Development Bank, the United Nations, and
their agencies, affiliates and pension plans, and any other similar
international organizations, their agencies, affiliates and pension plans.

 
 
12

--------------------------------------------------------------------------------

 

 
4.11.1   The Purchaser is not acquiring the Securities for the account or
benefit of a U.S. Person.

4.11.2   If the Purchaser is a legal entity, it has not been formed specifically
for the purpose of investing in the Company.

4.11.3   The Purchaser hereby represents that he, she or it has satisfied and
fully observed the laws of the jurisdiction in which he, she or it is located or
domiciled, in connection with the acquisition of the Securities, including (i)
the legal requirements of the Purchaser’s jurisdiction for the acquisition of
the Securities, (ii) any foreign exchange restrictions applicable to such
acquisition, (iii) any governmental or other consents that may need to be
obtained, and (iv) the income tax and other tax consequences, if any, which may
be relevant to the holding, redemption, sale, or transfer of the Securities; and
further, the Purchaser agrees to continue to comply with such laws as long as
he, she or it shall hold the Investment Securities.

4.11.4   To the knowledge of the Purchaser, without having made any independent
investigation, neither the Company nor any person acting for the Company, has
conducted any “directed selling efforts” in the United States as the term
“directed selling efforts” is defined in Rule 902 of Regulation S, which, in
general, means any activity undertaken for the purpose of, or that could
reasonably be expected to have the effect of, conditioning the marketing in the
United States for any of the Securities being offered. Such activity includes,
without limitation, the mailing of printed material to investors residing in the
United States, the holding of promotional seminars in the United States, and the
placement of advertisements with radio or television stations broadcasting in
the United States or in publications with a general circulation in the United
States, which discuss the offering of the Investment Securities.  To the
knowledge of the Purchaser, the Securities were not offered to the undersigned
through, and the undersigned is not aware of, any form of general solicitation
or general advertising, including without limitation, (i) any advertisement,
article, notice or other communication published in any newspaper, magazine or
similar media or broadcast over television or radio, and (ii) any seminar or
meeting whose attendees have been invited by any general solicitation or general
advertising.

4.11.5   The Purchaser will offer, sell or otherwise transfer the Securities,
only (A) pursuant to a registration statement that has been declared effective
under the Securities Act, (B) pursuant to offers and sales that occur outside
the United States within the meaning of Regulation S in a transaction meeting
the requirements of Rule 904 (or other applicable Rule) under the Securities
Act, or (C) pursuant to another available exemption from the registration
requirements of the Securities Act, subject to the Company’s right prior to any
offer, sale or transfer pursuant to clauses (B) or (C) to require the delivery
of an opinion of counsel, certificates or other information reasonably
satisfactory to the Company for the purpose of determining the availability of
an exemption.

4.11.6   The Purchaser will not engage in hedging transactions involving the
Securities unless such transactions are in compliance with the Securities Act.

4.11.7   The Purchaser represents and warrants that the undersigned is not a
citizen of the United States and is not, and has no present intention of
becoming, a resident of the United States (defined as being any natural person
physically present within the United States for at least 183 days in a 12-month
consecutive period or any entity who maintained an office in the United States
at any time during a 12-month consecutive period). The Purchaser understands
that the Company may rely upon the representations and warranty of this
paragraph as a basis for an exemption from registration of the Securities under
the Securities Act of 1933, as amended, and the provisions of relevant state
securities laws.

 
13

--------------------------------------------------------------------------------

 
 
5.           AGREEMENT TO RELEASE FROM ESCROW.

5.1         Release of Funds from Escrow upon Execution and Closing.  The
Purchasers and the Company hereby acknowledge that all funds shall be in the
non-interest bearing Escrow prior to Closing.  In connection therewith, the
Company and Purchasers each authorize and instruct the Escrow Agent to disburse
funds from Escrow upon receipt by Escrow Agent of a jointly executed instruction
letter as provided in the Escrow Agreement and satisfaction of the closing
conditions herein, substantially in accordance with the terms hereof, as more
fully specified by written instruction of the Placement Agent and the
Company.  No consent of or notice to Purchasers shall be necessary whatsoever in
connection with such release and disbursement at Closing, and the Purchasers and
Company jointly and severally indemnify the Escrow Agent and Placement Agent for
any and all acts taken in good faith to implement the foregoing.
           

6.           COVENANTS OF THE COMPANY AND PURCHASER; DEMAND REGISTRATION RIGHTS.

6.1         Use of Proceeds.  The Company intends to employ the net proceeds
from the purchase and sale of the Shares for purposes of working capital,
marketing acquisition and expansion and to further the operations of the Company
only and not for the repayment of any existing debt in excess of
$10,000.00.    Pending the Company’s use of the proceeds from the purchase and
sale of the Shares, the Company intends to invest the funds in government
securities and insured, short–term, interest–bearing investments of varying
maturities.

6.2         Registration Rights.  For purposes of this Section 6.2, all
references to the Purchaser shall be deemed to mean and include, the Purchaser,
Placement Agent and their respective assigns as holders of Registrable
Securities (as defined in Section 6.2.1(b) below).  The Company shall make best
efforts to (i) within 20 days after the termination of the offering of Units as
set forth in Recital B hereof, file a Registration Statement (as hereinafter
defined) with respect to all of the Registrable Securities (as hereinafter
defined) and (ii) obtain effectiveness of said Registration Statement for at
least 12 months following effective date.

6.2.1      Notice of Registration.  If the Company shall determine to register
any of its securities under the Securities Act in connection with the public
offering of such securities, either for its own account or the account of a
security holder, other than (A) a registration relating to employee benefit
plans, (B) a registration relating to Rule 145 or similar transaction, or (C) a
registration on any form that does not include substantially the same
information as could be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:

(a)         promptly give to each Purchaser written notice thereof; and

(b)        use commercially reasonable efforts to include in such registration
(and any related qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within twenty (20) days after receipt of such
written notice from the Company, by any such Purchaser, except as set forth in
Section 6.2.2 below.  In the event that the Company decides for any reason not
to complete the registration of securities other than Registrable Securities as
part of an underwritten public offering it shall specify that such Registrable
Securities are to be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through underwriters under
such registration.
 
 
14

--------------------------------------------------------------------------------

 

“Registrable Securities” means (i) the Shares, the Warrant Shares and all other
shares of Common Stock held by, or issuable to, the Purchasers or its assigns
(including, without limitation, any Additional Shares, as hereinafter defined)
and, (ii) any Placement Agent Shares and Common Stock underlying the Placement
Agent Warrants issued to the Placement Agent or its assigns pursuant to the
terms of this Agreement or any agreement with the Placement Agent calling for
compensation relating hereto, which have not been registered under the
Securities Act pursuant to an effective registration statement filed thereunder;
provided, however, that the Purchasers shall not be required to exercise the
Warrants in order to have the Warrant Shares included in any registration
statement filed on the appropriate form with, and declared effective by, the SEC
under the Securities Act and covering the resale by the Purchasers of the
Registrable Securities (a “Registration Statement”).

6.2.2       Registration Process.  In connection with the registration of the
Registrable Securities pursuant to Section 6.2.1, the Company shall:

(a)         Prepare and file with the SEC the Registration Statement and such
amendments (including post effective amendments) to the Registration Statement
and supplements to the prospectus included therein (a “Prospectus”) as the
Company may deem necessary or appropriate and take all lawful action such that
the Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, not misleading and that the Prospectus forming part of the Registration
Statement, and any amendment or supplement thereto, does not at any time during
the period commencing on the effective date of the Registration Statement and
ending on the date on which all of the Registrable Securities may be sold to the
public without registration under the Securities Act in reliance on Rule 144
(the “Registration Period”) include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading;

(b)         Comply with the provisions of the Securities Act with respect to the
Registrable Securities covered by the Registration Statement until the earlier
of (i) such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by each Purchaser as set
forth in the Prospectus forming part of the Registration Statement or (ii) the
date on which the Registration Statement is withdrawn;

(c)         Furnish to each Purchaser and its legal counsel identified to the
Company (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of the Registration
Statement, each Prospectus, and each amendment or supplement thereto, and (ii)
such number of copies of the Prospectus and all amendments and supplements
thereto and such other documents, as the Purchaser may reasonably request in
order to facilitate the disposition of the Registrable Securities;

(d)         Register or qualify the Registrable Securities covered by the
Registration Statement under such securities or “blue sky” laws of such
jurisdictions as the Purchasers reasonably request, (ii) prepare and file in
such jurisdictions such amendments (including post effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify, (B) subject
itself to general taxation in any such jurisdiction or (C) file a general
consent to service of process in any such jurisdiction;
 
 
15

--------------------------------------------------------------------------------

 

(e)         As promptly as practicable after becoming aware of such event,
notify each Purchaser of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Purchaser as such
Purchaser may reasonably request;

(f)          As promptly as practicable after becoming aware of such event,
notify each Purchaser (or, in the event of an underwritten offering, the
managing underwriters) of the issuance by the SEC of any stop order or other
suspension of the effectiveness of the Registration Statement and take all
lawful action to effect the withdrawal, rescission or removal of such stop order
or other suspension;

(g)         Take all such other lawful actions reasonably necessary to expedite
and facilitate the disposition by the Purchaser of its Registrable Securities in
accordance with the intended methods therefor provided in the Prospectus which
are customary under the circumstances;

(h)         In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post effective amendment to the
Registration Statement such information as the underwriters reasonably agree
should be included therein and to which the Company does not reasonably object
and make all required filings of such Prospectus supplement or post effective
amendment as soon as practicable after it is notified of the matters to be
included or incorporated in such Prospectus supplement or post effective
amendment;

(i)          In connection with any underwritten offering, deliver such
documents and certificates as may be reasonably required by the underwriters;
and

(j)          Cooperate with the Purchasers to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold
pursuant to the Registration Statement, which certificates shall, if required
under the terms of this Agreement, be free of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and registered in
such names as any Purchaser may request and maintain a transfer agent for the
Common Stock.

6.2.3      Obligations and Acknowledgements of the Purchasers.  In connection
with the registration of the Registrable Securities, each Purchaser shall have
the following obligations and hereby make the following acknowledgements:

(a)         It shall be a condition precedent to the obligations of the Company
to include the Registrable Securities in the Registration Statement that each
Purchaser wishing to participate in the Registration Statement (i) shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities and (ii) shall execute such documents in connection with
such registration as the Company may reasonably request.  Prior to the first
anticipated filing date of a Registration Statement, the Company shall notify
each Purchaser of the information the Company requires from such Purchaser (the
“Requested Information”) if such Purchaser elects to have any of its Registrable
Securities included in the Registration Statement.  If a Purchaser notifies the
Company and provides the Company the information required hereby prior to the
time the Registration Statement is declared effective, the Company will file an
amendment to the Registration Statement that includes the Registrable Securities
of such Purchaser provided, however, that the Company shall not be required to
file such amendment to the Registration Statement at any time less than five (5)
business days prior to the effective date.

 
 
16

--------------------------------------------------------------------------------

 
 
(b)         Each Purchaser agrees to cooperate with the Company in connection
with the preparation and filing of a Registration Statement hereunder, unless
such Purchaser has notified the Company in writing of its election to exclude
all of its Registrable Securities from such Registration Statement;

(c)         Each Purchaser agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in Section 6.2.2(e)
or 6.2.2(f), such Purchaser shall immediately discontinue its disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until the Purchaser’s receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 6.2.2(e) and, if so
directed by the Company, the Purchaser shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in the Purchaser’s possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice; and

(d)         Each Purchaser acknowledges that it may be deemed to be a statutory
underwriter within the meaning of the Securities Act with respect to the
Registrable Securities being registered for resale by it, and if a Purchaser
includes Registrable Securities for offer and sale within a Registration
Statement such Purchaser hereby consents to the inclusion in such Registration
Statement of a disclosure to such effect.

6.2.4       Expenses of Registration.  All expenses (other than underwriting
discounts and commissions and the fees and expenses of a Purchaser’s counsel)
incurred in connection with registrations, filings or qualifications pursuant to
this Section 6.2, including, without limitation, all registration, listing, and
qualifications fees, printing and engraving fees, accounting fees, and the fees
and disbursements of counsel for the Company, shall be borne by the Company.

6.2.5       Indemnification and Contribution.

(a)         Indemnification by the Company.  The Company shall indemnify and
hold harmless each Purchaser and each underwriter, if any, which facilitates the
disposition of Registrable Securities, and each of their respective officers and
directors and each Person who controls such underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the 1934 Act (each such Person
being sometimes hereinafter referred to as an “Indemnified Person”) from and
against any losses, claims, damages or liabilities, joint or several, to which
such Indemnified Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
an omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 6.2.2(e), the use
by the Indemnified Person of an outdated or defective Prospectus after the
Company has provided to such Indemnified Person an updated Prospectus correcting
the untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.

 
17

--------------------------------------------------------------------------------

 
 
(b)         Indemnification by the Purchasers and Underwriters.  Each Purchaser
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, severally and not jointly, as
a consequence of facilitating such disposition of Registrable Securities to (i)
indemnify and hold harmless the Company, its directors (including any person
who, with his or her consent, is named in the Registration Statement as a
director nominee of the Company), its officers who sign any Registration
Statement and each Person, if any, who controls the Company within the meaning
of either Section 15 of the Securities Act or Section 20 of the 1934 Act,
against any losses, claims, damages or liabilities to which the Company or such
other persons may become subject, under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in such Registration Statement or Prospectus or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein (in light of the circumstances under which they were made, in
the case of the Prospectus), not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by the Purchaser or underwriter
expressly for use therein, and (ii) reimburse the Company for any legal or other
expenses incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred; provided, however, that
such Purchaser shall not be liable under this Section 6.2.5(b) for any amount in
excess of the net proceeds paid to such Purchaser in respect of Registrable
Securities sold by it.

(c)         Notice of Claims, etc.  Promptly after receipt by a Person seeking
indemnification pursuant to this Section 6.2.5 (an “Indemnified Party”) of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a “Claim”), the
Indemnified Party promptly shall notify the Person against whom indemnification
pursuant to this Section 6.2.5 is being sought (the “Indemnifying Party”) of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure.  In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof.  Notwithstanding the assumption of the defense of
any Claim by the Indemnifying Party, the Indemnified Party shall have the right
to employ separate legal counsel and to participate in the defense of such
Claim, and the Indemnifying Party shall bear the reasonable fees, out of pocket
costs and expenses of such separate legal counsel to the Indemnified Party if
(and only if): (i) the Indemnifying Party shall have agreed to pay such fees,
costs and expenses, (ii) the Indemnified Party shall reasonably have concluded
that representation of the Indemnified Party by the Indemnifying Party by the
same legal counsel would not be appropriate due to actual or, as reasonably
determined by legal counsel to the Indemnified Party, potentially differing
interests between such parties in the conduct of the defense of such Claim, or
if there may be legal defenses available to the Indemnified Party that are in
addition to or disparate from those available to the Indemnifying Party, or
(iii) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim.  If the Indemnified Party
employs separate legal counsel in circumstances other than as described in the
preceding sentence, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party.  Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of
counsel for the Indemnified Party (together with appropriate local
counsel).  The Indemnified Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment or contain any admission of
wrongdoing.

 
18

--------------------------------------------------------------------------------

 
 
(d)         Contribution.  If the indemnification provided for in this
Section 6.2.5 is unavailable to or insufficient to hold harmless an Indemnified
Party in respect of any losses, claims, damages or liabilities (or actions in
respect thereof) referred to therein, then each Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and the Indemnified Party in connection with the statements
or omissions or alleged statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations.  The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by such Indemnifying Party or by such Indemnified Party,
and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.  The parties
hereto agree that it would not be just and equitable if contribution pursuant to
this Section 6.5(d) were determined by pro rata allocation (even if the
Purchasers or any underwriters were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in this Section 6.2.5(d).  The amount paid or payable
by an Indemnified Party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim.  No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.

(e)         Limitation on Purchasers’ and Underwriters’
Obligations.  Notwithstanding any other provision of this Section 6.2.5, in no
event shall (i) any Purchaser have any liability under this Section 6.2.5 for
any amounts in excess of the dollar amount of the proceeds actually received by
such Purchaser from the sale of Registrable Securities (after deducting any
fees, discounts and commissions applicable thereto) pursuant to any Registration
Statement under which such Registrable Securities are registered under the
Securities Act and (ii) any underwriter be required to undertake liability to
any Person hereunder for any amounts in excess of the aggregate discount,
commission or other compensation payable to such underwriter with respect to the
Registrable Securities underwritten by it and distributed pursuant to the
Registration Statement.

(f)          Other Liabilities.  The obligations of the Company under this
Section 6.2.5 shall be in addition to any liability which the Company may
otherwise have to any Indemnified Person and the obligations of any Indemnified
Person under this Section 6.2.5 shall be in addition to any liability which such
Indemnified Person may otherwise have to the Company.  The remedies provided in
this Section 6.2.5 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to an indemnified party at law or in equity.

6.2.6       Rule 144.  With a view to making available to the Purchasers the
benefits of Rule 144, the Company agrees to use its best efforts to:
 
 
19

--------------------------------------------------------------------------------

 

(a)         comply with the provisions of paragraph (c)(1) of Rule 144; and

(b)         file with the SEC in a timely manner all reports and other documents
required to be filed by the Company pursuant to Section 13 or 15(d) under the
1934 Act; and, if at any time it is not required to file such reports but in the
past had been required to or did file such reports, it will, upon the request of
any Purchasers, make available other information as required by, and so long as
necessary to permit sales of, its Registrable Securities pursuant to Rule 144.

6.2.7      Common Stock Issued Upon Stock Split, etc.  The provisions of this
Section 6.2 shall apply to any shares of Common Stock or any other securities
issued as a dividend or distribution in respect of the Shares or the Warrant
Shares.

6.2.8      Termination of Registration Rights.  The registration rights granted
in this Section 6.2 shall terminate with respect to a Security upon the date
such Security is first eligible to be resold pursuant to Rule 144 of the
Securities Act.

6.3         [Omitted.]

6.4         Covenants Relating to Operations.

6.4.1       Effective immediately after the first closing of this offering, the
Company shall consider two (2) nominees of Sandgrain Securities, Inc. as a
directors of the Company with a minimum term of one year following the final
Closing of this offering (each, a “SG Director Designee”); provided, however,
that either SG Director Designee from time to time, may at his or her sole
discretion, hold a seat as Board observer, entitled to attend all meetings and
obtain all documentation as though a full board member, but without any rights
to consent or vote upon any matters brought before the Company’s Board of
Directors, or any committee thereof. Either SG Director Designee shall also be
entitled, at his or her discretion, to sit on the (or act as a non-voting
observer to) the Company’s Audit Committee and/or Compensation Committee.  The
Company shall see to it that each SG Director Designee (or his or her
replacement as appointed from time to time) is appointed by the board and,
nominated and named in any proxy or information statement, or any other written
consent or action of shareholders taken, as may be necessary from time to time,
so as to ensure each such person’s nomination to the Board for at least a
minimum term of one year following the final Closing.   Effective immediately
after the first closing of this offering, the maximum number of directors
constituting the entire Board of Directors, including the SG Director Designees,
shall be five (5).  Any and all compensation paid to the SG Director Designees
shall be as approved by the Company’s Board of Directors and shall be consistent
with compensation provided to other independent members of the Company’s Board
of Directors and in accordance with Company policy.

6.4.2      [Reserved.]
 
 
20

--------------------------------------------------------------------------------

 
 
6.5         Additional Share Issuances; Full Ratchet Share Adjustment.
 
6.5.1       Full Ratchet Adjustment.  In the event that at any time commencing
the first Closing and continuing for a period of twelve (12) months following
the final Closing or termination of the offering of Units as set forth in
Recital B hereof, except for Excepted Issuances (as defined in Section 6.5.3),
the Company shall agree to issue or actually issue or grant the right to receive
any Common Stock or securities convertible, exercisable or exchangeable for
shares of Common Stock (or modify any of the foregoing which may be
outstanding)  (“Common Stock Equivalent”) to any person or entity at a price per
share or conversion price or exercise price per share (the “Lower Per Share
Price”) which shall be less than the per share purchase price of initially
$0.90, as adjusted for stock splits, dividends and reclassifications, (the “Per
Share Price”) then in effect (“Lower Price Issuance”), then, automatically and
without any obligation of or notice to Purchaser or Placement Agent, the Per
Share Price paid herein shall be amended, reduced, restated and deemed to be,
the Lower Per Share Price and the number of Shares issuable under this Agreement
shall be deemed increased to the Purchase Price paid (as set forth on the
signature page and acceptance pages hereto) divided by the Lower Per Share
Price, and, each Purchaser and Placement Agent (or his rightful assigns) shall
have the absolute right to receive without giving or receiving any form of
notice or making any form of demand, and the Company shall immediately and
unconditionally issue without restriction (other than as provided in this
Agreement), such number of additional shares of Common Stock (the “Additional
Shares”) as equals the sum of the Purchase Price paid hereby as set forth on the
signature page hereto, divided by the Lower Per Share Price, less the number
Shares previously issued to the Purchaser; provided, however, if the Lower Price
Issuance is for a per share price less than $0.35 per share, the Lower Per Share
Price shall be deemed to be $0.35 per share.  Thereafter, and for purposes of
calculating future adjustments or issuances of Additional Shares, the Per Share
Price shall be amended and revised to be the Lower Per Share
Price.   Certificates for Additional Shares shall be unconditionally delivered
by Federal Express to Placement Agent on behalf of both itself and the
Purchasers within 7 business days of the date of the Lower Price Issuance of
Common Stock or Common Stock Equivalents (or, if earlier, date of commitment to
make the Lower Price Issuance of Common Stock or Common Stock Equivalents).  The
Company acknowledges and agrees that the Purchasers and Placement Agent and its
assigns may be irreparably harmed and injured (including loss of profits) if
certificates of Additional Shares are not issued promptly in accordance with the
provisions hereof and shall compensate, in addition to enforcement costs, any
lost profits or expenses of Purchaser, Placement Agent, or their rightful
assigns in the event that a court finds in favor of such any of such persons in
any action by such persons to enforce their rights.
 
6.5.2       Effective Price.   For purposes of Section 6.5, in connection with
any issuance of any Common Stock Equivalents, (i) the maximum number of Common
Stock potentially issuable at any time upon conversion, exercise or exchange of
such Common Stock Equivalents (the “Deemed Number”) shall be deemed to be
outstanding or subscribed for and required to be issued upon issuance of such
Common Stock Equivalents, (ii) the deemed issue price (“Effective Price”)
applicable to such Common Stock Equivalents shall equal the minimum dollar value
of consideration payable to the Company to purchase such Common Stock
Equivalents and to convert, exercise or exchange them into Common Stock, divided
by the Deemed Number, and (iii) no further adjustment shall be made to the Per
Share Price upon the actual issuance of Common Stock upon conversion exercise or
exchange of such Common Stock Equivalents if issued at or higher than the
Effective Price. Common Stock issued or issuable by the Company for no
consideration will be deemed to have been issued or to be issuable for $0.0001
per share of Common Stock.
 
6.5.3       Excepted Issuances.   For purposes of Section 6.5, “Excepted
Issuance” shall mean (i) as a result of the issuance of any Shares or Warrants
in this offering (including in subsequent Closings of this offering at the same
price) or exercise of any of the Warrants issued pursuant to the Subscription
Agreement or any of securities or warrants issued to the Placement Agent acting
in connection with the sale of the Units (including the exercise or conversion
of any of the foregoing), (ii) the Company’s issuance of Common Stock or Common
Stock Equivalents upon the exercise or conversion of options, warrants or
convertible notes or other securities, outstanding on the date hereof as
specifically described in SEC Reports (but not if the amounts and exercise
prices of the same are not both already described in the SEC Reports) or
specifically disclosed herein,  (iii) as granted to officers, directors or
employees and other service providers in connection with any existing board
approved stock option, incentive or similar plan or any stock option, incentive
or similar plan approved by the Board of Directors of the Company and the SG
Director Designees, including the exercise of the same, and (iv) the issuance of
securities as full or partial consideration in connection with a merger, asset
acquisition or reorganization (other than a mere reincorporation transaction)
approved by the Board of Directors of the Company and the SG Director Designees;
provided, however, that the aggregate issuances from time to time pursuant to
subsections (ii) and (iii) shall not exceed 6,000,000 shares of Common Stock.
 
 
21

--------------------------------------------------------------------------------

 
 
6.6         Filing of Reports.  The Company will use best efforts to file on a
timely basis, any and all reports or amendments thereto, as it is required to
file in order to remain fully current with all of its reporting obligations
under the Exchange Act so as to enable sales without resale limitations 6 months
from the date of first Closing, pursuant to Rule 144, as amended (“Rule 144
Sales”). It is expressly agreed and acknowledged that the Company’s obligation
pursuant to this Section 6.6 shall extend only until the period ending 18 months
from the date of final Closing, after which time such obligation shall terminate
automatically. The Company acknowledges and understands that its failure to make
such filings on a timely basis could cause irreparable injury to Purchasers and
Placement Agent, both with respect to the Shares and Warrant Shares owned by
them and that the Company may be subject to liability therefore, including,
without limitation, actual lost profits as the result of any failure to file the
required reports on a timely basis.  Accordingly, if during the period
commencing 6 months from the date of the first Closing and ending 18 months from
the date of final Closing, the Company fails to maintain a current filing status
with the SEC to allow Rule 144 Sales, a holder of a Unit shall be entitled to
liquidated damages of 5% per calendar month capped at the dollar amount such
holder invested; provided, however, that an affiliate of the Company shall not
be entitled to such liquidated damages.  For avoidance of doubt, all references
herein to filings to be made on a “timely basis” shall include and mean, any
extension periods permissible under Rule 12b-25 of the Exchange Act, provided
that the Company has complied with such rule, but not beyond said extension
date.

 
7.           CONDITIONS

7.1           Conditions Precedent to the Obligation of the Company to Close and
to Sell the Shares.  The obligation hereunder of the Company to close and issue
and sell the Shares to the Purchasers at a Closing is subject to the
satisfaction or waiver, at or before such Closing of the conditions set forth
below.  These conditions are for the Company’s and Placement Agent’s sole
benefit and may be waived by the Company and Placement Agent at any time in
their sole discretion.

7.1.1       Accuracy of the Purchasers’ Representations and Warranties.  The
representations and warranties of each Purchaser (including, for avoidance of
doubt, those relating to the Questionnaire) shall be true and correct in all
material respects as of the date when made and as of such Closing as though made
at that time, except for representations and warranties that are expressly made
as of a particular date, which shall be true and correct in all material
respects as of such date.

7.1.2       Performance by the Purchasers.  Each Purchaser shall have performed,
satisfied, and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchasers at or prior to such Closing.

7.1.3       No Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

7.1.4       Delivery of Purchase Price.  The Purchase Price for the Shares shall
be available in cleared funds in Escrow and authorized by the Company and
Placement Agent, in their sole and absolute discretion, for distribution on such
Closing in accordance with the terms hereof.

7.1.5       Delivery of Transaction Documents.  The Transaction Documents shall
have been duly executed and delivered by the Purchasers to the Company.
 
 
22

--------------------------------------------------------------------------------

 

7.2           Conditions Precedent to the Obligation of the Purchasers to Close
and to Purchase the Shares.  The obligation hereunder of the Purchasers to
purchase the Shares and consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before such Closing,
of each of the conditions set forth below.  These conditions are for the
Purchasers’ sole benefit and may be waived by the Purchasers and Placement Agent
at any time in their sole discretion.

7.2.1       Accuracy of the Company’s Representations and Warranties.  Each of
the representations and warranties of the Company in this Agreement and the
other Transaction Documents shall be true and correct in all material respects
as of such Closing, except for representations and warranties that speak as of a
particular date, which shall be true and correct in all material respects as of
such date.

7.2.2       Performance by the Company.  The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to such Closing.

7.2.3       No Suspension, Etc.  Trading in the Common Stock of the Company
shall not have been suspended by the SEC 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)..

7.2.4       No Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.

7.2.5       No Proceedings or Litigation.  No action, suit or proceeding before
any arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been initiated, against
the Company or any subsidiary, or any of the officers, directors or affiliates
of the Company or any subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.

7.2.6       Shares and Warrants.  At the Closing, the Company shall have
delivered to the Purchasers the Warrants and the Shares and shall have delivered
to the Placement Agent the Placement Agent Warrants and Placement Agent Shares
along with all appropriate board resolutions or other necessary documentation in
order to issue the Shares in such denominations as each Purchaser may
request.   The Company shall also deliver this Agreement, duly executed by the
Company.

7.2.7       Secretary’s Certificate.  The Company shall deliver to the Placement
Agent a secretary’s certificate, dated as of the first Closing Date, as to (i)
the resolutions adopted by the Board of Directors approving the transactions
contemplated hereby, (ii) the Company’s Articles of Incorporation, (iii) the
Bylaws, each as in effect at such Closing, and (iv) the authority and incumbency
of the officers of the Company executing the Transaction Documents and any other
documents required to be executed or delivered in connection therewith.

7.2.8       Officer’s Certificate. On the first Closing Date, the Company shall
have delivered to the Placement Agent a certificate signed by an executive
officer on behalf of the Company, dated as of such first Closing Date,
confirming the accuracy of the Company’s representations, warranties, and
covenants as of such first Closing Date and confirming the compliance by the
Company with the conditions precedent set forth in paragraph 7.2.9 as of such
Closing.

 
23

--------------------------------------------------------------------------------

 
 
 
 

7.2.9  Material Adverse Effect.  No Material Adverse Effect shall have occurred
at or before such Closing Date.

7.2.10 Opinion of Counsel.  Counsel for the Company shall have delivered to the
Placement Agent an opinion, in reasonably satisfactory form, to the effect of
the due/valid issuance of all Securities and placement agent compensation, due
authority, validity, binding effect of all relating agreements and the Warrants
and, no violations of law, defaults or conflicts caused by this Agreement and
related transaction.

7.2.11  Lock Up Agreement.  Officers, directors and affiliates of the shares of
the Company shall execute a lock up agreement, and agree to place a legend and
stop sale notice with respect to their shares with the Company’s Transfer Agent,
to the effect that such persons may not sell, assign, transfer, pledge or
hypothecate any shares held or acquired by them, from commencement of the
offering and continuing for a period of 90 days following the final closing of
the offering and, thereafter, sales may only be made by such persons in
accordance with the resale limitations set forth for them, as applicable, under
Rule 144 of the Securities Act.

8.             PLACEMENT AGENT/LEGAL FEES.

            8.1           Placement Agent’s Commission.   The Company
acknowledges that it has retained Sandgrain Securities, Inc. to act as its
managing Placement Agent (the “Placement Agent”) and that Placement Agent may
engage additional sub-agents to assist with the Company’s private
placement.  The Company agrees that it will pay the Placement Agent (and other
agents it may select), at each Closing, (i) a cash commission of 8% of the
amount raised by it as Placement Agent (but excluding amounts purchased by
Purchasers for which the Placement Agent did not act as such) up to an aggregate
of 120 Units sold in all Closings, and  the greater of $7,500 or a 1%
non-accountable expense allowance based on no more than 120 Units sold; and (ii)
such number of shares of Common Stock as equals 8% of the number of Shares
issued under subsection 8.1(i) as part of the Units at each Closing (the
“Placement Agent Shares”) and Series A-1 Warrants and Series A-2 Warrants (the
“Placement Agent Warrants”) to purchase such number of warrant shares as equals
8% of the number of Warrants issued as part of the Units at each Closing, which
amounts may be subdivided amongst the managing Placement Agent and other agents
(who are appropriately FINRA registered) retained, but for which such amounts
shall be calculated solely upon the number of Units purchased by Purchasers for
which the Placement Agent or other agents acted as such.  The Placement Agent
Warrants shall be identical in all material respects to the Warrants issued as
part of the Units to the Purchasers and, the shares underlying the Placement
Agent Warrants.  The Placement Agent Shares and Common Stock underlying the
Placement Agent Warrants shall be deemed Registrable Securities under this
Agreement. The Placement Agent shall also receive a 5% warrant solicitation fee
for the exercise of the Warrants solicited by Placement Agent resulting in
payment of a fee to Placement Agent (i.e., other than cashless exercise).

            8.2          Legal Fees.   The Company shall pay all legal fees of
the Placement Agent in connection with this Agreement of $15,000 (of which
$5,000 shall have been paid prior to commencement of the offering, with $10,000
paid at the first closing) plus, if any, blue sky legal costs, printing, and
filing fees.  In addition, the Company shall reimburse Placement Agent’s hourly
expenses for any subsequent closings after the first Closing, or for any
material modifications of the Transaction Documents made at any time so long as
previously agreed to in writing by the Company and Placement Agent.
 
 
24

--------------------------------------------------------------------------------

 
 
9.          MISCELLANEOUS.

9.1           Indemnification.  Each Purchaser agrees to defend, indemnify and
hold the Company harmless against any liability, costs or expenses arising as a
result of any dissemination of any of the Shares by such Purchaser in violation
of the Securities Act or applicable state securities law.

9.2           Governing Law.  The validity and interpretation of this Agreement
shall be governed by, and construed and enforced in accordance with, the laws of
the State of New York.  Each of the parties hereto and their assigns hereby
consents to the exclusive jurisdiction and venue of the Courts of the State of
New York, located in the City and County of New York and the United States
District Court, Southern District, for the State of New York with respect to any
matter relating to this Agreement and performance of the parties’ obligations
hereunder, the documents and instruments executed and delivered concurrently
herewith or pursuant hereto and performance of the parties’ obligations
thereunder and each of the parties hereto hereby consents to the personal
jurisdiction of such courts and shall subject itself to such personal
jurisdiction.  Any action, suit or proceeding relating to such matters shall be
commenced, pursued, defended and resolved only in such courts and any
appropriate appellate court having jurisdiction to hear an appeal from any
judgment entered in such courts.  The parties irrevocably waive the defense of
an inconvenient forum to the maintenance of such suit or proceeding.  Service of
process in any action, suit or proceeding relating to such matters may be made
and served within or outside the State of New York by registered or certified
mail to the parties and their representatives at their respective addresses
specified in Section 9.7, provided that a reasonable time, not less than thirty
(30) days, is allowed for response.  Service of process may also be made in such
other manner as may be permissible under the applicable court rules.  THE
PARTIES HERETO WAIVE TRIAL BY JURY.

9.3           Successors and Assigns.  Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.

9.4           Entire Agreement.  This Agreement and the Exhibits hereto and
thereto, and the other documents delivered pursuant hereto and thereto,
constitute the full and entire understanding and agreement among the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other party in any manner by any representations, warranties, covenants, or
agreements except as specifically set forth herein or therein.  Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.

9.5           Severability.  In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, it shall to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

9.6           Amendment and Waiver.  Except as otherwise provided herein, any
term of this Agreement may be amended, and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), with the written consent of the Company and a majority of the
Purchasers, or, to the extent such amendment affects only one Purchaser, by the
Company and such Purchaser.  Any amendment or waiver effected in accordance with
this Section shall be binding upon each future holder of any security purchased
under this Agreement (including securities into which such securities have been
converted) and the Company.

 
25

--------------------------------------------------------------------------------

 

9.7           Notices.  All notices and other communications required or
permitted hereunder shall be in writing and shall be effective when delivered
personally, or sent by telex or telecopier (with receipt confirmed), provided
that a copy is mailed by registered mail, return receipt requested, or when
received by the addressee, if sent by Express Mail, Federal Express or other
express delivery service (receipt requested) in each case to the appropriate
address set forth below:

If to the Company:
 
Number 504, West Ren Min Road,
   
Kunming City, Yunnan Province
   
People’s Republic of China, 650000
   
Attention: Zhen Jiang Wang, Chairman & CEO
   
Phone: 852-2138-1668
   
Fax No.:  (___) ____—_____
     
With a copy to:
 
Greenberg Traurig, LLP
   
1201 K Street, Suite 1100
   
Sacramento, California 95814
   
Phone: (916) 442-1111
   
Fax No.: (916) 448-1709
   
Attention: Mark C. Lee
     
If to the Purchaser:
 
At the address set forth on the Purchaser’s Signature Page
     
With a copy to:
 
Sandgrain Securities, Inc.
   
1050 Franklin Avenue, Suite 302
   
Garden City, NY 11530
   
Facsimile: (516) 741-0390
   
Attention: Peter Grassel
     
With a copy to:
 
Levy International Law, LLC
   
590 Madison Avenue, Suite 2100
   
New York, New York 10022
   
Facsimile 646-219-1574
   
Attention: Ron Levy, Esq.

9.8           Faxes, Electronic Mail and Counterparts.  This Agreement may be
executed in one or more counterparts.  Delivery of an executed counterpart of
the Agreement or any exhibit attached hereto by facsimile transmission or
electronic mail (any such delivery, an “Electronic Delivery”), shall be treated
in all manner and respects as an original agreement or instrument and shall be
considered to have the same binding legal effect as if it were the original
signed version thereof delivered in person.  At the request of any party hereto,
each other party hereto shall re-execute original forms hereof and deliver them
in person to all other parties.  No party hereto shall raise the use of
Electronic Delivery to deliver a signature or the fact that any signature or
agreement or instrument was transmitted or communicated through the use of
Electronic Delivery as a defense to the formation of a contract, and each such
party forever waives any such defense, except to the extent such defense related
to lack of authenticity.

9.9           Consent of Purchasers.  Each Purchaser hereby irrevocably consents
to the appointment of  Sandgrain Securities, Inc. and/or its affiliates as their
representative (the “Representative”) for the purposes of appointing a director
designee. As used in the Agreement, “consent of the Purchasers” or similar
language means the consent of the Representative. The appointment of the
Representative is coupled with an interest and all authority hereby conferred
shall be irrevocable and shall not be terminated by any or all of the Purchasers
without the consent of the Company, which consent may be withheld for any
reason, and the Representative is hereby authorized and directed to perform and
consummate on behalf of the Purchasers.  The Purchasers hereby hold harmless
Sandgrain Securities, Inc. and SG Director Designees in office from time to
time,  from any and all liabilities or claims or losses other than intentional
malfeasance.
 
 
26

--------------------------------------------------------------------------------

 
 
9.10         Titles and Subtitles.  The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.

9.11         Further Assurances.  At any time and from time to time after the
Closing, upon reasonable request of the other, each party shall do, execute,
acknowledge and deliver such further acts, assignments, transfers, conveyances
and assurances as may be reasonably required for the more complete consummation
of the transactions contemplated herein.

9.12         Legal Fees.  In the event any suit or other legal proceeding is
brought for the enforcement of any of the provisions of this Agreement, the
parties hereto agree that the prevailing party or parties shall be entitled to
recover from the other party or parties upon final judgment on the merits
reasonable attorneys’ fees, including attorneys’ fees for any appeal, and costs
incurred in bringing such suit or proceeding.

APPLICABLE ONLY IN THE EVENT ANY UNITS ARE SOLD TO FLORIDA RESIDENTS - FLORIDA
LAW PROVIDES THAT WHEN SALES ARE MADE TO FIVE OR MORE PERSONS IN FLORIDA, ANY
SALE MADE IN FLORIDA IS VOIDABLE BY THE PURCHASER WITHIN THREE DAYS AFTER THE
FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE COMPANY, AN AGENT
OF THE COMPANY OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF
THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER.  THIS
SALE IS BEING MADE IN FLORIDA. PAYMENTS FOR TERMINATED SUBSCRIPTIONS VOIDED BY
PURCHASERS AS PROVIDED FOR IN THIS PARAGRAPH WILL BE PROMPTLY REFUNDED WITHOUT
INTEREST.  NOTICE SHOULD BE GIVEN TO THE COMPANY AT THE ADDRESS SPECIFIED
HEREIN.

 
 
27

--------------------------------------------------------------------------------

 

[Counterpart Signature Page To Securities Purchase Agreement of
First China Pharmaceutical Group, Inc.]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth on the Purchase Signature Page hereto.

PURCHASER
 
(By Counterpart Form - See Purchaser Signature
Pages following the Questionnaire)
 
COMPANY
 
FIRST CHINA PHARMACEUTICAL
GROUP, INC.
 
(By Execution of Acceptance Page following
Certificate of Signatory)

 
 
28

--------------------------------------------------------------------------------

 

PURCHASER SIGNATURE PAGES

The undersigned Purchaser has read the Securities Purchase Agreement of First
China Pharmaceutical Group, Inc., dated as of March __, 2011, and acknowledges
that the completion of this Questionnaire and the execution of the Purchaser
Signature Page that follows shall constitute the undersigned’s execution of such
Agreement.  This Questionnaire is and shall remain part of the Agreement.  All
capitalized terms used herein shall be as defined in such Agreement

 
I hereby subscribe for ____ Unit(s), at a Purchase Price of $25,000 per Unit,
each Unit comprised of 27,778 Shares of Common Stock of the Company, Warrants to
purchase 27,778 shares of Common Stock at an exercise price of $1.25 per share,
and Warrants to purchase 27,778 shares of Common Stock at an exercise price of
$2.00 per share for an aggregate Purchase Price of $__________________.

 
           I am a resident of the State(s) or Country of __________________ and
____________.
 

 
Please print above the exact name(s) in which the Shares and Warrants are to be
held

My address is:
 
  
   
  
   
  
   
  
   
  

[Continued]
 
 
SP-1

--------------------------------------------------------------------------------

 

ACCREDITED INVESTOR QUESTIONNAIRE
First China Pharmaceutical Group, Inc.  Offering of Units

I acknowledge that the offering of the Units is subject to the Federal
securities laws of the United States and state securities laws of those states
in which the Units are offered, and that, pursuant to the U.S. Federal
securities laws and state securities laws, the Units may be purchased by persons
who come within the definition of an “Accredited Investor” as that term is
defined in Rule 501(a) of Regulation D promulgated under the Securities Act
(“Regulation D”).

By initialing one of the categories below, I represent and warrant that I come
within the category so initialed and have truthfully set forth the factual basis
or reason I come within that category.  All information in response to this
paragraph will be kept strictly confidential.  I agree to furnish any additional
information that the Company deems necessary in order to verify the answers set
forth below.
 
NOTE:  You must initial at least ONE category.
 
Individual Purchaser:
(A Purchaser who is an individual may initial either Category I, II, or III)
 
Category I    ________
 
I am a director or executive officer of the Company.
     
Category II   ________
 
I am an individual (not a partnership, corporation, etc.) whose individual net
worth, or joint net worth with my spouse, presently exceeds $1,000,000.
         
Explanation.  In calculation of net worth, you may include equity in personal
property and real estate other than your principal residence, including cash,
short term investments, stocks and securities.  Equity in personal property and
real estate should be based on the fair market value of such property less debt
secured by such property.
     
Category III  ________
 
I am an individual (not a partnership, corporation, etc.) who had an individual
income in excess of $200,000 in 2009 and 2010, or joint income with my spouse in
excess of $300,000 in 2009 and 2010, and I have a reasonable expectation of
reaching the same income level in 2011.

[Continued]
 
 
SP-2

--------------------------------------------------------------------------------

 

Entity Purchasers:
(A Purchaser which is a corporation, limited liability company, partnership,
trust, or other entity may initial either Category IV, V, VI, VII or VIII)
 
Category IV  ________
 
The Purchaser is an entity in which all of the equity owners are “Accredited
Investors” as defined in Rule 501(a) of Regulation D.  If relying upon this
category alone, each equity owner must complete a separate copy of this
Agreement.
                                       
(describe entity)
     
Category V   ________
 
The Purchaser is a trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the Units offered, whose purchase is
directed by a “Sophisticated Person” as described in Rule 506(b)(2)(ii) of
Regulation D.
     
Category VI  ________
 
The Purchaser is an organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the Units, with
total assets in excess of $5,000,000.
                                       
(describe entity)
     
Category VII ________
 
The Purchaser is a private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.
                                       
(describe entity)
     

Executed this _____ day of  _________, 2011 at ____________________,
________________.
[Continued]
 
 
SP-3

--------------------------------------------------------------------------------

 

REGULATION S CERTIFICATION
(For Non “U.S. Person” Individual or Entity Purchasers Only)

This Regulation S Certification (“Certification”) is being delivered in
connection with the Securities Purchase Agreement dated March ___, 2011 (the
“Agreement”), by and between First China Pharmaceutical Group, Inc., a Nevada
corporation (the “Company”), and each of the purchasers who execute the
Purchaser Signature Page thereto (the “Purchaser”), and may be relied upon by
the Company, its transfer agent and its counsel in connection with the
transactions contemplated by the Agreement and the issuance of Units
contemplated by the Agreement.  The undersigned Purchaser, being a party to the
Agreement hereby certifies that the following statements are true, correct, and
complete as of the date of this Certification.  Capitalized terms used and not
defined herein shall have the meanings assigned to them in the Agreement.

1.  Purchaser is familiar with Regulation S (“Regulation S”) promulgated by the
U.S. Securities and Exchange Commission (the “SEC”) under the U.S. Securities
Act of 1933, as amended (the “Securities Act”).

2.  Purchaser is a not a “U.S. Person,” as defined in Regulation S and as set
forth in the Agreement.

3.   Purchaser and each Unit Holder (as defined below) understand and
acknowledge that (A) the Securities have not been registered under the
Securities Act, are being sold in reliance upon an exemption from registration
afforded by Regulation S; and that such Securities have not been registered with
any state securities commission or authority; (B) pursuant to the requirements
of Regulation S, the Securities may not be transferred, sold or otherwise
exchanged unless in compliance with the provisions of Regulation S and/or
pursuant to registration under the Securities Act, or pursuant to another
available exemption thereunder; (C) the Company is under no obligation to
register the Securities under the Securities Act or any state securities law, or
to take any action to make any exemption from any such registration provisions
available; and (D) the Company will refuse to register any transfer of
Securities not made in accordance with the provisions of Regulation S, and/or
pursuant to registration under the Securities Act of pursuant to another
available exemption thereunder.

4.  Purchaser has requested that certificates representing the Securities be
issued in the name of certain clients or customers of Purchaser who have
provided funds for the acquisition of the Securities (such persons and entities
referred to as “Unit Holders”).  No Unit Holder is a “U.S. Person” as defined in
Regulation S.  Neither Purchaser nor any Unit Holder is acquiring the Securities
for the account of any U.S. Person.

5.  Neither Purchaser nor any Unit Holder was formed specifically for the
purpose of acquiring the Securities pursuant to the Agreement.

6.  The offer leading to the issuance of the Securities, to any transfer of
Securities to the Unit Holders, and to the issuance of certificates to the Unit
Holders, was made in an “offshore transaction” as defined in Regulation S.  For
purposes of Regulation S, Purchaser understands that an “offshore transaction”
as defined under Regulation S is any offer or sale not made to a person in the
United States and either (A) at the time the buy order is originated, the
purchaser is outside the United States, or the seller or any person acting on
his/her behalf reasonably believes that the purchaser is outside the United
States; or (B) for purposes of (1) Rule 903 of Regulation S, the transaction is
executed in, or on or through a physical trading floor of an established foreign
exchange that is located outside the United States or (2) Rule 904 of Regulation
S, the transaction is executed in, on or through the facilities of a designated
offshore securities market, and neither the seller nor any person acting on its
behalf knows that the transaction has been prearranged with a buyer in the U.S.
 
 
SP-4

--------------------------------------------------------------------------------

 
 
7.  Neither Purchaser, nor any affiliate or any person or entity acting on
Purchaser’s behalf, nor any Unit Holder, has made or is aware of any “directed
selling efforts” in the United States, which is defined in Regulation S to be
any activity undertaken for the purpose of, or that could reasonably be expected
to have the effect of, conditioning the market in the United States for any of
the Securities.

8.  Purchaser understands that the Company is the issuer of the Securities which
are the subject of the Agreement, and that, for purpose of Regulation S, a
“distributor” is any underwriter, dealer or other person who participates,
pursuant to a contractual arrangement, in the distribution of securities offered
or sold in reliance on Regulation S and that an “affiliate” is any partner,
officer, director or any person directly or indirectly controlling, controlled
by or under common control with any person in question.  Purchaser agrees that
Purchaser will not, during the Restricted Period set forth under Rule
903(b)(iii)(A), act as a distributor, either directly or though any affiliate,
nor shall he/she sell, transfer, hypothecate or otherwise convey the Securities
other than to a non-U.S. Person.

Resale Restrictions

9.  Purchaser is purchasing the Units for its own account and risk and not for
the account or benefit of a U.S. Person (as defined in Regulation S).  Purchaser
understands, acknowledges and agrees that he/she must bear the economic risk of
an investment in the Securities for an indefinite period of time and that prior
to any such offer or sale, the Company may require, as a condition to effecting
a transfer of the Securities, an opinion of counsel, acceptable to the Company,
as to the registration or exemption therefrom under the Securities Act and any
state securities acts, if applicable.

10.  Purchaser will, during and after the expiration of the distribution
compliance period, as set forth under Regulation S Rule 903(b)(3)(iii)(A),
offer, sell, pledge or otherwise transfer the Securities only in accordance with
Regulation S, or pursuant to an available exemption under the Securities
Act.  The issuance of the Securities pursuant to the Agreement has neither been
pre-arranged with a purchaser who is in the U.S. or who is a U.S. Person, nor is
it part of a plan or scheme to evade the registration provisions of the United
States federal securities laws.  During such distribution compliance period,
Purchaser will not engage in hedging transactions with regard to the common
stock of the Company, unless in compliance with the Securities Act.

Legends

11.  Purchaser acknowledges, on behalf of Purchaser and the Unit Holders, that
substantially the following legend may appear on any certificates that may be
issued in respect of the Securities:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN OFFERED AND SOLD IN AN
“OFFSHORE TRANSACTION” IN RELIANCE UPON REGULATION S AS PROMULGATED BY THE
SECURITIES AND EXCHANGE COMMISSION.  ACCORDINGLY, THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
“SECURITIES ACT”) AND MAY NOT BE TRANSFERRED OTHER THAN IN ACCORDANCE WITH
REGULATION S, PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.  THE SECURITIES REPRESENTED BY THIS CERTIFICATE CANNOT BE THE SUBJECT
OF HEDGING TRANSACTIONS UNLESS SUCH TRANSACTIONS ARE CONDUCTED IN COMPLIANCE
WITH THE SECURITIES ACT.
 
 
SP-5

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the undersigned has executed this Regulation S Certification
as of the date set forth below.

PURCHASER:
 
NAME: ________________________________
 
By: ___________________________________
 
Title: __________________________________
 
DATED:                               , 2011

[Signature Page to Regulation S Certification]

[Signature Pages Continue]
 
 
SP-6

--------------------------------------------------------------------------------

 

PURCHASER SIGNATURE PAGE
(For Individual Purchasers)

           This Securities Purchase Agreement of First China Pharmaceutical
Group, Inc.  (including the Questionnaire) is hereby executed and entered into
by the below Purchaser.

No. of Units: __________(@$25,000 per Unit)
       
Signature (Individual)
No. of Shares/Warrants: _______________
             
Name (Print)
Purchase Price $_____________
             
Street address
               
City, State, Zip Code & Country

         
Tax Identification or Social Security Number
         
(            ) 
   
Telephone Number
         
(            ) 
   
Facsimile Number

   
Address to Which Correspondence Should Be Directed (if different from above)
         
 
   
c/o Name
         
 
   
Street Address
   
 
   
 
   
City, State, Zip Code & Country
         
(              )
   
Telephone Number
         
(              )
   
Facsimile Number

 
 
SP-7

--------------------------------------------------------------------------------

 

PURCHASER SIGNATURE PAGE
(for Corporation, Partnership, Trust or Other Entities)

This Securities Purchase Agreement of First China Pharmaceutical Group,
Inc.  (including the Questionnaire) is hereby executed and entered into by the
below Purchaser:
 

   
 
No. of Units: __________(@$25,000 per Unit)
 
Name of Entity
     
No. of Shares/Warrants: _______________
       
Type of Entity (i.e., corporation, partnership, etc.)
Purchase Price $_____________
             
Tax Identification or Social Security Number
               
State of Formation of Entity
               
Name of Signatory Typed or Printed
         
Its:
     
Title

   
Address to Which Correspondence Should Be Directed (if different from above)
         
 
   
c/o Name
   
 
   
Street Address
   
 
   
 
   
City, State,  Zip Code & Country
         
(             )
   
Telephone Number
         
(            )
   
Facsimile Number

*If Units are being subscribed for by an entity, the Certificate of Signatory
that follows must also be completed.

 
 
SP-8

--------------------------------------------------------------------------------

 

CERTIFICATE OF SIGNATORY

                    (To be completed if Units are being subscribed for by an
entity)

I,__________________________________, am the ___________________________ of
__________________________________________________________________ (the
“Entity”).

           I certify that I am empowered and duly authorized by the Entity to
execute and carry out the terms of the Securities Purchase Agreement and to
purchase and hold the Shares and Warrants that comprise the Units.  The
Securities Purchase Agreement has been duly and validly executed on behalf of
the Entity and constitutes a legal and binding obligation of the Entity.

           IN WITNESS WHEREOF, I have hereto set my hand this ______ day of
_________, 2011.

 
Signature

 
 
SP-9

--------------------------------------------------------------------------------

 

ACCEPTANCE PAGE TO SECURITIES PURCHASE AGREEMENT OF
FIRST CHINA PHARMACEUTICAL GROUP, INC.

The foregoing subscriptions for ________ Units, for an aggregate purchase price
of $___________ at a Purchase Price of $25,000 per Unit, in accordance with the
foregoing Securities Purchase Agreement, AGREED AND ACCEPTED; provided, however,
that the Company may accept additional subscriptions from time to time without
consent of Purchasers until the maximum offering amount (plus the over-allotment
option, if any) are accepted and Closed upon, in accordance with this Agreement:

FIRST CHINA PHARMACEUTICAL GROUP, INC.
   
By:
 
Name: Zhen Jiang Wang
Title: Chief Executive Officer
 
Date:  _____________  __, 2011

 
 
SP-10

--------------------------------------------------------------------------------

 
 
COMPANY DISCLOSURE SCHEDULE
 
Capitalized terms not otherwise defined in this Company Disclosure Schedule
shall have the same meaning as in the Agreement.
 
The disclosure of any matter in this Company Disclosure Schedule should not be
construed as indicating that such matter is necessarily required to be disclosed
in order for any representation or warranty in the Agreement to be true and
correct in all material respects.  Any description of any document included in
this Company Disclosure Schedule is qualified in all respects by reference to
such document.
 
Schedules
 
 
 

--------------------------------------------------------------------------------

 

SCHEDULE 3.2

OUTSTANDING NOTES, CONVERTIBLE DEBT, DERIVATIVE SECURITIES OR NOTES OF
SUBSIDIARIES

None.
 
 
 

--------------------------------------------------------------------------------

 

SCHEDULE 3.6

MATERIAL ADVERSE CHANGE

None.
 
 
 

--------------------------------------------------------------------------------

 

SCHEDULE 3.11

INTELLECTUAL PROPERTY

 
 
 

--------------------------------------------------------------------------------

 

SCHEDULE A
SCHEDULE OF SUBSCRIBERS

Name
 
Units
 
Purchase Price
             
TOTAL
      $    

 
 
 

--------------------------------------------------------------------------------

 

EXHIBIT A-1

Form of Series A-1 Common Stock Purchase Warrant
 
 
 

--------------------------------------------------------------------------------

 
 
EXHIBIT A-2

Form of Series A-2 Common Stock Purchase Warrant

 
 
 

--------------------------------------------------------------------------------

 

EXHIBIT B

 
Form of Escrow Agreement
 
 
 

--------------------------------------------------------------------------------