EXHIBIT 10.11

FORM OF SUBSCRIPTION AGREEMENT

THIS SUBSCRIPTION AGREEMENT (this “Agreement”), dated as of April 18, 2008, by
and among CHINA LOGISTICS GROUP, INC., a Florida corporation (the “Company”),
and the subscribers identified on the signature page hereto (each a “Subscriber”
and collectively “Subscribers”) (each agreement with a Subscriber being deemed a
separate and independent agreement between the Company and such Subscriber,
except that each Subscriber acknowledges and consents to the rights granted to
each other Subscriber [each, an “Other Subscriber”] under such agreement and the
Transaction Documents, as defined in Section 5(c) of this Agreement, referred to
therein).

WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D (“Regulation
D”) as promulgated by the United States Securities and Exchange Commission (the
“Commission”) under the Securities Act of 1933, as amended (the “1933 Act”).

WHEREAS, the parties desire that, upon the terms and subject to the conditions
contained herein, the Company shall issue and sell to the Subscribers, as
provided herein, and the Subscribers shall purchase not less than $2,000,000 nor
more than $3,750,000.00 (the “Aggregate Purchase Price”) of the Company's common
stock, $.001 par value (“Common Stock”) in units of $250,000.00;  each unit
consisting of (a)  1,000,000 shares of Common Stock at a per share purchase
price of $.25 (the “Share Purchase Price”); subject to adjustment as described
in this Agreement), and (b) 1,000,000 A Warrants and 1,000,000 B warrants in the
form attached hereto as Exhibit A-1 and Exhibit A-2 hereto (collectively the
“Warrants”), to purchase shares of Common Stock (the “Warrant Shares”). The per
share Exercise Price of the Warrants shall be thirty-five cents ($0.35) (“A
Warrants”) and fifty cents ($.50) (“B Warrants”) (the “Exercise Prices”; subject
to adjustment as described in the Warrant and in this Agreement. The purchase
price to be paid by each Subscriber, as identified on the signature page to this
Agreement, is referred to as the “Purchase Price” and the shares being purchased
by and issued to such Subscriber, as identified on the signature page to this
Agreement, are referred to as the “Purchased Shares.” The Purchased Shares, the
Warrants and the Warrant Shares are collectively referred to herein as the
“Securities”; and

WHEREAS, the aggregate proceeds of the sale of the Purchased Shares and the
Warrants contemplated hereby shall be held in escrow pending the closing of the
transactions contemplated by this Agreement pursuant to the terms of an Escrow
Agreement in the form attached hereto as Exhibit B (the “Escrow Agreement”).1

1By signing this Agreement, each of the Subscriber and the Company, subject to
acceptance by the Escrow Agent, agrees to all of the terms and conditions of,
and becomes a party to, the Escrow Agreement, all of the provisions of which are
incorporated herein by this reference as if set forth in full.

1

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

NOW, THEREFORE, in consideration of the mutual covenants and other agreements
contained in this Agreement the Company and the Subscribers hereby agree as
follows:

1.

Closing Date. The “Closing Date” shall be the date that the sum of $2,000,000
 is transmitted by wire transfer or otherwise to or for the benefit of the
Company.  At the election of the Company, there may be one or more Additional
Closing Dates, provided however , that the Aggregate Purchase Price at all
closings shall not exceed $4,500,000.  At each such Closing Date, the Company
shall deliver a Closing Certificate substantially in the form of Exhibit E as
set forth in Paragraph 2(b) of the Agreement.  The consummation of the
transactions contemplated herein (the “Closing”) shall take place at the offices
of Krieger & Prager, LLP, 39 Broadway, Suite 920, New York, New York 10006, upon
the satisfaction of all conditions to Closing set forth in this Agreement.

2.

Closing.  

(a)

Subject to the satisfaction or waiver of the terms and conditions of this
Agreement, on the Closing Date each Subscriber, in the amounts set forth on the
signature page hereto, shall purchase and the Company shall sell to each such
Subscriber in the amount set forth on the signature page hereto, the Purchased
Shares and the Warrants as described in Section 3 of this Agreement.

 

(b)

The occurrence of the Closing is expressly contingent on (i) payment by the
Subscriber of the Subscriber’s Purchase Price, which payment shall made to an
escrow account maintained by the Escrow Agent named in the Escrow Agreement
pursuant to instructions separately provided to the Subscriber, to be held in
escrow pending the Closing, (ii) delivery by the Company to the Escrow Agent, to
be held in escrow pending the Closing, of one or more original signed stock
certificates representing the Purchased Shares, issued in the name of the
Subscriber and original ink-signed Warrants issued by the Company to the
Subscriber (such stock certificates and Warrants, the “Delivered Certificates”),
 (iii) the truth and accuracy, on the Closing Date of the representations and
warranties of the Company and Subscriber contained in this Agreement, (iv) the
continued compliance with the covenants of the Company set forth in this
Agreement through such date, (v) the non-occurrence prior to that date of any
event that with the passage of time or the giving of notice could become an
Event of Default, as defined in Section 7 hereof or other default by the Company
of its obligations and undertakings contained in this Agreement, (vi) the
delivery by the Company on the Closing Date of a certificate substantially in
the form of Exhibit E (the “Closing Certificate”) signed by its chief executive
officer or chief financial officer (1) representing the truth and accuracy of
all the representations and warranties made by the Company contained in this
Agreement, as of the Closing Date, as if such representations and warranties
were made and given on such date, except for changes that will not have alone,
or in any combination in the aggregate, a Material Adverse Effect (as

2

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

defined in Section 5(a) of this Agreement), (2) certifying that the information
contained in the schedules and exhibits hereto is substantially accurate as of
the Closing Date, except for changes that do not constitute a Material Adverse
Effect, (3) adopting and renewing the covenants and representations set forth in
Sections 5, 7, 8, 9, 10, 11, and 12 of this Agreement in relation to the Closing
Date, the Purchased Shares and the Warrants, and (4) certifying that no Event of
Default has occurred, and (vii) a legal opinion of Company Counsel nearly
identical to the legal opinion referred to in Section 6 of this Agreement shall
be delivered to each Subscriber on the Closing Date in relation to the Company,
the Purchased Shares and the Warrants (“Closing Legal Opinion ”).

3.

Warrants.  On the Closing Date, the Company will issue and deliver Warrants to
the Subscribers as follows:

(a) Each A Warrant shall (i) be for the purchase of a number of shares of Common
Stock equal to the number of Purchased Shares of the relevant Subscriber;  (ii)
have a per share exercise price (the “Exercise Price”) of $0.35; the Exercise
Price will be subject to adjustment as provided herein and in the Warrant; (iii)
be exercisable from the Closing Date through the close of business on the date
which is the last day of the calendar month in which the fifth annual
anniversary of the Closing Date occurs (the “Warrant Expiration Date”); (iv)
have cashless exercise rights as provided in the Warrant; and (v) provide for
automatic conversion immediately prior to the Warrant Expiration Date on the
terms provided in the Warrant.

(b) Each B Warrant shall (i) be for the purchase of a number of shares of Common
Stock equal to the number of Purchased Shares of the relevant Subscriber;  (ii)
have a per share exercise price (the “Exercise Price”) of $0.50; the Exercise
Price will be subject to adjustment as provided herein and in the Warrant; (iii)
be exercisable from the Closing Date through the close of business on the date
which is the last day of the calendar month in which the fifth annual
anniversary of the Closing Date occurs (the “Warrant Expiration Date”); (iv)
have cashless exercise rights as provided in the Warrant; and (v) provide for
automatic conversion immediately prior to the Warrant Expiration Date on the
terms provided in the Warrant.  

Except as specified above, each Warrant shall generally be in the form annexed
hereto as Exhibit A-1 and Exhibit A-2. The Warrant Shares shall be subject to
the provisions of the Registration Rights provisions.

4.

Subscriber's Representations and Warranties.  Each Subscriber, for himself,
herself or itself (but not with respect to any other Subscriber), hereby
represents and warrants to and agrees with the Company that:

(a)

Organization and Standing of the Subscriber. If the Subscriber is an entity,
such Subscriber is a corporation, partnership or other entity duly incorporated
or organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has the requisite
corporate power to own its assets and to carry on its business.

3

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

(b)

Authorization and Power.  The Subscriber has the requisite power and authority
to enter into and perform this Agreement and to purchase the Securities. The
execution, delivery and performance of this Agreement by the Subscriber and, if
the Subscriber is an entity, the consummation by the Subscriber of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of such Subscriber or its Board of Directors, stockholders,
partners, members, as the case may be, is required. This Agreement has been duly
authorized, executed and delivered by the Subscriber and constitutes, or shall
constitute when executed and delivered, a valid and binding obligation of the
Subscriber enforceable against the Subscriber in accordance with the terms
thereof.

(c)

No Conflicts.  The execution, delivery and performance of this Agreement and the
consummation by the Subscriber of the transactions contemplated hereby or
relating hereto do not and will not (i) result in a violation of the
Subscriber’s charter documents or bylaws or other organizational documents, each
as currently in effect, or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument or obligation to which
the Subscriber is a party or by which its properties or assets are bound, or
result in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to such Subscriber or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on the
Subscriber). The Subscriber is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or to purchase the Securities in accordance with the terms
hereof, provided that for purposes of the representation made in this sentence,
the Subscriber is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.

(d)

Information on Company.  The Subscriber has been furnished with or has had
access at the EDGAR Website of the Commission to the Company's Form 10-KSB (and
any amendments thereto) for the year ended December 31, 2007 and all periodic
and current reports filed with the Commission thereafter, but not later than
five business days before the Closing Date (hereinafter referred to as the
“Reports”).  In addition, the Subscriber has received in writing from the
Company such other information concerning its operations, financial condition
and other matters as the Subscriber has requested in writing (such other
information is collectively, the “Other Written Information”), and considered
all factors the Subscriber deems material in deciding on the advisability of
investing in the Securities.Subscriber acknowledges that on March 12, 2008, the
Company filed a Form 8-K/A which disclosed, inter alia, as follows:

“Effective at the close of business on March 11, 2008 we amended our Articles of
Incorporation to:

·

change the name of our company to China Logistics Group, Inc.,

4

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

·

effective a one for 40 reverse stock split of its issued and outstanding common
stock, and

·

increase our authorized preferred stock from 5,000,000 shares to 10,000,000
shares and increase our authorized common stock from 200,000,000 shares to
500,000,000 shares.

The amendment to our Articles of Incorporation was approved by our Board of
Directors and the holders of approximately 56.9% of our outstanding voting
securities which is in excess of the required majority of our outstanding
securities entitled to vote on the Amendment. These shareholders included Mr. V.
Jeffrey Harrell, our CEO, and the holders of our Series A Preferred Stock that
include Messrs. Hui Liu and Wei Chen, executive officers and minority
shareholders of our subsidiary Shandong Jiajia International Freight &
Forwarding Co., Ltd., as well as two employees of that company. These actions
were more fully described in an Information Statement which was mailed to the
minority shareholders.”

(e)

Information on Subscriber.  The Subscriber (i) is, and will be on the Closing
Date and upon each exercise of the Warrants, an “accredited investor”, as such
term is defined in Regulation D promulgated by the Commission under the 1933
Act, (ii) is experienced in investments and business matters, (iii) has made
investments of a speculative nature and has purchased securities of United
States publicly-owned companies in private placements in the past and, (iv)
alone or with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable the Subscriber to utilize
the information made available by the Company to evaluate the merits and risks
of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Subscriber is able to
bear the risk of such investment for an indefinite period and to afford a
complete loss thereof. The information set forth on the signature page hereto
regarding the Subscriber is accurate.

(f)

Purchase of Purchased Shares and Warrants.  On the Closing Date, the Subscriber
will purchase the Purchased Shares and Warrants as principal for its own account
for investment only and not with a view toward, or for resale in connection
with, the public sale or any distribution thereof, but Subscriber does not agree
to hold the Purchased Shares and Warrants for any minimum amount of time.

(g)

Compliance with Securities Act.  The Subscriber understands and agrees that the
Securities have not been registered under the 1933 Act or any applicable state
securities laws, by reason of their issuance in a transaction that does not
require registration under the 1933 Act (based in part on the accuracy of the
representations and warranties of Subscriber contained herein), and that such
Securities must be held indefinitely unless a subsequent disposition is
registered under the 1933 Act or any applicable state securities laws or is
exempt from such registration.  Notwithstanding anything to the contrary
contained in this Agreement, such Subscriber may transfer (without restriction
and without the need for an opinion of counsel) the Securities to its Affiliates
(as defined below) provided that each such Affiliate is an “accredited

5

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

investor” under Regulation D and such Affiliate agrees to be bound by the terms
and conditions of this Agreement. For the purposes of this

Agreement, an “Affiliate” of any person or entity means any other person or
entity directly or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity. Affiliate when employed in
connection with the Company includes each Subsidiary (as defined in Section 5(a)
of this Agreement) of the Company. For purposes of this definition, “control”
means the power to direct the management and policies of such person or firm,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise.

(h)

Legends on Purchased Shares and Warrant Shares. The Purchased Shares and the
Warrant Shares shall bear the following or similar legend:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAW OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO CHINA LOGISTICS GROUP, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED.”

(i)

Legend on Warrants.  The Warrants shall bear the following or similar legend:

“THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO CHINA
LOGISTICS GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

(j)

Communication of Offer.  The offer to sell the Securities was directly
communicated to the Subscriber by the Company. At no time was the Subscriber
presented with or solicited by any leaflet, newspaper or magazine article, radio
or television advertisement, or any other form of general advertising or
solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such communicated offer.

(k)

Authority; Enforceability.  This Agreement and other agreements delivered
together with this Agreement or in connection herewith have been duly
authorized, executed and delivered by the Subscriber and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium

6

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

and similar laws of general applicability relating to or affecting creditors’
rights generally and to general principles of equity; and the Subscriber has
full corporate power and authority necessary to enter into this Agreement and
such other agreements and to perform its obligations hereunder and under all
other agreements entered into by the Subscriber relating hereto.

(l)

No Governmental Review.  The Subscriber understands that no United States
federal or state agency or any other governmental or state agency has passed on
or made recommendations or endorsement of the Securities or the suitability of
the investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Securities.

(m)

Correctness of Representations. The Subscriber represents that the foregoing
representations and warranties are true and correct as of the date hereof and,
unless the Subscriber otherwise notifies the Company prior to the Closing Date,
shall be true and correct as of the Closing Date.

(n)

Survival.  The foregoing representations and warranties shall survive until
three years after the Closing Date.

5.

Company Representations and Warranties.  The Company represents and warrants to
and agrees with each Subscriber that, except as set forth in the Reports or in
Schedule 5 hereto, and as otherwise qualified in the Transaction Documents:

(a)

Due Incorporation.  The Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power to own its properties and to
carry on its business is disclosed in the Reports. The Company is duly qualified
as a foreign corporation to do business and is in good standing in each
jurisdiction where the nature of the business conducted or property owned by it
makes such qualification necessary, other than those jurisdictions in which the
failure to so qualify would not have a Material Adverse Effect. For purpose of
this Agreement, a “Material Adverse Effect” shall mean a material adverse effect
on the financial condition, results of operations, properties or business of the
Company taken individually, or in the aggregate, as a whole. For purposes of
this Agreement, “Subsidiary” means, with respect to any entity at any date, any
corporation, limited or general partnership, limited liability company, trust,
estate, association, joint venture or other business entity) of which more than
50% of (i) the outstanding capital stock having (in the absence of
contingencies) ordinary voting power to elect a majority of the board of
directors or other managing body of such entity, (ii) in the case of a
partnership or limited liability company, the interest in the capital or profits
of such partnership or limited liability company or (iii) in the case of a
trust, estate, association, joint venture or other entity, the beneficial
interest in such trust, estate, association or other entity business is, at the
time of determination, owned or controlled directly or indirectly through one or
more intermediaries, by such entity. All the Company’s Subsidiaries as of the
Closing Date are set forth on Schedule 5(a) hereto.

7

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

(b)

Outstanding Stock.  All issued and outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable.  The Company’s capitalization and outstanding shares are
substantially as reported in the most recently filed Reports reflecting such
information.

(c)

Authority; Enforceability.  This Agreement, the Purchased Shares, the Warrants,
the Escrow Agreement and any other agreements delivered together with this
Agreement or in connection herewith (collectively, the “Transaction Documents”)
have been duly authorized, executed and delivered by the Company and
Subsidiaries (as the case may be) and are valid and binding agreements
enforceable 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 and to
general principles of equity. The Company and Subsidiaries have full corporate
power and authority necessary to enter into and deliver the Transaction
Documents and to perform their obligations thereunder.

(d)

Additional Issuances.  There are no outstanding agreements or preemptive or
similar rights affecting the Company's Common Stock or other equity securities
and, other than (i) pursuant to this Agreement with other Subscribers and (ii)
as described on Schedule 5(d), no outstanding rights, warrants or options to
acquire, or instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of Common
Stock or other equity securities of the Company or other equity interest in any
of the Subsidiaries of the Company. The Common Stock of the Company on a fully
diluted basis outstanding as of immediately following the Closing is set forth
on Schedule 5(d).

(e)

Consents.  No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Company,
or any of its Affiliates, any Principal Market (as defined in Section 9(b) of
this Agreement), nor the Company’s shareholders is required for the execution by
the Company of the Transaction Documents and compliance and performance by the
Company of its obligations under the Transaction Documents, including, without
limitation, the issuance and sale of the Securities.

(f)

No Violation or Conflict.  Assuming the representations and warranties of each
of the Subscribers in Section 4 are true and correct, neither the issuance and
sale of the Securities nor the performance of the Company’s obligations under
this Agreement and all other Transaction Documents entered into by the Company
relating thereto or contemplated thereby will:

(i) violate, conflict with, result in a breach of, or constitute a default (or
an event which with the giving of notice or the lapse of time or both would be
reasonably likely to constitute a default in any material respect) of a material
nature under (A) the articles or certificate of incorporation, charter or bylaws
of the Company, each as currently in effect, (B) any decree, judgment, order,
law,

8

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

treaty, rule, regulation or determination applicable to the Company of any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company or over the properties or assets of the Company or any of its
Affiliates, (C) the terms of any bond, debenture, or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its Affiliates is a party, by which the Company or any of its Affiliates is
bound, or to which any of the properties of the Company or any of its Affiliates
is subject, or (D) the terms of any “lock-up” or similar provision of any
underwriting or similar agreement to which the Company, or any of its Affiliates
is a party except the violation, conflict, breach, or default of which would not
have a Material Adverse Effect; or

(ii) result in the creation or imposition of any lien, charge or encumbrance
upon the Securities or any of the assets of the Company or any of its
Affiliates, except as contemplated herein; or

(iii) result in the activation of any anti-dilution rights or a reset or
repricing of any debt or security instrument of any other creditor or equity
holder of the Company, nor result in the acceleration of the due date of any
obligation of the Company; or

(iv) result in the activation of any piggy-back registration rights of any
person or entity holding securities or debt of the Company or having the right
to receive securities of the Company.

(g)

The Securities.  Upon their issuance, the Securities (i) are, or will be, free
and clear of any security interests, liens, claims or other encumbrances,
subject to restrictions upon transfer under the 1933 Act and any applicable
state securities laws; (ii) have been, or will be, duly and validly authorized
and on the date of issuance of the Purchased Shares, and upon exercise of the
Warrants, the Purchased Shares and Warrant Shares, will be duly and validly
issued, fully paid and nonassessable or if registered pursuant to the 1933 Act,
and resold pursuant to an effective registration statement will be free trading
and unrestricted; (iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company; (iv) will not subject the holders thereof to personal liability by
reason of being such holders, provided the Subscriber’s representations herein
are true and accurate; and (v) provided the Subscriber’s representations herein
are true and accurate, will have been issued in reliance upon an exemption from
the registration requirements of and will not result in a violation of Section 5
under the 1933 Act.

(h)

 Litigation.  There is no pending or threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates that would affect
the execution by the Company or the performance by the Company of its
obligations under the Transaction Documents. There is no

9

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

pending, or, to the knowledge of the Company, basis for any, action, suit,
proceeding or investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its Affiliates which
litigation if adversely determined would have a Material Adverse Effect.

(i)

 Reporting Company.  The Company is a publicly-held company subject to reporting
obligations pursuant to Section 13 of the Securities Exchange Act of 1934 (the
“1934 Act”) and has a class of common shares registered pursuant to Section 12
of the 1934 Act. Pursuant to the provisions of the 1934 Act, the Company has
filed all reports and other materials required to be filed thereunder with the
Commission during the preceding twelve (12) months.

(j)

 No Market Manipulation.  The Company and its Affiliates have not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Securities
or affect the price at which the Securities may be issued or resold, provided,
however, that this provision shall not prevent the Company from engaging in
investor relations/public relations activities consistent with past practices.

(k)

 Information Concerning Company.  The Reports contain all material information
relating to the Company and its operations and financial condition as of their
respective dates and all the information required to be disclosed therein. Since
the last day of the fiscal year of the most recent audited financial statements
included in the Reports (“Latest Financial Date”), and except as modified in the
Other Written Information or in the Schedules hereto, there has been no Material
Adverse Effect relating to the Company’s business, financial condition or
affairs not disclosed in the Reports. The Reports including the financial
statements therein, do not contain any 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 in light of the circumstances when made.

(l)

Stop Transfer.  The Company will not issue any stop transfer order or other
order impeding the sale, resale or delivery of any of the Securities, except as
may be required by any applicable federal or state securities laws (and, if so
required, unless contemporaneous notice of such instruction is given to the
Subscriber).

(m)

 Defaults.  The Company is not in violation of its articles of incorporation or
bylaws. The Company is (i) not in default under or in violation of any other
material agreement or instrument to which it is a party or by which it or any of
its properties are bound or affected, which default or violation would have a
Material Adverse Effect, (ii) not in default with respect to any order of any
court, arbitrator or governmental body or subject to or party to any order of
any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to the
Company’s knowledge not in violation of any statute, rule or regulation of any
governmental authority which violation would have a Material Adverse Effect.

10

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

(n)

Not an 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 security or solicited any offers to buy any security
under circumstances that would cause the offer of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of the 1933 Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of the OTC Bulletin Board
(“Bulletin Board”) or any Principal Market which would impair the exemptions
relied upon in this Offering or the Company’s ability to timely comply with its
obligations hereunder. Nor will the Company or any of its Affiliates take any
action or steps that would cause the offer or issuance of the Securities to be
integrated with other offerings which would impair the exemptions relied upon in
this Offering or the Company’s ability to timely comply with its obligations
hereunder. The Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of the
Securities, which would impair the exemptions relied upon in this Offering or
the Company’s ability to timely comply with its obligations hereunder.

(o)

No General Solicitation.  Neither the Company, nor any of its Affiliates, nor to
its knowledge, any person acting on its or their behalf, has engaged in any form
of general solicitation or general advertising (within the meaning of Regulation
D under the 1933 Act) in connection with the offer or sale of the Securities.

(p)

Listing.  The Common Stock is quoted on the Bulletin Board under the symbol:
CHLO. The Company has not received any oral or written notice that the Common
Stock is not eligible nor will become ineligible for quotation on the Bulletin
Board nor that the Common Stock does not meet all requirements for the
continuation of such quotation.

(q)

No Undisclosed Liabilities.  The Company has no liabilities or obligations which
are material, individually or in the aggregate, which are not disclosed in the
Reports and Other Written Information, other than those incurred in the ordinary
course of the Company’s businesses since the Latest Financial Date and which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, except as disclosed on Schedule 5(q).

(r)

No Undisclosed Events or Circumstances.  Since the Latest Financial Date, no
event or circumstance has occurred or exists with respect to the Company or its
businesses, properties, operations or financial condition, that, under
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed in the Reports.

(s)

Capitalization.  The authorized and outstanding capital stock of the Company as
of the date of this Agreement and the Closing Date (not including the
Securities) are set forth on Schedule 5(d). Except as set forth on Schedule
5(d), there are no options, warrants, or rights to subscribe to, securities,
rights or obligations convertible into or exchangeable for or giving any

11

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

right to subscribe for any shares of capital stock of the Company. All of the
outstanding shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and nonassessable.

(t)

 Dilution.  The Company’s executive officers and directors understand the nature
of the Securities being sold hereby and recognize that the issuance of the
Securities will have a potential dilutive effect on the equity holdings of other
holders of the Company’s equity or rights to receive equity of the Company. The
board of directors of the Company has concluded, in its good faith business
judgment that the issuance of the Securities is in the best interests of the
Company. The Company specifically acknowledges that its obligation to issue the
Warrant Shares upon exercise of the Warrants is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company or parties entitled to receive
equity of the Company.

(u)

No Disagreements with Accountants and Lawyers.  There are no disagreements of
any kind presently existing, or reasonably anticipated by the Company to arise,
between the Company and the accountants and lawyers formerly or presently
employed by the Company, including but not limited to disputes or conflicts over
payment owed to such accountants and lawyers, nor have there been any such
disagreements during the two years prior to the Closing Date.

(v)

Transfer Agent.  The name, address, telephone number, fax number, contact person
and email address of the Company current transfer agent is set forth on Schedule
5(v) hereto.  The Company’s transfer agent at any time is referred to as the
“Transfer Agent.”

(w)

Investment Company.  Neither the Company nor any Affiliate is an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.

(x)

Absence of Certain Company Control Person Actions or Events.  The term “Company
Control Person” means each director, executive officer, promoter, and such other
Persons as may be deemed in control of the Company pursuant to Rule 405 under
the 1933 Act or Section 20 of the 1934 Act. To the Company’s knowledge, none of
the following has occurred during the past five (5) years with respect to a
Company Control Person:

(i)

A petition under the federal bankruptcy laws or any state insolvency law was
filed by or against, or a receiver, fiscal agent or similar officer was
appointed by a court for the business or property of such Company Control
Person, or any partnership in which he was a general partner at or within two
years before the time of such filing, or any corporation or business association
of which he was an executive officer at or within two years before the time of
such filing;

12

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

(ii)

Such Company Control Person was convicted in a criminal proceeding or is a named
subject of a pending criminal proceeding (excluding traffic violations and other
minor offenses);

(iii)

Such Company Control Person was the subject of any order, judgment or decree,
not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or otherwise
limiting, the following activities:

(A)

acting, as an investment advisor, underwriter, broker or dealer in securities,
or as an affiliated person, director or employee of any investment company,
bank, savings and loan association or insurance company, as a futures commission
merchant, introducing broker, commodity trading advisor, commodity pool
operator, floor broker, any other Person regulated by the Commodity Futures
Trading Commission (“CFTC”) or engaging in or continuing any conduct or practice
in connection with such activity;

(B)

engaging in any type of business practice; or

(C)

engaging in any activity in connection with the purchase or sale of any security
or commodity or in connection with any violation of federal or state securities
laws or federal commodities laws;

(iv)

Such Company Control Person was the subject of any order, judgment or decree,
not subsequently reversed, suspended or vacated, of any federal or state
authority barring, suspending or otherwise limiting for more than 60 days the
right of such Company Control Person to engage in any activity described in
paragraph (iii) of this item, or to be associated with Persons engaged in any
such activity; or

(v)

Such Company Control Person was found by a court of competent jurisdiction in a
civil action or by the CFTC or Commission to have violated any federal or state
securities law, and the judgment in such civil action or finding by the CFTC or
Commission has not been subsequently reversed, suspended, or vacated.

(y)

Subsidiary Representations.  The Company makes each of the representations
contained in Sections 5(a), (b), (d), (e), (f), (h), (k), (m), (q), (r), (u),
and (w) of this Agreement, as same relate to each Subsidiary of the Company.

(z)

Company Predecessor.  All representations made by or relating to the Company of
a historical or prospective nature and all undertakings described in Sections
9(g) through 9(l) shall relate, apply and refer to the Company and its
predecessors.

13

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

(aa)

Correctness of Representations.  The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof in all
material respects, and, unless the Company otherwise notifies the Subscribers
prior to the Closing Date, shall be true and correct in all material respects as
of the Closing Date.

 

(bb)

Survival.  The foregoing representations and warranties shall survive until
three years after the Closing Date.

6.

Regulation D Offering.   The offer and issuance of the Securities to the
Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On the Closing Date,
the Company will provide an opinion reasonably acceptable to Subscriber from the
Company’s legal counsel opining on the availability of an exemption from
registration under the 1933 Act as it relates to the offer and issuance of the
Securities and other matters reasonably requested by Subscribers. A form of the
legal opinion is annexed hereto as Exhibit C. The Company will provide, at the
Company’s expense, such other legal opinions in the future as are reasonably
necessary for (i) the issuance of the Warrant Shares and (ii) the resale of the
Shares and the Warrant Shares pursuant to an effective registration statement,
pursuant to Rule 144 under the 1933 Act (“Rule 144"), or pursuant to another
available exemption from registration.

7.

Events of Default.  The occurrence of any of the following events is an event of
default under this Agreement (each, an “Event of Default”):

(a)

Breach of Covenant.  The Company breaches any material covenant or other term or
condition of any Transaction Document in any material respect; provided,
however, that if such breach is capable of being cured, such breach continues
for a period of ten business days after written notice to the Company from the
Subscriber.

(b)

Breach of Representations and Warranties.  Any material representation or
warranty of the Company made herein in any Transaction Document or in connection
therewith shall be false or misleading in any material respect as of the date
made or as of the Closing Date.

(c)

Receiver or Trustee.  The Company or any Subsidiary shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.

(d)

Judgments.  Any money judgment, writ or similar final process shall be entered
or filed against Company or any Subsidiary or any of their property or other
assets for more than $100,000.00, and shall remain unvacated, unbonded or
unstayed for a period of forty-five (45) days.

14

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

(e)

Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings or relief under any bankruptcy law or any law, or the
issuance of any notice in relation to such event, for the relief of debtors
shall be instituted by or against the Company or any Subsidiary and if
instituted against is not dismissed within 45 days of initiation.

(f)

 Delisting.  Delisting of the Common Stock from any Principal Market; failure to
comply with the requirements for continued listing on a Principal Market; or
notification from a Principal Market that the Company is not in compliance with
the conditions for such continued listing on such Principal Market.

(g)

Non-Payment.  A default by the Company or any Subsidiary under any one or more
obligations in an aggregate monetary amount in excess of $500,000 for more than
ten days after the due date.

(h)

Stop Trade.  A Commission or judicial stop trade order or Principal Market
trading suspension that lasts for five or more consecutive trading days.

(i)

Reservation Default.  Failure by the Company to comply with its obligation to
reserve shares from its authorized Common Stock to be issued upon exercise of
the Warrants.

(j)

Cross Default.  A default by the Company of a material term, covenant, warranty
or undertaking of any other agreement to which the Company or any Subsidiary are
parties, or the occurrence of a material event of default under any such other
agreement which is not cured after any required notice and/or cure period.

(k)

Default to Other Subscriber.  An Event of Default shall have been declared by
any other Subscriber in accordance with the preceding provisions of this Section
7.

8.

Finder/Legal Fees.

(a)

Finder.  Each of the Company on the one hand, and each Subscriber (for such
Subscriber only) on the other hand, agrees to indemnify the other against and
hold the other harmless from any and all liabilities to any persons claiming
brokerage commissions or finder’s fees on account of services purported to have
been rendered on behalf of the indemnifying party in connection with this
Agreement or the transactions contemplated hereby and arising out of such
party’s actions. Except as provided in the following sentence, the Company
represents that there are no parties entitled to receive fees, commissions, or
similar payments in connection with the Offering. Notwithstanding the foregoing,
(i) the Company reserves the right to engage registered broker-dealers in
connection with this offering to participate in the offering to certain
Subscribers,  and (ii) the Company will be responsible for all fees and other
compensation due to such broker-dealers, which compensation may include a cash
fee to SkyeBanc, Inc. of up to 5% of the Purchase Price paid by those
Subscribers identified by SkyeBanc, Inc and warrants (“Placement Agent
Warrants”) having terms substantially similar to the Warrants for the purchase
of up to 10% of the number of shares subject to the Warrants of those
Subscribers.

15

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

(b)

Legal Fees.  The Company shall pay to Krieger & Prager, LLP (“Counsel”), a fee
of $27,500.00 (“Legal Fees”) as reimbursement for services rendered to the
Subscribers in connection with this Agreement and the purchase and sale of the
Purchased Shares and the Warrants (the “Offering”). The Legal Fees will be paid
on the Closing Date and will be paid out of funds held pursuant to the Escrow
Agreement.

(c)

 Due Diligence Fee. The Company will pay a due diligence fee (“Due Diligence
Fee”) described on Schedule 8 hereto to the parties identified on Schedule 8
hereto (each, a “Due Diligence Fee Recipient”).

9.

Covenants of the Company.  The Company covenants and agrees with each Subscriber
as follows:

(a)

Stop Orders.  The Company will advise each Subscriber, within two hours after
the Company receives notice of issuance by the Commission, any state securities
commission or any other regulatory authority of any stop order or of any order
preventing or suspending any offering of any securities of the Company, or of
the suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.

(b)

Listing.  The Company shall promptly secure the listing of the Purchased Shares
and the Warrant Shares upon each national securities exchange, or electronic or
automated quotation system upon which they are or become eligible for listing
and shall use commercially reasonable efforts to maintain such listing so long
as any Purchased Shares, Warrants or Warrant Shares are outstanding. The Company
will maintain the listing of its Common Stock on the American Stock Exchange,
Nasdaq Capital Market, Nasdaq National Market System, Bulletin Board, or New
York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock (the “Principal Market”)), and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide each Subscriber with  copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common Stock
from any Principal Market. As of the date of this Agreement, the Bulletin Board
is the Principal Market.

(c)

Market Regulations.  The Company shall notify the Commission, the Principal
Market and applicable state authorities, in accordance with their requirements,
of the transactions contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by applicable
law, rule and regulation, for the legal and valid issuance of the Securities to
the Subscribers and promptly provide copies thereof to each Subscriber.

16

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

(d)

Filing Requirements.  From the date of this Agreement and until the earliest of

(i)

the date which is one year after the date (the “Last Exercise Date”) on which
the Warrants have been exercised in full other than by way of a cashless
exercise (which Last Exercise Date shall be deemed to occur no later than the
Warrant Expiration Date),

(ii)

the date on which all of the Purchased Shares and the Warrant Shares have been
resold or transferred by all the Subscribers pursuant to the Registration
Statement provided, however, that if any outstanding Warrant may still be
exercised, such date shall not be determined until the earlier of the date such
Warrants have been exercised in full or the Warrant Expiration Date, or

(iii)

the date on which all of the Purchased Shares and the Warrant Shares which were
issued upon exercise of the Warrants other than by way of cashless exercise may
be resold or transferred pursuant to Rule 144, without regard to volume
limitations; provided, however, that if any outstanding Warrant may still be
exercised, such date shall not be determined until the earlier of the date such
Warrants have been exercised in full or the Warrant Expiration Date,  

the Company will (A) cause its Common Stock to continue to be registered under
Section 15 of the 1934 Act, (B) comply in all respects with its reporting and
filing obligations under the 1934 Act, (C) voluntarily comply with all reporting
requirements that are applicable to an issuer with a class of shares registered
pursuant to Section 12(g) of the 1934 Act, if Company is not subject to such
reporting requirements, and (D) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will use
its commercially reasonable efforts not to take any action or file any document
(whether or not permitted by the 1933 Act or the 1934 Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said acts until two years after the
Closing Date. Until the earlier of the resale of the Purchased Shares and the
Warrant Shares by each Subscriber or two years after the Warrants have been
exercised, the Company will use its commercially reasonable efforts to continue
the listing or quotation of the Common Stock on a Principal Market and will
comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Principal Market. The Company
agrees to timely file a Form D with respect to the Securities if required under
Regulation D and to provide a copy thereof to each Subscriber promptly after
such filing.

(e)

Failure to Make Timely Filings.  Until such time as the Subscriber may sell the
Common Stock without limitation under Rule 144 the Company agrees that, if the
Company fails to file in a timely manner, beyond any applicable extension
period, on the SEC’s EDGAR system any information required to be filed by it,
whether on a Form 10-K, Form 10-Q, Form 8-K, Proxy Statement or otherwise, the
Company shall be liable to pay to the Subscriber an amount based on the
following schedule (where “No. Business Days Late” refers to each Trading Day
after the latest due date for the relevant filing):

17

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

No. Business Days Late

 

Late Filing Payment For Each 40,000 Shares of Common  Stock (or portion thereof)

1

 

$

100

2

 

$

200

3

 

$

300

4

 

$

400

5

 

$

500

6

 

$

600

7

 

$

700

8

 

$

800

9

 

$

900

10

 

$

1,000

>10

 

$

1,000 + $200 for each Trading Day Late beyond 10 days

The Company shall pay any payments incurred under this Section in immediately
available funds upon demand by the Subscriber; provided, however, that the
Subscriber  making the demand may specify that the payment shall be made in
shares of Common Stock at the Conversion Price applicable to the date of such
demand.

(f)

Use of Proceeds.  The proceeds of the Offering will be employed by the Company
for the purposes set forth on Schedule 9(f) hereto. Except as set forth on
Schedule 9(f), the Aggregate Purchase Price may not and will not be used for
accrued and unpaid officer and director salaries, payment of financing related
debt, redemption of outstanding or equity instruments of the Company, litigation
related expenses or settlements, brokerage fees, nor non-trade obligations
outstanding on the Closing Date.

(g)

Reservation.  Prior to the Closing Date, the Company undertakes to reserve, pro
rata, on behalf of the Subscribers from its authorized but unissued common
stock, a number of common shares equal to the shares and Warrant Shares issuable
upon exercise of the Warrants. Failure to have sufficient shares reserved
pursuant to this Section 9(g) shall be a material default of the Company’s
obligations under this Agreement and an Event of Default.

(h)

Taxes.  From the date of this Agreement and until the sooner of (i) the date
which is two (2) years after the Closing Date, or (ii) the date as of which all
of the Purchased Shares and Warrants Shares have been resold or transferred by
all the Subscribers pursuant to the Registration Statement or pursuant to Rule
144, without regard to volume limitations, the Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company will pay all such

18

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

taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security therefore.

(i)

Books and Records.  From the date of this Agreement and until the sooner of (i)
(i) the date which is two (2) years after the Closing Date, or (ii) the date as
of which all of the Purchased Shares and Warrants Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company will
keep true records and books of account in which full, true and correct entries
will be made of all dealings or transactions in relation to its business and
affairs in accordance with generally accepted accounting principles applied on a
consistent basis.

(j)

Governmental Authorities.  From the date of this Agreement and until the sooner
of (i) the date which is two (2) years after the Closing Date, or (ii) the date
as of which all of the Purchased Shares and Warrants Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company shall
duly observe and conform in all material respects to all valid requirements of
governmental authorities relating to the conduct of its business or to its
properties or assets.

(k)

Intellectual Property.  From the date of this Agreement and until the sooner of
(i) the date which is two (2) years after the Closing Date, or (ii) the date as
of which all of the Purchased Shares and Warrants Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use intellectual property owned or
possessed by it and reasonably deemed to be necessary to the conduct of its
business, unless it is sold for value.

(l)

Properties.  From the date of this Agreement and until the sooner of (i) the
date which is two (2) years after the Closing Date, or (ii) the date as of which
all of the Purchased Shares and Warrants Shares have been resold or transferred
by all the Subscribers pursuant to the Registration Statement or pursuant to
Rule 144, without regard to volume limitations, the Company will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect.

(m)

Confidentiality/Public Announcement.  From the date of this Agreement and until
the sooner of (i) the date which is two (2) years after the Closing Date, or
(ii) the date as of which all of the Purchased Shares and Warrants Shares have
been resold or transferred by all the Subscribers pursuant to the Registration
Statement or pursuant to Rule 144, without regard to volume limitations the
Company agrees that except in connection with a Form 8-K or the Registration
Statement or as otherwise required in any other Commission filing or in a filing
required by any other government or agency having jurisdiction over the Company,
it will not

19

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

disclose publicly or privately the identity of the Subscribers unless expressly
agreed to in writing by a Subscriber, only to the extent required by law and
then only upon five days prior notice to Subscriber. In any event and subject to
the foregoing, the Company shall file a Form 8-K or make a public announcement
describing the Offering not later than the fourth business day after the Closing
Date. In the Form 8-K or public announcement, the Company will specifically
disclose the amount of common stock outstanding immediately after the Closing. A
form of the proposed Form 8-K or public announcement to be employed in
connection with the Closing is annexed hereto as Exhibit D.

(n)

Further Registration Statements.  Except for a registration statement filed on
behalf of the Subscribers pursuant to Section 11 of this Agreement, and as set
forth on Schedule 11(a) hereto, the Company will not file any registration
statements or amend any already filed registration statement to increase the
amount of Common Stock registered therein, or reduce the price of which such
Common Stock is registered therein, including but not limited to Forms S-8
[except with regard to Form S-8 as described on Schedule 9(n)],. with the
Commission or with state regulatory authorities without the consent of the
Subscriber until the expiration of the “Exclusion Period”, which shall be
defined as the sooner of (i) the Registration Statement having been current and
available for use in connection with the resale of all of the Registrable
Securities (as defined in Section 11(a)(i) of this Agreement) for a period of
240 days, or (ii) the date on which all of the Purchased Shares and Warrant
Shares have been resold or transferred by the Subscribers pursuant to the
Registration Statement or Rule 144, without regard to volume limitations. The
Exclusion Period will be tolled during the pendency of an Event of Default.  The
foregoing will not apply to any Registration Statement in respect of any
acquisition, merger, exchange or sale or other transaction.

(o)

Non-Public Information.  The Company covenants and agrees that neither it nor
any other person acting on its behalf will provide any Subscriber or its agents
or counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto in each instance such Subscriber
shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company. The
Company will offer to a single firm of counsel designated by the Subscribers
(which, until further notice, shall be deemed to be Krieger & Prager LLP, Attn:
Samuel M. Krieger, Esq., which firm has requested to receive such notification;
each, an “Investor’s Counsel”) an opportunity to review and comment on the
Registration Statement and all amendments and supplements thereto between three
and five business days prior to the proposed filing date thereof, and not file
any document in a form to which such counsel reasonably objects.

(p)

Offering Restrictions.  Until the expiration of the Exclusion Period or except
as indicated on Schedule 5 hereto, and during the pendency of an Event of
Default, except for the Excepted Issuances (as defined in Section 12 of this
Agreement), the Company will not enter into an agreement to nor issue any
equity, convertible debt or other securities convertible into common stock or
equity of the Company nor modify any of the foregoing which may be outstanding
at anytime, without the prior written consent of the Subscriber, which consent
may

20

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

be withheld for any reason. From the date of this Agreement and until the sooner
of (i) the date which is two (2) years after the Closing Date, or (ii) the date
as of which all of the Purchased Shares and Warrants Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, except for the
Excepted Issuances, the Company will not enter into any equity line of credit or
similar agreement, nor issue nor agree to issue any floating or variable priced
equity linked instruments nor any of the foregoing or equity with price reset
rights. The only officer, director, employee and consultant stock option or
stock incentive plan currently in effect or contemplated by the Company has been
submitted to the Subscribers. No other plan will be adopted nor may any options
or equity not included in such plan be issued until the end of the Exclusion
Period.

(q)

Additional Negative Covenants.  From the date of this Agreement and until the
sooner of (i) the date which is two (2) years after the Closing Date, or (ii)
the date as of which all of the Purchased Shares and Warrants Shares have been
resold or transferred by all the Subscribers pursuant to the Registration
Statement or pursuant to Rule 144, without regard to volume limitations, without
the written Consent of the Subscribers, the Company will not and will not permit
any of its Subsidiaries to directly or indirectly:

(i)

amend its certificate of incorporation, bylaws or its charter documents so as to
adversely affect any rights of the Subscriber;

(ii)

repay, repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock,
or other equity securities other than to the extent permitted or required under
the Transaction Documents; or as set forth in Schedule 9 (q) (ii).

(iii)

prepay any financing related or other outstanding debt obligations.

10.

Covenants of the Company and Subscriber Regarding Indemnification.

(a)

Company Indemnification.  The Company agrees to indemnify, hold harmless,
reimburse and defend the Subscribers, the Subscribers' officers, directors,
agents, Affiliates, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Subscriber
or any such person which results, arises out of or is based upon (i) any
material misrepresentation by Company or breach of any warranty by Company in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by the Company of any
material covenant or undertaking to be performed by the Company hereunder, or
any other agreement entered into by the Company and Subscriber relating hereto.
 Any or all of the foregoing are deemed Events of Default.

21

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

(b)

Subscriber Indemnification.  Each Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers, directors,
agents, Affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribers, relating hereto.

(c)

Limitation on Subscriber Indemnification.  In no event shall the liability of
any Subscriber or permitted successor hereunder or under any Transaction
Document or other agreement delivered in connection herewith be greater in
amount than the dollar amount of the net proceeds actually received by such
Subscriber upon the sale of Registrable Securities.

(d)

Procedures.  The procedures set forth in Section 11(f) shall apply to the
indemnification set forth in Sections 10(a) and 10(b) above.

11.

Registration Rights; Rule 144 Provisions.

(a)

Registration Statement Requirements.  The Company shall file with the Commission
a Form S-1 registration statement (the “Registration Statement”) (or such other
form that it is eligible to use) in order to register all of the Registrable
Securities for resale and distribution under the 1933 Act on or before the date
(the “Required Filing Date”) which is sixty (60) calendar days after the Closing
Date (the actual date of such filing, the “Filing Date”), and use its best
efforts to cause the Registration Statement to be declared effective by the date
(the “Required Effective Date”) which is not later than the earlier of (x) one
hundred eighty  (180) calendar days after the Closing Date or (y) seven (7)
business days after oral or written notice to the Company or its counsel from
the Commission  that it may be declared effective. The Company will register not
less than a number of shares of common stock in the aforedescribed registration
statement that is equal to the sum of Warrant Shares issuable pursuant to this
Agreement upon exercise of the Warrants (assuming, for such purposes, that the
holders of all outstanding Warrants have exercised such Warrants in full)
(collectively, the “Registrable Securities”); provided, however, the number of
such shares being registered for each Subscriber may, with the written consent
of the Subscriber (which consent may be conditioned upon, among other things,
the Company’s agreement to include certain shares in a subsequent registration
statement), be less than such number.  The Registration Statement shall also
state that, in accordance with Rules 416 and 457 under the 1933 Act, it also
covers such indeterminate number of additional shares of Common Stock as may
become issuable with respect to the Registrable Securities to prevent dilution
resulting from stock splits, stock dividends or similar transactions. The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of the Warrant holders and not issued, employed or reserved for anyone
other than such Warrant holders. The Registration Statement will immediately be
amended or additional registration

22

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

statements will be immediately filed by the Company as necessary to register
additional shares of Common Stock to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities or any other
provisions of this Agreement.  Except with the written Consent of the
Subscribers, no securities of the Company other than the Registrable Securities
will be included in the Registration Statement except that the Registration
Statement may include (i) Payment Shares (as defined in Section 11(d) of this
Agreement), (ii) the shares issuable upon exercise of Placement Agent Warrants,
if any, and (iii) the shares, if any, described on Schedule 11(a) hereto. It
shall be deemed a Non-Registration Event if at any time after the date the
Registration Statement is declared effective by the Commission (“Actual
Effective Date”) the Company has registered for unrestricted resale on behalf of
the Subscribers less  than 100% of the outstanding Warrant Shares (assuming, for
such purposes at any time prior to the Warrant Expiration Date, that the holders
of all outstanding Warrants have exercised such Warrants in full).  Any holder
of Warrant Shares named as a selling stockholder in the Registration Statement
is sometimes referred to herein as a “Seller”.

(b)

Registration Procedures.  If and whenever the Company is required by the
provisions of this Section 11 to effect the registration of any Registrable
Securities under the 1933 Act, the Company will, as expeditiously as possible:

(i)

subject to the time lines provided in this Agreement, prepare and file with the
Commission a registration statement required by Section 11, with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), promptly provide to the holders of the
Registrable Securities copies of all filings and Commission letters of comment
and notify each Seller (by telecopier and by e-mail addresses provided by
Subscribers) and Counsel (by telecopier and by email to skrieger@kplawfirm.com)
on or before 3:00 PM EST on the first business day following the day the Company
receives notice that (i) the Commission has no comments or no further comments
on the Registration Statement, and (ii) the registration statement has been
declared effective (failure to timely provide notice as required by this Section
11(b) shall be a material breach of the Company's obligation and a
Non-Registration Event as defined in Section 11(d) of this Agreement);

(ii)

prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of two (2) years, and comply with the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance with
the Sellers' intended methods of disposition set forth in such registration
statement for such period;

23

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

(iii)

furnish to each Seller, at the Company's expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such Seller reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement;

(iv)

use its commercially reasonable best efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or “blue sky” laws of New York and such jurisdictions as a Seller
shall request in writing, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;

(v)

if applicable, list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;

(vi)

notify each Seller within two hours of the Company's becoming aware that a
prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event of which the Company has knowledge as a result of
which the prospectus contained in such 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 not misleading in light of the circumstances then existing or which
becomes subject to a Commission, state or other governmental order suspending
the effectiveness of the registration statement covering any of the Shares; and

  

(vii)

provided same would not be in violation of the provision of Regulation FD under
the 1934 Act, make available for inspection by any Seller, and any attorney,
accountant or other agent retained by such Seller, all publicly available,
non-confidential financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all publicly available, non-confidential information
reasonably requested by the Seller, attorney, accountant or agent in connection
with such registration statement.

(c)

Provision of Documents.  In connection with each registration described in this
Section 11, each Seller will furnish to the Company in writing such information
and representation letters with respect to itself and the proposed distribution
by it as reasonably shall be necessary in order to assure compliance with
federal and applicable state securities laws.

(d)

Non-Registration Events.  The Company and the Subscribers agree that the Sellers
will suffer damages if the Registration Statement is not filed by the Required
Filing Date

24

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

and not declared effective by the Commission by the Required Effective Date or
if, after it is declared effective, its effectiveness is not maintained in the
manner and within the time periods contemplated by Section 11 hereof, and it
would not be feasible to ascertain the extent of such damages with precision.
 Accordingly, if (A) the Registration Statement is not filed on or before the
Required Filing Date, (B) the Registration Statement is not declared effective
on or before the Effective Date, (C) the Registration Statement is not declared
effective within seven (7) business days after receipt by the Company or its
attorneys of a written or oral communication from the Commission that the
Registration Statement will not be reviewed or that the Commission has no
further comments, (D) any registration statement described in Section 11
declared effective but shall thereafter cease to be effective for a period of
time which shall exceed 30 days in the aggregate per year (defined as a period
of 365 days commencing on the date the Registration Statement is declared
effective) or more than 20 consecutive days at any one time (each such event
referred to in clauses A through D of this Section 11(d) is referred to herein
as a “Non-Registration Event”), then the Company shall deliver to the holder of
Registrable Securities, as liquidated damages (“Liquidated Damages”), an amount
equal to two percent (2%) of the Aggregate Cash Exercise  Price of the Shares
underlying the Warrants  owned of record by such holder for each thirty (30)
days (pro rata for any period less than thirty days) which are subject to such
Non-Registration Event, but in no event shall Liquidated Damages exceed 180 days
of Liquidated Damages.  The Company must pay the Liquidated Damages in cash,
except that, subject to the conditions described below, the Company may pay the
Liquidated Damages in shares of Common Stock (with each share valued at the then
effective Share Purchase Price); such shares are referred to as “Payment
Shares.”  The Company may issue Payment Shares if, but only if the Effective
Date is on or before the date which is 300 days after the Closing Date and the
Registration Statement covering the Payment Shares to be issued to the Seller is
then effective.  The Liquidated Damages must be paid within ten (10) days after
the end of each thirty (30) day period or shorter part thereof for which
Liquidated Damages are payable. In the event a Registration Statement is filed
by the Filing Date but is withdrawn prior to being declared effective by the
Commission, then such Registration Statement will be deemed to have not been
filed. All oral or written comments received from the Commission relating to the
Registration Statement must be satisfactorily responded to within ten (10)
business days after receipt of comments from the Commission. Failure to timely
respond to Commission comments is a Non-Registration Event for which Liquidated
Damages shall accrue and be payable by the Company to the holders of Registrable
Securities at the same rate set forth above. Notwithstanding the foregoing, the
Company shall not be liable to the Seller under this Section 11(d) for any
events or delays occurring as a consequence of the acts or omissions of the
Seller contrary to the obligations undertaken by Sellers in this Agreement.
Liquidated Damages will not accrue nor be payable pursuant to this Section 11d)
nor will a Non-Registration Event be deemed to have occurred for times during
which Registrable Securities are transferable by the holder of Registrable
Securities pursuant to Rule 144(D) under the 1933 Act.

(e)

Expenses. All expenses incurred by the Company in complying with Section 11,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including reasonable counsel fees) incurred
in connection with complying with state

25

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

securities or “blue sky” laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of
insurance and fee of one counsel for all Sellers are called “Registration
Expenses.” All underwriting discounts and selling commissions applicable to the
sale of Registrable Securities are called “Selling Expenses.” The Company will
pay all Registration Expenses in connection with the registration statement
under Section 11. Selling Expenses in connection with each registration
statement under Section 11 shall be borne by the Seller and may be apportioned
among the Sellers in proportion to the number of shares sold by the Seller
relative to the number of shares sold under such registration statement or as
all Sellers thereunder may agree.

(f)

Indemnification and Contribution.

(i)

In the event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, 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 not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11(f)(iii) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.

(ii)

In the event of a registration of any of the Registrable Securities under the
1933 Act pursuant to Section 11, each Seller severally but not jointly will, to
the extent

26

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

permitted by law, indemnify and hold harmless the Company, and each person, if
any, who controls the Company within the meaning of the 1933 Act, each officer
of the Company who signs the registration statement, each director of the
Company, each underwriter and each person who controls any underwriter within
the meaning of the 1933 Act, against all losses, claims, damages or liabilities,
joint or several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the registration statement under which such
Registrable Securities were registered under the 1933 Act pursuant to Section
11, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, 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 not misleading, and will
reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability of
the Seller hereunder shall be limited to the net proceeds actually received by
the Seller from the sale of Registrable Securities covered by such registration
statement.

(iii)

Promptly after receipt by an indemnified party hereunder of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 11(f)(iii) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11(f)(iii), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11(f)(iii) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified

27

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

party shall have reasonably concluded that there may be reasonable defenses
available to it which are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party reasonably may
be deemed to conflict with the interests of the indemnifying party, the
indemnified parties, as a group, shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.

(iv)

In order to provide for just and equitable contribution in the event of joint
liability under the 1933 Act in any case in which either (i) a Seller, or any
controlling person of a Seller, makes a claim for indemnification pursuant to
this Section 11(f) but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 11(f) provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11(f); then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.

(g)

Delivery of Unlegended Shares.

(i)

Within five  (5) business days (such fifth business day being the “Unlegended
Shares Delivery Date”) after the business day on which the Company has received
(i) a notice that Shares or Warrant Shares have been sold pursuant to the
Registration Statement or Rule 144 under the 1933 Act, (ii) a representation
that the prospectus delivery requirements, or the requirements of Rule 144, as
applicable and if required, have been satisfied, and (iii) the original share
certificates representing the shares of Common Stock that have been sold, and
(iv) in the case of sales under Rule 144, customary representation letters of
the Subscriber and/or Subscriber's broker regarding compliance with the
requirements of Rule 144, the Company at its expense, (y) shall deliver, and
shall cause legal counsel selected by the Company to deliver to its Transfer
Agent (with copies to Subscriber) an appropriate instruction and opinion of such
counsel, directing the delivery of shares of Common Stock without any legends
including

28

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

the legend set forth in Section 4(h) above, reissuable pursuant to any effective
and current Registration Statement described in Section 11 of this Agreement or
pursuant to Rule 144 under the 1933 Act (the “Unlegended Shares”); and (z) cause
the transmission of the certificates representing the Unlegended Shares together
with a legended certificate representing the balance of the submitted
certificates, if any, to the Subscriber at the address specified in the notice
of sale, via express courier, by electronic transfer or otherwise on or before
the Unlegended Shares Delivery Date. Transfer fees shall be the responsibility
of the Seller.

(ii)

In lieu of delivering physical certificates representing the Unlegended Shares,
if the Company's Transfer Agent is then participating in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer program, upon request of a
Subscriber, so long as the certificates therefore do not bear a legend and the
Subscriber is not obligated to return such certificate for the placement of a
legend thereon, the Company shall cause its Transfer Agent to electronically
transmit the Unlegended Shares by crediting the account of Subscriber's prime
Broker with DTC through its Deposit Withdrawal Agent Commission system. Such
delivery must be made on or before the Unlegended Shares Delivery Date.

(iii)

The Company understands that a delay in the delivery of the Unlegended Shares
pursuant to the foregoing provisions of this Section 11 hereof later than the
Unlegended Shares Delivery Date could result in economic loss to a Subscriber.
As compensation to a Subscriber for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Subscriber for
late delivery of Unlegended Shares in the amount of $100 per business day after
the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
subject to the delivery default. If during any 360 day period, the Company fails
to deliver Unlegended Shares as required by this Section 11(g) for an aggregate
of thirty (30) days, then each Subscriber or assignee holding Securities subject
to such default may, at its option, require the Company to redeem all or any
portion of the Purchased Shares and Warrant Shares subject to such default at a
price per share equal to the Redemption Percentage (as defined below) multiplied
by the Purchase Price of such Common Stock and exercise price of such Warrant
Shares (“Unlegended Redemption Amount”). The term “Redemption Percentage” means
the greater of (i) 120%, or (ii) a fraction (expressed as a percentage) in which
the numerator is the highest closing price of the Common Stock during the
aforedescribed thirty (30) day period and the denominator of which is the lowest
conversion price during such thirty (30) day period.  The Company shall pay any
payments incurred under this Section in immediately available funds upon demand.

(iv)

In addition to any other rights available to a Subscriber, if the Company fails
to deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber purchases (in an open market transaction or otherwise)
shares of common stock to deliver in satisfaction of a sale by such Subscriber
of the shares of

29

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

Common Stock which the Subscriber was entitled to receive from the Company (a
“Buy-In”), then the Company shall pay in cash to the Subscriber (in addition to
any remedies available to or elected by the Subscriber) the amount by which (A)
the Subscriber's total purchase price (including brokerage commissions, if any)
for the shares of common stock so purchased exceeds (B) the aggregate purchase
price of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000,
plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.

(v)

In the event a Subscriber shall request delivery of Unlegended Shares as
described in Section 11(g) or the Subscriber has exercised the Warrant and the
Company is required to deliver such Warrant Shares, the Company may not refuse
to deliver Unlegended Shares or Warrant Shares based on any claim that such
Subscriber or any one associated or affiliated with such Subscriber has been
engaged in any violation of law, or for any other reason, unless, an injunction
or temporary restraining order from a court, on notice, restraining and or
enjoining delivery of such Unlegended Shares or exercise of all or part of said
Warrant shall have been sought and obtained and the Company has posted a surety
bond for the benefit of such Subscriber in the amount of 120% of the amount of
the aggregate purchase price of the Common Stock and Warrant Shares which are
subject to the injunction or temporary restraining order, which bond shall
remain in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Subscriber to the extent
Subscriber obtains judgment in Subscriber's favor.

(h)

Reports under 1933 Act and 1934 Act.  With a view to making available to each
Subscriber the benefits of Rule 144 or any other similar rule or regulation of
the Commission that may at any time permit the Subscriber to sell securities of
the Company to the public without Registration (“Rule 144”), the Company agrees
to:

(i)

make and keep public information available, as those terms are understood and
defined in Rule 144;

(ii)

file with the Commission in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934 Act; and

(iii)

furnish to the Subscriber so long as the Subscriber owns Registrable Securities,
promptly upon request, (x) a written statement by the Company that it has
complied with the reporting requirements of Rule 144, the

30

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

1933 Act and the 1934 Act, (y) if not available on the Commission’s EDGAR
system, a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company and (z) such other
information as may be reasonably requested to permit the Subscriber to sell such
securities pursuant to Rule 144 without registration; and

(iv)

at the request of any Subscriber holding Registrable Securities (a “Holder”),
give its Transfer Agent instructions (supported by an opinion of Company Counsel
or other counsel to the Company, if required or requested by the Transfer Agent)
to the effect that, upon the Transfer Agent’s receipt from such Holder of

(1) a certificate (a “Rule 144 Certificate”) certifying (A) that the Holder’s
holding period (as determined in accordance with the provisions of Rule 144) for
the shares of Registrable Securities which the Holder proposes to sell (the
“Securities Being Sold”) is not less than six (6) months and (B) as to such
other matters as may be appropriate in accordance with Rule 144 under the 1933
Act, and

(2) an opinion of counsel acceptable to the Company (for which purposes it is
agreed that the opinion of Krieger & Prager LLP shall be deemed acceptable if
not given by Company counsel) that, based on the Rule 144 Certificate,
Securities Being Sold may be sold pursuant to the provisions of Rule 144, even
in the absence of an effective Registration Statement,

the Transfer Agent is to effect the transfer of the Securities Being Sold and
issue to the buyer(s) or transferee(s) thereof one or more stock certificates
representing the transferred Securities Being Sold without any restrictive
legend and without recording any restrictions on the transferability of such
shares on the Transfer Agent’s  books and records (except to the extent any such
legend or restriction results from facts other than the identity of the Holder,
as the seller or transferor thereof, or the status, including any relevant
legends or restrictions, of the shares of the Securities Being Sold while held
by the Holder). If the Transfer Agent reasonably requires any additional
documentation at the time of the transfer, the Company shall deliver or cause to
be delivered all such reasonable additional documentation as may be necessary to
effectuate the issuance of an unlegended certificate.

(i)

Assignment of the Registration Rights.  The rights to have the Company register
Registrable Securities pursuant to this Agreement and the rights of the
Subscriber under this Section 11 shall be automatically assigned by the
Subscriber to any transferee of all or any portion of any unexercised Warrants
(excluding any transfer of such

31

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

Registrable Securities by a sale pursuant to an effective Registration Statement
or pursuant to Rule 144), but , only if the Company is, within a reasonable time
after such transfer or assignment, furnished with written notice of (a) the name
and address of such transferee or assignee, (b) the securities with respect to
which such registration rights are being transferred or assigned, and (c)
written evidence of the transferee’s assumption of the Subscriber’s obligations
under this Agreement.

12.

Right of First Refusal; Most Favored Nation Provision; Other Provisions.

(a)

Right of First Refusal.  During the period from the Closing Date through and
including the first anniversary of the Closing Date, the Subscribers shall be
given not less than seven (7) business days’ prior written notice of any
proposed sale by the Company to any party of its common stock or other
securities or debt obligations of the Company, except in connection with (i)
full or partial consideration in connection with a strategic merger,
acquisition, consolidation or purchase of substantially all of the securities or
assets of corporation or other entity which holders of such securities or debt
are not at any time granted registration rights, (ii) the Company's issuance of
securities in connection with strategic license agreements and other partnering
arrangements so long as such issuances are not for the purpose of raising
capital and which holders of such securities or debt are not at any time granted
registration rights, (iii) the Company's issuance of Common Stock or the
issuances or grants of options to purchase Common Stock pursuant to stock option
plans and employee stock purchase plans, if any, described on Schedule 5(d)
hereto at prices equal to or higher than the closing price of the Common Stock
on the issue date of any of the foregoing, and (iv) as a result of the exercise
of Warrants or conversion of which are granted or issued pursuant to this
Agreement or that have been issued prior to the Closing Date all on the original
terms thereof, the issuance of which has been disclosed in a Report filed not
less than five (5) days prior to the Closing Date (collectively the foregoing
are “Excepted Issuances”). The Subscribers who exercise their rights pursuant to
this Section 12(a) shall have the right during the seven (7) business days
following receipt of the notice to purchase such offered common stock, debt or
other securities in accordance with the terms and conditions set forth in the
notice of sale in the same proportion to each other as their purchase of in the
Offering.  Each Subscriber may exercise such right independent of the exercise
thereof by the other Subscribers.  In the event such terms and conditions are
modified during the notice period, the Subscribers shall be given prompt notice
of such modification and shall have the right during the seven (7) business days
following the notice of modification to exercise such right.

(b)

Most Favored Nation Provision.  Other than the Excepted Issuances, if, at any
time while the Subscriber holds any Purchased Shares, Warrants or Warrant
Shares, the Company shall offer, issue or agree to issue any common stock or
securities (including preferred stock, debentures, warrants, options or other
rights, howsoever denominated) convertible into or exercisable for shares of
common stock (or modify any of the foregoing which may be outstanding)
(collectively, “New Securities”) to any person or entity  (“Third Party
Purchaser”) at a purchase or conversion price per share and/or an exercise price
per share, respectively, which shall be less than the Share Purchase Price
(adjusted for capital adjustments

32

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

such as stock splits or dividends paid in shares of common stock) or the then
effective Exercise Price of the Warrants, without the consent of the Subscriber
holding such Purchased Shares, Warrants or Warrant Shares, then such Subscriber
shall have the right to apply the lowest such purchase price, conversion price
or exercise price of the offering or sale of such New Securities to the purchase
price of the Purchased Shares then held by the Subscriber (and, if necessary,
the Company will issue additional shares to Subscriber to take into account the
amount paid by the Subscriber as of the Closing Date and the adjustment made to
the per share purchase price contemplated by this paragraph), to the warrant
exercise price of Warrant Shares then held by the Subscriber (and, if necessary,
the Company will issue additional shares to Subscriber to take into account the
amount paid whether in cash or by cashless exercise paid by the Subscriber for
the Warrant Shares then held and the adjustment made to the per share exercise
price) and to the exercise price for all unexercised Warrants, each as of the
date of the offering or sale of such New Securities, and the appropriate
adjustments to each relevant Transaction Document will be deemed made
accordingly.  The rights of the Subscriber set forth in this Section 12(b) are
in addition to any other rights the Subscriber has pursuant to this Agreement,
any Transaction Document, and any other agreement referred to or entered into in
connection herewith.

(c)

Option Plan Restrictions.  The only officer, director, employee and consultant
stock option or stock incentive plan currently in effect or contemplated by the
Company has been submitted to the Subscribers or filed with the Reports. No
other plan will be adopted nor may any options or equity not included in such
plan be issued until the end of the Exclusion Period.

(d)

Maximum Exercise of Rights. In the event the exercise of the rights described in
Sections 12(a) and 12(b) would result in the issuance of an amount of common
stock of the Company that would exceed the maximum amount that may be issued to
a Subscriber calculated in the manner described in Section 2.2 of the Warrants,
then the issuance of such additional shares of Common Stock of the Company to
such Subscriber will be deferred in whole or in part until such time as such
Subscriber is able to beneficially own such common stock without exceeding the
maximum amount set forth contemplated by Section 2.2 of the Warrants. The
determination of when such common stock may be issued shall be made by each
Subscriber as to only such Subscriber.

(e)

Other Financing Transactions.  Anything in any other provision of the
Transaction Documents, including the preceding provisions of this Section 12, to
the contrary notwithstanding, during the period from the Closing Date through
and including the first anniversary of the Effective Date, the Company shall not
enter into any other financing transaction which provides for the Company to
issue any shares of Common Stock or any security convertible into or exercisable
for Common Stock.

13.

Miscellaneous.

(a)

Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified,

33

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

return receipt requested, postage prepaid, (iii) delivered by reputable air
courier service with charges prepaid, or (iv) transmitted by hand delivery,
telegram, or facsimile, addressed as set forth below or to such other address as
such party shall have specified most recently by written notice. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be: (i) if to the
Company, to: China Logistics Group, Inc., 888 East Las Olas Boulevard, Suite
710, Fort Lauderdale, Florida 33301, Attn: V. Jeffrey Harrell, Chief Executive
Officer,  with a copy by telecopier only to: Schneider Weinberger, Attn: James
Schneider, Esq., 2200 NW Corporate Blvd #210, Boca Raton, FL 33431, telecopier:
(561) 362-9612 , and (ii) if to the Subscribers, to: the one or more addresses
and telecopier numbers indicated on the signature pages hereto, with an
additional copy by telecopier only to: Krieger & Prager, LLP, Attn: Samuel M.
Krieger, Esq., 39 Broadway, Suite 920, New York, New York 10006, telecopier
number: (212) 363-2999.

(b)

Maximum Interest Rate.  Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the
Company.

(c)

Entire Agreement; Assignment.  This Agreement and other documents delivered in
connection herewith represent the entire agreement between the parties hereto
with respect to the subject matter hereof and may be amended only by a writing
executed by both parties. Neither the Company nor the Subscribers have relied on
any representations not contained or referred to in this Agreement and the
documents delivered herewith. No right or obligation of the Company shall be
assigned without prior notice to and the written Consent of the Subscribers.

(d)

Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by the different signatories hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. This Agreement
may be executed by facsimile signature and delivered by facsimile transmission.

(e)

Law Governing this Agreement.  This Agreement shall be governed by and
 construed in accordance with the laws of the State of New York without regard
to conflicts of laws principles that would result in the application of the
substantive laws of another jurisdiction. Any action brought by either party
against the other concerning the transactions contemplated by

34

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

this Agreement shall be brought only in the state courts of New York sitting in
the City of New York or in the federal courts located in the state of New York
sitting in the City Counties of New York. The parties and the individuals
executing this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.

(f)

Specific Enforcement, Consent to Jurisdiction.  The Company and Subscriber
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to one or more preliminary and final injunctions to
prevent or cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which any of them may be entitled by law or equity. Subject to
Section 13(e) hereof, each of the Company, Subscriber and any signatory hereto
in his personal capacity hereby waives, and agrees not to assert in any such
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction in New York of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Nothing in this Section shall affect or limit any right
to serve process in any other manner permitted by law.

(g)

Independent Nature of Subscribers.  The Company acknowledges that the
obligations of each Subscriber under the Transaction Documents are several and
not joint with the obligations of any other Subscriber, and no Subscriber shall
be responsible in any way for the performance of the obligations of any other
Subscriber under the Transaction Documents. The Company acknowledges that each
Subscriber has represented that the decision of each Subscriber to purchase
Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
inclusion of a Subscriber in the Registration Statement and (ii) review by, and
consent to, such Registration Statement by a Subscriber) shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the

35

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

Subscribers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. The
Company acknowledges that each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of the Transaction Documents, and it shall not be necessary for any other
Subscriber to be joined as an additional party in any proceeding for such
purpose. The Company acknowledges that it has elected to provide all Subscribers
with the same terms and Transaction Documents for the convenience of the Company
and not because Company was required or requested to do so by the Subscribers.
The Company acknowledges that such procedure with respect to the Transaction
Documents in no way creates a presumption that the Subscribers are in any way
acting in concert or as a group with respect to the Transaction Documents or the
transactions contemplated thereby.

(f)

Damages.  In the event the Subscriber is entitled to receive any liquidated
damages pursuant to the Transactions, the Subscriber  may elect to receive the
greater of actual damages or such liquidated damages.

(g)

Consent.  As used in the Agreement, “Consent of the Subscribers” or similar
language means the written consent of holders of not less than 75% of the total
of the Shares issued which are owned by Subscribers on the date such consent is
requested.

(h)

Equal Treatment.  No consideration shall be offered or paid to any person to
amend or consent to a waiver or modification of any provision of the Transaction
Documents unless the same consideration is also offered and paid to all the
Subscribers and their permitted successors and assigns.

36

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

SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT

IN WITNESS WHEREOF, with respect to the Purchase Price specified below, each the
undersigned represents that the foregoing statements made by it above are true
and correct and that it has caused this Agreement to be duly executed on its
behalf (if an entity, by one of its officers thereunto duly authorized) as of
the date first above written.

NO. OF UNITS AT $250,000 PER UNIT:

 

$

 

 

 

 

NO. OF SHARES

 

 

NO. OF A WARRANTS

 

 

NO. OF B WARRANTS

 

 

SUBSCRIBER:

 

 

 

Address

 

Printed Name of Subscriber

 

 

 

 

 

 

Telephone No.

 

 

By:

 

Telecopier No.

 

 

(Signature of Authorized Person)

 

 

 

 

 

 

 

 

 

 

 

Printed Name and Title

Jurisdiction of Incorporation

or Organization

 

 

Tax ID No.

 

 

 

If the above Notice Address is not the Residence (for individual Subscriber) or
Principal Place of Business (for Subscriber which is not an individual), such
Residence or Principal Place of Business is:

 

 

 

 

 

 

 

 

 

COMPANY:

CHINA LOGISTICS GROUP, INC.

 

 

a Florida Corporation

 

 

By:

 

 

 

(Signature of Authorized Person)

 

 

 

 

 

Printed Name and Title

 

 

37

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

LIST OF EXHIBITS AND SCHEDULES

Exhibit A-1

 

Form of Warrants

Exhibit A-2

 

Form of Warrants

Exhibit B

 

Escrow Agreement

Exhibit C

 

Form of Legal Opinion

Exhibit D

 

Form of Public Announcement or Form 8-K

Exhibit E

 

Closing Certificate

Schedule 5(a)

 

Subsidiaries

Schedule 5(d)

 

Additional Issuances / Capitalization

Schedule 5(q)

 

Undisclosed Liabilities

Schedule 5(v)

 

Transfer Agent

Schedule 8

 

Due Diligence Fees

Schedule 9(f)

 

Use of Proceeds

Schedule 9(n)

 

Permitted Form S-8 Filings

Schedule 9(q)(ii)

 

Permitted Repurchases

Schedule 11(a)

 

Other Securities to be Registered

38