REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 26, 2007 (this
"Agreement"), is made by and between SKYSTAR BIO-PHARMACEUTICAL COMPANY, a
Nevada corporation with headquarters located at Rm. 10601, Jiezuo Plaza, No. 4,
Fenghui Road South, Gaoxin District, Xian Province, P.R. China (the “Company”),
and each entity named on a signature page hereto (each, an “Initial Investor”)
(each agreement with an Initial Investor being deemed a separate and independent
agreement between the Company and such Initial Investor, except that each
Initial Investor acknowledges and consents to the rights granted to each other
Initial Investor under such agreement).
 
WITNESSETH:

WHEREAS, upon the terms and subject to the conditions of the Securities Purchase
Agreement of even date herewith between the Initial Investor and the Company
(the “Securities Purchase Agreement”; capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Securities Purchase
Agreement), the Company has agreed to issue and sell to the Initial Investors
the Debentures and the Warrants; and

WHEREAS, the Debentures are convertible into shares of Common Stock (the
“Conversion Shares”; which term, for purposes of this Agreement, shall include
shares of Common Stock of the Company issuable in lieu of accrued interest
through the Maturity Date of the Debentures, as that term is defined in and as
contemplated by the Debentures) upon the terms and subject to the conditions
contained in the Debentures; and

WHEREAS, the Warrant Shares may be issued upon the exercise of the Warrants; and

WHEREAS, to induce the Initial Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
“Securities Act”), with respect to the Registrable Securities (as defined
below);

NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
 
 
 

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1. Definitions. As used in this Agreement, the following terms shall have the
following meanings:

“Applicable Conversion Price” means, on the relevant date, the lower of the
Voluntary Conversion Price or the Payment Conversion Price.

“Company Counsel” means Richardson & Patel LLP.

“Effective Date” means the date the SEC declares a Registration Statement
covering Registrable Securities and otherwise meeting the conditions
contemplated hereby to be effective.

“Held Shares Value” means, for shares of Common Stock acquired by the Investor
upon a conversion of a Debenture within the thirty (30) days preceding the
Restricted Sale Date, but not yet sold by the Investor (“Held Shares”), the
principal amount of the Debentures converted into such Conversion Shares;
provided, however, that if the Investor effected more than one such conversion
during such thirty (30) day period and sold less than all of such shares, the
sold shares shall be deemed to be derived first from the conversions in the
sequence of such conversions (that is, for example, until the number of shares
from the first of such conversions have been sold, all shares shall be deemed to
be from the first conversion; thereafter, from the second conversion until all
such shares are sold).

“Initial Required Filing Date” means the date as soon as practicable after the
Closing Date but no later than the forty-five (45) days after the Closing Date.

“Increased Shares” means the good faith estimate of the number of shares which
the Company anticipates will be issuable to the Holder as a result of either or
both an adjustment to the Conversion Price resulting from the application of
Section 4(g) of the Securities Purchase Agreement.

“Increased Shares Required Filing Date” means, with respect to the filing of any
Additional Registration Statement (as defined below) the date which is the later
of (i) the date which is thirty (30) days after the Increased Shares
Registration Date or (ii) the earliest date the SEC will accept the filing of an
Additional Registration Statement.

“Investor” means the Initial Investor and any permitted transferee or assignee
who agrees to become bound by the provisions of this Agreement in accordance
with Section 9 hereof and who holds Debentures or Registrable Securities.

“Issued Principal Amount” means the original principal amount of the Debentures.

“Other Issuable Shares” means the good faith estimate of the Company of the
number of the Increased Shares, which the Company anticipates, as of the date of
the filing of the Registration Statement and any amendment thereto, will be
issuable to the Holder pursuant to the provisions of the Transaction Agreements.
 
 
 

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“Permitted Suspension Period” means one or more periods aggregating not more
than forty-five (45) days during any consecutive 12-month period during which
the Holder’s right to sell Registrable Securities under the Registration
Statement is suspended, provided, however, that each of such periods shall
neither (i) be for more than twenty (20) days nor (ii) begin less than ten (10)
Trading Days after the last day of the preceding suspension period (whether or
not such last day was during or after a Permitted Suspension Period).

“Potential Material Event” means any of the following: (i) the possession by the
Company of material information not ripe for disclosure in a registration
statement, which shall be evidenced by determinations in good faith by the Board
of Directors of the Company that disclosure of such information in the
registration statement would be detrimental to the business and affairs of the
Company; or (ii) any material engagement or activity by the Company which would,
in the good faith determination of the Board of Directors of the Company, be
adversely affected by disclosure in a registration statement at such time, which
determination shall be accompanied by a good faith determination by the Board of
Directors of the Company that the registration statement would be materially
misleading absent the inclusion of such information.

“Register,” “Registered,” and “Registration” refer to a registration effected by
preparing and filing a Registration Statement or Statements in compliance with
the Securities Act and pursuant to Rule 415 under the Securities Act or any
successor rule providing for offering securities on a continuous basis (“Rule
415"), and the declaration or ordering of effectiveness of such Registration
Statement by the SEC.
 
"Registrable Securities" means, collectively, the Conversion Shares and the
Other Issuable Shares, but does not include any shares of Common Stock which may
be sold by the Holder pursuant to Rule 144 without volume or other restrictions
or limits.

“Registration Statement” means a registration statement of the Company under the
Securities Act covering Registrable Securities on Form SB-2, if the Company is
then eligible to file using such form, and if not eligible, on Form S-1 or other
appropriate form.

“Required Effective Date” means, initially, the Initial Required Effective Date
or the Increased Required Effective Date (as those terms are defined below), as
the case may be.

“Required Filing Date” means initially, the Initial Required Filing Date or the
Increased Shares Required Filing Date, as the case may be.

“Restricted Sale Date” means the first date, other than a date during a
Permitted Suspension Period (as defined below), on which the Investor is
restricted from making sales of Registrable Securities pursuant to any
previously effective Registration Statement.

“Rule 144" has the meaning ascribed to it in Section 8 hereof.
 
 
 

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2. Registration.

(a) Mandatory Registration. 
 
(i) The Company shall prepare and file with the SEC, as soon as practicable
after the Closing Date but no later than the Initial Required Filing Date, a
Registration Statement registering for resale by the Investor a sufficient
number of shares of Common Stock for the Initial Investors to sell the
Registrable Securities. Notwithstanding the requirement to register all
Registrable Securities, the Company’s obligation to register the Registrable
Securities shall initially be satisfied by the registration of the Initial
Number of Shares to Be Registered (as defined below). The “Initial Number of
Shares to Be Registered” is a number of shares of Common Stock which is at least
equal to the sum of (x) the number of shares into which the Debentures and all
interest thereon through their respective Maturity Dates would be convertible at
the time of filing of such Registration Statement (assuming for such purposes
that all Debentures had been eligible to be converted, and had been converted,
into Conversion Shares in accordance with their terms, and that all interest was
paid in shares, whether or not such eligibility, accrual of interest or
conversion had in fact occurred as of such date) based on the Applicable
Conversion Price in effect on, or within three (3) Trading Days prior to, the
date the Registration Statement is filed (or subsequently amended), and (y) the
number of Other Issuable Shares as of the date of the filing of the Registration
Statement or any amendment thereto; provided, however, that for purposes of this
provision, the Initial Number of Shares to Be Registered in the initial
Registration Statement shall not be greater than the number of such shares which
the SEC permits to be included in such Registration Statement. Unless otherwise
specifically agreed to in writing in advance by a Majority in Interest of the
Holders, the Registration Statement (X) shall include only the Registrable
Securities, (Y) shall not restrict or limit the prices at which the shares sold
by the selling stockholders thereunder may be sold, and (Z) shall also state
that, in accordance with Rule 416 and 457 under the Securities Act, it also
covers such indeterminate number of additional shares of Common Stock as may
become issuable upon conversion of the Debentures, or issuances of Other
Issuable Securities covered by such Registration Statement to prevent dilution
resulting from stock splits, stock dividends or similar transactions.

(ii) The Company will use its reasonable best efforts to cause such Registration
Statement to be declared effective on a date (the “Initial Required Effective
Date”) which is no later than the earlier of (X) five (5) days after oral or
written notice by the SEC that it may be declared effective or (Y) ninety (90)
days after the Closing Date (unless the SEC provides a full review of the
Registration Statement, in which event it will be one hundred twenty (120) days
after the Closing Date). Notwithstanding the foregoing, failure to cause the
Registration Statement to become effective will be construed as an Event of
Default under Section 14(i)(e) of the Debenture held by the Investor; but the
foregoing proviso shall not limit or restrict the right of a Holder to declare
an Event of Default under the Note if there is a Special Registration Default
(as defined in the Debenture.
 
 
 

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(iii) If at any time (an “Increased Registered Shares Date”), the number of
shares of Common Stock represented by the Registrable Securities, issued or to
be issued as contemplated by the Transaction Agreements, exceeds the aggregate
number of shares of Common Stock then registered or sought to be registered in a
Registration Statement which has not yet been declared effective (it being
acknowledged that the date of an adjustment in the Conversion Price pursuant to
Section 4(g) of the Securities Purchase Agreement is an Increased Registered
Shares Date), the Company shall either

(X) amend the relevant Registration Statement filed by the Company pursuant to
the preceding provisions of this Section 2, if such Registration Statement has
not been declared effective by the SEC at that time, to register the Increased
Number of Shares to Be Registered (as defined below). The “Increased Number of
Shares to Be Registered” is a number of shares of Common Stock which is at least
equal to (A) the number of shares theretofore issued on conversion of the
Debentures (including any interest paid on conversion by the issuance of
Conversion Shares) and held by each Holder, plus (B) the sum of (x) the number
of shares into which the unconverted Debentures and all interest thereon through
their respective Maturity Dates would be convertible at the time of filing of
such Registration Statement or amendment (assuming for such purposes that all
Debentures, reduced by any previously converted Debentures, had been eligible to
be converted, and had been converted, into Conversion Shares in accordance with
their terms and that all interest thereon was paid in shares, whether or not
such eligibility, accrual of interest or conversion had in fact occurred as of
such date) based on the Applicable Conversion Price in effect on, or within
three (3) Trading Days prior to, the date the amendment to the Registration
Statement is filed, and (y) the number of Other Issuable Shares as of the date
of the filing of the Registration Statement or any amendment thereto; provided,
however, that for purposes of this provision, the Increased Number of Shares to
Be Registered shall not be greater than the number of such shares which the SEC
permits to be included in the amended Registration Statement or the Additional
Registration Statement, defined below), or

(Y) if such Registration Statement has been declared effective by the SEC at
that time, file with the SEC an additional Registration Statement (an
“Additional Registration Statement”) to register the number of shares equal to
the excess of the Increased Number of Shares to Be Registered (where the number
of shares determined by clause (x) is based on the Applicable Conversion Price
in effect on, or within three (3) Trading Days prior to, the date the additional
Registration Statement (or any amendment thereto) is filed, over the aggregate
number of shares of Common Stock already registered. The Company shall prepare
and file the Additional Registration Statement by the Increased Shares Required
Filing Date.
 
 
 

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The Company will use its reasonable best efforts to cause such Registration
Statement to be declared effective on a date (each, an “Increased Required
Effective Date”) which is no later than (q) with respect to a Registration
Statement under clause (X) of this subparagraph (iii), the Initial Required
Effective Date and (r) with respect to an Additional Registration Statement, the
earlier of (I) five (5) days after notice by the SEC that it may be declared
effective or (II) sixty (60) days after the Increased Shares Required Filing
Date, unless the SEC provides a full review of the Additional Registration
Statement, in which event it will be ninety (90) days after the Increased Shares
Required Filing Date.

(iv) Anything in this Agreement or any other Transaction Agreement to the
contrary notwithstanding, the Company agrees to file a registration statement (a
“Warrant Share Registration Statement”) to register the resale of Warrant Shares
(including shares issuable on exercise of any Added Warrants) as promptly as
possible after (x) all of the Conversion Shares and Other Registrable Shares
have been registered (or as part of a Registration Statement covering the
balance of such shares) or (y) the SEC indicates a policy which would allow for
such shares to be registered contemporaneously with any other shares registered
under the same or a different registration statement and to use its best efforts
to have such Warrant Share Registration Statement declared effective as soon as
practicable thereafter.

(v) Shares included in a registration statement contemplated by this Agreement
shall be allocated among the Investors, if more than one, based on their
respective Buyer’s Allocable Shares.

(b) Payments by the Company.
 
(i) If the Registration Statement or an Additional Registration Statement
covering the Registrable Securities is not filed as contemplated by this
Agreement with the SEC by the relevant Required Filing Date, the Company will
make payment to the Initial Investor in such amounts and at such times as shall
be determined pursuant to this Section 2(b).

(ii) If the Registration Statement covering the Registrable Securities is not
effective by the relevant Required Effective Date or if there is a Restricted
Sale Date, then the Company will make payments to the Initial Investor in such
amounts and at such times as shall be determined pursuant to this Section 2(b).

(iii) The amount (the “Periodic Amount”) to be paid by the Company to the
Initial Investor shall be determined as of each Computation Date (as defined
below) and such amount shall be equal to the Periodic Amount Percentage (as
defined below) of the Issued Principal Amount of all Debentures, for the period
from the date following the relevant Required Filing Date or the Required
Effective Date or a Restricted Sale Date, as the case may be, to the first
relevant Computation Date, and thereafter to each subsequent Computation Date
(each such period, a “Computation Period”). The “Periodic Amount Percentage”
means two percent (2) of the Purchase Price of such Issued Principal Amount for
each Computation Period (and pro rata for any Computation Period which is less
than thirty [30] days). Anything in the preceding provisions of this paragraph
(iii) to the contrary notwithstanding, after the relevant Effective Date the
Issued Principal Amount shall be deemed to refer to the sum of (X) the principal
amount of all such Debentures not yet converted and (Y) the Held Shares Value
for such Debentures. By way of illustration and not in limitation of the
foregoing, if the Registration Statement is filed on or before the Required
Filing Date, but is not declared effective until seventy-five (75) days after
the Initial Required Effective Date, the Periodic Amount will aggregate five
percent (5%) of the Issued Principal Amount (2% for days 1-30, plus 2% for days
31-60, plus 1% for days 61-75). Anything herein to the contrary notwithstanding
Periodic Amounts shall cease to accrue, (1) with respect to any outstanding
Debenture, as of the date the Conversion Shares issuable thereunder are no
longer Registrable Securities and (2) with respect to Held Shares used in
determining the Held Shares Value, if any, as of the date such shares are no
longer Registrable Securities.
 
 
 

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(iv) Each Periodic Amount, if any, will be payable by the Company in cash or
other immediately available funds to the Investor on the third Trading Day after

(A) with respect to Periodic Amounts for Computation Periods ending on or before
the relevant Effective Date, (i) the earlier of the Effective Date or the date
which is thirty days after the relevant Required Effective Date (each, a “First
Specified Periodic Payment Date”) and (ii) if relevant, the last day of each
Computation Period after the First Specified Periodic Payment Date, and

(B) with respect to all Periodic Amounts accruing after the Effective Date, the
last day of the relevant Computation Period,

in each case, without requiring demand therefor by the Investor.

(v) Notwithstanding the preceding provisions of this Section 2(b), if the
Company timely files a Registration Statement or an Additional Registration
Statement, which, as may be relevant, complies with the provisions of Section
2(a) of this Agreement and the SEC raises issues relating to the applicability
of Rule 415 to the number of shares sought to be registered under such
Registration Statement, the provisions regarding the accrual of Periodic Amounts
shall be suspended for one full Computation Period from the date of the
Company’s receipt of such communication from the SEC.

(vi) The parties acknowledge that the damages which may be incurred by the
Investor if the Registration Statement is not filed by the Required Filing Date
or the Registration Statement has not been declared effective by a Required
Effective Date, including if the right to sell Registrable Securities under a
previously effective Registration Statement is suspended or the shares of the
Company’s stock are not listed on the Principal Trading Market, may be difficult
to ascertain. The parties agree that, subject to the provisions of Section
11(k), the amounts payable pursuant to the foregoing provisions of this Section
2(b) represent a reasonable estimate on the part of the parties, as of the date
of this Agreement, of the amount of such damages.
 
 
 

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(vii) Notwithstanding the foregoing, the amounts payable by the Company pursuant
to this provision shall not be payable to the extent any delay in the filing or
effectiveness of the Registration Statement occurs because of an act of, or a
failure to act or to act timely by the Initial Investor or its counsel or any
Holder named as a selling stockholder in the Registration Statement.

(viii) "Computation Date" means (A) the date which is the earlier of (1) thirty
(30) days after the Required Filing Date, the Required Effective Date or a
Restricted Sale Date, as the case may be, or (2) the date after the Required
Filing Date, the Required Effective Date or Restricted Sale Date on which the
Registration Statement is filed (with respect to payments due as contemplated by
Section 2(b)(i) hereof) or is declared effective or has its restrictions removed
or the shares of the Company’s stock are listed on the Principal Trading Market
(with respect to payments due as contemplated by Section 2(b)(ii) hereof), as
the case may be, and (B) each date which is the earlier of (1) thirty (30) days
after the previous Computation Date or (2) the date after the previous
Computation Date on which the Registration Statement is filed (with respect to
payments due as contemplated by Section 2(b)(i) hereof) or is declared effective
or has its restrictions removed or the shares of the Company’s stock are listed
on the Principal Trading Market (with respect to payments due as contemplated by
Section 2(b)(ii) hereof), as the case may be.

3. Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:

(a) Prepare promptly, and file with the SEC by any Required Filing Date a
Registration Statement with respect to not less than the number of Registrable
Securities provided in Section 2(a) above, and thereafter use its reasonable
best efforts to cause such Registration Statement relating to Registrable
Securities to become effective by the relevant Required Effective Date and keep
the Registration Statement effective at all times during the period (the
“Registration Period”) continuing until the earlier of (i) the date when the
Investors may sell all Registrable Securities under Rule 144 without volume or
other restrictions or limits, (ii) the date the Investors no longer own any of
the Registrable Securities, which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall 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, in
light of the circumstances in which they were made, not misleading;

(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration Statement effective at all times during the Registration
Period, and, during the Registration Period, comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement;
 
 
 

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(c) Permit a single firm of counsel designated by the Initial Investors (which,
until further notice, shall be deemed to be Krieger & Prager llp, Attn: Ronald
Nussbaum, Esq., which firm has requested to receive such notification; each, an
“Investor’s Counsel”) to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time (but not less than three (3)
Trading Days) prior to their filing with the SEC, and not file any document in a
form to which such counsel reasonably objects;
 
(d) Notify the Placement Agent (with a copy to the Investor’s Counsel)
immediately (and, in the case of (i)(A) below, not less than three (3) Trading
Days prior to such filing) and (if requested by any such person) confirm such
notice in writing no later than one (1) Trading Day following the day (i)(A)
when a Prospectus or any Prospectus supplement or post-effective amendment to
the Registration Statement is proposed to be filed; (B) whenever the SEC
notifies the Company whether there will be a “review” of such Registration
Statement; (C) whenever the Company receives (or a representative of the Company
receives on its behalf) any oral or written comments from the SEC in respect of
a Registration Statement (copies or, in the case of oral comments, summaries of
such comments shall be promptly furnished by the Company to the Investor’s
Counsel); and (D) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the SEC or any other Federal or state governmental authority for (A)
amendments or supplements to the Registration Statement or Prospectus, (B)
additional information not pertaining to the Investors or (C) additional
information pertaining to the Investors; (iii) of the issuance by the SEC of any
stop order suspending the effectiveness of the Registration Statement covering
any or all of the Registrable Securities or the initiation of any proceedings
for that purpose; (iv) if at any time any of the representations or warranties
of the Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose; and (vi) of the occurrence of any event that to the
best knowledge of the Company makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall communicate with the
Investor’s Counsel with regard to its proposed written responses to the comments
contemplated in clause (i)(C) of this Section 3(d), so that, to the extent
practicable, the Investor’s Counsel shall have the opportunity to comment
thereon;
 
 
 

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(e) Unless such filing is publicly available on the SEC’s EDGAR system (via the
SEC’s web site at no additional charge), furnish to each Investor and to
Investor’s Counsel (i) promptly after the same is prepared and publicly
distributed, filed with the SEC, or received by the Company, one (1) copy of the
Registration Statement, each preliminary prospectus and prospectus, and each
amendment or supplement thereto, and (ii) such number of copies of a prospectus,
and all amendments and supplements thereto and such other documents, as such
Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor;

(f) As promptly as practicable after becoming aware thereof, notify each
Investor of the happening of any event of which the Company has knowledge, as a
result of which the prospectus included in the Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and, unless such filing is
publicly available on the SEC’s EDGAR system (via the SEC’s web site at no
additional charge), deliver a number of copies of such supplement or amendment
to each Investor as such Investor may reasonably request;

(g) As promptly as practicable after becoming aware thereof, notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance by the SEC of
a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;

(h) As promptly as practicable after becoming aware thereof, notify each
Investor who holds Registrable Securities of the fact that the ability of the
Investor to sell Registrable Securities under the Registration Statement will
soon be unavailable as a result of the impending cessation or expiration of the
effectiveness of the Registration Statement, for which notice should be given at
least twenty (20) days in advance, except that the Company's obligation under
this clause shall be satisfied if the Company has previously given written
notice of such date to such Investor and such date has not changed since the
date of such written notice.

(i) Comply with Regulation FD or any similar rule or regulation regarding the
dissemination of information regarding the Company, and in furtherance of the
foregoing, and not in limitation thereof, and notwithstanding anything to the
contrary in this Agreement or in any of the other Transaction Agreements,
without the prior written consent of the Investor in each instance, not disclose
to the Investor any non-public material information regarding the Company;
 
 
 

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(j) Notwithstanding the foregoing, if at any time or from time to time after the
date of effectiveness of the Registration Statement, the Company notifies the
Investors in writing that the effectiveness of the Registration Statement is
suspended for any reason, whether due to a Potential Material Event or
otherwise, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of such notice until such Investor
receives written notice from the Company that such the effectiveness of the
Registration Statement has been restored, whether because the Potential Material
Event has been disclosed to the public or it no longer constitutes a Potential
Material Event or otherwise; provided, however, that the Company may not so
suspend the right to such holders of Registrable Securities during the periods
the Registration Statement is required to be in effect other than during a
Permitted Suspension Period (and the applicable provisions of Section 2(b) shall
apply with respect to any such suspension other than during a Permitted
Suspension Period);

(k) Use its reasonable efforts to secure and maintain the designation of all the
Registrable Securities covered by the Registration Statement on the Principal
Trading Market and the quotation of the Registrable Securities on the Principal
Trading Market;

(l) Provide a transfer agent (“Transfer Agent”) and registrar, which may be a
single entity, for the Registrable Securities not later than the initial
Effective Date;

(m) Cooperate with the Investors who hold Registrable Securities being offered
to facilitate the timely preparation and delivery of certificates for the
Registrable Securities to be offered pursuant to the Registration Statement and
enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request, and, within five (5) Trading Days after a Registration Statement which
includes Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel selected by the Company to deliver,
to the Transfer Agent for the Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel, which shall
include, without limitation, directions to the Transfer Agent to issue
certificates of Registrable Securities(including certificates for Registrable
Securities to be issued after the Effective Date and replacement certificates
for Registrable Securities previously issued) without legends or other
restrictions, subject to compliance with applicable law and other rules and
regulations, including, without limitation, prospectus delivery requirements;

(n) Take all other reasonable administrative steps and actions (including the
participation of Company counsel) necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement; provided, however, that the foregoing does not require
that the Company take any steps whatsoever regarding the identification or
selection of a broker to sell the Registrable Securities, the identification of
buyers of the Registrable Securities, or the negotiation of the sale terms of
the Registrable Securities; and
 
 
 

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(o) Not file any other registration statement (other than the Registration
Statement and amendments thereto and except for (i) registration statements on
Form S-8 and post-effective amendments thereto and (ii) post-effective
amendments to a registration statement which had been declared effective prior
to the Closing Date) during the period commencing on the Closing Date and ending
on the Effective Date.

4. Obligations of the Investors. In connection with the registration of the
Registrable Securities, the Investors shall have the following obligations:

(a) Each Investor, by such Investor's acceptance of the Registrable Securities,
agrees to cooperate with the Company to provide factual information regarding
the Investor as reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder, unless such
Investor has notified the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from the Registration
Statement; and

(b) Each Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(f), (g) or (i)
above, such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f), (g) or (i), and, if so directed
by the Company, such Investor shall deliver to the Company (at the expense of
the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.

5. Expenses of Registration. All reasonable expenses (other than underwriting
discounts and commissions of the Investor) incurred in connection with
registrations, filings or qualifications pursuant to Section 3, but including,
without limitation, all registration, listing, and qualifications fees, printers
and accounting fees, the fees and disbursements of counsel for the Company shall
be borne by the Company. In addition, a fee for a single counsel for the
Investors (as a group and not individually) equal to $5,000 for the review of
each Registration Statement and $2,300 for the review of each post-effective
amendment to a Registration Statement shall be borne by the Company.

6. Indemnification. In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
 
 
 

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(a) To the extent permitted by law, the Company will indemnify and hold harmless
each Investor who holds such Registrable Securities, the directors, if any, of
such Investor, the officers, if any, of such Investor, and each Buyer Control
Person (each, an “Indemnified Party”), against any losses, claims, damages,
liabilities or expenses (joint or several) incurred (collectively, “Claims”) to
which any of them may become subject under the Securities Act, Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise, insofar as
such Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations in the Registration Statement, or any post-effective
amendment thereof, or any prospectus included therein: (i) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or 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, (ii) any untrue
statement or alleged untrue statement of a material fact contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively
referred to as “Violations”). Subject to clause (b) of this Section 6, the
Company shall reimburse the Investors, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) shall not (I) apply to any Claim
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of such Indemnified Party expressly for use in connection with the preparation
of the Registration Statement, any such amendment thereof or supplement thereto
or prospectus, if such prospectus (or supplement or amendment thereto) was
timely made available by the Company pursuant to Section 3(b) hereof; (II) be
available to the extent such Claim is based on a failure of the Investor to
deliver or cause to be delivered the prospectus made available by the Company or
the amendment or supplement thereto made available by the Company; (III) be
available to the extent such Claim is based on the delivery of a prospectus by
the Investor after receiving notice from the Company under Section 3(f), (g) or
(i) hereof (other than a notice regarding the effectiveness of the Registration
Statement or any amendment or supplement thereto), or (IV) apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably withheld
or delayed. The Investor will indemnify the Company and its officers, directors
and agents (each, an “Indemnified Party”) against any claims arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement or the amendment or supplement thereto, subject to such
limitations and conditions as are applicable to the indemnification provided by
the Company pursuant to this Section 6. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
 
 
 

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(b) Promptly after receipt by an Indemnified Party under this Section 6 of
notice of the commencement of any action (including any governmental action),
such Indemnified Party shall, if a Claim in respect thereof is to be made
against any indemnifying party under this Section 6, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume control of the defense thereof with counsel satisfactory to the
indemnifying party (provided such counsel shall not have a conflict of interest
with the Indemnified Party and provided that all defenses available to the
Indemnified Party can be maintained without prejudicing the rights of the
indemnifying party). In case any such action is brought against any Indemnified
Party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified,
assume the defense thereof, subject to the provisions herein stated and after
notice from the indemnifying party to such Indemnified Party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
Indemnified Party under this Section 6 for any legal or other reasonable
out-of-pocket expenses subsequently incurred by such Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action to its
final conclusion. The Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and reasonable out-of-pocket expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel as provided above. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Party under this Section 6, except to the extent
that the indemnifying party is prejudiced in its ability to defend such action.
The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable; provided, however, that the Investor shall not obligated to make any
indemnification payment to the Company under this Section 6 unless and until
there has been a final adjudication of liability on the part of the Investor.

7. Contribution. To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(a) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation; and (c) except where the
seller has committed fraud (other than a fraud by reason of the information
included or omitted from the Registration Statement as to which the Company has
not given notice as contemplated under Section 3 hereof) or intentional
misconduct, contribution by any seller of Registrable Securities shall be
limited in amount to the net amount of proceeds received by such seller from the
sale of such Registrable Securities.
 
 
 

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8. Reports under Securities Act and Exchange Act. With a view to making
available to Investor the benefits of Rule 144 promulgated under the Securities
Act or any other similar rule or regulation of the SEC that may at any time
permit Investor to sell securities of the Company to the public without
Registration (“Rule 144”), the Company agrees, subject to the provisions of
Section 4 (d) of the Securities Purchase Agreement, to:

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

(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and

(c) furnish to the Investor so long as the Investor owns Registrable Securities,
promptly upon reasonable request, (i) a written statement by the Company that it
has complied with the reporting requirements of Rule 144, the Securities Act and
the Exchange Act, (ii) if not available on the SEC’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 (iii) such other information as may be
reasonably requested to permit the Investor to sell such securities pursuant to
Rule 144 without Registration; and

(d) at the request of any Investor 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
 
(i) 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 (1) year and (B) as to such other
matters as may be appropriate in accordance with Rule 144 under the Securities
Act, and

(ii) an opinion of counsel acceptable to the Company (for which purposes it is
agreed that the initial Investor’s Counsel 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.
 
 
 

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9. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement and the rights of the
Investor under Section 8 hereof shall be automatically assigned by the Investor
to any transferee of the Registrable Securities (excluding any transfer of such
Registrable Securities by a sale pursuant to an effective Registration Statement
or pursuant to Rule 144) or of all or any portion of any unconverted Debentures
or, to the extent relevant, to a Warrant Share Registration Statement, shares
issued or issuable on exercise of Warrants, 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
Investor’s obligations under this Agreement. Notwithstanding the foregoing, the
Company shall have no obligation to amend any then effective Registration
Statement covering the resale of such transferred Registrable Securities or, to
the extent relevant, transferred shares issued on exercise of Warrants or shares
issuable on the exercise of transferred Warrants to include the transferee as a
selling shareholder of such shares, if inclusion of the transferee would require
a post-effective amendment to such Registration Statement.

10. Amendment of Registration Rights. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who represent a Majority in
Interest of the Holders as of the relevant date. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Investor
and the Company.
 
11. Miscellaneous.

(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.

(b) Notices required or permitted to be given hereunder shall be given in the
manner contemplated by the Securities Purchase Agreement, (i) if to the Company
or to the Initial Investor, to their respective address contemplated by the
Securities Purchase Agreement, and (ii) if to any other Investor, at such
address as such Investor shall have provided in writing to the Company, or at
such other address as each such party furnishes by notice given in accordance
with this Section 11(b).
 
 
 

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(c) Failure of any party to exercise any right or remedy under this Agreement or
otherwise, or delay by a party in exercising such right or remedy, shall not
operate as a waiver thereof.

(d) This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York for contracts to be wholly performed in such state
and without giving effect to the principles thereof regarding the conflict of
laws. Each of the parties consents to the exclusive jurisdiction of the federal
courts whose districts encompass any part of the County of New York or the state
courts of the State of New York sitting in the County of New York in connection
with any dispute arising under this Agreement and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on forum
non coveniens, to the bringing of any such proceeding in such jurisdictions.

(e) The Company and the Investor hereby waive a trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other in respect of any matter arising out of or in connection with this
Agreement or any of the other Transaction Agreements.
 
(f) If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.

(g) Subject to the requirements of Section 9 hereof, this Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties hereto.

(h) All pronouns and any variations thereof refer to the masculine, feminine or
neuter, singular or plural, as the context may require.

(i) The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning thereof.

(j) This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which shall constitute one and the same
agreement. This Agreement, once executed by a party, may be delivered to the
other party hereto by telephone line facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
 
 
 

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(k) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3(a) hereof, or any delay in such performance, whether
or not as a result of the Company’s negligence, failure to act or otherwise,
could result in loss to the Investors, and the Company agrees that, in addition
to any other liability the Company may have by reason of such failure or delay,
the Company shall be liable for all direct damages caused by any such failure or
delay, unless the same is the result of force majeure. NEITHER PARTY SHALL BE
LIABLE TO THE OTHER FOR CONSEQUENTIAL DAMAGES.

(l) This Agreement (including to the extent relevant the provisions of other
Transaction Agreements) constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein.

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
by their respective officers thereunto duly authorized as of the day and year
first above written.
 

        INITIAL INVESTOR:       [Print Name of Initial Investor]   
   
   
    By:       Name:      Title:   

 

        COMPANY:   SKYSTAR BIO-PHARMACEUTICAL COMPANY   
   
   
    By:       Name:      Title:   

 
 
 

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